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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~March 31,~~June 30, 2020



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

For the transition period from to

Commission file number 001-35522

BANC OF CALIFORNIA, INC.

(Exact name of registrant as specified in its charter)

Maryland

(State or other jurisdiction of

incorporation or organization)

04-3639825

(IRS Employer Identification No.)

3 MacArthur Place,, Santa Ana,, California

(Address of principal executive offices)

92707

(Zip Code)

(~~855~~) (855) 361-2262

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

~~Large accelerated~~Non-accelerated filer

☒

☐

~~Accelerated filer~~Smaller reporting company

☐

~~Non-accelerated filer~~

☐

~~Smaller reporting company~~

☐

Emerging growth company

☐

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

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

Table of Contents

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

BANC

New York Stock Exchange

Depositary Shares each representing a 1/40th interest in a share of 7.375% Non-Cumulative Perpetual Preferred Stock, Series D

BANC PRD

New York Stock Exchange

Depositary Shares each representing a 1/40th interest in a share of 7.00% Non-Cumulative Perpetual Preferred Stock, Series E

BANC PRE

New York Stock Exchange

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

As of ~~May 6,~~August 3, 2020, the registrant had outstanding ~~49,680,697~~49,754,330 shares of voting common stock and 477,321 shares of Class B non-voting common stock.

Table of Contents

BANC OF CALIFORNIA, INC.

FORM 10-Q QUARTERLY REPORT

~~March 31,~~June 30, 2020

Table of Contents


			Page

				~~Page~~

Part I – Financial Information		45

Item 1 –	Financial Statements		45

	Consolidated Statements of Financial Condition		45
	Consolidated Statements of Operations		56
	Consolidated Statements of Comprehensive Income (Loss) ~~Income~~		68
	Consolidated Statements of Stockholders' Equity		79
	Consolidated Statements of Cash Flows		811
	Notes to Consolidated Financial Statements		913

Item 2 –	Management’s Discussion and Analysis of Financial Condition and Results of Operations		4450

Item 3 –	Quantitative and Qualitative Disclosures About Market Risk		6980

Item 4 –	Controls and Procedures		7182

Part II – Other Information					7283

Item 1 –	Legal Proceedings		7283

Item 1A –	Risk Factors		7283

Item 2 –	Unregistered Sales of Equity Securities and Use of Proceeds		7383

Item 3 –	Defaults Upon Senior Securities		7484

Item 4 –	Mine Safety Disclosures		7484

Item 5 –	Other Information		7484

Item 6 –	Exhibits		7585

Signatures					7686

Table of Contents

Forward-Looking Statements

When used in this report and in public stockholder communications, in other documents of Banc of California, Inc. (the Company, we, us and our) filed with or furnished to the Securities and Exchange Commission (the SEC), or in oral statements made with the approval of an authorized executive officer, the words or phrases “believe,” “will,” “should,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “guidance” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenue, expense or earnings projections, or other financial items of Banc of California Inc. and its affiliates (the "Company", "we", "us" or "our"), as well as the ~~potential~~continuing effects of the COVID-19 pandemic on the Company’s business, operations, financial performance and prospects. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements.

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


i.	~~the costs and effects of litigation, including legal fees and other expenses, settlements and judgments;~~


~~ii.~~	the effect of the novel coronavirus (COVID-19) pandemic and steps taken by governmental and other authorities to contain, mitigate, and combat the pandemic on our business, operations, financial performance and prospects;


~~iii.~~	the risk that the benefits we realize from exiting the third party mortgage origination and brokered single-family residential lending business will be less than anticipated and that the costs we incur from exiting that business will be greater than anticipated;


~~iv.~~	~~the risk that we will not be successful in the implementation of our capital utilization strategy and our other strategies for transitioning to a traditional community bank;~~

risks that any merger and acquisition transactions of the Company may disrupt current plans and operations and lead to difficulties in customer and employee retention, risks that the costs, fees, expenses and charges related to these transactions could be significantly higher than anticipated and risks that the expected revenues, cost savings, synergies and other benefits of these transactions might not be realized to the extent anticipated, within the anticipated timetables, or at all;

~~vi.~~

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


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


~~viii.~~	the new accounting standard adopted by the Financial Accounting Standards Board, referred to as Current Expected Credit Loss, which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and provide for the expected credit losses as allowances for loan losses;


~~ix.~~	~~the quality and composition of our securities portfolio, particularly the credit risks within our collateralized loan obligation investment portfolio and other asset classes;~~


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


~~xi.~~	~~changes in general economic conditions, either nationally or in our market areas, or changes in financial markets;~~


~~xii.~~	continuation of or changes in the short-term interest rate environment, changes in the levels of general interest rates, volatility in the interest rate environment, the relative differences between short- and long-term interest rates, deposit interest rates, our net interest margin and funding sources;


~~xiii.~~	~~our ability to develop and maintain a strong core deposit base or other low cost funding sources necessary to fund our activities;~~

~~xiv.~~

results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for credit losses, write-down asset values, increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, any of which could adversely affect our liquidity and earnings;


~~xv.~~	legislative or regulatory changes that adversely affect our business, including, without limitation, changes in tax laws and policies and changes in regulatory capital or other rules, and the availability of resources to address or respond to such changes;


~~xvi.~~	~~our ability to control operating costs and expenses;~~


~~xvii.~~	~~staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;~~


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


~~xix.~~	~~failures or security breaches with respect to the network and computer systems on which we depend;~~


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


~~xxi.~~	~~increased competitive pressures among financial services companies;~~


~~xxii.~~	~~changes in consumer spending, borrowing and saving habits;~~


~~xxiii.~~	~~the effects of severe weather, natural disasters, pandemics, acts of war or terrorism and other external events on our business;~~


~~xxiv.~~	~~the ability of key third-party providers to perform their obligations to us;~~


~~xxv.~~	changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board or their application to our business, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;


~~xxvi.~~	share price volatility and reputational risks, related to, among other things, speculative trading and certain traders shorting our common shares and attempting to generate negative publicity about us; and

~~xxvii.~~

other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in this report and from time to time in other documents that we file with or furnish to the SEC, including, without limitation, the risks described under “Part I. Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and under “Part II. Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q.

i.the costs and effects of litigation, including legal fees and other expenses, settlements and judgments;

ii.the effect of the novel coronavirus (COVID-19) pandemic and steps taken by governmental and other authorities to contain, mitigate, and combat the pandemic on our business, operations, loan portfolio, financial performance, and prospects;

iii.the risk that the benefits we realize from exiting the third party mortgage origination and brokered single family residential lending business will be less than anticipated and that the costs we incur from exiting that business will be greater than anticipated;

iv.the risk that we will not be successful in the implementation of our capital utilization strategy and our other strategies for transitioning to a traditional community bank;

v.our ability to obtain regulatory approvals or non-objection to take various capital actions, including the payment of dividends by us or our bank subsidiary or repurchases of our common or preferred stock;

vi.risks that any merger and acquisition transactions of the Company may disrupt current plans and operations and lead to difficulties in customer and employee retention, risks that the costs, fees, expenses and charges related to these transactions could be significantly higher than anticipated and risks that the expected revenues, cost savings, synergies, and other benefits of these transactions might not be realized to the extent anticipated, within the anticipated timetables, or at all;

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

viii.the credit risks of lending activities, which may be affected by deterioration in real estate markets, the financial condition of borrowers, and the operational risk of lending activities, including but not limited to, the effectiveness of our underwriting practices and the risk of fraud; any of which may lead to increased loan delinquencies, losses, and non-performing assets in our loan portfolio which may result in our allowance for credit losses not being adequate and require us to materially increase our credit loss reserves;

ix.the Financial Accounting Standards Board's Current Expected Credit Loss accounting standard, which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and provide for the expected credit losses as allowances for loan losses;

x.the quality and composition of our securities portfolio, particularly the credit risks within our collateralized loan obligation investment portfolio and other asset classes;

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

xii.changes in general economic conditions, either nationally or in our market areas, or changes in financial markets;

xiii.continuation of, or changes in, the short-term interest rate environment, changes in the levels of general interest rates, volatility in the interest rate environment, the relative differences between short- and long-term interest rates, deposit interest rates, our net interest margin, and funding sources;

xiv.our ability to develop and maintain a strong core deposit base or other low cost funding sources necessary to fund our activities;

xv.results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other things, limit our business activities, require us to change our business mix, increase our allowance for credit losses, write-down asset values, increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits, any of which could adversely affect our liquidity and earnings;

xvi.legislative or regulatory changes that adversely affect our business, including, without limitation, changes in tax laws and policies and changes in regulatory capital or other rules, and the availability of resources to address or respond to such changes;

xvii.our ability to control operating costs and expenses;

xviii.staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force and potential associated charges;

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

xx.failures or security breaches with respect to the network and computer systems on which we depend;

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

xxii.increased competitive pressures among financial services companies;

xxiii.changes in consumer spending, borrowing and saving habits;

xxiv.the effects of severe weather, natural disasters, pandemics, acts of war or terrorism and other external events on our business;

xxv.the ability of key third-party providers to perform their obligations to us;

xxvi.changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial Accounting Standards Board or their application to our business, including additional guidance and interpretation on accounting issues and details of the implementation of new accounting methods;

xxvii.share price volatility and reputational risks, related to, among other things, speculative trading and certain traders shorting our common shares and attempting to generate negative publicity about us; and

xxviii.other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services and the other risks described in this report and from time to time in other documents that we file with or furnish to the SEC, including, without limitation, the risks described under Part I. Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 and under Part II. Item 1A. “Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Further, statements about the ~~potential~~continuing effects of the COVID-19 pandemic on our business, operations, financial performance, and prospects may constitute forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable, and in many cases beyond our control, including the scope and duration of the pandemic, actions taken by governmental authorities in response to the pandemic, and the direct and indirect impact of the pandemic on our clients, third parties, and us.

We undertake no obligation to update any such statement to reflect circumstances or events that occur after the date, on which the forward-looking statement is made, except as required by law.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

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

(Unaudited)


	March 31, 2020			December 31, 2019				June 30, 2020		December 31, 2019
ASSETS							ASSETS
Cash and due from banks	$	28,491		$	28,890		Cash and due from banks	$	23,394	$	28,890
Interest-earning deposits in financial institutions	407,501			344,582			Interest-earning deposits in financial institutions	397,246		344,582
Total cash and cash equivalents	435,992			373,472			Total cash and cash equivalents	420,640		373,472

Securities available-for-sale, at fair value	969,427			912,580			Securities available-for-sale, at fair value	1,176,029		912,580
Loans held-for-sale, carried at fair value	20,234			22,642			Loans held-for-sale, carried at fair value	19,768		22,642

Loans receivable	5,667,464			5,951,885			Loans receivable	5,627,696		5,951,885
Allowance for credit losses - loans	(78,243		)	(57,649		)	Allowance for credit losses - loans	(90,370)		(57,649)
Loans receivable, net	5,589,221			5,894,236			Loans receivable, net	5,537,326		5,894,236
Federal Home Loan Bank and other bank stock, at cost	57,237			59,420			Federal Home Loan Bank and other bank stock, at cost	46,585		59,420

Premises, equipment, net	127,379			128,021			Premises, equipment, net	125,247		128,021
Bank owned life insurance	110,397			109,819			Bank owned life insurance	110,487		109,819
Operating lease right-of-use-assets	20,882			22,540
Operating lease right-of-use assets							Operating lease right-of-use assets	19,408		22,540
Investments in alternative energy partnerships, net	27,347			29,300			Investments in alternative energy partnerships, net	26,967		29,300
Deferred income taxes, net	63,849			44,906			Deferred income taxes, net	48,288		44,906
Income tax receivable	7,198			4,233			Income tax receivable	13,094		4,233
Goodwill	37,144			37,144			Goodwill	37,144		37,144
Other intangible assets, net	3,722			4,151			Other intangible assets, net	3,292		4,151

Other assets	192,578			185,946			Other assets	185,863		185,946
Total assets	$	7,662,607		$	7,828,410		Total assets	$	7,770,138	$	7,828,410
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing deposits	$	1,256,081		$	1,088,516		Noninterest-bearing deposits	$	1,391,504	$	1,088,516
Interest-bearing deposits	4,306,757			4,338,651			Interest-bearing deposits	4,645,961		4,338,651
Total deposits	5,562,838			5,427,167			Total deposits	6,037,465		5,427,167
Federal Home Loan Bank advances	978,000			1,195,000
Long term debt, net	173,479			173,421
Federal Home Loan Bank advances, net							Federal Home Loan Bank advances, net	617,170		1,195,000

Long-term debt, net							Long-term debt, net	173,537		173,421
Reserve for loss on repurchased loans	5,601			6,201			Reserve for loss on repurchased loans	5,567		6,201

Operating lease liabilities	22,075			23,692			Operating lease liabilities	20,531		23,692

Accrued expenses and other liabilities	85,612			95,684			Accrued expenses and other liabilities	68,909		95,684
Total liabilities	6,827,605			6,921,165			Total liabilities	6,923,179		6,921,165
Commitments and contingent liabilities							Commitments and contingent liabilities
Preferred stock	187,687			189,825			Preferred stock	185,037		189,825
Common stock, $0.01 par value per share, 446,863,844 shares authorized; 52,004,041 shares issued and 49,593,077 shares outstanding at March 31, 2020; 51,997,061 shares issued and 50,413,681 shares outstanding at December 31, 2019	520			520
Class B non-voting non-convertible common stock, $0.01 par value per share, 3,136,156 shares authorized; 477,321 shares issued and outstanding at March 31, 2020 and at December 31, 2019	5			5
Common stock, $0.01 par value per share, 446,863,844 shares authorized; 52,161,922 shares issued and 49,750,958 shares outstanding at June 30, 2020; 51,997,061 shares issued and 50,413,681 shares outstanding at December 31, 2019							Common stock, $0.01 par value per share, 446,863,844 shares authorized; 52,161,922 shares issued and 49,750,958 shares outstanding at June 30, 2020; 51,997,061 shares issued and 50,413,681 shares outstanding at December 31, 2019	522		520
Class B non-voting non-convertible common stock, $0.01 par value per share, 3,136,156 shares authorized; 477,321 shares issued and outstanding at June 30, 2020 and at December 31, 2019							Class B non-voting non-convertible common stock, $0.01 par value per share, 3,136,156 shares authorized; 477,321 shares issued and outstanding at June 30, 2020 and at December 31, 2019	5		5
Additional paid-in capital	631,125			629,848			Additional paid-in capital	632,117		629,848
Retained earnings	110,640			127,733			Retained earnings	85,670		127,733
Treasury stock, at cost (2,410,964 and 1,583,380 shares at March 31, 2020 and December 31, 2019)	(40,827		)	(28,786		)
Treasury stock, at cost (2,410,964 and 1,583,380 shares at June 30, 2020 and December 31, 2019)							Treasury stock, at cost (2,410,964 and 1,583,380 shares at June 30, 2020 and December 31, 2019)	(40,827)		(28,786)
Accumulated other comprehensive loss, net	(54,148		)	(11,900		)	Accumulated other comprehensive loss, net	(15,565)		(11,900)
Total stockholders’ equity	835,002			907,245			Total stockholders’ equity	846,959		907,245
Total liabilities and stockholders’ equity	$	7,662,607		$	7,828,410		Total liabilities and stockholders’ equity	$	7,770,138	$	7,828,410

See accompanying notes to consolidated financial statements (unaudited)

Table of Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share data)

(Unaudited)


	Three Months Ended										Three Months Ended										Six Months Ended June 30,
	March 31, 2020			December 31, 2019			March 31, 2019				June 30, 2020		March 31, 2020		June 30, 2019		2020		2019
Interest and dividend income										Interest and dividend income
Loans, including fees	$	65,534		$	73,930		$	90,558		Loans, including fees	$	63,642	$	65,534	$	89,159	$	129,176	$	179,717
Securities	7,820			7,812			17,841			Securities	7,816		7,820		12,457		15,636		30,298
Other interest-earning assets	1,360			1,960			2,313			Other interest-earning assets	1,239		1,360		2,424		2,599		4,737
Total interest and dividend income	74,714			83,702			110,712			Total interest and dividend income	72,697		74,714		104,040		147,411		214,752
Interest expense										Interest expense
Deposits	14,611			18,247			31,443			Deposits	10,205		14,611		28,598		24,816		60,041
Federal Home Loan Bank advances	5,883			6,396			9,081			Federal Home Loan Bank advances	4,818		5,883		8,289		10,701		17,370
Securities sold under repurchase agreements	—			15			18			Securities sold under repurchase agreements	2		—		16		2		34
Long term debt and other interest-bearing liabilities	2,359			2,384			2,362
Long-term debt and other interest-bearing liabilities										Long-term debt and other interest-bearing liabilities	2,357		2,359		2,357		4,716		4,719
Total interest expense	22,853			27,042			42,904			Total interest expense	17,382		22,853		39,260		40,235		82,164
Net interest income	51,861			56,660			67,808			Net interest income	55,315		51,861		64,780		107,176		132,588
Provision for (reversal of) credit losses	15,761			(2,976		)	2,098			Provision for (reversal of) credit losses	11,826		15,761		(1,900)		27,587		198
Net interest income after provision for credit losses	36,100			59,636			65,710
Net interest income after provision for (reversal of) credit losses										Net interest income after provision for (reversal of) credit losses	43,489		36,100		66,680		79,589		132,390
Noninterest income										Noninterest income
Customer service fees	1,096			1,451			1,515			Customer service fees	1,224		1,096		1,434		2,320		2,949
Loan servicing income	75			312			118			Loan servicing income	95		75		121		170		239
Income from bank owned life insurance	578			599			525			Income from bank owned life insurance	591		578		580		1,169		1,105

Net gain on sale of securities available-for-sale	—			3			208			Net gain on sale of securities available-for-sale	2,011		—		—		2,011		208
Fair value adjustment for loans held for sale	(1,586		)	30			1
Fair value adjustment for loans held-for-sale										Fair value adjustment for loans held-for-sale	25		(1,586)		59		(1,561)		60
Net (loss) gain on sale of loans	(27		)	(863		)	1,552			Net (loss) gain on sale of loans	—		(27)		2,767		(27)		4,319
Other income	1,925			3,398			2,376
Total noninterest income	2,061			4,930			6,295

Other income (loss)										Other income (loss)	1,582		1,925		(7,251)		3,507		(4,875)
Total noninterest income (loss)										Total noninterest income (loss)	5,528		2,061		(2,290)		7,589		4,005
Noninterest expense										Noninterest expense
Salaries and employee benefits	23,436			24,036			28,439			Salaries and employee benefits	24,260		23,436		27,506		47,696		55,945
Naming rights termination										Naming rights termination	26,769		—		—		26,769		—
Occupancy and equipment	7,243			7,900			7,686			Occupancy and equipment	7,090		7,243		7,955		14,333		15,641
Professional fees	5,964			2,611			11,041			Professional fees	4,596		5,964		(2,903)		10,560		8,138
Outside service fees	362			285			403

Data processing	1,773			1,684			1,496			Data processing	1,536		1,773		1,672		3,309		3,168
Advertising and promotion	1,756			2,227			2,057			Advertising and promotion	1,157		1,756		2,048		2,913		4,105
Regulatory assessments	484			1,854			2,482			Regulatory assessments	725		484		2,136		1,209		4,618
Loss on investments in alternative energy partnerships	1,905			1,039			1,950
(Gain) loss on investments in alternative energy partnerships										(Gain) loss on investments in alternative energy partnerships	(167)		1,905		(355)		1,738		1,595
Reversal of provision for loan repurchases	(600		)	(360		)	(116		)	Reversal of provision for loan repurchases	(34)		(600)		(61)		(634)		(177)
Amortization of intangible assets	429			454			620			Amortization of intangible assets	430		429		621		859		1,241
Restructuring expense	—			1,626			2,795

Restructuring (reversal) expense										Restructuring (reversal) expense	—		—		(158)		—		2,637
All other expense	4,167			4,127			3,396			All other expense	6,408		4,529		5,039		10,937		8,838
Total noninterest expense	46,919			47,483			62,249			Total noninterest expense	72,770		46,919		43,500		119,689		105,749
(Loss) income from operations before income taxes	(8,758		)	17,083			9,756			(Loss) income from operations before income taxes	(23,753)		(8,758)		20,890		(32,511)		30,646
Income tax (benefit) expense	(2,165		)	2,811			2,719			Income tax (benefit) expense	(5,304)		(2,165)		4,308		(7,469)		7,027

Net (loss) income	(6,593		)	14,272			7,037			Net (loss) income	(18,449)		(6,593)		16,582		(25,042)		23,619
Preferred stock dividends	3,533			3,540			4,308			Preferred stock dividends	3,442		3,533		4,308		6,975		8,616
Income allocated to participating securities	—			224			—			Income allocated to participating securities	—		—		271		—		153
Participating securities dividends	94			93			202			Participating securities dividends	94		94		94		188		295
Impact of preferred stock redemption	(526		)	—			—			Impact of preferred stock redemption	(49)		(526)		—		(575)		—
Net (loss) income available to common stockholders	$	(9,694	)	$	10,415		$	2,527		Net (loss) income available to common stockholders	$	(21,936)	$	(9,694)	$	11,909	$	(31,630)	$	14,555
(Loss) earnings per common share:										(Loss) earnings per common share:

Basic	$	(0.19	)	$	0.21		$	0.05		Basic	$	(0.44)	$	(0.19)	$	0.23	$	(0.63)	$	0.29

Diluted	$	(0.19	)	$	0.20		$	0.05		Diluted	$	(0.44)	$	(0.19)	$	0.23	$	(0.63)	$	0.29
(Loss) earnings per class B common share:										(Loss) earnings per class B common share:

Basic	$	(0.19	)	$	0.21		$	0.05		Basic	$	(0.44)	$	(0.19)	$	0.23	$	(0.63)	$	0.29

Diluted	$	(0.19	)	$	0.21		$	0.05		Diluted	$	(0.44)	$	(0.19)	$	0.23	$	(0.63)	$	0.29

See accompanying notes to consolidated financial statements (unaudited)

Table of Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) ~~INCOME~~

(Amounts in thousands)

(Unaudited)


	Three Months Ended										Six Months Ended June 30,
	June 30, 2020		March 31, 2020		June 30, 2019		2020		2019
Net (loss) income	$	(18,449)	$	(6,593)	$	16,582	$	(25,042)	$	23,619
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities:
Unrealized gain (loss) arising during the period	40,002		(42,248)		5,423		(2,246)		11,596


Reclassification adjustment for (gain) loss included in net (loss) income	(1,419)		—		—		(1,419)		(147)
Total change in unrealized gain (loss) on available-for-sale securities	38,583		(42,248)		5,423		(3,665)		11,449




Total other comprehensive income (loss)	38,583		(42,248)		5,423		(3,665)		11,449
Comprehensive income (loss)	$	20,134	$	(48,841)	$	22,005	$	(28,707)	$	35,068

Three Months Ended
March 31,
2020 December 31,
2019 March 31,
2019
Net (loss) income $ (6,593 ) $ 14,272
$ 7,037
Other comprehensive (loss) income, net of tax:
Unrealized (loss) gain on available-for-sale securities:
Unrealized (loss) gain arising during the period (42,248 ) (2,317 ) 6,173
Reclassification adjustment for OTTI loss included in net (loss) income —
(10 ) —
Reclassification adjustment for loss (gain) included in net (loss) income —
(2 ) (147 )
Total change in unrealized (loss) gain on available-for-sale securities (42,248 ) (2,329 ) 6,026
Total other comprehensive (loss) income (42,248 ) (2,329 ) 6,026
Comprehensive (loss) income $ (48,841 ) $ 11,943
$ 13,063

See ~~Accompanying Notes~~accompanying notes to ~~Consolidated Financial Statements (Unaudited)~~consolidated financial statements (unaudited)

Table of Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited)


	Preferred Stock		Common Stock								Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
					Voting			Class B Non-Voting
Three Months Ended June 30, 2020
Balance at March 31, 2020	$	187,687	$	520		$	5		$	631,125	$	110,640	$	(40,827)	$	(54,148)	$	835,002

Comprehensive loss:
Net loss	—		—			—			—		(18,449)		—		—		(18,449)
Other comprehensive income, net	—		—			—			—		—		—		38,583		38,583
Issuance of common stock	—		2			—			(2)		—		—		—		—

Redemption of preferred stock	(2,650)		—			—			—		49		—		—		(2,601)




Share-based compensation expense	—		—			—			1,470		—		—		—		1,470

Restricted stock surrendered due to employee tax liability	—		—			—			(476)		—		—		—		(476)

Shares purchased under the Dividend Reinvestment Plan	—		—			—			—		(28)		—		—		(28)
Stock appreciation right dividend equivalents	—		—			—			—		(94)		—		—		(94)
Dividends declared ($0.06 per common share)	—		—			—			—		(3,006)		—		—		(3,006)
Preferred stock dividends	—		—			—			—		(3,442)		—		—		(3,442)
Balance at June 30, 2020	$	185,037	$	522		$	5		$	632,117	$	85,670	$	(40,827)	$	(15,565)	$	846,959


Three Months Ended June 30, 2019
Balance at March 31, 2019	$	231,128	$	518		$	5		$	626,608	$	136,943	$	(28,786)	$	(18,091)	$	948,325
Comprehensive income:
Net income	—		—			—			—		16,582		—		—		16,582
Other comprehensive income, net	—		—			—			—		—		—		5,423		5,423
Issuance of common stock	—		2			—			(2)		—		—		—		—









Share-based compensation expense	—		—			—			1,497		—		—		—		1,497
Restricted stock surrendered due to employee tax liability	—		—			—			(797)		—		—		—		(797)

Shares purchased under the Dividend Reinvestment Plan	—		—			—			—		(26)		—		—		(26)
Stock appreciation right dividend equivalents	—		—			—			—		(94)		—		—		(94)
Dividends declared ($0.06 per common share)	—		—			—			—		(3,058)		—		—		(3,058)
Preferred stock dividends	—		—			—			—		(4,308)		—		—		(4,308)
Balance at June 30, 2019	$	231,128	$	520		$	5		$	627,306	$	146,039	$	(28,786)	$	(12,668)	$	963,544
Six Months Ended June 30, 2020
Balance at December 31, 2019	$	189,825	$	520		$	5		$	629,848	$	127,733	$	(28,786)	$	(11,900)	$	907,245
Impact of adoption of ASU No. 2016-13	—		—			—			—		(4,503)		—		—		(4,503)
Comprehensive loss:
Net loss	—		—			—			—		(25,042)		—		—		(25,042)
Other comprehensive loss, net	—		—			—			—		—		—		(3,665)		(3,665)
Issuance of common stock	—		2			—			(2)		—		—		—		—

Redemption of preferred stock	(4,788)		—			—			—		575		—		—		(4,213)

Purchase of 827,584 shares of treasury stock	—		—			—			—		—		(12,041)		—		(12,041)


Share-based compensation expense	—		—			—			3,046		—		—		—		3,046

Restricted stock surrendered due to employee tax liability	—		—			—			(775)		—		—		—		(775)

Shares purchased under the Dividend Reinvestment Plan	—		—			—			—		(47)		—		—		(47)
Stock appreciation right dividend equivalents	—		—			—			—		(188)		—		—		(188)
Dividends declared ($0.12 per common share)	—		—			—			—		(5,883)		—		—		(5,883)
Preferred stock dividends	—		—			—			—		(6,975)		—		—		(6,975)
Balance at June 30, 2020	$	185,037	$	522		$	5		$	632,117	$	85,670	$	(40,827)	$	(15,565)	$	846,959


Six Months Ended June 30, 2019
Balance at December 31, 2018	$	231,128	$	518		$	5		$	625,834	$	140,952	$	(28,786)	$	(24,117)	$	945,534
Comprehensive income:
Net income	—		—			—			—		23,619		—		—		23,619
Other comprehensive income, net	—		—			—			—		—		—		11,449		11,449
Issuance of common stock	—		2			—			(2)		—		—		—		—









Share-based compensation expense	—		—			—			2,350		—		—		—		2,350
Restricted stock surrendered due to employee tax liability	—		—			—			(876)		—		—		—		(876)

Shares purchased under the Dividend Reinvestment Plan	—		—			—			—		(76)		—		—		(76)
Stock appreciation right dividend equivalents	—		—			—			—		(296)		—		—		(296)
Dividends declared ($0.19 per common share)	—		—			—			—		(9,544)		—		—		(9,544)
Preferred stock dividends	—		—			—			—		(8,616)		—		—		(8,616)
Balance at June 30, 2019	$	231,128	$	520		$	5		$	627,306	$	146,039	$	(28,786)	$	(12,668)	$	963,544

Preferred Stock Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total Stockholders' Equity
Voting Class B Non-Voting
Balance at December 31, 2018 $ 231,128
$ 518
$ 5
$ 625,834
$ 140,952
$ (28,786 ) $ (24,117 ) $ 945,534
Comprehensive income:
Net income —
—
—
—
7,037
—
—
7,037
Other comprehensive income, net —
—
—
—
—
—
6,026
6,026
Share-based compensation expense —
—
—
853
—
—
—
853
Restricted stock surrendered due to employee tax liability —
—
—
(79 ) —
—
—
(79 )
Shares purchased under the Dividend Reinvestment Plan —
—
—
—
(50 ) —
—
(50 )
Stock appreciation right dividend equivalents —
—
—
—
(202 ) —
—
(202 )
Dividends declared ($0.13 per common share) —
—
—
—
(6,486 ) —
—
(6,486 )
Preferred stock dividends —
—
—
—
(4,308 ) —
—
(4,308 )
Balance at March 31, 2019 $ 231,128
$ 518
$ 5
$ 626,608
$ 136,943
$ (28,786 ) $ (18,091 ) $ 948,325

Balance at December 31, 2019 $ 189,825
$ 520
$ 5
$ 629,848
$ 127,733
$ (28,786 ) $ (11,900 ) $ 907,245
Impact of adoption of ASU No. 2016-13 —
—
—
—
(4,503 ) —
—
(4,503 )
Comprehensive loss:
Net loss —
—
—
—
(6,593 ) —
—
(6,593 )
Other comprehensive loss, net —
—
—
—
—
—
(42,248 ) (42,248 )
Redemption of preferred stock (2,138 ) —
—
—
526
—
—
(1,612 )
Purchase of 827,584 shares of treasury stock —
—
—
—
—
(12,041 ) —
(12,041 )
Share-based compensation expense —
—
—
1,576
—
—
—
1,576
Restricted stock surrendered due to employee tax liability —
—
—
(299 ) —
—
—
(299 )
Shares purchased under the Dividend Reinvestment Plan —
—
—
—
(19 ) —
—
(19 )
Stock appreciation right dividend equivalents —
—
—
—
(94 ) —
—
(94 )
Dividends declared ($0.06 per common share) —
—
—
—
(2,877 ) —
—
(2,877 )
Preferred stock dividends —
—
—
—
(3,533 ) —
—
(3,533 )
Balance at March 31, 2020 $ 187,687
$ 520
$ 5
$ 631,125
$ 110,640
$ (40,827 ) $ (54,148 ) $ 835,002

See ~~Accompanying Notes~~accompanying notes to ~~Consolidated Financial Statements (Unaudited)~~consolidated financial statements (unaudited)

Table of Contents

BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Net (loss) income	$	(25,042)	$	23,619
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Provision for credit losses	27,587		198

Reversal of provision for loan repurchases	(634)		(177)
Depreciation on premises and equipment	8,404		5,290
Amortization of intangible assets	859		1,241
Amortization of debt issuance costs	139		83
Net amortization of premium on securities	258		649

Net amortization of deferred loan costs and fees	(553)		83
Accretion of discounts on purchased loans	(355)		(125)
Write-off of other assets related to naming rights termination, net	6,669		—
Debt extinguishment fee	2,515		—
Deferred income tax (benefit) expense	(71)		1,841
Bank owned life insurance income	(1,169)		(1,105)
Share-based compensation expense	3,046		2,350
Loss on interest rate swaps	288		9,583
Loss on investments in alternative energy partnerships and affordable housing investments	4,033		2,785

Impairment on capitalized software projects	157		835


Fair value adjustment for loans held-for-sale	1,561		(60)
Net loss (gain) on sale of loans	27		(4,319)
Net gain on sale of securities available-for-sale	(2,011)		(208)

Loss on sale or disposal of property and equipment	106		9



Repurchase of mortgage loans	—		(699)


Proceeds from sales of and principal collected on loans held-for-sale	613		3,849
Proceeds from sales of and principal collected on other loans held-for-sale	—		426


Change in accrued interest receivable and other assets	1,119		(14,593)

Change in accrued interest payable and other liabilities	(30,093)		(5,341)
Net cash (used in) provided by operating activities	(2,547)		26,214

Cash flows from investing activities:
Proceeds from sales of securities available-for-sale	22,728		782,019
Proceeds from maturities and calls of securities available-for-sale	30,000		38,029
Proceeds from principal repayments of securities available-for-sale	2,971		20,538

Purchases of securities available-for-sale	(322,590)		—


Cash received from bank-owned life insurance	501		—




Loan originations and principal collections, net	349,818		(149,182)
Purchase of loans and leases	(25,839)		—
Redemption of Federal Home Loan Bank stock	22,171		29,760
Purchase of Federal Home Loan Bank and other bank stock	(9,336)		(38,039)
Proceeds from sale of loans	—		558,021

Proceeds from sale of other real estate owned	—		551


Purchases of premises and equipment	(3,467)		(5,967)
Payments of capital lease obligations	(266)		(259)
Funding of equity investment	(14,201)		(1,501)
(Increase) decrease in investments in alternative energy partnerships	(2,630)		760
Net cash provided by investing activities	49,860		1,234,730


Cash flows provided by (used in) financing activities:
Net increase (decrease) in deposits	610,298		(1,624,354)
Net (decrease) increase in short-term Federal Home Loan Bank advances	(447,000)		305,000
Repayment of long-term Federal Home Loan Bank advances	(235,000)		—
Proceeds from long-term Federal Home Loan Bank advances	111,000		—
Debt extinguishment and financing fees paid	(9,368)		—




Redemption of preferred stock	(4,213)		—




Purchase of treasury stock	(12,041)		—


Purchase of restricted stock surrendered due to employee tax liability	(775)		(876)
Dividend equivalents paid on stock appreciation rights	(188)		(296)
Dividends paid on preferred stock	(6,975)		(8,616)
Dividends paid on common stock	(5,883)		(9,544)
Net cash used in financing activities	(145)		(1,338,686)
Net change in cash and cash equivalents	47,168		(77,742)
Cash and cash equivalents at beginning of period	373,472		391,592
Cash and cash equivalents at end of period	$	420,640	$	313,850

Supplemental cash flow information
Interest paid on deposits and borrowed funds	40,626		85,733
Income taxes paid	62		2,822
Income taxes refunds received	—		7

Supplemental disclosure of non-cash activities
Transfer from loans to other real estate owned, net	—		276
Transfer of loans held-for-investment to loans held-for-sale	—		1,127,339



Equipment acquired under capital leases	30		40
Operating lease right-of-use assets recognized	—		27,421
Operating lease liabilities recognized	—		28,822
Impact of adoption of ASU 2016-13 on retained earnings	(4,503)		—

Three Months Ended March 31,
2020 2019
Cash flows from operating activities:
Net (loss) income $ (6,593 ) $ 7,037
Adjustments to reconcile net (loss) income to net cash provided by operating activities
Provision for credit losses 15,761
2,098
Reversal of provision for loan repurchases (600 ) (116 )
Depreciation on premises and equipment 4,524
2,683
Amortization of intangible assets 429
620
Amortization of debt issuance costs 58
29
Net amortization of premium on securities 77
286
Net amortization of deferred loan costs and fees 587
289
Accretion of discounts on purchased loans (8 ) (97 )
Deferred income tax expense 573
1,785
Bank owned life insurance income (578 ) (525 )
Share-based compensation expense 1,576
853
Loss on interest rate swaps 182
98
Loss on investments in alternative energy partnerships and affordable housing investments 3,052
2,587
Impairment on capitalized software projects 157
38
Fair value adjustment for loans held for sale 1,586
(1 )
Net loss (gain) on sale of loans 27
(1,552 )
Net gain on sale of securities available for sale —
(208 )
Loss on sale or disposal of property and equipment 106
4
Proceeds from sales of and principal collected on loans held-for-sale from mortgage banking 822
2,139
Change in accrued interest receivable and other assets (5,865 ) (4,864 )
Change in accrued interest payable and other liabilities (8,824 ) 5,353
Net cash provided by operating activities 7,049
18,536

Cash flows from investing activities:
Proceeds from sales of securities available-for-sale —
502,606
Proceeds from maturities and calls of securities available-for-sale 30,000
19,078
Proceeds from principal repayments of securities available-for-sale 602
7,969
Purchases of securities available-for-sale (147,410 ) —
Loan originations and principal collections, net 282,116
(100,702 )
Redemption of Federal Home Loan Bank stock 11,490
23,341
Purchase of Federal Home Loan Bank and other bank stock (9,307 ) (11,041 )
Proceeds from sale of loans —
245,013
Proceeds from sale of other real estate owned —
489
Purchases of premises and equipment (2,487 ) (3,748 )
Payments of capital lease obligations (134 ) (86 )
Funding of equity investment (4,437 ) (574 )
Increase in investments in alternative energy partnerships (3,177 ) —
Net cash provided by investing activities 157,256
682,345

Cash flows from financing activities:
Net increase (decrease) in deposits 135,671
(191,712 )
Net decrease in short-term Federal Home Loan Bank advances (193,000 ) (585,000 )
Repayment of long-term Federal Home Loan Bank advances (24,000 ) —
Redemption of preferred stock (1,612 ) —
Purchase of treasury stock (12,041 ) —
Purchase of restricted stock surrendered due to employee tax liability (299 ) (79 )
Dividend equivalents paid on stock appreciation rights (94 ) (202 )
Dividends paid on preferred stock (3,533 ) (4,308 )
Dividends paid on common stock (2,877 ) (6,467 )
Net cash used in financing activities (101,785 ) (787,768 )
Net change in cash and cash equivalents 62,520
(86,887 )
Cash and cash equivalents at beginning of period 373,472
391,592
Cash and cash equivalents at end of period $ 435,992
$ 304,705

Supplemental cash flow information
Interest paid on deposits and borrowed funds 20,331
39,436
Income taxes paid —
2,372

Supplemental disclosure of non-cash activities
Transfer from loans to other real estate owned, net —
276
Transfer of loans held-for-investment to loans held-for-sale —
243,364
Equipment acquired under capital leases 30
30
Operating lease right of use assets recognized —
26,365
Operating lease liabilities recognized —
27,766
Impact of adoption of ASU 2016-13 on retained earnings (4,503 ) —

See ~~Accompanying Notes~~accompanying notes to ~~Consolidated Financial Statements (Unaudited)~~consolidated financial statements (unaudited)

Table of Contents

BANC OF CALIFORNIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~March 31,~~June 30, 2020

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: Banc of California, Inc. (collectively, with its consolidated subsidiaries, the Company, we, us, and our) is a financial holding company under the Bank Holding Company Act of 1956, as amended, headquartered in Santa Ana, California and incorporated under the laws of Maryland. Banc of California, Inc. is subject to regulation by the Board of Governors of the Federal Reserve System ~~(FRB)~~(“FRB”) and its wholly-owned subsidiary, Banc of California, National Association (the Bank), operates under a national bank charter issued by the Office of the Comptroller of the Currency ~~(OCC)~~(“OCC”), the Bank's primary regulator. The Bank is a member of the Federal Home Loan Bank ~~(FHLB)~~(“FHLB”) system, and maintains insurance on deposit accounts with the Federal Deposit Insurance Corporation ~~(FDIC)~~(“FDIC”).

The Bank offers a variety of financial services to meet the banking and financial needs of the communities it serves, with operations conducted through 31 full-service branches located throughout Southern California as of ~~March 31,~~June 30, 2020.

Basis of Presentation: The accompanying unaudited interim consolidated financial statements have been prepared pursuant to Article 10 of SEC Regulation S-X and other SEC rules and regulations for reporting on the Quarterly Report on Form 10-Q. Accordingly, certain disclosures required by U.S. generally accepted accounting principles ~~(GAAP)~~(“GAAP”) are not included herein. These interim statements should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2019 filed by us with the SEC. The December 31, 2019 consolidated statements of financial condition presented herein has been derived from the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC. Certain prior period amounts have been reclassified to conform to current period presentation, including i) reclassification of the provision for losses on unfunded loan commitments from being included in other noninterest expense to being included within provision for credit losses, ii) showing the unrealized fair value adjustment for loans ~~held for sale~~held-for-sale separate from the realized net (loss) gain on sale of loans, and iii) reclassification of outside services expense from "outside services fees" to "all other expense" in the ~~statement~~consolidated statements of ~~operations..~~operations.

In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all of the adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial condition and consolidated results of operations as of the dates and for the periods presented. The results of operations for the three and six months ended ~~March 31,~~June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Principles of Consolidation: The accompanying unaudited consolidated financial statements include the accounts of the Company and its consolidated subsidiaries as of ~~March 31,~~June 30, 2020 and December 31, 2019 and for the three and six months ended ~~March 31,~~June 30, 2020 and ~~2019 and December 31,~~ 2019. Significant intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Company include its then wholly-owned subsidiaries.

Adopted Accounting Pronouncements:

On January 1, 2020, we adopted Accounting Standards Update ~~(ASU)~~(“ASU”) 2016-13, Financial Instruments-Credit Losses (Topic 326) ~~(ASU 2016-13)~~(“ASU 2016-13”), which replaces the incurred loss impairment methodology with a methodology that reflects current expected credit losses ~~(CECL)~~(“CECL”) and requires consideration of a broader range of reasonable and supportable information to estimate expected credit losses. The measurement of expected credit losses under the CECL model is applicable to financial assets measured at amortized cost, including loan receivables, held-to-maturity debt securities and off-balance sheet credit exposures. ASU 2016-13 also requires credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. In addition, ASU 2016-13 modifies the other-than-temporary impairment ~~(OTTI)~~(“OTTI”) model for available-for-sale ~~(AFS)~~(“AFS”) debt securities to require an allowance for credit impairment instead of a direct write-down, which allows for reversal of credit impairments in future periods based on improvements in ~~credit.~~credit quality.

We adopted ASU 2016-13 using the modified retrospective method for our financial assets measured at cost, including loans receivable and off-balance sheet credit exposures. Results for reporting periods beginning January 1, 2020 are reported under ASU 2016-13 (or Accounting Standards Codification 326), while prior period results continue to be reported under the previously applicable GAAP. The adoption of ASU 2016-13 on January 1, 2020 resulted in an increase of $6.4 million to our allowance for credit losses and an after-tax net decrease in retained earnings of $4.5 million. This transition adjustment reflects the development of our modelsto estimate lifetime expected credit losses on our loans, unfunded commitments, and other off-balance sheet credit exposure primarily using a lifetime loss methodology.

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The following table presents the impact of adopting ASU 2016-13 on January 1, 2020:

($ in thousands) As Reported
Under
ASC 326 Pre-
ASC 326
Adoption Impact of
ASC 326
Adoption
Assets:
Allowance for credit losses - loans
Commercial:
Commercial and industrial $ 23,015
$ 22,353
$ 662
Commercial real estate 10,788
5,941
4,847
Multi-family 13,214
11,405
1,809
SBA 3,508
3,120
388
Construction 4,009
3,906
103
Consumer:
Single family residential mortgage 10,066
10,486
(420 )
Other consumer 658
438
220
Total 65,258
57,649
7,609

Liabilities:
Allowance for credit losses - unfunded loan commitments $ 2,838
$ 4,064
$ (1,226 )


($ in thousands)	As Reported Under ASC 326		Pre- ASC 326 Adoption		Impact of ASC 326 Adoption
Assets:
Allowance for credit losses - loans
Commercial:
Commercial and industrial	$	23,015	$	22,353	$	662
Commercial real estate	10,788		5,941		4,847
Multifamily	13,214		11,405		1,809
SBA	3,508		3,120		388
Construction	4,009		3,906		103
Consumer:
Single family residential mortgage	10,066		10,486		(420)
Other consumer	658		438		220
Total	65,258		57,649		7,609

Liabilities:
Allowance for credit losses - unfunded loan commitments	$	2,838	$	4,064	$	(1,226)

Significant Accounting Policies: The accounting and reporting policies of the Company are based upon GAAP and conform to predominant practices within the banking industry. We have not made any significant changes in our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC, except for the accounting for loans and the allowance for credit losses, the allowance for credit losses on unfunded loan commitments, troubled debt restructurings, and available-for-sale debt securities as described below.

Allowance for Credit Losses (ACL): The ACL is a reserve established through a provision for credit loss expense and represents management’s best estimate of the net amount expected to be collected from loans receivable as of the date of the consolidated statements of financial condition. Confirmed losses are charged against the ACL. Subsequent recoveries, if any, are credited to the ACL. We perform an analysis of the adequacy of the ACL at least quarterly. Management estimates the required ACL balance using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations, ~~and~~ estimated collateral values, economic conditions, and other factors. The ACL consists of; (i) a specific allowance established for probable losses on individually identified impaired loans, (ii) a quantitative allowance for current expected loan losses based on the portfolio and expected economic conditions over a reasonable and supportable forecast period that reverts back to long-term trends to cover the life of loan; and (iii) a qualitative allowance to capture factors and trends that are not adequately reflected in the quantitative allowance, including an evaluation of our underwriting, ~~and~~ other credit-related processes, and other credit risk factors such as concentration risk. Accrued interest is excluded from our expected credit loss estimates.

Expected credit losses are estimated over the contractual term of the loans, adjusted for prepayments, as appropriate. The contractual term excludes expected extensions and renewals unless those extension or renewal options are included in the underlying contract and we do not have the ability to unconditionally cancel. The contractual term also excludes expected modifications unless management has a reasonable expectation, at the reporting period, that a troubled debt restructuring will be executed.

A loan is deemed impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We measure expected credit losses on all impaired loans individually under the guidance of ASC 326, Receivables, primarily through the evaluation of collateral values and estimated cash flows expected to be collected. Cash receipts on impaired loans for which the accrual of interest has been discontinued are applied first to principal and then to interest income. Loans for which the terms have been modified by granting a concession that normally would not be provided and where the borrower is experiencing financial difficulties are considered ~~TDRs~~troubled debt restructurings (“TDRs”) and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls, generally, are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the

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borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of

the shortfall in relation to the principal and interest owed. The impairment amount on a collateral dependent loan is generally charged-off to the ACL and the impairment amount on a loan, that is not collateral dependent, is set-up as a specific reserve. TDRs are also measured at the present value of estimated future cash flows using the loan’s effective rate at inception or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. For TDRs that subsequently default, we determine the amount of reserve in accordance with the accounting policy for the ACL.

At ~~March 31,~~June 30, 2020, the following loan portfolio segments have been identified:

•Commercial and industrial (general commercial and industrial, warehouse lending, and indirect/direct leveraged lending)

•Commercial real estate

•Multifamily

~~SBA~~•Small Business Administration (“SBA”)

•Construction

•SFR - 1st deeds of trust (generally SFR mortgage and other)

•Other consumer (HELOC and other)

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their obligations such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk.

Loans secured by multifamily and commercial real estate properties generally involve a greater degree of credit risk than SFR mortgage loans. Because payments on loans secured by multifamily and commercial real estate properties are often dependent on the successful operation or management of the properties, repayment of these loans may be subject to adverse conditions in the real estate market or the economy. Commercial and industrial loans are also considered to have a greater degree of credit risk than SFR mortgage loans due to the fact commercial and industrial loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial and industrial loans may be substantially dependent on the success of the business itself (which, in turn, is often dependent, in part, upon general economic conditions). SBA loans are similar to commercial and industrial loans, ~~but~~however, they have additional credit enhancement in the form of a guaranty provided by the U.S. Small Business Administration, for up to 85% of the loan amount for loans up to $150 thousand and 75% of the loan amount for loans of more than $150 thousand. SBA loans originated as part of the ~~Payment~~Paycheck Protection Program ~~implemented~~(“PPP”) established by the Coronavirus Aid, Relief, and Economic Security Act ~~(CARES Act)~~(“CARES Act”) have additional credit enhancement provided by the U.S. Small Business Administration for up to 100% of the loan amount. As of ~~March 31,~~June 30, 2020, ~~there were no~~we funded $240.7 million in PPP loans. During the three months ended June 30, 2020, we collected $7.5 million in fees on PPP loans funded during the quarter, which will be recognized over their estimated life of 9 months. The 9 months estimated life of PPP loans is based on our understanding of our clients' cash use, expected forgiveness probability, and loan forgiveness process. The availability of funds for the repayment of financing may be substantially dependent on the success of the business itself ~~(which, in turn,~~which is often dependent, in part, upon general economic ~~conditions).~~conditions. Consumer loans may ~~entail~~have greater risk than SFR mortgage loans given that collection of these loans is dependent on the borrower’s continuing financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy.

Green Loans are ~~also~~ considered to carry a higher degree of credit risk due to their unique cash flows. Credit risk on this asset class is also managed through the completion of regular third party automated valuation models ~~(AVMs)~~(“AVMs”) of the underlying collateral and monitoring of the borrower’s usage of this account to determine if the borrower is making monthly payments from external sources or “drawdowns” on their line. In cases where the property values have declined to levels less than the original ~~LTV~~loan to value (“LTV”) ratios, or other levels deemed prudent by us, we may curtail the line and/or require monthly payments or principal reductions to bring the loan in balance.

On interest only loans, we project future payment changes to determine if there will be a material increase in the required payment and then monitor the loans for possible delinquency. Individual loans are monitored for possible downgrading of risk rating.

Troubled Debt Restructurings: A loan is identified as a ~~troubled debt restructuring (TDR)~~TDR when a borrower is experiencing financial difficulties and, for economic or legal reasons related to these difficulties, we grant a concession to the borrower in the restructuring that we would not otherwise consider. We have granted a concession when, as a result of the restructuring to a troubled borrower, we do not expect to collect all amounts due, including principal and/or interest accrued at the original terms of the loan. The concessions may be granted in various forms, including a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a note split with principal forgiveness. Loans for which the borrower has been discharged under Chapter 7 bankruptcy are considered collateral dependent TDRs, impaired at the date of discharge, and

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charged down to the fair value of collateral less cost to sell. A restructuring executed at an interest rate that is at market interest rates based on the current credit characteristics of the borrower is not a TDR.

Our policy is to place consumer loan TDRs, except those that were performing prior to TDR status, on non-accrual status for a minimum period of 6 months. Commercial TDRs are evaluated on a case-by-case basis for determination whether or not to place them on non-accrual status. Loans qualify for return to accrual status once they have demonstrated performance under the

restructured terms of the loan for a minimum of 6 months. Initially, all TDRs are reported as impaired. Generally, TDRs are classified as impaired loans and reported as TDRs for the remaining life of the loan. Impaired and TDR classification may be removed if the borrower demonstrates compliance with the modified terms for a minimum of 6 months, ~~and~~ through one fiscal year-end and the restructuring agreement specifies a market rate of interest equal to that which would be provided to a borrower with similar credit at the time of restructuring. In the limited circumstance that a loan is removed from TDR classification, it is our policy to continue to base our measure of loan impairment on the contractual terms specified by the loan agreement.

Troubled Debt Restructuring (TDR) Relief: Under U.S. GAAP, banks are required to assess modifications to a loan’s terms for potential classification as a TDR. A loan to a borrower experiencing financial difficulty is classified as a TDR when a lender grants a concession that it would otherwise not consider, such as a payment deferral or interest concession. In order to encourage banks to work with impacted borrowers, the CARES Act and U.S. banking regulatory agencies have provided relief from TDR accounting. The main benefits of TDR relief include 1) a capital benefit in the form of reduced risk-weighted assets, as TDRs are more heavily risk-weighted for capital purposes; 2) a delinquency status benefit, as the aging of ~~the~~ loans isare frozen, i.e., they will continue to be reported in the same delinquency bucket they were in at the time of modification; and 3) a non-accrual status benefit as the loans are generally not reported as non-accrual during the modification period.

Reserve for Unfunded Loan Commitments: The reserve for unfunded loan commitments provides for estimated credit losses for the unused portion of lending commitments expected to be funded, except for unconditionally cancellable commitments for which no reserve is required under ASC 326. The reserve for unfunded loan commitments includes factors that are consistent with ACL methodology for loans using the expected loss factors and a draw down factor applied to the underlying borrower risk and facility grades. Changes in the reserve for unfunded loan commitments are reported as a component of provision for credit losses in the consolidated statements of operations and the reserve for unfunded loan commitments is included in other liabilities in the consolidated statements of financial condition.

Available-for-Sale Debt Securities: Available-for-sale debt securities are analyzed for credit losses under ASC 326, which requires the Company to determine whether impairment exists as of the reporting date and whether that impairment is due to credit losses. An allowance for credit losses is established for losses on available-for-sale debt securities due to credit losses and ~~are~~is reported as a component of provision for credit losses. Accrued interest is excluded from our expected credit loss estimates. Available-for-sale debt securities are typically classified as ~~nonaccrual~~non-accrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on ~~nonaccrual~~non-accrual status, unpaid interest ~~credited to~~recognized as interest income is reversed.

Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and disclosures provided, and actual results could differ. The ACL, reserve for loss on repurchased loans, reserve for unfunded loan commitments, realization of deferred tax assets, the valuation of goodwill and other intangible assets, mortgage banking, ~~and~~ other derivatives, Hypothetical Liquidation at Book Value ~~(HLBV)~~(“HLBV”) of investments in alternative energy partnerships, and the fair value measurement of financial instruments are particularly subject to change and such change could have a material effect on the consolidated financial statements.

Recent Accounting Guidance, Not Yet Effective: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ~~(ASU 2019-12)~~(“ASU 2019-12”). The amendments in this Update simplify the accounting for income taxes by removing certain exceptions for investments, ~~intraperiod~~intra-period allocations, and interim calculations, and add guidance to reduce the complexity of applying Topic 740. This ASU will be effective for fiscal years and interim periods within those fiscal years ~~and interim periods within those fiscal years, beginning after~~ beginning after December 15, 2020. We will adopt this guidance on January 1, 2021. We do not expect that the adoption of these amendments will have a material effect on our consolidated financial statements.

In March 2020, the Financial Accounting Standards Board ~~(FASB)~~(“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance, for a limited period of time, to ease the potential burden in accounting for (or recognizing the benefits of) reference rate reform on financial reporting. The amendments in ASU 2020-04 are elective and apply to all entities, subject to meeting certain criteria, that have ~~contract,~~contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ~~(LIBOR)~~(“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria. When elected, the optional expedients for contract modifications must be applied consistently for all eligible contracts or eligible transactions within the relevant topic or industry subtopic within the

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codification that contains the guidance that otherwise would be required to be applied. The amendments in ASU 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. We are in the process of evaluating the potential impact the discontinuation of LIBOR will have on our contracts and expect to elect the optional expedients and exceptions set forth in the amendments.

NOTE 2 – FAIR VALUES OF FINANCIAL INSTRUMENTS

Fair Value Hierarchy

ASC 820-10 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value:

•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

•Level 2: Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Assets and Liabilities Measured on a Recurring Basis

Securities Available-for-Sale: The fair values of securities available-for-sale are generally determined by quoted market prices in active markets, if available (Level 1). If quoted market prices are not available, we primarily employ independent pricing services that utilize pricing models to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and respective terms and conditions for debt instruments. We employ procedures to monitor the pricing service's assumptions and establish processes to challenge the pricing service's valuations that appear unusual or unexpected. Multiple quotes or prices may be obtained in this process and we determine which fair value is most appropriate based on market information and analysis. Quotes obtained through this process are generally non-binding. We follow established procedures to ensure that assets and liabilities are properly classified in the fair value hierarchy. Level 2 securities include SBA loan pool securities, U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities, non-agency residential mortgage-backed securities, non-agency commercial mortgage-backed securities, collateralized loan obligations, and corporate debt securities. When a market is illiquid or there is a lack of transparency around the inputs to valuation, including at least one unobservable input, the securities are classified as Level 3 and reliance is placed upon internally developed models and ~~management~~management's judgment and evaluation for valuation. We had no0 securities available-for-sale classified as Level 3 at ~~March 31,~~June 30, 2020 or December 31, 2019.

Loans Held-for-Sale, Carried at Fair Value: The fair value of loans held-for-sale is based on commitments outstanding from investors and current offerings in the secondary market for portfolios with similar characteristics, except for loans that are repurchased out of GNMA loan pools that become severely delinquent which are valued based on an internal model. Loans held-for-sale subject to recurring fair value adjustments are classified as Level 2, or in the case of loans repurchased, Level 3. The fair value includes the servicing value of the loans and any accrued interest.

Derivative Assets and Liabilities:

Interest Rate Swaps and Caps. We offer interest rate ~~swaps~~swap and ~~caps~~cap products to certain loan clients to allow them to hedge the risk of rising interest rates on their variable rate loans. We originate a variable rate loan and enter into a variable-to-fixed interest rate swap with the client. We also enter into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow us to originate a variable rate loan while providing a contract for fixed interest payments for the client. The net cash flow for us is equal to the interest income received from a variable rate loan originated with the client plus a fee. The fair value of these derivatives is based on a discounted cash flow approach. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of interest rate swaps is classified as Level 2.

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Foreign Exchange Contracts.

We offer short-term foreign exchange contracts to ~~its~~ customers to purchase and/or sell foreign currencies at set rates in the future. These products allow customers to hedge the foreign exchange rate risk of their deposits and loans denominated in foreign currencies. In conjunction with these products, we also enter into offsetting contracts with institutional counterparties to hedge the Company’s foreign exchange rate risk. These back-to-back contracts allow us to offer ~~its~~our customers foreign exchange products while minimizing ~~its~~ exposure to foreign exchange rate fluctuations. The fair value of these instruments is determined at each reporting period based on the change in the foreign exchange rate. Given the short-term nature of the contracts, the counterparties’ credit risks are considered nominal and ~~resulted~~result in no adjustments to the valuation of the short-term foreign

exchange contracts. Due to the observable nature of the inputs used in deriving the fair value of these derivative contracts, the valuation of these contracts is classified as Level 2.

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The following table presents our financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:


			Fair Value Measurement Level
($ in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2020
Assets
Securities available-for-sale:

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	105,555	$	—	$	105,555	$	—
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	201,136		—		201,136		—
Municipal securities	57,174		—		57,174		—
Non-agency residential mortgage-backed securities	164		—		164		—

Collateralized loan obligations	668,353		—		668,353		—
Corporate debt securities	143,647		—		143,647		—
Loans held-for-sale, carried at fair value	19,768		—		3,083		16,685

Derivative assets:


Interest rate swaps and caps ⁽¹⁾	8,598		—		8,598		—
Foreign exchange contracts ⁽¹⁾	137		—		137		—
Liabilities
Derivative liabilities:


Interest rate swaps and caps ⁽²⁾	9,239		—		9,239		—

Foreign exchange contracts ⁽²⁾	54		—		54		—

December 31, 2019
Assets
Securities available-for-sale:

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	36,456	$	—	$	36,456	$	—
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	91,299		—		91,299		—
Municipal securities	52,689		—		52,689		—
Non-agency residential mortgage-backed securities	196		—		196		—

Collateralized loan obligations	718,361		—		718,361		—
Corporate debt securities	13,579		—		13,579		—
Loans held-for-sale, carried at fair value	22,642		—		3,409		19,233

Derivative assets:


Interest rate swaps and caps ⁽¹⁾	3,445		—		3,445		—
Foreign exchange contracts ⁽¹⁾	138		—		138		—
Liabilities
Derivative liabilities:


Interest rate swaps and caps ⁽²⁾	3,717		—		3,717		—
Foreign exchange contracts ⁽²⁾	136		—		136		—

(1)Included in Other assets in the Consolidated Statements of Financial Condition.

(2)Included in Accrued expenses and Other liabilities in the Consolidated Statements of Financial Condition.

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Fair Value Measurement Level
($ in thousands) Carrying Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
March 31, 2020
Assets
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities $ 104,021
$ —
$ 104,021
$ —
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations 139,419
—
139,419
—
Municipal securities 54,385
—
54,385
—
Non-agency residential mortgage-backed securities 160
—
160
—
Collateralized loan obligations 623,571
—
623,571
—
Corporate debt securities 47,871
—
47,871
—
Loans held-for-sale, carried at fair value 20,234
—
3,107
17,127
Derivative assets:
Interest rate swaps and caps ⁽¹⁾
8,242
—
8,242
—
Foreign exchange contracts ⁽¹⁾
369
—
369
—
Liabilities
Derivative liabilities:
Interest rate swaps and caps ⁽²⁾
8,881
—
8,881
—
Foreign exchange contracts ⁽²⁾
182
—
182
—

December 31, 2019
Assets
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities $ 36,456
$ —
$ 36,456
$ —
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations 91,299
—
91,299
—
Municipal securities 52,689
—
52,689
—
Non-agency residential mortgage-backed securities 196
—
196
—
Collateralized loan obligations 718,361
—
718,361
—
Corporate debt securities 13,579
—
13,579
—
Loans held-for-sale, carried at fair value 22,642
—
3,409
19,233
Derivative assets:
Interest rate swaps and caps ⁽¹⁾
3,445
—
3,445
—
Foreign exchange contracts ⁽¹⁾
138
—
138
—
Liabilities
Derivative liabilities:
Interest rate swaps and caps ⁽²⁾
3,717
—
3,717
—
Foreign exchange contracts ⁽²⁾
136
—
136
—


~~(1)~~	~~Included in Other assets in the Consolidated Statements of Financial Condition.~~


~~(2)~~	~~Included in Accrued expenses and Other liabilities in the Consolidated Statements of Financial Condition.~~

The following table presents a reconciliation of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), on a consolidated operations basis, for the periods indicated:


								Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)							($ in thousands)	2020		2019		2020		2019

	Three Months Ended March 31,
($ in thousands)	2020			2019

Loans repurchased from GNMA Loan Pools							Loans repurchased from GNMA Loan Pools
Balance at beginning of period	$	19,233		$	25,040		Balance at beginning of period	$	17,127	$	23,069	$	19,233	$	25,040
Total (losses) gains (realized/unrealized):

Total gains (losses) (realized/unrealized):							Total gains (losses) (realized/unrealized):

Included in earnings—fair value adjustment	(1,391		)	3			Included in earnings—fair value adjustment	22		(6)		(1,369)		(3)

Additions	—			—			Additions	—		—		—		—
Sales, settlements, and other	(715		)	(1,974		)	Sales, settlements, and other	(464)		(1,988)		(1,179)		(3,962)
Balance at end of period	$	17,127		$	23,069		Balance at end of period	$	16,685	$	21,075	$	16,685	$	21,075

Loans repurchased from GNMA loan pools had aggregate unpaid principal balances of ~~$19.1~~$18.6 million and $19.8 million as of ~~March 31,~~June 30, 2020 and December 31, 2019. The significant unobservable inputs used in the fair value measurement of our loans repurchased from GNMA loan pools at ~~March 31,~~June 30, 2020 and December 31, 2019 included an expected loss rate of ~~1.55 percent~~1.55% for insured loans and ~~20.00 percent~~20.00% for uninsured loans. There may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results.

Fair Value Option

Loans Held-for-Sale, Carried at Fair Value: We elected the fair value option for certain SFR mortgage loans held-for-sale. Electing to measure SFR mortgage loans held-for-sale at fair value reduces certain timing differences and better matches changes in the value of these assets with changes in the value of derivatives used as economic hedges for these assets. We also elected to record loans repurchased from GNMA at fair value, as we intend to sell them after curing any defects and, accordingly, they are classified as held-for-sale. Loans previously sold to GNMA that are delinquent more than 90 days are subject to a repurchase option when that condition exists and typically are repurchased by us. To the extent loans are subject to a repurchase option and not repurchased, the loans are re-recognized at fair value and offset by a secured borrowing, as the loans are still legally owned by GNMA. As of ~~March 31,~~June 30, 2020 and December 31, 2019, there ~~are~~were 0 loans subject to such repurchase option and accordingly 0 related secured borrowings.

The following table presents the fair value and aggregate principal balance of certain assets, on a consolidated operations basis, under the fair value option:


	March 31, 2020							December 31, 2019								June 30, 2020										December 31, 2019
($ in thousands)	Fair Value		Unpaid Principal Balance		Difference			Fair Value		Unpaid Principal Balance		Difference			($ in thousands)	Fair Value		Unpaid Principal Balance		Difference		Fair Value		Unpaid Principal Balance		Difference
Loans held-for-sale, carried at fair value:															Loans held-for-sale, carried at fair value:
Total loans	$	20,234	$	22,675	$	(2,441	)	$	22,642	$	23,455	$	(813	)	Total loans	$	19,768	$	22,208	$	(2,440)	$	22,642	$	23,455	$	(813)
Non-accrual loans ⁽¹⁾	5,795		6,901		(1,106		)	8,125		8,370		(245		)	Non-accrual loans ⁽¹⁾	6,147		7,244		(1,097)		8,125		8,370		(245)


~~(1)~~	~~Includes loans guaranteed by the U.S. government of $4.5 million and $6.7 million, respectively, at March 31, 2020 and December 31, 2019.~~

(1) Includes loans guaranteed by the U.S. government of $4.4 million and $6.7 million at June 30, 2020 and December 31, 2019.

There were 0 loans held-for-sale that were 90 days or more past due and still accruing interest as of ~~March 31,~~June 30, 2020 and December 31, 2019.

The assets accounted for under the fair value option are initially measured at fair value. Gains and losses from initial measurement and subsequent changes in fair value are recognized in earnings. The following table presents changes in fair value related to initial measurement and subsequent changes in fair value included in earnings for these assets measured at fair

value for the periods indicated:

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	Three Months Ended March 31,						Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020			2019		($ in thousands)	2020		2019		2020		2019
Net (losses) gains from fair value changes:						Net (losses) gains from fair value changes:
Fair value adjustment for loans held for sale	$	(1,586	)	$	1
Fair value adjustment for loans held-for-sale						Fair value adjustment for loans held-for-sale	$	25	$	59	$	(1,561)	$	60

Interest income on loans held-for-sale under the fair value option is measured based on the contractual interest rate and reported in interest income on loans, including fees in the consolidated statements of operations.

Assets and Liabilities Measured on a Non-Recurring Basis

Impaired Loans: The fair value of impaired loans with specific allocations of the ACL based on collateral is generally based on recent real estate appraisals and automated valuation models ~~(AVMs)~~(“AVMs”). These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers ~~to adjust~~ for differences between the comparable sales and income data available. Such adjustments are typically deemed significant unobservable inputs used for determining fair value and result in a Level 3 classification.

The following table presents our financial assets and liabilities measured at fair value on a non-recurring basis as of the dates indicated:


												Fair Value Measurement Level
($ in thousands)									($ in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2020									June 30, 2020
Assets									Assets

Impaired loans:									Impaired loans:

Commercial and industrial									Commercial and industrial	$	10,049	$	—	$	—	$	10,049

			Fair Value Measurement Level
($ in thousands)	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2020
Assets
Impaired loans:
Commercial and industrial	$	18,275	$	—	$	—	$	18,275
SBA	3,866		—		—		3,866		SBA	664		—		—		664


December 31, 2019									December 31, 2019
Assets									Assets
Impaired loans:									Impaired loans:
Single family residential mortgage	$	3,678	$	—	$	—	$	3,678	Single family residential mortgage	$	3,678	$	—	$	—	$	3,678

Commercial and industrial	15,409		—		—		15,409		Commercial and industrial	15,409		—		—		15,409
SBA	1,711		—		—		1,711		SBA	1,711		—		—		1,711

The following table presents the losses recognized on assets measured at fair value on a non-recurring basis for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020		2019		2020		2019
Impaired loans:
Single family residential mortgage	$	—	$	—	$	(531)	$	(490)
Commercial and industrial	(6,090)		—		(8,514)		—
SBA	(670)		—		(1,544)		(46)
Other consumer	—		—		(4)		(88)

Three Months Ended March 31,
($ in thousands) 2020 2019
Impaired loans:
Single family residential mortgage $ (553 ) $ (490 )
Commercial and industrial (965 ) —
SBA (112 ) (54 )
Other consumer —
(88 )

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Estimated Fair Values of Financial Instruments

The following table presents the carrying amounts and estimated fair values of financial assets and liabilities as of the dates indicated:


	Carrying Amount			Fair Value Measurement Level													Carrying Amount		Fair Value Measurement Level
($ in thousands)			Level 1			Level 2			Level 3			Total			($ in thousands)				Level 1		Level 2		Level 3		Total
March 31, 2020
June 30, 2020																June 30, 2020
Financial assets																Financial assets
Cash and cash equivalents	$	435,992		$	435,992		$	—		$	—		$	435,992		Cash and cash equivalents	$	420,640	$	420,640	$	—	$	—	$	420,640

Securities available-for-sale	969,427			—			969,427			—			969,427			Securities available-for-sale	1,176,029		—		1,176,029		—		1,176,029

Federal Home Loan Bank and other bank stock	57,237			—			57,237			—			57,237			Federal Home Loan Bank and other bank stock	46,585		—		46,585		—		46,585
Loans held-for-sale, carried at fair value	20,234			—			3,107			17,127			20,234			Loans held-for-sale, carried at fair value	19,768		—		3,083		16,685		19,768

Loans receivable, net of allowance for loan losses	5,589,221			—			—			5,711,245			5,711,245			Loans receivable, net of allowance for loan losses	5,537,326		—		—		5,642,634		5,642,634
Accrued interest receivable	24,639			24,639			—			—			24,639			Accrued interest receivable	29,515		29,515		—		—		29,515
Derivative assets	8,611			—			8,611			—			8,611			Derivative assets	8,735		—		8,735		—		8,735
Financial liabilities																Financial liabilities
Deposits	5,562,838			—			—			5,570,289			5,570,289			Deposits	6,037,465		—		—		6,042,349		6,042,349
Advances from Federal Home Loan Bank	978,000			—			1,023,811			—			1,023,811			Advances from Federal Home Loan Bank	617,170		—		666,177		—		666,177
Long term debt	173,479			—			184,104			—			184,104

Long-term debt																Long-term debt	173,537		—		178,030		—		178,030
Derivative liabilities	9,063			—			9,063			—			9,063			Derivative liabilities	9,293		—		9,293		—		9,293
Accrued interest payable	7,210			7,210			—			—			7,210			Accrued interest payable	4,297		4,297		—		—		4,297

December 31, 2019																December 31, 2019
Financial assets																Financial assets
Cash and cash equivalents	$	373,472		$	373,472		$	—		$	—		$	373,472		Cash and cash equivalents	$	373,472	$	373,472	$	—	$	—	$	373,472

Securities available-for-sale	912,580			—			912,580			—			912,580			Securities available-for-sale	912,580		—		912,580		—		912,580

Federal Home Loan Bank and other bank stock	59,420			—			59,420			—			59,420			Federal Home Loan Bank and other bank stock	59,420		—		59,420		—		59,420
Loans held-for-sale	22,642			—			3,409			19,233			22,642			Loans held-for-sale	22,642		—		3,409		19,233		22,642
Loans receivable, net of allowance for credit losses	5,894,236			—			—			5,894,732			5,894,732			Loans receivable, net of allowance for credit losses	5,894,236		—		—		5,894,732		5,894,732
Accrued interest receivable	24,523			24,523			—			—			24,523			Accrued interest receivable	24,523		24,523		—		—		24,523
Derivative assets	3,583			—			3,583			—			3,583			Derivative assets	3,583		—		3,583		—		3,583
Financial liabilities																Financial liabilities
Deposits	5,427,167			—			—			5,430,536			5,430,536			Deposits	5,427,167		—		—		5,430,536		5,430,536
Advances from Federal Home Loan Bank	1,195,000			—			1,222,709			—			1,222,709			Advances from Federal Home Loan Bank	1,195,000		—		1,222,709		—		1,222,709

Long-term debt	173,421			—			180,213			—			180,213			Long-term debt	173,421		—		180,213		—		180,213
Derivative liabilities	3,853			—			3,853			—			3,853			Derivative liabilities	3,853		—		3,853		—		3,853
Accrued interest payable	4,687			4,687			—			—			4,687			Accrued interest payable	4,687		4,687		—		—		4,687

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NOTE 3 – INVESTMENT SECURITIES

The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated:


($ in thousands)										($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020										June 30, 2020

($ in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2020

Securities available-for-sale:										Securities available-for-sale:

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	100,971	$	3,050	$	—		$	104,021	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	100,128	$	5,427	$	—	$	105,555
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	140,797		299		(1,677		)	139,419		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	199,262		1,906		(32)		201,136
Municipal securities	52,985		1,400		—			54,385		Municipal securities	52,973		4,201		—		57,174
Non-agency residential mortgage-backed securities	163		—		(3		)	160		Non-agency residential mortgage-backed securities	161		3		—		164

Collateralized loan obligations	703,605		—		(80,034		)	623,571		Collateralized loan obligations	703,605		—		(35,252)		668,353
Corporate debt securities	47,658		586		(373		)	47,871		Corporate debt securities	141,962		2,387		(702)		143,647
Total securities available-for-sale	$	1,046,179	$	5,335	$	(82,087	)	$	969,427	Total securities available-for-sale	$	1,198,091	$	13,924	$	(35,986)	$	1,176,029
December 31, 2019										December 31, 2019

Securities available-for-sale:										Securities available-for-sale:

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	37,613	$	—	$	(1,157	)	$	36,456	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	37,613	$	—	$	(1,157)	$	36,456
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	91,543		16		(260		)	91,299		U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	91,543		16		(260)		91,299
Municipal securities	52,997		51		(359		)	52,689		Municipal securities	52,997		51		(359)		52,689
Non-agency residential mortgage-backed securities	191		5		—			196		Non-agency residential mortgage-backed securities	191		5		—		196

Collateralized loan obligations	733,605		—		(15,244		)	718,361		Collateralized loan obligations	733,605		—		(15,244)		718,361
Corporate debt securities	13,500		79		—			13,579		Corporate debt securities	13,500		79		—		13,579
Total securities available-for-sale	$	929,449	$	151	$	(17,020	)	$	912,580	Total securities available-for-sale	$	929,449	$	151	$	(17,020)	$	912,580

At ~~March 31,~~June 30, 2020, our investment securities portfolio consisted of agency securities, municipal securities, mortgage-backed securities, collateralized loan obligations, and corporate debt securities. The expected maturities of these types of securities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

There was 0 allowance for credit losses for debt securities as of ~~March 31,~~June 30, 2020. Accrued interest receivable on debt securities available-for-sale totaled ~~$5.7~~$5.5 million and $5.6 million at ~~March 31,~~June 30, 2020 and December 31, 2019, and is included within other assets in the accompanying consolidated ~~balance sheets. This amount~~statements of financial condition. Accrued interest receivable is excluded from the estimate of expected credit losses.

At ~~March 31,~~June 30, 2020 and December 31, 2019, there were no holdings of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10 percent of our stockholders’ equity.

The following table presents proceeds from sales and calls of securities available-for-sale and the associated gross gains and losses realized through earnings upon the sales and calls of securities available-for-sale for the periods indicated:


	Three Months Ended March 31,					Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020		2019		($ in thousands)	2020		2019		2020		2019
Gross realized gains on sales and calls of securities available-for-sale	$	—	$	208	Gross realized gains on sales and calls of securities available-for-sale	$	2,011	$	—	$	2,011	$	208
Gross realized losses on sales and calls of securities available-for-sale	—		—		Gross realized losses on sales and calls of securities available-for-sale	—		—		—		—
Net realized gains on sales and calls of securities available-for-sale	$	—	$	208	Net realized gains on sales and calls of securities available-for-sale	$	2,011	$	—	$	2,011	$	208
Proceeds from sales and calls of securities available-for-sale	$	30,000	$	521,684	Proceeds from sales and calls of securities available-for-sale	$	22,728	$	298,156	$	52,728	$	820,048

Investment securities with carrying values of ~~$39.9~~$42.2 million and $44.0 million as of ~~March 31,~~June 30, 2020 and December 31, 2019, were pledged to secure FHLB advances, public deposits and for other purposes as required or permitted by law.

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The following table summarizes the investment securities with unrealized losses by security type and length of time in a continuous, unrealized loss position as of the dates indicated:


																	Less Than 12 Months						12 Months or Longer						Total
($ in thousands)																($ in thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
June 30, 2020																June 30, 2020

	Less Than 12 Months					12 Months or Longer					Total
($ in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
March 31, 2020

Securities available-for-sale:																Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	104,520	$	(1,677	)	$	—	$	—		$	104,520	$	(1,677	)
Non-agency residential mortgage-backed securities	160		(3		)	—		—			160		(3		)

U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations																U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	$	9,416	$	(32)	$	—	$	—	$	9,416	$	(32)

Collateralized loan obligations	58,887		(6,113		)	564,684		(73,921		)	623,571		(80,034		)	Collateralized loan obligations	63,040		(1,960)		605,313		(33,292)		668,353		(35,252)
Corporate debt securities	17,045		(373		)	—		—			17,045		(373		)	Corporate debt securities	31,798		(702)		—		—		31,798		(702)
Total securities available-for-sale	$	180,612	$	(8,166	)	$	564,684	$	(73,921	)	$	745,296	$	(82,087	)	Total securities available-for-sale	$	104,254	$	(2,694)	$	605,313	$	(33,292)	$	709,567	$	(35,986)

December 31, 2019																December 31, 2019

Securities available-for-sale:																Securities available-for-sale:

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	35,872	$	(1,157	)	$	—	$	—		$	35,872	$	(1,157	)	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	35,872	$	(1,157)	$	—	$	—	$	35,872	$	(1,157)
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	73,379		(260		)	—		—			73,379		(260		)	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	73,379		(260)		—		—		73,379		(260)
Municipal securities	31,723		(359		)	—		—			31,723		(359		)	Municipal securities	31,723		(359)		—		—		31,723		(359)

Collateralized loan obligations	49,553		(447		)	668,808		(14,797		)	718,361		(15,244		)	Collateralized loan obligations	49,553		(447)		668,808		(14,797)		718,361		(15,244)

Total securities available-for-sale	$	190,527	$	(2,223	)	$	668,808	$	(14,797	)	$	859,335	$	(17,020	)	Total securities available-for-sale	$	190,527	$	(2,223)	$	668,808	$	(14,797)	$	859,335	$	(17,020)

At ~~March 31,~~June 30, 2020, our securities available-for-sale portfolio consisted of 85102 securities, 54 of which 50 securities were in an unrealized loss position. At December 31, 2019, our securities available-for-sale portfolio consisted of 70 securities, 60 of which 60 securities were in an unrealized loss position.

We monitor our securities portfolio to ensure it has adequate credit support. The majority of unrealized losses are related to our collateralized loan obligations. We also consider the lowest credit rating for identification of credit impairment for other securities. As of ~~March 31,~~June 30, 2020, ~~nearly~~ all of our ~~non-agency mortgage-backed securities and~~ collateralized loan obligations investment securities in an unrealized loss position received an investment grade credit rating. ~~Although credit spreads widened during the quarter, the~~The decline in fair value iswas attributable to a combination of changes in interest rates and general volatility in the credit market ~~conditions.~~conditions in response to the economic uncertainty caused by the global pandemic. We do not ~~have the intent~~currently intend to sell these 5450 securities in an unrealized loss position and further believe, it is more likely ~~that~~than not, that we will not be required to sell these securities before their anticipated recovery.

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The following table presents maturities, based on the earlier of maturity dates or next repricing date, and yield information of the investment securities portfolio as of ~~March 31,~~June 30, 2020:


	One year or less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total						One year or less						More than One Year through Five Years						More than Five Years through Ten Years						More than Ten Years		Total
($ in thousands)	Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value			Weighted-Average Yield		($ in thousands)	Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield		Fair Value		Weighted-Average Yield
Securities available-for-sale:																						Securities available-for-sale:

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	—	—	%	$	—	—	%	$	29,993	2.20	%	$	74,028	2.36	%	$	104,021		2.32	%	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	—	—	%	$	—	—	%	$	30,413	2.20	%	$	75,142	2.35	%	$	105,555	2.31	%
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	118,165		2.09	%	11,060		2.34	%	10,194		2.43	%	—		—	%	139,419			2.14	%	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	118,163		0.74	%	11,608		2.02	%	25,579		1.63	%	45,786		0.93	%	201,136		0.96	%
Municipal securities	—		—	%	—		—	%	—		—	%	54,385		2.79	%	54,385		—	2.79	%	Municipal securities	—		—	%	—		—	%	—		—	%	57,174		2.79	%	57,174		2.79	%
Non-agency residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	160		5.46	%	160			5.46	%	Non-agency residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	164		6.14	%	164		6.14	%

Collateralized loan obligations	623,571		3.43	%	—		—	%	—		—	%	—		—	%	623,571			3.43	%	Collateralized loan obligations	668,353		2.73	%	—		—	%	—		—	%	—		—	%	668,353		2.73	%
Corporate debt securities	—		—	%	28,207		3.70	%	19,664		4.21	%	—		—	%	47,871			3.91	%	Corporate debt securities	—		—	%	122,301		4.99	%	21,346		5.64	%	—		—	%	143,647		5.08	%
Total securities available-for-sale	$	741,736	3.22	%	$	39,267	3.32	%	$	59,851	2.90	%	$	128,573	2.55	%	$	969,427		3.14	%	Total securities available-for-sale	$	786,516	2.45	%	$	133,909	4.74	%	$	77,338	2.96	%	$	178,266	2.11	%	$	1,176,029	2.68	%

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NOTE 4 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table presents the balances in our loan portfolio as of the dates indicated:


($ in thousands)	June 30, 2020		December 31, 2019

Commercial:
Commercial and industrial	$	1,436,990	$	1,691,270
Commercial real estate	822,694		818,817
Multifamily	1,434,071		1,494,528
SBA⁽¹⁾	310,784		70,981
Construction	212,979		231,350

Consumer:
Single family residential mortgage	1,370,785		1,590,774


Other consumer	39,393		54,165
Total loans⁽²⁾	$	5,627,696	$	5,951,885

Allowance for loan losses	(90,370)		(57,649)
Loans receivable, net	$	5,537,326	$	5,894,236

(1)Includes 1,069 PPP loans totaling $240.7 million, which included $5.6 million of net unamortized loan fees at June 30, 2020.

($ in thousands) March 31,
2020 December 31,
2019
Commercial:
Commercial and industrial $ 1,578,223
$ 1,691,270
Commercial real estate 810,024
818,817
Multifamily 1,466,083
1,494,528
SBA 70,583
70,981
Construction 227,947
231,350
Consumer:
Single family residential mortgage 1,467,375
1,590,774
Other consumer 47,229
54,165
Total loans⁽¹⁾
$ 5,667,464
$ 5,951,885
Allowance for loan losses (78,243 ) (57,649 )
Loans receivable, net $ 5,589,221
$ 5,894,236
(2)Total loans include deferred loan origination costs/(fees) and premiums/(discounts), net, of $6.0 million and $14.3 million, respectively, at June 30, 2020 and December 31, 2019.


~~(1)~~	~~Total loans include deferred loan origination costs/(fees) and premiums/(discounts), net, of $13.2 million and $14.3 million, respectively, at March 31, 2020 and December 31, 2019.~~

Credit Quality Indicators

We categorize loans into risk categories based on relevant information about the ability of borrowers to ~~service~~repay their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. We perform a historical loss analysis that is combined with a comprehensive loan to value analysis to analyze the associated risks in the current loan portfolio. We analyze loans individually ~~by classifying the loans as to~~and grade each loan for credit risk. This analysis includes all loans delinquent over 60 days and non-homogeneous loans such as commercial and commercial real estate loans. We use the following definitions for credit risk ratings:

Pass: Loans ~~classified~~risk rated as pass are in compliance in all respects with the Bank’s credit policy and regulatory requirements, and do not exhibit any potential or defined weakness as defined under “Special Mention”, “Substandard” or “Doubtful”.

Special Mention: Loans ~~classified~~risk rated as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or ~~lease or~~ of our credit position at some future date.

Substandard: Loans ~~classified~~risk rated as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so ~~classified~~risk rated have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Table of Contents

The following table presents the risk categories for total loans by class of loans and origination year as of ~~March 31,~~June 30, 2020:


	Term Loans Amortized Cost Basis by Origination Year
($ in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term		Total
June 30, 2020
















Commercial:
Commercial and industrial
Pass	$	59,122	$	111,437	$	104,299	$	63,923	$	41,163	$	111,761	$	851,369	$	4,252	$	1,347,326
Special mention	—		6,382		5,988		—		—		1,379		812		189		14,750
Substandard	2,117		16,658		—		4,864		20,677		9,632		10,752		10,214		74,914
Doubtful	—		—		—		—		—		—		—		—		—
Commercial and industrial	61,239		134,477		110,287		68,787		61,840		122,772		862,933		14,655		1,436,990
Commercial real estate
Pass	15,261		153,017		215,385		72,949		102,465		198,242		36,628		1,586		795,533
Special mention	—		1,829		9,570		—		—		6,732		—		—		18,131
Substandard	—		—		—		—		—		9,030		—		—		9,030
Doubtful	—		—		—		—		—		—		—		—		—
Commercial real estate	15,261		154,846		224,955		72,949		102,465		214,004		36,628		1,586		822,694
Multifamily
Pass	84,873		421,045		334,029		272,657		131,646		187,823		—		—		1,432,073
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		1,998		—		—		1,998
Doubtful	—		—		—		—		—		—		—		—		—
Multifamily	84,873		421,045		334,029		272,657		131,646		189,821		—		—		1,434,071
SBA
Pass	241,305		16,021		1,359		5,195		14,975		19,479		3,238		797		302,369
Special mention	—		—		—		226		417		948		—		6		1,597
Substandard	—		—		—		1,009		1,513		1,440		320		1,126		5,408
Doubtful	—		—		390		—		—		633		—		387		1,410
SBA	241,305		16,021		1,749		6,430		16,905		22,500		3,558		2,316		310,784
Construction
Pass	14,139		33,423		63,217		86,787		—		—		—		—		197,566
Special mention	—		—		10,526		—		4,887		—		—		—		15,413
Substandard	—		—		—		—		—		—		—		—		—

Table of Contents


	Term Loans Amortized Cost Basis by Origination Year
($ in thousands)	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Amortized Cost Basis Converted to Term		Total
March 31, 2020
Commercial:
Commercial and industrial
Doubtful																			Doubtful	—		—		—			—		—		—		—		—		—
Construction																			Construction	14,139		33,423		73,743			86,787		4,887		—		—		—		212,979
Consumer:																			Consumer:
Single family residential mortgage																			Single family residential mortgage
Pass	$	15,168	$	121,892	$	112,591	$	69,585	$	44,205	$	138,326	$	983,178	$	4,743	$	1,489,688	Pass	31,007		166,668		329,175			204,392		297,182		281,160		20,844		—		1,330,428
Special mention	—		6,473		1,341		—		—		—		12,776		2,284		22,874		Special mention	—		—		1,152			668		4,416		3,503		—		—		9,739
Substandard	2,546		17,425		—		194		21,555		2,605		13,087		8,249		65,661		Substandard	—		1,064		1,697			3,414		3,900		20,543		—		—		30,618
Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—			—		—		—		—		—		—
Commercial and industrial	17,714		145,790		113,932		69,779		65,760		140,931		1,009,041		15,276		1,578,223
Commercial real estate
Single family residential mortgage																			Single family residential mortgage	31,007		167,732		332,024		��	208,474		305,498		305,206		20,844		—		1,370,785
Other consumer																			Other consumer
Pass	15,189		152,789		229,702		73,134		102,913		218,978		8,011		1,588		802,304		Pass	26		93		72			—		8		2,485		31,303		2,577		36,564
Special mention	—		1,803		—		—		—		742		—		—		2,545		Special mention	—		—		27			—		—		33		248		147		455
Substandard	—		—		—		—		—		5,175		—		—		5,175		Substandard	—		—		—			—		—		2,016		281		77		2,374
Doubtful	—		—		—		—		—		—		—		—		—		Doubtful	—		—		—			—		—		—		—		—		—
Commercial real estate	15,189		154,592		229,702		73,134		102,913		224,895		8,011		1,588		810,024
Multifamily
Pass	49,455		440,695		338,904		276,075		151,406		197,596		—		—		1,454,131
Special mention	—		—		8,960		—		—		—		—		—		8,960
Substandard	—		—		—		—		—		2,992		—		—		2,992
Doubtful	—		—		—		—		—		—		—		—		—
Multifamily	49,455		440,695		347,864		276,075		151,406		200,588		—		—		1,466,083
SBA
Pass	1,787		16,067		1,388		5,300		15,105		19,797		1,667		515		61,626
Special mention	—		—		—		229		479		987		—		7		1,702
Substandard	—		—		—		1,060		1,529		1,515		336		1,197		5,637
Doubtful	—		—		390		—		208		633		—		387		1,618
SBA	1,787		16,067		1,778		6,589		17,321		22,932		2,003		2,106		70,583
Construction
Pass	12,948		39,120		76,619		87,270		—		—		—		—		215,957
Special mention	—		—		8,012		—		3,978		—		—		—		11,990
Substandard	—		—		—		—		—		—		—		—		—
Other consumer																			Other consumer	26		93		99			—		8		4,534		31,832		2,801		39,393

Total loans																			Total loans	$	447,850	$	927,637	$	1,076,886		$	716,084	$	623,249	$	858,837	$	955,795	$	21,358	$	5,627,696

Doubtful —
—
—
—
—
—
—
—
—
Construction 12,948
39,120
84,631
87,270
3,978
—
—
—
227,947
Consumer:
Single family residential mortgage
Pass 5,431
177,908
371,674
221,287
328,033
304,408
21,157
—
1,429,898
Special mention —
—
1,157
668
5,070
4,057
—
—
10,952
Substandard —
1,074
498
3,420
3,253
17,763
—
—
26,008
Doubtful —
—
—
—
517
—
—
—
517
Single family residential mortgage 5,431
178,982
373,329
225,375
336,873
326,228
21,157
—
1,467,375
Other consumer
Pass 55
95
86
—
14
5,332
37,992
2,941
46,515
Special mention —
—
—
—
—
—
—
224
224
Substandard —
—
35
—
—
34
322
99
490
Doubtful —
—
—
—
—
—
—
—
—
Other consumer 55
95
121
—
14
5,366
38,314
3,264
47,229
Total loans $ 102,579
$ 975,341
$ 1,151,357
$ 738,222
$ 678,265
$ 920,940
$ 1,078,526
$ 22,234
$ 5,667,464

The following table presents the risk categories for total loans by class of loans as of December 31, 2019:


($ in thousands)	Pass		Special Mention		Substandard		Doubtful		Total






























December 31, 2019







Commercial:
Commercial and industrial	1,580,269		45,323		65,678		—		1,691,270
Commercial real estate	813,846		2,532		2,439		—		818,817
Multifamily	1,484,931		4,256		5,341		—		1,494,528
SBA	60,982		2,760		5,621		1,618		70,981
Construction	229,771		1,579		—		—		231,350

Consumer:
Single family residential mortgage	1,559,253		10,735		20,269		517		1,590,774
Other consumer	53,331		346		488		—		54,165










Total	$	5,782,383	$	67,531	$	99,836	$	2,135	$	5,951,885

Table of Contents

Past Due Loans

The following table presents the aging of the recorded investment in past due loans, excluding accrued interest receivable (which is not considered to be material), by class of loans as of the dates indicated:


($ in thousands)													($ in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total
June 30, 2020													June 30, 2020
Non-Traditional Mortgage (NTM) loans:													Non-Traditional Mortgage (NTM) loans:
Single family residential mortgage													Single family residential mortgage	$	9,262	$	647	$	18,552	$	28,461	$	481,144	$	509,605

($ in thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total
March 31, 2020
Non-Traditional Mortgage (NTM) loans:
Single family residential mortgage	$	8,043	$	5,383	$	14,577	$	28,003	$	530,161	$	558,164
Other consumer	—		—		—		—		1,894		1,894		Other consumer	—		—		—		—		1,598		1,598
Total NTM loans	8,043		5,383		14,577		28,003		532,055		560,058		Total NTM loans	9,262		647		18,552		28,461		482,742		511,203
Traditional loans:													Traditional loans:
Commercial:													Commercial:
Commercial and industrial	649		3,687		2,601		6,937		1,571,286		1,578,223		Commercial and industrial	891		28		13,072		13,991		1,422,999		1,436,990
Commercial real estate	—		264		—		264		809,760		810,024		Commercial real estate	—		1,464		2,189		3,653		819,041		822,694
Multifamily	—		—		—		—		1,466,083		1,466,083		Multifamily	664		—		—		664		1,433,407		1,434,071
SBA	2,009		222		2,643		4,874		65,709		70,583		SBA	1,517		—		2,627		4,144		306,640		310,784
Construction	734		—		—		734		227,213		227,947		Construction	—		—		—		—		212,979		212,979

Consumer:													Consumer:
Single family residential mortgage	32,993		1,600		8,771		43,364		865,847		909,211		Single family residential mortgage	29,281		4,286		8,252		41,819		819,361		861,180
Other consumer	754		—		40		794		44,541		45,335		Other consumer	285		1,485		692		2,462		35,333		37,795
Total traditional loans	37,139		5,773		14,055		56,967		5,050,439		5,107,406		Total traditional loans	32,638		7,263		26,832		66,733		5,049,760		5,116,493

Total	$	45,182	$	11,156	$	28,632	$	84,970	$	5,582,494	$	5,667,464	Total	$	41,900	$	7,910	$	45,384	$	95,194	$	5,532,502	$	5,627,696

December 31, 2019													December 31, 2019
NTM loans:													NTM loans:
Single family residential mortgage	$	3,973	$	3,535	$	13,019	$	20,527	$	577,830	$	598,357	Single family residential mortgage	$	3,973	$	3,535	$	13,019	$	20,527	$	577,830	$	598,357

Other consumer	—		—		—		—		2,299		2,299		Other consumer	—		—		—		—		2,299		2,299
Total NTM loans	3,973		3,535		13,019		20,527		580,129		600,656		Total NTM loans	3,973		3,535		13,019		20,527		580,129		600,656
Traditional loans:													Traditional loans:
Commercial:													Commercial:
Commercial and industrial	780		5,670		3,862		10,312		1,680,958		1,691,270		Commercial and industrial	780		5,670		3,862		10,312		1,680,958		1,691,270
Commercial real estate	—		—		—		—		818,817		818,817		Commercial real estate	—		—		—		—		818,817		818,817
Multifamily	—		—		—		—		1,494,528		1,494,528		Multifamily	—		—		—		—		1,494,528		1,494,528
SBA	586		842		2,152		3,580		67,401		70,981		SBA	586		842		2,152		3,580		67,401		70,981
Construction	—		—		—		—		231,350		231,350		Construction	—		—		—		—		231,350		231,350

Consumer:													Consumer:
Single family residential mortgage	13,752		3,496		5,606		22,854		969,563		992,417		Single family residential mortgage	13,752		3,496		5,606		22,854		969,563		992,417
Other consumer	199		40		95		334		51,532		51,866		Other consumer	199		40		95		334		51,532		51,866
Total traditional loans	15,317		10,048		11,715		37,080		5,314,149		5,351,229		Total traditional loans	15,317		10,048		11,715		37,080		5,314,149		5,351,229

Total	$	19,290	$	13,583	$	24,734	$	57,607	$	5,894,278	$	5,951,885	Total	$	19,290	$	13,583	$	24,734	$	57,607	$	5,894,278	$	5,951,885

In accordance with regulatory guidance, borrowers that received forbearance or deferment, which were current prior to becoming affected by the global pandemic, generally should not be reported as past due. At June 30, 2020, 0 loans that received forbearance or deferment were considered past due and, accordingly, are not included in the table above.

Table of Contents

Non-accrual Loans

The following table presents non-accrual loans as of the dates indicated:


	March 31, 2020								December 31, 2019									June 30, 2020														December 31, 2019
($ in thousands)	NTM Loans		Traditional Loans		Total Non-accrual Loans		Non-accrual Loans with no ACL		NTM Loans		Traditional Loans		Total Non-accrual Loans		Non-accrual Loans with no ACL		($ in thousands)	NTM Loans		Traditional Loans		Total Non-accrual Loans		Non-accrual Loans with no ACL		NTM Loans		Traditional Loans		Total Non-accrual Loans		Non-accrual Loans with no ACL
Non-accrual loans																	Non-accrual loans
Commercial:																	Commercial:
Commercial and industrial	$	—	$	23,638	$	23,638	$	5,364	$	—	$	19,114	$	19,114	$	337	Commercial and industrial	$	—	$	30,398	$	30,398	$	10,728	$	—	$	19,114	$	19,114	$	337
Commercial real estate	—		2,763		2,763		2,763		—		—		—		—		Commercial real estate	—		6,633		6,633		6,632		—		—		—		—

SBA	—		5,374		5,374		1,508		—		5,230		5,230		1,474		SBA	—		5,026		5,026		1,485		—		5,230		5,230		1,474
Construction	—		—		—		—		—		—		—		—		Construction	—		—		—		—		—		—		—		—

Consumer:																	Consumer:
Single family residential mortgage	15,605		8,771		24,376		24,376		13,019		5,606		18,625		14,373		Single family residential mortgage	19,199		9,271		28,470		28,470		13,019		5,606		18,625		14,373

Other consumer	—		320		320		320		—		385		385		380		Other consumer	—		2,176		2,176		2,177		—		385		385		380
Total non-accrual loans	$	15,605	$	40,866	$	56,471	$	34,331	$	13,019	$	30,335	$	43,354	$	16,564	Total non-accrual loans	$	19,199	$	53,504	$	72,703	$	49,492	$	13,019	$	30,335	$	43,354	$	16,564

At ~~March 31,~~June 30, 2020 and December 31, 2019, there were 0loans that were past due 90 days or more and still accruing.

The non-traditional mortgage ~~("NTM"~~(“NTM”) loans on non-accrual status included ~~$4.7~~$4.6 million of Green ~~loans~~Loans and ~~$10.9~~$14.6 million of interest-only loans at ~~March 31,~~June 30, 2020 compared to $1.5 million of Green ~~loans~~Loans and $11.5 million of interest-only loans at December 31, 2019.

Loans in Process of Foreclosure

At ~~March 31,~~June 30, 2020 and December 31, 2019, consumer mortgage loans of ~~$15.7~~$6.3 million and $15.7 million, respectively, were secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdiction.

Allowance for Credit Losses

Our ACL is comprised of our allowance for loan losses ~~(ALL)~~(“ALL”) and reserve for unfunded loan commitments. Our ACL methodology and resulting provision ~~was significantly~~continues to be impacted by the current economic uncertainty and volatility caused by the COVID-19 pandemic. Our ACL methodology uses a ~~nationally-recognized, third party~~nationally recognized, third-party model that includes many assumptions based on our historical and peer loss data, our current loan portfolio risk profile including risk ratings, and economic ~~forecasts. Loan-level data and credit-risk attributes are incorporated into the model and adjusted based on a peer-multiplier and economic forecasts. The~~ forecasts ~~are based on critical~~including macroeconomic variables ~~with relevant ranges~~(“MEVs”). As of one to three years which then revert to long-term trends over the life of the loan. We utilized economic forecasts published by our model provider to determine the ACL on January 1, 2020. Subsequent to adoption,June 30, 2020, we used economic forecasts released by our model provider during June 2020. Similar to the ~~last week of~~late March ~~which included~~2020 forecasts, these June 2020 forecasts reflect the onset of the ~~pandemic.~~pandemic, its impact on MEVs and the future economic recovery. These ~~latter~~ forecasts included a sharp contraction in annualized GDP growth and a sharp spike in near-term unemployment rates ranging from 8% to 13%, before returning to moderate long-term economic trends. Our visibility atpublished by our model provider have deteriorated since the end of the first quarter ~~indicated that local~~of 2020, with June baseline unemployment ~~was heading higher~~rate forecasts for 2020 and ~~that~~2021 increasing and real gross domestic product growth rates decreasing. Similar to our methodology used in the ~~economic recovery would likely be slower. Accordingly,~~first quarter of 2020, we incorporated qualitative factors to account for ~~this visibility at quarter end related to actual conditions~~certain loan portfolio characteristics that are not taken into consideration by our third-party model, including underlying strengths and ~~an economic outlook that was worse than~~weaknesses in the ~~late March forecasts incorporated into~~loan portfolio. As is the ~~CECL model. As a result of the COVID-19 pandemic and adoption of CECL,~~case with all estimates, we expect ~~our allowance for credit losses to continue~~the ACL to be impacted in future periods by economic volatility, changing economic forecasts, ~~as well as the related impacts to CECL~~actual and projected credit experience, and underlying model ~~assumptions,~~assumptions; all of which may be better than or worse than our current estimate.

The ACL process involves subjective and complex judgments as well as adjustments for numerous factors including those described in the federal banking agencies' joint interagency policy statement on ALL, which include underwriting experience and collateral value changes, among others. We evaluate all impaired loans individually using guidance from ASC 310 primarily through the evaluation of cash flows or collateral values.

Table of Contents

We have established credit risk management processes that include regular management review of the loan portfolio to identify problem loans. During the ordinary course of business, management may become aware of borrowers who may not be able to fulfill ~~the~~their contractual payment requirements ofwithin the loan agreements. Such loans are subject to increased monitoring. Consideration is given to placing ~~the loan~~these loans on non-accrual status, assessing the need for additional allowance for loan loss, and ~~partial~~partially or ~~full charge~~fully charging off the principal balance. We maintain the allowance for loan losses at a level that is considered adequate to cover the expected credit losses in the loan portfolio.

~~We maintain a~~The reserve for unfunded loan commitments ~~at a level that~~ is ~~considered adequate~~established to cover the expected credit losses for the ~~portion~~estimated level of ~~commitments that ultimately fund. The estimated~~ funding of ~~the~~these loan commitments, ~~and credit risk factors are determined based on outstanding loans that share similar credit risk exposure are used to determine the adequacy of the reserve.~~

except for unconditionally cancellable commitments for which no reserve is required under ASC 326. At ~~March 31,~~June 30, 2020 and December 31, 2019, the reserve for unfunded loan commitments was ~~$3.9~~$4.2 million and $4.1 million, respectively, and ~~are~~was included in accrued expenses and other liabilities on the consolidated statements of financial condition.

The credit risk monitoring system is designed to identify impaired and potential problem loans, ~~and to~~ perform periodic evaluation of impairment, and determine the adequacy of the allowance for credit losses in a timely manner. In addition, management has adopted a credit policy that includes a credit review and control system that it believes should be effective in ensuring that we maintain an adequate allowance for credit losses. ~~In addition,~~Further, the Board of Directors provides oversight and guidance for management’s allowance evaluation process.

The following table presents a summary of activity in the ACL for the periods indicated:


	Three Months Ended March 31,																			Three Months Ended June 30,
($ in thousands)	2020									2019									($ in thousands)	2020										2019
	Allowance for Loan Losses			Reserve for Unfunded Loan Commitments			Allowance for Credit Losses			Allowance for Loan Losses			Reserve for Unfunded Loan Commitments			Allowance for Credit Losses				Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	$	57,649		$	4,064		$	61,713		$	62,192		$	4,622		$	66,814		Balance at beginning of period	$	78,243	$	3,888	$	82,131	$	63,885	$	4,208	$	68,093
Impact of adopting ASU 2016-13	7,609			(1,226		)	6,383			—			—			—

Loans charged off	(2,076		)	—			(2,076		)	(1,063		)	—			(1,063		)	Loans charged off	—		—		—		(2,451)		—		(2,451)
Recoveries of loans previously charged off	350			—			350			244			—			244			Recoveries of loans previously charged off	608		—		608		76		—		76
Net charge-offs	(1,726		)	—			(1,726		)	(819		)	—			(819		)	Net charge-offs	608		—		608		(2,375)		—		(2,375)

Provision for (reversal of) credit losses	14,711			1,050			15,761			2,512			(414		)	2,098			Provision for (reversal of) credit losses	11,519		307		11,826		(1,987)		87		(1,900)
Balance at end of period	$	78,243		$	3,888		$	82,131		$	63,885		$	4,208		$	68,093		Balance at end of period	$	90,370	$	4,195	$	94,565	$	59,523	$	4,295	$	63,818


	Six Months Ended June 30,
($ in thousands)	2020										2019
	Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	$	57,649	$	4,064	$	61,713	$	62,192	$	4,622	$	66,814
Impact of adopting ASU 2016-13	7,609		(1,226)		6,383		—		—		—
Loans charged off	(2,076)		—		(2,076)		(3,514)		—		(3,514)
Recoveries of loans previously charged off	958		—		958		320		—		320
Net charge-offs	(1,118)		—		(1,118)		(3,194)		—		(3,194)

Provision for (reversal of) credit losses	26,230		1,357		27,587		525		(327)		198
Balance at end of period	$	90,370	$	4,195	$	94,565	$	59,523	$	4,295	$	63,818

Table of Contents

Accrued interest receivable on loans receivable, net totaled ~~$18.8~~$23.8 million and $18.9 million at ~~March 31,~~June 30, 2020 and December 31, 2019, and is included within other assets in the accompanying consolidated ~~balance sheets. This amount~~statements of financial condition. Accrued interest receivable is excluded from the estimate of expected credit losses.

The following table presents the activity and balance in the ALL and the recorded investment, excluding accrued interest, in loans based on the impairment methodology as of or for the three and six months ended ~~March 31,~~June 30, 2020:


($ in thousands)	Commercial and Industrial		Commercial Real Estate		Multifamily		SBA		Construction		Single Family Residential Mortgage		Other Consumer		Total
ALL:
Balance at March 31, 2020	$	23,573	$	13,620	$	20,072	$	3,652	$	7,052	$	9,593	$	681	$	78,243

Charge-offs	—		—		—		—		—		—		—		—
Recoveries	119		—		—		—		—		488		1		608
Net recoveries (charge-offs)	119		—		—		—		—		488		1		608

Provision for (reversal of) credit losses	2,926		3,752		5,033		532		(377)		(416)		69		11,519
Balance at June 30, 2020	$	26,618	$	17,372	$	25,105	$	4,184	$	6,675	$	9,665	$	751	$	90,370

Balance at December 31, 2019	$	22,353	$	5,941	$	11,405	$	3,120	$	3,906	$	10,486	$	438	$	57,649
Impact of adopting ASC 326	662		4,847		1,809		388		103		(420)		220		7,609
Charge-offs	(1,164)		—		—		(356)		—		(552)		(4)		(2,076)
Recoveries	149		—		—		121		—		639		49		958
Net (charge-offs) recoveries	(1,015)		—		—		(235)		—		87		45		(1,118)

Provision (reversal)	4,618		6,584		11,891		911		2,666		(488)		48		26,230
Balance at June 30, 2020	$	26,618	$	17,372	$	25,105	$	4,184	$	6,675	$	9,665	$	751	$	90,370

Individually evaluated for impairment	$	9,697	$	—	$	—	$	2,878	$	—	$	—	$	—	$	12,575
Collectively evaluated for impairment	16,921		17,372		25,105		1,306		6,675		9,665		751		77,795

Total ending ALL balance	$	26,618	$	17,372	$	25,105	$	4,184	$	6,675	$	9,665	$	751	$	90,370
Loans:
Individually evaluated for impairment	$	31,129	$	5,168	$	—	$	4,959	$	—	$	32,999	$	970	$	75,225
Collectively evaluated for impairment	1,405,861		817,526		1,434,071		305,825		212,979		1,337,786		38,423		5,552,471

Total ending loan balances	$	1,436,990	$	822,694	$	1,434,071	$	310,784	$	212,979	$	1,370,785	$	39,393	$	5,627,696

Table of Contents

($ in thousands) Commercial and Industrial Commercial Real Estate Multifamily SBA Construction Single Family Residential Mortgage Other Consumer Total
ALL:
Balance at December 31, 2019 $ 22,353
$ 5,941
$ 11,405
$ 3,120
$ 3,906
$ 10,486
$ 438
$ 57,649
Impact of adopting ASC 326 662
4,847
1,809
388
103
(420 ) 220
7,609
Charge-offs (1,164 ) —
—
(356 ) —
(552 ) (4 ) (2,076 )
Recoveries 30
—
—
121
—
151
48
350
Net (charge-offs) recoveries (1,134 ) —
—
(235 ) —
(401 ) 44
(1,726 )
Provision for (reversal of) credit losses 1,692
2,832
6,858
379
3,043
(72 ) (21 ) 14,711
Balance at March 31, 2020 $ 23,573
$ 13,620
$ 20,072
$ 3,652
$ 7,052
$ 9,593
$ 681
$ 78,243

Individually evaluated for impairment $ 3,606
$ —
$ —
$ 2,208
$ —
$ —
$ —
$ 5,814
Collectively evaluated for impairment 19,967
13,620
20,072
1,444
7,052
9,593
681
72,429
Total ending ALL balance $ 23,573
$ 13,620
$ 20,072
$ 3,652
$ 7,052
$ 9,593
$ 681
$ 78,243
Loans:
Individually evaluated for impairment $ 24,594
$ 2,763
$ —
$ 5,292
$ —
$ 29,183
$ 614
$ 62,446
Collectively evaluated for impairment 1,553,629
807,261
1,466,083
65,291
227,947
1,438,192
46,615
5,605,018
Total ending loan balances $ 1,578,223
$ 810,024
$ 1,466,083
$ 70,583
$ 227,947
$ 1,467,375
$ 47,229
$ 5,667,464


($ in thousands)	Commercial and Industrial			Commercial Real Estate		Multifamily		SBA			Construction			Lease Financing			Single Family Residential Mortgage			Other Consumer			Total			($ in thousands)	Commercial and Industrial		Commercial Real Estate		Multifamily		SBA		Construction		Lease Financing		Single Family Residential Mortgage		Other Consumer		Total
ALL:																										ALL:
Balance at March 31, 2019																										Balance at March 31, 2019	$	18,893	$	6,838	$	18,898	$	3,057	$	3,453	$	—	$	12,142	$	604	$	63,885
Charge-offs																										Charge-offs	(2,022)		—		(6)		8		—		—		(425)		(6)		(2,451)
Recoveries																										Recoveries	11		—		—		60		—		3		—		2		76
Net (charge-offs) recoveries																										Net (charge-offs) recoveries	(2,011)		—		(6)		68		—		3		(425)		(4)		(2,375)

Provision for (reversal of) credit losses																										Provision for (reversal of) credit losses	4,647		39		(6,267)		(5)		262		(3)		(645)		(15)		(1,987)
Balance at June 30, 2019																										Balance at June 30, 2019	$	21,529	$	6,877	$	12,625	$	3,120	$	3,715	$	—	$	11,072	$	585	$	59,523

Balance at December 31, 2018	$	18,191		$	6,674	$	17,970	$	1,827		$	3,461		$	—		$	13,128		$	941		$	62,192		Balance at December 31, 2018	$	18,191	$	6,674	$	17,970	$	1,827	$	3,461	$	—	$	13,128	$	941	$	62,192
Charge-offs	(93		)	—		—		(356		)	—			—			(526		)	(88		)	(1,063		)	Charge-offs	(2,115)		—		(6)		(348)		—		—		(951)		(94)		(3,514)
Recoveries	33			—		—		41			—			3			150			17			244			Recoveries	44		—		—		101		—		6		150		19		320
Net (charge-offs) recoveries	(60		)	—		—		(315		)	—			3			(376		)	(71		)	(819		)	Net (charge-offs) recoveries	(2,071)		—		(6)		(247)		—		6		(801)		(75)		(3,194)
Provision for (reversal of) credit losses	762			164		928		1,545			(8		)	(3		)	(610		)	(266		)	2,512
Balance at March 31, 2019	$	18,893		$	6,838	$	18,898	$	3,057		$	3,453		$	—		$	12,142		$	604		$	63,885

Provision (reversal)																										Provision (reversal)	5,409		203		(5,339)		1,540		254		(6)		(1,255)		(281)		525
Balance at June 30, 2019																										Balance at June 30, 2019	$	21,529	$	6,877	$	12,625	$	3,120	$	3,715	$	—	$	11,072	$	585	$	59,523

Individually evaluated for impairment	$	48		$	—	$	—	$	1,634		$	—		$	—		$	230		$	33		$	1,945		Individually evaluated for impairment	$	1,239	$	—	$	—	$	1,563	$	—	$	—	$	—	$	22	$	2,824
Collectively evaluated for impairment	18,845			6,838		18,898		1,423			3,453			—			11,912			571			61,940			Collectively evaluated for impairment	20,290		6,877		12,625		1,557		3,715		—		11,072		563		56,699

Total ending ALL balance	$	18,893		$	6,838	$	18,898	$	3,057		$	3,453		$	—		$	12,142		$	604		$	63,885		Total ending ALL balance	$	21,529	$	6,877	$	12,625	$	3,120	$	3,715	$	—	$	11,072	$	585	$	59,523
Loans:																										Loans:
Individually evaluated for impairment	$	4,861		$	573	$	—	$	3,808		$	2,519		$	—		$	20,362		$	841		$	32,964		Individually evaluated for impairment	$	20,429	$	—	$	—	$	3,262	$	2,519	$	—	$	21,021	$	1,169	$	48,400
Collectively evaluated for impairment	1,902,241			864,948		2,332,527		71,190			209,030			—			2,082,332			61,968			7,524,236			Collectively evaluated for impairment	1,931,278		856,497		1,598,978		77,667		206,510		—		1,940,044		60,196		6,671,170

Total ending loan balances	$	1,907,102		$	865,521	$	2,332,527	$	74,998		$	211,549		$	—		$	2,102,694		$	62,809		$	7,557,200		Total ending loan balances	$	1,951,707	$	856,497	$	1,598,978	$	80,929	$	209,029	$	—	$	1,961,065	$	61,365	$	6,719,570

Table of Contents

The following table presents loans individually evaluated for impairment by class of loans as of the dates indicated. The recorded investment, excluding accrued interest, presents customer balances net of any partial charge-offs recognized on the loans and net of any deferred fees and costs and any purchase premium or discount.


	March 31, 2020						December 31, 2019							June 30, 2020										December 31, 2019
($ in thousands)	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		($ in thousands)	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses
With no related ALL recorded:													With no related ALL recorded:
Commercial:													Commercial:
Commercial and industrial	$	6,332	$	6,319	$	—	$	1,471	$	1,460	$	—	Commercial and industrial	$	11,455	$	11,383	$	—	$	1,471	$	1,460	$	—
Commercial real estate	2,968		2,763		—		—		—		—		Commercial real estate	5,418		5,168		—		—		—		—

SBA	1,489		1,426		—		1,439		1,379		—		SBA	1,474		1,417		—		1,439		1,379		—

Consumer:													Consumer:
Single family residential mortgage	29,024		29,183		—		19,319		19,405		—		Single family residential mortgage	32,849		32,999		—		19,319		19,405		—
Other consumer	611		614		—		671		675		—		Other consumer	1,431		970		—		671		675		—
With an ALL recorded:													With an ALL recorded:
Commercial:													Commercial:
Commercial and industrial	18,268		18,275		3,606		18,776		18,776		3,367		Commercial and industrial	19,739		19,746		9,697		18,776		18,776		3,367

SBA	4,050		3,866		2,208		3,921		3,757		2,045		SBA	3,731		3,542		2,878		3,921		3,757		2,045

Consumer:													Consumer:
Single family residential mortgage	—		—		—		4,213		4,252		574		Single family residential mortgage	—		—		—		4,213		4,252		574
Other consumer	—		—		—		4		4		4		Other consumer	—		—		—		4		4		4
Total	$	62,742	$	62,446	$	5,814	$	49,814	$	49,708	$	5,990	Total	$	76,097	$	75,225	$	12,575	$	49,814	$	49,708	$	5,990

The following table presents information on impaired loans, disaggregated by class, for the periods indicated:



	Three Months Ended										Six Months Ended
($ in thousands)	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
June 30, 2020
Commercial:
Commercial and industrial	$	29,992	$	16	$	18	$	26,452	$	37	$	39
Commercial real estate	5,210		—		—		3,992		—		—

SBA	5,172		3		4		5,293		6		7


Consumer:
Single family residential mortgage	33,356		56		34		31,420		110		79
Other consumer	2,084		—		—		1,351		3		3
Total	$	75,814	$	75	$	56	$	68,508	$	156	$	128

June 30, 2019
Commercial:
Commercial and industrial	$	20,794	$	255	$	254	$	12,921	$	255	$	254
Commercial real estate	—		—		—		289		—		—

SBA	3,297		4		4		3,571		8		8
Construction	2,519		—		—		2,519		—		—

Consumer:
Single family residential mortgage	21,092		58		48		20,208		116		97
Other consumer	1,177		4		3		1,011		7		6
Total	$	48,879	$	321	$	309	$	40,519	$	386	$	365

Table of Contents

Three Months Ended
($ in thousands) Average Recorded Investment Interest Income Recognized Cash Basis Interest Recognized
March 31, 2020
Commercial:
Commercial and industrial $ 22,912
$ 21
$ 21
Commercial real estate 2,774
—
—
SBA 5,414
3
3
Consumer:
Single family residential mortgage 29,483
54
45
Other consumer 617
3
3
Total $ 61,200
$ 81
$ 72

March 31, 2019
Commercial:
Commercial and industrial $ 5,048
$ —
$ —
Commercial real estate 577
—
—
SBA 3,845
4
4
Construction 2,519
—
—
Consumer:
Single family residential mortgage 19,323
58
49
Other consumer 844
3
3
Total $ 32,156
$ 65
$ 56

Troubled Debt Restructurings

A modification of a loan constitutes a TDR when we, for economic or legal reasons related to a borrower’s financial difficulties, grant a concession to the borrower that we would not otherwise consider. A concession or concessions may be granted in various forms, including a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a note split with principal forgiveness. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

TDR loans consisted of the following as of the dates indicated:


	March 31, 2020						December 31, 2019							June 30, 2020										December 31, 2019
($ in thousands)	NTM Loans		Traditional Loans		Total		NTM Loans		Traditional Loans		Total		($ in thousands)	NTM Loans		Traditional Loans		Total		NTM Loans		Traditional Loans		Total
Commercial:													Commercial:
Commercial and industrial	$	—	$	21,586	$	21,586	$	—	$	16,245	$	16,245	Commercial and industrial	$	—	$	20,808	$	20,808	$	—	$	16,245	$	16,245
SBA	—		266		266		—		266		266		SBA	—		266		266		—		266		266
Consumer:													Consumer:
Single family residential mortgage	2,630		2,176		4,806		2,638		2,394		5,032		Single family residential mortgage	2,628		2,170		4,798		2,638		2,394		5,032

Other consumer	294		—		294		294		—		294		Other consumer	—		—		—		294		—		294
Total	$	2,924	$	24,028	$	26,952	$	2,932	$	18,905	$	21,837	Total	$	2,628	$	23,244	$	25,872	$	2,932	$	18,905	$	21,837

We had commitments to lend to customers with outstanding loans that were classified as TDRs of $135 thousand ~~and $135 thousand~~ as of ~~March 31,~~June 30, 2020 and December 31, ~~2019, respectively.~~2019. Accruing TDRs were ~~$6.1~~$5.6 million and non-accrual TDRs were ~~$20.9~~$20.3 million at ~~March 31,~~June 30, 2020 compared to accruing TDRs of $6.6 million and non-accrual TDRs of $15.2 million at December 31, 2019. The increase in TDRs during the ~~three~~six months ended ~~March 31,~~June 30, 2020 was primarily due to one commercial and industrial relationship.

The following table summarizes the pre-modification and post-modification balances of the new TDRs for the periods indicated:


	Three Months Ended						Three Months Ended								Six Months Ended
($ in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		($ in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
March 31, 2020
June 30, 2020						June 30, 2020
Commercial:						Commercial:
Commercial and industrial	1	$	5,000	$	5,000	Commercial and industrial	—	$	—	$	—	1	$	5,000	$	5,000

Total	1	5,000		5,000		Total	—	—		—		1	$	5,000	$	5,000
March 31, 2019
June 30, 2019						June 30, 2019
Commercial:						Commercial:
Commercial and industrial						Commercial and industrial	10	$	17,339	$	17,020	10	$	17,339	$	17,020
SBA						SBA	2	$	3,214	$	869	2	$	3,214	$	869

Total	—	$	—	$	—	Total	12	$	20,553	$	17,889	12	$	20,553	$	17,889

We consider a TDR to be in payment default once it becomes 30 days or more past due following a modification.During each of the three and six months ended ~~March 31,~~June 30, 2020, there was 1 loan that was modified as a TDR during the past 12 months that had subsequent payment defaults. During each of the three and six months ended June 30, 2019, there were 0 loans that were modified as TDRs during the past 12 months that had subsequent payment ~~defaults during the periods.~~defaults.

The following table summarizes TDRs by modification type for the periods indicated:

Table of Contents


	Three Months Ended
	Modification Type
	Change in Principal Payments and Interest Rates				Change in Principal Payments					Total
($ in thousands)	Count	Amount		Count	Amount		Count	Amount
June 30, 2020
Commercial:
Commercial and industrial	—	$	—	—	$	—	—	$	—




Total	—	$	—	—	$	—	—	$	—

June 30, 2019
Commercial:
Commercial and industrial	10	$	17,020	—	$	—	10	$	17,020
SBA	2	$	869	—	$	—	2	$	869



Total	12	$	17,889	—	$	—	12	$	17,889

Three Months Ended
Modification Type
Change in Principal Payments and Interest Rates Change in Principal Payments Total
($ in thousands) Count Amount Count Amount Count Amount
March 31, 2020
Commercial:
Commercial and industrial 1
$ 5,000
—
$ —
1
$ 5,000
Total 1
$ 5,000
—
$ —
1
$ 5,000

March 31, 2019
Total —
$ —
—
$ —
—
$ —


	Six Months Ended
	Modification Type
	Change in Principal Payments and Interest Rates				Change in Principal Payments					Total
($ in thousands)	Count	Amount		Count	Amount		Count	Amount
June 30, 2020
Commercial:
Commercial and industrial	1	$	5,000	—	$	—	1	$	5,000



Total	1	$	5,000	—	$	—	1	$	5,000

June 30, 2019
Commercial:
Commercial and industrial	10	$	17,020	—	$	—	10	$	17,020
SBA	2	869		—	—		2	869
Consumer:
Single family residential mortgage	—	—		—	—		—	—
Total	12	$	17,889	—	$	—	12	$	17,889

Purchases, Sales, and Transfers

From time to time, we purchase and sell loans in the secondary market. Certain loans are transferred from held-for-investment to held-for-sale at the lower of cost or fair value and any reductions in value on transfer are reflected as write-downs to allowance for credit losses. ~~We had~~During the three and six months ended June 30, 2020 we purchased $25.8 million of single family residential mortgage loans. There were 0 purchases of loans ~~for~~during the three and six months ended ~~March 31, 2020 and~~June 30, 2019. The following table presents loans transferred from (to) loans held-for-sale by portfolio segment for the periods indicated:

Three Months Ended
($ in thousands) Transfers from Held-For-Sale Transfers (to) Held-For-Sale
March 31, 2020
Total $ —
$ —

March 31, 2019
Commercial:
Commercial and industrial $ —
$ —
Multifamily —
—
Consumer:
Single family residential mortgage —
(243,364 )
Other consumer —
—
Total $ —
$ (243,364 )

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	Three Months Ended						Six Months Ended
($ in thousands)	Transfers from Held-For-Sale		Transfers (to) Held-For-Sale		Transfers from Held-For-Sale		Transfers (to) Held-For-Sale
June 30, 2020










Total	$	—	$	—	$	—	$	—

June 30, 2019
Commercial:

Commercial real estate	$	—	$	(573)	$	—	$	(573)
Multifamily	—		(752,087)		—		(752,087)



Consumer:
Single family residential mortgage	—		(131,315)		—		(374,679)

Total	$	—	$	(883,975)	$	—	$	(1,127,339)

There were no0 sales of loans during the three and six months ended ~~March 31,~~June 30, 2020. Loss on sale of loans during the three and six months ended June 30, 2020 totaled 0 and $27 thousand and related to certain adjustments for previously sold loans.

During the three and six months ended ~~March 31,~~June 30, 2019, we sold ~~$243.4~~$131.5 million and $374.7 million in ~~SFR~~single family residential loans, resulting in ~~a gain~~gains of ~~$1.6~~$125 thousand and $1.8 million.

Non-Traditional Mortgage Loans ~~("NTM"~~(“NTM”)

Our NTM portfolio is comprised of 3 interest only products: Green Loans, Interest Only loans and a small number of additional loans with the potential for negative amortization. The initial credit guidelines for the NTM portfolio were established based on the borrower's Fair Isaac Corporation ~~(FICO)~~(“FICO”) score, LTV ratio, property type, occupancy type, loan amount, and geography. Additionally, from an ongoing credit risk management perspective, we have determined that the most significant performance indicators for NTMs are LTV ratios and FICO scores. We review the NTM loan portfolio periodically ~~which includes~~by refreshing FICO scores on the Green Loans and HELOCs and ordering third party automated valuation models (AVMs) to confirm collateral values. We no longer originate NTM loans.

The following table presents the composition of the NTM portfolio, which are included in the single family residential mortgage portfolio, as of the dates indicated:


	March 31, 2020						December 31, 2019							June 30, 2020										December 31, 2019
($ in thousands)	Count	Amount			Percent		Count	Amount			Percent		($ in thousands)	Count	Amount			Percent		Count	Amount			Percent
Consumer:													Consumer:
Single family residential mortgage:													Single family residential mortgage:
Green Loans (HELOC) - first liens	65	$	45,913		8.2	%	69	$	49,959		8.3	%	Green Loans (HELOC) - first liens	61	$	43,604		8.5	%	69	$	49,959		8.3	%
Interest-only - first liens	349	509,892			91.0	%	376	545,371			90.8	%	Interest-only - first liens	329	463,666			90.7	%	376	545,371			90.8	%
Negative amortization	8	2,359			0.4	%	9	3,027			0.5	%	Negative amortization	8	2,335			0.5	%	9	3,027			0.5	%
Total NTM - first liens	422	558,164			99.7	%	454	598,357			99.6	%	Total NTM - first liens	398	509,605			99.7	%	454	598,357			99.6	%
Other consumer:													Other consumer:
Green Loans (HELOC) - second liens	6	1,894			0.3	%	7	2,299			0.4	%	Green Loans (HELOC) - second liens	5	1,598			0.3	%	7	2,299			0.4	%

Total NTM - second liens	6	1,894			0.3	%	7	2,299			0.4	%	Total NTM - second liens	5	1,598			0.3	%	7	2,299			0.4	%
Total NTM loans	428	$	560,058		100.0	%	461	$	600,656		100.0	%	Total NTM loans	403	$	511,203		100.0	%	461	$	600,656		100.0	%
Total loans receivable		$	5,667,464					$	5,951,885				Total loans receivable		$	5,627,696					$	5,951,885
% of total NTM loans to total loans receivable		9.9		%				10.1		%			% of total NTM loans to total loans receivable		9.1		%				10.1		%

The NTM loans on non-accrual status included $4.7 million of Green loans and $10.9 million of interest-only loans at March 31, 2020 compared to $1.5 million of Green loans and $11.5 million of interest only loans at December 31, 2019.

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET

At ~~March 31,~~June 30, 2020 and December 31, 2019, we had goodwill of $37.1 million. We evaluate goodwill impairment as of August 31^st each year, and more frequently if events or circumstances indicate that there may be impairment. We completed our most recent annual goodwill impairment test as of August 31, 2019 and determined that 0 goodwill impairment existed. InAs a

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result of the ~~first quarter 2020, due to the observed market~~economic volatility ~~resulting from the~~caused by COVID-19 pandemic in both the second and first quarters of 2020, we analyzed the risk indicators related to potential goodwill impairment. Based on ~~this analysis,~~these analyses, we did 0t identify any impairment to goodwill induring the first ~~quarter~~six months of 2020, ~~although~~however, there can be no assurance that prolonged market volatility resulting from the COVID-19 pandemic or other factors will not result in impairments to goodwill or other intangibles in future periods.

Core deposit intangibles are amortized over their useful lives ranging from four to ten years. As of ~~March 31,~~June 30, 2020, the weighted average remaining amortization period for core deposit intangibles was approximately ~~4.5~~4.3 years.


($ in thousands)							($ in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
June 30, 2020							June 30, 2020
Core deposit intangibles							Core deposit intangibles	$	30,904	$	27,612	$	3,292

($ in thousands)	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
March 31, 2020
Core deposit intangibles	$	30,904	$	27,182	$	3,722
December 31, 2019							December 31, 2019
Core deposit intangibles	$	30,904	$	26,753	$	4,151	Core deposit intangibles	$	30,904	$	26,753	$	4,151

Aggregate amortization of intangible assets was ~~$429~~$430 thousand and ~~$620~~$621 thousand for the three months ended ~~March 31,~~June 30, 2020 and 2019 and $859 thousand and $1.2 million for the six months ended June 30, 2020 and 2019. The following table presents estimated future amortization expenses as of ~~March 31,~~June 30, 2020:


($ in thousands)	Remainder of 2020		2021		2022		2023		2024		Total		($ in thousands)	Remainder of 2020		2021		2022		2023		2024		Total
Estimated future amortization expense	$	1,089	$	1,082	$	799	$	517	$	235	$	3,722	Estimated future amortization expense	$	659	$	1,082	$	799	$	517	$	235	$	3,292

NOTE 6 – FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

The following table presents advances from the FHLB as of the dates indicated:


($ in thousands)	June 30, 2020				December 31, 2019
Fixed rate:
Outstanding balance	$	624,000		⁽¹⁾	$	730,000
Interest rates ranging from	—		%	⁽²⁾	1.82		%
Interest rates ranging to	3.32		%		3.32		%
Weighted average interest rate	2.24		%		2.66		%
Variable rate:
Outstanding balance	—				465,000
Weighted average interest rate	—		%		1.66		%

(1)Excludes $6.8 million of unamortized debt issuance costs at June 30, 2020.

($ in thousands) March 31,
2020 December 31,
2019
Fixed rate:
Outstanding balance $ 888,000
$ 730,000
Interest rates ranging from 0.56 % 1.82 %
Interest rates ranging to 3.32 % 3.32 %
Weighted average interest rate 2.24 % 2.66 %
Variable rate:
Outstanding balance 90,000
465,000
Weighted average interest rate 0.21 % 1.66 %
(2)Includes $10.0 million in FHLB recovery advances with an interest rate of 0.00%, consisting of $5.0 million with a maturity date of November 27, 2020 and $5.0 million with a maturity date of May 27, 2021.

Each advance is payable at its maturity date. Advances paid early are subject to a prepayment penalty. In June 2020, we repaid a $100.0 million FHLB term advance with a weighted average interest rate of 2.07% and incurred a $2.5 million extinguishment fee that is included in other noninterest expense. Additionally, in June 2020 we refinanced $111.0 million of FHLB term advances to take advantage of the rapid decline in market interest rates. As a result of this refinancing, our weighted average effective interest rate on such FHLB term advances changed from 2.81% to 2.02% and the weighted average life extended from 2.52 years to 5.18 years. At ~~March 31,~~the end of the second quarter, FHLB advances included 0 overnight borrowings, $58.0 million maturing within three months, and $566.0 million maturing beyond three months with a weighted average life of 4.1 years and weighted average interest rate of 2.39%.

At June 30, 2020 and December 31, 2019, the Bank’s advances from the FHLB were collateralized by certain real estate loans with an aggregate unpaid principal balance of ~~$2.97~~$2.66 billion and $3.05 billion. Based on this collateral, the Bank was eligible to borrow an additional $1.06 billion at June 30, 2020.

The Bank’s investment in capital stock of the FHLB of San Francisco totaled ~~$30.1~~$19.4 million and $32.3 million at ~~March 31,~~June 30, 2020 and December 31, 2019. ~~Based on this collateral,~~

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During the ~~Bank was eligible to borrow an additional $921.4 million at March 31, 2020.~~

~~The Bank maintained a line~~second quarter of ~~credit of $15.9 million from~~2020, we expanded our existing secured borrowing capacity with the Federal Reserve ~~Discount Window,~~Bank of San Francisco (“Federal Reserve”) by participating in its Borrower-in-Custody (“BIC”) program. As a result, our borrowing capacity with the Federal Reserve increased to ~~which~~$370.4 million at June 30, 2020. Prior to participating in the BIC program, the Bank only pledged securities as collateral for access to the discount window. At June 30, 2020, the Bank has pledged certain qualifying loans with an unpaid principal balance of $870.1 million and securities with a carrying value of ~~$22.5~~$23.0 million as collateral for this line of credit. Borrowings under this BIC program are overnight advances with interest chargeable at the discount window (“primary credit”) borrowing rate. There were 0 ~~outstanding~~ borrowings ~~at March 31, 2020.~~ under this arrangement for the three and six months ended June 30, 2020 and 2019.

The Bank maintained available unsecured federal funds lines with 5 correspondent banks totaling $185.0 million, with 0 outstanding borrowings at ~~March 31,~~June 30, 2020.

The Bank also maintained repurchase agreements and had 0 outstanding securities sold under agreements to repurchase at ~~March 31,~~June 30, 2020 and December 31, 2019. Availabilities and terms on repurchase agreements are subject to the counterparties' discretion and the pledging of additional investment securities.

NOTE 7 – LONG-TERM DEBT

The following table presents our long-term debt as of the dates indicated:


	March 31, 2020					December 31, 2019						June 30, 2020						December 31, 2019
($ in thousands)	Par Value		Unamortized Debt Issuance Cost and Discount			Par Value		Unamortized Debt Issuance Cost and Discount			($ in thousands)	Par Value		Unamortized Debt Issuance Cost and Discount		Par Value		Unamortized Debt Issuance Cost and Discount
5.25% senior notes due April 15, 2025	$	175,000	$	(1,521	)	$	175,000	$	(1,579	)	5.25% senior notes due April 15, 2025	$	175,000	$	(1,463)	$	175,000	$	(1,579)
Total	$	175,000	$	(1,521	)	$	175,000	$	(1,579	)	Total	$	175,000	$	(1,463)	$	175,000	$	(1,579)

We were in compliance with all covenants under our ~~5.25 percent~~5.25% senior notes due April 15, 2025 at ~~March 31,~~June 30, 2020.

NOTE 8 – INCOME TAXES

For the three and six months ended ~~March 31,~~June 30, 2020, income tax benefit was ~~$2.2~~$5.3 million and $7.5 million and the effective tax rate was ~~24.7%~~22.3% and 23.0%. For the three and six months ended ~~March 31,~~June 30, 2019, income tax expense was ~~$2.7~~$4.3 million and $7.0 million and the effective tax rate was ~~27.9%~~20.6% and 22.9%. ~~The company’s 24.7%~~Our effective tax rate of 22.3% and 23.0% for the three and six months ended ~~March 31,~~June 30, 2020 differs from the 21% federal statutory rate is due to the impact of state taxes as well as various tax credits. The income tax benefit during the first quarter of 2020 was mainly due to the $8.8 million pre-tax book loss recognized, as compared to the $9.8 million pre-tax book income recognized during the first quarter of 2019.

We account for income taxes by recognizing deferred tax assets and liabilities based upon temporary differences between the amounts for financial reporting purposes and tax basis of its assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In assessing the realization of deferred tax assets, management will continue to evaluate both positive and negative evidence on a quarterly basis, including considering the four possible sources of future taxable income, such as future reversal of existing taxable temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in prior carryback year(s), and future tax planning strategies. Based on this analysis, management determined, ~~that~~ it was more likely than not, that all of the deferred tax assets would be realized; therefore, 0 valuation allowance was provided against the net deferred tax assets of ~~$63.8~~$48.3 million and $44.9 million at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. The overall increase in net deferred tax assets was primarily due to an increase in deferred tax assets of ~~$17.6~~$1.5 million from the increase in net unrealized ~~losses~~loss on securities available-for-sale and $1.9 million from the adoption of ASU ~~2016-13, offset by an increase in deferred tax liabilities of $0.6 million resulting from year-to-date temporary book-tax differences.~~2016-13.

ASC 740-10-25 relates to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740-10-25 prescribes a threshold and a measurement process for recognizing in the financial statements a tax position taken or expected to be taken in a tax return and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We had unrecognized tax benefits of $1.0 million and $977 thousand at ~~March 31,~~June 30, 2020 and December 31, 2019, respectively. We do not believe that the unrecognized tax benefits will change materially in the next twelve months. As of ~~March 31,~~June 30, 2020, the total unrecognized tax benefit that, if recognized, would impact the effective tax rate was ~~$794~~$820 thousand.

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At ~~March 31,~~June 30, 2020 and December 31, 2019, we had 0 accrued interest or penalties. In the event we are assessed interest and/or penalties by federal or state tax authorities, such amounts will be classified in the consolidated financial statements as income tax expense.

We are subject to U.S. federal income tax as well as income tax in multiple state jurisdictions. We are no longer subject to examination by U.S. federal taxing authorities for years before 2016. The statute of limitations for the assessment of California franchise taxes has expired for tax years before 2014 (other state income and franchise tax statutes of limitations vary by state).

NOTE 9 – DERIVATIVE INSTRUMENTS

We use derivative instruments and other risk management techniques to reduce our exposure to adverse fluctuations in interest rates and foreign currency exchange rates in accordance with our risk management policies.

During the three and six months ended ~~March 31,~~June 30, 2020, ~~and 2019,~~ changes in fair value on interest rate swaps and caps on loans and foreign exchange contracts were ~~$(182)~~$(107) thousand and ~~$(99)~~$(288) thousand, respectively, compared to $(9.7) million and $(9.8) million for the three and six months endedJune 30, 2019, respectively, and were included in other income on the consolidated statements of operations.

The following table presents the notional amount and fair value of derivative instruments included in the ~~Consolidated Statements~~consolidated statements of ~~Financial Condition~~financial condition as of the dates indicated.


	June 30, 2020						December 31, 2019
($ in thousands)	Notional Amount		Fair Value(1)		Notional Amount		Fair Value(1)
Derivative assets:



Interest rate swaps and caps on loans	$	69,266	$	8,598	$	70,674	$	3,445
Foreign exchange contracts	3,657		137		4,643		138
Total	$	72,923	$	8,735	$	75,317	$	3,583
Derivative liabilities:



Interest rate swaps and caps on loans	$	69,266	$	9,239	$	70,674	3,717

Foreign exchange contracts	3,657		54		4,643		136
Total	$	72,923	$	9,293	$	75,317	$	3,853

(1)

March 31, 2020 December 31, 2019
($ in thousands) Notional Amount Fair Value(1) Notional Amount Fair Value(1)
Derivative assets:
Interest rate swaps and caps on loans $ 69,970
$ 8,242
$ 70,674
$ 3,445
Foreign exchange contracts 4,272
369
4,643
138
Total $ 74,242
$ 8,611
$ 75,317
$ 3,583
Derivative liabilities:
Interest rate swaps and caps on loans $ 69,970
$ 8,881
$ 70,674
3,717
Foreign exchange contracts 4,272
182
4,643
136
Total $ 74,242
$ 9,063
$ 75,317
$ 3,853

The fair value of interest rate swaps and caps on loans are included in other assets and accrued expenses and other liabilities, respectively, in the accompanying consolidated statements of financial condition.


~~(1)~~	The fair value of interest rate swaps and cap on loans are included in other assets and accrued expenses and other liabilities, respectively, in the accompanying consolidated statements of financial condition.

We have entered into agreements with counterparty financial institutions, which include master netting agreements that provide for the net settlement of all contracts with a single counterparty in the event of default. ~~However, we elected~~We elect, however, to account for all derivatives with counterparty institutions on a gross basis.

NOTE 10 – EMPLOYEE STOCK COMPENSATION

On May 31, 2018, our stockholders approved the Company's 2018 Omnibus Stock Incentive Plan ~~(2018~~(“2018 Omnibus ~~Plan)~~Plan”). The 2018 Omnibus Plan provides that the maximum number of shares available for awards is 4,417,882. As of ~~March 31,~~June 30, 2020, ~~3,435,596~~3,359,922 shares were available for future awards.

Stock-based Compensation Expense

The following table presents stock-based compensation expense and the related tax benefits for the periods indicated:


	Three Months Ended March 31,					Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020		2019		($ in thousands)	2020		2019		2020		2019
Stock options	$	2	$	8	Stock options	$	2	$	(24)	$	4	$	(16)
Restricted stock awards and units	1,574		845		Restricted stock awards and units	1,468		1,521		3,042		2,366

Total share-based compensation expense	$	1,576	$	853	Total share-based compensation expense	$	1,470	$	1,497	$	3,046	$	2,350
Related tax benefits	$	464	$	251	Related tax benefits	$	433	$	440	$	897	$	691

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The following table presents unrecognized stock-based compensation expense as of ~~March 31,~~June 30, 2020:

($ in thousands) Unrecognized Expense Weighted-Average Remaining Expected Recognition Period
Stock option awards $ 2
0.2 years
Restricted stock awards and restricted stock units 10,447
2.5 years
Total $ 10,449
2.5 years

($ in thousands)

Unrecognized Expense

Weighted-Average Remaining Expected Recognition Period

Restricted stock awards and restricted stock units

9,530

2.3 years

Total

9,530

2.3 years

Stock Options

We issued stock options to certain employees, officers, and directors. Stock options are issued at the closing market price immediately before the grant date and generally have a three to five year vesting period and contractual terms of seven to ten years. We recognize an income tax deduction upon exercise of a stock option to the extent taxable income is recognized by the option holder. In the case of a non-qualified stock option, the option holder recognizes taxable income based on the fair market value of the shares acquired at the time of exercise less the exercise price.

The following table represents stock option activity for the three months ended ~~March 31,~~June 30, 2020:


	Three Months Ended June 30, 2020
($ in thousands except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value
Outstanding at beginning of period	55,069	$	13.96	4.0 years





Outstanding at end of period	55,069	$	13.96	3.7 years	$	(194)
Exercisable at end of period	52,821	$	13.97	3.6 years	$	(187)

Three Months Ended March 31, 2020
($ in thousands except per share data) Number of Shares Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contract Term Aggregated Intrinsic Value
Outstanding at beginning of period 62,521
$ 13.85
4.3 years
Exercised (7,452 ) $ 13.05
5.2 years
Outstanding at end of period 55,069
$ 13.96
4.0 years $ (344 )
Exercisable at end of period 52,821
$ 13.97
3.9 years $ (330 )
The following table represents stock option activity for the six months ended June 30, 2020:


	Six Months Ended June 30, 2020
($ in thousands except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value
Outstanding at beginning of period	62,521	$	13.85	4.3 years


Exercised	(7,452)	$	13.05	5.2 years


Outstanding at end of period	55,069	$	13.96	3.7 years	$	(194)
Exercisable at end of period	52,821	$	13.97	3.6 years	$	(187)

The following table sets forth information regarding unvested stock options for the three and six months ended ~~March 31,~~June 30, 2020:


	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
	Number of Shares	Weighted-Average Exercise Price Per Share		Number of Shares	Weighted-Average Exercise Price Per Share
Outstanding at beginning of period	2,248	$	13.75	2,248	$	13.75

Vested	—	$	—	—	$	—
Forfeited	—	$	—	—	$	—
Outstanding at end of period	2,248	$	13.75	2,248	$	13.75

Three Months Ended March 31, 2020
Number of Shares Weighted-Average Exercise Price Per Share
Outstanding at beginning of period 2,248
$ 13.75
Vested —
$ —
Forfeited —
$ —
Outstanding at end of period 2,248
$ 13.75

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Restricted Stock Awards and Restricted Stock Units

We also have granted restricted stock awards and restricted stock units to certain employees, officers, and directors. The restricted stock awards and units are valued at the closing price of our stock on the measurement date. The restricted stock awards and units fully vest after a specified period (generally ranging from one to five years) of continued service from the date of grant plus, in some cases, the satisfaction of performance conditions. These performance targets include conditions relating to our profitability and regulatory standing. The actual amounts of stock released upon vesting will be determined by the Compensation Committee of our Board of Directors upon the Committee's certification of the satisfaction of the target level of performance. We recognize an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted stock, generally upon vesting or, in the case of restricted stock units, when settled. The following table presents unvested restricted stock awards and restricted stock units activity for the three and six months ended ~~March 31,~~June 30, 2020:


	Three Months Ended March 31, 2020					Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
	Number of Shares		Weighted Average Grant Date Fair Value Per Share			Number of Shares	Weighted Average Grant Date Fair Value Per Share		Number of Shares	Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period	923,482		$	15.74	Outstanding at beginning of period	1,083,107	$	15.65	923,482	$	15.74
Granted ⁽¹⁾	269,138		$	15.33	Granted ⁽¹⁾	84,998	$	8.76	354,136	$	13.79
Vested ⁽²⁾	(62,333	)	$	15.44	Vested ⁽²⁾	(231,362)	$	16.09	(293,695)	$	15.95
Forfeited ⁽³⁾	(47,180	)	$	15.92	Forfeited ⁽³⁾	(24,073)	$	18.20	(71,253)	$	16.85
Outstanding at end of period	1,083,107		$	15.65	Outstanding at end of period	912,670	$	14.91	912,670	$	14.91

(1)There were 0 and 78,771 performance-based shares/units included in shares granted for the three and six months ended June 30, 2020.

(2)There were 13,074 and 18,473 performance-based shares/units included in vested shares for the three and six months ended June 30, 2020.

(3)The number of forfeited shares includes aggregate performance-based shares/units of 1,782 and 17,404 for the three and six months ended June 30, 2020.


~~(1)~~	~~There were 78,771 performance-based shares/units included in shares granted for the three months ended March 31, 2020.~~


~~(2)~~	~~There were 5,399 performance-based shares/units included in vested shares for the three months ended March 31, 2020.~~


~~(3)~~	~~The number of forfeited shares includes aggregate performance-based shares/units of 15,622 for the three months ended March 31, 2020.~~

Stock Appreciation Rights

On August 21, 2012, we granted to the then, and now former, chief executive officer, a ~~ten-year~~ten-year stock appreciation right ~~(SAR)~~(“SAR”).

The following table represents SARs activity and the weighted average exercise price per share as of and for the three months ended ~~March 31,~~June 30, 2020:


	Three Months Ended March 31, 2020								Three Months Ended June 30, 2020
($ in thousands except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value			($ in thousands except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value
Outstanding at beginning of period	1,559,012	$	11.60	2.6 years	$	8,508		Outstanding at beginning of period	1,559,012	$	11.60	2.4 years	$	(5,616)

Outstanding at end of period	1,559,012	$	11.60	2.4 years	$	(6,503	)	Outstanding at end of period	1,559,012	$	11.60	2.1 years	$	(1,812)
Exercisable at end of period	1,559,012	$	11.60	2.4 years	$	(6,503	)	Exercisable at end of period	1,559,012	$	11.60	2.1 years	$	(1,812)

The following table represents SARs activity and the weighted average exercise price per share as of and for the six months ended June 30, 2020:

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	Six Months Ended June 30,
($ in thousands except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value
Outstanding at beginning of period	1,559,012	$	11.60	2.6 years	$	8,508



Outstanding at end of period	1,559,012	$	11.60	2.1 years	$	(1,812)
Exercisable at end of period	1,559,012	$	11.60	2.1 years	$	(1,812)

NOTE 11 – STOCKHOLDERS’ EQUITY

Preferred Stock

We are authorized to issue 50,000,000 shares of preferred stock with par value of $0.01 per share. Preferred shares outstanding rank senior to common shares both as to dividends and liquidation preference but generally have no voting rights. All of our outstanding shares of preferred stock have a $1,000 per share liquidation preference. The following table presents our total outstanding preferred stock as of the dates indicated:

March 31, 2020 December 31, 2019
($ in thousands) Shares Outstanding Liquidation Preference Carrying Value Shares Outstanding Liquidation Preference Carrying Value
Series D
7.375% non-cumulative perpetual
94,597
$ 94,597
$ 91,202
96,629
$ 96,629
$ 93,162
Series E
7.00% non-cumulative perpetual
100,292
100,292
96,485
100,477
100,477
96,663
Total 194,889
$ 194,889
$ 187,687
197,106
$ 197,106
$ 189,825


	June 30, 2020								December 31, 2019
($ in thousands)	Shares Outstanding	Liquidation Preference		Carrying Value		Shares Outstanding	Liquidation Preference		Carrying Value



Series D  7.375% non-cumulative perpetual	93,272	$	93,272	$	89,924	96,629	$	96,629	$	93,162
Series E  7.00% non-cumulative perpetual	98,865	98,865		95,113		100,477	100,477		96,663
Total	192,137	$	192,137	$	185,037	197,106	$	197,106	$	189,825

During the three and six months ended ~~March 31,~~June 30, 2020, we repurchased depositary shares (Series D Depositary Shares), each representing a 1/40^thinterest in a share of Series D Preferred Stock, liquidation amount of $1,000 per share of Series D Preferred Stock, resulting in the repurchase of ~~81,304~~53,006 and 134,310 outstanding Series D Depositary Shares and the related retirement of ~~2,033~~1,325 and 3,357 outstanding shares of Series D Preferred Stock. The repurchase price aggregated to ~~$1.5~~$1.2 million and $2.7 million. The ~~$501~~$40 thousand and $541 thousand difference between the consideration paid and the carrying value of the Series D Preferred Stock was reclassified to retained earnings and resulted in an increase to net (loss) income allocated to common stockholders.

During the three and six months ended ~~March 31,~~June 30, 2020, we repurchased depositary shares (Series E Depositary Shares), each representing a 1/40^thinterest in a share of Series E Preferred Stock, liquidation amount of $1,000 per share of Series E Preferred Stock, resulting in the repurchase of ~~7,400~~57,065 and 64,465 outstanding Series E Depositary Shares and the related retirement of ~~185~~1,427 and 1,612 outstanding shares of Series E Preferred Stock. The repurchase price aggregated to ~~$153 thousand.~~$1.4 million and $1.5 million. The ~~$25~~$9 thousand and $34 thousand difference between the consideration paid and the carrying value of the Series E Preferred Stock was reclassified to retained earnings and resulted in an increase to net (loss) income allocated to common stockholders.

Share Repurchase Program

On February 10, 2020, we announced that our Board of Directors (the “Board”) authorized the repurchase of up to $45 million of our common stock. The repurchase authorization expires in February ~~2021.~~2021, however given current macroeconomic conditions and the COVID-19 pandemic, we have suspended common stock repurchases for the immediate future. There were 0 repurchases of common stock for the three months ended June 30, 2020. During the six months ended June 30, 2020, we repurchased 827,584 shares of common stock at a weighted average price of $14.50 per share and an aggregate amount of $12.0 million. Purchases may be made in open-market transactions, in block transactions on or off an exchange, in privately negotiated transactions, or by other means as determined by our management and in accordance with the regulations of the Securities and Exchange Commission. The timing of purchases and the number of shares repurchased under the program will depend on a variety of factors including price, trading volume, corporate and regulatory requirements, and market conditions.

During the three months ended March 31, 2020, we repurchased 827,584 shares of common stock at a weighted average price of $14.50 per share and aggregating $12.0 million. Given current macroeconomic conditions and the yet-to-be-determined impacts of the COVID-19 crisis, we have suspended common stock repurchases for the immediate future.

Change in Accumulated Other Comprehensive (Loss) Income ("AOCI")

Our AOCI includes unrealized gain (loss) on securities available-for-sale. Changes to AOCI are presented net of tax effect as a component of stockholders' equity. Reclassifications from AOCI are recorded on the consolidated statements of operations either as a gain or loss. The following table presents changes to AOCI for the periods indicated:

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	Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020			2019			($ in thousands)	2020		2019		2020		2019
Unrealized(loss) gain on securities available-for-sale							Unrealized(loss) gain on securities available-for-sale
Balance at beginning of period	$	(11,900	)	$	(24,117	)	Balance at beginning of period	$	(54,148)	$	(18,091)	$	(11,900)	$	(24,117)
Unrealized (loss) gain arising during the period	(59,885		)	8,746
Unrealized gain (loss) arising during the period							Unrealized gain (loss) arising during the period	56,701		7,678		(3,182)		16,422

Reclassification adjustment from other comprehensive income	—			(208		)	Reclassification adjustment from other comprehensive income	(2,011)		—		(2,011)		(208)
Tax effect of current period changes	17,637			(2,512		)	Tax effect of current period changes	(16,107)		(2,255)		1,528		(4,765)
Total changes, net of taxes	(42,248		)	6,026			Total changes, net of taxes	38,583		5,423		(3,665)		11,449

Balance at end of period	$	(54,148	)	$	(18,091	)	Balance at end of period	$	(15,565)	$	(12,668)	$	(15,565)	$	(12,668)

NOTE 12 – VARIABLE INTEREST ENTITIES

We hold ownership interests in alternative energy partnerships and qualified affordable housing partnerships and have a variable interest in a multifamily securitization trust. We evaluate our interests in these entities to determine whether they meet the definition of a variable interest entity (VIE) and whether we are required to consolidate these entities. A VIE is consolidated by its primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the economic performance of the VIE and (ii) a variable interest that could potentially be significant to the VIE. To determine whether or not a variable interest we hold could potentially be significant to the VIE, we consider both qualitative and quantitative factors regarding the nature, size, and form of our involvement with the VIE. We have determined that our interests in these entities meet the definition of variable interests.

Unconsolidated VIEs

Multifamily Securitization

During the third quarter of 2019, we transferred $573.5 million of multifamily loans, through a two-step process, to a third-party depositor which placed the multifamily loans into a third-party trust (a VIE) that issued structured pass-through certificates to investors. The transfer of these loans was accounted for as a sale for financial reporting purposes, in accordance with ASC 860. We determined that we are not the primary beneficiary of this VIE as we do not have the power to direct the activities that will have the most significant economic impact on the entity. Our continuing involvement in this securitization is limited to customary obligations associated with the securitization of loans, including the obligation to cure, repurchase, or substitute loans in the event of a material breach in representations. Additionally, we have the obligation to guarantee credit losses up to ~~12 percent~~12% of the aggregate unpaid principal balances at cut-off date of the securitization. This obligation is supported by a $68.8 million letter of credit between the Freddie Mac and the FHLB.

The maximum loss exposure that would be absorbed by us in the event that all of the assets in the securitization trust are deemed worthless is $68.8 million, which represents the aforementioned obligation to guarantee credit losses up to ~~12 percent.~~12%. We believe that the loss exposure on ~~its~~the multifamily securitization is reduced by both loan-to-value ratios of the underlying collateral balances and the overcollateralization that exists within the securitization trust. At ~~March 31,~~June 30, 2020, we have a ~~$4.4~~$3.5 million repurchase reserve related to this VIE.

Alternative Energy Partnerships

We invest in certain alternative energy partnerships (limited liability companies) formed to provide sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits (energy tax credits). These entities were formed to invest in newly ~~installed~~established residential and commercial solar leases and power purchase agreements. As a result of our investments, we have the right to certain investment tax credits and tax depreciation benefits (recognized on the flow through and income statement method in accordance with ASC 740), and to a lesser extent, cash flows generated from the installed solar systems leased to individual consumers for a fixed period of time. While our interest in the alternative energy partnerships meets the definition of a VIE in accordance with ASC 810, we have determined that we are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of the entities including operational and credit risk management activities. As we are not the primary beneficiary, we did not consolidate the entities.

We use the Hypothetical Liquidation at Book Value (HLBV) method to account for ~~these~~our investments in energy tax credits as an equity investment under ASC 970-323-25-17. Under the HLBV method, an equity method investor determines its share of an investee's earnings by comparing its claim on the investee's book value at the beginning and end of the period, assuming the investee were to liquidate all assets at their U.S. GAAP amounts and distribute the resulting cash to creditors and investors

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under their respective priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is our share of the earnings or losses from the equity investment for the period. To account for the tax credits earned on investments in alternative energy partnerships, we use the flow-through income statement method. Under this method, the tax credits are recognized as a reduction to income tax expense and the initial book-tax differences in the basis of the investments are recognized as additional tax expense in the year they are earned. Investments in alternative energy partnerships totaled ~~$27.3~~$27.0 million and $29.3 million at ~~March 31,~~June 30, 2020 and December 31, 2019.

The following table presents information regarding activity in our alternative energy partnerships for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020		2019		2020		2019
Fundings	$	—	$	235	$	3,631	$	235
Cash distribution from investment	547		535		1,001		995

Gain (loss) on investments in alternative energy partnerships	167		355		(1,738)		(1,595)
Income tax credits recognized	—		1,723		—		1,723
Tax (expense) benefit recognized from HLBV application	(38)		380		398		380

Three Months Ended March 31,
($ in thousands) 2020 2019
Fundings $ 3,631
$ —
Cash distribution from investment 454
460
Loss on investments in alternative energy partnerships (1,905 ) (1,950 )
Income tax credits recognized —
—
Tax benefit recognized from HLBV application 458
527

The following table represents the carrying value of the associated unconsolidated assets and liabilities and the associated maximum loss exposure for alternative energy partnerships as of the dates indicated:


($ in thousands)	March 31, 2020		December 31, 2019		($ in thousands)	June 30, 2020		December 31, 2019
Cash	$	5,748	$	4,224	Cash	$	2,958	$	4,224
Equipment, net of depreciation	246,932		248,920		Equipment, net of depreciation	244,961		248,920
Other assets	6,438		6,301		Other assets	6,751		6,301
Total unconsolidated assets	$	259,118	$	259,445	Total unconsolidated assets	$	254,670	$	259,445
Total unconsolidated liabilities	$	7,009	$	7,143	Total unconsolidated liabilities	$	6,326	$	7,143

Maximum loss exposure	$	27,347	$	32,525	Maximum loss exposure	$	26,967	$	32,525

The maximum loss exposure that would be absorbed by us in the event that all of the assets in alternative energy partnerships are deemed worthless is ~~$27.3~~$27.0 million, which is our recorded investment amount at ~~March 31,~~June 30, 2020.

We believe that the loss exposure on our investments is reduced considering our return on our investment is provided not only by the cash flows of the underlying client leases and power purchase agreements, but also through the significant tax benefits, including federal tax credits generated from the investments. In addition, the arrangements include a transition manager to support any transition of the solar company sponsor whose role includes that of the servicer and operation and maintenance provider, in the event the sponsor would be required to be removed from its responsibilities (e.g., bankruptcy, breach of contract, etc.), thereby further limiting our exposure.

Qualified Affordable Housing Partnerships

We invest in limited partnerships that operate qualified affordable housing projects. The returns on these investments are generated primarily through allocated Federal tax credits and other tax benefits. In addition, these investments contribute to our compliance with the Community Reinvestment Act. These limited partnerships are considered to be VIEs, because either (i) they do not have sufficient equity investment at risk or (ii) the limited partners with equity at risk do not have substantive kick-out rights through voting rights or substantive participating rights over the general partner. As a limited partner, we are not the primary beneficiary because the general partner has the ability to direct the activities of the VIEs that most significantly impact their economic performance. ~~Therefore,~~As a result, we do not consolidate these partnerships.

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The following table presents information regarding balances in our qualified affordable housing partnerships for the periods indicated:


($ in thousands)	June 30, 2020		December 31, 2019
Ending balance⁽¹⁾	$	46,167	$	36,462
Aggregate funding commitment	61,278		49,278
Total amount funded	40,776		26,905
Unfunded commitment	20,502		22,373
Maximum loss exposure	46,167		36,462

($ in thousands) March 31,
2020 December 31,
2019
Ending balance⁽¹⁾
$ 35,315
$ 36,462
Aggregate funding commitment 49,278
49,278
Total amount funded 31,464
26,905
Unfunded commitment 17,814
22,373
Maximum loss exposure 35,315
36,462
(1)Included in other assets in the accompanying consolidated statements of financial condition.


~~(1)~~	~~Included in other assets in the accompanying consolidated statements of financial condition.~~

The following table presents information regarding activity in our qualified affordable housing partnerships for the periods indicated:


	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020		2019		2020		2019
Fundings	$	9,312	$	—	$	13,871	$	454
Proportional amortization recognized	1,148		553		2,295		1,190
Income tax credits recognized	1,152		554		2,208		1,109

Three Months Ended March 31,
($ in thousands) 2020 2019
Fundings $ 4,559
$ 454
Proportional amortization recognized 1,147
637
Income tax credits recognized 1,056
555

NOTE 13 – (LOSS) EARNINGS PER COMMON SHARE

The following table presents computations of basic and diluted (loss) earnings per common share ("EPS") for the three and six months ended ~~March 31,~~June 30, 2020:


	Three Months Ended March 31, 2020							Three Months Ended June 30, 2020						Six Months Ended June 30, 2020
($ in thousands except per share data)	Common Stock			Class B Common Stock			($ in thousands except per share data)	Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Loss from operations	$	(6,531	)	$	(62	)	Loss from operations	$	(18,273)	$	(176)	$	(24,804)	$	(238)

Less: participating securities dividends	(93		)	(1		)	Less: participating securities dividends	(93)		(1)		(186)		(2)
Less: preferred stock dividends	(3,500		)	(33		)	Less: preferred stock dividends	(3,409)		(33)		(6,909)		(66)
Less: preferred stock redemption	521			5			Less: preferred stock redemption	49		—		570		5

Net loss allocated to common stockholders	$	(9,603	)	$	(91	)	Net loss allocated to common stockholders	$	(21,726)	$	(210)	$	(31,329)	$	(301)

Weighted average common shares outstanding	49,987,456			477,321			Weighted average common shares outstanding	49,553,598		477,321		49,770,527		477,321
Dilutive effects of restricted shares/units	—			—			Dilutive effects of restricted shares/units	—		—		—		—

Dilutive effects of stock options	—			—			Dilutive effects of stock options	—		—		—		—

Average shares and dilutive common shares	49,987,456			477,321			Average shares and dilutive common shares	49,553,598		477,321		49,770,527		477,321


Basic loss per common share	$	(0.19	)	$	(0.19	)	Basic loss per common share	$	(0.44)	$	(0.44)	$	(0.63)	$	(0.63)

Diluted loss per common share	$	(0.19	)	$	(0.19	)	Diluted loss per common share	$	(0.44)	$	(0.44)	$	(0.63)	$	(0.63)

For the three and six months ended ~~March 31,~~June 30, 2020, there were ~~962,566~~960,090 and 960,883 of restricted shares/units and ~~55,806~~55,069 and 55,438 of stock options that were not considered in computing diluted earnings per common share, because they were anti-dilutive.

The following table presents computations of basic and diluted EPS for the three and six months ended ~~March 31,~~June 30, 2019:

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	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019
($ in thousands except per share data)	Common Stock		Class B Common Stock		Common Stock		Class B Common Stock
Income from operations	$	16,426	$	156	$	23,397	$	222
Less: income allocated to participating securities	(268)		(3)		(152)		(1)
Less: participating securities dividends	(93)		(1)		(292)		(3)
Less: preferred stock dividends	(4,268)		(40)		(8,535)		(81)



Net income allocated to common stockholders	$	11,797	$	112	$	14,418	$	137

Weighted average common shares outstanding	50,379,816		477,321		50,290,107		477,321
Dilutive effects of stock units	103,677		—		119,967		—

Dilutive effects of stock options	4,142		—		7,795		—

Average shares and dilutive common shares	50,487,635		477,321		50,417,869		477,321




Basic earnings per common share	$	0.23	$	0.23	$	0.29	$	0.29



Diluted earnings per common share	$	0.23	$	0.23	$	0.29	$	0.29

Three Months Ended March 31, 2019
($ in thousands except per share data) Common Stock Class B Common Stock
Income from operations $ 6,971
$ 66
Less: participating securities dividends (200 ) (2 )
Less: preferred stock dividends (4,267 ) (41 )
Net income allocated to common stockholders $ 2,504
$ 23
Weighted average common shares outstanding 50,199,401
477,321
Dilutive effects of stock units 160,299
—
Dilutive effects of stock options 9,700
—
Average shares and dilutive common shares 50,369,400
477,321

Basic earnings per common share $ 0.05
$ 0.05
Diluted earnings per common share $ 0.05
$ 0.05

For the three and six months ended ~~March 31,~~June 30, 2019, there were ~~180,304,~~517,833 and 484,163, respectively, of stock units and 58,859 and 33,013, respectively, of stock options that were not considered in computing diluted earnings per common share, because they were anti-dilutive. ~~There were 16,165 stock options that were anti-dilutive during the three months ended March 31, 2019.~~

NOTE 14 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as unfunded loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Risk of credit loss exists up to the face amount of these instruments. The same credit policies are used to make such commitments as are used for originating loans, including obtaining collateral at exercise of the commitment.

The following table presents the contractual amount of financial instruments with off-balance-sheet risk ~~was~~ as ~~follows for~~of the ~~dates~~periods indicated:


	March 31, 2020				December 31, 2019					June 30, 2020						December 31, 2019
($ in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate		($ in thousands)	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to extend credit	$	412	$	109,701	$	473	$	129,495	Commitments to extend credit	$	6,249	$	73,844	$	473	$	129,495
Unused lines of credit	581		1,162,844		703		1,049,632		Unused lines of credit	590		1,391,625		703		1,049,632
Letters of credit	138		5,576		134		5,316		Letters of credit	336		3,243		134		5,316

Other Commitments

During the three months ended March 31, 2017, the Bank entered into certain definitive agreements which grant the Bank the exclusive naming rights to the Banc of California Stadium, a soccer stadium of The Los Angeles Football Club (LAFC), as well as the right to be the official bank of LAFC. In exchange for the Bank’s rights as set forth in the agreements, the Bank agreed to pay LAFC $100.0 million over a period of 15 years, beginning in 2017 and ending in 2032. The advertising benefits of such rights are amortized on a straight-line basis and recorded as advertising and promotion expense beginning in 2018. During each of the three months ended March 31, 2020 and 2019, advertising and promotion expense related to the LAFC commitment was $1.7 million. As of March 31, 2020, the Bank has paid $22.1 million of the $100.0 million commitment. The prepaid commitment balance, net of amortization, was $7.1 million as of March 31, 2020, and was included in other assets in the consolidated statements of financial condition.

At ~~March 31,~~June 30, 2020, we had unfunded commitments of ~~$17.8~~$20.5 million, ~~$7.6~~$7.1 million, and $501 thousand for affordable housing fund investments, Small Business Investment Company (SBIC) investments, and other investments, respectively.

NOTE 15 – REVENUE RECOGNITION

The following presents noninterest income, segregated by revenue streams, in-scope and out-of-scope of Topic 606 - Revenue From Contracts With Customers, for the periods ~~indicated.~~indicated:

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	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020		2019		2020		2019
Noninterest income (loss)
In scope of Topic 606
Deposit service fees	$	420	$	575	$	959	$	1,242
Debit card fees	380		178		557		291
Investment commissions	—		260		—		539
Other	59		109		108		216
Noninterest income (in-scope of Topic 606)	859		1,122		1,624		2,288
Noninterest income (out-of-scope of Topic 606)	4,669		(3,412)		5,965		1,717
Total noninterest income (loss)	$	5,528	$	(2,290)	$	7,589	$	4,005

Three Months Ended March 31,
($ in thousands) 2020 2019
Noninterest income
In scope of Topic 606
Deposit service fees $ 539
$ 667
Debit card fees 177
113
Investment commissions —
279
Other 49
106
Noninterest income (in-scope of Topic 606) 765
1,165
Noninterest income (out-of-scope of Topic 606) 1,296
5,130
Total noninterest income $ 2,061
$ 6,295

We do not typically enter into long-term revenue contracts with customers. As of ~~March 31,~~June 30, 2020 and December 31, 2019, we did not have any significant contract balances. As of ~~March 31,~~June 30, 2020, we did not capitalize any contract acquisition costs.

NOTE 16 – RELATED-PARTY TRANSACTIONS

Certain of our executive officers and directors, and their related interests, are customers of, or have had transactions with, the Bank in the ordinary course of business, including deposits, loans and other financial services related transactions. From time to time, the Bank may make loans to executive officers and directors, and their related interests, in the ordinary course of business and on substantially the same terms and conditions, including interest rates and collateral, as those of comparable transactions with non-insiders prevailing at the time, in accordance with the Bank’s underwriting ~~guidelines, and~~guidelines. These loans do not involve more than the normal risk of collectability or present other unfavorable features. As of ~~March 31,~~June 30, 2020, no related party loans were categorized as ~~nonaccrual,~~non-accrual, past due, restructured, or potential problem loans.

The Bank also has an Employee Loan Program which is available to all employees and offers executive officers, directors and principal stockholders that meet the eligibility requirements the opportunity to participate on the same terms as employees generally, provided that any loan to an executive officer, director or principal stockholder must be approved by the Bank’s Board of Directors. The sole benefit provided under the Employee Loan Program is a reduction in loan fees.

Transactions with Related Parties

The Company and the Bank have engaged in transactions described below with the Company’s current or former directors, executive officers, and beneficial owners of more than 5 percent of the outstanding shares of the Company’s voting common stock and certain persons related to them.

As previously disclosed, the Company’s Board of Directors has authorized and directed the Company to provide indemnification, advancement, and/or reimbursement for the costs of separate, independent counsel retained by any then-current officer or director, in their individual capacity, with respect to matters related to (i) an investigation by the Special Committee of the Company’s Board of Directors, (ii) a formal order of investigation issued by the SEC on January 4, 2017 (since resolved), and (iii) any related civil or administrative proceedings against the Company as well as officers and directors currently or previously associated with the Company (collectively, the “Indemnity Matters”).

Indemnification costs were paid on behalf of certain current and former executive officers and directors in amounts less than $120 thousand for the three and six months ended ~~March 31,~~June 30, 2020. During the three and six months ended ~~March 31,~~June 30, 2019, indemnification costs paid by the Company included ~~$2.2~~$4.7 million and $6.9 million incurred by the Company’s former Chair, President, and Chief Executive Officer, Steven A. Sugarman; ~~$555~~$186 thousand and $741 thousand jointly incurred by the Company’s former Interim Chief Financial Officer and Chief Strategy Officer, J. Francisco A. ~~Turner~~Turner; and the Company’s former Chief Financial Officer, James J. McKinney; and ~~$147~~$139 thousand and $142 thousand incurred by the Bank’s former director, Cynthia Abercrombie. Indemnification costs for the Company's former General Counsel Emeritus John ~~Grosvenor.~~Grosvenor were $149 thousand for the six months ended June 30, 2019. Indemnification costs were paid on behalf of other former executive officers and other former directors in lesser amounts for the three and six months ended ~~March 31,~~June 30, 2019.

NOTE 17 – LITIGATION

From time to time, we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. In accordance with applicable accounting guidance, we establish an accrued liability when those matters present loss contingencies that are both probable and estimable. We continue to monitor the matters for further developments that could affect the amount of the accrued liability that has been previously established. As

Table of ~~March 31, 2020, we have accrued $21.0 million for various litigation filed against~~Contents

While the ~~Company and the Bank, including $19.75 million related~~ultimate liability with respect to ~~the settlement of the~~

securities litigation previously announced by us and described below. There is no expected impact to earnings as a result of the settlement, as the settlement payments will be paid directly by our insurance carriers and we have recorded an insurance receivable for $19.75 million related to this matter.

On October 28, 2019, we entered into a Stipulation of Settlement (“Settlement Stipulation”) with the lead plaintiff to settle class action lawsuits that were previously consolidated in the United District Court for the Central District of California (the “Court”) under the caption In re Banc of California Securities Litigation, Case No. SACV 17-00118 AG, consolidated with SACV 17-00138 AG. Under the terms of the Settlement Stipulation, our insurance carriers will pay $19.75 million, which will be distributed to shareholders who purchased our stock between April 15, 2016 and January 20, 2017, after payment of attorney’s fees and costs, tolegal actions cannot be determined by the Court. We will not be required to contribute any cash to the settlement payments. Pursuant to the settlement, the action against the Company will be dismissed with prejudice. Plaintiff will also dismiss with prejudice its claims against our former Chief Executive Officer and Chairman Steven Sugarman. While we do not believe the plaintiff’s claims are meritorious,at this time, we believe that ~~ending the costs~~damages, if any, and ~~distraction of the litigation is in the best interests of the Company and our shareholders. On March 16, 2020, the Court gave final approval~~other amounts relating to pending matters are not likely to be material to the settlement and that order is now final. The foregoing description of the settlement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the complete text of the settlement stipulation that was filed with the Court.consolidated financial statements.

NOTE 18 – SUBSEQUENT EVENTS

We have evaluated events from the date of the consolidated financial statements on ~~March 31,~~June 30, 2020 through the issuance of these consolidated financial statements included in this Quarterly Report on Form 10-Q.

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three and six months ended ~~March 31,~~June 30, 2020. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2019 and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the quarterly period ended ~~March 31,~~June 30, 2020.

CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with GAAP and general practices within the banking industry. As certain accounting policies require significant estimates and assumptions that have a material impact on the carrying value of assets and liabilities, we have established critical accounting policies to facilitate making the judgment necessary to prepare financial statements. Our critical accounting policies are described in Note 1 to Consolidated Financial Statements and in the “Critical Accounting Policies” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and in Note 1 Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.

Adoption of the Current Expected Credit Loss (CECL) Model

On January 1, 2020, we adopted the new accounting standard, commonly known as CECL, which uses a current expected credit loss model for determining allowance for credit losses (ACL). Upon adoption, we recognized a Day 1 increase in the ACL of $6.4 million and a related after-tax decrease to retained earnings of $4.5 million. Our Day 1 ACL under the new CECL model totaled $68.1 million compared to $61.7 million under the incurred loss model at December 31, 2019, and represented 1.14% of total loans. We recorded a Day 2 provision for credit losses of $15.8 million which reflects the new CECL model using current economic forecasts and the estimated future impact of the COVID-19 pandemic on lifetime credit losses. At ~~March 31,~~June 30, 2020, the ACL totaled ~~$82.1~~$94.6 million resulting in an ACL to total loans coverage ratio of ~~1.45%~~1.68%, up from 1.04% at December 31, 2019. Excluding PPP loans, the ACL to total loans coverage ratio was 1.76% at June 30, 2020. The ACL and provision for credit losses include amounts for the reserve for unfunded loan commitments.

Recent Accounting Pronouncements Not Yet Adopted

Our recent accounting pronouncements not yet adopted are described in Note 1 to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and in Note 1 Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.

Executive Overview

We are focused on providing core banking products and services, including customized and innovative banking and lending solutions, designed to cater to the unique needs of California's diverse businesses, entrepreneurs and communities through our 31 full service branches in Orange, Los Angeles, San Diego, and Santa Barbara Counties. Through our over 600 dedicated professionals, we are committed to servicing and building enduring relationships by providing a higher standard of banking. We offer a variety of financial products and services designed around our target clients in order to serve all of their banking and financial needs. We continue to focus on three main initiatives designed to improve our franchise and profitability on an ongoing basis: reducing our cost of deposits while adding value, optimizing the balance sheet to focus on higher-margin products while managing credit risk, and appropriately managing down expenses to the size and complexity of the business. Through these efforts, we continue to transform our franchise into a relationship-focused community bank, maintaining our ~~high~~ credit quality and serving businesses, entrepreneurs and individuals within our footprint.

Financial Highlights

For the three months ended ~~March 31,~~June 30, 2020 and 2019, net (loss) income was ~~$(6.6)~~$(18.4) million and ~~$7.0~~$16.6 million. Diluted (loss) earnings from operations per common share were ~~$(0.19)~~$(0.44) and ~~$0.05~~$0.23 for the three months ended ~~March 31,~~June 30, 2020 and 2019. ~~The decrease in net income from operations~~Financial results for the three months ended March 31, 2020 compared to same period last year is largely the result of a $13.7 million increase in our credit loss provision, primarily attributable to a $15.8 million provision for credit losses recognized in the firstsecond quarter of 2020 ~~and driven by using~~included a one-time pre-tax charge of $26.8 million related to the ~~new CECL model, including the estimated future impact~~restructuring of the ~~health crisis on our loans, and net charge-offs, offset by lower period end loan balances as compared to~~Company’s relationship with the ~~same period~~Los Angeles Football Club (“LAFC”). The restructuring of the relationship will result in ~~2019.~~

~~Total assets were $7.66 billion at March 31, 2020, a decrease~~estimated pre-tax cost savings of ~~$165.8~~approximately $89 million from $7.83 billion at December 31, 2019. The decrease was consistent with our strategic shift towards reducing non-core assets and focus on relationship lending and a reduction in lending lines due to economic uncertainty.over the next 12.5 years, or approximately $7.1 million per year.

Significant financial highlights during the three months ended ~~March 31,~~June 30, 2020 included:

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•Noninterest-bearing deposit balances increased $135.4 million during the quarter and represented 23% of total deposits at June 30, 2020, up from 16% a year earlier

•Total checking balances increased $409.7 million during the quarter and represented 54% of total deposits at June 30, 2020, up from 40% a year earlier

•Net interest margin increased 12 basis points from the prior quarter to 3.09%

•Average cost of deposits declined 40 basis points from the prior quarter to 0.71%

•Allowance for credit losses strengthened to 1.68% of total loans

•Common Equity Tier 1 capital at ~~11.58%~~


•	~~Noninterest-bearing deposit balances increased $167.6 million to 23% of total deposits, up from 20%~~11.68%

~~Total DDA balances increased $206.1 million to 51% of total deposits~~


•	~~End of~~ ~~period~~ ~~deposit costs dropped to 0.89%; average total deposit costs decreased 16~~ ~~basis points~~ ~~to 1.11%~~


•	~~Allowance for credit losses increased to 1.45% of total loans, up from 1.04%~~

~~Day 2 CECL provision for credit losses of $15.8 million~~

COVID-19 ~~Pandemic~~Operational Update

The markets in which we operate are marked by continuing uncertainty about the pace and ~~Our Efforts to Protect~~strength of reopening and recovering from the ~~Health and Welfare of Our Clients and Employees~~

~~With the onset~~impacts of the ~~pandemic,~~global pandemic. Despite the challenges created by the coronavirus, we ~~successfully implemented~~continue to execute on our business continuity plan to enable our team to work remotely while continuing to serve our clients with as little disruption as possible. Early in March, we took meaningful steps to transition our team members to a "work from home" environmentstrategic initiatives and ~~we have over 80%~~the transformation of our ~~team working remotely.~~balance sheet. We set up a support website with resources available for our employees to assist with the transition to a "work from home" environment. We successfully deployed our business continuity plans for all areas of the business while internal technology capabilities facilitated a mostly seamless transition for employees. We continue to provide our employees with numerous human resource benefits and programs.

~~We reduced branch hours and~~ continue to operate 25 of our 31 branches as we temporarily consolidated some overlapping areas at the beginning of the pandemic to ensure an adequate balance between employee and client safety and business continuity to meet our clients' banking needs. The majority of our employees outside of our branches are working offsite with only essential employees onsite. We are classified as an 'essential' business and we have implemented social and physical safeguards for our customers and employees within all of our locations.

CARES Act Response Efforts

On March 27, 2020, the U.S. federal government signed the Coronavirus Aid, Relief, and Economic Security Act ~~(CARES Act)~~

(“CARES Act”) into law. The CARES Act provides emergency assistance and health care response for individuals, families, and businesses affected by the COVID-19 pandemic and includes numerous measures which we are utilizing to support our customers, including the Paycheck Protection Program ~~(PPP)~~(“PPP”).

The CARES Act initially allocated nearly $350 billion for the PPP, with an additional $310 billion added through an amendment bill several weeks later. This program is intended to assist small businesses affected by the pandemic and economic downturn with funds to pay payroll and other expenses through June 30, 2020. The program has been extended through August 8, 2020. The loans are 100% guaranteed by the Small Business Administration ~~(SBA)~~(“SBA”) and the full principal amount of the loans may qualify for loan forgiveness if certain conditions are met.

Within seven business days of the announcement of PPP, we redeployed ~~our~~ resources to ~~ensure~~this program in support of our clients and others seeking financial relief ~~had~~under the ~~ability to participate in the PPP.~~program. As of ~~May 8,~~June 30, 2020, we estimate we helped ~~our clients save over 22,000~~businesses that represent an aggregate workforce of more than 25,000 jobs through ~~providing more than $235~~approvals of $262 million in ~~loan~~ PPP funds. We ~~expect~~served existing clients with our high touch business framework in addition to ~~earn~~successfully attracting many new clients by using the PPP opportunity to differentiate ourselves by demonstrating how true service can make a meaningful difference. As a result, we added many new clients who are consistent with the type of commercial customers that we target in our traditional business development efforts. During the three months ended June 30, 2020, we collected $7.5 million in fees ~~of just under 3%~~ on the ~~total amount that ultimately funds,~~1,069 PPP loans funded, which will be recognized over their estimated life of nine months. We have started the ~~majority~~loan forgiveness process with a number of ~~which are expected to~~clients and we expect this will be ~~earned during the second and third quarters of 2020 through interest income.~~complete early next year.

Borrower Payment Relief Efforts

We are committed to supporting our existing borrowers and customers during ~~the~~this period of economic ~~downturn.~~uncertainty. We ~~are~~ actively engaged with our borrowers ~~who are~~ seeking payment relief and ~~waiving~~waived certain fees for impacted clients. One method we ~~have~~ deployed ~~is offering~~was to offer forbearance and deferments to ~~qualifying clients making such requests.~~qualified clients. For ~~SFR~~single family residential (“SFR”) loans, the ~~deferments are~~forbearance period is 90 days in length and ~~are~~is patterned after the U.S. Department of Housing and Urban Development (“HUD”) ~~guidelines.~~guidelines where applicable. With respect to our non-SFR loan portfolio, deferments are ~~also~~ 90 days in length.

Many of our deferred loans have recently reached the expiration of their initial 90-day deferral period and we are reviewing their current financial condition as we evaluate extension requests of deferral periods. For those commercial borrowers that demonstrate a continuing need for a deferral, we generally expect to obtain credit enhancements such as additional collateral, personal guarantees, and/or reserve requirements in order to grant an additional deferral period. We expect the legacy SFR loans to continue with a higher percentage of forbearances due to the applicable consumer regulations, however, the SFR portfolio is well secured with an average portfolio LTV below 70%.

For a discussion of the related risk factors, please refer to ~~Item 1A included in~~ Part II, ~~of this~~Item 1A. "Risk Factors" in our Quarterly Report on Form ~~10-Q.~~10-Q for the quarter ended March 31, 2020.

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The following table presents the composition of our loan portfolio for borrowers that received payment relief as of June 30, 2020:


	Deferment & Forbearances⁽¹⁾⁽²⁾
		June 30, 2020
($ in thousands)		Number of Loans	Amount⁽¹⁾⁽²⁾		% of Loan Category

Commercial:
Commercial and industrial		55	$	53,255	3.7	%
Commercial real estate		53	218,537		26.6	%
Multifamily		30	114,296		8.0	%
SBA		6	21,819		7.0	%
Construction		8	31,544		14.8	%

Total commercial		152	439,451		10.4	%
Consumer:
Single family residential mortgage		142	163,815		12.0	%
Other consumer		4	969		2.5	%
Total consumer		146	164,784		11.7	%
Total		298	$	604,235	10.7	%

(1)Excludes loans in forbearance that are current

(2)Excludes loans delinquent prior to COVID-19

With respect to our commercial portfolio, as of July 31, 2020, 67 loans totaling $192.8 million have reached expiration of their initial deferral period and have not requested an additional 90-day deferral period as of that date. As of July 31, 2020, 18 loans totaling $121.3 million have requested an additional 90-day deferral period, of which 5 loans totaling $35.2 million have been approved. We continue to review the remaining requests and will evaluate additional requests from commercial borrowers that have or will soon reach expiration of their initial deferral period as described above.

With respect to our consumer portfolio, consisting primarily of single family residential mortgage loans, as of July 31, 2020, the number of loans on forbearance remained relatively unchanged compared to June 30, 2020.

Other Efforts

To support our community, we partnered with Food Finders to provide over 300,000 meals to our most vulnerable neighbors in Southern California. We also made a donation to the Los Angeles Fire Department to help supply critical personal protective equipment to these first-responders. We developed online financial literacy classes for young adults and we sponsored five LAFC blood drives in partnership with the American Red Cross and Banc of California Stadium.

Termination of LAFC Agreement

On May 22, 2020, we entered into an agreement (the “Termination Agreement”) with the Los Angeles Football Club (LAFC) to amend and terminate certain agreements that we previously entered into with LAFC in 2017 (the “LAFC Agreements”). Among other things, the LAFC Agreements granted us the exclusive naming rights to the Banc of California Stadium, a soccer stadium of LAFC, as well as the right to be the official bank of LAFC. Pursuant to the LAFC Agreements, we agreed to pay LAFC $100 million over a period of 15 years, of which $15.9 million had been recognized as expense from January 1, 2018 through May 22, 2020. In addition to the stated contract amount of $100 million, the LAFC Agreements obligated us to pay for other annual expenses, which have averaged approximately $500 thousand per year.

Under the Termination Agreement, we agreed to restructure our partnership to allow LAFC to expand its roster of sponsors and partners into categories that were previously exclusive to us under the LAFC Agreements and we stepped away from our naming-rights position on LAFC’s soccer stadium. We will continue to serve as LAFC’s primary banking partner, subject to any new sponsor in the financial services space that offers banking services, and remain as a partner on a number of other collaborations. As part of the Termination Agreement, we agreed to pay LAFC a $20.1 million termination fee. The LAFC Agreements will be terminated on December 31, 2020, unless otherwise terminated earlier by LAFC pursuant to the Termination Agreement (the “Termination Date”). We will not have any continuing payment obligations to LAFC following the Termination Date. With respect to the remainder of 2020, we do not expect to have any additional payment obligations except in certain specified circumstances set forth in the Termination Agreement, which amount would not exceed $2.8 million.

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The pre-tax impact from our entry into the Termination Agreement was a one-time charge to operations of $26.8 million during the second quarter of 2020. The charge to operations includes the write-off of all of a prepaid advertising asset. As a result of the Termination Agreement, the Bank estimates an aggregate pre-tax cost savings of approximately $89.1 million, or approximately $7.1 million per year, over the remaining 12 ½ year life of the original LAFC Agreements.

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RESULTS OF OPERATIONS

Net Interest Income

The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates for the three months ended June 30, 2020, March 31, 2020 ~~December 31, 2019~~ and June 30, 2019:


	Three Months Ended
	June 30, 2020												March 31, 2020									June 30, 2019
($ in thousands)	Average Balance			Interest and Dividends		Yield/Cost		Average Balance			Interest and Dividends		Yield/ Cost		Average Balance			Interest and Dividends		Yield/Cost
Interest-earning assets:
Total loans⁽¹⁾	$	5,707,619		$	63,642	4.48	%	$	5,780,810		$	65,534	4.56	%	$	7,445,704		$	89,159	4.80	%
Securities	1,063,941			7,816		2.95	%	952,966			7,820		3.30	%	1,304,876			12,457		3.83	%
Other interest-earning assets ⁽²⁾	424,776			1,239		1.17	%	297,444			1,360		1.84	%	342,908			2,424		2.84	%
Total interest-earning assets	7,196,336			72,697		4.06	%	7,031,220			74,714		4.27	%	9,093,488			104,040		4.59	%
ACL	(78,528)							(60,470)							(63,046)
BOLI and noninterest-earning assets ⁽³⁾	622,398							592,192							580,133
Total assets	$	7,740,206						$	7,562,942						$	9,610,575
Interest-bearing liabilities:
Savings	$	905,997		2,718		1.21	%	$	890,830		3,296		1.49	%	$	1,083,571		4,950		1.83	%
Interest-bearing checking	1,710,038			2,186		0.51	%	1,520,922			3,728		0.99	%	1,580,165			4,554		1.16	%
Money market	592,872			850		0.58	%	608,926			1,760		1.16	%	853,007			3,902		1.83	%
Certificates of deposit	1,214,939			4,451		1.47	%	1,151,518			5,827		2.04	%	2,537,060			15,192		2.40	%
Total interest-bearing deposits	4,423,846			10,205		0.93	%	4,172,196			14,611		1.41	%	6,053,803			28,598		1.89	%
FHLB advances	819,166			4,818		2.37	%	1,039,055			5,883		2.28	%	1,287,121			8,289		2.58	%
Securities sold under repurchase agreements	1,024			2		0.79	%	—			—		—	%	2,173			16		2.95	%
Long-term debt and other interest-bearing liabilities	173,977			2,357		5.45	%	174,056			2,359		5.45	%	174,161			2,357		5.43	%
Total interest-bearing liabilities	5,418,013			17,382		1.29	%	5,385,307			22,853		1.71	%	7,517,258			39,260		2.09	%
Noninterest-bearing deposits	1,349,735							1,133,306							1,034,205
Noninterest-bearing liabilities	118,208							128,282							96,179
Total liabilities	6,885,956							6,646,895							8,647,642
Total stockholders’ equity	854,250							916,047							962,933
Total liabilities and stockholders’ equity	$	7,740,206						$	7,562,942						$	9,610,575
Net interest income/spread				$	55,315	2.77	%				$	51,861	2.56	%				$	64,780	2.50	%
Net interest margin ⁽⁴⁾						3.09	%						2.97	%						2.86	%

Ratio of interest-earning assets to interest-bearing liabilities	132.82		%					130.56		%					120.97		%
Total deposits⁽⁵⁾	5,773,581			10,205		0.71	%	5,305,502			14,611		1.11	%	7,088,008			28,598		1.62	%
Total funding⁽⁶⁾	6,767,748			17,382		1.03	%	6,518,613			22,853		1.41	%	8,551,463			39,260		1.84	%

(1)Total loans are net of deferred fees, related direct costs and discounts. Non-accrual loans are included in the average balance. Net accretion (amortization) of deferred loan fees (costs) of $1.1 million, $(587) thousand and $106 thousand and accretion of discount on purchased loans of $347 thousand, $8 thousand and $28 thousand for the three months ended June 30, 2020, March 31, ~~2019:~~2020 and June 30, 2019, respectively, are included in interest income.

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Three Months Ended
March 31, 2020 December 31, 2019 March 31, 2019
($ in thousands) Average Balance Interest and Dividends Yield/Cost Average Balance Interest and Dividends
Yield/
Cost
Average Balance Interest and Dividends Yield/Cost
Interest-earning assets:
Total loans⁽¹⁾
$ 5,780,810
$ 65,534
4.56 % $ 6,221,249
$ 73,930
4.71 % $ 7,714,751
$ 90,558
4.76 %
Securities 952,966
7,820
3.30 % 833,726
7,812
3.72 % 1,751,509
17,841
4.13 %
Other interest-earning assets ⁽²⁾
297,444
1,360
1.84 % 330,950
1,960
2.35 % 321,823
2,313
2.91 %
Total interest-earning assets 7,031,220
74,714
4.27 % 7,385,925
83,702
4.50 % 9,788,083
110,712
4.59 %
ACL (60,470 ) (61,642 ) (61,924 )
BOLI and noninterest earning assets ⁽³⁾
592,192
630,308
575,558

Total assets $ 7,562,942
$ 7,954,591
$ 10,301,717

Interest-bearing liabilities:
Savings $ 890,830
3,296
1.49 % $ 981,346
3,889
1.57 % $ 1,201,802
5,480
1.85 %
Interest-bearing checking 1,520,922
3,728
0.99 % 1,546,322
4,234
1.09 % 1,554,846
4,525
1.18 %
Money market 608,926
1,760
1.16 % 743,695
2,593
1.38 % 887,538
4,128
1.89 %
Certificates of deposit 1,151,518
5,827
2.04 % 1,332,911
7,531
2.24 % 2,982,980
17,310
2.35 %
Total interest-bearing deposits 4,172,196
14,611
1.41 % 4,604,274
18,247
1.57 % 6,627,166
31,443
1.92 %
FHLB advances 1,039,055
5,883
2.28 % 1,020,478
6,396
2.49 % 1,422,100
9,081
2.59 %
Securities sold under repurchase agreements —
—
— % 2,223
15
2.68 % 2,350
18
3.11 %
Long term debt and other interest-bearing liabilities 174,056
2,359
5.45 % 174,092
2,384
5.43 % 174,230
2,362
5.50 %
Total interest-bearing liabilities 5,385,307
22,853
1.71 % 5,801,067
27,042
1.85 % 8,225,846
42,904
2.12 %
Noninterest-bearing deposits 1,133,306
1,108,077
1,021,741

Non-interest-bearing liabilities 128,282
132,698
97,426

Total liabilities 6,646,895
7,041,842
9,345,013

Total stockholders’ equity 916,047
912,749
956,704

Total liabilities and stockholders’ equity $ 7,562,942
$ 7,954,591
$ 10,301,717

Net interest income/spread $ 51,861
2.56 % $ 56,660
2.65 % $ 67,808
2.47 %
Net interest margin ⁽⁴⁾
2.97 % 3.04 % 2.81 %
(2)Includes average balance of FHLB, FRB and other bank stock at cost and average time deposits with other financial institutions.

~~(1)~~

Total loans are net of deferred fees, related direct costs and discounts. Non-accrual loans are included in the average balance. Net (amortization) accretion of deferred loan fees and costs of $(587) thousand, $61 thousand and $(289) thousand and accretion of discount on purchased loans of $8 thousand, $54 thousand and $97 thousand for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019, respectively, are included in interest income.


~~(2)~~	~~Includes average balance of FHLB and other bank stock at cost and average time deposits with other financial institutions.~~


~~(3)~~	~~Includes average balance of bank-owned life insurance of $110.0 million, $108.9 million and $107.2 million for the three months ended March 31, 2020, December 31, 2019 and March 31, 2019.~~


~~(4)~~	~~Annualized net interest income divided by average interest-earning assets.~~

(3)Includes average balance of bank-owned life insurance of $110.4 million, $110.0 million and $107.8 million for the three months ended June 30, 2020, March 31, 2020 and June 30, 2019.

(4)Annualized net interest income divided by average interest-earning assets.

(5)Total deposits is the sum of interest-bearing deposits and noninterest-bearing deposits. The cost of total deposits is calculated as annualized total interest expense on deposits divided by average total deposits.

(6)Total funding is the sum of interest-bearing liabilities and noninterest-bearing deposits. The cost of total funding is calculated as annualized total interest expense divided by average total funding.

Three Months Ended June 30, 2020 Compared to Three Months Ended March 31, 2020

Net interest income increased $3.5 million to $55.3 million for the second quarter of 2020 due mostly to lower funding costs and higher average interest-earning assets, offset by a lower yield on such assets. Compared to the prior quarter, average interest-earning assets increased by $165.1 million to $7.20 billion, due to higher average securities of $111.0 million and other interest-earning assets of $127.3 million, offset by lower average loans of $73.2 million. The average interest-earning assets growth was funded by higher average noninterest-bearing deposits of $216.4 million and interest-bearing deposits of $251.7 million, partially offset by lower average FHLB advances of $219.9 million.

The net interest margin increased 12 basis points to 3.09% for the second quarter from 2.97% for the prior quarter. The increase was due to the 42 basis point decline on the average cost of interest-bearing liabilities outpacing the 21 basis point decline in the average yield on interest-earning assets. The decrease in the average interest-earning asset yield to 4.06% for the second quarter from 4.27% for the first quarter was due to lower yields on most interest-earning asset classes and the change in the mix of interest-earning assets. The lower yields on total loans, securities and other interest-earning assets was due to originating new business and repricing variable rate loans and investments in the lower interest rate environment given the rate cuts by the Federal Reserve in March 2020. Our average yield on loans declined 8 basis points to 4.48% and our average yield on securities decreased 35 basis points to 2.95%. The second quarter includes $1.7 million of PPP fee income, which increased the net interest margin by 3 basis points. The lower securities yield is due mostly to a 38 basis point decrease in the collateralized loan obligations (“CLOs”) yield to 3.22% for the second quarter from 3.60% for the first quarter as these CLOs reprice quarterly.

The average cost of funds decreased 39 basis points to 1.03% for the second quarter from 1.41% for the first quarter. This decrease was driven by the lower average cost of interest-bearing liabilities and improved funding mix, including higher average noninterest-bearing deposits. We have reduced our reliance on high cost transaction accounts, non-brokered certificates of deposits, and wholesale funds as we continue to execute on our relationship-focused business banking strategy. The 42 basis point decline in the average cost of interest-bearing liabilities to 1.29% for the second quarter, from 1.71% for the first quarter, was driven by the lower average cost of interest-bearing deposits. The average cost of interest-bearing deposits declined 48 basis points to 0.93% from the prior quarter due to actively managing down deposit rates in response to the interest rate cuts by the Federal Reserve in March 2020. Additionally, average noninterest-bearing deposits increased by $216.4 million and represented 23.4% of total average deposits in the second quarter compared to 21.4% of total average deposits for the first quarter. Our total cost of average deposits decreased 40 basis points to 0.71% for the second quarter. The spot rate of total deposits at the end of the second quarter of 2020 was 0.59%.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Net interest income was $55.3 million for the three months ended June 30, 2020, a decrease of $9.5 million, or 14.6%, from $64.8 million for the three months ended June 30, 2019. The decrease in net interest income from the prior period was due to lower average interest-earning assets, as a result of targeted sales of securities and loans during 2019, in line with our strategy of remixing the loan portfolio towards relationship based-lending, offset by a higher net interest margin. For the three months ended June 30, 2020, average interest-earning assets declined $1.90 billion to $7.20 billion and the net interest margin increased 23 basis points to 3.09% for the three months ended June 30, 2020 compared to 2.86% for the same 2019 period.

Our average yield on interest-earning assets decreased 53 basis points to 4.06% for the three months ended June 30, 2020, as compared to 4.59% during the same 2019 period. The decrease in yield was primarily attributable to lower average yields on the loan and securities portfolios, partially offset by an increased mix of loans versus

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securities. Our average yield on loans was 4.48% for the three months ended June 30, 2020, compared to 4.80% for the same 2019 period, primarily due to lower market interest rates and a lower percentage of higher-yielding commercial and industrial balances in the portfolio due to the market interest rate cuts totaling 225 basis points by the Federal Reserve in the third quarter of 2019 through March of 2020. Our average yield on securities decreased 88 basis points due mostly to CLOs repricing into the lower rate environment and a decrease in average CLO balances.

The average cost of funds decreased to 1.03% for the three months ended June 30, 2020 from 1.84% for the same 2019 period. This decrease was driven by the lower average cost of interest-bearing liabilities and the improved funding mix, including higher average noninterest-bearing deposits. The 80 basis point decline in the average cost of interest-bearing liabilities to 1.29% for the three months ended June 30, 2020 from 2.09% for the same 2019 period was driven by the lower average cost of interest-bearing deposits and rates paid on our FHLB term advances. The average cost of interest-bearing deposits declined 96 basis points to 0.93% from the prior period due to actively managing down deposit rates in response to the previously described interest rate cuts by the Federal Reserve and a lower reliance on brokered deposits. Additionally, average noninterest-bearing deposits increased by $315.5 million when compared to the same 2019 period. Our cost of average total deposits decreased 91 basis points to 0.71% for the three months ended June 30, 2020 when compared to the same 2019 period due to the lower cost of interest-bearing deposits and a higher mix of noninterest-bearing deposits. Average noninterest-bearing deposits represented 23.4% of total average deposits for the three months ended June 30, 2020 compared to 14.6% of total average deposits for the first quarter of 2019.

The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their corresponding yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the six months ended June 30, 2020 and 2019:

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	Six Months Ended June 30,
	2020												2019
($ in thousands)	Average Balance			Interest and Dividends		Yield/Cost		Average Balance			Interest and Dividends		Yield/Cost
Interest-earning assets:
Total loans ⁽¹⁾	$	5,744,214		$	129,176	4.52	%	$	7,579,485		$	179,717	4.78	%
Securities	1,008,454			15,636		3.12	%	1,526,959			30,298		4.00	%
Other interest-earning assets ⁽²⁾	361,110			2,599		1.45	%	332,424			4,737		2.87	%
Total interest-earning assets	7,113,778			147,411		4.17	%	9,438,868			214,752		4.59	%
ACL	(69,499)							(62,488)
BOLI and non-interest earning assets ⁽³⁾	607,296							577,858
Total assets	$	7,651,575						$	9,954,238
Interest-bearing liabilities:
Savings	$	898,414		6,013		1.35	%	$	1,142,360		10,429		1.84	%
Interest-bearing checking	1,615,480			5,915		0.74	%	1,567,575			9,079		1.17	%
Money market	600,899			2,610		0.87	%	870,177			8,031		1.86	%
Certificates of deposit	1,183,229			10,278		1.75	%	2,758,789			32,502		2.38	%
Total interest-bearing deposits	4,298,022			24,816		1.16	%	6,338,901			60,041		1.91	%
FHLB advances	929,110			10,701		2.32	%	1,354,238			17,370		2.59	%
Securities sold under repurchase agreements	512			2		0.79		2,261			34		3.03	%
Long-term debt and other interest-bearing liabilities	174,017			4,716		5.45	%	174,195			4,719		5.46	%
Total interest-bearing liabilities	5,401,661			40,235		1.50	%	7,869,595			82,164		2.11	%
Noninterest-bearing deposits	1,241,521							1,028,008
Noninterest-bearing liabilities	123,244							96,801
Total liabilities	6,766,426							8,994,404
Total stockholders’ equity	885,149							959,834
Total liabilities and stockholders’ equity	$	7,651,575						$	9,954,238
Net interest income/spread				$	107,176	2.67	%				$	132,588	2.48	%
Net interest margin ⁽⁴⁾						3.03	%						2.83	%

Ratio of interest-earning assets to interest-bearing liabilities	131.70		%					119.94		%
Total deposits⁽⁵⁾	5,539,543			24,816		0.90	%	7,366,909			60,041		1.64	%
Total funding⁽⁶⁾	6,643,182			40,235		1.22	%	8,897,603			82,164		1.86	%

(1)Total loans are net of deferred fees, related direct costs and discounts, but exclude the allowance for credit losses. Non-accrual loans are included in the average balance. Net accretion (amortization) of deferred loan fees (costs) of $553 thousand and $(83) thousand and accretion of discount on purchased loans of $355 thousand and $125 thousand for the six months ended June 30, 2020 and 2019, respectively, are included in interest income.

(2)Includes average balance of FHLB, FRB and other bank stock at cost and average time deposits with other financial institutions.

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(3)Includes average balance of bank-owned life insurance of $110.2 million and $107.5 million for the six months ended June 30, 2020 and 2019.

(4)Annualized net interest income divided by average interest-earning assets.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Net interest income for the six months ended June 30, 2020 decreased $25.4 million to $107.2 million from $132.6 million for the same 2019 period. This decrease was due to lower average interest-earning assets, as a result of targeted sales of securities and loans during 2019, in line with our strategy of remixing the loan portfolio towards relationship based-lending, partially offset by a higher net interest margin. For the six months ended June 30, 2020, average interest-earning assets declined $2.33 billion to $7.11 billion, and the net interest margin increased 20 basis points to 3.03% for the six months ended June 30, 2020 compared to 2.83% for the same 2019 period.

Our average yield on interest-earning assets decreased 42 basis points to 4.17% for the six months ended June 30, 2020 as compared to 4.59% during the same 2019 period. The decrease in yield was primarily attributable to lower average yields on the loan and securities portfolios, partially offset by an increased mix of loans versus securities. Our average yield on loans was 4.52% for the six months ended June 30, 2020, compared to 4.78% for the same 2019 period, primarily due to lower market interest rates and a lower percentage of higher-yielding commercial and industrial balances in the portfolio. Our average yield on securities decreased 88 basis points due mostly to CLOs repricing into the lower rate environment and a decrease in average CLO balances.

The average cost of funds decreased to 1.22% for the six months ended June 30, 2020 from 1.86% for the same 2019 period. This decrease was driven by the lower average cost of interest-bearing liabilities and the improved funding mix, including higher average noninterest-bearing deposits. The 61 basis point decline in the average cost of interest-bearing liabilities to 1.50% for the six months ended June 30, 2020 from 2.11% for the same 2019 period was driven by the lower average cost of interest-bearing deposits and rates paid on our FHLB term advances. The average cost of interest-bearing deposits declined 75 basis points to 1.16% from the prior period due to actively managing down deposit rates in response to the previously described market interest rate cuts by the Federal Reserve and a lower reliance on brokered deposits. Additionally, average noninterest-bearing deposits increased by $213.5 million when compared to the same 2019 period. Our cost of average total deposits decreased 74 basis points to 0.90% for the six months ended June 30, 2020 when compared to the same 2019 period due to the lower cost of interest-bearing deposits and higher noninterest-bearing deposits. Average noninterest-bearing deposits represented 22.4% of total average deposits for the six months ended June 30, 2020 compared to 14.0% of total average deposits for the same 2019 period.

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Rate/Volume Analysis

The following table presents the changes in interest income and interest expense for the major components of interest-earning assets and interest-bearing liabilities. ~~Information is~~The information provided onpresents the changes attributable to: (i) changes in volume multiplied by the prior rate; and (ii) changes in rate multiplied by the prior volume. Changes attributable to both rate and volume which cannot be segregated have been allocated proportionately to the change due to volume and the change due to rate.


	Three Months Ended March 31, 2020 vs. 2019										Three Months Ended June 30, 2020 vs. 2019												Six Months Ended June 30, 2020 vs. 2019
	Increase (Decrease) Due to						Net Increase (Decrease)				Increase (Decrease) Due to						Net Increase (Decrease)			Increase (Decrease) Due to						Net Increase (Decrease)
($ In thousands)	Volume			Rate						($ In thousands)	Volume		Rate						Volume			Rate			Net Increase (Decrease)
Interest and dividend income:										Interest and dividend income:
Total loans	$	(21,432	)	$	(3,592	)	$	(25,024	)	Total loans	$	(19,848)	$	(5,669)	$	(25,517)	$	(41,270)		$	(9,271)		$	(50,541)
Securities	(6,955		)	(3,066		)	(10,021		)	Securities	(2,068)		(2,573)		(4,641)		(8,897)			(5,765)			(14,662)
Other interest-earning assets	(163		)	(790		)	(953		)	Other interest-earning assets	480		(1,665)		(1,185)		379			(2,517)			(2,138)
Total interest and dividend income	$	(28,550	)	$	(7,448	)	$	(35,998	)	Total interest and dividend income	$	(21,436)	$	(9,907)	$	(31,343)	$	(49,788)		$	(17,553)		$	(67,341)
Interest expense:										Interest expense:
Savings	$	(1,246	)	$	(938	)	$	(2,184	)	Savings	$	(728)	$	(1,504)	$	(2,232)	$	(1,965)		$	(2,451)		$	(4,416)
Interest-bearing checking	(95		)	(702		)	(797		)	Interest-bearing checking	351		(2,719)		(2,368)		272			(3,436)			(3,164)
Money market	(1,062		)	(1,306		)	(2,368		)	Money market	(942)		(2,110)		(3,052)		(1,993)			(3,428)			(5,421)
Certificates of deposit	(9,452		)	(2,031		)	(11,483		)	Certificates of deposit	(6,161)		(4,580)		(10,741)		(15,186)			(7,038)			(22,224)
FHLB advances	(2,214		)	(984		)	(3,198		)	FHLB advances	(2,837)		(634)		(3,471)		(5,007)			(1,662)			(6,669)
Securities sold under repurchase agreements	(9		)	(9		)	(18		)	Securities sold under repurchase agreements	(6)		(8)		(14)		(16)			(16)			(32)
Long term debt and other interest-bearing liabilities	—			(3		)	(3		)
Long-term debt and other interest-bearing liabilities										Long-term debt and other interest-bearing liabilities	(2)		2		—		(1)			(2)			(3)
Total interest expense	(14,078		)	(5,973		)	(20,051		)	Total interest expense	(10,325)		(11,553)		(21,878)		(23,896)			(18,033)			(41,929)
Net interest income	$	(14,472	)	$	(1,475	)	$	(15,947	)	Net interest income	$	(11,111)	$	1,646	$	(9,465)	$	(25,892)		$	480		$	(25,412)

~~Three Months Ended March 31, 2020 Compared to Three Months Ended December 31, 2019~~

Net interest income decreased $4.8 million to $51.9 million for the first quarter due to the combination of lower average interest-earning assets and a lower net interest margin. Average interest-earning assets declined from the prior quarter by $354.7 million to $7.03 billion, including a $440.4 million reduction in average loans to $5.78 billion, and our net interest margin declined 7 basis points (bps) to 2.97%.

Interest income on total loans was $65.5 million for the three months ended March 31, 2020, a decrease of $8.4 million, or 11.4%, from $73.9 million for the three months ended December 31, 2019. The decrease in interest income on loans was primarily due to a $440.4 million decrease in the average balance of total loans and a 15 bps decrease in average yield. The decline in loan yields was due mostly to lower yields across most loan classes due to originating new business and repricing variable rate loans in the lower interest rate environment given the cuts in the federal funds target rates during the current and prior quarters.

Interest income on securities was $7.8 million for the three months ended March 31, 2020, an increase of $8 thousand compared to the prior quarter. During the quarter, the impact from a $119.2 million increase in average securities balance was offset by a 42 bps decrease in average yield. The decrease in average yield is primarily as a result of the lower interest rate environment. The average yield for variable rate collateralized loan obligations ("CLOs"), based on average fair value, was 3.60% for the first quarter compared to 3.81% for the fourth quarter as this investment class reprices quarterly. The increase in average balance during the quarter resulted from purchases of agency mortgage-backed securities and corporate debt securities.

Dividends and interest income on other interest-earning assets was $1.4 million for the three months ended March 31, 2020, a decrease of $600 thousand, or 30.6%, from $2.0 million for the three months ended December 31, 2019. The decrease in dividends and interest income on other interest-earning assets was due to a $33.5 million decrease in average balance and a 51 bps decrease in average yield. The lower average other interest-earning asset yield was due mainly to the lower market interest rates and their impact on deposits with financial institutions.

The 14 basis point decline in the average cost of interest-bearing liabilities to 1.71% for the first quarter from 1.85% for the fourth quarter was driven by the lower average cost of interest-bearing deposits. Interest expense on interest-bearing deposits was $14.6 million for the three months ended March 31, 2020, a decrease of $3.6 million, or 19.9%, from $18.2 million for the three months ended December 31, 2019. The average cost of interest-bearing deposits declined 16 bps to 1.41% from the prior quarter. Additionally, average noninterest-bearing deposits increased by $25.2 million, or 2.3%, and represented 21.4% of total average deposits in the first quarter. Our total cost of deposits decreased 16 bps to 1.11% for the first quarter. The decrease in our funding cost is due to a lower reliance on high cost transaction accounts and wholesale funds as we have managed down the consolidated balance sheet and continue to execute on our strategy to focus on relationship clients.

Interest expense on FHLB advances was $5.9 million for the three months ended March 31, 2020, a decrease of $513 thousand, or 8.0%, from $6.4 million for the three months ended December 31, 2019. The decrease was due mainly to a 21 bps decrease in average cost, offset by a $18.6 million increase in average balance during the quarter. The decrease in average cost was mainly due to a reduction in average overnight borrowing rates during the quarter ended March 31, 2020. The increase in average balance was mainly due to an increase in use of short-term and overnight borrowings.

~~Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019~~

Net interest income was $51.9 million for the three months ended March 31, 2020, a decrease of $15.9 million, or 23.5%, from $67.8 million for the three months ended March 31, 2019. The decrease in net interest income from the prior period was largely due to reductions in yields and average balances of interest-earning assets outpacing the reductions in costs and average balances of our interest-bearing liabilities.

Interest income on total loans was $65.5 million for the three months ended March 31, 2020, a decrease of $25.0 million, or 27.6 percent, from $90.6 million for the three months ended March 31, 2019. The decrease in interest income on loans was primarily due to a $1.93 billion decrease in the average balance of total loans coupled with a 20 bps decrease in average yield. The decrease in average balance was due mainly to sales of loans during 2019, including the sale of $382.8 million in jumbo SFR mortgage loans and $751.6 million of multifamily residential loans. The decrease in average yield was mainly due to lower interest rates on new loans and loans with variable interest rates decreasing due to a lower interest rate environment between periods.

Interest income on securities was $7.8 million for the three months ended March 31, 2020, a decrease of $10.0 million, or 56.2%, from $17.8 million for the three months ended March 31, 2019. The decrease in interest income on securities was due to a $798.5 million decrease in average balance, coupled with an 83 bps decrease in average yield. The decrease in average balance was mainly due to sales of certain longer-duration and fixed-rate mortgage-backed securities, collateralized loan obligations and commercial mortgage-backed securities during 2019 in response to the changing interest rate environment and our effort to remix our earning assets from investment securities to higher yielding loans. The decrease in average yield was due to quarterly interest rate resets on our CLOs into a lower interest rate environment and the sales of CLOs that occurred during 2019.

Dividends and interest income on other interest-earning assets was $1.4 million for the three months ended March 31, 2020, a decrease of $1.0 million or 41.2% from $2.3 million for the three months ended March 31, 2019. Between periods, there was a 107 bps decrease in average yield, coupled with a $24.4 million decrease in average balance. The decrease in average yield was mainly due to lower interest rates on deposits with financial institutions. The decrease in average balance was mainly due to decreases in interest-bearing deposits in financial institutions partially as a result of the purchases of investment securities during the first quarter of 2020.

The 41 basis point decline in the average cost of interest-bearing liabilities to 1.71% for the three months ended March 31, 2020 from 2.12% for the three months ended March 31, 2019, was driven by the lower average cost of interest-bearing deposits and higher average noninterest-bearing deposits. Interest expense on interest-bearing deposits was $14.6 million for the three months ended March 31, 2020, a decrease of $16.8 million, or 53.5%, from $31.4 million for the three months ended March 31, 2019. The decrease in interest expense on interest-bearing deposits was due to a $2.45 billion decrease in average balance, coupled with a 51 bps decrease in average cost. The decrease in average balance primarily related to the use of proceeds from the sale of loans and investments in 2019 to redeem higher cost brokered certificates of

deposits, coupled with the shift in our deposit strategy to focus on relationship-based customers and de-emphasize high-rate transactional customers. The decrease in average cost was mainly due to the lower interest rate environment between periods.

Interest expense on FHLB advances was $5.9 million for the three months ended March 31, 2020, a decrease of $3.2 million, or 35.2%, from $9.1 million for the three months ended March 31, 2019. The decrease was due mainly to a $383.0 million decrease in average balance for the quarter ended March 31, 2020, coupled with a 31 bps decrease in average cost. The decrease in average cost was mainly due to the lower interest rate environment between periods. The decrease in average balance was mainly due to reduced term advances, primarily three- to ten-year duration, based on available cash resulting from sales and calls of investment securities and loans during 2019.

Provision for (Reversal of) Credit Losses

The provision for (reversal of) credit losses is charged to operations to adjust the allowance for credit losses to the level required to cover current estimated credit losses in our loan portfolio and unfunded commitments. The following table presents the components of our provision for credit losses:


	Three Months Ended										Six Months Ended June 30,
($ in thousands)	June 30, 2020		March 31, 2020		June 30, 2019		2020		2019
Provision for (reversal of) loan losses	$	11,519	$	14,711	$	(1,987)	$	26,230	$	525
Provision for (reversal of) credit losses - unfunded loan commitments	307		1,050		87		1,357		(327)

Total provision for (reversal of) credit losses	$	11,826	$	15,761	$	(1,900)	$	27,587	$	198

Three Months Ended
($ in thousands) March 31,
2020 December 31,
2019 March 31,
2019
Provision for (reversal of) loan losses $ 14,711
$ (2,678 ) $ 2,512
Provision for (reversal of) credit losses - unfunded loan commitments 1,050
(298 ) (414 )
Total provision for (reversal of) credit losses $ 15,761
$ (2,976 ) $ 2,098

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We ~~recorded~~recognized a provision for ~~(reversal of) loan~~credit losses of ~~$14.7~~$11.8 million during the second quarter of 2020, compared to $15.8 million during the first quarter of 2020 and ~~$(2.7)~~a reversal of credit losses of $1.9 million for the ~~three~~second quarter of 2019. Our provision for credit losses during the second quarter of 2020 included $307 thousand related to unfunded commitments, compared to $1.1 million during the first quarter. The remaining second quarter of 2020 provision for credit losses was comprised of $5.0 million of general reserves and $6.8 million related to specific reserves, primarily related to a previously reported non-accrual, shared national credit. The general provision is due to a continued deterioration in key macro-economic forecast variables, such as unemployment and gross domestic product, and loan risk rating downgrades, offset by lower period end loan balances.

During the six months ended ~~March 31,~~June 30, 2020, ~~and December 31, 2019. During the first quarter, the $14.7 million~~we recognized a provision for ~~loan~~credit losses of $27.6 million under the CECL model, compared to $198 thousand under the incurred loss model during 2019. Our provision for credit losses included $1.4 million related to unfunded commitments during the six months ended June 30, 2020, compared to provision reversal of $327 thousand during the six months ended June 30, 2019. The higher provision for credit losses was ~~calculated~~driven by using the new CECL model, ~~and reflects~~ the estimated future impact of the ~~COVID-19 pandemic~~health crisis on our loans, ~~and~~ net charge-offs, and an increase in specific reserves, partially offset by lower period end loan balances of ~~$284.4 million. For the first quarter, approximately $19 million of the provision for credit losses was attributed~~$1.09 billion as compared to ~~the change in the economic forecasts, including assumed impacts of the pandemic, offset by a $5.0 million reduction due to other portfolio changes.~~

Our provision for credit losses includes $1.1 million related to unfunded loan commitments, which was also calculated using the new CECL model and reflects the estimated future impact of the COVID-19 pandemic.June 30, 2019.

See further discussion in "Allowance for Credit Losses."

Noninterest Income (Loss)

The following table presents the components of noninterest income for the periods indicated:


	Three Months Ended									Three Months Ended										Six Months Ended June 30,
($ in thousands)	March 31, 2020			December 31, 2019			March 31, 2019		($ in thousands)	June 30, 2020		March 31, 2020		June 30, 2019		2020		2019
Customer service fees	$	1,096		$	1,451		$	1,515	Customer service fees	$	1,224	$	1,096	$	1,434	$	2,320	$	2,949
Loan servicing income	75			312			118		Loan servicing income	95		75		121		170		239
Income from bank owned life insurance	578			599			525		Income from bank owned life insurance	591		578		580		1,169		1,105

Net gain on sale of securities available-for-sale	—			3			208		Net gain on sale of securities available-for-sale	2,011		—		—		2,011		208
Fair value adjustment on loans held for sale	(1,586		)	30			1
Fair value adjustment on loans held-for-sale									Fair value adjustment on loans held-for-sale	25		(1,586)		59		(1,561)		60
Net (loss) gain on sale of loans	(27		)	(863		)	1,552		Net (loss) gain on sale of loans	—		(27)		2,767		(27)		4,319

Other income	1,925			3,398			2,376		Other income	1,582		1,925		(7,251)		3,507		(4,875)
Total noninterest income	$	2,061		$	4,930		$	6,295
Total noninterest income (loss)									Total noninterest income (loss)	$	5,528	$	2,061	$	(2,290)	$	7,589	$	4,005

Three Months Ended ~~March 31,~~June 30, 2020 Compared to Three Months Ended ~~December~~March 31, ~~2019~~2020

Noninterest income was $5.5 million for the three months ended June 30, 2020; an increase of $3.5 million, or 168.2%, from $2.1 million for the three months ended March 31, 2020. The increase was primarily due to a gain on the sale of securities of $2.0 million compared to $0 in the prior quarter and lower net unrealized losses of $1.6 million for the change in fair value adjustment on loans held-for sale. During the three months ended June 30, 2020, we sold $20.7 million in securities, primarily consisting of corporate securities, resulting in a ~~decrease~~gain of ~~$2.9 million, or 58.2%, from $4.9~~$2.0 million. There were no sales of securities during the prior quarter.

In addition, during the three months ended June 30, 2020, customer service fees increased $128 thousand due mostly to higher depositor-related fees. Other income increased $343 thousand due mostly to lower sublease income of $423 thousand.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Noninterest income was $5.5 million for the three months ended ~~December 31,~~June 30, 2020, an increase of $7.8 million, or 341.4%, from $(2.3) million for the three months ended June 30, 2019. The ~~decrease~~increase in noninterest income during the three months ended June 30, 2020 was ~~primarily~~mainly due to the ~~impact~~aforementioned 2020 sale of ~~lower market~~securities and the 2019 second quarter $9.6 million unrealized loss from interest ~~rates on certain assets subject~~rate swap agreements entered into in order to ~~fair value accounting including a $1.6 million decrease~~offset the variability in the fair value of ~~loans held for sale, a $333 thousand decrease in~~ the ~~fair value~~Freddie Mac securitization completed during the third quarter of customer-related loan swaps, and a $166 thousand decrease in the value of servicing assets due mostly to the impact of prepayment assumptions. In addition, the prior quarter included a $650 thousand insurance recovery; there was no similar insurance recovery in the current quarter. These decreases were2019, offset ~~in part~~ by lower net ~~losses~~gain on ~~sales~~sale of loans of ~~$836 thousand.~~$2.8 million.

Customer service fees decreased ~~$355~~$210 thousand, or ~~24.5%~~14.6%, during the three months ended ~~March 31,~~June 30, 2020 due mostly to lower borrower loan fees, such as extension and exit fees, offset by higher deposit-related transactional fees.

Net gains on sale of securities available-for-sale increased to $2.0 million during the three months ended June 30, 2020 from zero during the three months ended June 30, 2019. The increase between periods was due to the aforementioned $20.7 million

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sale of securities during the three months ended June 30, 2020, primarily consisting of corporate securities. There were no securities sales in the first quarter of 2019.

Net loss on sale of loans, which includes premium recapture of previously sold loans, was zero during the three months ended June 30, 2020 compared to $2.8 million during the comparable 2019 period. There were no sales of loans during the second quarter of 2020. During the second quarter of 2019, we sold jumbo SFR mortgage loans of $131.5 million resulting in a gain of $125 thousand and $178.2 million of multifamily residential loans resulting in a gain of $2.9 million.

Other income was $1.6 million for the three months ended June 30, 2020, compared to a loss of $7.3 million in the comparable 2019 period. The $8.8 million decrease was primarily attributable to the 2019 period including the aforementioned $9.6 million unrealized loss from interest rate swap agreements entered into in order to offset variability in the fair value of the Freddie Mac securitization completed during the third quarter of 2019.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Noninterest income was $7.6 million for the six months ended June 30, 2020, an increase of $3.6 million, or 89.5%, from $4.0 million for the six months ended June 30, 2019. The increase in noninterest income was mainly due to the $1.8 million increase in net gain on the securities available-for-sale, coupled with a $8.4 million decrease in other income (loss), partially offset by higher unrealized net losses on loans held-for-sale of $1.6 million and lower net gains on sale of loans of between periods of $4.3 million.

Customer service fees decreased $629 thousand, or 21.3%, during the three months ended June 30, 2020 due mostly to lower borrower loan fees, such as extension and exit fees.

Net ~~loss~~gain on sale of securities available-for-sale was $2.0 million for the six months ended June 30, 2020, compared to $208 thousand for the six months ended June 30, 2019. During the six months ended June 30, 2020 we sold $20.7 million in securities, primarily consisting of corporate securities, resulting in a gain of $2.0 million. During the six months ended June 30, 2019, we sold $132.2 million of non-agency commercial mortgage-backed securities resulting in a gain of $9 thousand and $644.5 million in collateralized loan obligations resulting in a gain of $143 thousand.

Net (loss) gain on sale of loans, which includes premium recapture of previously sold loans, was $27 thousand for the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to ~~$863 thousand for the three months ended December 31, 2019. During the three months ended March 31, 2020, there were no loan sales, compared to sales~~a gain of ~~jumbo SFR mortgage loans of $8.0 million resulting in an aggregate loss of $837 thousand during the previous quarter.~~

~~Other income was $1.9~~$4.3 million for the ~~three~~six months ended ~~March 31, 2020, compared to $3.4 million for the three months ended December 31, 2019. The $1.5 million decrease is primarily attributable to a $333 thousand decrease in the fair value of~~

~~customer-related loan swaps. In addition, the prior quarter included a $650 thousand insurance recovery; there was no similar insurance recovery in the current quarter.~~

~~Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019~~

Noninterest income was $2.1 million for the three months ended March 31, 2020, a decrease of $4.2 million, or 67.3%, from $6.3 million for the three months ended March 31, 2019. The decrease in noninterest income during the three months ended March 31, 2020 was mainly due to lower fair value of loans held for sale, customer service fees, net gains on the sale of loans and securities and other income.

~~Customer fees decreased $419 thousand, or 27.7%, during the three months ended March 31, 2020 due mostly to lower borrower loan fees, such as extension fees.~~

Net gains on sale of securities available-for-sale decreased $208 thousand due to selling $132.2 million of non-agency commercial mortgage-backed securities resulting in a gain of $9 thousand and $365.3 million in collateralized loan obligations resulting in a gain of $143 thousand for the three months ended March 31,June 30, 2019. There were ~~no securities sales in the first quarter of 2020.~~

~~Net loss on sale of loans decreased $1.6 million due to~~ no sales of loans during the ~~three~~six months ended ~~March 31, 2020 compared to sales of $243.2 million in~~June 30, 2020. During the six months ended June 30, 2019, we sold jumbo SFR mortgage loans of $374.7 million resulting in a gain of $1.8 million and $178.2 million of multifamily residential loans resulting in a gain of ~~$1.6 million in the same 2019 period.~~$2.9 million.

Other income (loss) was ~~$1.9~~$3.5 million for the ~~three~~six months ended ~~March 31,~~June 30, 2020, compared to ~~$2.4~~$(4.9) million infor the ~~comparable 2019 period.~~six months ended June 30, 2019. The ~~$451 thousand decrease is~~$8.4 million increase was primarily attributable to ~~changes in~~the aforementioned $9.6 million unrealized loss from interest rate swap ~~fee income which totaled $3 thousand~~agreements entered into in order to offset variability in the fair value of the Freddie Mac securitization completed during the ~~three months ended March 31, 2020, compared to $455 thousand in the comparable~~third quarter of 2019, ~~period.~~offset by lower sublease income of $312 thousand.

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Noninterest Expense

The following table presents the breakdown of noninterest expense for the periods indicated:


	Three Months Ended										Three Months Ended										Six Months Ended June 30,
($ in thousands)	March 31, 2020			December 31, 2019			March 31, 2019			($ in thousands)	June 30, 2020		March 31, 2020		June 30, 2019		2020		2019
Salaries and employee benefits	$	23,436		$	24,036		$	28,439		Salaries and employee benefits	$	24,260	$	23,436	$	27,506	$	47,696	$	55,945
Naming rights termination										Naming rights termination	26,769		—		—		26,769		—
Occupancy and equipment	7,243			7,900			7,686			Occupancy and equipment	7,090		7,243		7,955		14,333		15,641
Professional fees	5,964			2,611			11,041			Professional fees	4,596		5,964		(2,903)		10,560		8,138
Outside service fees	362			285			403

Data processing	1,773			1,684			1,496			Data processing	1,536		1,773		1,672		3,309		3,168
Advertising	1,756			2,227			2,057			Advertising	1,157		1,756		2,048		2,913		4,105
Regulatory assessments	484			1,854			2,482			Regulatory assessments	725		484		2,136		1,209		4,618
Reversal of provision for loan repurchases	(600		)	(360		)	(116		)	Reversal of provision for loan repurchases	(34)		(600)		(61)		(634)		(177)
Amortization of intangible assets	429			454			620			Amortization of intangible assets	430		429		621		859		1,241

Restructuring expense	—			1,626			2,795			Restructuring expense	—		—		(158)		—		2,637
All other expense	4,167			4,127			3,396			All other expense	6,408		4,529		5,039		10,937		8,838
Noninterest expense before loss on investments in alternative energy partnerships	45,014			46,444			60,299			Noninterest expense before loss on investments in alternative energy partnerships	72,937		45,014		43,855		117,951		104,154
Loss on investments in alternative energy partnerships	1,905			1,039			1,950
(Gain) loss on investments in alternative energy partnerships										(Gain) loss on investments in alternative energy partnerships	(167)		1,905		(355)		1,738		1,595
Total noninterest expense	$	46,919		$	47,483		$	62,249		Total noninterest expense	$	72,770	$	46,919	$	43,500	$	119,689	$	105,749

Three Months Ended ~~March 31,~~June 30, 2020 Compared to Three Months Ended ~~December~~March 31, ~~2019~~2020

Noninterest expense was $72.8 million for the three months ended June 30, 2020, an increase of $25.9 million, or 55.1%, from $46.9 million for the three months ended March 31, ~~2020, a decrease of $564 thousand, or 1.2%, from $47.5 million for the three months ended December 31, 2019.~~2020. The decrease was mainly due to lower salaries and employee benefits, occupancy and equipment, advertising, regulatory assessments, and restructuring expense, offset by higher professional fees, and loss on investments in alternative energy partnerships.

Salaries and employee benefits expense was $23.4 million for the three months ended March 31, 2020, a decrease of $600 thousand, or 2.5%, from $24.0 million for the three months ended December 31, 2019. The decrease was due to a lower number of employees, as the staff needed to drive the current operations continues to be refined, coupled with lower incentives, commissions, and temporary staff expenses.

~~Occupancy and equipment was $7.2 million for the three months ended March 31, 2020, a decrease of $657 thousand, or 8.3%, from $7.9 million for the three months ended December 31, 2019. The decrease~~increase was mainly due to the ~~fourth quarter~~aforementioned $26.8 million one-time charge related to the termination of ~~2019 including lease termination costs; there~~our LAFC naming rights agreements and a $2.5 million debt extinguishment fee associated with the early repayment of certain FHLB term advances. There were no similar charges ~~included~~ in any of the ~~current quarter.~~

~~Advertising costs were $1.8~~other periods presented. When these charges are excluded, noninterest expense decreased $3.4 million, ~~for the three months ended March 31, 2020, a decrease of $471 thousand, or 21.1%, from $2.2 million for the three months ended December 31, 2019. The decrease was mainly~~ due to ~~reductions in overall events and media spending.~~

~~Regulatory assessments were $484 thousand for the three months ended March 31, 2020, a decrease~~(i) lower professional fees of $1.4 million ~~or 73.9%, from $1.9 million for the three months ended December 31, 2019. The decrease was mainly due to changes in our FDIC assessment rate~~ as ~~a result of reductions in our asset size and an FDIC assessment credit.~~

Restructuring expense was zero for the three months ended March 31, 2020, a decrease of $1.6 million, or 100.0%, from $1.6 million for the three months ended December 31, 2019. Restructuring expense during the fourth quarter of 2019 related to severance costs associated with the departure of certain executive officers.

Professional fees were $6.0 million for the three months ended March 31, 2020, an increase of $3.4 million, or 128.4%, from $2.6 million for the three months ended December 31, 2019. The increase was primarily a result of the timing of certain indemnified legal costs and recoveries compared to the prior ~~quarter.~~quarter, (ii) higher net gains on investments in alternative energy partnerships of $2.1 million, and (iii) lower advertising costs of $599 thousand, offset by (iv) higher salaries and benefits expense of $824 thousand due mostly to higher incentive accruals, (v) lower reversals of loan repurchases, and (vi) higher regulatory assessments of $241 thousand.

Professional fees were $4.6 million for the three months ended June 30, 2020, a decrease of $1.4 million, or 22.9%, from $6.0 million for the three months ended March 31, 2020. The decrease included lower indemnified legal costs and recoveries as the current quarter included ~~$1.7 million~~$875 thousand of such legal costs compared to ~~$3.6~~$1.7 million ~~of such legal cost recoveries~~ for the prior quarter. When these indemnified legal costs and recoveries are excluded, professional fees would have decreased ~~$1.9 million~~$565 thousand from the prior ~~quarter and this~~quarter. The remaining decrease relates to lower audit fees and other legal costs.

~~Loss~~Advertising costs were $1.2 million for the three months ended June 30, 2020, a decrease of $599 thousand, or 34.1%, from $1.8 million for the three months ended March 31, 2020. The decrease was mainly due to reductions in overall events and media spending due, in part, to the termination of the LAFC Agreement on May 22, 2020. Refer to the earlier discussion in the "Termination of LAFC Agreement" section.

Regulatory assessments were $725 thousand for the three months ended June 30, 2020, an increase of $241 thousand, or 49.8%, from $484 thousand for the three months ended March 31, 2020. The increase was mainly due to the first quarter of 2020 having a FDIC small bank assessment credit.

Reversal of provision for loan repurchases decreased $566 thousand and resulted in higher expenses. The reversal of provision for loan repurchases totaled $34 thousand for the three months ended June 30, 2020 compared to $600 thousand for the prior quarter. The decrease was due to changes in the credit quality of the previously sold loans resulting in a lower release of reserve amount.

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The (gain) loss on investments in alternative energy partnerships was a gain of $167 thousand for the three months ended June 30, 2020, an increase of $2.1 million, from a loss of $1.9 million for the three months ended March 31, 2020. The gain between periods was mainly due to decreased loss sharing allocations and resulting lower HLBV losses.

All other expense for the three months ended June 30, 2020 ~~an increase of $866 thousand,~~increased $1.9 million or 41.5%, to $6.4 million from ~~$1.0~~$4.5 million for the three months ended ~~December~~March 31, ~~2019.~~ 2020.The increase was primarily attributable to a $2.5 million debt extinguishment fee, partially offset by decreases in ~~loss between periods was mainly due to increased loss sharing allocations~~other expenses such as legal settlements, business travel, and ~~resulting higher HLBV losses.~~

the write-off of certain capitalized software cost. During the three months ended June 30, 2020, we repaid a $100.0 million FHLB term advance with a weighted average interest rate of 2.07% and incurred a $2.5 million debt extinguishment fee. All other expense for the three months ended March 31, 2020 ~~includes~~included an $850 thousand charge to settle and conclude a legacy loan sale claim from an acquired bank; there was no similar item in the prior quarter. All other expense also includes a the reversal of provision for loan repurchases, which increased $240 thousand and resulted in lower expenses. The reversal of provision for loan repurchases totaled $600 thousand for the three months ended March 31, 2020 compared to $360 thousand for the prior quarter.bank.

Three Months Ended ~~March 31,~~June 30, 2020 Compared to Three Months Ended ~~March 31,~~June 30, 2019

Noninterest expense was ~~$46.9~~$72.8 million for the three months ended ~~March 31,~~June 30, 2020, ~~a decrease~~an increase of ~~$15.3~~$29.3 million, or ~~24.6 percent,~~67.3%, from ~~$62.2~~$43.5 million for the three months ended ~~March 31,~~June 30, 2019. The ~~decrease~~increase was mainly due to ~~reductions in~~the $26.8 million LAFC naming rights termination fee, coupled with higher professional fees of $7.5 million and other expenses of $1.4 million, offset by lower salaries and employee benefits ~~professional fees,~~of $3.2 million and lower regulatory assessments ~~restructuring expense, partially offset by an increase in other expense.~~of $1.4 million.

Salaries and employee benefits expense was ~~$23.4~~$24.3 million for the three months ended ~~March 31,~~June 30, 2020, a decrease of ~~$5.0~~$3.2 million, or ~~17.6 percent,~~11.8%, from ~~$28.4~~$27.5 million for the three months ended ~~March 31,~~June 30, 2019. The decrease was primarily due to overall reductions in headcount between periods.

As discussed above, we terminated our naming rights agreements with LAFC and incurred a pre-tax, one-time charge to operations of $26.8 million. Refer to earlier discussion in "Termination of LAFC Agreement."

Occupancy and equipment was $7.1 million for the three months ended June 30, 2020, a decrease of $865 thousand or 10.9% from $8.0 million for the three months ended June 30, 2019. The decrease was primarily due to overall reductions in costs between periods as a result of exiting the ~~third-party mortgage origination ("TPMO")~~TPMO and brokered single family lending businesses during the first quarter of 2019.

Professional fees were ~~$6.0~~$4.6 million for the three months ended ~~March 31,~~June 30, 2020, ~~a decrease~~an increase of ~~$5.1~~$7.5 million, or ~~46.0 percent,~~258.3%, from ~~$11.0~~recoveries of $2.9 million for the three months ended ~~March 31,~~June 30, 2019. The increase was mainly due the 2019 period including net recoveries of legal fees of $6.4 million due to the timing of insurance recoveries related to securities litigation, indemnification, investigation and other legal expenses compared to legal fees of $1.7 million during the 2020 period. Offsetting this increase was a $677 thousand decrease in other professional fees.

Advertising costs were $1.2 million for the three months ended June 30, 2020, a decrease of $891 thousand, or 43.5%, from $2.0 million for the three months ended June 30, 2019. The decrease was mainly due to ~~overall~~ reductions in ~~indemnified legal fees, net of insurance recoveries, lower consulting fees for bank projects~~overall events and ~~initiatives, and lower legal expenses related~~media spending due in part to the ~~now resolved SEC investigation and various other litigation.~~termination of the LAFC Agreement on May 22, 2020.

Regulatory assessments were ~~$484~~$725 thousand for the three months ended ~~March 31,~~June 30, 2020, a decrease of ~~$2.0~~$1.4 million, or ~~80.5 percent,~~66.1%, from ~~$2.5~~$2.1 million for the three months ended ~~March 31,~~June 30, 2019. The decrease was mainly due to a reduction in our FDIC assessment rate given the decrease in our asset size.

~~For~~All other expense was $6.4 million for the three months ended ~~March 31,~~June 30, 2020, ~~there were no restructuring expenses.~~an increase of $1.4 million, or 27.2%, from $5.0 million for the three months ended June 30, 2019. The ~~comparable~~increase was primarily attributable to the aforementioned $2.5 million debt extinguishment fee associated with the early repayment of certain FHLB term advances in the second quarter of 2020. All other expense during the same 2019 period included a $797 impairment of capitalized software projects. There were no similar impairment charges during the three months ended June 30, 2020.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Noninterest expense was $119.7 million for the six months ended June 30, 2020, an increase of $13.9 million, or 13.2%, from $105.7 million for the six months ended June 30, 2019. The increase was mainly due to the $26.8 million LAFC naming rights termination, coupled with a $2.4 million increase in professional fees and $2.1 million increase in all other expense, offset by a $8.2 million decrease in salaries and employee benefits, a $3.4 million decrease in regulatory assessments and a $2.6 million decrease in restructuring expense, as well as decreases in occupancy and equipment, and advertising expenses.

Salaries and employee benefits expense was $47.7 million for the six months ended June 30, 2020, a decrease of $8.2 million, or 14.7%, from $55.9 million for the six months ended June 30, 2019. The decrease was mainly due to decreases in number of employees, commissions, and temporary staff expenses, including overall reductions in headcount between periods as a result of ~~$2.8 million related to~~ exiting the TPMO and brokered single family lending businesses during the first quarter of 2019.

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Occupancy and ~~new CEO transition.~~

~~All other expense~~equipment was ~~$4.2~~$14.3 million for the three months ended ~~March 31,~~June 30, 2020, a decrease of $1.3 million or 8.4% from $15.6 million for the six months ended June 30, 2019. The decrease was primarily due to overall reductions in costs between periods as a result of exiting the TPMO and brokered single family lending businesses during the first quarter of 2019.

Professional fees were $10.6 million for the six months ended June 30, 2020, an increase of ~~$771 thousand,~~$2.4 million, or ~~22.7 percent,~~29.8%, from ~~$3.4~~$8.1 million for the ~~three~~six months ended ~~March 31,~~June 30, 2019. The increase in fees was primarily the result of higher legal fees (net of recoveries of $2.5 million) due to the timing of insurance recoveries related to securities litigation, indemnification, investigation and other legal expenses of $6.6 million, offset by lower other professional fees of $2.4 million.

Advertising costs were $2.9 million for the six months ended June 30, 2020, a decrease of $1.2 million, or 29.0%, from $4.1 million for the six months ended June 30, 2019. The decrease was mainly due to overall reductions in reductions in overall events and media spending, as well as a decrease in advertising costs related to the now-terminated LAFC naming rights commitment. Advertising costs for the six months ended June 30, 2020 included $2.6 million related to the now-terminated LAFC naming rights agreement compared to $3.3 million during six months ended June 30, 2019.

Regulatory assessments were $1.2 million for the six months ended June 30, 2020, a decrease of $3.4 million, or 73.8%, from $4.6 million for the six months ended June 30, 2019. The decrease was mainly due to a reduction in our FDIC assessment rate given the decrease in our asset size and an FDIC small bank assessment credit.

Restructuring expense was zero for the six months ended June 30, 2020. For the six months ended June 30, 2019, restructuring expense was $2.6 million and consisted of severance and retention costs associated with our exit from the TPMO and brokered single family lending businesses and CEO transition during the first quarter of 2019.

All other expenses were $10.9 million for the six months ended June 30, 2020, an increase of $2.1 million, or 23.7%, from $8.8 million for the six months ended June 30, 2019. The increase was mainly due to anthe aforementioned $2.5 million debt extinguishment fee associated with the early repayment of $100 million in FHLB term advances, combined with the aforementioned $850 thousand ~~settlement~~charge to settle and conclude a legacy loan sale claim from an acquired ~~bank recognized in 2020; there was no similar item in~~bank; All other expense during the comparable 2019 ~~period. This increase was offset partially by~~period included a ~~$486~~$835 thousand ~~increase in~~impairment of capitalized software projects, compared to $157 thousand during the ~~reversal of provision for loan repurchases, which totaled $600 thousand for the three~~six months ended ~~March 31, 2020~~June 30, 2020. Offsetting these increases were overall expense reductions from our efforts to manage expenses on supplies, business travel, directors' fees, and ~~$116 thousand for the same 2019 period.~~other administrative expenditures.

Income Tax (Benefit) Expense

For the three months ended June 30, 2020, March 31, 2020 ~~December 31, 2019~~ and ~~March 31,~~June 30, 2019, income tax (benefit) expense was $(5.3) million, $(2.2) million, ~~$2.8 million~~ and ~~$2.7~~$4.3 million, resulting in an effective tax rate ~~was~~of 22.3%, 24.7%~~, 16.5%~~ and ~~27.9%~~20.6%. ~~The company’s 24.7%~~Our 22.3% effective tax rate for the three months ended ~~March 31,~~June 30, 2020 differs from the 21% federal statutory rate iswas due to the impact of state taxes ~~as well as~~offset by various tax credits. The income tax benefit during the first quarter of 2020 was mainly due to the $8.8 million pre-tax book loss recognized, as compared to pre-tax book income of $17.1 million and $9.8 million recognized during the three months ended December 31, 2019 and March 31, 2019. The full year estimated effective tax rate for 2020 is expected to be approximately ~~25%~~23%.

For the six months ended June 30, 2020 and 2019, the income tax benefit was $7.5 million and the income tax expense was $7.0 million, resulting in an effective tax rate of 23.0% and 22.9%, respectively.

We use the flow-through income statement method to account for the annual investment tax credits forecasted to be earned on the solar investments in our annual effective tax rate. Under this method, the investment tax credits are recognized as a reduction to income tax expense and the initial book-tax difference in the basis of the investments are recognized as additional tax expense in the year they are earned.

For additional information, see Note 8 to Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

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FINANCIAL CONDITION

Investment Securities

At ~~March 31,~~June 30, 2020, all of our investment securities were classified as available-for-sale.

The primary goal of our investment securities portfolio is to provide a relatively stable source of interest income while satisfactorily managing risk, including credit risk, reinvestment risk, liquidity risk, and interest rate risk. Certain investment securities provide a source of liquidity as collateral for FHLB advances, Federal Reserve Discount Window capacity, repurchase agreements, and certain public deposits.

The following table presents the amortized cost and fair value of the investment securities portfolio and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) as of the dates indicated:


	March 31, 2020							December 31, 2019								June 30, 2020										December 31, 2019
($ in thousands)	Amortized Cost		Fair Value		Unrealized Gain (Loss)			Amortized Cost		Fair Value		Unrealized Gain (Loss)			($ in thousands)	Amortized Cost		Fair Value		Unrealized Gain (Loss)		Amortized Cost		Fair Value		Unrealized Gain (Loss)
Securities available-for-sale:															Securities available-for-sale:

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	100,971	$	104,021	$	3,050		$	37,613	$	36,456	$	(1,157	)	U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	100,128	$	105,555	$	5,427	$	37,613	$	36,456	$	(1,157)
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	140,797		139,419		(1,378		)	91,543		91,299		(244		)	U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	199,262		201,136		1,874		91,543		91,299		(244)
Municipal securities	52,985		54,385		1,400			52,997		52,689		(308		)	Municipal securities	52,973		57,174		4,201		52,997		52,689		(308)
Non-agency residential mortgage-backed securities	163		160		(3		)	191		196		5			Non-agency residential mortgage-backed securities	161		164		3		191		196		5

Collateralized loan obligations	703,605		623,571		(80,034		)	733,605		718,361		(15,244		)	Collateralized loan obligations	703,605		668,353		(35,252)		733,605		718,361		(15,244)
Corporate debt securities	47,658		47,871		213			13,500		13,579		79			Corporate debt securities	141,962		143,647		1,685		13,500		13,579		79
Total securities available-for-sale	$	1,046,179	$	969,427	$	(76,752	)	$	929,449	$	912,580	$	(16,869	)	Total securities available-for-sale	$	1,198,091	$	1,176,029	$	(22,062)	$	929,449	$	912,580	$	(16,869)

Securities available-for-sale were ~~$969.4 million~~$1.18 billion at ~~March 31,~~June 30, 2020, an increase of ~~$56.8~~$263.4 million, or ~~6.2%~~28.9%, from $912.6 million at December 31, 2019. The increase was mainly due to purchases of ~~$147.4~~$322.6 million, including ~~$113.3~~$174.0 million in U.S. government agency securities and ~~$34.2~~$148.6 million in corporate debt securities, offset by a $30.0 million pay-off of one CLO holding, $20.7 million in sales, and higher net unrealized losses of ~~$59.9~~$5.2 million.

CLOs totaled ~~$623.6~~$668.4 million and $718.4 million at ~~March 31,~~June 30, 2020 and December 31, 2019. CLOs are floating rate debt securities backed by pools of senior secured commercial loans to a diverse group of companies across a broad spectrum of industries. Underlying loans are generally secured by a company’s assets such as inventory, equipment, property, and/or real estate. CLOs are structured to diversify exposure to a broad sector of industries. The payments on these commercial loans support interest and principal on the CLOs across classes that range from ~~AAA rated~~AAA-rated to ~~equity~~equity-grade tranches. At ~~March 31,~~June 30, 2020, all of our CLO holdings were AAA and AA rated. ~~As all CLOs are also rated above investment grade credit ratings and were diversified across issuers, we believe that these CLOs enhance our liquidity position.~~ We also ~~maintain~~perform pre-purchase due diligence and ongoing credit quality review ~~procedures through a dedicated credit administration team. The ongoing review process~~of our CLO holdings, which includes monitoring of performance factors ~~including~~such as external credit ratings, collateralization levels, collateral concentration levels, and other performance factors. We only acquire CLOs that we ~~believes~~believe are Volcker Rule compliant.

We did not record credit impairment for any investment securities for the three and six months ended ~~March 31,~~June 30, 2020 or 2019. We monitor our securities portfolio to ensure it has adequate credit support. As of ~~March 31,~~June 30, 2020, we believe there was no credit impairment and we did not have the current intent to sell securities with a fair value below amortized cost at ~~March 31,~~June 30, 2020, and ~~that~~ it is more likely than not that we will not be required to sell such securities prior to the recovery of ~~the~~their amortized cost basis. We consider the lowest credit rating for identification of potential credit impairment. As of ~~March 31,~~June 30, 2020, all of our investment securities in an unrealized loss position received an investment grade credit rating. ~~Although credit~~Credit spreads for CLOs widened during the first quarter of 2020 and have narrowed during the second quarter. The overall net decline in fair value isduring 2020 was attributable to a combination of changes in interest rates and general volatility in the credit market conditions.

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The following table presents maturities, based on the earlier of maturity dates or next repricing dates, and yield information of the investment securities portfolio as of ~~March 31,~~June 30, 2020:


	One Year or Less						More than One Year through Five Years						More than Five Years through Ten Years						More than Ten Years		Total
($ in thousands)	Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield		Fair Value		Weighted Average Yield
Securities available-for-sale:

U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities	$	—	—	%	$	—	—	%	$	30,413	2.20	%	$	75,142	2.35	%	$	105,555	2.31	%
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations	118,163		0.74	%	11,608		2.02	%	25,579		1.63	%	45,786		0.93	%	201,136		0.96	%
Municipal securities	—		—	%	—		—	%	—		—	%	57,174		2.79	%	57,174		2.79	%
Non-agency residential mortgage-backed securities	—		—	%	—		—	%	—		—	%	164		6.14	%	164		6.14	%

Collateralized loan obligations	668,353		2.73	%	—		—	%	—		—	%	—		—	%	668,353		2.73	%
Corporate debt securities	—		—	%	122,301		4.99	%	21,346		5.64	%	—		—	%	143,647		5.08	%
Total securities available-for-sale	$	786,516	2.45	%	$	133,909	4.74	%	$	77,338	2.96	%	$	178,266	2.11	%	$	1,176,029	2.68	%

One Year or Less More than One Year through Five Years More than Five Years through Ten Years More than Ten Years Total
($ in thousands)
Fair
Value
Weighted Average Yield
Fair
Value
Weighted Average Yield
Fair
Value
Weighted Average Yield
Fair
Value
Weighted Average Yield
Fair
Value
Weighted Average Yield
Securities available-for-sale:
U.S. government agency and U.S. government sponsored enterprise residential mortgage-backed securities $ —
— % $ —
— % $ 29,993
2.20 % $ 74,028
2.36 % $ 104,021
2.32 %
U.S. government agency and U.S. government sponsored enterprise collateralized mortgage obligations 118,165
2.09 % 11,060
2.34 % 10,194
2.43 % —
— % 139,419
2.14 %
Municipal securities —
— % —
— % —
— % 54,385
2.79 % 54,385
2.79 %
Non-agency residential mortgage-backed securities —
— % —
— % —
— % 160
5.46 % 160
5.46 %
Collateralized loan obligations 623,571
3.43 % —
— % —
— % —
— % 623,571
3.43 %
Corporate debt securities —
— % 28,207
3.70 % 19,664
4.21 % —
— % 47,871
3.91 %
Total securities available-for-sale $ 741,736
3.22 % $ 39,267
3.32 % $ 59,851
2.90 % $ 128,573
2.55 % $ 969,427
3.14 %

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Loans Held-for-Sale

Total loans held-for-sale carried at fair value were ~~$20.2~~$19.8 million and $22.6 million, respectively, at ~~March 31,~~June 30, 2020 and December 31, 2019 and consisted mainly of repurchased conforming SFR mortgage loans that were previously sold and loans previously sold to GNMA that were delinquent more than 90 days and subject to a repurchase option by us. The ~~$2.4~~$2.9 million, or ~~10.6%~~12.7%, decrease was mainly due to payoffs of ~~$0.8 million~~$613 thousand and a decrease in fair value of $1.6 million.

Loans Receivable, Net

The following table presents the composition of our loan and lease portfolio as of the dates indicated:


($ in thousands)	March 31, 2020			December 31, 2019			Amount Change			Percentage Change		($ in thousands)	June 30, 2020		December 31, 2019		Amount Change		Percentage Change
Commercial:												Commercial:
Commercial and industrial	$	1,578,223		$	1,691,270		$	(113,047	)	(6.7	)%	Commercial and industrial	$	1,436,990	$	1,691,270	$	(254,280)	(15.0)	%
Commercial real estate	810,024			818,817			(8,793		)	(1.1	)%	Commercial real estate	822,694		818,817		3,877		0.5	%
Multifamily	1,466,083			1,494,528			(28,445		)	(1.9	)%	Multifamily	1,434,071		1,494,528		(60,457)		(4.0)	%
SBA	70,583			70,981			(398		)	(0.6	)%
SBA⁽¹⁾												SBA⁽¹⁾	310,784		70,981		239,803		337.8	%
Construction	227,947			231,350			(3,403		)	(1.5	)%	Construction	212,979		231,350		(18,371)		(7.9)	%

Consumer:												Consumer:
Single family residential mortgage	1,467,375			1,590,774			(123,399		)	(7.8	)%	Single family residential mortgage	1,370,785		1,590,774		(219,989)		(13.8)	%

Other consumer	47,229			54,165			(6,936		)	(12.8	)%	Other consumer	39,393		54,165		(14,772)		(27.3)	%
Total loans⁽¹⁾	5,667,464			5,951,885			(284,421		)	(4.8	)%
Total loans⁽²⁾												Total loans⁽²⁾	5,627,696		5,951,885		(324,189)		(5.4)	%
Allowance for loan losses	(78,243		)	(57,649		)	(20,594		)	35.7	%	Allowance for loan losses	(90,370)		(57,649)		(32,721)		56.8	%
Total loans receivable, net	$	5,589,221		$	5,894,236		$	(305,015	)	(5.2	)%	Total loans receivable, net	$	5,537,326	$	5,894,236	$	(356,910)	(6.1)	%


~~(1)~~	~~Total loans include deferred loan origination costs/(fees) and premiums/(discounts), net of $13.2 million and $14.3 million, respectively,~~ (1)Includes PPP loans totaling $240.7 million, which included $5.6 million of net unamortized loan fees at June 30, 2020. There were no PPP loans outstanding at ~~March 31, 2020 and~~ December ~~31, 2019.~~

~~During the three months ended March~~ 31, 2019.

(2)Total loans include deferred loan origination costs/(fees) and premiums/(discounts), net of $6.0 million and $14.3 million, respectively, at June 30, 2020 and December 31, 2019.

Gross loans decreased ~~$305.0~~$324.2 million ~~or 5.2%,~~ to ~~$5.59~~$5.63 billion during the year, due mostly to lower ~~single-family~~single family residential mortgage loans of ~~$123.4~~$220.0 million, lower commercial and industrial ~~(C&I)~~(“C&I“) loans of ~~$113.0~~$254.3 million, and lower multifamily loans of ~~$28.4~~$60.5 million. The decline in ~~single-family~~single family residential ismortgage loans was attributed to ~~accelerated~~ payoffs as the loans refinance away in the lower rate environment and these proceeds are invested in other core business loans. The decline in C&I loans iswas primarily in response to strategically reducing certain credit facilities in response to the changed economic landscape and corresponding lower outstanding balances. ~~The~~These decreases were partially offset by a $239.8 million increase in SBA loans attributable to the funding of loans under the SBA's PPP. Our focus on processing PPP loans, in addition to the impact of the COVID-19, pandemic tempered other loan ~~production for the last part of the quarter and~~production; additionally, we did not experience any significant increase in credit line usage.

We continue to remix our real estate loan portfolio toward relationship-based multifamily, bridge, light infill construction, and commercial real estate loans. ~~We are no longer originating single-family residential mortgage loans. Single-family~~Single family residential mortgage and multifamily loans ~~comprise 51.8%~~comprised 49.9% of the total held-for-investment loan portfolio as compared to ~~58.7%~~53.0% one year ago. Commercial real estate loans comprised ~~14.3%~~14.6% of the loan portfolio and commercial and industrial loans constituted ~~27.9%~~25.5%. ~~Currently,~~As of June 30, 2020, loans secured by residential real estate ~~(single-family,~~(single family, multifamily, ~~single-family~~single family construction, and warehouse credit facilities) represent approximately ~~83%~~66% of our total loans outstanding.

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The C&I portfolio has limited exposure to certain business sectors undergoing severe stress, as demonstrated by the following (as a percentage of total outstanding C&I loan balances):


	June 30, 2020
($ in thousands)	Amount		% of Portfolio
C&I Portfolio by Industry
Finance and insurance (includes Warehouse lending)	$	777,015	54	%
Real estate and rental leasing	201,630		14	%
Gas stations	76,510		5	%
Manufacturing	60,128		4	%
Healthcare	43,256		3	%
Wholesale trade	39,740		3	%
Other retail trade	37,699		3	%
Television/motion pictures	33,590		2	%
Food services	30,216		2	%
Professional services	14,975		1	%
Transportation	5,363		—	%
Accommodations	1,496		—	%
All other	115,372		8	%
Total	$	1,436,990	100	%

March 31, 2020
($ in thousands) Amount % of Portfolio
C&I Portfolio by Industry
Finance and insurance $ 872,049
55 %
Real estate and rental and leasing 205,206
13 %
Retail trade 116,202
7 %
Manufacturing 73,299
5 %
Healthcare and social assistance 54,091
3 %
Wholesale trade 43,285
3 %
Accommodation and food services 31,867
2 %
All other 182,224
12 %
$ 1,578,223
100 %

Non-Traditional Mortgage Portfolio ("NTM")

Our NTM portfolio is comprised of three interest only products: Green Loans, Interest Only loans and a small number of additional loans with the potential for negative amortization. As of ~~March 31,~~June 30, 2020 and December 31, 2019, the NTM portfolio totaled ~~$560.1~~$511.2 million, or ~~9.9 percent~~9.1% of the total gross loan portfolio, and $600.7 million, or ~~10.1 percent~~10.1% of the total gross loan ~~portfolio, respectively.~~portfolio. The total NTM portfolio decreased by ~~$40.6~~$89.5 million, or ~~6.8 percent.~~14.9% during the ~~three~~six months ended ~~March 31,~~June 30, 2020. The decrease was primarily due to principal paydowns and payoffs.

The initial credit guidelines for the NTM portfolio were established based on the borrower's Fair Isaac Corporation ~~(FICO)~~(“FICO”) score, LTV ratio, property type, occupancy type, loan amount, and geography. Additionally, from an ongoing credit risk management perspective, we have determined that the most significant performance indicators for NTMs are LTV ratios and FICO scores. We review the NTM loan portfolio periodically, which includes refreshing FICO scores on the Green Loans and HELOCs and ordering third party automated valuation models ~~(AVMs)~~(“AVMs”) to confirm collateral values. We no longer originate NTM loans.

Green Loans totaled ~~$47.8~~$45.2 million at ~~March 31,~~June 30, 2020, a decrease of ~~$4.5~~$7.1 million, or ~~8.5%~~13.5% from $52.3 million at December 31, 2019, primarily due to principal paydowns and payoffs. The NTM loans on non-accrual status included ~~$4.7~~$4.6 million of Green ~~loans~~Loans and ~~$10.9~~$14.6 million of interest-only loans at ~~March 31,~~June 30, 2020 compared to $1.5 million of Green ~~loans~~Loans and $11.5 million of interest-only loans at December 31, 2019.

The following table presents our Green Loans first lien portfolio at ~~March 31,~~June 30, 2020 by FICO scores that were obtained during the quarter ended ~~March 31,~~June 30, 2020, compared to the FICO scores for those same loans that were obtained during the quarter ended ~~December~~March 31, ~~2019:~~2020:



	By FICO Scores Obtained During the Quarter Ended June 30, 2020								By FICO Scores Obtained During the Quarter Ended December 31, 2019							Change
($ in thousands)	Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent
FICO Score
800+	12	$	2,870	6.6	%	13	$	3,509	7.0	%	(1)	$	(639)	(18.2)	%
700-799	31	21,756		49.9	%	38	27,011		54.1	%	(7)	(5,255)		(19.5)	%
600-699	10	11,974		27.4	%	10	12,400		24.8	%	—	(426)		(3.4)	%
<600	5	3,253		7.5	%	5	3,286		6.6	%	—	(33)		(1.0)	%
No FICO	3	3,751		8.6	%	3	3,753		7.5	%	—	(2)		(0.1)	%
Totals	61	$	43,604	100.0	%	69	$	49,959	100.0	%	(8)	$	(6,355)	(12.7)	%

By FICO Scores Obtained During the Quarter Ended March 31, 2020 By FICO Scores Obtained During the Quarter Ended December 31, 2019 Change
($ in thousands) Count Amount Percent Count Amount Percent Count Amount Percent
FICO Score
800+ 13
$ 2,230
4.9 % 13
$ 3,509
7.0 % —
$ (1,279 ) (36.4 )%
700-799 32
21,200
46.2 % 38
27,011
54.1 % (6 ) (5,811 ) (21.5 )%
600-699 13
15,766
34.3 % 10
12,400
24.8 % 3
3,366
27.1 %
<600 4
2,994
6.5 % 5
3,286
6.6 % (1 ) (292 ) (8.9 )%
No FICO 3
3,723
8.1 % 3
3,753
7.5 % —
(30 ) (0.8 )%
Totals 65
$ 45,913
100.0 % 69
$ 49,959
100.0 % (4 ) $ (4,046 ) (8.1 )%

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Loan-to-Value Ratio

LTV ratio represents estimated current loan to value ratio, determined by dividing the current unpaid principal balance by the latest estimated property value received per our policy. The table below represents our single family residential NTM first lien portfolio by LTV ~~ratios~~ratio ranges as of the dates indicated:


	Green								Interest Only								Negative Amortization				Total
($ in thousands)	Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent
June 30, 2020
< 61%	49	$	32,547	74.7	%	208	$	294,171	63.4	%	8	$	2,335	100.0	%	265	$	329,053	64.6	%
61-80%	10	9,257		21.2	%	116	158,111		34.1	%	—	—		—	%	126	167,368		32.8	%
81-100%	2	1,800		4.1	%	3	4,875		1.1	%	—	—		—	%	5	6,675		1.3	%
> 100%	—	—		—	%	2	6,509		1.4	%	—	—		—	%	2	6,509		1.3	%
Total	61	$	43,604	100.0	%	329	$	463,666	100.0	%	8	$	2,335	100.0	%	398	$	509,605	100.0	%
December 31, 2019
< 61%	54	$	37,804	75.6	%	231	$	346,899	63.6	%	9	$	3,027	100.0	%	294	$	387,730	64.8	%
61-80%	12	8,531		17.1	%	136	183,664		33.7	%	—	—		—	%	148	192,195		32.1	%
81-100%	3	3,624		7.3	%	6	7,081		1.3	%	—	—		—	%	9	10,705		1.8	%
> 100%	—	—		—	%	3	7,727		1.4	%	—	—		—	%	3	7,727		1.3	%
Total	69	$	49,959	100.0	%	376	$	545,371	100.0	%	9	$	3,027	100.0	%	454	$	598,357	100.0	%

Green Interest Only Negative Amortization Total
($ in thousands) Count Amount Percent Count Amount Percent Count Amount Percent Count Amount Percent
March 31, 2020
< 61% 53
$ 38,168
83.1 % 212
$ 322,071
63.2 % 8
$ 2,359
100.0 % 273
$ 362,598
65.0 %
61-80% 10
7,119
15.5 % 131
177,985
34.9 % —
—
— % 141
185,104
33.2 %
81-100% 2
626
1.4 % 4
4,535
0.9 % —
—
— % 6
5,161
0.9 %
> 100% —
—
— % 2
5,301
1.0 % —
—
— % 2
5,301
0.9 %
Total 65
$ 45,913
100.0 % 349
$ 509,892
100.0 % 8
$ 2,359
100.0 % 422
$ 558,164
100.0 %
December 31, 2019
< 61% 54
$ 37,804
75.6 % 231
$ 346,899
63.6 % 9
$ 3,027
100.0 % 294
$ 387,730
64.8 %
61-80% 12
8,531
17.1 % 136
183,664
33.7 % —
—
— % 148
192,195
32.1 %
81-100% 3
3,624
7.3 % 6
7,081
1.3 % —
—
— % 9
10,705
1.8 %
> 100% —
—
— % 3
7,727
1.4 % —
—
— % 3
7,727
1.3 %
Total 69
$ 49,959
100.0 % 376
$ 545,371
100.0 % 9
$ 3,027
100.0 % 454
$ 598,357
100.0 %

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Non-Performing Assets

The following table presents a summary of total non-performing assets, excluding loans held-for-sale, as of the dates indicated:


($ in thousands)	March 31, 2020			December 31, 2019			Amount Change			Percentage Change		($ in thousands)	June 30, 2020			December 31, 2019			Amount Change		Percentage Change
Loans past due 90 days or more still on accrual	$	—		$	—		$	—		—	%	Loans past due 90 days or more still on accrual	$	—		$	—		$	—	—	%
Non-accrual loans	56,471			43,354			13,117			30.3	%	Non-accrual loans	72,703			43,354			29,349		67.7	%
Total non-performing loans	56,471			43,354			13,117			30.3	%	Total non-performing loans	72,703			43,354			29,349		67.7	%
Other real estate owned	—			—			—			—	%	Other real estate owned	—			—			—		—	%
Total non-performing assets	$	56,471		$	43,354		$	13,117		30.3	%	Total non-performing assets	$	72,703		$	43,354		$	29,349	67.7	%
Performing restructured loans ⁽¹⁾	$	6,101		$	6,621		$	(520	)	(7.9	)%	Performing restructured loans ⁽¹⁾	$	5,597		$	6,621		$	(1,024)	(15.5)	%
Total non-performing loans to total loans	1.00		%	0.73		%						Total non-performing loans to total loans	1.29		%	0.73		%
Total non-performing assets to total assets	0.74		%	0.55		%						Total non-performing assets to total assets	0.94		%	0.55		%
ALL to non-performing loans												ALL to non-performing loans	124.30		%	132.97		%
ACL to non-performing loans	138.55		%	132.97		%						ACL to non-performing loans	130.07		%	142.35		%

(1) Excluded from non-performing loans

Loans are generally placed on non-accrual status when they become 90 days past due, unless management believes the loan is well secured and in the process of collection. Past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower experiences changes to their financial condition, causing an inability to meet the original repayment terms, and where we believe the borrower will eventually overcome those circumstances and repay the loan in full.

Additional interest income of approximately ~~$951~~$952 thousand and $1.7 million would have been recorded during the three and six months ended ~~March 31,~~June 30, 2020, ~~respectively,~~ had these loans been paid in accordance with their original terms throughout the periods indicated.

Non-performing loans totaled ~~$56.5~~$72.7 million as of ~~March 31,~~June 30, 2020, of which ~~$21.5~~$21.9 million, or ~~38%~~30% of the balance relates to loans in a current payment status. The ~~$13.1~~$16.2 million increase during the ~~first~~second quarter was primarily due to ~~$14.1~~$18.6 million of loans being placed on ~~nonaccrual~~non-accrual status, offset by cured loans and ~~payoffs.~~payoffs. The quarter-end balance ~~includes two~~included three large ~~loans with delinquent payment status that comprise 45%~~loan relationships totaling $36.9 million, or 51% of our total ~~nonperforming~~non-performing loans, ~~consisting~~which consist of one $16.4 million legacy shared national credit, ~~and~~ a $9.1 million ~~SFR~~single family mortgage residential loan with a loan-to-value ratio of ~~67%~~58%, and an $11.5 million legacy relationship well-secured by commercial real estate and single family residential properties with an average loan-to-value ratio of 51%. Aside from those ~~two~~three loan relationships, non-performing single family residential loans ~~nonperforming~~totaled $19.4 million and the remaining non-performing loans ~~total $31.0 million, of which 49% relates to legacy single-family residential mortgage loans.~~totaled $16.4 million.

Troubled Debt Restructurings

Loans that we modify or restructure where the debtor is experiencing financial difficulties and makes a concession to the borrower in a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a note split with principal forgiveness are classified as troubled debt restructurings (“TDRs”). TDRs are loans modified for the purpose of alleviating temporary impairments to the borrower’s financial condition. A workout plan between a borrower and us is designed to provide a bridge for the cash flow shortfalls in the near term. If the borrower works through the near term issues, in most cases, the original contractual terms of the loan will be reinstated.

At ~~March 31,~~June 30, 2020 and December 31, 2019, we had 2726 and 25 loans, respectively, with an aggregate balance of ~~$27.0~~$25.9 million and $21.8 million, respectively, classified as TDRs. When a loan becomes a TDR, we cease accruing interest, and classify it as non-accrual until the borrower demonstrates that the loan is again performing. The increase in TDRs during the three and six months ended ~~March 31,~~June 30, 2020 was primarily due to one commercial and industrial ~~relationship.~~relationship totaling $3.7 million.

At ~~March 31,~~June 30, 2020, of the 2726 loans classified as TDRs, 1312 loans totaling ~~$6.1~~$5.6 million were making payments according to their modified terms and were less than 90 days delinquent under the modified terms and, as such, were on accruing status. At December 31, 2019, of the 25 loans classified as TDRs, 14 loans totaling $6.6 million were making payments according to their modified terms and were less than 90 days delinquent under the modified terms and, as such, were on accruing status.

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from TDR accounting. The main benefits of TDR relief include 1) a capital benefit in the form of reduced risk-weighted assets, as TDRs are more heavily risk-weighted for capital purposes; 2) a delinquency status benefit, as the aging of ~~the~~ loans isare frozen, i.e., they will continue to be reported in the same

delinquency bucket they were in at the time of modification; and 3) a non-accrual status benefit as the loans are generally not reported as non-accrual during the modification period. Refer to "Borrower Payment Relief Efforts" above for additional information regarding CARES Act deferrals.

Allowance for Credit Losses (ACL)

~~We maintain an~~Our ACL ~~which~~ is comprised of our allowance for loan losses ~~(ALL)~~("ALL") and reserve for unfunded loan commitments. ~~The allowance for loan losses is established~~Our ACL methodology and resulting provision continues to ~~absorb expected credit losses in~~be impacted by the ~~loan portfolio. The ALL is based on an ongoing assessment of~~current economic uncertainty and volatility caused by the ~~expected credit losses in the loan portfolio.~~COVID-19 pandemic. Our ACL methodology uses a ~~nationally-recognized, third party~~nationally recognized third-party model that includes many assumptions based on our historical and peer loss data, our current loan portfolio risk profile including risk ratings, and economic ~~forecasts. We~~forecasts including macroeconomic variables ("MEVs"). As of June 30, 2020, we used economic forecasts released by our model provider during June 2020. Similar to the ~~last week of~~late March ~~which included~~2020 forecasts, these June 2020 forecasts reflect the onset of the pandemic, its impact ofon the ~~pandemic~~MEVs, and ~~related governmental and other reactions to~~ the ~~pandemic.~~future economic recovery. These forecasts included a sharp contraction in annualized GDP growth and a sharp spike in near-term unemployment rates ranging from 8% to 13%, before returning to moderate long-term economic trends. Our visibility atpublished by our model provider have deteriorated since the end of the first quarter, ~~indicated that local~~with June baseline unemployment ~~was heading higher~~rate forecasts for 2020 and ~~that~~2021 increasing and real gross domestic product growth rates decreasing. Similar to the ~~economic recovery would likely be slower. Accordingly,~~first quarter of 2020, we incorporated qualitative factors to account for ~~this visibility at quarter end related to actual conditions~~certain loan portfolio characteristics that are not taken into consideration by our third-party model including underlying strengths and ~~an economic outlook that was worse than~~weaknesses in the ~~late March forecasts incorporated into~~loan portfolio. As is the ~~CECL model. As a result of the COVID-19 pandemic and adoption of CECL,~~case with all estimates, we expect ~~our~~the ACL ~~to continue~~ to be impacted in future periods by economic volatility, ~~and~~ changing economic forecasts, ~~as well as the related impacts to CECL~~actual and projected credit experience, and underlying model assumptions, all of which may be better than or worse than our current estimate.

The ACL process involves subjective and complex judgments. In addition, we use adjustments for numerous factors including those ~~found~~described in the federal banking agencies' joint interagency policy statement on ALL, which include underwriting experience and collateral value changes, among others. We evaluate all impaired loans individually using guidance from ASC 310 primarily through the evaluation of cash flows or collateral values.

The ACL, ~~also~~which includes ~~a separate~~the reserve for unfunded loan commitments, totaled $94.6 million, or 1.68% of total loans at ~~a level that~~June 30, 2020 compared to $82.1 million or 1.45% at March 31, 2020. The $12.4 million increase in the allowance for expected credit losses was due to: (i) $6.8 million provided for specific reserves, primarily related to one previously reported non-accrual shared national credit, (ii) $5.0 million provided for general reserves related to the continued deterioration in key macro-economic forecast variables, offset by the impact of lower loan balances, and (iii) net recoveries of $608 thousand. The ACL coverage of non-performing loans was 130% at June 30, 2020 compared to 145% at March 31, 2020 and 142% at December 31, 2019.

The reserve for unfunded loan commitments is ~~considered adequate~~established to cover the expected credit losses for the estimated level of funding of ~~such~~these loan commitments, except for unconditionally cancellable commitments for which no reserve is required under ASC 326. ~~At March 31, 2020 and December 31, 2019, the~~The reserve for unfunded loan commitments ~~was $3.9 million and $4.1 million and~~ is included in accrued expenses and other liabilities on the consolidated statements of financial condition.

The following table provides a summary of components of the allowance for credit losses and related ratios as of the dates indicated:


($ in thousands)	June 30, 2020			December 31, 2019











Allowance for credit losses:
Allowance for loan losses (ALL)	$	90,370		$	57,649
Reserve for unfunded loan commitments	4,195			4,064
Total allowance for credit losses (ACL)	$	94,565		$	61,713

ALL to total loans	1.61		%	0.97		%
ACL to total loans	1.68		%	1.04		%

($ in thousands) March 31,
2020 December 31, 2019
Allowance for credit losses:
Allowance for loan losses (ALL) $ 78,243
$ 57,649
Reserve for unfunded loan commitments 3,888
4,064
Total allowance for credit losses (ACL) $ 82,131
$ 61,713

ALL to total loans 1.38 % 0.97 %
ACL to total loans 1.45 % 1.04 %

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The following ~~table provides a summary~~tables provide summaries of activity in the allowance for credit losses for the periods indicated:


	Three Months Ended June 30,
($ in thousands)	2020										2019
	Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	$	78,243	$	3,888	$	82,131	$	63,885	$	4,208	$	68,093

Loans charged off	—		—		—		(2,451)		—		(2,451)
Recoveries of loans previously charged off	608		—		608		76		—		76
Net charge-offs	608		—		608		(2,375)		—		(2,375)

Provision for credit losses	11,519		307		11,826		(1,987)		87		(1,900)
Balance at end of period	$	90,370	$	4,195	$	94,565	$	59,523	$	4,295	$	63,818


	Three Months Ended March 31,																			Six Months Ended June 30,
($ in thousands)	2020									2019									($ in thousands)	2020										2019
	Allowance for Loan Losses			Reserve for Unfunded Loan Commitments			Allowance for Credit Losses			Allowance for Loan Losses			Reserve for Unfunded Loan Commitments			Allowance for Credit Losses				Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses		Allowance for Loan Losses		Reserve for Unfunded Loan Commitments		Allowance for Credit Losses
Balance at beginning of period	$	57,649		$	4,064		$	61,713		$	62,192		$	4,622		$	66,814		Balance at beginning of period	$	57,649	$	4,064	$	61,713	$	62,192	$	4,622	$	66,814
Impact of adopting ASU 2016-13⁽¹⁾	7,609			(1,226		)	6,383			—			—			—			Impact of adopting ASU 2016-13⁽¹⁾	7,609		(1,226)		6,383		—		—		—
Loans charged off	(2,076		)	—			(2,076		)	(1,063		)	—			(1,063		)	Loans charged off	(2,076)		—		(2,076)		(3,514)		—		(3,514)
Recoveries of loans previously charged off	350			—			350			244			—			244			Recoveries of loans previously charged off	958		—		958		320		—		320
Net charge-offs	(1,726		)	—			(1,726		)	(819		)	—			(819		)	Net charge-offs	(1,118)		—		(1,118)		(3,194)		—		(3,194)
Provision for credit losses	14,711			1,050			15,761			2,512			(414		)	2,098

Provision for (reversal of) credit losses																			Provision for (reversal of) credit losses	26,230		1,357		27,587		525		(327)		198
Balance at end of period	$	78,243		$	3,888		$	82,131		$	63,885		$	4,208		$	68,093		Balance at end of period	$	90,370	$	4,195	$	94,565	$	59,523	$	4,295	$	63,818


~~(1)~~	(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020. As a result of adopting ASU 2016-13, our methodology to compute our allowance for credit losses is based on a current expected credit loss methodology, rather that the previously applied incurred loss methodology.

The ACL, which includes the reserve for unfunded loan commitments, totaled $82.1 million, or 1.45% of total loans at March 31, 2020 compared to $61.7 million or 1.04% at December 31, 2019. The $20.4 million increase in the allowance reflects a higher provision due to the earlier recognition of losses under CECL and the impact of ~~the change in the economic forecast scenarios as~~adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020. As a result of quarter end, including the expected impact of the COVID-19 pandemic on future losses. This increase includes a Day 1 transition adjustment amount of $6.4 million and a Day 2 provision of $15.8 million, offset by net charge-offs of $1.7 million. The net charge-offs included $1.1 million in C&I loans and $401 thousand in SFR mortgages. Theadopting ASU 2016-13, our methodology to compute our allowance for ~~loan~~credit losses ~~coverage of non-performing loans was 139% at March 31, 2020 compared to 133% at December 31, 2019.~~is based on a current expected credit loss methodology, rather that the previously applied incurred loss methodology.

The following table provides a summary of the allocation of the allowance for loan losses by loan category as well as loans receivable for each category as of the dates indicated:


	June 30, 2020										December 31, 2019
($ in thousands)	Allowance for Loan Losses		Loans Receivable		% of Loans in Category to Total Loans		Allowance for Loan Losses		Loans Receivable		% of Loans in Category to Total Loans
Commercial:
Commercial and industrial	$	26,618	$	1,436,990	25.5	%	$	22,353	$	1,691,270	28.4	%
Commercial real estate	17,372		822,694		14.6	%	5,941		818,817		13.8	%
Multifamily	25,105		1,434,071		25.5	%	11,405		1,494,528		25.1	%
SBA	4,184		310,784		5.5	%	3,120		70,981		1.2	%
Construction	6,675		212,979		3.8	%	3,906		231,350		3.9	%

Consumer:
Single family residential mortgage	9,665		1,370,785		24.4	%	10,486		1,590,774		26.7	%
Other consumer	751		39,393		0.7	%	438		54,165		0.9	%

Total	$	90,370	$	5,627,696	100.0	%	$	57,649	$	5,951,885	100.0	%

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March 31, 2020 December 31, 2019
($ in thousands) Allowance for Loan Losses Loans Receivable
% of
Loans in Category to Total Loans
Allowance for Loan Losses Loans Receivable
% of
Loans in Category to
Total Loans
Commercial:
Commercial and industrial $ 23,573
$ 1,578,223
27.9 % $ 22,353
$ 1,691,270
28.4 %
Commercial real estate 13,620
810,024
14.3 % 5,941
818,817
13.8 %
Multifamily 20,072
1,466,083
25.9 % 11,405
1,494,528
25.1 %
SBA 3,652
70,583
1.2 % 3,120
70,981
1.2 %
Construction 7,052
227,947
4.0 % 3,906
231,350
3.9 %
Consumer:
Single family residential mortgage 9,593
1,467,375
25.9 % 10,486
1,590,774
26.7 %
Other consumer 681
47,229
0.8 % 438
54,165
0.9 %
Total $ 78,243
$ 5,667,464
100.0 % $ 57,649
$ 5,951,885
100.0 %

The following table provides information regarding activity by loan class in the allowance for loan losses during the periods: indicated:


	Three Months Ended March 31,							Three Months Ended June 30,									Six Months Ended June 30,
($ in thousands)	2020			2019			($ in thousands)	2020			2019			2020			2019
ALL at beginning of period	$	57,649		$	62,192		ALL at beginning of period	$	78,243		$	63,885		$	57,649		$	62,192
Impact of adopting ASU 2016-13⁽¹⁾	7,609			—			Impact of adopting ASU 2016-13⁽¹⁾	—			—			7,609			—
Charge-offs:							Charge-offs:
Commercial and industrial	(1,164		)	(93		)	Commercial and industrial	—			(2,022)			(1,164)			(2,115)

SBA	(356		)	(356		)	SBA	—			8			(356)			(348)

Single family residential mortgage	(552		)	(526		)	Single family residential mortgage	—			(425)			(552)			(951)
Other consumer	(4		)	(88		)	Other consumer	—			(6)			(4)			(94)
Total charge-offs	(2,076		)	(1,063		)	Total charge-offs	—			(2,451)			(2,076)			(3,514)
Recoveries:							Recoveries:
Commercial and industrial	30			33			Commercial and industrial	119			11			149			44

SBA	121			41			SBA	—			60			121			101

Lease financing	—			3			Lease financing	—			3			—			6
Single family residential mortgage	151			150			Single family residential mortgage	488			—			639			150
Other consumer	48			17			Other consumer	1			2			49			19
Total recoveries	350			244			Total recoveries	608			76			958			320
Net charge-offs	(1,726		)	(819		)	Net charge-offs	608			(2,375)			(1,118)			(3,194)

Provision for credit losses	14,711			2,512			Provision for credit losses	11,519			(1,987)			26,230			525
ALL at end of period	$	78,243		$	63,885		ALL at end of period	$	90,370		$	59,523		$	90,370		$	59,523
Average total loans held-for-investment	$	5,758,537		$	7,657,994		Average total loans held-for-investment	$	5,687,652		$	7,398,471		$	5,723,094		$	7,540,145
Total loans held-for-investment at end of period	$	5,667,464		$	7,557,200		Total loans held-for-investment at end of period	$	5,627,696		$	6,719,570		$	5,627,696		$	6,719,570
Ratios:							Ratios:
Annualized net charge-offs to average total loans held-for-investment	0.12		%	0.04		%
Annualized net charge-offs (recoveries) to average total loans held-for-investment							Annualized net charge-offs (recoveries) to average total loans held-for-investment	(0.04)		%	0.13		%	0.04		%	0.08		%
ALL to total loans held-for-investment	1.38		%	0.85		%	ALL to total loans held-for-investment	1.61		%	0.89		%	1.61		%	0.89		%


~~(1)~~	Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020. As a result of adopting ASU 2016-13, our methodology to compute our allowance for credit losses is based on a current expected credit loss methodology, rather that the previously applied incurred loss methodology.

(1)Represents the impact of adopting ASU 2016-13, Financial Instruments - Credit Losses on January 1, 2020. As a result of adopting ASU 2016-13, our methodology to compute our allowance for credit losses is based on a current expected credit loss methodology, rather that the previously applied incurred loss methodology.

Alternative Energy Partnerships

As our respective investments in these entities are more than minor, we have significant influence, but not control, over the investee’s activities that most significantly impact its economic performance. As a result, we are required to apply the equity method of accounting, which generally prescribes applying the percentage ownership interest to the investee’s GAAP net income in order to determine the investor’s earnings or losses in a given period. However, because the liquidation rights, tax credit allocations and other benefits to investors can change upon the occurrence of specified events, application of the equity method based on the underlying ownership percentages would not accurately represent our investment. As a result, we apply the Hypothetical Liquidation at Book Value (“HLBV”) method of the equity method of accounting.

The HLBV method is a balance sheet approach whereby a calculation is prepared at each balance sheet date to estimate the amount that we would receive if the equity investment entity were to liquidate all of its assets (as valued in accordance with GAAP) and distribute that cash to the investors based on the contractually defined liquidation priorities. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is our share of the earnings or losses from the equity investment for the period.

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The following table presents the activity related to our investment in alternative energy partnerships for the three and six months ended ~~March 31,~~June 30, 2020 and 2019:


	Three Months Ended March 31,							Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2020			2019			($ in thousands)	2020		2019		2020		2019
Balance at beginning of period	$	29,300		$	28,988		Balance at beginning of period	$	27,347	$	26,578	$	29,300	$	28,988
New funding	3,631			—			New funding	—		235		3,631		235

Change in unfunded commitments	(3,225		)	—			Change in unfunded commitments	—		—		(3,225)		—
Cash distribution from investments	(454		)	(460		)	Cash distribution from investments	(547)		(535)		(1,001)		(995)
Gain (loss) on investments using HLBV method	(1,905		)	(1,950		)	Gain (loss) on investments using HLBV method	167		355		(1,738)		(1,595)
Balance at end of period	$	27,347		$	26,578		Balance at end of period	$	26,967	$	26,633	$	26,967	$	26,633
Unfunded equity commitments	$	—		$	—
Unfunded equity commitments at end of period							Unfunded equity commitments at end of period	$	—	$	3,796	$	—	$	3,796

Our returns on investments in alternative energy partnerships are primarily obtained through the realization of energy tax credits and other tax benefits rather than through distributions or through the sale of the investment. The balance of these investments was ~~$27.3~~$27.0 million and $29.3 million at ~~March 31,~~June 30, 2020 and December 31, 2019.

During the three and six months ended ~~March 31,~~June 30, 2020, we funded zero and $3.6 million for our alternative energy partnerships and did not receive any return of capital from ~~its~~our alternative energy partnerships. During each of the three and six months ended ~~March 31,~~June 30, 2019, we did not receive any return of capital and ~~did not fund any amounts~~funded $235 thousand into these partnerships.

During the three months ended ~~March 31,~~June 30, 2020 and 2019, we recognized a gain on investment of $167 thousand and a loss on investment of $355 thousand through its HLBV application. During the six months ended June 30, 2020 and 2019, we recognized a loss on investment of ~~$1.9~~$1.7 million and ~~$2.0~~$1.6 million through ~~its~~our application of the HLBV ~~application.~~method of accounting. The HLBV losses for the ~~periods~~six months ended June 30, 2020 were largely driven by accelerated tax depreciation on equipment and the recognition of energy tax credits which reduces the amount distributable by the investee in a hypothetical liquidation under the contractual liquidation provisions. From an income tax benefit perspective, we recognized no investment tax credits during these periods; however, we recorded income tax (expense) benefit ~~of $458 thousand and $527 thousand~~ related to these investments ~~for.the~~of $(38) thousand and $398 thousand for the three and six months ended ~~March 31,~~June 30, 2020 and $380 thousand for each of the three and six months ended June 30, 2019.

For additional information, see Note 12 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.

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Deposits

The following table shows the composition of deposits by type as of the dates indicated:


											June 30, 2020						December 31, 2019
($ in thousands)	March 31, 2020		December 31, 2019		Amount Change			Percentage Change		($ in thousands)	Amount		% of Total Deposits		Amount		% of Total Deposits		Amount Change
Noninterest-bearing deposits	$	1,256,081	$	1,088,516	$	167,565		15.4	%	Noninterest-bearing deposits	$	1,391,504	23.0	%	$	1,088,516	20.1	%	$	302,988
Interest-bearing demand deposits	1,572,389		1,533,882		38,507			2.5	%	Interest-bearing demand deposits	1,846,698		30.6	%	1,533,882		28.3	%	312,816
Money market accounts	575,820		715,479		(139,659		)	(19.5	)%	Money market accounts	765,854		12.7	%	715,479		13.2	%	50,375
Savings accounts	877,947		885,246		(7,299		)	(0.8	)%	Savings accounts	939,018		15.6	%	885,246		16.3	%	53,772
Certificates of deposit of $250,000 or less	718,397		582,772		135,625			23.3	%	Certificates of deposit of $250,000 or less	585,314		9.7	%	582,772		10.7	%	2,542

Certificates of deposit of more than $250,000	562,204		621,272		(59,068		)	(9.5	)%	Certificates of deposit of more than $250,000	509,077		8.4	%	621,272		11.4	%	(112,195)
Total deposits	$	5,562,838	$	5,427,167	$	135,671		2.5	%	Total deposits	$	6,037,465	100.0	%	$	5,427,167	100.0	%	$	610,298

Total deposits were ~~$5.56~~$6.04 billion at ~~March 31,~~June 30, 2020, an increase of ~~$135.7~~$610.3 million, or ~~2.5%~~11.2%, from $5.43 billion at December 31, 2019. We continue to focus on growing relationship-based deposits, strategically supplemented by wholesale funding, as we proactively drive our funding costs down. Noninterest-bearing deposits totaled ~~$1.26~~$1.39 billion and represented ~~22.6%~~23.0% of total deposits at ~~March 31,~~June 30, 2020 compared to $1.09 billion and 20.1% at December 31, 2019.

During the ~~three~~six months ended ~~March 31,~~June 30, 2020, demand deposits increased by ~~$206.1~~$615.8 million, consisting of increases of ~~$167.6~~$303.0 million in noninterest-bearing deposits and ~~$38.5~~$312.8 million in interest-bearing demand deposits. In addition, ~~during the three months ended March 31, 2020,~~money market accounts increased $50.4 million and savings accounts increased $53.8 million, offset by a decrease of $109.7 million in time ~~deposits increased $76.6 million or 6.4% to $1.28 billion.~~deposits.

Brokered deposits were ~~$218.7~~$179.8 million at ~~March 31,~~June 30, 2020, an increase of ~~$208.7~~$169.8 million from $10.0 million at December 31, 2019. The increase between periods ~~is primarily~~ related to brokered time deposits ~~which increased from zero to $208.7 million in the first quarter~~ as we took advantage of attractive pricing in that market to reduce some of our remaining higher-cost interest bearing deposits.

The following table presents the scheduled maturities of certificates of deposit as of ~~March 31,~~June 30, 2020:


($ in thousands)	Three Months or Less		Over Three Months Through Six Months		Over Six Months Through Twelve Months		Over One Year		Total		($ in thousands)	Three Months or Less		Over Three Months Through Six Months		Over Six Months Through Twelve Months		Over One Year		Total
Certificates of deposit of $250,000 or less	$	202,834	$	218,159	$	251,885	$	45,519	$	718,397	Certificates of deposit of $250,000 or less	$	222,856	$	169,487	$	150,881	$	42,090	$	585,314
Certificates of deposit of more than $250,000	233,211		212,071		80,884		36,038		562,204		Certificates of deposit of more than $250,000	211,569		193,671		60,687		43,150		509,077
Total certificates of deposit	$	436,045	$	430,230	$	332,769	$	81,557	$	1,280,601	Total certificates of deposit	$	434,425	$	363,158	$	211,568	$	85,240	$	1,094,391

Borrowings

We utilized Federal Home Loan Bank (“FHLB”) advances to leverage our capital base, to provide funds for lending and investing activities, as a source of liquidity, and to enhance interest rate risk management. We also maintained additional borrowing availabilities from Federal Reserve Discount Window and unsecured federal funds lines of credit.

Advances from the FHLB decreased ~~$217.0~~$577.8 million, or ~~18.2%~~48.4%, to ~~$978.0~~$617.2 million as of ~~March 31,~~June 30, 2020, ~~as a result~~due to repayment of ~~a $193.0~~$447.0 million ~~net decrease~~ in short-term and overnight advances with the FHLB and ~~$24.0~~$124.0 million in maturities and early repayments of long-term advances. AsDuring the three months ended June 30, 2020, we repaid a $100.0 million FHLB long-term advance with a weighted average interest rate of ~~March 31,~~2.07% and incurred a $2.5 million extinguishment fee. Additionally, in June 2020 ~~the maturity dates~~we refinanced $111.0 million of FHLB term advances ~~consisted~~to take advantage of ~~$90.0 million~~the rapid decline in market interest rates. As a result of this refinancing, our weighted average effective interest rate on such FHLB term advances changed from 2.81% to 2.02% and the weighted average life extended from 2.52 years to 5.18 years.

At June 30, 2020, FHLB advances included 0 overnight ~~$174.0~~borrowings, $58.0 million maturing inwithin three months, ~~or less,~~ and ~~$714.0~~$566.0 million maturing beyond three ~~months. As~~months with a weighted average life of ~~March 31, 2020, the overnight advance~~4.1 years and weighted average interest rate ~~was 0.21%~~of 2.39%.

We did not utilize repurchase agreements at ~~March 31,~~June 30, 2020 or December 31, 2019.

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For additional information, see Note 6 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.

~~Long Term~~Long-term Debt

The following table presents our ~~long term~~long-term debt as of the dates indicated:


	March 31, 2020					December 31, 2019						June 30, 2020						December 31, 2019
($ in thousands)	Par Value		Unamortized Debt Issuance Cost and Discount			Par Value		Unamortized Debt Issuance Cost and Discount			($ in thousands)	Par Value		Unamortized Debt Issuance Cost and Discount		Par Value		Unamortized Debt Issuance Cost and Discount

5.25% senior notes due April 15, 2025	$	175,000	$	(1,521	)	$	175,000	$	(1,579	)	5.25% senior notes due April 15, 2025	$	175,000	$	(1,463)	$	175,000	$	(1,579)

Total	$	175,000	$	(1,521	)	$	175,000	$	(1,579	)	Total	$	175,000	$	(1,463)	$	175,000	$	(1,579)

We were in compliance with all covenants under our 5.25% senior notes due April 15, 2025 at ~~March 31,~~June 30, 2020.

Liquidity Management

We are required to maintain sufficient liquidity to ensure a safe and sound operation. Liquidity may increase or decrease depending upon availability of funds and comparative yields on investments in relation to the return on loans. Historically, we have maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including both expected and unexpected cash flow needs such as funding loan commitments, potential deposit outflows and dividend payments. Cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained.

As a result of current economic conditions, including government stimulus in response to the pandemic, the Company has participated in the elevated levels of liquidity in the marketplace. A portion of the additional liquidity is viewed as short-term as it is expected to be used by clients in the near term and, accordingly, the Company has maintained higher levels of liquid assets. We have not observed a change in the level of clients' credit line usage and as the Bank's PPP loans are expected to be forgiven over the next 9 to 12 months, we expect additional liquidity that will likely be used to lower wholesale funding as it matures.

Banc of California, N.A.

During the second quarter of 2020, we expanded our existing secured borrowing capacity with the Federal Reserve by participating in its Borrower-in-Custody (“BIC”) program. As a result, our borrowing capacity with the Federal Reserve increased to $370.4 million at June 30, 2020. Prior to participating in the BIC program, the Bank had only pledged certain securities as collateral for access to the discount window. At June 30, 2020, the Bank has pledged certain qualifying loans with an unpaid principal balance of $870.1 million and securities with a carrying value of $23.0 million as collateral for this line of credit. Borrowings under the BIC program are overnight advances with interest chargeable at the discount window (“primary credit”) borrowing rate. There were no borrowings under this arrangement for the three and six months ended June 30, 2020 and 2019.

The Bank's liquidity, represented by cash and cash equivalents and securities available-for-sale, is a product of its operating, investing, and financing activities. The Bank's primary sources of funds are deposits, payments and maturities of outstanding loans and investment securities; sales of loans and investment securities and other short-term investments and funds provided from operations. While scheduled payments from the amortization of loans and investment securities, and maturing investment securities and short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. In addition, the Bank invests excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements. The Bank also generates cash through borrowings. The Bank mainly utilizes FHLB advances from pre-established secured lines of credit and securities sold under repurchase agreements to leverage its capital base, to provide funds for its lending activities, as a source of liquidity, and to enhance its interest rate risk management. The Bank also has the ability to obtain brokered deposits and collect deposits through its wholesale and treasury ~~operations.~~operations as well as secured borrowings advances through the Federal Reserve BIC program. Liquidity management is both a daily and long-term function of business management. Any excess liquidity is typically invested in federal funds or investment securities. On a longer-term basis, the Bank maintains a strategy of investing in various lending products. The Bank uses its sources of funds primarily to meet its ongoing loan and other commitments, and to pay maturing certificates of deposit and savings withdrawals.

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Banc of California, Inc.

The primary sources of funds for Banc of California, Inc., on a stand-alone holding company basis, are dividends and intercompany tax payments from the Bank, outside borrowing, and its ability to raise capital and issue debt securities. Dividends from the Bank are largely dependent upon the Bank's earnings and are subject to restrictions under certain regulations that limit its ability to transfer funds to the holding company. OCC regulations impose various restrictions on the ability of a bank to make capital distributions, which include dividends, stock redemptions or repurchases, and certain other items. Generally, a well-capitalized bank may make capital distributions during any calendar year equal to up to 100 percent of year-to-date net income plus retained net income for the two preceding years without prior OCC approval. However, any dividend paid by the Bank would be limited by the need to maintain its ~~well capitalized~~well-capitalized status plus the capital buffer in order to avoid additional dividend restrictions (Refer to Capital - Dividend Restrictions below for additional information). Currently, the Bank does not have sufficient dividend-paying capacity to declare and pay such dividends to the holding company without obtaining prior approval from the OCC under the applicable regulations. During the ~~three~~six months ended ~~March 31,~~June 30, 2020, the Bank paid no$25.0 million of dividends to Banc of California, Inc. At ~~March 31,~~June 30, 2020, Banc of California, Inc. had ~~$52.6~~$61.1 million in cash, all of which was on deposit at the Bank.

On February 10, 2020, we announced that our Board of Directors authorized the repurchase of up to $45 million of our common stock. The repurchase authorization expires in February ~~2021.~~2021, however given current macroeconomic conditions and the COVID-19 pandemic, we have suspended common stock repurchases for the immediate future. There were no repurchases of common stock for the three months ended June 30, 2020. During the six months ended June 30, 2020, we repurchased 827,584 shares of common stock at a weighted average price of $14.50 per share and an aggregate amount of $12.0 million. Purchases may be made in open-market transactions, in block transactions on or off an exchange, in privately negotiated transactions, or by other means as determined by our management and in accordance with the regulations of the Securities and Exchange Commission. The timing of purchases and the number of shares repurchased under the program will depend on a variety of factors including price, trading volume, corporate and regulatory requirements, and market conditions. ~~During the three months ended March 31, 2020, we repurchased 827,584 shares of common stock at a weighted average price of $14.50 per share and aggregating $12.0 million. Given current~~

~~macroeconomic conditions and the yet-to-be-determined impacts of the COVID-19 crisis, we have suspended common stock repurchases for the immediate future.~~

During the three months ended ~~March 31,~~June 30, 2020, we repurchased depositary shares representing shares of our Series D and Series E preferred stock. The aggregate total consideration for each Series D Depositary Share purchased was ~~$1.5~~$1.2 million. The aggregate total consideration for each Series E Depositary Share purchased was ~~$153 thousand.~~$1.4 million. The ~~$526~~$49 thousand difference between the consideration paid and the $2.7 million aggregate carrying value of the Series D Preferred Stock and Series E Preferred Stock was reclassified to retained earnings and resulted in an increase to net income allocated to common stockholders.

During the six months ended June 30, 2020, we repurchased depositary shares representing shares of our Series D and Series E preferred stock. The aggregate total consideration for the Series D depositary shares purchased was $2.7 million. The aggregate total consideration for the Series E depositary shares purchased was $1.5 million. The $575 thousand difference between the consideration paid and the $4.8 million aggregate carrying value of the Series D Preferred Stock and Series E Preferred Stock was reclassified to retained earnings and resulted in an increase to net income allocated to common stockholders.

On a consolidated basis, we maintained ~~$436.0~~$420.6 million of cash and cash equivalents, which was ~~5.7%~~5.4% of total assets at ~~March 31,~~June 30, 2020. Our cash and cash equivalents increased by ~~$62.5~~$47.2 million, or ~~16.7%~~12.6%, from $373.5 million, or 4.8% of total assets, at December 31, 2019. The increase was mainly due to the ~~decrease~~increase in deposits and runoff of our legacy single family residential mortgage portfolio, offset by reductions in FHLB ~~advances, offset by cash received from sales of investment securities and loans.~~advances.

At ~~March 31,~~June 30, 2020, we had available unused secured borrowing capacities of ~~$921.4~~$1.06 billion from the FHLB and $370.4 million from ~~FHLB and $15.9 million from~~the Federal Reserve, ~~Discount Window,~~ as well as $185.0 million from ~~unused~~ unsecured federal funds lines of credit. We also maintained repurchase agreements ~~and had no~~of which none were outstanding ~~securities sold under repurchase agreements~~ at ~~March 31,~~June 30, 2020. Availabilities and terms on repurchase agreements are subject to the counterparties' discretion and pledging additional investment securities. We also had unpledged securities available-for-sale of ~~$929.5 million~~$1.13 billion at ~~March 31,~~June 30, 2020.

We believe that our liquidity sources are stable and are adequate to meet our day-to-day cash flow requirements as of ~~March 31,~~June 30, 2020. However, in light of the ongoing COVID-19 pandemic, we cannot predict at this time the extent to which the pandemic will negatively affect our business, financial condition, liquidity, capital and results of operations. For a discussion of the related risk factors, please refer to ~~Item 1A included in~~ Part II, ~~of this~~Item 1A. "Risk Factors" in our Quarterly Report on Form ~~10-Q.~~10-Q for the quarter ended March 31, 2020.

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Commitments and Contractual Obligations

The following table presents our commitments and contractual obligations as of ~~March 31,~~June 30, 2020:


	Commitments and Contractual Obligations											Commitments and Contractual Obligations
($ in thousands)	Total Amount Committed		Within One Year		More Than One Year Through Three Years		More Than Three Year Through Five Years		Over Five Years		($ in thousands)	Total Amount Committed		Within One Year		More Than One Year Through Three Years		More Than Three Year Through Five Years		Over Five Years
Commitments to extend credit	$	110,113	$	36,098	$	61,310	$	2,023	$	10,682	Commitments to extend credit	$	80,093	$	36,078	$	36,785	$	1,842	$	5,388
Unused lines of credit	1,163,425		1,031,022		66,264		17,646		48,493		Unused lines of credit	1,392,215		1,225,270		70,385		52,710		43,850
Standby letters of credit	5,714		5,490		113		91		20		Standby letters of credit	3,579		3,258		210		111		—
Total commitments	$	1,279,252	$	1,072,610	$	127,687	$	19,760	$	59,195	Total commitments	$	1,475,887	$	1,264,606	$	107,380	$	54,663	$	49,238
FHLB advances	$	978,000	$	467,000	$	191,000	$	20,000	$	300,000	FHLB advances	$	624,000	$	213,000	$	—	$	291,000	$	120,000

Long-term debt	175,000		—		—		—		175,000		Long-term debt	175,000		—		—		175,000		—
Operating and capital lease obligations	25,242		6,879		7,549		4,049		6,765		Operating and capital lease obligations	23,274		6,461		6,787		3,805		6,221
Certificate of deposits	1,280,601		1,199,044		76,813		4,744		—		Certificate of deposits	1,094,391		1,009,151		80,783		4,457		—
Total contractual obligations	$	2,458,843	$	1,672,923	$	275,362	$	28,793	$	481,765	Total contractual obligations	$	1,916,665	$	1,228,612	$	87,570	$	474,262	$	126,221

During the three months ended March 31, 2017, the Bank entered into certain definitive agreements which grant the Bank the exclusive naming rights to Banc of California Stadium, a soccer stadium of LAFC, as well as the right to be the official bank of LAFC. In exchange for the Bank’s rights as set forth in the agreements, the Bank agreed to pay LAFC $100.0 million over a period of 15 years, beginning in 2017 and ending in 2032. The advertising benefits of such rights are amortized on a straight-line basis and recorded as advertising and promotion expense beginning in 2018. As of March 31, 2020, the Bank has paid $22.1 million of the $100.0 million commitment. The prepaid commitment balance, net of amortization, was $7.1 million as of March 31, 2020, which was recognized as a prepaid asset and included in other assets in the consolidated statements of financial condition. See Note 14 of Notes to Consolidated Financial Statements (unaudited) for additional information.

At ~~March 31,~~June 30, 2020, we had unfunded commitments of ~~$17.8~~$20.5 million, ~~$7.6~~$7.1 million, and $501 thousand for affordable housing fund investments, SBIC investments, and other investments, including investments in alternative energy partnerships, respectively.

Capital

In order to maintain adequate levels of capital, we continuously assess projected sources and uses of capital to support projected asset growth, operating needs and credit risk. We consider, among other things, earnings generated from operations

and access to capital from financial markets. In addition, we perform capital stress tests on an annual basis to assess the impact of adverse changes in the economy on our capital base.

Regulatory Capital

The Company and the Bank are subject to the regulatory capital adequacy guidelines that are established by the Federal banking regulators. In July 2013, the Federal banking regulators approved a final rule to implement the revised capital adequacy standards of the Basel III and to address relevant provisions of the Dodd-Frank Act. The final rule strengthens the definition of regulatory capital, increases risk-based capital requirements, makes selected changes to the calculation of risk-weighted assets, and adjusts the prompt corrective action thresholds. The Company and the Bank became subject to the new rule on January 1, 2015 and certain provisions of the new rule were phased in through January 1, 2019. Inclusive of the fully phased-in capital conservation buffer, the common equity Tier 1 capital, Tier 1 risk-based capital and total risk-based capital ratio minimums are 7.0%, 8.5% and 10.5%, respectively.

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The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:


					Minimum Capital Requirements						Minimum Required to Be Well-Capitalized Under Prompt Corrective Action Provisions
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
June 30, 2020
Banc of California, Inc.
Total risk-based capital	$	884,558	16.35	%	$	432,780	8.00	%	N/A		N/A
Tier 1 risk-based capital	816,655		15.10	%	324,585		6.00	%	N/A		N/A
Common equity tier 1 capital	631,618		11.68	%	243,439		4.50	%	N/A		N/A
Tier 1 leverage	816,655		10.56	%	309,388		4.00	%	N/A		N/A
Banc of California, NA
Total risk-based capital	$	981,477	18.17	%	$	432,124	8.00	%	$	540,155	10.00	%
Tier 1 risk-based capital	913,785		16.92	%	324,093		6.00	%	432,124		8.00	%
Common equity tier 1 capital	913,785		16.92	%	243,070		4.50	%	351,100		6.50	%
Tier 1 leverage	913,785		11.84	%	308,586		4.00	%	385,732		5.00	%
December 31, 2019
Banc of California, Inc.
Total risk-based capital	$	921,892	15.90	%	$	463,950	8.00	%	N/A		N/A
Tier 1 risk-based capital	860,179		14.83	%	347,963		6.00	%	N/A		N/A
Common equity tier 1 capital	670,355		11.56	%	260,972		4.50	%	N/A		N/A
Tier 1 leverage	860,179		10.89	%	315,825		4.00	%	N/A		N/A
Banc of California, NA
Total risk-based capital	$	1,007,762	17.46	%	$	461,843	8.00	%	$	577,304	10.00	%
Tier 1 risk-based capital	946,049		16.39	%	346,382		6.00	%	461,843		8.00	%
Common equity tier 1 capital	946,049		16.39	%	259,787		4.50	%	375,247		6.50	%
Tier 1 leverage	946,049		12.02	%	314,707		4.00	%	393,383		5.00	%

Minimum Capital Requirements Minimum Required to Be Well-Capitalized Under Prompt Corrective Action Provisions
($ in thousands) Amount Ratio Amount Ratio Amount Ratio
March 31, 2020
Banc of California, Inc.
Total risk-based capital $ 909,770
16.16 % $ 450,410
8.00 % N/A
N/A
Tier 1 risk-based capital 839,380
14.91 % 337,808
6.00 % N/A
N/A
Common equity tier 1 capital 651,693
11.58 % 253,356
4.50 % N/A
N/A
Tier 1 leverage 839,380
11.20 % 299,849
4.00 % N/A
N/A
Banc of California, NA
Total risk-based capital $ 1,019,884
18.21 % $ 448,013
8.00 % $ 560,016
10.00 %
Tier 1 risk-based capital 949,854
16.96 % 336,010
6.00 % 448,013
8.00 %
Common equity tier 1 capital 949,854
16.96 % 252,007
4.50 % 364,010
6.50 %
Tier 1 leverage 949,854
12.67 % 299,779
4.00 % 374,724
5.00 %
December 31, 2019
Banc of California, Inc.
Total risk-based capital $ 921,892
15.90 % $ 463,950
8.00 % N/A
N/A
Tier 1 risk-based capital 860,179
14.83 % 347,963
6.00 % N/A
N/A
Common equity tier 1 capital 670,355
11.56 % 260,972
4.50 % N/A
N/A
Tier 1 leverage 860,179
10.89 % 315,825
4.00 % N/A
N/A
Banc of California, NA
Total risk-based capital $ 1,007,762
17.46 % $ 461,843
8.00 % $ 577,304
10.00 %
Tier 1 risk-based capital 946,049
16.39 % 346,382
6.00 % 461,843
8.00 %
Common equity tier 1 capital 946,049
16.39 % 259,787
4.50 % 375,247
6.50 %
Tier 1 leverage 946,049
12.02 % 314,707
4.00 % 393,383
5.00 %

Dividend Restrictions

Payment of dividends by the Company are subject to guidance provided by the Federal Reserve. That guidance provides that bank holding companies that plan to pay dividends that exceed net earnings for a given period should first consult with the Federal Reserve. Because the Company’s current and, for the near term, future quarterly dividends are expected to exceed the applicable quarterly net earnings, payment of dividends in respect of the Company’s common and preferred stock will be subject to prior consultation and non-objection from the Federal Reserve.

Our principal source of funds for dividend payments is dividends received from the Bank. Federal banking laws and regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, in the case of the Bank, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. Accordingly, any dividend granted by the Bank would be limited by the need to maintain its well capitalized status plus the capital buffer in order to avoid additional dividend restrictions. As described below, any near term dividend by the Bank will require OCC approval. During the three and six months ended ~~March 31,~~June 30, 2020, ~~based on sufficient holding company liquidity,~~ the Bank received approval from the OCC and paid no$25.0 million in dividends to Banc of California, Inc.

During the three and six months ended ~~March 31,~~June 30, 2020, we declared and paid dividends on our common stock of $0.06 and $0.12 per share in addition to dividends on our preferred stock. Last year, in April 2019, our Board of Directors approved a plan to reduce the quarterly dividend from $0.13 to $0.06 per common share. ~~On August 23, 2019, we completed a partial tender offer~~

Table of ~~Series D~~Contents

and E Series preferred stock for total consideration of $19.4 million and $26.6 million. In connection with these repurchases, the OCC approved a dividend of $88.5 million from the Bank to Banc of California, Inc. The dividend exceeded the Bank’s eligible amount pursuant to 12 USC 60, as of September 30, 2019, and accordingly, any near term dividend payments by the Bank will require prior OCC approval.

ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Risk When Interest Rates Change. The rates of interest we earn on assets and pay on liabilities generally are established contractually for a period of time. Market interest rates change over time. Accordingly, our results of operations, like those of other financial institutions, are impacted by changes in interest rates and the interest rate sensitivity of our assets and liabilities. The risk associated with changes in interest rates and our ability to adapt to these changes is known as interest rate risk and is our most significant market risk.

How We Measure Our Risk of Interest Rate Changes. As part of our attempt to manage our exposure to changes in interest rates and comply with applicable regulations, we have established asset/liability committees to monitor our interest rate risk. In monitoring interest rate risk we continually analyze and manage assets and liabilities based on their payment streams and interest rates, the timing of their maturities and/or prepayments, and their sensitivity to actual or potential changes in market interest rates.

We maintain both a management asset/liability committee ~~(Management ALCO)~~(“Management ALCO”), comprised of select members of senior management, and a joint asset/liability committee of the Boards of Directors of the Company and the Bank ~~(Board ALCO,~~(“Board ALCO”, together with Management ALCO, ~~ALCOs)~~“ALCOs”). In order to manage the risk of potential adverse effects of material and prolonged or volatile changes in interest rates on our results of operations, we have adopted asset/liability management policies to align maturities and repricing terms of interest-earning assets to interest-bearing liabilities. The asset/liability management policies establish guidelines for the volume and mix of assets and funding sources taking into account relative costs and spreads, interest rate sensitivity and liquidity needs, while the ALCOs monitor adherence to those guidelines. The objectives are to manage assets and funding sources to produce results that are consistent with liquidity, capital adequacy, growth, risk, and profitability goals. The ALCOs meet ~~periodically~~no less than quarterly to review, among other things, economic conditions and interest rate outlook, current and projected liquidity needs and capital position, anticipated changes in the volume and mix of assets and liabilities and interest rate risk exposure limits versus current projections pursuant to our net present value of equity analysis.

In order to manage our assets and liabilities and achieve the desired liquidity, credit quality, interest rate risk, profitability and capital targets, we evaluate various strategies including:

•Originating and purchasing adjustable rate mortgage loans,

•Selling longer duration fixed or hybrid mortgage loans,

•Originating shorter-term consumer loans,

•Managing the duration of investment securities,

•Managing our deposits to establish stable deposit relationships,

•Using FHLB advances and/or certain derivatives such as swaps to align maturities and repricing terms, and

•Managing the percentage of fixed rate loans in our portfolio.

At times, depending on the level of general interest rates, the relationship between long- and short-term interest rates, market conditions and competitive factors, the ALCOs may decide to increase our interest rate risk position within the asset/liability tolerance set forth by our Board of Directors.

As part of its procedures, the ALCOs regularly review interest rate risk by forecasting the impact of alternative interest rate environments on net interest income and market value of portfolio equity, which is defined as the net present value of an institution’s existing assets, liabilities and off-balance sheet instruments, and evaluating such impacts against the maximum potential changes in net interest income and market value of portfolio equity.

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Interest Rate Sensitivity of Economic Value of Equity and Net Interest Income

Interest rate risk results from our banking activities and is the primary market risk for us. Interest rate risk is caused by the following factors:

•Repricing risk - timing differences in the repricing and maturity of interest-earning assets and interest-bearing liabilities;

•Option risk - changes in the expected maturities of assets and liabilities, such as borrowers’ ability to prepay loans and depositors’ ability to redeem certificates of deposit before maturity;

•Yield curve risk - changes in the yield curve where interest rates increase or decrease in a nonparallel fashion; and

•Basis risk - changes in spread relationships between different yield curves, such as U.S. Treasuries, U.S. Prime Rate and London Interbank Offered Rate.

Since our earnings are primarily dependent on our ability to generate net interest income, we focus on actively monitoring and managing the effects of adverse changes in interest rates on our net interest income. Management of our interest rate risk is overseen by the Board ALCO. Board ALCO delegates the day to day management of interest rate risk to the Management ALCO. Management ALCO ensures that the Bank is following the appropriate and current regulatory guidance in the formulation and implementation of our interest rate risk program. Board ALCO reviews the results of our interest rate risk modeling quarterly to ensure that we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In addition to our annual review of ~~this~~the Asset Liability Management policy, our Board of Directors periodically reviews the interest rate risk policy limits.

Interest rate risk management is an active process that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic repricing characteristics of our assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

Our interest rate risk exposure is measured and monitored through various risk management tools, including a simulation model that performs interest rate sensitivity analysis under multiple scenarios. The simulation model is based on the actual maturities and re-pricing characteristics of the Bank’s interest-rate sensitive assets and liabilities. The simulated interest rate scenarios include an instantaneous parallel shift in the yield curve ~~(Rate Shock)~~(“Rate Shock”). We then evaluate the simulation results using two approaches: Net Interest Income at Risk ~~(NII~~(“NII at ~~Risk)~~Risk”), and Economic Value of Equity ~~(EVE)~~(“EVE”). Under NII at Risk, the impact on net interest income from changes in interest rates on interest-earning assets and interest-bearing liabilities is modeled utilizing various assumptions for assets, liabilities, and derivatives.

EVE measures the period end market value of assets minus the market value of liabilities. Asset liability management uses this value to measure the changes in the economic value of the Bank under various interest rate scenarios. In some ways, the economic value approach provides a broader scope than net income volatility approach since it captures all anticipated cash flows.

The balance sheet is considered “asset sensitive” when an increase in short-term interest rates is expected to expand our net interest margin, as rates earned on our interest-earning assets reprice higher at a pace faster than rates paid on our interest-bearing liabilities. Conversely, the balance sheet is considered “liability sensitive” when an increase in short-term interest rates is expected to compress our net interest margin, as rates paid on our interest-bearing liabilities reprice higher at a pace faster than rates earned on our interest-earning assets.

At ~~March 31,~~June 30, 2020, our interest rate risk profile reflects an “asset sensitive” position. ~~We are naturally asset sensitive due to our large portfolio of rate-sensitive assets.~~ Given the uncertainty of the magnitude, timing and direction of future interest rate movements, as well as the shape of the yield curve, actual results may vary from those predicted by our model.

The following table presents the projected change in the Bank’s economic value of equity at June 30, 2020 and net ~~portfolio value at March 31, 2020~~interest income over the next twelve months, that would occur upon an immediate change in interest rates based on independent analysis, but without giving effect to any steps that management might take to counteract that change:

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	Change in Interest Rates in Basis Points (bps) ⁽¹⁾															Change in Interest Rates in Basis Points (bps) ⁽¹⁾
($ in thousands)	Economic Value of Equity							Net Interest Income							($ in thousands)	Economic Value of Equity															Net Interest Income
	Amount		Amount Change			Percentage Change		Amount		Amount Change			Percentage Change					Amount			Amount Change			Percentage Change			Amount			Amount Change			Percentage Change
March 31, 2020
June 30, 2020															June 30, 2020
+200 bps	$	1,217,550	$	105,491		9.5	%	$	225,414	$	22,952		11.3	%	+200 bps	$	1,332,616		$	196,900		17.3	%		$	222,391		$	14,467		7.0	%
+100 bps	1,180,703		68,644			6.2	%	214,279		11,817			5.8	%	+100 bps	1,249,336			113,620			10.0	%		215,258			7,334			3.5	%
0 bp	1,112,059							202,462
0 bps															0 bps	1,135,716									207,924
-100 bps	1,030,892		(81,167		)	(7.3	)%	197,426		(5,036		)	(2.5	)%	-100 bps	1,024,455			(111,261)			(9.8)	%		205,107			(2,817)			(1.4)	%


~~(1)~~	~~Assumes an instantaneous uniform change in interest rates at all maturities and no rate shock has a rate lower than zero percent.~~

(1)Assumes an instantaneous uniform change in interest rates at all maturities and no rate shock has a rate lower than zero percent.

As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the table.

Interest rate risk is the most significant market risk affecting us. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of our business activities and operations.

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Act) as of ~~March 31,~~June 30, 2020 was carried out under the supervision and with the participation of the Company’s Principal Executive Officer, Principal Financial Officer and other members of the Company’s senior management. The Company’s Principal Executive Officer and Principal Financial Officer concluded that, as of ~~March 31,~~June 30, 2020, the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company’s management (including the Principal Executive Officer and Principal Financial Officer) to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Act) that occurred during the three months ended ~~March 31,~~June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all errors and fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.

Table of Contents

PART II — OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

From time to time we are involved as plaintiff or defendant in various legal actions arising in the normal course of business.

On October 28, 2019, we entered into a Stipulation of Settlement (“Settlement Stipulation”) with the lead plaintiff to settle class action lawsuits that were previously consolidated in the United District Court for the Central District of California (the “Court”) under the caption In re Banc of California Securities Litigation, Case No. SACV 17-00118 AG, consolidated with SACV 17-00138 AG. Under the terms of the Settlement Stipulation, our insurance carriers will pay $19.75 million, which will be distributed to eligible shareholders who purchased Company stock between April 15, 2016 and January 20, 2017, after payment of attorney’s fees and costs, to be determined by the Court. We will not be required to contribute any cash to the settlement payments. Pursuant to the settlement, the action against us will be dismissed with prejudice. Plaintiff will also dismiss with prejudice its claims against our former Chief Executive Officer and Chairman Steven Sugarman. While we do not believe the plaintiff’s claims are meritorious, we believe that ending the costs and distraction of the litigation is in the best interests of the Company and our shareholders. On March 16, 2020 the Court gave final approval to the settlement, and that order is now final. The foregoing description of the settlement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the complete text of the settlement stipulation was filed with the Court.

On April 2, 2019, the first of three shareholder derivative actions, Gordon v. Benett, No. 8:19-cv-621, was filed against current and former officers and directors of Banc of California, Inc. in the United States District Court for the Central District of California. The Gordon action asserts claims for breach of fiduciary duty against Halle J. Benett, Jonah Schnel, Jeffrey Karish, Robert Sznewajs, Eric Holoman, Chad Brownstein, Steven Sugarman, Richard Lashley, Douglas Bowers and John Grosvenor. On June 10, 2019, a second shareholder derivative action, Johnston v. Sznewajs, No. 8:19-cv-01152, was filed against current and former officers and directors of Banc of California, Inc. in the United States District Court for the Central District of California. The Johnston action asserts claims for breach of fiduciary duty and unjust enrichment against Robert Sznewajs, Jonah Schnel, Halle Benett, Richard Lashley, Steven Sugarman, John Grosvenor, Chad Brownstein, Jeffrey Karish and Eric Holoman. On June 18, 2019, a third shareholder derivative action, Witmer v. Sugarman, No. 19STCV21088, was filed against current and former officers and directors of Banc of California, Inc. in Los Angeles County Superior Court. The Witmer action asserts claims for breach of fiduciary duty, unjust enrichment and corporate waste against Steven Sugarman, Ronald Nicolas, Jr., Robert Sznewajs, Chad Brownstein, Halle Benett, Douglas Bowers, Jeffrey Karish, Richard Lashley, Jonah Schnel, Eric Holoman and Jeffrey Seabold. On June 24, 2019, the Witmer Action was removed to the United States District Court for the Central District of California and assigned docket number 2:19-cv-5488. On September 23, 2019, the Court, ordered that the Gordon, Johnston, and Witmer actions are consolidated for all purposes, including pre-trial proceedings and trial. On November 22, 2019, plaintiffs filed a consolidated complaint. The Company’s motion to dismiss is currently due on August 14, 2020.

In general, the consolidated complaint alleges that our board wrongfully refused demands that the plaintiffs made to our board of directors that we should initiate litigation against the various current and former officers and directors based on their alleged role in the purported concealment of the Company's alleged relationship with Jason Galanis and various statements made by the Company alleged to be false and misleading. The plaintiffs seek an unspecified amount of damages to be paid to the Company, adoption of corporate governance reforms, and equitable and injunctive relief. We do not believe that the demands made by these shareholder derivative plaintiffs were wrongfully refused, and we intend to vigorously contest these actions on that basis.

ITEM 1A - RISK FACTORS

There have been no material changes to the risk factors that appeared under ~~“Part~~Part I, Item 1A. ~~Risk~~“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019 ~~except for the following risk factor which supplements the risk factors previously disclosed~~ and ~~should be considered in conjunction with the risk factors that appeared in our Annual report on Form 10-K for the year ended December 31, 2019.~~

~~Our business, financial condition, liquidity, capital and results of operations have been, and will likely continue to be, adversely affected by the COVID-19 pandemic.~~

The Coronavirus Disease 2019 (“COVID-19”) pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business, financial condition, liquidity, capital and results of operations. We cannot predict at this time the extent to which the COVID-19 pandemic will continue to negatively affect our business, financial condition, liquidity, capital and results of operations. The extent of any continued or future adverse effects of the COVID-19 pandemic will depend on future developments, which are highly uncertain and outside our control, including the scope and duration of the pandemic, the direct and indirect impact of the pandemic on our employees, clients, customers, counterparties and service providers, as well as other market participants, and actions taken by governmental authorities and other third parties in response to the pandemic.

The COVID-19 pandemic has contributed to (i) increased unemployment and decreased consumer confidence and business generally, leading to an increased risk of delinquencies, defaults and foreclosures; (ii) sudden and significant declines, and significant increases in volatility, in financial markets; (iii) ratings downgrades, credit deterioration and defaults in many industries, including commercial real estate and multifamily; (iv) significant reductions in the targeted federal funds rate (which was reduced to a target rate of between zero and 0.25% in the first quarter); and (v) heightened cybersecurity, information security and operational risks as a result of work-from-home arrangements. In addition, we also face an increased risk of client disputes, litigation and governmental and regulatory scrutiny as a result of the effects of COVID-19 on market and economic conditions and actions governmental authorities take in response to those conditions.

We are prioritizing the safety of our clients and employees, and have temporarily closed a small number of branches and are operating with limited branch hours at others. Additionally, over 80% of our employees are working remotely. If these measures are not effective in serving our customers or affect the productivity of our associates, they may lead to significant disruptions in our business operations.

Many of our counterparties and third-party service providers have also been, and may further be, affected by “stay-at-home” orders, market volatility and other factors that increase their risks of business disruption or that may otherwise affect their ability to perform under the terms of any agreements with us or provide essential services. As a result, our operational and other risks are generally expected to increase until the pandemic subsides.

We are actively engaged with borrowers who are seeking payment relief and waiving certain fees for impacted clients. One method we have deployed is offering forbearance to qualifying clients making such requests. For SFR loans, the deferments are 90 days in length and are patterned after the U.S. Department of Housing and Urban Development (“HUD”) guidelines. With respect to our non-SFR loan portfolio, deferments are also 90 days in length. These assistance efforts may adversely affect our revenue and results of operations. In addition, if such measures are not effective in mitigating the effects of COVID-19 on borrowers, we may experience higher rates of default and increased credit losses in future periods.

Our earnings and cash flows are dependent to a large degree on net interest income (the difference between interest income from loans and investments and interest expense on deposits and borrowings). Net interest income is significantly affected by market rates of interest. The significant reductions to the federal funds rate has led to a decrease in the rates and yields on U.S. Treasury securities, in some cases declining below zero. If interest rates are reduced further in response to COVID-19, we expect that our net interest income will decline, perhaps significantly. The overall effect of lower interest rates cannot be predicted at this time and depends on future actions the Federal Reserve may take to increase or reduce the targeted federal funds rate in response to the COVID-19 pandemic, and resulting economic conditions.

The effects of the COVID-19 pandemic on economic and market conditions have increased demands on our liquidity as we meet our clients’ needs. In addition, economic forecasts and market conditions have, among other things, negatively affected our capital and leverage ratios, increased our provision for credit losses and negatively impacted our unrealized losses on our investment portfolio. If these adverse developments persist, our capital and leverage ratios may continue to be adversely impacted. We have suspended common stock repurchases for the immediate future to preserve capital and liquidity in order to support our clients and employees.

Governmental authorities worldwide have taken unprecedented measures to stabilize the markets and support economic growth. The success of these measures is unknown and they may not be sufficient to address the negative effects of COVID-19 or avert severe and prolonged reductions in economic activity.

Other negative effects of COVID-19 that may impact our business, financial condition, liquidity, capital and results of operations cannot be predicted at this time, but it is likely that our business, financial condition, liquidity, capital and results of operations will continue to be adversely affected until the pandemic subsides and the U.S. economy begins to recover. Further, the COVID-19 pandemic may also have the effect of heightening many of the other risks described in the section entitledPart II, Item 1A. “Risk Factors” in our ~~most recent Annual Report on Form 10-K and any subsequent~~ Quarterly Report on Form ~~10-Q. Until~~10-Q for the pandemic subsides, we may experience increased draws on credit facilities and we expect continued pressure on new loan production, reduced revenues from our lending businesses and increased credit losses in our lending portfolios. Even after the pandemic subsides, it is possible that the U.S. and other major economies continue to experience a prolonged recession, which we expect would materially and adversely affect our business, financial condition, liquidity, capital and results of operations.quarter ended March 31, 2020.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Table of Contents

Purchase of Equity Securities by the Issuer
Total Number of Shares Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Total Number of Shares That May Yet be Purchased Under the Plan
Common Stock:
From January 1, 2020 to January 31, 2020 2,256
$ 17.15
—
—
From February 1, 2020 to February 29, 2020 174,581
$ 16.83
174,514
—
From March 1, 2020 to March 31, 2020 674,135
$ 13.79
653,070
—
Total 850,972
$ 14.42
827,584
—

Preferred Stock (Depositary Shares):
From January 1, 2020 to January 31, 2020 —
$ —
—
—
From February 1, 2020 to February 29, 2020 —
$ —
—
—
From March 1, 2020 to March 31, 2020 88,704
$ 18.12
—
—
Total 88,704
$ 18.12
—
—


	Purchase of Equity Securities by the Issuer
	Total Number of Shares	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Total Number of Shares That May Yet be Purchased Under the Plan
Common Stock:
From April 1, 2020 to April 30, 2020	47,939	$	8.19	—	—
From May 1, 2020 to May 31, 2020	2,188	$	11.40	—	—
From June 1, 2020 to June 30, 2020	7,610	$	10.62	—	—
Total	57,737	$	8.63	—	—

Preferred Stock (Depositary Shares):
From April 1, 2020 to April 30, 2020	94,813	$	23.39	—	—
From May 1, 2020 to May 31, 2020	12,269	$	24.80	—	—
From June 1, 2020 to June 30, 2020	2,989	$	24.97	—	—
Total	110,071	$	23.59	—	—

During the three months ended ~~March 31,~~June 30, 2020, purchases of shares of common stock related to ~~shares purchased under the previously announced stock repurchase program and~~ shares surrendered by employees in order to pay employee tax liabilities associated with vested awards under our employee stock benefit plans. There were no purchases of shares of common stock during the three months ended June 30, 2020 related to the Company's previously announced stock repurchase program discussed below.

On February 10, 2020, we announced a repurchase program of up to $45 million of our common stock. The repurchase authorization expires in February 2021. Purchases may be made in open-market transactions, in block transactions on or off an exchange, in privately negotiated transactions or by other means as determined by our management and in accordance with the regulations of the Securities and Exchange Commission. The timing of purchases and the number of shares repurchased under the program will depend on a variety of factors including price, trading volume, corporate and regulatory requirements and market conditions.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 MINE SAFETY DISCLOSURES

Not applicable

ITEM 5 - OTHER INFORMATION

None

Table of Contents

ITEM 6 - EXHIBITS




3.1			Second Articles of Restatement of the charter of the Registrant (Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 5, 2018 and incorporated herein by reference.)
3.2			Fifth Amended and Restated Bylaws of the Registrant (Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 30, 2017 and incorporated herein by reference.)
~~31.1~~









10.1			Amendment and Termination of LAFC-Banc of California Agreements dated May 22, 2020
31.1			Rule 13a-14(a) Certification (Principal Executive Officer)
31.2			Rule 13a-14(a) Certification (Principal Financial Officer)
32.0			Rule 13a-14(b) and 18 U.S.C. 1350 Certification
101.0			The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~June 30, 2020 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Financial Condition; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			BANC OF CALIFORNIA, INC.

Date:		August 7, 2020	~~BANC OF CALIFORNIA, INC.~~

~~Date:~~	~~May 11, 2020~~	/s/ Jared Wolff
			Jared Wolff
			President/Chief Executive Officer (Principal Executive Officer)

Date:		~~May 11,~~August 7, 2020	/s/ Lynn M. Hopkins
			Lynn M. Hopkins
			Executive Vice President/Chief Financial Officer (Principal Financial Officer)

~~Date:~~		~~May 11,~~



Date:		August 7, 2020	/s/ Mike Smith
			Mike Smith
			Senior Vice President/Chief Accounting Officer ~~and Director of Treasury~~ (Principal Accounting Officer)



	Three Months Ended March 31, 2019
($ in thousands except per share data)	Common Stock			Class B Common Stock
Income from operations	$	6,971		$	66
Less: participating securities dividends	(200		)	(2		)
Less: preferred stock dividends	(4,267		)	(41		)
Net income allocated to common stockholders	$	2,504		$	23
Weighted average common shares outstanding	50,199,401			477,321
Dilutive effects of stock units	160,299			—
Dilutive effects of stock options	9,700			—
Average shares and dilutive common shares	50,369,400			477,321

Basic earnings per common share	$	0.05		$	0.05
Diluted earnings per common share	$	0.05		$	0.05