Banc of California, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide clear Q4-only financial results.
Business context
Banc of California is a California relationship-focused commercial bank operating through Banc of California, National Association. Its offerings include commercial and industrial, commercial real estate, multifamily, SBA, construction and consumer lending, plus business and consumer deposits. The bank operated 32 full-service branches at year-end.
On October 18, 2021, the Company completed its acquisition of Pacific Mercantile Bancorp (PMB) for $225.4 million in total consideration, primarily stock. The acquisition added approximately $1.54 billion of assets, $962.9 million of loans and $1.28 billion of deposits at closing; system conversion was completed in November.
Financial performance and condition
| Metric | FY2021 / Dec. 31, 2021 | FY2020 / Dec. 31, 2020 |
|---|---|---|
| Net interest income | $253.8 million | $224.6 million |
| Total revenue (net interest income plus noninterest income) | $272.7 million | $243.1 million |
| Net income | $62.3 million | $12.6 million |
| Net income (loss) available to common stockholders | $50.6 million | $(1.1) million |
| Diluted EPS | $0.95 | $(0.02) |
| Provision for credit losses | $6.9 million | $29.7 million |
| Operating cash flow | $105.7 million | $74.9 million |
- Margins and funding costs: Net interest margin was 3.26%, up 13 basis points. Average interest-earning asset yield fell 32 basis points to 3.74%, but average cost of funds declined 47 basis points to 0.52%. Average cost of total deposits was 0.19%; year-end deposit cost was 0.07%.
- Balance sheet: Total assets were $9.39 billion, up 19.3%; loans held for investment were $7.25 billion, up 22.9%; deposits were $7.44 billion, up 22.2%. Noninterest-bearing deposits were 37.5% of deposits, versus 25.6% a year earlier.
- Credit quality: Nonperforming assets were $52.6 million, or 0.56% of assets, versus $36.6 million, or 0.46%. Past-due loans were 1.00% of loans, versus 0.54%. The allowance for credit losses was $98.2 million, or 1.35% of loans, and 187% of nonperforming loans. Net charge-offs were $6.5 million, or 0.11% of average loans.
- Liquidity and debt: Cash and cash equivalents were $228.1 million. The Company reported $476.1 million of net FHLB advances, $25.0 million of other borrowings and $274.4 million of long-term debt. Available borrowing capacity included $1.06 billion from the FHLB, $455.4 million from the Federal Reserve, and $210.0 million of correspondent-bank lines; availability may be subject to conditions or counterparties’ discretion.
- Capital: Company CET1 was 11.31%, total risk-based capital 14.98% and Tier 1 leverage 10.37%. The Bank’s corresponding ratios were 14.60%, 15.71% and 12.06%; it was categorized as well-capitalized.
- Cash flows: Investing activities used $5.7 million and financing activities used $92.8 million. The year-end cash balance increased $7.3 million.
Changes, outlook and notable items
- Common-stockholder earnings improved from a loss in 2020, reflecting higher net interest income, a substantially lower credit-loss provision, reduced expenses compared with a year that included a $26.8 million LAFC naming-rights termination charge, and the Series D preferred-stock redemption effect.
- Noninterest expense declined to $183.2 million from $199.0 million despite $15.9 million of PMB merger-related costs. Salaries and benefits increased $6.5 million, partly from acquired staff and higher incentive compensation.
- PMB increased scale but involved integration and execution risk. The 2021 provision included an $11.3 million initial charge for acquired non-PCD loans and unfunded commitments; a separate $13.7 million initial allowance was recorded for acquired PCD loans.
- Management described a growing loan pipeline and expected continued loan and earning-asset growth, assuming economic trends improved. It reported an asset-sensitive interest-rate position; its model estimated that an immediate +100-basis-point rate shock would increase next-12-month net interest income 3.2%, while a -100-basis-point shock would reduce it 4.3%. These are model scenarios, not earnings guidance.
- Key risks include California real-estate and borrower concentration, warehouse lending, adjustable-rate and nontraditional/interest-only mortgages, credit-loss estimation, deposit competition and liquidity, interest-rate changes, COVID-19 effects, cybersecurity and third-party systems, and the transition from LIBOR. Approximately 45% of loans and 51.1% of available-for-sale debt securities were LIBOR-indexed at year-end.
- Unusual and subsequent items: the Company announced it would redeem all Series E preferred stock on March 15, 2022 for $1,000 per share; a $0.06 common dividend was declared for payment April 1, 2022. A shareholder derivative-litigation settlement received final court approval in December 2021 and required governance changes, with no monetary component other than attorneys’ fees paid by insurers. Management and EY reported effective internal controls, and the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- How PMB integration, acquired loan valuations and expected cost or revenue benefits develop after the acquisition.
- Whether credit quality trends—especially past-due and nonperforming loans—remain manageable as acquired and organically originated balances season.
- How concentrated warehouse lending and California real-estate exposure perform under weaker economic or property-market conditions.
- Whether the deposit mix, uninsured-deposit level ($4.4 billion at year-end) and contingent borrowing facilities support liquidity at acceptable cost.
- Progress replacing LIBOR in affected loans and securities, and the effect of changing rates on actual net interest income and securities values.
- The regulatory capacity and cash cost of the planned Series E redemption, and the Bank’s ability to upstream dividends to the holding company.