BANC OF CALIFORNIA, INC. - Quarter Report: 2017 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended March 31, 2017



¨	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) 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 ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ý 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	ý	Accelerated filer	¨

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	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 ý

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

As of May 3, 2017, the registrant had outstanding 49,982,585 shares of voting common stock and 277,797 shares of Class B non-voting common stock.

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BANC OF CALIFORNIA, INC.

FORM 10-Q QUARTERLY REPORT

March 31, 2017

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		Page

Part I – Financial Information		5

Item 1 –	Financial Statements	5

Item 2 –	Management’s Discussion and Analysis of Financial Condition and Results of Operations	74

Item 3 –	Quantitative and Qualitative Disclosures About Market Risk	106

Item 4 –	Controls and Procedures	108

Part II – Other Information		110

Item 1 –	Legal Proceedings	110

Item 1A –	Risk Factors	110

Item 2 –	Unregistered Sales of Equity Securities and Use of Proceeds	111

Item 3 –	Defaults Upon Senior Securities	111

Item 4 –	Mine Safety Disclosures	111

Item 5 –	Other Information	111

Item 6 –	Exhibits	112

Signatures		117

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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) files with or furnishes 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. 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.	a pending investigation by the SEC may result in adverse findings, reputational damage, the imposition of sanctions, increased costs and other negative consequences;


ii.	management time and resources may be diverted to address the pending SEC investigation as well as any related litigation and litigation initiated by stockholders;


iii.	the recent resignation of our former chief executive officer might cause a loss of confidence among certain customers who may withdraw their deposits or terminate their business relationships with us, notwithstanding the hiring of our new chief executive officer;


iv.	our performance may be adversely affected by the management transition resulting from the recent resignation of our former chief executive officer, notwithstanding the hiring of our new chief executive officer;

risks that the Company’s merger and acquisition transactions 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 recent disposition of the Banc Home Loans division that occurred during the first quarter of 2017 may adversely impact our revenues and profitability to the extent we are unable to replace its revenues or realize the expected cost savings of this transaction;


vii.	risks that funds obtained from capital raising activities will not be utilized efficiently or effectively;


viii.	a worsening of current economic conditions, as well as turmoil in the financial markets;

ix.

the credit risks of lending activities, which may be affected by deterioration in real estate markets and the financial condition of borrowers, may lead to increased loan and lease delinquencies, losses and nonperforming assets in our loan and lease portfolio, and may result in our allowance for loan and lease losses not being adequate to cover actual losses and require us to materially increase our loan and lease loss reserves;


x.	the quality and composition of our securities portfolio;


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


xii.	continuation of or changes in the historically low 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, and our net interest margin and funding sources;


xiii.	fluctuations in the demand for loans and leases, the number of unsold homes and other properties and fluctuations in commercial and residential real estate values in our market area;


xiv.	our ability to 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 loan and lease losses, write-down asset values, or 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, as well as additional regulatory burdens that result from our growth to over $10 billion in total assets;


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;

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


xx.	the network and computer systems on which we depend could fail or experience a security breach;


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


xxii.	costs and effects of litigation, including settlements and judgments;


xxiii.	increased competitive pressures among financial services companies;


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


xxv.	adverse changes in the securities markets;


xxvi.	earthquake, fire or other natural disasters affecting the condition of real estate collateral;


xxvii.	the availability of resources to address changes in laws, rules or regulations or to respond to regulatory actions;


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


xxix.	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;


xxx.	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;


xxxi.	war or terrorist activities; and

xxxii.

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, 2016.

The Company undertakes 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.

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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, 2017			December 31, 2016
ASSETS
Cash and due from banks	$	15,686		$	16,769
Interest-earning deposits in financial institutions	393,595			422,741
Total cash and cash equivalents	409,281			439,510
Time deposits in financial institutions	1,000			1,000
Securities available-for-sale, at fair value	2,434,541			2,381,488
Securities held-to-maturity, at amortized cost (fair value of $879,898 and $899,743 at March 31, 2017 and December 31, 2016, respectively)	863,269			884,234
Loans held-for-sale, carried at fair value	1,695			10,636
Loans held-for-sale, carried at lower of cost or fair value	226,501			287,382
Loans and leases receivable, net of allowance for loan and lease losses of $42,736 and $40,444 at March 31, 2017 and December 31, 2016, respectively	6,062,585			5,994,308
Federal Home Loan Bank and other bank stock, at cost	63,238			67,842
Servicing rights, net ($42,833 and $38,440 measured at fair value at March 31, 2017 and December 31, 2016, respectively)	44,451			39,936
Other real estate owned, net	3,345			2,502
Premises, equipment, and capital leases, net	146,631			140,917
Bank owned life insurance	103,093			102,512
Goodwill	37,144			37,144
Investments in alternative energy partnerships, net	47,633			25,639
Deferred income tax	18,673			9,989
Income tax receivable	15,973			16,009
Other intangible assets, net	12,191			13,617
Other assets	128,036			92,694
Assets of discontinued operations (Note 2)	432,805			482,494
Total assets	$	11,052,085		$	11,029,853
LIABILITIES AND STOCKHOLDERS’ EQUITY
Noninterest-bearing deposits	$	1,273,649		$	1,282,629
Interest-bearing deposits	7,324,044			7,859,521
Total deposits	8,597,693			9,142,150
Advances from Federal Home Loan Bank	1,080,000			490,000
Securities sold under repurchase agreements	26,320			—
Other borrowings	67,981			67,922
Long term debt, net	174,090			175,378
Reserve for loss on repurchased loans	8,118			7,974
Income taxes payable	618			92
Due on unsettled securities purchases	—			50,149
Accrued expenses and other liabilities	81,208			81,469
Liabilities of discontinued operations (Note 2)	30,309			34,480
Total liabilities	10,066,337			10,049,614
Commitments and contingent liabilities (Note 19)
Preferred stock	269,071			269,071
Common stock, $0.01 par value per share, 446,863,844 shares authorized; 53,700,386 shares issued and 49,601,363 shares outstanding at March 31, 2017; 53,794,322 shares issued and 49,695,299 shares outstanding at December 31, 2016	537			537
Class B non-voting non-convertible common stock, $0.01 par value per share, 3,136,156 shares authorized; 277,797 shares issued and outstanding at March 31, 2017 and 201,922 shares issued and outstanding December 31, 2016	3			2
Additional paid-in capital	614,983			614,226
Retained earnings	139,926			134,515
Treasury stock, at cost (4,099,023 shares at March 31, 2017 and December 31, 2016)	(29,070		)	(29,070		)
Accumulated other comprehensive loss, net	(9,702		)	(9,042		)
Total stockholders’ equity	985,748			980,239
Total liabilities and stockholders’ equity	$	11,052,085		$	11,029,853

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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



	Three Months Ended
	March 31,
	2017			2016
Interest and dividend income
Loans and leases, including fees	$	69,507		$	63,966
Securities	27,239			16,047
Other interest-earning assets	2,096			1,049
Total interest and dividend income	98,842			81,062
Interest expense
Deposits	13,960			8,107
Federal Home Loan Bank advances	1,423			1,262
Securities sold under repurchase agreements	6			160
Long term debt and other interest-bearing liabilities	2,972			4,294
Total interest expense	18,361			13,823
Net interest income	80,481			67,239
Provision for loan and lease losses	2,583			321
Net interest income after provision for loan and lease losses	77,898			66,918
Noninterest income
Customer service fees	1,623			848
Loan servicing income (loss)	2,756			(2,205		)
Income from bank owned life insurance	581			563
Net gain on sale of securities available-for-sale	3,356			16,789
Net gain on sale of loans	4,019			2,195
Loan brokerage income	1,027			901
Other income	1,541			2,102
Total noninterest income	14,903			21,193
Noninterest expense
Salaries and employee benefits	32,443			33,469
Occupancy and equipment	10,668			8,941
Professional fees	15,073			5,903
Outside service fees	1,883			1,625
Data processing	2,179			1,686
Advertising	1,725			986
Regulatory assessments	2,441			1,736
Loss on investments in alternative energy partnerships	8,682			—
Reversal for loan repurchases	(325		)	(359		)
Amortization of intangible assets	1,090			1,322
Impairment on intangible assets	336			—
Restructuring expense	5,287			—
All other expense	8,414			3,835
Total noninterest expense	89,896			59,144
Income from continuing operations before income taxes	2,905			28,967
Income tax (benefit) expense	(6,471		)	11,661
Income from continuing operations	9,376			17,306
Income from discontinued operations before income taxes (including net gain on disposal of $13,302 for the three months ended March 31, 2017)	13,348			3,988
Income tax expense	5,523			1,607
Income from discontinued operations	7,825			2,381
Net income	17,201			19,687
Preferred stock dividends	5,113			4,575
Net income available to common stockholders	$	12,088		$	15,112
Basic earnings per common share
Income from continuing operations	$	0.08		$	0.30
Income from discontinued operations	0.15			0.06
Net income	$	0.23		$	0.36
Diluted earnings per common share
Income from continuing operations	$	0.08		$	0.30
Income from discontinued operations	0.15			0.06
Net income	$	0.23		$	0.36
Basic earnings per class B common share
Income from continuing operations	$	0.08		$	0.30
Income from discontinued operations	0.15			0.06
Net income	$	0.23		$	0.36
Diluted earnings per class B common share
Income from continuing operations	$	0.08		$	0.30
Income from discontinued operations	0.15			0.06
Net income	$	0.23		$	0.36

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands) (Unaudited)



	Three Months Ended
	March 31,
	2017			2016
Net income	$	17,201		$	19,687
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on available-for-sale securities:
Unrealized gain arising during the period	1,300			15,568
Reclassification adjustment for gain included in net income	(1,960		)	(9,738		)
Total change in unrealized gain (loss) on available-for-sale securities	(660		)	5,830
Total other comprehensive (loss) income	(660		)	5,830
Comprehensive income	$	16,541		$	25,517

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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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 Income (Loss)
	Preferred Stock		Voting			Class B Non-Voting		Additional Paid- in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2015	$	190,750	$	395		$	1	$	429,790		$	63,534		$	(29,070	)	$	(2,995	)	$	652,405
Comprehensive income:
Net income	—		—			—		—			19,687			—			—			19,687
Other comprehensive income, net	—		—			—		—			—			—			5,830			5,830
Issuance of common stock	—		60			—		75,471			—			—			—			75,531
Issuance of preferred stock	120,258		—			—		—			—			—			—			120,258
Stock option compensation expense	—		—			—		138			—			—			—			138
Restricted stock compensation expense	—		—			—		3,653			—			—			—			3,653
Stock appreciation right expense	—		—			—		13			—			—			—			13
Restricted stock surrendered due to employee tax liability	—		(1		)	—		(192		)	—			—			—			(193		)
Tax effect from stock compensation plan	—		—			—		192			—			—			—			192
Shares purchased under the Dividend Reinvestment Plan	—		—			—		58			(50		)	—			—			8
Stock appreciation right dividend equivalents	—		—			—		—			(186		)	—			—			(186		)
Dividends declared ($0.12 per common share)	—		—			—		—			(5,231		)	—			—			(5,231		)
Preferred stock dividends	—		—			—		—			(4,575		)	—			—			(4,575		)
Balance at March 31, 2016	$	311,008	$	454		$	1	$	509,123		$	73,179		$	(29,070	)	$	2,835		$	867,530
Balance at December 31, 2016	$	269,071	$	537		$	2	$	614,226		$	134,515		$	(29,070	)	$	(9,042	)	$	980,239
Comprehensive income:
Net income	—		—			—		—			17,201			—			—			17,201
Other comprehensive income, net	—		—			—		—			—			—			(660		)	(660		)
Issuance of common stock	—		1			1		(2		)	—			—			—			—
Stock option compensation expense	—		—			—		247			—			—			—			247
Restricted stock compensation expense	—		—			—		2,604			—			—			—			2,604
Stock appreciation right expense	—		—			—		42			—			—			—			42
Restricted stock surrendered due to employee tax liability	—		(1		)	—		(2,134		)	—			—			—			(2,135		)
Stock appreciation right dividend equivalents	—		—			—		—			(203		)	—			—			(203		)
Dividends declared ($0.13 per common share)	—		—			—		—			(6,474		)	—			—			(6,474		)
Preferred stock dividends	—		—			—		—			(5,113		)	—			—			(5,113		)
Balance at March 31, 2017	$	269,071	$	537		$	3	$	614,983		$	139,926		$	(29,070	)	$	(9,702	)	$	985,748

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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BANC OF CALIFORNIA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) (Unaudited)



	Three Months Ended
	March 31,
	2017			2016
Cash flows from operating activities:
Net income	$	17,201		$	19,687
Adjustments to reconcile net income to net cash used in operating activities
Provision for loan and lease losses	2,583			321
Reversal for loan repurchases	(325		)	(359		)
Net revenue on mortgage banking activities	(29,434		)	(33,684		)
Net gain on sale of loans	(4,019		)	(2,195		)
Net amortization of premiums and discounts on securities	218			389
Depreciation on premises and equipment	3,324			2,830
Amortization of intangibles	1,090			1,322
Amortization of debt issuance cost	42			245
Stock option compensation expense	247			138
Stock award compensation expense	2,604			3,653
Stock appreciation right compensation expense	42			13
Bank owned life insurance income	(581		)	(563		)
Impairment on intangible assets	336			—
Net gain on sale of securities available-for-sale	(3,356		)	(16,789		)
Net gain on disposal of discontinued operations	(13,302		)	—
Gain on sale of mortgage servicing rights	—			(2		)
Loss (gain) on sale of other real estate owned	5			(37		)
Loss on investments in alternative energy partnerships, net	8,682			—
Deferred income tax expense	(8,214		)	(98		)
Loss on sale or disposal of property and equipment	255			1
Loss from change of fair value and runoff on mortgage servicing rights	1,903			10,151
Increase in valuation allowances on other real estate owned	3			—
Repurchase of mortgage loans	(13,630		)	(8,035		)
Originations of loans held-for-sale from mortgage banking	(935,428		)	(1,024,307		)
Originations of other loans held-for-sale	(63,101		)	(201,195		)
Proceeds from sales of and principal collected on loans held-for-sale from mortgage banking	958,529			1,009,532
Proceeds from sales of and principal collected on other loans held-for-sale	127,629			67,846
Change in deferred loan fees	(708		)	(85		)
Net amortization of premiums and discounts on purchased loans	(2,070		)	(10,617		)
Change in accrued interest receivable	1,331			(4,167		)
Change in other assets	(13,875		)	(22,349		)
Change in accrued interest payable and other liabilities	(53,972		)	13,038
Net cash used in operating activities	(15,991		)	(195,316		)
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale	378,539			2,247,421
Proceeds from maturities and calls of securities available-for-sale	32,465			—
Proceeds from principal repayments of securities available-for-sale	10,746			19,326
Proceeds from maturities and calls of securities held-to-maturity	21,020			—
Purchases of securities available-for-sale	(472,850		)	(2,975,271		)
Net cash provided by disposal of discontinued operations	55,629			—
Loan and lease originations and principal collections, net	(309,961		)	(293,744		)
Purchase of loans and leases	—			(31,048		)
Redemption of Federal Home Loan Bank stock	4,813			5,690
Purchase of Federal Home Loan Bank and other bank stock	(209		)	(7,767		)
Proceeds from sale of loans	249,695			51,826
Proceeds from sale of other real estate owned	320			956
Proceeds from sale of mortgage servicing rights	—			5
Proceeds from sale of premises and equipment	172			—
Additions to premises and equipment	(10,317		)	(6,202		)
Payments of capital lease obligations	(271		)	(243		)
Investments in alternative energy partnerships	(30,927		)	—
Net cash used in investing activities	(71,136		)	(989,051		)
Cash flows from financing activities:
Net (decrease) increase in deposits	(544,457		)	534,516
Net increase in short-term Federal Home Loan Bank advances	540,000			265,000
Repayment of long-term Federal Home Loan Bank advances	(50,000		)	—
Proceeds from long-term Federal Home Loan Bank advances	100,000			—
Net increase in securities sold under repurchase agreements	26,320			257,100
Net proceeds from issuance of common stock	—			75,531
Net proceeds from issuance of preferred stock	—			120,258
Payment of amortizing debt	(1,330		)	(1,234		)
Restricted stock surrendered due to employee tax liability	(2,135		)	(193		)
Dividend equivalents paid on stock appreciation rights	(202		)	(184		)
Dividends paid on preferred stock	(5,113		)	(3,030		)
Dividends paid on common stock	(6,185		)	(4,509		)
Net cash provided by financing activities	56,898			1,243,255
Net change in cash and cash equivalents	(30,229		)	58,888
Cash and cash equivalents at beginning of period	439,510			156,124
Cash and cash equivalents at end of period	$	409,281		$	215,012
Supplemental cash flow information
Interest paid on deposits and borrowed funds	$	15,888		$	16,306
Income taxes paid	6,574			1,597
Income taxes refunds received	—			1
Supplemental disclosure of non-cash activities
Transfer from loans to other real estate owned, net	1,171			147
Transfer of loans held-for-investment to loans held-for-sale, net of transfer of $0 from allowance for loan and lease losses for the three months ended March 31, 2017 and 2016	242,288			61,410
Transfer of loans held-for-sale to loans held-for-investment	—			4,746
Equipment acquired under capital leases	70			—

See Accompanying Notes to Consolidated Financial Statements (Unaudited)

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BANC OF CALIFORNIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

March 31, 2017

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation: The accompanying unaudited consolidated financial statements include the accounts of Banc of California, Inc. (collectively, with its consolidated subsidiaries, the Company, we, us and our) and its wholly owned subsidiary, Banc of California, National Association (the Bank), as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016. 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.

Nature of Operations: Banc of California, Inc. 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) and the Bank operates under a national bank charter issued by the Office of the Comptroller of the Currency (OCC), its primary regulator. The Bank is a member of the Federal Home Loan Bank (FHLB) system, and maintains insurance on deposit accounts with the Federal Deposit Insurance Corporation (FDIC).

As of March 31, 2017, the Bank had 37 banking offices, serving Orange, Los Angeles, San Diego, and Santa Barbara counties in California.

The accounting and reporting policies of the Company are based upon U.S. generally accepted accounting principles (GAAP) and conform to predominant practices within the banking industry. The Company has not made any significant changes in its critical accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC. Refer to Accounting Pronouncements below for discussion of accounting pronouncements adopted in 2017.

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 Form 10-Q. Accordingly, certain disclosures required by 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, 2016 filed by the Company with the SEC. The December 31, 2016 statement 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, 2016 filed with the SEC, but does not include all of the disclosures required by GAAP for complete financial statements.

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. Certain reclassifications have been made in the prior period financial statements to conform to the current period presentation. The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017.

During the three months ended March 31, 2017, the Company completed the sale of its Banc Home Loans division, which largely represented the Company's Mortgage Banking segment. In accordance with Accounting Standards Codification (ASC) 205-20, the Company determined that the sale of the Banc Home Loans division and certain other mortgage banking related assets and liabilities that will be sold or settled separately within one year met the criteria to be classified as a discontinued operation and its operating results and financial condition have been presented as discontinued operations in the consolidated financial statements (see Note 2 for additional information). Unless otherwise indicated, information included in these notes to the consolidated financial statements (unaudited) are presented on a consolidated operations basis, which includes results from both continuing and discontinued operations, for all periods presented.

In connection with the sale of its Mortgage Banking segment, the Company reassessed its reportable operating segments. Based on this internal evaluation, the Company determined that all three of its previously disclosed reportable segments, Commercial Banking, Mortgage Banking, and Corporate/Other, are no longer applicable. Accordingly, to better reflect how the Company is now managed and how information is internally reviewed, the Company determined that all services offered by the Company relate to Commercial Banking and, as a result, its only reportable segment is Commercial Banking.

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 financial statements and disclosures provided, and actual results could differ. The allowance for loan and lease losses (ALLL), reserve for loss on repurchased loans, servicing rights, the valuation of goodwill and other intangible assets, derivative instruments, purchased credit impaired (PCI) loan discount accretion, and the fair value measurement of financial instruments are particularly subject to change and any such change could have a material effect on the consolidated financial statements.

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Incentive Compensation: At December 31, 2016 the Company accrued a liability for estimated discretionary incentive compensation payments to certain employees. The amount paid was less than the accrued liability. Consequently, the Company reversed the excess accrual and recorded a credit to salaries and employee benefits on the consolidated statements of operations of $7.8 million during the three months ended March 31, 2017. The reversal, based on new information driven by changes to certain facts and circumstances, was determined to be a change in estimate.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax basis of assets and liabilities, computed using enacted tax rates. A valuation allowance is established when necessary to reduce deferred tax assets when it is more-likely-than-not that a portion or all of the net deferred tax assets will not be realized. As of March 31, 2017, the Company had net deferred tax assets of $18.7 million, with no valuation allowance and as of December 31, 2016, the Company had net deferred tax assets of $10.0 million, with no valuation allowance. See Note 11 for additional information.

Variable Interest Entities: The Company holds ownership interests in certain special purpose entities. The Company evaluates its interest in these entities to determine whether they meet the definition of a variable interest entity (VIE) and whether the Company is required to consolidate these entities. A VIE is consolidated by its primary beneficiary, the party that has both the power to direct the activities that most significantly impact the VIE and a variable interest that could potentially be significant to the VIE. A variable interest is a contractual, ownership or other interest that changes with changes in the fair value of the VIE’s net assets. To determine whether or not a variable interest could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of its involvement with the VIE. The Company performs analyses of whether the Company is the primary beneficiary of a VIE on an ongoing basis. Changes in facts and circumstances occurring since the previous primary beneficiary determination are considered as part of this ongoing assessment. See Note 17 for additional information.

Alternative Energy Partnerships: The Company invests in certain alternative energy partnerships formed to provide sustainable energy projects that are designed to generate a return primarily through the realization of federal tax credits (energy tax credits). The Company is a limited partner in these partnerships, which were formed to invest in newly installed residential rooftop solar leases and power purchase agreements. The investment is recorded using a Hypothetical Liquidation at Book Value (HLBV) method. The Company uses the flow-through income statement method to account for the tax credits earned on investments in alternative energy partnerships. 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. See Note 11 and 17 for additional information.

Stock Employee Compensation Trust: The Company maintains a Stock Employee Compensation Trust (SECT) to fund future employee stock compensation and benefit obligations of the Company. The SECT holds and will release shares of the Company's common stock to be used to fund the Company's obligations during the term of the SECT under certain stock and other employee benefit plans of the Company. The Company accounts for and presents the shares held by the SECT as treasury stock. As the Company allocates the shares to the designated plans, the shares are released from the SECT, and the Company recognizes compensation expenses based on the fair value of the shares on the grant date. The SECT provides for confidential pass-through voting and tendering structured such that the individuals with an economic interest in the shares of the Company’s common stock held by the SECT control the voting and tendering of such shares. The 2,500,000 unallocated shares of the Company's common stock held by the SECT as of March 31, 2017 were not included in the weighted average number of common shares outstanding for purposes of calculating the Company's earnings per share (EPS). See Note 14, 15 and 17 for additional information.

Earnings Per Common Share: Net income allocated to common stockholders is computed by subtracting income allocated to participating securities, participating securities dividends and preferred stock dividends from net income. Participating securities are instruments granted in share-based payment transactions that contain rights to receive nonforfeitable dividends or dividend equivalents, which includes the Stock Appreciation Rights to the extent they confer dividend equivalent rights, as described under “Stock Appreciation Rights” in Note 14. Basic earnings per common share is computed by dividing net income allocated to common stockholders by the weighted average number of common shares outstanding, including the minimum number of shares issuable under purchase contracts relating to the tangible equity units, as described under "Tangible Equity Units" in Note 15. Diluted EPS is computed by dividing net income allocated to common stockholders by the weighted average number of shares outstanding, adjusted for the dilutive effect of the restricted stock units, the potentially issuable shares in excess of the minimum under purchase contracts relating to the tangible equity units, outstanding stock options, and warrants to purchase common stock. For information regarding the tangible equity units, see Notes 10 and 15.

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Adopted Accounting Pronouncements: During the three months ended March 31, 2017, the following pronouncement applicable to the Company was adopted:

In March 2016, the FASB issued Accounting Standard Update (ASU) 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This Update was issued as a part of the FASB’s simplification initiative, and intends to improve the accounting for share-based payment transactions. The ASU changes several aspects of the accounting for share-based payment award transactions, including accounting for excess tax benefits and deficiencies, income statement recognition, cash flow classification, forfeitures, and tax withholding requirements. ASU 2016-09 is effective for public business entities in annual and interim periods in fiscal years beginning after December 15, 2016. Adoption of the new guidance did not have a significant impact on the Company's consolidated financial statements. See Note 11 for additional information.

Recent Accounting Pronouncements Not Yet Adopted: The following are recently issued accounting pronouncements applicable to the Company that have not yet been adopted:

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” The amendments in this Update require lessees to recognize the assets and liabilities that arise from leases, as well as define classification criteria for distinguishing between financing leases and operating leases. This Update requires lessees to recognize all leases on the Consolidated Statement of Financial Condition as lease assets and lease liabilities based primarily on the present value of future lease payments. Lessor accounting is largely unchanged. A modified retrospective approach is required at adoption which requires all prior periods presented in the financial statements to be restated, with a cumulative effect adjustment to retained earnings as of the beginning of the earliest period presented. This guidance also requires additional disclosures regarding leasing arrangements. For public business entities, the amendments to this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted. The Company is in the process of evaluating the impact that adoption of this guidance may have on its consolidated financial statements.

In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” This Update amends the guidance in ASU 2014-09, Revenue from Contracts with Customers, and clarifies the collectability criteria, accounting policy elections, noncash consideration, satisfied and unsatisfied performance obligations, completed contracts, and disclosures. The amendments in ASU 2016-12 affect the guidance in ASU 2014-09, which is effective for public business entities in annual and interim reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the impact that adoption of this guidance may have on its consolidated financial statements. As this ASU is not applicable to financial instruments, it will not impact the Company's major portion of revenue, net interest income, and the Company does not expect this guidance to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For public business entities that are SEC filers, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the process of evaluating the impact that adoption of this guidance may have on its consolidated financial statements. The impact of this Update will depend upon the state of the economy and the nature of the Company's portfolio at the date of adoption.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The amendments in this Update provide a guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Currently, Topic 805 does not specify the minimum inputs and processes required for a set to meet the definition of a business. This Update presents a more robust framework to use when an entity determines whether a set of assets and activities represents a business. Also, this Update sets forth more consistency in applying the guidance with a more operable definition of a business. Public business entities must prospectively apply the amendments in this Update to annual periods beginning after December 15, 2017, including interim periods. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” The amendments in this Update eliminate Step 2 from the goodwill impairment test when it is required. Instead, an entity must perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. For an impairment charge, an entity must recognize impairment by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Furthermore, this Update requires an entity to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. Public business entities that are SEC filers must adopt the amendments in

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this Update for its annual or any interim goodwill impairment tests in fiscal year beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is in the process of evaluating the impact that adoption of this guidance may have on its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets.” The amendments in this Update clarify the scope and application of ASC 610-20 on the sale or transfer of nonfinancial assets, including real estate, and in substance nonfinancial assets to noncustomers, including partial sales. An entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. An in substance nonfinancial asset is an asset within a contract or subsidiary in which substantially all of the fair value of the asset is concentrated in a nonfinancial asset. In addition, the amendment requires an entity to derecognize a distinct nonfinancial asset or in substance nonfinancial asset in a partial sale transaction when the entity does not retain a controlling financial interest in the legal entity that holds the asset and an entity transfers control of the asset. Once control is transferred, any non-controlling interest received is required to be measured at fair value. The effective date of the new guidance is aligned with the requirements in the new revenue standard, which is effective for public business entities in annual and interim reporting periods beginning after December 15, 2017. The Company is in the process of evaluating the impact that adoption of this guidance may have on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities." The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount, which continue to be amortized to maturity. Public business entities must prospectively apply the amendments in this Update to annual periods beginning after December 15, 2018, including interim periods. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

NOTE 2 – SALES OF SUBSIDIARY AND BUSINESS UNITS

The Palisades Group Sale

On May 5, 2016, the Company completed the sale of all of its membership interests in The Palisades Group, a wholly owned subsidiary of the Company, to an entity wholly owned by Stephen Kirch and Jack Macdowell the then-acting Chief Executive Officer and Chief Investment Officer of The Palisades Group, respectively. As part of the sale, The Palisades Group issued to the Company a 10 percent, $5.0 million note due May 5, 2018 (the Note). The Company recognized a gain on sale of subsidiary of $3.7 million on its Consolidated Statements of Operations for the three months ended June 30, 2016.

The following table summarizes the calculation of the gain on sale of The Palisades Group:



	Three Months Ended
	June 30, 2016
	(In thousands)
Consideration received (paid)
Liabilities forgiven by The Palisades Group	$	1,862
Liabilities assumed by the Company	(1,078		)
The Note	2,370
Aggregate fair value of consideration received	3,154
Less: net assets sold (carrying amount of The Palisades Group)	(540		)
Gain on sale of The Palisades Group	$	3,694

The Company estimated various potential future cash flow projection scenarios for The Palisades Group and established probability thresholds for each scenario to arrive at a probability-weighted cash flow expectation, which was then discounted to yield a fair value of the Note at sale date of $2.4 million.

On September 28, 2016, the Note was paid in full in cash prior to maturity and the Company recognized an additional gain of $2.8 million, which was included in Other Income in the Consolidated Statements of Operations for the three months ended September 30, 2016.

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Commercial Equipment Finance Business Sale

On October 27, 2016, the Company sold its Commercial Equipment Finance business unit from its Commercial Banking segment to Hanmi Bank, a wholly-owned subsidiary of Hanmi Financial Corporation (Hanmi). As part of the transaction, Hanmi acquired $217.2 million of equipment leases diversified across the U.S. with concentrations in California, Georgia and Texas. An additional $25.4 million of equipment leases were transferred during December 2016. Hanmi retained most of the Company’s former Commercial Equipment Finance employees. The Company recorded a gain on sale of business unit of $2.6 million in its Consolidated Statements of Operations for the three months ended December 31, 2016.

Banc Home Loans Sale

On March 30, 2017, the Company completed the sale of specific assets related to its Banc Home Loans division to Caliber Home Loans, Inc. (Caliber). The Banc Home Loans division represented the Company's Mortgage Banking segment, the activities of which related to originating, processing, underwriting, funding and selling residential mortgage loans. Assets sold to Caliber included mortgage servicing rights (MSRs) on certain conventional agency residential mortgage loans. The Banc Home Loans division, along with certain other mortgage banking related assets and liabilities that will be sold or settled separately within one year, is classified as discontinued operations in the accompanying Consolidated Statements of Financial Condition and Consolidated Statements of Operations. Certain components of the Company’s Mortgage Banking segment including MSRs on certain conventional government SFR mortgage loans that were not sold as part of the Banc Home Loans sale, and the repurchase reserves related to previously sold loans, have been classified as continuing operations in the financial statements as they will continue to be part of the Company’s ongoing operations.

The specific assets acquired by Caliber include, among other things, the leases relating to the Company’s dedicated mortgage loan origination offices and rights to certain portions of the Company’s unlocked pipeline of residential mortgage loan applications. Caliber has assumed certain obligations and liabilities of the Company under the acquired leases, and with respect to the employment of transferred employees. The Company received a $25.0 million cash premium payment, in addition to the net book value of certain assets acquired by Caliber, totaling $2.5 million, upon closing of the transaction. The Company may receive up to an additional $5.0 million cash premium based on criteria tied to loan officer retention by Caliber. Additionally, the Company could receive an earn-out, payable quarterly, based on future performance over the 38 months following completion of the transaction. Caliber retains an option to buy out the future earn-out payable to the Company in exchange for cash consideration of $35.0 million, less the aggregate amount of all earn-out payments made prior to the date on which Caliber makes the payment of the buyout amount. Caliber also purchased the MSRs of $37.8 million on approximately $3.86 billion in unpaid balances of conventional agency mortgage loans, subject to adjustment under certain circumstances. The transaction resulted in a net gain of disposal of $13.3 million.

The Banc Home Loans division originated conforming SFR mortgage loans and sold these loans in the secondary market. The amount of net revenue on mortgage banking activities was a function of mortgage loans originated for sale and the fair values of these loans and related derivatives. Net revenue on mortgage banking activities included mark to market pricing adjustments on loan commitments and forward sales contracts, and initial capitalized value of MSRs.

The following table summarizes the calculation of the net gain on disposal of discontinued operations:



	Three Months Ended
	March 31, 2017
	(In thousands)
Proceeds from the transaction	$	63,332
Compensation expense related to the transaction	(4,000		)
Other transaction costs	(3,703		)
Net cash proceeds	55,629
Book value of certain assets sold	(2,455		)
MSRs sold	(37,772		)
Goodwill	(2,100		)
Net gain on disposal	$	13,302

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The following tables present the financial information of discontinued operations as of the dates or for the periods indicated:

Statements of Financial Condition of Discontinued Operations



	March 31, 2017		December 31, 2016
	(In thousands)
ASSETS
Loans held-for-sale, carried at fair value ⁽¹⁾	$	420,449	$	406,338
Loans held-for-sale, carried at lower of cost or fair value	682		295
Servicing rights carried at fair value	—		37,681
Premises, equipment, and capital leases, net	—		2,700
Goodwill	—		2,100
Other assets	11,674		33,380
Assets of discontinued operations	$	432,805	$	482,494
LIABILITIES
Accrued expenses and other liabilities ⁽¹⁾	$	30,309	$	34,480
Liabilities of discontinued operations	$	30,309	$	34,480

(1)

Includes $20.0 million and $16.5 million of GNMA loans, respectively, that are delinquent more than 90 days and subject to a repurchase option by the Company at March 31, 2017 and December 31, 2016. As such, the Company is deemed to have regained control over those previously transferred assets and has re-recognized them with an offsetting liability recognized in Accrued Expenses and Other Liabilities in the Statements of Financial Condition of Discontinued Operations, as a secured borrowing. Because the Company intends to exercise its option to repurchase and sell them within one year, they have been classified as part of discontinued operations.

Statements of Operations of Discontinued Operations



	Three Months Ended
	March 31,
	2017		2016
Interest income
Loans, including fees	$	3,266	$	3,178
Total interest income	3,266		3,178
Noninterest income
Net gain on disposal	13,302		—
Loan servicing income (loss)	1,551		(3,083		)
Net revenue on mortgage banking activities	29,434		33,684
Loan brokerage income	90		(27		)
All other income	424		192
Total noninterest income	44,801		30,766
Noninterest expense
Salaries and employee benefits	24,375		23,714
Occupancy and equipment	2,357		2,799
Professional fees	102		309
Outside Service Fees	2,364		1,438
Data processing	464		508
Advertising	833		841
Restructuring expense	3,218		—
All other expenses	1,006		347
Total noninterest expense	34,719		29,956
Income from discontinued operations before income taxes	13,348		3,988
Income tax expense	5,523		1,607
Income from discontinued operations	$	7,825	$	2,381

Statements of Cash Flows of Discontinued Operations



	Three Months Ended
	March 31,
	2017		2016
Net cash used in operating activities	(10,111	)	(56,100	)
Net cash provided by investing activities	55,629		—
Net cash provided by (used in) discontinued operations	45,518		(56,100	)

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NOTE 3 – 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, the Company primarily employs 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. The Company employs procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. Level 2 securities include Small Business Administration (SBA) loan pool securities, U.S. government sponsored entity (GSE) and agency securities, private label residential mortgage-backed securities, agency residential mortgage-backed securities, non-agency commercial mortgage-backed securities, collateralized loan obligations, and non-agency corporate bonds. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. The Company had no securities available-for-sale classified as Level 3 at March 31, 2017 or December 31, 2016.

Loans Held-for-Sale, Carried at Fair Value: The fair value of loans held-for-sale is based on commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics, except for loans that are repurchased out of Ginnie Mae loan pools that become severely delinquent which are valued based on an internal model that estimates the expected loss the Company will incur on these loans. Therefore, loans held-for-sale subjected to recurring fair value adjustments are classified as Level 2 or, in the case of loans repurchased out of Ginnie Mae loan pools, Level 3. The fair value includes the servicing value of the loans as well as any accrued interest.

Derivative Assets and Liabilities:

Derivative Instruments Related to Mortgage Banking Activities: The Company enters into interest rate lock commitments (IRLCs) with prospective residential mortgage borrowers. These commitments are carried at fair value based on the fair value of the underlying mortgage loans which are based on observable market data. The Company adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. These commitments are classified as Level 2 in the fair value disclosures, as the valuations are based on market observable inputs. The Company hedges the risk of the overall change in the fair value of loan commitments to borrowers with forward loan sale commitments and trades in to-be-announced (TBA) mortgage-backed securities of GSEs. These forward settling contracts are classified as Level 2, as valuations are based on market observable inputs. Fair values of these derivatives are included assets and liabilities of discontinued operations.

Interest Rate Swaps and Caps: The Company offers interest rate swaps and caps products to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. 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: The Company offers 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 the Company also enters into offsetting contracts with institutional counterparties to hedge the Company’s foreign exchange rate risk. These back-to-back contracts allow the Company to offer its 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 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.

Mortgage Servicing Rights: The Company retains servicing on some of its mortgage loans sold for which the Company elected to follow the fair value measurement method for subsequent accounting. The value is based on a third party provider that calculates the present value of the expected net servicing income from the portfolio based on key factors that include interest rates, prepayment assumptions, discount rate and estimated cash flows. Because of the significance of unobservable inputs, these servicing rights are classified as Level 3.

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2017:



			Fair Value Measurement Level
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets
Securities available-for-sale:
SBA loan pools securities	$	1,145	$	—	$	1,145	$	—
Private label residential mortgage-backed securities	116,757		—		116,757		—
Corporate bonds	19,144		—		19,144		—
Collateralized loan obligation	1,502,253		—		1,502,253		—
Agency mortgage-backed securities	795,242		—		795,242		—
Loans held-for-sale, carried at fair value ⁽¹⁾	422,144		—		355,443		66,701
Mortgage servicing rights ⁽²⁾	42,833		—		—		42,833
Derivative assets:
Interest rate lock commitments ⁽³⁾	9,813		—		9,813		—
Mandatory forward commitments ⁽³⁾	153		—		153		—
Interest rate swaps and caps ⁽⁴⁾	1,099		—		1,099		—
Foreign exchange contracts ⁽⁴⁾	—		—		—		—
Liabilities
Derivative liabilities:
Interest rate lock commitments ⁽⁵⁾	81		—		81		—
Mandatory forward commitments ⁽⁵⁾	2,909		—		2,909		—
Interest rate swaps and caps ⁽⁶⁾	1,096		—		1,096		—
Foreign exchange contracts ⁽⁶⁾	—		—		—		—


(1)	Includes loans held-for-sale carried at fair value of $420.4 million ($353.7 million at Level 2 and $66.7 million at Level 3) of discontinued operations, which are included in Assets of Discontinued Operations in the Consolidated Statements of Financial Condition


(2)	Included in Servicing Rights, Net in the Consolidated Statements of Financial Condition


(3)	Included in Assets of Discontinued Operations in the Consolidated Statements of Financial Condition


(4)	Included in Other Assets in the Consolidated Statements of Financial Condition


(5)	Included in Liabilities of Discontinued Operations in the Consolidated Statements of Financial Condition


(6)	Included in Accrued Expenses and Other Liabilities in the Consolidated Statements of Financial Condition

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The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:



			Fair Value Measurement Level
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
Assets
Securities available-for-sale:
SBA loan pools securities	$	1,221	$	—	$	1,221	$	—
Private label residential mortgage-backed securities	117,177		—		117,177		—
Corporate bonds	48,948		—		48,948		—
Collateralized loan obligation	1,406,869		—		1,406,869		—
Agency mortgage-backed securities	807,273		—		807,273		—
Loans held-for-sale, carried at fair value⁽¹⁾	416,974		—		358,714		58,260
Mortgage servicing rights ⁽²⁾	76,121		—		—		76,121
Derivative assets
Interest rate lock commitments⁽³⁾	8,317		—		8,317		—
Mandatory forward commitments⁽³⁾	8,897		—		8,897		—
Interest rate swaps and caps⁽⁴⁾	707		—		707		—
Foreign exchange contracts⁽⁴⁾	47		—		47		—
Liabilities
Derivative liabilities
Interest rate lock commitments⁽⁵⁾	231		—		231		—
Mandatory forward commitments⁽⁵⁾	1,212		—		1,212		—
Interest rate swaps and caps⁽⁶⁾	655		—		655		—
Foreign exchange contracts⁽⁶⁾	18		—		18		—


(1)	Includes loans held-for-sale carried at fair value of $406.3 million ($348.1 million at Level 2 and $58.3 million at Level 3) of discontinued operations, which are included in Assets of Discontinued Operations in the Consolidated Statements of Financial Condition.


(2)	Included in Servicing Rights, Net, except for $37.7 million included in Assets of Discontinued Operations, in the Consolidated Statements of Financial Condition


(3)	Included in Assets of Discontinued Operations in the Consolidated Statements of Financial Condition


(4)	Included in Other Assets in the Consolidated Statements of Financial Condition


(5)	Included in Liabilities of Discontinued Operations in the Consolidated Statements of Financial Condition


(6)	Included in Accrued Expenses and Other Liabilities in the Consolidated Statements of Financial Condition

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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
	March 31,
	2017			2016
	(In thousands)
Mortgage servicing rights ⁽¹⁾
Balance at beginning of period	$	76,121		$	49,939
Transfers in and (out) of Level 3 ⁽²⁾	—			—
Total gains or losses (realized/unrealized):
Included in earnings—fair value adjustment	(44		)	(8,201		)
Additions	7,801			8,582
Sales, paydowns, and other ⁽³⁾	(41,045		)	(1,950		)
Balance at end of period	$	42,833		$	48,370
Loans Repurchased from Ginnie Mae Loan Pools ⁽⁴⁾
Balance at beginning of period	$	58,260		$	18,291
Transfers in and (out) of Level 3 ⁽²⁾	—			—
Total gains or losses (realized/unrealized):
Included in earnings—fair value adjustment	9			47
Additions	17,296			9,826
Sales, settlements, and other	(8,864		)	(1,584		)
Balance at end of period	$	66,701		$	26,580


(1)	Includes $37.7 million and $23.0 million, respectively, of MSRs of discontinued operations for balances at beginning of period and $0 and $22.3 million, respectively, of MSRs of discontinued operations for balances at end of period for the three months ended March 31, 2017 and 2016


(2)	The Company’s policy is to recognize transfers in and transfers out as of the actual date of the event or change in circumstances that causes the transfer


(3)	Includes $37.8 million of MSRs sold as a part of discontinued operations for the three month ended March 31, 2017


(4)	Included in Assets of Discontinued Operations in the Consolidated Statements of Financial Condition

Loans repurchased from Ginnie Mae Loan pools had aggregate unpaid principal balances of $66.8 million and $58.3 million at March 31, 2017 and December 31, 2016, respectively.

The following table presents, as of the dates indicated, quantitative information about Level 3 fair value measurements on a recurring basis, other than loans that become severely delinquent and are repurchased out of Ginnie Mae loan pools that were valued based on an estimate of the expected loss the Company will incur on these loans, which was included as Level 3 at March 31, 2017 and December 31, 2016:



	Fair Value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
	($ in thousands)
March 31, 2017
Mortgage servicing rights	$	42,833	Discounted cash flow	Discount rate	9.25% to 15.00% (10.95%)
				Prepayment rate	7.00% to 37.80% (12.83%)
December 31, 2016
Mortgage servicing rights ⁽¹⁾	$	76,121	Discounted cash flow	Discount rate	9.11% to 15.00% (10.18%)
				Prepayment rate	7.00% to 39.90% (11.84%)


(1)	Includes $37.7 million of MSRs of discontinued operations

The significant unobservable inputs used in the fair value measurement of the Company’s servicing rights include the discount rate and prepayment rate. The significant unobservable inputs used in the fair value measurement of the Company's loans repurchased from Ginnie Mae pools at March 31, 2017 and December 31, 2016 included an expected loss rate of 1.55 percent. 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.

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Fair Value Option

Loans Held-for-Sale, Carried at Fair Value: The Company elected to measure certain SFR mortgage loans held-for-sale under the fair value option. 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.

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, 2017							December 31, 2016
	Fair Value		Unpaid Principal Balance		Difference			Fair Value		Unpaid Principal Balance		Difference
	(In thousands)
Loans held-for-sale, carried at fair value in continuing operations:
Total loans	$	1,695	$	1,671	$	24		$	10,636	$	10,606	$	30
Nonaccrual loans	—		—		—			—		—		—
Loans past due 90 days or more and still accruing	—		—		—			—		—		—
Loans held-for-sale, carried at fair value in discontinued operations:
Total loans	$	420,449	$	408,318	$	12,131		$	406,338	$	397,283	$	9,055
Nonaccrual loans	56,731		57,216		(485		)	54,151		54,824		(673		)
Loans past due 90 days or more and still accruing	—		—		—			—		—		—

The assets and liabilities 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 and liabilities measured at fair value for the periods indicated:



	Three Months Ended
	March 31,
	2017		2016
	(In thousands)
Net gains from fair value changes
Net gain on sale of loans (continuing operations)	$	24	$	55
Net revenue on mortgage banking activities (discontinued operations)	$	10,793	$	14,173

Changes in fair value due to instrument-specific credit risk were insignificant for the three months ended March 31, 2017 and 2016. Interest income on loans held-for-sale under the fair value option is measured based on the contractual interest rate and reported in Loans and Leases, including Fees under Interest and Dividend Income and Income from Discontinued Operations in the Consolidated Statements of Operations.

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Assets and Liabilities Measured on a Non-Recurring Basis

Securities Held-to-Maturity: Investment securities that the Company has the ability and the intent to hold to maturity are classified as held-to-maturity. Investment securities classified as held-to-maturity are carried at amortized cost. The fair values of securities held-to-maturity are generally determined by quoted market prices in active markets, if available (Level 1). If quoted market prices are not available, the Company employs 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 (Level 2). The Company employs procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. Only securities held-to-maturity with other-than-temporary impairment (OTTI) are considered to be carried at fair value. The Company did not have any OTTI on securities held-to-maturity at March 31, 2017.

Impaired Loans and Leases: The fair value of impaired loans and leases with specific allocations of the ALLL based on collateral values is generally based on recent real estate appraisals. 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 significant and result in a Level 3 classification of the inputs for determining fair value.

Loans Held-for-Sale, Carried at Lower of Cost or Fair Value: The Company records non-conforming jumbo mortgage loans held-for-sale and certain non-residential mortgage loans held-of-sale at the lower of cost or fair value, on an aggregate basis. The Company obtains fair values from a third party independent valuation service provider. Loans held-for-sale accounted for at the lower of cost or fair value are considered to be recognized at fair value when they are recorded at below cost, on an aggregate basis, and are classified as Level 2.

SBA Servicing Assets: SBA servicing assets represent the value associated with servicing SBA loans that have been sold. The fair value for SBA servicing assets is determined through discounted cash flow analysis and utilizes discount rates and prepayment speed assumptions as inputs. All of these assumptions require a significant degree of management estimation and judgment. The fair market valuation is performed on a quarterly basis for SBA servicing assets. SBA servicing assets are accounted for at the lower of cost or market value and considered to be recognized at fair value when they are recorded at below cost and are classified as Level 3.

Other Real Estate Owned Assets: Other real estate owned assets (OREO) are recorded at the fair value less estimated costs to sell at the time of foreclosure. The fair value of other real estate owned assets is generally based on recent real estate appraisals adjusted for estimated selling costs. 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 may be significant and result in a Level 3 classification of the inputs for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value. The Company recorded valuation allowance expense for OREO of $9 thousand and $0, respectively, for the three months ended March 31, 2017 and 2016 in All Other Expense in the Consolidated Statements of Operations.

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



			Fair Value Measurement Level
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In thousands)
March 31, 2017
Assets
Impaired loans:
Single family residential mortgage	$	1,610	$	—	$	—	$	1,610
Other real estate owned:
Single family residential	87		—		—		87
December 31, 2016
Assets
Impaired loans:
Single family residential mortgage	$	2,956	$	—	$	—	$	2,956
Other real estate owned:
Single family residential	2,502		—		—		2,502

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



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Impaired loans:
SBA	$	—		$	5
Other real estate owned:
Single family residential	(8		)	37

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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, on a consolidated operations basis, as of the dates indicated:



	Carrying		Fair Value Measurement Level
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
March 31, 2017
Financial assets
Cash and cash equivalents	$	409,281	$	409,281	$	—	$	—	$	409,281
Time deposits in financial institutions	1,000		1,000		—		—		1,000
Securities available-for-sale	2,434,541		—		2,434,541		—		2,434,541
Securities held-to-maturity	863,269		—		879,898		—		879,898
Federal Home Loan Bank and other bank stock	63,238		—		63,238		—		63,238
Loans held-for-sale ⁽¹⁾	649,327		—		586,721		66,701		653,422
Loans and leases receivable, net of ALLL	6,062,585		—		—		6,067,839		6,067,839
Accrued interest receivable	35,051		35,051		—		—		35,051
Derivative assets	11,065		—		11,065		—		11,065
Financial liabilities
Deposits	8,597,693		—		—		8,373,201		8,373,201
Advances from Federal Home Loan Bank	1,080,000		—		1,079,952		—		1,079,952
Securities sold under repurchase agreements	26,320		—		26,320		—		26,320
Other borrowings	67,981		—		68,000		—		68,000
Long term debt	174,090		—		177,126		—		177,126
Derivative liabilities	4,086		—		4,086		—		4,086
Accrued interest payable	6,606		6,606		—		—		6,606
December 31, 2016
Financial assets
Cash and cash equivalents	$	439,510	$	439,510	$	—	$	—	$	439,510
Time deposits in financial institutions	1,000		1,000		—		—		1,000
Securities available-for-sale	2,381,488		—		2,381,488		—		2,381,488
Securities held-to-maturity	884,234		—		899,743		—		899,743
Federal Home Loan Bank and other bank stock	67,842		—		67,842		—		67,842
Loans held-for-sale⁽²⁾	704,651		—		652,928		58,260		711,188
Loans and leases receivable, net of ALLL	5,994,308		—		—		5,999,791		5,999,791
Accrued interest receivable	36,382		36,382		—		—		36,382
Derivative assets	17,968		—		17,968		—		17,968
Financial liabilities
Deposits	9,142,150		—		—		8,908,406		8,908,406
Advances from Federal Home Loan Bank	490,000		—		490,351		—		490,351
Other borrowings	67,922		—		68,000		—		68,000
Long term debt	175,378		—		174,006		—		174,006
Derivative liabilities	2,116		—		2,116		—		2,116
Accrued interest payable	4,114		4,114		—		—		4,114


(1)	Includes loans held-for-sale carried at fair value of $420.4 million ($353.7 million at Level 2 and $66.7 million at Level 3) of discontinued operations


(2)	Includes loans held-for-sale carried at fair value of $406.3 million ($348.1 million at Level 2 and $58.3 million at Level 3) of discontinued operations

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The methods and assumptions used to estimate fair value are described as follows:

Cash and Cash Equivalents and Time Deposits in Financial Institutions: The carrying amounts of cash and cash equivalents and time deposits in financial institutions approximate fair value due to the short-term nature of these instruments (Level 1).

Federal Home Loan Bank and Other Bank Stock: Federal Home Loan Bank and other bank stock is recorded at cost. Ownership of FHLB stock is restricted to member banks, and purchases and sales of these securities are at par value with the issuer (Level 2).

Securities Held-to-Maturity: Investment securities that the Company has the ability and the intent to hold to maturity are classified as held-to-maturity. Investment securities classified as held-to-maturity are carried at cost. The fair values of securities held-to-maturity are generally determined by quoted market prices in active markets, if available (Level 1). If quoted market prices are not available, the Company employs 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 (Level 2). The Company employs procedures to monitor the pricing service's assumptions and establishes processes to challenge the pricing service's valuations that appear unusual or unexpected. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation.

Loans and Leases Receivable, Net of ALLL: The fair value of loans and leases receivable is estimated based on the discounted cash flow approach. The discount rate was derived from the associated yield curve plus spreads and reflects the rates offered by the Bank for loans with similar financial characteristics. Yield curves are constructed by product and payment types. These rates could be different from what other financial institutions could offer for these loans. Additionally, the fair value of our loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that we may ultimately realize (Level 3). This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC Topic 820.

Accrued Interest Receivable: The carrying amount of accrued interest receivable approximates its fair value (Level 1).

Deposits: The fair value of deposits is estimated based on discounted cash flows. The cash flows for non-maturity deposits, including savings accounts and money market checking, are estimated based on their historical decaying experiences. The discount rate used for fair valuation is based on interest rates currently being offered by the Bank on comparable deposits as to amount and term (Level 3).

Advances from Federal Home Loan Bank, Securities Sold under Repurchase Agreements, and Other Borrowings: The fair values of advances from FHLB, securities sold under repurchase agreements, and other borrowings are estimated based on the discounted cash flows approach. The discount rate was derived from the current market rates for borrowings with similar remaining maturities (Level 2).

Long Term Debt: Fair value of long term debt is determined by observable data such as market spreads, cash flows, yield curves, credit information, and respective terms and conditions for debt instruments (Level 2).

Accrued Interest Payable: The carrying amount of accrued interest payable approximates its fair value (Level 1).

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NOTE 4 – INVESTMENT SECURITIES

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



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
March 31, 2017
Securities held-to-maturity:
Corporate bonds	$	240,304	$	13,722	$	—		$	254,026
Collateralized loan obligations	317,223		1,484		(70		)	318,637
Commercial mortgage-backed securities	305,742		2,887		(1,394		)	307,235
Total securities held-to-maturity	$	863,269	$	18,093	$	(1,464	)	$	879,898
Securities available-for-sale:
SBA loan pool securities	$	1,138	$	7	$	—		$	1,145
Private label residential mortgage-backed securities	121,214		16		(4,473		)	116,757
Corporate bonds	19,134		105		(95		)	19,144
Collateralized loan obligation	1,489,865		12,581		(193		)	1,502,253
Agency mortgage-backed securities	819,800		8		(24,566		)	795,242
Total securities available-for-sale	$	2,451,151	$	12,717	$	(29,327	)	$	2,434,541
December 31, 2016
Securities held-to-maturity:
Corporate bonds	$	240,090	$	13,032	$	(91	)	$	253,031
Collateralized loan obligations	338,226		1,461		(61		)	339,626
Commercial mortgage-backed securities	305,918		2,949		(1,781		)	307,086
Total securities held-to-maturity	$	884,234	$	17,442	$	(1,933	)	$	899,743
Securities available-for-sale:
SBA loan pool securities	$	1,221	$	—	$	—		$	1,221
Private label residential mortgage-backed securities	121,397		18		(4,238		)	117,177
Corporate bonds	48,574		482		(108		)	48,948
Collateralized loan obligations	1,395,094		12,449		(674		)	1,406,869
Agency mortgage-backed securities	830,682		9		(23,418		)	807,273
Total securities available-for-sale	$	2,396,968	$	12,958	$	(28,438	)	$	2,381,488

The following table presents amortized cost and fair value of the held-to-maturity and available-for-sale investment securities portfolio by expected maturity. In the case of mortgage-backed securities, collateralized loan obligations, and SBA loan pool securities, expected maturities may differ from contractual maturities because borrowers generally have the right to call or prepay obligations with or without call or prepayment penalties. For that reason, mortgage-backed securities, collateralized loan obligations, and SBA loan pool securities are not included in the maturity categories.



	March 31, 2017
	Securities Held-To-Maturity				Securities Available-For-Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Maturity:
Within one year	$	—	$	—	$	—	$	—
One to five years	15,000		15,131		10,000		10,087
Five to ten years	225,304		238,895		9,134		9,057
Greater than ten years	—		—		—		—
Collateralized loan obligations, SBA loan pool, private label residential mortgage-backed, commercial mortgage-backed, and agency mortgage-backed securities	622,965		625,872		2,432,017		2,415,397
Total	$	863,269	$	879,898	$	2,451,151	$	2,434,541

At March 31, 2017 and December 31, 2016, 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 the Company's stockholders’ equity.

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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,
	2017		2016
	(In thousands)
Gross realized gains on sales and calls of securities available-for-sale	$	3,356	$	16,794
Gross realized losses on sales and calls of securities available-for-sale	—		(5		)
Net realized gains on sales and calls of securities available-for-sale	$	3,356	$	16,789
Proceeds from sales and calls of securities available-for-sale	$	378,539	$	2,247,421
Tax expense on sales and calls of securities available-for-sale	$	1,396	$	7,060

Investment securities with carrying values of $997.6 million and $581.8 million as of March 31, 2017 and December 31, 2016, respectively, were pledged to secure FHLB advances, public deposits, repurchase agreements, and for other purposes as required or permitted by law.

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
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(In thousands)
March 31, 2017
Securities held-to-maturity:
Collateralized loan obligation	$	20,115	$	(8	)	$	56,085	$	(62	)	$	76,200	$	(70	)
Commercial mortgage-backed securities	69,826		(1,394		)	—		—			69,826		(1,394		)
Total securities held-to-maturity	$	89,941	$	(1,402	)	$	56,085	$	(62	)	$	146,026	$	(1,464	)
Securities available-for-sale:
Private label residential mortgage-backed securities	$	115,914	$	(4,473	)	$	177	$	—		$	116,091	$	(4,473	)
Corporate bonds	—		—			3,539		(95		)	3,539		(95		)
Collateralized loan obligations	94,620		(193		)	—		—			94,620		(193		)
Agency mortgage-backed securities	793,865		(24,557		)	593		(9		)	794,458		(24,566		)
Total securities available-for-sale	$	1,004,399	$	(29,223	)	$	4,309	$	(104	)	$	1,008,708	$	(29,327	)
December 31, 2016
Securities held-to-maturity:
Corporate bonds	$	9,907	$	(91	)	$	—	$	—		$	9,907	$	(91	)
Collateralized loan obligation	10,056		(6		)	56,095		(55		)	66,151		(61		)
Commercial mortgage-backed securities	60,221		(1,781		)	—		—			60,221		(1,781		)
Total securities held-to-maturity	$	80,184	$	(1,878	)	$	56,095	$	(55	)	$	136,279	$	(1,933	)
Securities available-for-sale:
SBA loan pool securities	$	1,221	$	—		$	—	$	—		$	1,221	$	—
Private label residential mortgage-backed securities	116,216		(4,238		)	230		—			116,446		(4,238		)
Corporate bonds	—		—			3,530		(108		)	3,530		(108		)
Collateralized loan obligations	187,592		(674		)	—		—			187,592		(674		)
Agency mortgage-backed securities	805,803		(23,410		)	760		(8		)	806,563		(23,418		)
Total securities available-for-sale	$	1,110,832	$	(28,322	)	$	4,520	$	(116	)	$	1,115,352	$	(28,438	)

The Company did not record other-than-temporary-impairment (OTTI) for investment securities for the three months ended March 31, 2017 or 2016.

At March 31, 2017, the Company’s securities available-for-sale portfolio consisted of 163 securities, 52 of which were in an unrealized loss position and securities held-to-maturity consisted of 84 securities, 16 of which were in an unrealized loss position. At December 31, 2016, the Company’s securities available-for-sale portfolio consisted of 161 securities, 59 of which were in an unrealized loss position and securities held-to-maturity consisted of 87 securities, 15 of which were in an unrealized loss position.

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The fair value of securities held-to-maturity improved at March 31, 2017 mainly due to tighter credit spreads at March 31, 2017 and improvement in the economic sectors for the bond issuers. The fair value of securities available-for-sale declined slightly at March 31, 2017 mainly due to changes in market interest rates.

The Company monitors its securities portfolio to ensure it has adequate credit support. As of March 31, 2017, the Company believed there was no OTTI and did not have the intent to sell these securities and, for securities with amortized cost below fair value at March 31, 2017, it is not likely that it will be required to sell the securities before their anticipated recovery. The Company considers the lowest credit rating for identification of potential OTTI. As of March 31, 2017, all of the Company's investment securities in an unrealized loss position received an investment grade credit rating.

NOTE 5 – LOANS AND LEASES AND ALLOWANCE FOR LOAN AND LEASE LOSSES

The following table presents the balances in the Company’s loans and leases portfolio as of the dates indicated:



	Non-Traditional Mortgages (NTM)		Traditional Loans		Total NTM and Traditional Loans		PCI Loans		Total Loans and Leases Receivable
	($ in thousands)
March 31, 2017
Commercial:
Commercial and industrial	$	—	$	1,580,969	$	1,580,969	$	4,687	$	1,585,656
Commercial real estate	—		749,440		749,440		1,152		750,592
Multi-family	—		1,449,715		1,449,715		—		1,449,715
SBA	—		73,433		73,433		2,607		76,040
Construction	—		142,164		142,164		—		142,164
Lease financing	—		285		285		—		285
Consumer:
Single family residential mortgage	728,796		1,029,341		1,758,137		131,253		1,889,390
Green Loans (HELOC) - first liens	85,665		—		85,665		—		85,665
Green Loans (HELOC) - second liens	3,549		—		3,549		—		3,549
Other consumer	—		122,265		122,265		—		122,265
Total loans and leases	$	818,010	$	5,147,612	$	5,965,622	$	139,699	$	6,105,321
Allowance for loan and lease losses									(42,736		)
Loans and leases receivable, net									$	6,062,585
December 31, 2016
Commercial:
Commercial and industrial	$	—	$	1,518,200	$	1,518,200	$	4,760	$	1,522,960
Commercial real estate	—		728,777		728,777		1,182		729,959
Multi-family	—		1,365,262		1,365,262		—		1,365,262
SBA	—		71,168		71,168		2,672		73,840
Construction	—		125,100		125,100		—		125,100
Lease financing	—		379		379		—		379
Consumer:
Single family residential mortgage	794,120		1,091,829		1,885,949		133,212		2,019,161
Green Loans (HELOC) - first liens	87,469		—		87,469		—		87,469
Green Loans (HELOC) - second liens	3,559		—		3,559		—		3,559
Other consumer	—		107,063		107,063		—		107,063
Total loans and leases	$	885,148	$	5,007,778	$	5,892,926	$	141,826	$	6,034,752
Allowance for loan and lease losses									(40,444		)
Loans and leases receivable, net									$	5,994,308

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Non-Traditional Mortgage Loans

The Company’s NTM portfolio is comprised of three interest only products: Green Account Loans (Green Loans), fixed or adjustable rate hybrid interest only mortgage (Interest Only) loans and a small number of additional loans with the potential for negative amortization. As of March 31, 2017 and December 31, 2016, the NTM loans totaled $818.0 million, or 13.4 percent of total loans and leases, and $885.1 million, or 14.7 percent of total loans and leases, respectively. The total NTM portfolio decreased by $67.1 million, or 7.6 percent, during the three months ended March 31, 2017.

The following table presents the composition of the NTM portfolio as of the dates indicated:



	March 31, 2017						December 31, 2016
	Count	Amount			Percent		Count	Amount			Percent
	($ in thousands)
Green Loans (HELOC) - first liens	104	$	85,665		10.5	%	107	$	87,469		9.9	%
Interest-only - first liens	480	725,005			88.6	%	522	784,364			88.6	%
Negative amortization	11	3,791			0.5	%	22	9,756			1.1	%
Total NTM - first liens	595	814,461			99.6	%	651	881,589			99.6	%
Green Loans (HELOC) - second liens	12	3,549			0.4	%	12	3,559			0.4	%
Total NTM - second liens	12	3,549			0.4	%	12	3,559			0.4	%
Total NTM loans	607	$	818,010		100.0	%	663	$	885,148		100.0	%
Total loans and leases		$	6,105,321					$	6,034,752
% of NTM to total loans and leases		13.4		%				14.7		%

Green Loans

Green Loans are SFR first and second mortgage lines of credit with a linked checking account that allows all types of deposits and withdrawals to be performed. The loans are generally interest only with a 15 year-balloon payment due at maturity. At March 31, 2017 and December 31, 2016, Green Loans totaled $89.2 million and $91.0 million, respectively. At March 31, 2017 and December 31, 2016, none of the Green Loans were non-performing. As a result of their unique payment feature, Green Loans possess higher credit risk due to the potential for negative amortization; however, management believes the risk is mitigated through the Company’s loan terms and underwriting standards, including its policies on loan-to-value (LTV) ratios and the Company’s contractual ability to curtail loans when the value of the underlying collateral declines. The Company discontinued origination of the Green Loan products in 2011.

Interest Only Loans

Interest only loans are primarily SFR first mortgage loans with payment features that allow interest only payments in initial periods before converting to a fully amortizing loan. At March 31, 2017 and December 31, 2016, interest only loans totaled $725.0 million and $784.4 million, respectively. As of March 31, 2017 and December 31, 2016, $468 thousand and $467 thousand of the interest only loans were non-performing, respectively.

Loans with the Potential for Negative Amortization

Negative amortization loans other than Green Loans totaled $3.8 million and $9.8 million at March 31, 2017 and December 31, 2016, respectively. The Company discontinued origination of negative amortization loans in 2007. At March 31, 2017 and December 31, 2016, none of the loans that had the potential for negative amortization were non-performing. These loans pose a potentially higher credit risk because of the lack of principal amortization and potential for negative amortization; however, management believes the risk is mitigated through the loan terms and underwriting standards, including the Company’s policies on LTV ratios.

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Risk Management of Non-Traditional Mortgages

The Company has determined that significant performance indicators for NTMs are LTV ratios and Fair Isaac Corporation (FICO) scores. Accordingly, the Company manages credit risk in the NTM portfolio through periodic review of the loan portfolio that includes refreshing FICO scores on the Green Loans and other home equity lines of credit (HELOCs), as needed in conjunction with portfolio management, and ordering third party automated valuation models (AVMs). The loan review is designed to provide a method of identifying borrowers who may be experiencing financial difficulty before they actually fail to make a loan payment. Upon receipt of the updated FICO scores, an exception report is run to identify loans with a decrease in FICO score of 10 percent or more and/or a resulting FICO score of 620 or less. The loans are then further analyzed to determine if the risk rating should be downgraded, which will increase the reserves the Company will establish for potential losses. A report of the periodic loan review is published and regularly monitored.

As these loans are revolving lines of credit, the Company, based on the loan agreement and loan covenants of the particular loan, as well as applicable rules and regulations, could suspend the borrowing privileges or reduce the credit limit at any time the Company reasonably believes that the borrower will be unable to fulfill their repayment obligations under the agreement or certain other conditions are met. In many cases, the decrease in FICO score is the first indication that the borrower may have difficulty in making their future payment obligations.

The Company proactively manages the NTM portfolio by performing detailed analyses on the portfolio. The Company’s Internal Asset Review Committee (IARC) conducts meetings on at least a quarterly basis to review the loans classified as special mention, substandard, or doubtful and determines whether a suspension or reduction in credit limit is warranted. If a line has been suspended and the borrower would like to have their credit privileges reinstated, they would need to provide updated financials showing their ability to meet their payment obligations.

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

NTM Performance Indicators

The following table presents the Company’s NTM Green Loans first lien portfolio at March 31, 2017 by FICO scores that were obtained during the quarter ended March 31, 2017, comparing to the FICO scores for those same loans that were obtained during the quarter ended December 31, 2016:



	March 31, 2017
	By FICO Scores Obtained During the Quarter Ended March 31, 2017					By FICO Scores Obtained During the Quarter Ended December 31, 2016					Change
	Count	Amount		Percent		Count	Amount		Percent		Count		Amount			Percent
	($ in thousands)
FICO Score
800+	16	$	11,841	13.8	%	16	$	9,371	11.0	%	—		$	2,470		2.8	%
700-799	57	43,049		50.3	%	52	41,742		49.5	%	5		1,307			0.8	%
600-699	22	21,933		25.6	%	28	27,332		31.2	%	(6	)	(5,399		)	(5.6	)%
<600	2	3,422		4.0	%	1	1,800		2.1	%	1		1,622			1.9	%
No FICO	7	5,420		6.3	%	7	5,420		6.2	%	—		—			0.1	%
Totals	104	$	85,665	100.0	%	104	$	85,665	100.0	%	—		$	—		—	%

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Loan-to-Value Ratio

LTV ratio represents estimated current loan to value ratio, determined by dividing current unpaid principal balance by latest estimated property value received per the Company policy. The table below presents the Company’s SFR NTM first lien portfolio by LTV ratios as of the dates indicated:



	Green					Interest Only					Negative Amortization					Total
	Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent		Count	Amount		Percent
	($ in thousands)
March 31, 2017
< 61%	56	$	50,161	58.6	%	187	$	321,875	44.4	%	8	$	2,717	71.7	%	251	$	374,753	46.0	%
61-80%	41	30,451		35.5	%	278	390,019		53.8	%	3	1,074		28.3	%	322	421,544		51.7	%
81-100%	7	5,053		5.9	%	7	10,017		1.4	%	—	—		—	%	14	15,070		1.9	%
> 100%	—	—		—	%	8	3,094		0.4	%	—	—		—	%	8	3,094		0.4	%
Total	104	$	85,665	100.0	%	480	$	725,005	100.0	%	11	$	3,791	100.0	%	595	$	814,461	100.0	%
December 31, 2016
< 61%	45	$	39,105	44.7	%	196	$	336,744	42.9	%	16	$	7,043	72.2	%	257	$	382,892	43.4	%
61-80%	52	41,732		47.7	%	306	434,269		55.4	%	6	2,713		27.8	%	364	478,714		54.3	%
81-100%	10	6,632		7.6	%	8	8,828		1.1	%	—	—		—	%	18	15,460		1.8	%
> 100%	—	—		—	%	12	4,523		0.6	%	—	—		—	%	12	4,523		0.5	%
Total	107	$	87,469	100.0	%	522	$	784,364	100.0	%	22	$	9,756	100.0	%	651	$	881,589	100.0	%

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Allowance for Loan and Lease Losses

The Company has established credit risk management processes that includes regular management review of the loan and lease portfolio to identify problem loans and leases. During the ordinary course of business, management becomes aware of borrowers and lessees that may not be able to meet the contractual requirements of the loan and lease agreements. Such loans and leases are subject to increased monitoring. Consideration is given to placing the loan or lease on non-accrual status, assessing the need for additional ALLL, and partial or full charge-off. The Company maintains the ALLL at a level that is considered adequate to cover the estimated and known inherent risks in the loan and lease portfolio.

The Company also maintains a separate reserve for unfunded loan commitments at a level that is considered adequate to cover the estimated and known inherent risks. The probability of usage of the unfunded loan commitments and credit risk factors determined based on outstanding loan balance of the same customer or outstanding loans that share similar credit risk exposure are used to determine the adequacy of the reserve. At March 31, 2017 and December 31, 2016, the reserve for unfunded loan commitments was $3.2 million and $2.4 million, respectively.

The credit risk monitoring system is designed to identify impaired and potential problem loans, and to permit periodic evaluation of impairment and the adequacy of the allowance for credit losses in a timely manner. In addition, the Board of Directors of the Bank has adopted a credit policy that includes a credit review and control system which it believes should be effective in ensuring that the Company maintains an adequate allowance for loan and lease losses. The Board of Directors also provides oversight and guidance for management’s allowance evaluation process. During the three months ended March 31, 2017, the Company, as part of its continuous evaluation of the ALLL methodology and assumptions, determined it appropriate to change from a rolling 28-quarter look-back period to a pegged 36-quarter look-back period. This update to the assumption did not have a material impact. The Company believes that an extended period of observed credit loss stability warranted the review of a longer historical period that captured a full credit cycle. The determination of the amount of the ALLL and the provision for loan and lease losses is based on management’s current judgment about the credit quality of the loan and lease portfolio and considers known relevant internal and external factors that affect collectability when determining the appropriate level for the ALLL. Additions to the ALLL are made by charges to the provision for loan and lease losses. Identified credit exposures that are determined to be uncollectible are charged against the ALLL. Recoveries of previously charged off amounts, if any, are credited to the ALLL.

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



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	40,444		$	35,533
Loans and leases charged off	(357		)	(102		)
Recoveries of loans and leases previously charged off	66			93
Provision for loan and lease losses	2,583			321
Balance at end of period	$	42,736		$	35,845

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The following table presents the activity and balance in the ALLL and the recorded investment, excluding accrued interest, in loans and leases based on the impairment methodology as of or for the three months ended March 31, 2017:



	Commercial and Industrial			Commercial Real Estate			Multi- family			SBA		Construction		Lease Financing			Single Family Residential Mortgage			Other Consumer			Total
	(In thousands)
ALLL:
Balance at December 31, 2016	$	7,584		$	5,467		$	11,376		$	939	$	2,015	$	6		$	12,075		$	982		$	40,444
Charge-offs	(250		)	—			—			—		—		—			(81		)	(26		)	(357		)
Recoveries	—			—			—			43		—		19			1			3			66
Provision	3,554			(924		)	(347		)	164		1,003		(20		)	(755		)	(92		)	2,583
Balance at March 31, 2017	$	10,888		$	4,543		$	11,029		$	1,146	$	3,018	$	5		$	11,240		$	867		$	42,736
Individually evaluated for impairment	$	—		$	—		$	—		$	—	$	—	$	—		$	250		$	—		$	250
Collectively evaluated for impairment	10,888			4,538			11,029			1,127		3,018		5			10,853			867			42,325
Acquired with deteriorated credit quality	—			5			—			19		—		—			137			—			161
Total ending ALLL balance	$	10,888		$	4,543		$	11,029		$	1,146	$	3,018	$	5		$	11,240		$	867		$	42,736
Loans:
Individually evaluated for impairment	$	—		$	—		$	—		$	—	$	1,528	$	—		$	10,984		$	883		$	13,395
Collectively evaluated for impairment	1,580,969			749,440			1,449,715			73,433		140,636		285			1,832,818			124,931			5,952,227
Acquired with deteriorated credit quality	4,687			1,152			—			2,607		—		—			131,253			—			139,699
Total ending loan balances	$	1,585,656		$	750,592		$	1,449,715		$	76,040	$	142,164	$	285		$	1,975,055		$	125,814		$	6,105,321

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	Commercial and Industrial		Commercial Real Estate			Multi- family		SBA		Construction			Lease Financing			Single Family Residential Mortgage			Other Consumer			Total
	(In thousands)
ALLL:
Balance at December 31, 2015	$	5,850	$	4,252		$	6,012	$	683	$	1,530		$	2,195		$	13,854		$	1,157		$	35,533
Charge-offs	—		—			—		—		—			(102		)	—			—			(102		)
Recoveries	—		—			—		31		—			61			—			1			93
Provision	196		(283		)	472		192		(10		)	456			(584		)	(118		)	321
Balance at March 31, 2016	$	6,046	$	3,969		$	6,484	$	906	$	1,520		$	2,610		$	13,270		$	1,040		$	35,845
Individually evaluated for impairment	$	29	$	—		$	—	$	—	$	—		$	—		$	1,347		$	—		$	1,376
Collectively evaluated for impairment	5,959		3,857			6,484		887		1,520			2,610			11,906			1,040			34,263
Acquired with deteriorated credit quality	58		112			—		19		—			—			17			—			206
Total ending ALLL balance	$	6,046	$	3,969		$	6,484	$	906	$	1,520		$	2,610		$	13,270		$	1,040		$	35,845
Loans:
Individually evaluated for impairment	$	4,493	$	299		$	—	$	—	$	—		$	—		$	34,296		$	294		$	39,382
Collectively evaluated for impairment	978,649		705,176			1,021,097		68,700		68,241			212,836			1,576,150			108,861			4,739,710
Acquired with deteriorated credit quality	819		8,218			—		2,940		—			—			671,999			—			683,976
Total ending loan balances	$	983,961	$	713,693		$	1,021,097	$	71,640	$	68,241		$	212,836		$	2,282,445		$	109,155		$	5,463,068

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The following table presents loans and leases individually evaluated for impairment by class of loans and leases 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 leases and net of any deferred fees and costs and any purchase premium or discount.



	March 31, 2017						December 31, 2016
	Unpaid Principal Balance		Recorded Investment		ALLL		Unpaid Principal Balance		Recorded Investment		ALLL
	(In thousands)
With no related ALLL recorded:
Commercial:
Commercial and industrial	$	—	$	—	$	—	$	2,478	$	2,429	$	—
Construction	1,528		1,528		—		—		—		—
Consumer:
Single family residential mortgage	9,097		9,124		—		8,865		8,887		—
Other consumer	884		883		—		294		294		—
With an ALLL recorded:
Consumer:
Single family residential mortgage	1,894		1,860		250		1,772		1,742		243
Total	$	13,403	$	13,395	$	250	$	13,409	$	13,352	$	243

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



	Three Months Ended
	Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
	(In thousands)
March 31, 2017
Commercial:
Construction	$	1,528	$	—	$	—
Consumer:
Single family residential mortgage	11,055		43		43
Other consumer	889		2		1
Total	$	13,472	$	45	$	44
March 31, 2016
Commercial:
Commercial and industrial	$	4,596	$	63	$	88
Commercial real estate	305		10		10
Consumer:
Single family residential mortgage	34,324		286		265
Other consumer	294		2		2
Total	$	39,519	$	361	$	365

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Nonaccrual Loans and Leases

The following table presents nonaccrual loans and leases, and loans past due 90 days or more and still accruing as of the dates indicated:



	March 31, 2017						December 31, 2016
	NTM Loans		Traditional Loans and Leases		Total		NTM Loans		Traditional Loans and Leases		Total
	(In thousands)
Loans past due 90 days or more and still accruing	$	—	$	—	$	—	$	—	$	—	$	—
Nonaccrual loans and leases:
The Company maintains specific allowances for these loans of $0 at March 31, 2017 and December 31, 2016	468		15,754		16,222		467		14,475		14,942

The following table presents the composition of nonaccrual loans and leases as of the dates indicated:



	March 31, 2017						December 31, 2016
	NTM Loans		Traditional Loans and Leases		Total		NTM Loans		Traditional Loans and Leases		Total
	(In thousands)
Commercial:
Commercial and industrial	$	—	$	1,506	$	1,506	$	—	$	3,544	$	3,544
SBA	—		583		583		—		619		619
Construction	—		1,528		1,528		—		—		—
Lease financing	—		97		97		—		109		109
Consumer:
Single family residential mortgage	468		10,559		11,027		467		9,820		10,287
Other consumer	—		1,481		1,481		—		383		383
Total nonaccrual loans and leases	$	468	$	15,754	$	16,222	$	467	$	14,475	$	14,942

Loans in Process of Foreclosure

At March 31, 2017 and December 31, 2016, SFR mortgage loans of $3.4 million and $2.2 million, respectively, were in the process of foreclosure.

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Past Due Loans and Leases

The following table presents the aging of the recorded investment in past due loans and leases as of March 31, 2017, excluding accrued interest receivable (which is not considered to be material), by class of loans and leases:



	March 31, 2017
	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	805	$	—	$	468	$	1,273	$	727,523	$	728,796
Green Loans (HELOC) - first liens	—		—		—		—		85,665		85,665
Green Loans (HELOC) - second liens	—		—		—		—		3,549		3,549
Total NTM loans	805		—		468		1,273		816,737		818,010
Traditional loans and leases:
Commercial:
Commercial and industrial	978		4,390		1,011		6,379		1,574,590		1,580,969
Commercial real estate	—		—		—		—		749,440		749,440
Multi-family	—		—		—		—		1,449,715		1,449,715
SBA	1,386		—		463		1,849		71,584		73,433
Construction	—		—		1,528		1,528		140,636		142,164
Lease financing	—		—		97		97		188		285
Consumer:
Single family residential mortgage	10,174		3,527		5,544		19,245		1,010,096		1,029,341
Other consumer	1,325		11		691		2,027		120,238		122,265
Total traditional loans and leases	13,863		7,928		9,334		31,125		5,116,487		5,147,612
PCI loans:
Commercial:
Commercial and industrial	4,004		—		154		4,158		529		4,687
Commercial real estate	—		—		—		—		1,152		1,152
SBA	365		—		556		921		1,686		2,607
Consumer:
Single family residential mortgage	9,783		2,258		4,233		16,274		114,979		131,253
Total PCI loans	14,152		2,258		4,943		21,353		118,346		139,699
Total	$	28,820	$	10,186	$	14,745	$	53,751	$	6,051,570	$	6,105,321

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The following table presents the aging of the recorded investment in past due loans and leases as of December 31, 2016, excluding accrued interest receivable (which is not considered to be material), by class of loans and leases:



	December 31, 2016
	30 - 59 Days Past Due		60 - 89 Days Past Due		Greater than 89 Days Past due		Total Past Due		Current		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	4,193	$	—	$	467	$	4,660	$	789,460	$	794,120
Green Loans (HELOC) - first liens	—		—		—		—		87,469		87,469
Green Loans (HELOC) - second liens	—		—		—		—		3,559		3,559
Total NTM loans	4,193		—		467		4,660		880,488		885,148
Traditional loans and leases:
Commercial:
Commercial and industrial	412		463		3,385		4,260		1,513,940		1,518,200
Commercial real estate	—		—		—		—		728,777		728,777
Multi-family	—		—		—		—		1,365,262		1,365,262
SBA	15		2		482		499		70,669		71,168
Construction	1,529		—		—		1,529		123,571		125,100
Lease financing	—		—		109		109		270		379
Consumer:
Single family residential mortgage	11,225		1,345		9,393		21,963		1,069,866		1,091,829
Other consumer	10,023		933		382		11,338		95,725		107,063
Total traditional loans and leases	23,204		2,743		13,751		39,698		4,968,080		5,007,778
PCI loans:
Commercial:
Commercial and industrial	—		—		156		156		4,604		4,760
Commercial real estate	—		—		—		—		1,182		1,182
SBA	300		232		328		860		1,812		2,672
Consumer:
Single family residential mortgage	10,483		4,063		2,093		16,639		116,573		133,212
Total PCI loans	10,783		4,295		2,577		17,655		124,171		141,826
Total	$	38,180	$	7,038	$	16,795	$	62,013	$	5,972,739	$	6,034,752

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Troubled Debt Restructurings

A modification of a loan constitutes a troubled debt restructuring (TDR) when the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. 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 the Company’s internal underwriting policy.

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



	Three Months Ended
	Number of Loans	Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	($ in thousands)
March 31, 2017
Consumer:
Single family residential mortgage	2	$	1,266	$	1,273
Total	2	$	1,266	$	1,273
March 31, 2016
Consumer:
Single family residential mortgage	38	$	9,173	$	9,173
Total	38	$	9,173	$	9,173

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



	Three Months Ended
	Modification Type
	Change in Principal Payments and Interest Rates			Change in Principal Payments			Change in Interest Rates			Total
	Count	Amount		Count	Amount		Count	Amount		Count	Amount
	($ in thousands)
March 31, 2017
Consumer:
Single family residential mortgage	1	$	130	1	$	1,143	—	$	—	2	$	1,273
Total	1	$	130	1	$	1,143	—	$	—	2	$	1,273
March 31, 2016
Consumer:
Single family residential mortgage	32	$	8,220	5	$	875	1	$	78	38	$	9,173
Total	32	$	8,220	5	$	875	1	$	78	38	$	9,173

For the three months ended March 31, 2017, there was one loan with a principal balance of $124 thousand that was modified as a TDR during the past 12 months that had payment defaults during the period. For the three months ended March 31, 2016, there were two loans with an aggregate principal balance of $407 thousand that were modified as TDRs during the past 12 months that had payment defaults during the period.

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



	March 31, 2017						December 31, 2016
	NTM Loans		Traditional Loans		Total		NTM Loans		Traditional Loans		Total
	(In thousands)
Consumer:
Single family residential mortgage	487		2,435		2,922		853		1,440		2,293
Green Loans (HELOC) - first liens	2,237		—		2,237		2,240		—		2,240
Green Loans (HELOC) - second liens	294		—		294		294		—		294
Total	$	3,018	$	2,435	$	5,453	$	3,387	$	1,440	$	4,827

The Company did not have any commitments to lend to customers with outstanding loans that were classified as TDRs as of March 31, 2017 or December 31, 2016.

Credit Quality Indicators

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

Pass: Loans and leases classified 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 and leases classified 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 the Company’s credit position at some future date.

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

Doubtful: Loans and leases 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.

Not-Rated: When accrual of income on a pool of PCI loans with common risk characteristics is appropriate in accordance with ASC 310-30, individual loans in those pools are not risk-rated. The credit criteria evaluated are FICO scores, LTV ratios, delinquency, and actual cash flows versus expected cash flows of the loan pools.

Loans and leases not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans and leases.

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The following table presents the risk categories for total loans and leases as of March 31, 2017:



	March 31, 2017
	Pass		Special Mention		Substandard		Doubtful		Not-Rated		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	726,854	$	1,474	$	468	$	—	$	—	$	728,796
Green Loans (HELOC) - first liens	83,657		2,008		—		—		—		85,665
Green Loans (HELOC) - second liens	3,549		—		—		—		—		3,549
Total NTM loans	814,060		3,482		468		—		—		818,010
Traditional loans and leases:
Commercial:
Commercial and industrial	1,563,102		11,638		6,154		75		—		1,580,969
Commercial real estate	746,554		1,340		1,546		—		—		749,440
Multi-family	1,449,715		—		—		—		—		1,449,715
SBA	72,816		—		617		—		—		73,433
Construction	140,636		—		1,528		—		—		142,164
Lease financing	188		—		97		—		—		285
Consumer:
Single family residential mortgage	1,017,308		1,080		10,953		—		—		1,029,341
Other consumer	120,738		46		1,481		—		—		122,265
Total traditional loans and leases	5,111,057		14,104		22,376		75		—		5,147,612
PCI loans:
Commercial:
Commercial and industrial	—		—		4,687		—		—		4,687
Commercial real estate	1,152		—		—		—		—		1,152
SBA	1,251		—		1,356		—		—		2,607
Consumer:
Single family residential mortgage	—		—		—		—		131,253		131,253
Total PCI loans	2,403		—		6,043		—		131,253		139,699
Total	$	5,927,520	$	17,586	$	28,887	$	75	$	131,253	$	6,105,321

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The following table presents the risk categories for total loans and leases as of December 31, 2016:



	December 31, 2016
	Pass		Special Mention		Substandard		Doubtful		Not-Rated		Total
	(In thousands)
NTM loans:
Single family residential mortgage	$	792,179	$	1,474	$	467	$	—	$	—	$	794,120
Green Loans (HELOC) - first liens	85,460		2,009		—		—		—		87,469
Green Loans (HELOC) - second liens	3,559		—		—		—		—		3,559
Total NTM loans	881,198		3,483		467		—		—		885,148
Traditional loans and leases:
Commercial:
Commercial and industrial	1,508,636		844		8,642		78		—		1,518,200
Commercial real estate	725,861		1,350		1,566		—		—		728,777
Multi-family	1,365,262		—		—		—		—		1,365,262
SBA	70,508		—		660		—		—		71,168
Construction	123,571		1,529		—		—		—		125,100
Lease financing	270		—		109		—		—		379
Consumer:
Single family residential mortgage	1,080,664		950		10,215		—		—		1,091,829
Other consumer	106,632		48		383		—		—		107,063
Total traditional loans and leases	4,981,404		4,721		21,575		78		—		5,007,778
PCI loans:
Commercial:
Commercial and industrial	—		4,056		704		—		—		4,760
Commercial real estate	1,182		—		—		—		—		1,182
SBA	1,268		—		1,404		—		—		2,672
Consumer:
Single family residential mortgage	—		—		—		—		133,212		133,212
Total PCI loans	2,450		4,056		2,108		—		133,212		141,826
Total	$	5,865,052	$	12,260	$	24,150	$	78	$	133,212	$	6,034,752

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Purchases, Sales, and Transfers

The following table presents loans and leases purchased, sold and transferred from (to) held-for-sale by portfolio segment, excluding loans held-for-sale, loans and leases acquired in business combinations and PCI loans for the periods indicated:



	Three Months Ended
	Purchases		Sales		Transfers from (to) Held-For-Sale
	(In thousands)
March 31, 2017
Commercial:
Multi-family	$	—	$	—	$	(6,583	)
Consumer:
Single family residential mortgage	—		—		(236,510		)
Total	$	—	$	—	$	(243,093	)
March 31, 2016
Commercial:
Lease financing	$	31,048	$	—	$	—
Consumer:
Single family residential mortgage	—		—		(56,664		)
Total	$	31,048	$	—	$	(56,664	)

Purchased Credit Impaired Loans

The Company has acquired loans through business combinations and purchases of loan pools for which there was evidence of deterioration of credit quality subsequent to origination and it was probable, at acquisition, that all contractually required payments would not be collected (referred to as PCI loans). The following table presents the outstanding balance and carrying amount of PCI loans as of the dates indicated:



	March 31, 2017				December 31, 2016
	Outstanding Balance		Carrying Amount		Outstanding		Carrying
	(In thousands)
Commercial:
Commercial and industrial	$	4,974	$	4,687	$	5,029	$	4,760
Commercial real estate	1,592		1,152		1,613		1,182
SBA	3,733		2,607		3,771		2,672
Consumer:
Single family residential mortgage	150,939		131,253		153,867		133,212
Total	$	161,238	$	139,699	$	164,280	$	141,826

The following table presents a summary of accretable yield, or income expected to be collected, for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	41,181		$	205,549
Accretion of income	(1,949		)	(9,708		)
Changes in expected cash flows	(225		)	(18,663		)
Disposals	(316		)	(1,289		)
Balance at end of period	$	38,691		$	175,889

The Company did not have any bulk loan acquisition or sale during the three months ended March 31, 2017 or 2016.

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NOTE 6 – SERVICING RIGHTS

The Company retains MSRs from certain of its sales of residential mortgage loans. MSRs on residential mortgage loans are reported at fair value. Income earned by the Company on its MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs and third party subservicing costs. The Company retains servicing rights in connection with its SBA loan operations, which are measured using the amortization method.

On a consolidated operations basis, total income (loss) from servicing rights was $4.3 million and $(5.3) million, respectively, for the three months ended March 31, 2017 and 2016. The Company recognized losses on the fair value and runoff of servicing rights of $1.9 million and $10.2 million, respectively, for the three months ended March 31, 2017 and 2016. The Company recognized servicing fees of $6.2 million and $4.9 million, respectively, for the three months ended March 31, 2017 and 2016. These amounts are reported in Loan Servicing Income (Loss) in the Consolidated Statements of Operations.

During the year ended December 31, 2016, the Company entered into a flow-agreement establishing general terms for the purchase and sale to a third party MSR investor in connection with residential mortgage loan sales to GSEs. The flow-agreement allowed the Company to sell its MSRs to a third party MSR investor contemporaneous with the Company’s sales of its servicing retained residential mortgages to the GSEs. Accordingly, entering into the flow-agreement reduced the impact of volatility associated with the Company's MSRs by allowing the Company to sell its MSRs immediately, thus reducing the Company's exposure to market and other conditions. During the three months ended March 31, 2017, the Company suspended sales of MSRs under the flow-agreement. The Company does not expect to resume sales under the flow-agreement, as the Company has discontinued its Mortgage Banking segment operations.

The following table presents a composition of servicing rights, on a consolidated operations basis, as of the dates indicated:



	March 31, 2017		December 31, 2016
	(In thousands)
Mortgage servicing rights, at fair value	$	42,833	$	76,121
SBA servicing rights, at cost	1,618		1,496
Total	$	44,451	$	77,617

Mortgage loans sold with servicing retained are not reported as assets and are subserviced by a third party vendor. The unpaid principal balance of these loans at March 31, 2017 and December 31, 2016 was $4.15 billion and $7.58 billion, respectively. Custodial escrow balances maintained in connection with serviced loans were $14.9 million and $34.2 million at March 31, 2017 and December 31, 2016, respectively. The reductions in these balances were principally driven by the sale of $37.8 million of MSRs during the three months ended March 31, 2017 recognized as discontinued operations.

Mortgage Servicing Rights

The following table presents the key characteristics, inputs and economic assumptions used to estimate the Level 3 fair value of the MSRs, on a consolidated operations basis, as of the dates indicated:



	March 31, 2017			December 31, 2016
	($ in thousands)
Fair value of retained MSRs	$	42,833		$	76,121
Discount rate	10.95		%	10.18		%
Constant prepayment rate	12.83		%	11.84		%
Weighted-average life	6.20 years			6.50 years

The following table presents activity in the MSRs, on a consolidated operations basis, for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	76,121		$	49,939
Additions	7,801			8,582
Changes in fair value resulting from valuation inputs or assumptions	(44		)	(8,201		)
Sales of servicing rights⁽¹⁾	(39,186		)	(3		)
Other	(1,859		)	(1,947		)
Balance at end of period	$	42,833		$	48,370

(1) Includes $37.8 million of MSRs sold as a part of discontinued operations for the three months ended March 31, 2017.

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SBA Servicing Rights

The Company used a discount rate of 7.50 percent to calculate the present value of cash flows and an estimated prepayment speed based on prepayment data available. Discount rates and prepayment speeds are reviewed quarterly and adjusted as appropriate. The following table presents activity in the SBA servicing rights for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	1,496		$	788
Additions	186			293
Amortization, including prepayments	(47		)	(45		)
Impairment	(17		)	—
Balance at end of period	$	1,618		$	1,036

NOTE 7 – OTHER REAL ESTATE OWNED

The following table presents the activity in OREO for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	2,502		$	1,097
Additions	1,171			147
Sales and net direct write-downs	(325		)	(919		)
Net change in valuation allowance	(3		)	—
Balance at end of period	$	3,345		$	325

The following table presents the activity in the OREO valuation allowance for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	6		$	70
Additions	9			—
Net direct write-downs and removals from sale	(6		)	—
Balance at end of period	$	9		$	70

The following table presents expenses related to foreclosed assets included in All Other Expenses in the Consolidated Statements of Operations for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Net gain (loss) on sales	$	(5	)	$	37
Operating expenses, net of rental income	(4		)	—
Total	$	(9	)	$	37

The Company did not provide loans to finance the purchase of its OREO properties during the three months ended March 31, 2017 or 2016.

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NOTE 8 – GOODWILL AND OTHER INTANGIBLE ASSETS, NET

At March 31, 2017, the Company had goodwill of $37.1 million related to the following acquisitions: Banco Popular North America's Southern California branches, RenovationReady, CS Financial, Inc. (CS Financial), The Private Bank of California, and Beach Business Bank.

The Company conducts its evaluation of goodwill impairment as of August 31 each year, and more frequently if events or circumstances indicate that there may be impairment. The Company completed its annual goodwill impairment test as of August 31, 2016 and determined that no goodwill impairment existed. The Company expects to perform its next annual goodwill impairment test at August 31, 2017.

Core deposit intangibles are amortized over their useful lives ranging from 4 to 10 years. As of March 31, 2017, the weighted average remaining amortization period for core deposit intangibles was approximately 5.7 years.



	Gross Carrying Value		Accumulated Amortization		Net Carrying Value
	(In thousands)
March 31, 2017
Core deposit intangibles	$	30,904	$	18,713	$	12,191
December 31, 2016
Core deposit intangibles	$	30,904	$	17,656	$	13,248
Customer relationship intangible	670		391		279
Trade name intangible	90		—		90

Aggregate amortization of intangible assets was $1.1 million and $1.3 million for the three months ended March 31, 2017 and 2016, respectively. The following table presents estimated future amortization expenses as of March 31, 2017:



	Remainder of 2017		2018		2019		2020		2021 and After		Total
	(In thousands)
Estimated future amortization expense	$	2,838	$	3,007	$	2,195	$	1,518	$	2,633	$	12,191

The Company wrote off goodwill of $2.1 million, which was previously allocated to Mortgage Banking segment, against the gain on disposal of discontinued operations during the three months ended March 31, 2017. See Note 2 for additional information. The Company also wrote off a customer relationship intangible of $246 thousand and a trade name intangible of $90 thousand related to RenovationReady during the three months ended March 31, 2017. RenovationReady was acquired in 2014 and provided specialized loan services to financial institutions and mortgage bankers that originate agency eligible residential renovation and construction loan products.

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NOTE 9 – FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

At March 31, 2017, $200.0 million of the Bank's advances from the FHLB were fixed-rate and had interest rates ranging from 0.86 percent to 3.00 percent with a weighted average interest rate of 2.08 percent and $880.0 million of the Bank’s advances from the FHLB were variable-rate and had a weighted average interest rate of 0.78 percent. At December 31, 2016, $150.0 million of the Bank’s advances from the FHLB were fixed-rate and had interest rates ranging from 0.69 percent to 1.61 percent with a weighted average interest rate of 1.02 percent, and $340.0 million of the Bank’s advances from the FHLB were variable-rate and had a weighted average interest rate of 0.52 percent.

Each advance is payable at its maturity date. Advances paid early are subject to a prepayment penalty. At March 31, 2017 and December 31, 2016, the Bank’s advances from the FHLB were collateralized by certain real estate loans with an aggregate unpaid principal balance of $2.89 billion and $3.27 billion, respectively, and securities with carrying values of $696.5 million and $321.0 million, respectively. The Bank’s investment in capital stock of the FHLB of San Francisco totaled $37.1 million and $41.9 million at March 31, 2017 and December 31, 2016, respectively. Based on this collateral and the Bank’s holdings of FHLB stock, the Bank was eligible to borrow an additional $1.80 billion at March 31, 2017.

The Bank maintained a line of credit of $191.8 million from the Federal Reserve Discount Window, to which the Bank pledged loans with a carrying value of $9.5 million and securities with a carrying value of $197.6 million with no outstanding borrowings at March 31, 2017. The Bank maintained available unsecured federal funds lines with correspondent banks totaling $210.0 million at March 31, 2017.

The Bank also maintained repurchase agreements and had an outstanding amount of $26.3 million with a weighted average interest rate of 1.93 percent at March 31, 2017. The interest rates are fixed for the term of the agreements, with interest rates ranging from 1.83 percent to 1.98 percent. All outstanding repurchase agreements are short-term in nature with original maturities of 30 days or less. The Company did not have any outstanding securities sold under agreements to repurchase at December 31, 2016. These transactions are accounted for as collateralized financing transactions and recorded at the amounts at which the securities were sold. The Company may have to provide additional collateral for the repurchase agreements, as necessary. The underlying collateral pledged for the repurchase agreements consists of collateralized loan obligations with a fair value of $30.2 million at March 31, 2017. Availabilities and terms on repurchase agreements are subject to the counterparties' discretion and pledging additional investment securities.

Banc of California, Inc. maintains a line of credit of $75.0 million with an unaffiliated financial institution. The line has a maturity date of July 17, 2017 (the original maturity date was April 18, 2017) and a floating interest rate equal to a LIBOR rate plus 2.25 percent or a prime rate. The proceeds of the line are to be used for working capital purposes. The Company had $68.0 million of outstanding borrowings under this line of credit at March 31, 2017. On April 17, 2017, the Company and the administrative agent and the lender entered into an amendment of the credit agreement that extended the maturity date from April 18, 2017 to July 17, 2017.

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NOTE 10 – LONG TERM DEBT

Senior Notes

On April 23, 2012, the Company completed the issuance and sale of $33.0 million aggregate principal amount of its 7.50 percent Senior Notes due April 15, 2020 (the Senior Notes I) in an underwritten public offering at a price to the public of $25.00 per Senior Note I. Net proceeds after discounts were approximately $31.7 million.

On December 6, 2012, the Company completed the issuance and sale of an additional $45.0 million aggregate principal amount of the Senior Notes I in an underwritten public offering at a price to the public of $25.00 per Senior Note I, plus accrued interest from October 15, 2012. Net proceeds after discounts, including a full exercise of the $6.8 million underwriters’ overallotment option on December 7, 2012, were approximately $50.1 million.

On April 6, 2015, the Company completed the issuance and sale of $175.0 million aggregate principal amount of its 5.25 percent Senior Notes due April 15, 2025 (the Senior Notes II, together with the Senior Notes I, the Senior Notes). Net proceeds after discounts were approximately $172.8 million.

The Senior Notes were issued under the Senior Debt Securities Indenture, dated as of April 23, 2012 (the Base Indenture), as supplemented by the First Supplemental Indenture dated as of April 23, 2012 for the Senior Notes I, and the Second Supplemental Indenture dated as of April 6, 2015 for the Senior Notes II (the Supplemental Indentures and together with the Base Indenture, the Indenture), between the Company and U.S. Bank National Association, as trustee.

On April 15, 2016, the Company completed the redemption of all of its outstanding Senior Notes I at a redemption price of 100 percent of the principal amount plus accrued and unpaid interest to the redemption date. In connection with this transaction, the Company recognized a debt extinguishment cost of $2.7 million in All Other Expense in the Consolidated Statements of Operations.

The Senior Notes II are the Company’s senior unsecured debt obligations and rank equally with all of the Company’s other present and future unsecured unsubordinated obligations. The Company makes interest payments on the Senior Notes II semi-annually in arrears.

The Senior Notes II will mature on April 15, 2025. The Company may, at its option, on or after January 15, 2025 (i.e., 90 days prior to the maturity date of the Senior Notes II), redeem the Senior Notes II in whole at any time or in part from time to time, in each case on not less than 30 nor more than 60 days’ prior notice. The Senior Notes II will be redeemable at a redemption price equal to 100 percent of the principal amount of the Senior Notes II to be redeemed plus accrued and unpaid interest to the date of redemption.

The Indenture contains several covenants which, among other things, restrict the Company’s ability and the ability of the Company’s subsidiaries to dispose of or incur liens on the voting stock of certain subsidiaries and also contains customary events of default.

Tangible Equity Units – Amortizing Notes

On May 21, 2014, the Company issued and sold $69.0 million of 8.00 percent tangible equity units (TEUs) in an underwritten public offering. A total of 1,380,000 TEUs were issued, including 180,000 TEUs issued to the underwriter upon exercise of its overallotment option, with each TEU having a stated amount of $50.00. Each TEU is comprised of (i) a prepaid stock purchase contract (each a Purchase Contract) that will be settled by delivery of a specified number of shares of Company Common Stock and (ii) a junior subordinated amortizing note due May 15, 2017 (each an Amortizing Note) that has an initial principal amount of $10.604556 per Amortizing Note, bears interest at a rate of 7.50 percent per annum and has a scheduled final installment payment date of May 15, 2017. The Company has the right to defer installment payments on the Amortizing Notes at any time and from time to time, subject to certain restrictions, so long as such deferral period does not extend beyond May 15, 2019.

The Purchase Contracts and Amortizing Notes are accounted for separately. The Purchase Contract component of the TEUs is recorded in Additional Paid in Capital in the Consolidated Statements of Financial Condition. The Amortizing Note component is recorded in Long Term Debt in the Consolidated Statements of Financial Condition. The relative fair values of the Amortizing Notes and Purchase Contracts were estimated to be approximately $14.6 million and $54.4 million, respectively. Total issuance costs associated with the TEUs were $4.0 million (including the underwriter discount of $3.3 million), of which $857 thousand was allocated to the debt component and $3.2 million was allocated to the equity component of the TEUs. The portion of the issuance costs allocated to the debt component of the TEUs is being amortized over the term of the Amortizing Notes. See Note 15 for additional information.

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NOTE 11 – INCOME TAXES

For the three months ended March 31, 2017 and 2016, income tax (benefit) expense, on a consolidated operations basis, was $(948) thousand and $13.3 million, respectively, and the effective tax rate was (5.8) percent and 40.3 percent, respectively. The Company’s effective tax rate was lower in the 2017 period primarily due to the recognition of year-to-date tax credits from the investments in alternative energy partnerships of approximately $8.8 million. The Company uses the flow-through income statement method to account for the investment tax credits earned on the solar investments. 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.

The Company accounts 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 the existence of any cumulative losses in the current year and the prior two years, the amount of taxes paid in available carry-back years, future taxable income and 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, no valuation allowance was provided against the net deferred tax assets of $18.7 million and $10.0 million at March 31, 2017 and December 31, 2016, respectively.

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. The Company had no unrecognized tax benefits at March 31, 2017 and December 31, 2016. At March 31, 2017 and December 31, 2016, the Company had no accrued interest or penalties. In the event the Company is 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.

The Company and its subsidiaries are subject to U.S. Federal income tax as well as income tax in multiple state jurisdictions. The Company is no longer subject to the assessment of U.S. federal income tax for years before 2013.The statute of limitations for the assessment of California Franchise taxes has expired for tax years before 2012 (other state income and franchise tax statutes of limitations vary by state).

The Company adopted ASU 2016-09 during the three months ended March 31, 2017. As a result of the adoption, the Company recorded $391 thousand of income tax benefits for the three months ended March 31, 2017 related to excess tax benefits from stock compensation. Prior to 2017, such excess tax benefits were generally recorded directly in stockholders’ equity. This new accounting standard may potentially increase the volatility in the Company’s effective tax rates.

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NOTE 12 – RESERVE FOR LOSS ON REPURCHASED LOANS

The Company records provisions to the representation and warranty reserve representing our initial estimate of losses on probable mortgage repurchases or loss reimbursements. Total provision for loan repurchases was $517 thousand and $379 thousand for the three months ended March 31, 2017 and 2016, respectively. Of these total provisions for loan repurchases, the Company recorded an initial provision for loan repurchases of $842 thousand and $738 thousand, respectively, for the three months ended March 31, 2017 and 2016 against Net Revenue on Mortgage Banking Activities in the Statement of Operations of discontinued operations. In addition, the Company recorded a reversal for loan repurchase reserve in noninterest expense of $325 thousand and $359 thousand, respectively, for the three months ended March 31, 2017 and 2016.

The following table presents a summary of activity in the reserve for losses on repurchased loans for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	7,974		$	9,700
Provision for loan repurchases	517			379
Utilization of reserve for loan repurchases	(373		)	(298		)
Balance at end of period	$	8,118		$	9,781

In addition to the reserve for losses on repurchased loans at March 31, 2017, the Company may receive repurchase demands in future periods that could be material to the Company's financial position or results of operations. The Company believes that all known or probable and estimable demands were adequately reserved for at March 31, 2017.

NOTE 13 – DERIVATIVE INSTRUMENTS

The Company uses derivative instruments and other risk management techniques to reduce its exposure to adverse fluctuations in interest rates and foreign currency exchange rates in accordance with its risk management policies.

Derivative Instruments Related to Mortgage Banking Activities: In connection with mortgage banking activities, if interest rates increase, the value of the Company’s loan commitments to borrowers and mortgage loans held-for-sale are adversely impacted. The Company attempts to economically hedge the risk of the overall change in the fair value of loan commitments to borrowers and mortgage loans held-for-sale with forward loan sale contracts and TBA mortgage-backed securities trades. Forward contracts on loan sale commitments, TBA mortgage-based securities trades, and loan commitments to borrowers are non-designated derivative instruments and the gains and losses resulting from these derivative instruments are included in Net Revenue on Mortgage Banking Activities in the Statement of Operations of discontinued operations. The fair value of resulting derivative assets and liabilities are included in Other Assets and Accrued Expenses and Other Liabilities, respectively, in the Statement of Financial Condition of discontinued operations.

The net losses relating to these derivative instruments used for mortgage banking activities, which were included in Net Revenue on Mortgage Banking Activities in the Statement of Operations of discontinued operations, were $324 thousand and $6.3 million, respectively, for the three months ended March 31, 2017 and 2016.

Interest Rate Swaps on Deposits and Other Borrowings: On September 30, 2013 and January 30, 2015, the Company entered into pay-fixed, receive-variable interest-rate swap contracts for the notional amounts of $50.0 million and $25.0 million, respectively, with maturity dates of September 27, 2018 and January 30, 2022, respectively. These swap contracts were entered into with institutional counterparties to hedge against variability in cash flows attributable to interest rate risk caused by changes in the LIBOR benchmark interest rate on the Company’s ongoing LIBOR based variable rate deposits and borrowings. During the year ended December 31, 2016, the Company terminated all of its interest rate swaps, which had an aggregate notional amount of $75.0 million.

Interest Rate Swaps and Caps on Loans: The Company offers interest rate swap and cap products to certain loan customers to allow them to hedge the risk of rising interest rates on their variable rate loans. The Company originates a variable rate loan and enters into a variable-to-fixed interest rate swap with the customer. The Company also enters into an offsetting swap with a correspondent bank. These back-to-back agreements are intended to offset each other and allow the Company to originate a variable rate loan, while providing a contract for fixed interest payments for the customer. The net cash flow for the Company is equal to the interest income received from a variable rate loan originated with the customer. These swaps and caps are not designated as hedging instruments and are recorded at fair value in Other Assets and Accrued Expenses and Other Liabilities in the Consolidated Statement of Financial Condition. The changes in fair value are recorded in Other Income in the Consolidated Statements of Operations. For the three months ended March 31, 2017, changes in fair value recorded through Other Income in the Consolidated Statements of Operations were insignificant.

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Foreign Exchange Contracts: The Company offers 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 the Company also enters into offsetting contracts with institutional counterparties to hedge the Company’s foreign exchange rate risk. These back-to-back contracts allow the Company to offer its customers foreign exchange products while minimizing its exposure to foreign exchange rate fluctuations. These foreign exchange contracts are not designated as hedging instruments and are recorded at fair value in Other Assets and Accrued Expenses and Other Liabilities in the Consolidated Statement of Financial Condition. At March 31, 2017, the Company had no outstanding foreign exchange contracts.

The following table presents the notional amount and fair value of derivative instruments included in the Consolidated Statements of Financial Condition as of the dates indicated. Note 3 contains further disclosures pertaining to the fair value of mortgage banking derivatives.



	March 31, 2017				December 31, 2016
	Notional Amount		Fair Value		Notional Amount		Fair Value
	(In thousands)
Included in assets:
Interest rate lock commitments⁽¹⁾	$	300,226	$	9,813	$	289,637	$	8,317
Mandatory forward commitments ⁽¹⁾	69,607		153		537,476		8,897
Interest rate swaps and cap on loans with customers	68,167		1,099		46,346		707
Foreign exchange contracts	—		—		4,236		47
Total included in assets	$	438,000	$	11,065	$	877,695	$	17,968
Included in liabilities:
Interest rate lock commitments⁽¹⁾	$	12,311	$	81	$	22,945	$	231
Mandatory forward commitments ⁽¹⁾	593,995		2,909		265,322		1,212
Interest rate swaps and caps on loans with correspondent bank	68,167		1,096		46,346		655
Foreign exchange contracts	—		—		4,207		18
Total included in liabilities	$	674,473	$	4,086	$	338,820	$	2,116

(1) Derivative instruments related to mortgage banking activities (discontinued operations).

The Company has 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, the Company elected to account for all derivatives with counterparty institutions on a gross basis. Due to clearinghouse rule changes, beginning January 1, 2017, variation margin payments are treated as settlements of derivative exposure rather than as collateral.

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NOTE 14 – EMPLOYEE STOCK COMPENSATION

Share-based Compensation Expense

For the three months ended March 31, 2017 and 2016, share-based compensation expense on stock options and restricted stock awards and units was $2.9 million and $3.8 million, respectively, and the related tax benefits were $1.2 million and $1.6 million, respectively. Share-based compensation expense on stock appreciation rights was $42 thousand and $13 thousand, respectively, and the related tax benefits were $17 thousand and $5 thousand, respectively, for the three months ended March 31, 2017 and 2016.

The Company issues stock-based compensation awards to its directors and employees from the 2013 Omnibus Plan. The 2013 Omnibus Plan provides that the aggregate number of shares of the Company's common stock that may be subject to awards will be 20 percent of the then outstanding shares of Company common stock (the Share Limit), provided that in no event will the Share Limit be less than the greater of 2,384,711 shares of Company common stock and the aggregate number of shares of Company common stock with respect to which awards have been properly granted under the 2013 Omnibus Plan up to that point in time. As of March 31, 2017, based on the number of shares then registered for issuance under the 2013 Omnibus Plan, 1,490,137 shares were available for future awards.

The Company maintains the SECT to fund future employee stock compensation and benefit obligations of the Company. There has been no shares funded out of the SECT as of March 31, 2017. See Note 15 for additional information.

Unrecognized Share-based Compensation Expense

The following table presents unrecognized share-based compensation expense as of March 31, 2017:



	March 31, 2017
	Unrecognized Expense		Average Remaining Expected Recognition Period
	($ in thousands)
Stock option awards	$	1,281	3.5 years
Restricted stock awards and restricted stock units	6,925		2.9 years
Total	$	8,206	3.0 years

Stock Options

The Company has 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.

The following table represents stock option activity as of and for the three months ended March 31, 2017:



	Three Months Ended March 31, 2017
	Number of Shares		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contract Term	Aggregated Intrinsic Value (In thousands)
Outstanding at beginning of period	968,591		$	13.95	6.4 years	$	3,336
Exercised	(91,000	)	$	12.06	4.8 years
Outstanding at end of period	877,591		$	14.14	6.5 years	$	5,755
Exercisable at end of period	364,253		$	12.84	6.5 years	$	2,862

The following table represents changes in unvested stock options as of and for the three months ended March 31, 2017:



	Three Months Ended
	March 31, 2017
	Number of Shares		Weighted- Average Exercise Price per Share
Outstanding at beginning of period	518,936		$	15.04
Vested	(5,598	)	$	13.19
Outstanding at end of period	513,338		$	15.07

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Restricted Stock Awards and Restricted Stock Units

The Company also has 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 the Company’s stock on the date of award. 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. The Company recognizes an income tax deduction in an amount equal to the taxable income reported by the holders of the restricted stock, generally when vested or, in the case of restricted stock units, when settled.

The following table represents unvested restricted stock awards and restricted stock units activity as of and for the three months ended March 31, 2017:



	Three Months Ended
	March 31, 2017
	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period	1,417,144		$	16.16
Vested	(302,842	)	$	18.95
Forfeited	(57,881	)	$	14.85
Outstanding at end of period	1,056,421		$	15.43

Stock Appreciation Rights

On August 21, 2012, the Company granted to Steven A. Sugarman, its then- (now former) chief executive officer a ten-year stock appreciation right (SAR) with respect to 500,000 shares (Initial SAR) of the Company’s common stock with a base price of $12.12 per share with one-third of the Initial SAR being vested on the grant date and the remaining amount vesting over a period of 2 years. The Initial SAR entitles Mr. Sugarman to dividend equivalent rights and originally contained an anti-dilution provision pursuant to which additional SARs (Additional SARs) were issued to Mr. Sugarman upon certain stock issuances by the Company, as described below. On March 24, 2016, concurrent with entering into a new employment agreement with the Company, Mr. Sugarman entered into a letter agreement that eliminated this anti-dilution provision of the Initial SAR. Under the terms of the March 24, 2016 letter agreement, in consideration of the removal of the anti-dilution provision of the Initial SAR, the Company granted Mr. Sugarman a onetime performance based restricted stock award with an aggregate grant date fair market value of $5.0 million, which would vest in full on March 24, 2017, but was also subject to restrictions on sale or transfer through March 24, 2021. In connection with Mr. Sugarman’s resignation as the Company’s chief executive officer on January 23, 2017, all unvested equity awards (including any unvested SARs) immediately vested and became free of all restrictions. In addition, the SARs continued (and continue) to remain exercisable for their full terms, with dividend equivalent rights of the SARs also continuing in effect during their full terms.

As described more fully in the SAR agreement, the original anti-dilution provision of the Initial SAR did not apply to certain issuances of the Company’s common stock for compensatory purposes, but did apply to certain other issuances of the Company’s common stock, including the issuances of common stock to raise capital. Pursuant to this anti-dilution provision, the Company issued Additional SARs to the former chief executive officer with a base price determined as of each date of issuance, but otherwise with the same terms and conditions as the Initial SAR, except for an Additional SAR granted relating to a public offering of the Company’s TEU on May 21, 2014 that has different terms (Additional TEU SAR).

Regarding the Additional TEU SAR, the TEU contains a prepaid stock purchase contract (Purchase Contract) that can be settled in shares of the Company’s voting common stock based on a maximum settlement rate (subject to adjustment) and a minimum settlement rate (subject to adjustment) as more fully described under Note 15. The Additional TEU SAR was calculated using the initial maximum settlement rate and, therefore, the number of shares underlying the Additional TEU SAR are subject to adjustment and forfeiture if the aggregate number of shares of stock issued in settlement of any single Purchase Contract is less than the initial maximum settlement rate. By its original terms, the Additional TEU SAR was to vest in full on May 15, 2017 or accelerate in vesting upon early settlement of a Purchase Contract at the holders' option, and until it vested, the Additional TEU SAR was to have no dividend equivalent rights and the shares underlying the Additional TEU SAR were subject to forfeiture.

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The following table represents SARs activity as of and for the three months ended March 31, 2017:



	Three Months Ended March 31, 2017
	Number of Shares		Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contract Term	Aggregated Intrinsic Value (In thousands)
Outstanding at beginning of period	1,559,047		$	11.60	5.6 years	$	8,961
Forfeited	(35	)	$	10.09	5.6 years
Outstanding at end of period	1,559,012		$	11.60	5.4 years	$	14,183
Exercisable at end of period	1,559,012		$	11.60	5.4 years	$	14,183

The following table represents changes in unvested SARs as of and for the three months ended March 31, 2017:



	Three Months Ended
	March 31, 2017
	Number of Shares		Weighted- Average Exercise Price per Share
Outstanding at beginning of period	8,069		$	10.09
Vested	(8,034	)	$	10.09
Forfeited	(35	)	$	10.09
Outstanding at end of period	—		$	10.09

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NOTE 15 – STOCKHOLDERS’ EQUITY

Warrants

On November 1, 2010, the Company issued warrants to TCW Shared Opportunity Fund V, L.P. for up to 240,000 shares of non-voting common stock at an original exercise price of $11.00 per share, subject to certain adjustments to the number of shares underlying the warrants as well as certain adjustments to the warrant exercise price as applicable. These warrants were exercisable from the date of original issuance through November 1, 2015. On August 3, 2015, these warrants were exercised in full using a cashless (net) exercise, resulting in a net number of shares of non-voting common stock issued in the aggregate of 70,690, which were immediately thereafter exchanged for an aggregate of 70,690 shares of voting common stock. Based on automatic adjustments to the original $11.00 exercise price, the exercise price at the time of exercise was $9.13 per share.

On November 1, 2010, the Company also issued warrants to COR Advisors LLC, an entity controlled by Steven A. Sugarman, who became a director of the Company on that date and later became President and Chief Executive Officer of the Company (and resigned from those and all other positions with the Company and the Bank on January 23, 2017), to purchase up to 1,395,000 shares of non-voting common stock at an exercise price of $11.00 per share, subject to certain adjustments to the number of shares underlying the warrants as well as certain adjustments to the warrant exercise price as applicable. Subsequent to their original issuance, warrants for the right to purchase 960,000 shares of non-voting common stock were transferred to Steven A. Sugarman and his spouse through a living trust, and warrants for the right to purchase 435,000 shares of non-voting common stock were transferred to Jeffrey T. Seabold, Executive Vice President and Management Vice-Chair. These warrants vested in tranches, with each tranche being exercisable for five years after the tranche's vesting date. With respect to the warrants transferred to Steven A. Sugarman, 50,000 shares vested on October 1, 2011 and the remainder vested in seven equal quarterly installments beginning January 1, 2012 and ending on July 1, 2013. With respect to the warrants transferred to Mr. Seabold, 95,000 shares vested on January 1, 2011; 130,000 shares vested on each of April 1 and July 1, 2011, and 80,000 shares vested on October 1, 2011.

On August 17, 2016, Steven A. Sugarman and his spouse through their living trust transferred warrants to purchase 480,000 shares to Steven A. Sugarman's brother, Jason Sugarman. The living trust transferred the warrants in consideration for certain consulting services Jason Sugarman previously rendered to COR Advisors LLC. The transferred warrants are last exercisable on September 30, 2016, December 31, 2016, March 31, 2017, June 30, 2017 and September 30, 2017 for 50,000, 130,000, 130,000, 130,000, and 40,000 shares respectively. On August 17, 2016, Jason Sugarman irrevocably elected to fully exercise each tranche of the transferred warrant. Under the irrevocable election, Jason Sugarman directed that each such exercise would occur on the last exercisable date for each tranche using a cashless (net) exercise method and also directed that each exercise be for either non-voting common stock, or, if allowed under the terms of the warrant, for voting common stock. At September 30, 2016, December 31, 2016, and March 31, 2017, based on Jason Sugarman’s irrevocable election, warrants to purchase 50,000, 130,000, and 130,000 shares, respectively, had been exercised, resulting in issuances of 25,051 and 64,962 shares of the Company's voting common stock and 75,875 shares of the Company's class B non-voting common stock, respectively.

Steven A. Sugarman and his spouse through the living trust continue to hold warrants to purchase 480,000 shares, which are last exercisable on September 30, 2017, December 31, 2017, March 31, 2018 and June 30, 2018 for 90,000, 130,000, 130,000 and 130,000 shares respectively.

On December 8, 2015, March 9, 2016, June 17, 2016, and September 30, 2016, Mr. Seabold exercised his warrants with respect to 95,000, 130,000, 130,000, and 80,000 shares, respectively, using cashless (net) exercises, resulting in a net number of shares of non-voting common stock issued in the aggregate of 37,355, 53,711, 70,775, and 40,081, respectively. Based on automatic adjustments to the original $11.00 exercise price, the exercise price at the time of exercise was $9.04, $8.90, $8.84, and $8.80 per share, respectively. As a result of these exercises, Mr. Seabold no longer holds warrants to purchase shares of non-voting common stock.

Under the terms of the respective warrants, the warrants are exercisable for voting common stock in lieu of non-voting common stock following a transfer of the warrants under certain circumstances described in the terms of the warrants. Based on automatic adjustments to the original $11.00 exercise price, the Company has determined that the exercise price for the warrants was $8.66 per share as of March 31, 2017. The terms and issuance of the foregoing warrants were approved by the Company's stockholders at a special meeting held on October 25, 2010.

Common Stock

On March 8, 2016, the Company issued and sold 4,850,000 shares of its voting common stock in an underwritten public offering, for gross proceeds of approximately $66.5 million. On the same date, the Company issued an additional 727,500 shares of voting common stock upon the exercise in full by the underwriters of their 30-day over-allotment option, for additional gross proceeds of approximately $10.5 million.

On May 11, 2016, the Company issued and sold 5,250,000 shares of its voting common stock in an underwritten public offering for gross proceeds of approximately $100.0 million.

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Stock Employee Compensation Trust

On August 3, 2016, the Company and Evercore Trust Company, N.A., as trustee, established the Banc of California Capital and Liquidity Enhancement Employee Compensation Trust (the SECT) to fund future employee compensation and benefit obligations of the Company using the Company’s common stock. On August 3, 2016, pursuant to a Common Stock Purchase Agreement between the Company and the SECT, the Company sold 2,500,000 shares of the Company’s common stock to the SECT for an aggregate purchase price of $53.6 million, in exchange for a cash amount equal to the aggregate par value of the shares and a promissory note for the balance of the purchase price. The SECT will release the shares over the term of the SECT to satisfy certain compensatory and benefit obligations of the Company under certain stock and other employee benefit plans of the Company and its subsidiaries, as the promissory note is paid down through allocations of available shares as directed by the Company, dividends on the shares received by the SECT or other earnings of the SECT. As the shares are released from the SECT and allocated to the plans, the Company recognizes compensation expense based on the fair value of the shares on the grant date. The unallocated shares of the Company's common stock held by the SECT are not included in calculating the Company's earnings per share. All shares held by the SECT were unallocated at March 31, 2017. The SECT provides for confidential pass-through voting and tendering structured such that the individuals with an economic interest in the shares of the Company’s common stock held by the SECT control the voting and tendering of such shares. The SECT will terminate on January 1, 2032 or any earlier date on which the promissory note is paid in full. The Board of Directors may also terminate the SECT at any earlier time, and the SECT will terminate automatically upon the Company giving the trustee notice of a change of control of the Company.

Preferred Stock

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



	March 31, 2017					December 31, 2016
	Shares Authorized and Outstanding	Liquidation Preference		Carrying Value		Shares Authorized and Outstanding	Liquidation Preference		Carrying Value
	($ in thousands)
Series C 8.00% non-cumulative perpetual	40,250	$	40,250	$	37,943	40,250	$	40,250	$	37,943
Series D 7.375% non-cumulative perpetual	115,000	115,000		110,873		115,000	115,000		110,873
Series E 7.00% non-cumulative perpetual	125,000	125,000		120,255		125,000	125,000		120,255
Total	280,250	$	280,250	$	269,071	280,250	$	280,250	$	269,071

On February 8, 2016, the Company completed the issuance and sale, in an underwritten public offering, of 5,000,000 depositary shares, each representing a 1/40^thinterest in a share of its 7.00 percent Non-Cumulative Perpetual Preferred Stock, Series E (with 125,000 shares of Series E Non-Cumulative Perpetual Preferred Stock issued), with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share), for gross proceeds of $121.1 million.

On April 1, 2016, the Company completed the redemption of all 32,000 outstanding shares of the Company's Non-Cumulative Perpetual Preferred Stock, Series A, and all 10,000 outstanding shares of the Company's Non-Cumulative Perpetual Preferred Stock, Series B. The shares were redeemed at a redemption price equal to the liquidation amount of $1,000 per share plus the unpaid dividends for the current dividend period to, but excluding, the redemption date. Both the Series A Preferred Stock and the Series B preferred Stock were issued as part of the U.S. Department of the Treasury's Small Business Lending Fund Program.

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Tangible Equity Units

On May 21, 2014, the Company completed an underwritten public offering of 1,380,000 of its tangible equity units (TEUs), which included 180,000 TEUs issued to the underwriter upon the full exercise of its over-allotment option, resulting in net proceeds of $65.0 million. Each TEU is comprised of a prepaid stock purchase contract (each, a Purchase Contract) and a junior subordinated amortizing note due May 15, 2017 issued by the Company (each, an Amortizing Note). Unless settled early at the holder’s option, each Purchase Contract will automatically settle and the Company will deliver a number of shares of its voting common stock based on the then-applicable market value of the voting common stock, ranging from an initial minimum settlement rate of 4.4456 shares per Purchase Contract (subject to adjustment) if the applicable market value is equal to or greater than $11.247 per share to an initial maximum settlement rate of 5.1124 shares per Purchase Contract (subject to adjustment) if the applicable market value is less than or equal to $9.78 per share.

From the first business day following the issuance of the TEUs to but excluding the third business day immediately preceding May 15, 2017, a holder of a Purchase Contract may settle its Purchase Contract early, and the Company will deliver to the holder 4.4456 shares of voting common stock. The holder also may elect to settle its Purchase Contract early in connection with a “fundamental change,” in which case the holder will receive a number of shares of voting common stock based on a fundamental change early settlement rate. The Company may elect to settle all Purchase Contracts early by delivering to each holder 5.1124 shares of voting common stock or, under certain circumstances, by delivering 4.4456 shares of voting common stock. As of March 31, 2017, a total of 1,342,600 Purchase Contracts had been settled early by their holders, resulting in the issuance by the Company of 5,951,762 shares of voting common stock. As of March 31, 2017, 37,400 Purchase Contracts remained outstanding.

Each Amortizing Note has an initial principal amount of $10.604556 per Amortizing Note, bears interest at a rate of 7.50 percent per annum and has a scheduled final installment payment date of May 15, 2017. On each August 15, November 15, February 15 and May 15, commencing on August 15, 2014, the Company will pay holders of Amortizing Notes equal quarterly cash installments of $1.00 per Amortizing Note (or, in the case of the installment payment due on August 15, 2014, $0.933333 per Amortizing Note) (such installments, the installment payments), which installment payments in the aggregate will be equivalent to a 8.00 percent cash distribution per year with respect to each $50.00 stated amount of TEUs. Each installment payment will constitute a payment of interest (at a rate of 7.50 percent per annum) and a partial repayment of principal on each Amortizing Note. The Company has the right to defer installment payments at any time and from time to time, subject to certain restrictions, so long as such deferral period does not extend beyond May 15, 2019. If the Company elects to settle the Purchase Contracts early, the holders of the Amortizing Notes will have the right to require the Company to repurchase the Amortizing Notes. As of March 31, 2017 and December 31, 2016, the Amortizing Notes, net of unamortized discounts, totaled $1.3 million and $2.7 million, respectively, net of unamortized discounts, and were included in Long Term Debt in the Consolidated Statements of Financial Condition.

Change in Accumulated Other Comprehensive Income (Loss)

The Company’s Accumulated Other Comprehensive Income (Loss) includes unrealized gain (loss) on securities available-for-sale. Changes to Accumulated Other Comprehensive Income (Loss) are presented net of tax effect as a component of stockholders' equity. Reclassifications from Accumulated Other Comprehensive Income (Loss) are recorded in the Consolidated Statements of Operations either as a gain or loss. The following table presents changes to Accumulated Other Comprehensive Income (Loss) for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Unrealized gain (loss) on securities available-for-sale
Balance at beginning of period	$	(9,042	)	$	(2,995	)
Unrealized gain arising during the period	2,226			26,809
Reclassification adjustment from other comprehensive income	(3,356		)	(16,789		)
Tax effect of current period changes	470			(4,190		)
Total changes, net of taxes	(660		)	5,830
Balance at end of period	$	(9,702	)	$	2,835

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NOTE 16 – REGULATORY CAPITAL MATTERS

The following table presents the regulatory capital amounts and ratios for the Company and the Bank as of dates indicated:



					Minimum Capital Requirement				Minimum Required to Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	($ in thousands)
March 31, 2017
Banc of California, Inc.
Total risk-based capital	$	993,726	13.72	%	$	579,613	8.00	%	N/A		N/A
Tier 1 risk-based capital	947,772		13.08	%	434,709		6.00	%	N/A		N/A
Common equity tier 1 capital	678,701		9.37	%	326,032		4.50	%	N/A		N/A
Tier 1 leverage	947,772		8.51	%	445,645		4.00	%	N/A		N/A
Banc of California, NA
Total risk-based capital	$	1,091,813	15.11	%	$	577,987	8.00	%	$	722,484	10.00	%
Tier 1 risk-based capital	1,045,859		14.48	%	433,491		6.00	%	577,987		8.00	%
Common equity tier 1 capital	1,045,859		14.48	%	325,118		4.50	%	469,615		6.50	%
Tier 1 leverage	1,045,859		9.43	%	443,728		4.00	%	554,660		5.00	%
December 31, 2016
Banc of California, Inc.
Total risk-based capital	$	975,918	13.70	%	$	569,856	8.00	%	N/A		N/A
Tier 1 risk-based capital	941,429		13.22	%	427,392		6.00	%	N/A		N/A
Common equity tier 1 capital	672,358		9.44	%	320,544		4.50	%	N/A		N/A
Tier 1 leverage	941,429		8.17	%	460,840		4.00	%	N/A		N/A
Banc of California, NA
Total risk-based capital	$	1,042,617	14.73	%	$	566,405	8.00	%	$	708,007	10.00	%
Tier 1 risk-based capital	999,788		14.12	%	424,804		6.00	%	566,405		8.00	%
Common equity tier 1 capital	999,788		14.12	%	318,603		4.50	%	460,204		6.50	%
Tier 1 leverage	999,788		8.71	%	459,368		4.00	%	574,210		5.00	%

In July 2013, the Federal banking regulators approved a final rule to implement the revised capital adequacy standards of the Basel Committee on Banking Supervision, commonly called Basel III, and to address relevant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (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 will be phased in through 2019.

The final rule:

•

Permits banking organizations that had less than $15 billion in total consolidated assets as of December 31, 2009, to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock that were issued and included in Tier 1 capital prior to May 19, 2010, subject to a limit of 25 percent of Tier 1 capital elements, excluding any non-qualifying capital instruments and after all regulatory capital deductions and adjustments have been applied to Tier 1 capital.


•	Establishes new qualifying criteria for regulatory capital, including new limitations on the inclusion of deferred tax assets and mortgage servicing rights.


•	Requires a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5 percent.


•	Increases the minimum Tier 1 capital to risk-weighted assets ratio requirement from 4 percent to 6 percent.


•	Retains the minimum total capital to risk-weighted assets ratio requirement of 8 percent.


•	Retains a minimum leverage ratio requirement of 4 percent.

•

Changes the prompt corrective action standards so that in order to be considered well-capitalized, a depository institution must have a ratio of common equity Tier 1 capital to risk-weighted assets of 6.5 percent (new), a ratio of Tier 1 capital to risk-weighted assets of 8 percent (increased from 6 percent), a ratio of total capital to risk-weighted assets of 10 percent (unchanged), and a leverage ratio of 5 percent (unchanged).


•	Retains the existing regulatory capital framework for one-to-four family residential mortgage exposures.


•	Permits banking organizations that are not subject to the advanced approaches rule, such as the Company and the Bank, to retain, through a one-time election, the existing treatment for most accumulated other comprehensive income,

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such that unrealized gains and losses on securities available-for-sale will not affect regulatory capital amounts and ratios.

•

Implements a new capital conservation buffer requirement for a banking organization to maintain a common equity capital ratio more than 2.5 percent above the minimum common equity Tier 1 capital, Tier 1 capital and total risk based capital ratios in order to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments. The capital conservation buffer requirement will be phased in beginning on January 1, 2016 at 0.625 percent, with additional 0.625 percent increments annually, and will be fully phased in at 2.50 percent by January 1, 2019. A banking organization with a buffer of less than the required amount would be subject to increasingly stringent limitations on such distributions and payments as the buffer approaches zero. The new rule also generally prohibits a banking organization from making such distributions or payments during any quarter if its eligible retained income is negative and its capital conservation buffer ratio was 2.5 percent or less at the end of the previous quarter. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income.


•	Increases capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short term commitments and securitization exposures.


•	Expands the recognition of collateral and guarantors in determining risk-weighted assets.


•	Removes references to credit ratings consistent with the Dodd Frank Act and establishes due diligence requirements for securitization exposures.

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NOTE 17 – VARIABLE INTEREST ENTITIES

The Company holds ownership interests in alternative energy partnerships and the SECT. The Company evaluates its interests in these entities to determine whether they meet the definition of a VIE and whether the Company is 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 the Company holds could potentially be significant to the VIE, the Company considers both qualitative and quantitative factors regarding the nature, size and form of the Company's involvement with the VIE. The Company has determined that its interests in these entities meet the definition of a variable interest.

Unconsolidated VIEs

The Company invests 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 residential rooftop solar leases and power purchase agreements. As a result of its investments, the Company has 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 the Company's interest in the alternative energy partnerships meets the definition of a VIE in accordance with ASC 810, the Company has determined that the Company is not the primary beneficiary because the Company does 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 the Company is not the primary beneficiary, the Company did not consolidate the entities. The Company uses the HLBV method to account for its 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 under their respective priorities.

The Company funded $30.9 million into the partnerships and recognized a loss on investment of $8.7 million through its HLBV application during the three months ended March 31, 2017. As a result, the balance of its investments were $47.6 million at March 31, 2017. The Company has funded $88.3 million of its $200.0 million aggregate funding commitments. From an income tax benefit perspective, the Company recognized investment tax credits of $8.8 million as well as income tax benefits relating to the recognition of its loss through its HLBV application during the three months ended March 31, 2017.

As the investments represent unconsolidated VIEs to the Company, the assets and liabilities of the investments themselves are not recorded on the Company's statements of financial condition. The following table represents the carrying value of the associated assets and liabilities and the associated maximum loss exposure for the unconsolidated VIEs as of the dates indicated:



	March 31 2017		December 31 2016
	(In thousands)
Cash	$	224	$	—
Equipment, net of depreciation	203,226		151,721
Other assets	8,337		351
Total unconsolidated assets	$	211,787	$	152,072
Total unconsolidated liabilities	$	651	$	—
Maximum loss exposure	$	159,365	$	68,298

The maximum loss exposure that would be absorbed by the Company in the event that all of the assets in the VIEs are deemed worthless is $159.4 million, consisting of the investment balance of $47.6 million and $111.7 million of unfunded equity commitments at March 31, 2017. The Company believes that the loss exposure on its investment is reduced considering its return on its investment is provided not only by the cash flows of the underlying customer 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 the Company’s exposure.

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Consolidated VIE

The Company maintains a SECT to fund future employee stock compensation and benefit obligations of the Company. The SECT holds and will release shares of the Company's common stock to be used to fund the Company's obligations during the term of the SECT under certain stock and other employee benefit plans of the Company. During the three months ended September 30, 2016, the Company sold 2,500,000 shares of the Company’s common stock to the SECT for an aggregate purchase price of $53.6 million, in exchange for a cash amount equal to the aggregate par value of the shares and a promissory note for the balance of the purchase price. The promissory note is paid down through allocations of available shares to the Company’s stock and other employee benefit plans as directed by the Company, dividends on the shares received by the SECT, other earnings of the SECT, or may be forgiven by the Company.

The Company evaluated its interest in the SECT and determined it is a VIE of which the Company is the primary beneficiary. As such, the SECT is consolidated by the Company.

The entire amount of assets and liabilities of the SECT represents the transactions between the Company and the SECT. As a result, the note receivable on the Company and the note payable on the SECT are eliminated on a consolidated basis. All other transactions, such as note principal and dividend payments and receipts, are also eliminated on a consolidated basis, accordingly. See Note 15 for additional information.

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NOTE 18 – EARNINGS PER COMMON SHARE

The following table presents computations of basic and diluted EPS for the three months ended March 31, 2017:



	Three Months Ended
	Common Stock			Class B Common Stock			Total
	($ in thousands, except per share data)
Income from continuing operations	$	9,338		$	38		$	9,376
Less: income allocated to participating securities	(162		)	(1		)	(163		)
Less: participating securities dividends	(202		)	(1		)	(203		)
Less: preferred stock dividends	(5,092		)	(21		)	(5,113		)
Income from continuing operations allocated to common stockholders	3,882			15			3,897
Income from discontinued operations	7,793			32			7,825
Net income allocated to common stockholders	$	11,675		$	47		$	11,722
Weighted average common shares outstanding	49,788,421			202,765			49,991,186
Add: Dilutive effects of restricted stock units	209,395			—			209,395
Add: Dilutive effects of stock options	207,506			—			207,506
Add: Dilutive effects of warrants	346,058			—			346,058
Average shares and dilutive common shares	50,551,380			202,765			50,754,145
Basic earnings per common share
Income from continuing operations	$	0.08		$	0.08		$	0.08
Income from discontinued operations	0.15			0.15			0.15
Net income	$	0.23		$	0.23		$	0.23
Diluted earnings per common share
Income from continuing operations	$	0.08		$	0.08		$	0.08
Income from discontinued operations	0.15			0.15			0.15
Net income	$	0.23		$	0.23		$	0.23

For the three months ended March 31, 2017, there were no stock options that were anti-dilutive.

The following table presents computations of basic and diluted EPS for the three months ended March 31, 2016:



	Three Months Ended
	Common Stock			Class B Common Stock			Total
	($ in thousands, except per share data)
Income from continuing operations	$	17,284		$	22		$	17,306
Less: income allocated to participating securities	(360		)	—			(360		)
Less: participating securities dividends	(186		)	—			(186		)
Less: preferred stock dividends	(4,569		)	(6		)	(4,575		)
Income from continuing operations allocated to common stockholders	12,169			16			12,185
Income from discontinued operations	2,378			3			2,381
Net income allocated to common stockholders	$	14,547		$	19		$	14,566
Weighted average common shares outstanding	39,946,412			50,340			39,996,752
Add: Dilutive effects of restricted stock units	138,644			—			138,644
Add: Dilutive effects of stock options	137,195			—			137,195
Add: Dilutive effects of warrants	479,025			—			479,025
Average shares and dilutive common shares	40,701,276			50,340			40,751,616
Basic earnings per common share
Income from continuing operations	$	0.30		$	0.30		$	0.30
Income from discontinued operations	0.06			0.06			0.06
Net income	$	0.36		$	0.36		$	0.36
Diluted earnings per common share
Income from continuing operations	$	0.30		$	0.30		$	0.30
Income from discontinued operations	0.06			0.06			0.06
Net income	$	0.36		$	0.36		$	0.36

For the three months ended March 31, 2016, there were 32,878 stock options for common stock that were not considered in computing diluted earnings per common share, because they were anti-dilutive.

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NOTE 19 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as 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 loans, including obtaining collateral at exercise of the commitment.

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



	March 31, 2017				December 31, 2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
	(In thousands)
Commitments to extend credit⁽¹⁾	$	79,781	$	234,675	$	74,777	$	201,321
Unused lines of credit	27,071		925,872		27,151		888,236
Letters of credit	2,056		9,360		1,784		8,655


(1)	Includes $77.7 million and $65.1 million, respectively, of commitments to extend credit related to discontinued operations at March 31, 2017 and December 31, 2016.

Commitments to make loans are generally made for periods of 30 days or less.

Other Commitments

As of March 31, 2017, the Company had jumbo SFR mortgage loan sale commitments of $355.0 million. Total forward commitments related to mortgage banking activities were $663.6 million at March 31, 2017. These commitments consisted of TBAs of $641.0 million and best efforts contracts of $22.6 million. Additionally, the Company had IRLCs of $312.5 million.

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 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. As of March 31, 2017, the Company paid $10.0 million of the commitment, which was recognized as a prepaid assets and included in Other Assets in Consolidated Statements of Financial Condition. See note 21 for additional information.

The Company had unfunded commitments of $335 thousand, $12.2 million, and $111.8 million for Affordable House Fund Investment, SBIC, and Other Investments including investments in alternative energy partnerships, at March 31, 2017, respectively.

Litigation

From time to time we are involved as plaintiff or defendant in various legal actions arising in the normal course of business. The Company was named as a defendant in several complaints filed in the United States District Court for the Central District of California in January 2017 alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaints were brought as purported class actions on behalf of stockholders who purchased shares of the Company’s common stock between varying dates, inclusive of August 7, 2015 through January 23, 2017. In general, the complaints allege that the Company’s alleged concealment of its purported relationship with an individual who pled guilty to securities fraud in matters unrelated to the Company caused various statements made by the Company to be allegedly false and misleading. These legal actions are at a very early stage. The Company intends to vigorously defend such actions.

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NOTE 20 – RESTRUCTURING

In connection with the sale of Banc Home Loans division, the Company restructured certain aspects of its infrastructure and back office operations by realigning back office staffing resulting in certain severance and other employee related costs including accelerated vesting of equity awards, and amending certain system contracts in order to improve the Company's efficiency. These employees and systems primarily supported the Company's mortgage banking activities. The Company expects to recognize approximately $10 million of total restructuring expense during 2017.

The following table presents activities in accrued liabilities and related expenses for the restructuring for the period indicated:



	As of or For the Three Months Ended March 31, 2017
	Expense
	Continuing Operations		Discontinued Operations		Total		Accrued Liabilities
	($ in thousands)
Balance at beginning of period							$	—
Accrual:
Severance and other employee related costs	$	5,287	$	2,323	$	7,610	7,610
Other restructuring expense	—		895		895		895
Total	$	5,287	$	3,218	$	8,505	8,505
Payments:
Severance and other employee related costs							(1,503		)
Other restructuring expense							—
Total							$	(1,503	)
Balance at end of period							$	7,002

NOTE 21 – RELATED-PARTY TRANSACTIONS

General. The Bank has granted loans to certain officers and directors and their related interests. Excluding the loan amounts described in detail below, loans outstanding to officers and directors and their related interests amounted to $882 thousand and $249 thousand at March 31, 2017 and December 31, 2016, respectively, all of which were performing in accordance with their respective terms as of those dates. These loans were made 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 do not involve more than the normal risk of collectability or present other unfavorable features. The Bank has an Employee Loan Program (the 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 Program is a reduction in loan fees.

Deposits from principal officers, directors, and their related interests amounted to $2.1 million and $2.4 million at March 31, 2017 and December 31, 2016, respectively. There are certain deposits described below, which are not included in the foregoing amounts.

Transactions with Current Related Parties. The Company and the Bank have engaged in transactions described below with the Company’s 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. The transactions below also include transactions involving Jeffrey T. Seabold, the Bank's Executive Vice President and Management Vice Chair; effective March 30, 2017 the Company’s Board of Directors determined that Mr. Seabold's position no longer fits within the category of an executive officer.

Indemnification for Costs of Counsel in Connection with Special Committee Investigation, SEC Investigation and Related Matters. On November 3, 2016, in connection with the investigation by the Special Committee of the Company’s Board of Directors, the Company Board 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 the investigation, and to advise them on their rights and obligations with respect to the investigation. At the direction of the Company Board, this indemnification, advancement and/or reimbursement is, to the extent applicable, subject to the indemnification agreement that each officer and director previously entered into with the Company, which includes an undertaking to repay any expenses advanced if it is ultimately determined that the officer or director was not entitled to indemnification under such agreements and applicable law. In addition, the Company is also providing indemnification, advancement and/or reimbursement for costs related to (i) a formal order of investigation issued by the SEC on January 4, 2017 directed primarily at certain of the issues that the Special Committee reviewed and (ii) any related

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civil or administrative proceedings against the Company as well as officers currently or previously associated with the Company.

During the three months ended March 31, 2017 (excluding fees paid in January 2017), the fees and expenses paid by the Company included $180 thousand incurred by Mr. Seabold. During the year ended December 31, 2016, the fees and expenses incurred (which were paid in January 2017) included $57 thousand incurred by Mr. Seabold and $135 thousand jointly incurred by the Company’s Chief Strategy Officer and Interim Chief Financial Officer J. Francisco A. Turner and the Company’s then- (now former) Chief Financial Officer James J. McKinney. Indemnification was paid on behalf of other executive officers and directors in lesser amounts for the three months ended March 31, 2017 and the year ended December 31, 2016. For indemnification costs paid for former executive officers or directors, see Transactions with Former Related Parties below.

Underwriting Services. Keefe, Bruyette & Woods, Inc., a Stifel company, acted as an underwriter of public offerings of the Company’s securities in 2016, 2015 and 2014, and also acted as financial advisor for the Company's sale of its Commercial Equipment Finance Division in 2016. Halle J. Benett, a director of the Company and the Bank, was employed as a Managing Director and Head of the Diversified Financials Group at Keefe, Bruyette & Woods, Inc. until August 31, 2016 and is entitled to receive compensation for certain deals that close subsequent to August 31, 2016 that he originated or actively managed (none involving the Company or the Bank). In addition, Mr. Benett agreed to provide unpaid consulting services to Keefe, Bruyette & Woods, Inc., for a small number of transactions (none involving the Company or the Bank) through December 31, 2016.

The details of the financial advisory services are as follows:

•

On October 27, 2016, the Company sold its Commercial Equipment Finance Division to Hanmi Bank, a wholly-owned subsidiary of Hanmi Financial Corporation (Hanmi). Beginning on February 1, 2016, Keefe, Bruyette & Woods provided financial advisory and investment banking services to the Company with respect the possible sale of the division and, contingent upon the closing of the sale, received a non-refundable contingent fee from the Company of $516 thousand (less expenses, the amount was $500 thousand).

The details of the underwritten public offerings are as follows:


•	On March 8, 2016, the Company issued and sold 5,577,500 shares of its voting common stock. Pursuant to an underwriting agreement entered into with the Company for that offering on March 2, 2016, Keefe, Bruyette & Woods, Inc. received gross underwriting fees and commissions from the Company of approximately $1.0 million (less estimated expenses, the amount was $846 thousand).

•

On February 8, 2016, the Company issued and sold 5,000,000 depositary shares (Series E Depositary Shares) each representing a 1/40^th ownership interest in a share of 7.00 percent Non-Cumulative Perpetual Preferred Stock, Series E, with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). Pursuant to an underwriting agreement entered into with the Company for that offering on February 1, 2016, Keefe, Bruyette & Woods, Inc. received gross underwriting fees and commission from the Company of approximately $944 thousand (less estimated expenses, the amount was $849 thousand).

•

On April 8, 2015, the Company issued and sold 4,600,000 depositary shares (Series D Depositary Shares) each representing 1/40^th ownership interest in a share of 7.375 percent Non-Cumulative Perpetual Preferred Stock, Series D, with a liquidation preference of $1,000 per share (equivalent to $25 per depositary share). Pursuant to an underwriting agreement entered into with the Company for that offering on March 31, 2015, Keefe, Bruyette & Woods, Inc. received gross underwriting fees and commissions from the Company of approximately $590 thousand (less expenses, the amount was $515 thousand).

•

On April 6, 2015, the Company issued and sold $175.0 million aggregate principal amount of its 5.25 percent Senior Notes due April 15, 2025. Pursuant to a purchase agreement entered into with the Company for that offering on March 31, 2015, Keefe, Bruyette & Woods, Inc. received gross underwriting fees and commissions from the Company of approximately $263 thousand (less expenses, the amount was $221 thousand).


•	On May 21, 2014, the Company issued and sold 5,922,500 shares of its voting common stock. Pursuant to an underwriting agreement entered into with the Company for that offering on May 15, 2014, Keefe, Bruyette & Woods, Inc. received gross underwriting fees and commissions from the Company of approximately $521 thousand (less expenses, the amount was $481 thousand).

Legion Affiliates. As reported in an amendment to a Schedule 13D filed with the Securities and Exchange Commission on March 14, 2017, Legion Partners Asset Management, LLC (Legion Partners), Legion Partners, L.P. I, Legion and its affiliates (collectively, the Legion Group) beneficially own 3,287,879 shares of the Company’s voting common stock as of March 13, 2017, which the Legion Group reported represents 6.6 percent of the Company’s total shares outstanding.

Cooperation Agreement. On March 13, 2017, the Company entered into a cooperation agreement with the Legion Group (the Legion Group Cooperation Agreement). Under the terms of such agreement, among other things:

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•	The Legion Group agreed to irrevocably withdraw its notice of director nomination and submission of a business proposal.

•

The Company agreed to conduct a search for two additional independent directors in collaboration with the Legion Group. In accordance with this provision, following a search initiated by the Company Board and (following entry into the Cooperation Agreement) conducted in consultation with Legion Group, the Company Board appointed Mary A. Curran and Bonnie G. Hill as new independent directors, for terms expected to become effective at the conclusion of the Company's 2017 Annual Meeting of Stockholders. Ms. Curran will serve as a Class I director, for a term to expire at the Company’s 2019 Annual Meeting of Stockholders and Dr. Hill will serve as a Class III director for a term to expire at the Company’s 2018 Annual Meeting of Stockholders. Simultaneously with the effectiveness of their appointments to the Company Board, each of Ms. Curran and Dr. Hill will be appointed as a director of the Bank.

•

From March 13, 2017 until the day after the Company’s 2017 Annual Meeting, the Legion Group has agreed to vote all the shares of the Company's voting common stock that it beneficially owns (i) in favor of the Company’s slate of directors, (ii) against any stockholder’s nominations for directors not approved and recommended by the Board and against any proposals or resolutions to remove any director and (iii) in accordance with the Board’s recommendations on all other proposals of the Board set forth in the Company’s proxy statement except that (A) the Legion Group can vote on any matter (other than the election of directors) in accordance with the recommendations of ISS or Glass Lewis if their recommendations differ from those of the Board and (B) these voting restrictions do not apply to certain extraordinary actions including certain change in control, financing and liquidation transactions and transactions involving a change in the capital structure of the Company.

•

The Legion Group agreed to certain standstill provisions that restrict the Legion Group and its affiliates, associates and representatives, from March 13, 2017 until the day after the 2017 Annual Meeting, from, among other things, acquiring additional voting securities of the Company that would result in the Legion Group having ownership or voting interest in 10 percent or more of the outstanding shares of voting common stock, engaging in proxy solicitations in an election contest, subjecting any shares to any voting arrangements except as expressly provided in the Cooperation Agreement, making or being a proponent of a stockholder proposal, seeking to call a meeting of stockholders or solicit consents from stockholders, seeking to obtain representation on the Board except as otherwise expressly provided in the Cooperation Agreement, seeking to remove any director from the Board, seeking to amend any provision of the governing documents of the Company, or proposing or participating in certain extraordinary corporate transactions involving the Company.


•	The Company agreed to reimburse the Legion Group for up to $100 thousand for its legal fees and expenses incurred in connection with its investment in the Company.

PL Capital Affiliates. As reported in an amendment to a Schedule 13D filed with the Securities and Exchange Commission on February 10, 2017, PL Capital Advisors, LLC (PL Capital Advisors) and certain of its affiliates (collectively, the PL Capital Group) owned 3,401,719 shares of the Company’s voting common stock as of February 7, 2017, which the PL Capital Group reported represents 6.9 percent of the Company’s total shares outstanding.

Cooperation Agreement. On February 7, 2017, Richard J. Lashley, a co-founder of PL Capital Advisors, LLC, was appointed to the Boards of Directors of the Company and the Bank, which appointments became effective February 16, 2017. Mr. Lashley was appointed as a Class I director of the Company, whose term will expire at the Company’s 2019 Annual Meeting of Stockholders. In connection with the appointment of Mr. Lashley to the Boards, on February 8, 2017, the PL Capital Group and Mr. Lashley entered into a cooperation agreement with the Company (PL Capital Cooperation Agreement), in which PL Capital Group agreed, among other matters:

•

From February 8, 2017 until the day after the Company’s 2017 annual meeting of stockholders (PL Capital Restricted Period), the PL Capital Group agreed to vote all the shares of Common Stock that it beneficially owns (i) in favor of the Company’s slate of directors, (ii) against any stockholder’s nominations for directors not approved and recommended by the Company’s Board and against any proposals or resolutions to remove any director and (iii) in accordance with the recommendations by the Company’s Board on all other proposals of the Company’s Board set forth in the Company’s proxy statement.

•

In addition, during the PL Capital Restricted Period, the PL Capital Group agreed to certain standstill provisions that restrict the PL Capital Group and its affiliates, associates and representatives, during the PL Capital Restricted Period, from, among other things, acquiring additional voting securities of the Company that would result in the PL Capital Group having ownership or voting interest in 10 percent or more of the outstanding shares of voting common stock, engaging in proxy solicitations in an election contest, subjecting any shares to any voting arrangements except as expressly provided in the PL Capital Cooperation Agreement, making or being a proponent of a stockholder proposal, seeking to call a meeting of stockholders or solicit consents from stockholders, seeking to obtain representation on the Company’s Board except as otherwise expressly provided in the Cooperation

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Agreement, seeking to remove any director from the Company’s Board, seeking to amend any provision of the governing documents of the Company, or proposing or participating in certain extraordinary corporate transactions involving the Company.


•	Pursuant to the PL Capital Cooperation Agreement, during the three months ended March 31, 2017, the Company reimbursed PL Capital Group $150 thousand for a portion of its legal fees and expenses incurred in connection with its investment in the Company.

Patriot Affiliates. As reported in a Schedule 13D amendment filed with the SEC on November 10, 2014, Patriot’s last public filing reporting ownership of the Company’s securities, Patriot Financial Partners, L.P. (together with its affiliates referred to as Patriot Partners) owned 3,100,564 shares of the Company’s voting common stock as of November 7, 2014, which Patriot Partners reported represented 9.3 percent of the Company’s outstanding voting common stock as of that date. For the details of the transaction in which Patriot Partners acquired certain of these shares, see “Securities Purchase Agreement with Patriot” below. In connection with the appointment of W. Kirk Wycoff, a managing partner of Patriot Partners, to the Board of Directors of the Company and the Bank (described below), Mr. Wycoff filed a Form 3 with the SEC on February 24, 2017, which reported total holdings for Patriot Partners of 2,850,564 shares.

Director. On February 9, 2017, Mr. Wycoff was appointed to the Boards of Directors of the Company and the Bank, which appointment became effective on February 16, 2017. Mr. Wycoff was appointed as a Class III director of the Company, whose term will expire at the Company’s 2018 Annual Meeting of Stockholders.

From 2010 to 2015, Mr. Wycoff was a director of, and Patriot Partners was a stockholder of, Square 1 Financial, Inc. (Square 1). Douglas H. Bowers, who became President and Chief Executive Officer of the Company and the Bank and a director of the Bank effective May 8, 2017 and is expected to become a director of the Company at the conclusion of the Company’s 2017 Annual Meeting of Stockholders (see Note 22 for additional information), served as President and Chief Executive Officer of Square 1 from 2011 to 2015. There are no arrangements or understandings between Mr. Bowers and either Mr. Wycoff or Patriot Partners pursuant to which Mr. Bowers was selected as a director and an officer of the Company.

Bank Owned Life Insurance. On July 14, 2015, the Bank made a $50.0 million investment in Bank Owned Life Insurance (BOLI) and on September 15, 2015, the Bank made an additional $30.0 million investment in BOLI, with the BOLI being issued by Northwestern Mutual Life Insurance Company (Northwestern), which is rated AAA by Fitch Ratings, Aaa by Moody's and AA+ by Standard and Poor’s. With respect to these BOLI investments, the Bank’s BOLI vendor and a provider of certain compliance, accounting and management services related to the BOLI is BFS Financial Services Group (BFS Group), which was referred to the Bank by Mr. Wycoff. Mr. Wycoff’s son, Jordan Wycoff, is employed as a regional director with BFS Group. As long as BFS Group is the broker of record for BOLI purchased from and issued by Northwestern, then the services BFS Group provides to the Bank are given free of charge, although BFS Group receives remuneration from Northwestern for the BOLI the Bank purchases that are issued by Northwestern as well as receiving an annual administration fee.

The BOLI is a single premium purchase life insurance policy on the lives of a group of designated employees. The Bank is the owner of the policy and beneficiary of the policy. As of March 31, 2017, the Bank owned $103.1 million in BOLI or approximately 9.9 percent of the Bank's Tier 1 Capital at March 31, 2017. Pursuant to guidelines of the OCC, BOLI holdings by a financial institution must not exceed 25 percent of Tier 1 capital.

Securities Purchase Agreement with Patriot. As noted above, as reported in a Schedule 13D amendment filed on November 10, 2014 with the SEC, Patriot Partners owned 3,100,564 shares of the Company’s voting common stock as of November 7, 2014, which Patriot Partners reported represented 9.3 percent of the Company’s total shares outstanding as of the dates set forth in the Schedule 13D. On April 22, 2014, the Company entered into a Securities Purchase Agreement (Patriot SPA) with Patriot Partners to raise a portion of the capital to be used to finance the BPNA Branch Acquisition. The Patriot SPA was due to expire by its terms on October 31, 2014. Prior to such expiration, the Company and Patriot Partners entered into a Securities Purchase Agreement, dated as of October 30, 2014 (New Patriot SPA). Pursuant to the New Patriot SPA, substantially concurrently with the BPNA Branch Acquisition, Patriot Partners purchased from the Company (i) 1,076,000 shares of its voting common stock at a price of $9.78 per share and (ii) 824,000 shares of its voting common stock at a price of $11.55 per share, for an aggregate purchase price of $20.0 million. In consideration for Patriot Partners’ commitment under the New SPA and pursuant the terms of the New SPA, on the closing of the sale of such shares on November 7, 2014, the Company paid Patriot Partners an equity support payment of $538 thousand and also reimbursed Patriot Partners $100 thousand in out-of-pocket expenses.

On October 30, 2014, concurrent with the execution of the New Patriot SPA, Patriot and the Company entered into a Settlement Agreement and Release (the Settlement Agreement) in order to resolve, without admission of any wrongdoing by either party, a prior dispute regarding, among other things, the proper interpretation of certain

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provisions of the SPA, including but not limited to the computation of the purchase price per share (the Dispute). Pursuant to the Settlement Agreement, Patriot and the Company released any claims they may have had against the other party with respect to the Dispute. In addition, Patriot and the Company agreed for the period beginning on the date of the Settlement Agreement and ending on December 31, 2016, that neither Patriot nor the Company would disparage the other party or its affiliates.

During the period beginning on the date of the Settlement Agreement and ending on December 31, 2016, Patriot also agreed not to:


•	institute, solicit, assist or join, as a party, any proxy solicitation, consent solicitation, board nomination or director removal relating to the Company against or involving the Company or any of its subsidiaries, affiliates, successors, assigns, directors, officers, employees, agents, attorneys or financial advisors;

•

take any action relative to the governance of the Company that would violate its passivity commitments or vote the shares of voting common stock held or controlled by it on any matters related to the election, removal or replacement of directors or the calling of any meeting related thereto, other than in accordance with management’s recommendations included in the Company’s proxy statement for any annual meeting or special meeting;

•

form or join in a partnership, limited partnership, syndicate or other group, or solicit proxies or written consents of stockholders or conduct any other type of referendum (binding or non-binding) with respect to, or from the holders of, the voting common stock and any other securities of the Company entitled to vote in the election of directors, or securities convertible into, or exercisable or exchangeable for, voting common stock or such other securities (such other securities, together with the voting common stock, being referred to as Voting Securities), or become a participant in or assist, encourage or advise any person in any solicitation of any proxy, consent or other authority to vote any Voting Securities; or


•	enter into any negotiations, agreements, arrangements or understandings with any person with respect to any of the foregoing or advise, assist, encourage or seek to persuade any person to take any action with respect to any of the foregoing.

The Company also agreed, during the same period, not to:


•	institute, solicit, assist or join, as a party, any proxy solicitation, consent solicitation, board nomination or director removal relating to Patriot against or involving Patriot or any of its subsidiaries, affiliates, successors, assigns, officers, partners, principals, employees, agents, attorneys or financial advisors; or


•	enter into any negotiations, agreements, arrangements or understandings with any person with respect to any of the foregoing or advise, assist, encourage or seek to persuade any person to take any action with respect to any of the foregoing.

CS Financial Acquisition. Effective October 31, 2013, the Company acquired CS Financial, which was controlled by Jeffrey T. Seabold (who is currently employed as Executive Vice President, Management Vice Chair and previously served as a director of the Company and the Bank) and in which certain relatives of Steven A. Sugarman (the then- (now former) Chairman, President and Chief Executive Officer of the Company and the Bank) directly or through their affiliated entities also owned certain minority, non-controlling interests.

CS Financial Services Agreement. On December 27, 2012, the Company entered into a Management Services Agreement (Services Agreement) with CS Financial. On December 27, 2012, Mr. Seabold was then a member of the Board of Directors of each of the Company and the Bank. Under the Services Agreement, CS Financial agreed to provide the Bank such reasonably requested financial analysis, management consulting, knowledge sharing, training services and general advisory services as the Bank and CS Financial mutually agreed upon with respect to the Bank’s residential mortgage lending business, including strategic plans and business objectives, compliance function, monitoring, reporting and related systems, and policies and procedures, at a monthly fee of $100 thousand. The Services Agreement was recommended by disinterested members of management of the Bank and negotiated and approved by special committees of the Board of Directors of each of the Company and the Bank (Special Committees), comprised exclusively of independent, disinterested directors of the Boards. Each of the Boards of Directors of the Bank and the Company also considered and approved the Services Agreement, upon the recommendation of the Special Committees.

On May 13, 2013, the Bank hired Mr. Seabold as Managing Director and Chief Lending Officer by entering into a three-year employment agreement with Mr. Seabold (the 2013 Employment Agreement, which was amended and restated effective as of April 1, 2015). Mr. Seabold was appointed Chief Banking Officer of the Bank on April 1, 2015 and was then appointed as Executive Vice President, Management Vice Chair on July 26, 2016. Simultaneously with entering into the 2013 Employment Agreement, the Bank terminated, with immediate effect, its Services Agreement

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with CS Financial. For the year ended December 31, 2013, the total compensation paid to CS Financial under the Services Agreement was $439 thousand.

Option to Acquire CS Financial. Under the 2013 Employment Agreement, Mr. Seabold granted to the Company and the Bank an option (CS Call Option), to acquire CS Financial for a purchase price of $10.0 million, payable pursuant to the terms provided under the 2013 Employment Agreement. Based upon the recommendation of the Special Committees, with the assistance of outside financial and legal advisors and consultants, the Boards of Directors of the Company and the Bank, with Mr. Sugarman recusing himself from the discussions and vote due to previously disclosed conflicts of interest, approved the recommendation of the Special Committees and, pursuant to a letter dated July 29, 2013, the Company indicated that the CS Call Option was being exercised by the Bank, subject to the negotiation and execution of definitive transaction documentation consistent with the applicable provisions of the 2013 Employment Agreement and the satisfaction of the terms and conditions set forth therein.

Merger Agreement. After exercise of the CS Call Option as described above, the Company and the Bank entered into an Agreement and Plan of Merger (Merger Agreement) with CS Financial, the stockholders of CS Financial (Sellers) and Mr. Seabold, as the Sellers’ Representative, and completed its acquisition of CS Financial on October 31, 2013 (Merger).

Subject to the terms and conditions set forth in the Merger Agreement, which was approved by the Board of Directors of each of the Company, the Bank and CS Financial, at the effective time of the Merger, the outstanding shares of common stock of CS Financial were converted into the right to receive in the aggregate: (i) upon the closing of the Merger, (a) 173,791 shares (Closing Date Shares) of voting common stock, par value $0.01 per share, of the Company, and (b) $1.5 million in cash and $3.2 million in the form of a noninterest-bearing note issued by the Company to Mr. Seabold that was due and paid by the Company on January 2, 2014; and (i) upon the achievement of certain performance targets by the Bank’s lending activities following the closing of the Merger that are set forth in the Merger Agreement, up to 92,781 shares (Performance Shares) of voting common stock ((i) and (ii), together, Merger Consideration).

Seller Stock Consideration. The Sellers under the Merger Agreement included Mr. Seabold, and the following relatives of Mr. Sugarman, Jason Sugarman (brother), Elizabeth Sugarman (sister-in-law), and Michael Sugarman (father), who each owned minority, non-controlling interests in CS Financial.

Upon the closing of the Merger and pursuant to the terms of the Merger Agreement, the aggregate shares of voting common stock issued as the consideration to the Sellers was 173,791 shares, which was allocated by the Sellers and issued as follows: (i) 103,663 shares to Mr. Seabold; (ii) 16,140 shares to Jason Sugarman; (iii) 16,140 shares to Elizabeth Sugarman; (iv) 3,228 shares to Michael Sugarman; and (v) 34,620 shares to certain employees of CS Financial. Of the 103,663 shares to be issued to Mr. Seabold, as allowed under the Merger Agreement and in consideration of repayment of a certain debt incurred by CS Financial owed to an entity controlled by Elizabeth Sugarman, Mr. Seabold requested the Company to issue all 103,663 shares directly to Elizabeth Sugarman, and such shares were so issued by the Company to Elizabeth Sugarman.

On October 31, 2014, certain of the Performance Shares were issued as follows: (i) 28,545 shares to Mr. Seabold; (ii) 1,082 shares to Jason Sugarman; (iii) 1,082 shares to Elizabeth Sugarman; and (iv) 216 shares to Michael Sugarman. An additional portion of the Performance Shares was issued on November 2, 2015 as follows: (i) 28,545 shares to Mr. Seabold; (ii) 1,082 shares to Jason Sugarman; (iii) 1,082 shares to Elizabeth Sugarman; and (iv) 216 shares to Michael Sugarman. The final tranche of the Performance Shares were issued on October 31, 2016 as follows: (i) 28,547 shares to Mr. Seabold; (ii) 1,083 shares to Jason Sugarman; (iii) 1,083 shares to Elizabeth Sugarman and (iv) 218 shares to Michael Sugarman.

Approval of the CS Call Option, Merger Agreement and Merger. All decisions and actions with respect to the exercise of the CS Agreement Option, the Merger Agreement and the Merger (including without limitation the determination of the Merger Consideration and the other material terms of the Merger Agreement) were subject to under the purview and authority of special committees of the Board of Directors of each of the Company and the Bank, each of which was composed exclusively of independent, disinterested directors of the Boards of Directors, with the assistance of outside financial and legal advisors. Mr. Sugarman abstained from the vote of each of the Boards of Directors of the Company and the Bank to approve the Merger Agreement and the Merger.

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Transactions with Former Related Parties

In addition to the transactions described above with former related parties, the Company and the Bank have engaged in transactions described below with the Company’s then (now 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.

Indemnification for Costs of Counsel for Former Executive Officers and Former Directors in Connection with Special Committee Investigation, SEC Investigation and Related Matters. On November 3, 2016, in connection with the investigation by the Special Committee of the Company's Board of Directors, the Company Board 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 the investigation, and to advise them on their rights and obligations with respect to the investigation. At the direction of the Company Board, this indemnification, advancement and/or reimbursement is, to the extent applicable, subject to the indemnification agreement that each officer and director previously entered into with the Company, which includes an undertaking to repay any expenses advanced if it is ultimately determined that the officer or director was not entitled to indemnification under such agreements and applicable law. In addition, the Company is also providing indemnification, advancement and/or reimbursement for costs related to (i) a formal order of investigation issued by the SEC on January 4, 2017 directed primarily at certain of the issues that the Special Committee reviewed and (ii) any related civil or administrative proceedings against the Company as well as officers currently or previously associated with the Company.

During the three months ended March 31, 2017 (excluding fees paid in January 2017), the fees and expenses paid by the Company included $131 thousand incurred by the Company’s then- (now former) Chair, President and Chief Executive Officer Steven A. Sugarman. For the year ended December 31, 2016, fees and expenses incurred under the arrangement described above (which were paid in January 2017) included $573 thousand incurred by Mr. Sugarman. Indemnification was paid on behalf of other former executive officers and former directors in lesser amounts for the three months ended March 31, 2017 and the year ended December 31, 2016.

Los Angeles Football Club Loans, Naming Rights and Sponsorship. Effective August 8, 2016, the Bank provided $40.3 million out of a $145.0 million committed construction line of credit (the Stadco Loan) to LAFC Stadium Co, LLC (Stadco) for the construction of a soccer-specific stadium for the LAFC in Los Angeles, California as well as to fund the interest and fees that become due under the Stadco Loan. LAFC is a Major League Soccer expansion franchise scheduled to debut in 2018. Also effective August 8, 2016, the Bank provided $9.7 million out of a $35.0 million committed senior secured line of credit (the Team Loan) to LAFC Sports, LLC (Team) to fund distributions to LAFC Partners, LLLP (Holdco) that will be used for stadium construction, funding interest and fees that become due under such Team Loan and to pay all other fees, costs and expenses payable by the Team in connection with project costs related to the stadium construction.

All of the outstanding equity interests in Stadco and Team are held by Holdco, and Holdco serves a sole guarantor of the Team Loan described above. Minority limited partnership interests in Holdco are held by, among others: (i) Jason Sugarman, who is the brother of the Company’s and the Bank’s then- (now former) Chairman, President and Chief Executive Officer, Steven A. Sugarman; and (ii) Jason Sugarman’s father-in-law, who currently serves as Executive Chairman and a member of Holdco’s board of directors, which is appointed by Holdco’s general partner and primarily functions in an advisory capacity. The foregoing statements are based primarily on information provided to the Company by Holdco through its legal counsel.

As of March 31, 2017 and December 31, 2016, there were $3.9 million and no outstanding advances, respectively, by the Bank under the Stadco Loan, and the Bank collected $102 thousand and $59 thousand, respectively, in unused loan fees during the three months ended March 31, 2017 and the year ended December 31, 2016. Interest on the outstanding balance under the Stadco Loan accrues at LIBOR plus a margin. During the three months ended March 31, 2017 and the year ended December 31, 2016, $20 thousand and $0 interest, respectively, was paid by Stadco to the Bank on the Stadco Loan.

As of March 31, 2017 and December 31, 2016, there were $899 thousand and no outstanding advances, respectively, by the Bank under Team Loan, and the Bank collected $31 thousand and $18 thousand, respectively, in unused loan fees during the three months ended March 31, 2017 and the year ended December 31, 2016. Interest on the outstanding balance under the Team Loan accrues at LIBOR plus a margin. During the three months ended March 31, 2017 and the year ended December 31, 2016, $4 thousand and $0 interest, respectively, was paid by Team to the Bank on the Team Loan.

Following the closing of the Stadco Loan and the Term Loan, the Bank on August 22, 2016 reached agreement with the Team concerning, among other things, the Bank’s right to name the stadium to be operated by Stadco (the Stadium) as “Banc of California Stadium.” The August 22, 2016 agreement, which contemplated the negotiation and execution of more detailed definitive agreements between the Bank, on the one hand, and Stadco and the Team on the other hand (LAFC Transaction), also included a sponsorship relationship between the Bank and the Team with an initial term ending on the completion date of LAFC’s 15th full Major League Soccer (MLS) season, and the Bank having a right of first offer to extend the term for an additional 10 years (LAFC Term). On February 28, 2017, the Bank executed more detailed definitive agreements with LAFC and Stadco relating to the LAFC Transaction, which are subject to MLS rules and/or approval (the LAFC Agreements).

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The LAFC Agreements provide that, during the LAFC Term, the Bank will have the exclusive right to name the Stadium and will be the exclusive provider of financial services to (and the exclusive financial services sponsor of) the Team and Stadco. In connection with its right to name the Stadium, the Bank will receive, among other rights, signage (including prominent exterior signage) and related branding rights throughout the exterior and interior of the Stadium facility (including exclusive branding rights within certain designated areas and venues within the facility), will receive the right to locate a Bank branch within the Stadium facility, will receive the exclusive right to install and operate ATMs in the Stadium facility, and will receive the exclusive right to process payments and provide other financial services (with certain exceptions) throughout the facility. In addition, the Bank will receive suite access for LAFC and certain other events held at the Stadium and will receive certain hospitality, event, media and other rights ancillary to its naming rights relating to the Stadium and its sponsorship rights relating to the Team. In conjunction with the LAFC Agreements, the Company expects to decrease its planned marketing and sponsorship expenses.

In exchange for the Bank’s rights as set forth in the LAFC Agreements, the Bank (i) paid the Team $10.0 million on March 31, 2017 and (ii) has agreed to pay the following annual aggregate amounts: for the Team’s 2018 MLS season, $5.3 million; for 2019, $5.4 million; for 2020, $5.5 million; for 2021, $5.6 million; for 2022, $5.7 million; for 2023, $5.8 million; for 2024, $5.9 million; for 2025, $6.0 million; for 2026, $6.1 million; for 2027, $6.2 million; for 2028, $6.3 million; for 2029, $6.4 million; for 2030, $6.5 million; for 2031, $6.6 million; and for 2032, $6.7 million.

As of March 31, 2017 and December 31, 2016, the various entities affiliated with LAFC held $77.6 million and $76.0 million, respectively, of deposits at the Bank.

Consulting Agreement for the Bank. On August 4, 2016, the Bank entered into a Management Services Agreement with Carlos Salas, who was, at the time, the Chief Executive Officer of COR Clearing LLC (COR Clearing) and Chief Financial Officer of COR Securities Holding, Inc. (CORSHI). Steven A. Sugarman, the then- (now former) Chairman, President and Chief Executive Officer of the Company and the Bank, is the Chief Executive Officer, as well as a controlling equity owner, of both COR Clearing and CORSHI. For management consulting and advisory services provided to the Bank through the termination of the management services agreement on November 30, 2016, Mr. Salas earned $108 thousand in fees. On December 1, 2016, Mr. Salas became a full-time employee of the Bank and tendered his resignation from his positions as Chief Executive Officer of COR Clearing and Chief Financial Officer of CORSHI effective upon the orderly transition of his duties, but in no case later than March 31, 2017. Mr. Salas earned $17 thousand as a full time employee of the Bank through the year ended December 31, 2016. Mr. Salas separated from the Bank on February 1, 2017.

TCW Affiliates. TCW Shared Opportunity Fund V, L.P. (SHOP V Fund), an affiliate of The TCW Group, Inc., initially became a holder of the Company’s voting common stock and non-voting common stock as a lead investor in the November 2010 recapitalization of the Company (the Recapitalization). In connection with its investment in the Recapitalization, SHOP V Fund also was issued by the Company an immediately exercisable five-year warrant (the SHOP V Fund Warrant) to purchase 240,000 shares of non-voting common stock or, to the extent provided therein, shares of voting common stock in lieu of non-voting common stock. SHOP V Fund was issued shares of non-voting common stock in the Recapitalization because at that time, a controlling interest in TCW Asset Management Company, the investment manager to SHOP V Fund, was held by a foreign banking organization, and in order to prevent SHOP V Fund from being considered a bank holding company under the Bank Holding Company Act of 1956, as amended, the number of shares of voting common stock it purchased in the Recapitalization had to be limited to 4.99 percent of the total number of shares of voting common stock outstanding immediately following the Recapitalization. For the same reason, the SHOP V Fund Warrant could be exercised by SHOP V Fund for voting common stock in lieu of non-voting common stock only to the extent SHOP V Fund's percentage ownership of the voting common stock at the time of exercise would be less than 4.99 percent as a result of dilution occurring from additional issuances of voting common stock subsequent to the Recapitalization.

In 2013, the foreign banking organization sold its controlling interest in TCW Asset Management Company, eliminating the need to limit SHOP V Fund's percentage ownership of the voting common stock to 4.99 percent. As a result, on May 29, 2013, the Company and SHOP V Fund entered into a Common Stock Share Exchange Agreement, dated May 29, 2013 (Exchange Agreement), pursuant to which SHOP V Fund could from time to time exchange its shares of non-voting common stock for shares of voting common stock issued by the Company on a share-for-share basis, provided that immediately following any such exchange, SHOP V Fund's percentage ownership of voting common stock did not exceed 9.99 percent. The shares of non-voting common stock that could be exchanged by SHOP V Fund pursuant to the Exchange Agreement included the shares of non-voting common stock it purchased in the Recapitalization, the additional shares of non-voting common stock SHOP V Fund acquired subsequent to the Recapitalization pursuant to the Company’s Dividend Reinvestment Plan and any additional shares of non-voting common stock that SHOP V Fund acquired pursuant to its exercise of the SHOP V Fund Warrant.

On December 10, 2014, SHOP V Fund and two affiliated entities, Crescent Special Situations Fund Legacy V, L.P. (CSSF Legacy V) and Crescent Special Situations Fund Investor Group, L.P. (CSSF Investor Group), entered into a Contribution, Distribution and Sale Agreement pursuant to which SHOP V Fund agreed to transfer shares of non-voting common stock and portions of the SHOP V Fund Warrant to CSSF Legacy V and CSSF Investor Group. Also on December 10, 2014, SHOP V

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Fund, CSSF Legacy V, CSSF Investor Group and the Company entered into an Assignment and Assumption Agreement pursuant to which all of SHOP V Fund’s rights and obligations under the Exchange Agreement with respect to the shares of non-voting common stock transferred by it to CSSF Legacy V and CSSF Investor Group pursuant to the Contribution, Distribution and Sale Agreement were assigned to CSSF Legacy V and CSSF Investor Group, including the right of SHOP V Fund to exchange such shares for shares of voting common stock on a one-for-one basis.

Based on a Schedule 13G amendment filed with the SEC on February 12, 2015, The TCW Group's last public filing reporting ownership of the Company's securities, as of December 31, 2014, The TCW Group, Inc. and its affiliates held 1,318,462 shares of voting common stock (which included, for purposes of this calculation, the 240,000 shares of stock underlying the as yet unexercised SHOP V Fund Warrant). On June 3, 2013, January 5, 2015, January 20, 2015, and March 16, 2015, SHOP V Fund or CSSF Legacy V or CSSF Investor Group exchanged 550,000 shares, 522,564 shares, 86,620 shares, and 934 shares, respectively, of non-voting common stock for the same number of shares of voting common stock. In addition, on August 3, 2015, the SHOP V Fund Warrant, which was held in separate portions by CSSF Legacy V and CSSF Investor Group, was exercised in full using a cashless (net) exercise, resulting in a net number of shares of non-voting common stock issued in the aggregate of 70,690, which were immediately thereafter exchanged for an aggregate of 70,690 shares of voting common stock. Based on automatic adjustments to the original $11.00 exercise price of the SHOP V Fund Warrant, the exercise price at the time of exercise was $9.13 per share. As a result of these exchanges and exercises The TCW Group, Inc. and its affiliates no longer hold any shares of non-voting common stock or warrants to acquire stock. Based on TCW Group's prior report of owning 1,318,462 shares of the Company’s voting common stock, TCW Group, Inc. would have owned 3.5 percent of the Company’s outstanding voting common stock as of December 31, 2015.

Oaktree Affiliates. As reported in a Schedule 13G filed with the SEC on January 16, 2015, OCM BOCA Investor, LLC (OCM), an affiliate of Oaktree Capital Management, L.P., owned 3,288,947 shares of the Company’s voting common stock as of November 7, 2014, which OCM reported represented 9.9 percent of the Company’s total shares outstanding as of the dates set forth in the Schedule 13G. For the details of the transaction in which OCM acquired these shares, see “Securities Purchase Agreement with Oaktree” below. However, as reported in a Schedule 13G amendment filed with the SEC on February 12, 2016 OCM and its affiliates owned 671,702 shares of the Company’s voting common stock as of December 31, 2015, which OCM reported represented less than 5 percent of the Company’s total shares outstanding.

Loans. Effective September 30, 2015, the Bank provided a $15.0 million committed revolving line of credit, which was increased to $20.0 million effective as of February 8, 2017, to Teleios LS Holdings DE, LLC and Teleios LS Holdings II DE, LLC (Teleios), which generate income through the purchase, monitoring, maintenance and maturity of life insurance policies. At the time the facility was executed, the Teleios entities were hedge funds in which Oaktree Capital Management L.P. or one of its affiliates was a controlling investor.

Advances under the Teleios line of credit are secured by life insurance policies purchased by Teleios that have a market value in excess of the balance of the advances under the line of credit. As of March 31, 2017 and December 31, 2016, outstanding advances by the Bank under the Teleios line of credit were $20.0 million and $15.0 million, respectively. During the three months ended March 31, 2017 and the year ended December 31, 2016, the largest aggregate amount of principal outstanding under the Teleios line of credit were $20.0 million and $15.0 million, respectively. Interest on the outstanding balance under the Teleios line of credit accrues at the Prime Rate plus a margin. During the three months ended March 31, 2017 and the year ended December 31, 2016, $0 and $2.0 million in principal, respectively, and $204 thousand and $462 thousand in interest, respectively, was paid by Teleios on the line of credit to the Bank.

Effective June 26, 2015, the Bank provided a $35.0 million committed revolving repurchase facility, which was increased to $55.0 million (the Sabal repurchase facility) effective March 6, 2017, to Sabal TL1, LLC, a Delaware limited liability company, with a maximum funding amount of $65.0 million in certain situations. On March 28, 2017, the line of credit was temporarily increased to $100.0 million for 30 days. At the time the facility was executed, Sabal TL1, LLC was controlled by an affiliate of Oaktree Capital Management, L.P. Under the Sabal repurchase facility, commercial mortgage loans originated by Sabal are purchased from Sabal by the Bank, together with a simultaneous agreement by Sabal to repurchase the commercial mortgage loans from the Bank at a future date. The advances under the Sabal repurchase facility are secured by commercial mortgage loans that have a market value in excess of the balance of the advances under the facility. During the three months ended March 31, 2017 and the year ended December 31, 2016, the largest aggregate amount of principal outstanding under the Sabal repurchase facility was $79.2 million and $55.1 million, respectively. The amount outstanding as of March 31, 2017 and December 31, 2016 was $79.2 million and $22.6 million, respectively. Interest on the outstanding balance under the Sabal repurchase facility accrues at the six month LIBOR rate plus a margin. $161.5 million and $514.1 million in principal, respectively, and $331 thousand and $1.1 million in interest, respectively, was paid by Sabal on the facility to the Bank during the three months ended March 31, 2017 and the year ended December 31, 2016.

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Securities Purchase Agreement with Oaktree. As noted above, as reported in a Schedule 13G filed with the SEC on January 16, 2015, OCM owned 3,288,947 shares of the Company’s voting common stock. OCM purchased these shares from the Company on November 7, 2014 at a price of $9.78 per share pursuant to a securities purchase agreement entered into on April 22, 2014 (and amended on October 28, 2014) in order for the Company to raise a portion of the capital to be used to finance the acquisition of select assets and assumption of certain liabilities by the Bank from Banco Popular North America (BPNA) comprising BPNA’S network of 20 California branches (the BPNA Branch Acquisition), which was completed on November 8, 2014. In consideration for its commitment under the securities purchase agreement, OCM was paid at closing an equity support payment from the Company of $1.6 million.

Management Services. Approximately nine months before OCM became a stockholder of the Company, certain affiliates of Oaktree Capital Management, L.P. (collectively, the Oaktree Funds) entered into a management agreement, effective January 30, 2014, as amended (the Management Agreement), with The Palisades Group, which was then a wholly owned subsidiary of the Company.

Pursuant to the Management Agreement, The Palisades Group serves as the credit manager of pools of SFR mortgage loans held in securitization trusts or other vehicles beneficially owned by the Oaktree Funds. Under the Management Agreement, The Palisades Group is paid a monthly management fee primarily based on the amount of certain designated pool assets and may earn additional fees for advice related to financing opportunities. During the period from January 1, 2016 through May 5, 2016 (the date the Company sold its membership interests in The Palisades Group) and the years ended December 31, 2015 and 2014, the Oaktree Funds paid The Palisades Group $1.0 million, $5.1 million, and $5.3 million as management fees, respectively, which in some instances represents fees for partial year services. In addition to the Management Agreement, the Bank may from time to time in the future enter into lending transactions with portfolio companies of investment funds managed by Oaktree Capital Management, L.P.

St. Cloud Affiliates. On November 24, 2014, the Bank invested as a limited partner in an affiliate of St. Cloud Capital LLC (St. Cloud). Based on a Schedule 13G amendment filed with the SEC on February 14, 2012, St. Cloud's last public filing reporting ownership of the Company securities, St. Cloud reported holding 700,538 shares of the Company’s voting common stock (approximately 1.4 percent of the Company's outstanding voting common shares as of December 31, 2015). The affiliate is St. Cloud Capital Partners III SBIC, LP (the Partnership), which applied for a license granted by the U.S. Small Business Administration to operate as a debenture Small Business Investment Company (SBIC) under the Small Business Investment Act of 1958 and the regulations promulgated thereunder. The Community Reinvestment Act of 1977 expressly identifies an investment by a bank in an SBIC as a type of investment that is presumed by the regulatory agencies to promote economic development. The Boards of Directors of the Company and the Bank approved the Bank’s investment. The Bank has agreed to invest a minimum of $5.0 million, but up to $7.5 million as long as the Bank’s limited partnership interest in the Partnership remains under 9.9 percent.

Other affiliated funds of St. Cloud have previously invested in CORSHI, of which Steven A. Sugarman (the former Chairman, President and Chief Executive Officer of the Company and the Bank) is the Chief Executive Officer as well as a controlling stockholder (both directly and indirectly). St. Cloud Capital Partners III SBIC, LP has provided oral representations to the Bank that the Partnership will not make any investments in COR Securities Holdings, Inc.

As of March 31, 2017 and December 31, 2016, St. Cloud entities held $0 and $1 thousand, respectively, in deposits at the Bank.

Consulting Services to the Company. On May 15, 2014, the disinterested members of the Board of Directors of the Company approved a strategic advisor agreement with Chrisman & Co. pursuant to which Chrisman & Co. would provide strategic advisory services for the Company. Timothy Chrisman, who retired from the Company’s Board on May 15, 2014 upon the expiration of the term of his directorship after the Company’s 2014 annual meeting of stockholders, is the Chief Executive Officer and founding principal of Chrisman & Co. The term of the strategic advisor agreement was for a period of one year, which ended on May 15, 2015. For services performed during the term of the agreement, a fixed annual advisory fee of $200 thousand was paid to Chrisman & Co. during the year ended December 31, 2014 and no additional fees were paid during the year ended December 31, 2015.

Consulting Services to The Palisades Group. The Company completed the sale of its subsidiary, The Palisades Group, on May 5, 2016, which it originally acquired on September 10, 2013. The information included herein is based on information known to the Company as of May 5, 2016, the date the Company completed the sale of The Palisades Group. Effective as of July 1, 2013, prior to the Company’s acquisition of The Palisades Group, The Palisades Group entered into a consulting agreement with Jason Sugarman, the brother of the Company’s and the Bank’s then- (now former) Chairman, President and Chief Executive Officer, Steven A. Sugarman. Jason Sugarman has historically provided advisory services to financial institutions and other institutional clients related to investments in residential mortgages, real estate and real estate related assets and The Palisades Group entered into the consulting agreement with Jason Sugarman to provide these types of services. The consulting agreement is for a term of five years, with a minimum payment of $30 thousand owed at the end of each quarter (or $600

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thousand in aggregate quarterly payments over the five-year term of the agreement). These payments do not include any bonuses that may be earned under the agreement. Effective as of March 26, 2015, the bonus amount earned by Jason Sugarman for consulting services he provided during the year ended December 31, 2014 was credited in satisfaction and full discharge of all then currently accrued but unpaid quarterly payments as well as any future quarterly payments specified under the consulting agreement, but not against any future bonuses that he may earn under the consulting agreement. During the period from January 1, 2016 through May 5, 2016 (the date the Company sold its membership interests in The Palisades Group), no bonus amounts were earned by Jason Sugarman under the consulting agreement. For the years ended December 31, 2015, 2014 and 2013 base and bonus amounts earned by Jason Sugarman under the consulting agreement totaled $30 thousand, $1.2 million, and $121 thousand, respectively. The consulting agreement may be terminated at any time by either The Palisades Group or Jason Sugarman upon 30 days prior written notice. The consulting agreement with Jason Sugarman was reviewed as a related party transaction and approved by the then-acting Compensation, Nominating and Corporate Governance Committee and approved by the disinterested directors of the Board. As of May 5, 2016, the Company has no direct or indirect obligation under the consulting agreement, as the agreement was entered into between Jason Sugarman and The Palisades Group, and the Company completed the sale of The Palisades Group on that date.

Lease Payment Reimbursements for The Palisades Group. At the time it was acquired by the Company, The Palisades Group occupied premises in Santa Monica, California leased by COR Securities Holding, Inc. (CORSHI). Steven A. Sugarman, the then- (now former) Chairman, President and Chief Executive Officer of the Company and the Bank, is the Chief Executive Officer, as well as a controlling stockholder (both directly and indirectly), of CORSHI. In light of the benefit received by The Palisades Group of its occupancy of the Santa Monica premises, the disinterested directors of the Company’s Board ratified reimbursement to CORSHI for rental payments made for the Santa Monica premises for the period from September 16, 2013 through June 27, 2014, the last date The Palisades Group occupied the premises. The Palisades Group negotiated with an unaffiliated third party a lease for new premises and occupied those premises on June 27, 2014.

The aggregate amount of rent payments reimbursed to CORSHI from September 16, 2013 through December 30, 2013 were $40 thousand. In addition, the Company reimbursed CORSHI for a $34 thousand security deposit and The Palisades Group, in turn, reimbursed the Company for this cost. For the period from January 1, 2014 through June 27, 2014, CORSHI granted The Palisades Group a rent abatement equal to the $34 thousand security deposit and, combined with additional payments, The Palisades Group paid leasing costs totaling $58 thousand to CORSHI for that same time period. The then-acting Compensation, Nominating and Corporate Governance Committee of the Board monitored all the reimbursement costs and reviewed the aggregate reimbursement costs.

NOTE 22 – SUBSEQUENT EVENTS

Appointment of New President and Chief Executive Officer

On April 24, 2017, Douglas H. Bowers was appointed as the Company’s and the Bank's President and Chief Executive Officer and as a director of the Bank effective May 8, 2017. The Company’s Board also appointed Mr. Bowers as a director of the Company, his term as a Company director is expected to commence upon completion of the Company’s 2017 Annual Meeting of Stockholders and expire in 2020. The terms of Mr. Bowers’ employment agreement with the Company require him to resign as a director of the Company and the Bank in the event of the termination of his employment.

The Company evaluated events from the date of the consolidated financial statements on March 31, 2017 through the issuance of these consolidated financial statements included in this Quarterly Report on Form 10-Q and determined that no significant events, other than the events disclosed above and the credit agreement amendment disclosed in Note 9, were identified requiring recognition or disclosure in the consolidated financial statements.

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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 months ended March 31, 2017. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016 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, 2017.

CRITICAL ACCOUNTING POLICIES

Our financial statements are prepared in accordance with GAAP and general practices within the banking industry. Within these financial statements, certain financial information contains approximate measurements of financial effects of transactions and impacts at the consolidated statements of financial condition dates and our results of operations for the reporting periods. 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 the “Notes 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 our Annual Report on Form 10-K for the year ended December 31, 2016 and in Note 1 to the Consolidated Financial Statements, “Significant Accounting Policies” in this Form 10-Q.

Recently Issued Accounting Standards

For detailed discussion and disclosure on new accounting pronouncements adopted and recent accounting standards, please see Note 1 to Consolidated Financial Statements (unaudited) in this report.

SELECTED FINANCIAL DATA

The following table presents certain selected financial data as of the dates or for the periods indicated:



	As of or For the Three Months
	Ended March 31,
	2017			2016
	($ in thousands, except per share data)
Selected financial condition data:
Total assets	$	11,052,085		$	9,616,972
Cash and cash equivalents	409,281			215,012
Loans and leases receivable, net	6,062,585			5,427,223
Loans held-for-sale	228,196			433,538
Other real estate owned, net	3,345			325
Securities available-for-sale	2,434,541			1,663,711
Securities held-to-maturity	863,269			962,262
Bank owned life insurance	103,093			100,734
Time deposits in financial institutions	1,000			1,500
FHLB and other bank stock	63,238			61,146
Assets of discontinued operations	432,805			482,240
Deposits	8,597,693			6,837,601
Total borrowings	1,348,391			1,712,996
Liabilities of discontinued operation	30,309			24,470
Total stockholders' equity	985,748			867,530
Selected operations data:
Total interest and dividend income	$	98,842		$	81,062
Total interest expense	18,361			13,823
Net interest income	80,481			67,239
Provision for loan and lease losses	2,583			321
Net interest income after provision for loan and lease losses	77,898			66,918
Total noninterest income	14,903			21,193
Total noninterest expense	89,896			59,144
Income from continuing operations before income taxes	2,905			28,967
Income tax (benefit) expense	(6,471		)	11,661
Income from continuing operations	9,376			17,306
Income from discontinued operations before income taxes	13,348			3,988
Income tax expense	5,523			1,607

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	As of or For the Three Months
	Ended March 31,
	2017			2016
	($ in thousands, except per share data)
Income from discontinued operations	7,825			2,381
Net income	17,201			19,687
Dividends paid on preferred stock	5,113			4,575
Net income available to common stockholders	12,088			15,112
Basic earnings per total common share
Income from continued operations	$	0.08		$	0.30
Income from discontinued operations	0.15			0.06
Net income	0.23			0.36
Diluted earnings per total common share
Income from continued operations	$	0.08		$	0.30
Income from discontinued operations	0.15			0.06
Net income	0.23			0.36
Performance ratios of consolidated operations: ⁽¹⁾
Return on average assets	0.62		%	0.90		%
Return on average equity	6.96		%	10.38		%
Return on average tangible common equity ⁽²⁾	7.76		%	14.46		%
Dividend payout ratio ⁽³⁾	56.52		%	33.33		%
Net interest spread	3.03		%	3.22		%
Net interest margin ⁽⁴⁾	3.19		%	3.39		%
Ratio of noninterest expense to average total assets	4.52		%	4.06		%
Efficiency ratio ⁽⁵⁾	86.87		%	72.81		%
Efficiency ratio, as adjusted ^{(2), (5)}	78.76		%	72.81		%
Average interest-earning assets to average interest-bearing liabilities	121.40		%	125.63		%
Asset quality ratios:
ALLL	$	42,736		$	35,845
Nonperforming loans and leases	16,222			44,216
Nonperforming assets	19,567			44,541
Nonperforming assets to total assets	0.18		%	0.46		%
ALLL to nonperforming loans and leases	263.44		%	81.07		%
ALLL to total loans and leases	0.70		%	0.66		%
Capital Ratios:
Average equity to average assets	8.95		%	8.64		%
Total stockholders' equity to total assets	8.92		%	9.02		%
Tangible common equity to tangible assets ⁽²⁾	6.07		%	5.22		%
Book value per common share	$	14.37		$	12.65
Tangible common equity (TCE) per common share ⁽²⁾	13.38			11.35
Book value per common share and per common share issuable under purchase contracts	14.32			12.58
TCE per common share and per common share issuable under purchase contracts ⁽²⁾	13.33			11.29
Banc of California, Inc.
Total risk-based capital ratio	13.72		%	13.59		%
Tier 1 risk-based capital ratio	13.08		%	13.17		%
Common equity tier 1 capital ratio	9.37		%	8.14		%
Tier 1 leverage ratio	8.51		%	9.27		%
Banc of California, NA
Total risk-based capital ratio	15.11		%	14.03		%
Tier 1 risk-based capital ratio	14.48		%	13.42		%
Common equity tier 1 capital ratio	14.48		%	13.42		%
Tier 1 leverage ratio	9.43		%	9.44		%


(1)	Consolidated operations include both continuing and discontinued operations.


(2)	Non-GAAP measure. See Non-GAAP Financial Measures for reconciliation of the calculation.


(3)	Ratio of dividends declared per common share to basic earnings per common share.


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


(5)	Efficiency ratio represents noninterest expense as a percentage of net interest income plus noninterest income.

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Non-GAAP Financial Measures

Return on average tangible common equity and efficiency ratio, as adjusted, tangible common equity to tangible assets, and tangible common equity per common share and tangible common equity per common share and per common share issuable under purchase contract constitute supplemental financial information determined by methods other than in accordance with GAAP. These non-GAAP measures are used by management in its analysis of the Company's performance.

Tangible common equity is calculated by subtracting preferred stock, goodwill, and other intangible assets from stockholders’ equity. Tangible assets is calculated by subtracting goodwill and other intangible assets from total assets. Banking regulators also exclude goodwill and other intangible assets from stockholders’ equity when assessing the capital adequacy of a financial institution.

Adjusted efficiency ratio is calculated by subtracting loss on investments in alternative energy partnerships from noninterest expense and adding total pretax return, which includes the loss on investments in alternative energy partnerships, to the sum of net interest income and noninterest income (total revenue). Management believes the presentation of these financial measures adjusting the impact of these items provides useful supplemental information that is essential to a proper understanding of the financial results and operating performance of the Company.

This disclosure should not be viewed as a substitute for results determined in accordance with GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

The following tables provide reconciliations of the non-GAAP measures with financial measures defined by GAAP.

Return on Average Tangible Common Equity



	Three Months Ended
	March 31,
	2017			2016
	($ in thousands)
Average total stockholders' equity	$	1,001,784		$	762,923
Less average preferred stock	(269,071		)	(260,959		)
Less average goodwill	(39,221		)	(39,244		)
Less average other intangible assets	(13,190		)	(18,601		)
Average tangible common equity	$	680,302		$	444,119

Net income	$	17,201		$	19,687
Less preferred stock dividends	(5,113		)	(4,575		)
Add amortization of intangible assets	1,090			1,322
Add impairment on intangible assets	336			—
Less tax effect on amortization and impairment of intangible assets⁽¹⁾	(499		)	(463		)
Adjusted net income	$	13,015		$	15,971

Return on average equity	6.96		%	10.38		%
Return on average tangible common equity	7.76		%	14.46		%


(1)	Utilized a 35 percent tax rate

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Efficiency ratio as adjusted to include the pre-tax effect of investments in alternative energy partnerships



	Three Months Ended
	March 31,
	2017			2016
	($ in thousands)
Noninterest expense	$	124,615		$	89,100
Loss on investments in alternative energy partnerships, net	(8,682		)	—
Total adjusted noninterest expense	$	115,933		$	89,100

Net interest income	$	83,747		$	70,417
Noninterest income	59,704			51,959
Total revenue	143,451			122,376
Tax credit from investments in alternative energy partnerships	8,829			—
Deferred tax expense on investments in alternative energy partnerships	(1,545		)	—
Tax effect on tax credit and deferred tax expense ⁽¹⁾	5,140			—
Loss on investments in alternative energy partnerships, net	(8,682		)	—
Total pre-tax adjustments for investments in alternative energy partnerships	3,742			—
Total adjusted revenue	$	147,193		$	122,376

Efficiency ratio	86.87		%	72.81		%
Efficiency ratio as adjusted to include the pre-tax effect of investments in alternative energy partnerships	78.76		%	72.81		%


(1)	Utilized a 41.37 percent tax rate

Tangible Common Equity to Tangible Assets and Tangible Common Equity per Common Share and per Common Share Issuable under Purchase Contracts



	March 31,
	2017			2016
	($ in thousands)
Total stockholders' equity	$	985,748		$	867,530
Less goodwill	(37,144		)	(39,244		)
Less other intangible assets	(12,191		)	(17,836		)
Less preferred stock	(269,071		)	(311,008		)
TCE	$	667,342		$	499,442

Total assets	$	11,052,085		$	9,616,972
Less goodwill	(37,144		)	(39,244		)
Less other intangible assets	(12,191		)	(17,836		)
Tangible assets	$	11,002,750		$	9,559,892

Total stockholders' equity to total assets	8.92		%	9.02		%
TCE to tangible assets	6.07		%	5.22		%

Common shares outstanding	49,601,363			43,907,587
Class B non-voting non-convertible common shares outstanding	277,797			91,066
Total common shares outstanding	49,879,160			43,998,653
Minimum number of shares issuable under purchase contracts ⁽¹⁾	166,265			253,155
Total common shares outstanding and shares issuable under purchase contracts	50,045,425			44,251,808

Book value per common share	$	14.37		$	12.65
TCE per common share	$	13.38		$	11.35

Book value per common share and per common share issuable under purchase contracts	$	14.32		$	12.58
TCE per common share and per common share issuable under purchase contracts	$	13.33		$	11.29


(1)	Purchase contracts relating to tangible equity units

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EXECUTIVE OVERVIEW

Banc of California, Inc., a financial holding company regulated by the Federal Reserve Board, is focused on empowering California’s diverse private businesses, entrepreneurs and communities. It is the parent company of Banc of California, National Association, a California based bank that is regulated by the Office of the Comptroller of the Currency.

The Bank is headquartered in Santa Ana, California and at March 31, 2017, the Bank had 37 full service branches in San Diego, Orange, Santa Barbara, and Los Angeles Counties.

The Company’s vision is to be California’s Bank. It has established four pillars for the pursuit of this vision: (i) responsible and disciplined growth, (ii) strong and stable asset quality, (iii) focus and optimization, and (iv) strong corporate governance to support our stockholders, clients, employees and communities.

The Company is focused on California and core products and services designed to cater to the unique needs of California's diverse private businesses, entrepreneurs and communities.

As part of delivering on our value proposition to clients, we offer a variety of financial products and services designed around our target client in order to serve all of their banking and financial needs. This includes both deposit products offered through the Company's multiple channels that include retail banking, business banking, institutional banking, and private banking, as well as lending products including jumbo residential mortgage lending, commercial lending, commercial real estate lending, multifamily lending, and specialty lending including SBA lending, and construction lending.

The Bank’s deposit and banking product and service offerings include checking, savings, money market, certificates of deposit, retirement accounts as well as online, telephone, and mobile banking, automated bill payment, cash and treasury management, master demand accounts, foreign exchange, interest rate swaps, trust services, card payment services, remote and mobile deposit capture, ACH origination, wire transfer, direct deposit, and safe deposit boxes. Bank customers also have the ability to access their accounts through a nationwide network of over 55,000 surcharge-free ATMs.

The Bank’s lending activities are focused on providing financing to California’s private businesses and entrepreneurs that is often secured against California commercial and residential real estate.

Highlights

•

During the three months ended March 31, 2017, the Company completed the sale of its Banc Home Loans division, which largely reflected the Company's Mortgage Banking segment. The Company determined that the sale of our Mortgage Banking segment met the criteria to be classified as a discontinued operation. This transaction advanced our strategy to refocus our business on core commercial banking opportunities in our California markets.

•

Income from continuing operations was $9.4 million for the three months ended March 31, 2017, a decrease of $7.9 million, or 45.8 percent, from $17.3 million for the three months ended March 31, 2016. Net income was $17.2 million for the three months ended March 31, 2017, a decrease of $2.5 million, or 12.6 percent, from $19.7 million for the three months ended March 31, 2016. Return on average assets, on a consolidated operations basis, was 0.62 percent and 0.90 percent, respectively, for the three months ended March 31, 2017 and 2016. Return on average tangible common equity, on a consolidated operations basis, was 7.76 percent and 14.46 percent, respectively, for the three months ended March 31, 2017 and 2016.

•

Net interest income, on a consolidated operations basis, was $83.7 million for the three months ended March 31, 2017, an increase of $13.3 million, or 18.9 percent, from $70.4 million for the three months ended March 31, 2016. The increase was mainly due to a higher interest income from increased average interest-earning assets, partially offset by a higher interest expense from increased interest-bearing liabilities and a lower average yield on loans and leases. Net interest margin was 3.19 percent and 3.39 percent for the three months ended March 31, 2017 and 2016, respectively.


•	Provision for loan and lease losses was $2.6 million for the three months ended March 31, 2017, an increase of $2.3 million, or 704.7 percent, from $321 thousand for the three months ended March 31, 2016. The increase was mainly due to increases in commercial and industrial loans, construction loans and multi-family loans, partially offset by decreases in SFR mortgage loans and lease financing.

•

Noninterest income from continuing operations was $14.9 million for the three months ended March 31, 2017, a decrease of $6.3 million, or 29.7 percent, from $21.2 million for the three months ended March 31, 2016. The decrease was mainly due to a decrease in net gain on sale of securities available-for-sale, partially offset by increases in net gain on sale of loans, loan servicing income, and customer service fees. Noninterest income from discontinued operations was $44.8 million for the three months ended March 31, 2017, an increase of $14.0 million, or 45.6 percent, from $30.8 million for the three months ended March 31, 2016. The increase was mainly due to a net gain on disposal of discontinued operations and an increase in loan servicing income (loss), partially offset by a decrease in net revenue from mortgage banking activities.

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•

Noninterest expense from continuing operations was $89.9 million for the three months ended March 31, 2017, an increase of $30.8 million, or 52.0 percent, from $59.1 million for the three months ended March 31, 2016. The increase was mainly due to the special investigation, pending SEC investigation and restructurings, as well as an increase in expense related to increased loan originations and a recognition of loss on investments in alternative energy partnerships, during the three months ended March 31, 2017. Noninterest expense from discontinued operations was $34.7 million for the three months ended March 31, 2017, an increase of $4.8 million, or 15.9 percent, from $30.0 million for the three months ended March 31, 2016. The increase was mainly due to a restructuring expense for the three months ended March 31, 2017 and increases in salaries and employee benefits, outside service fees and all other expense, partially offset by decreases in occupancy and equipment and professional fees.


•	Income tax (benefit) expense from consolidated operations was $(948) thousand and $13.3 million, respectively, and the effective tax rate was (5.8) percent and 40.3 percent, respectively. The Company’s effective tax rate was lower in the 2017 period due to the recognition of year-to-date tax credits from the investments in alternative energy partnerships of approximately $8.8 million.


•	Efficiency ratio as adjusted to include the pre-tax effect of investments in alternative energy partnerships was 78.76 percent for the three months ended March 31, 2017, compared to 72.81 percent for the three months ended March 31, 2016. The decline was mainly due to the higher increase in noninterest expense than the increase in total revenue.

•

Total assets were $11.05 billion at March 31, 2017, an increase of $22.2 million, or 0.2 percent, from $11.03 billion at December 31, 2016. Average total assets were $11.19 billion for the three months ended March 31, 2017, an increase of $2.36 billion, or 26.7 percent, from $8.83 billion for the three months ended March 31, 2016. The increase was mainly due to increases in investment securities and loans and leases funded by net proceeds of the common stock offerings completed during the three months ended June 30, 2016 as well as higher increased deposits.

•

Loans and leases receivable, net of ALLL were $6.06 billion at March 31, 2017, an increase of $68.3 million, or 1.1 percent, from $5.99 billion at December 31, 2016. Loans held-for-sale, on a consolidated operations basis, were $649.3 million at March 31, 2017, a decrease of $55.3 million, or 7.9 percent, from $704.7 million at December 31, 2016. Average total loans and leases were $6.79 billion for the three months ended March 31, 2017, an increase of $789.6 million, or 13.2 percent, from $6.00 billion for the three months ended March 31, 2016. The increases were due mainly to increased originations of loans and leases.

•

Total deposits were $8.60 billion at March 31, 2017, a decrease of $544.5 million, or 6.0 percent, from $9.14 billion at December 31, 2016. The decrease was mainly due to a planned reduction of brokered deposits and outflows from the Company's private banking and commercial banking business units. Average total deposits were $8.91 billion for the three months ended March 31, 2017, an increase of $2.34 billion, or 35.7 percent, from $6.56 billion for the three months ended March 31, 2016.

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RESULTS OF OPERATIONS

The following table presents condensed statements of operations for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands, except per share data)
Interest and dividend income	$	98,842		$	81,062
Interest expense	18,361			13,823
Net interest income	80,481			67,239
Provision for loan and lease losses	2,583			321
Noninterest income	14,903			21,193
Noninterest expense	89,896			59,144
Income from continuing operations before income taxes	2,905			28,967
Income tax (benefit) expense	(6,471		)	11,661
Income from continuing operations	9,376			17,306
Income from discontinued operations before income taxes	13,348			3,988
Income tax expense	5,523			1,607
Income from discontinued operations	7,825			2,381
Net income	17,201			19,687
Preferred stock dividends	5,113			4,575
Net income available to common stockholders	$	12,088		$	15,112
Basic earnings per total common share
Income from continuing operations	$	0.08		$	0.30
Income from discontinued operations	0.15			0.06
Net income	$	0.23		$	0.36
Diluted earnings per total common share
Income from continuing operations	$	0.08		$	0.30
Income from discontinued operations	0.15			0.06
Net income	$	0.23		$	0.36

For the three months ended March 31, 2017, income from continuing operations was $9.4 million, a decrease of $7.9 million, or 45.8 percent, from $17.3 million for the three months ended March 31, 2016. For the three months ended March 31, 2017, net income was $17.2 million, a decrease of $2.5 million, or 12.6 percent, from $19.7 million for the three months ended March 31, 2016.

Preferred stock dividends were $5.1 million and $4.6 million for the three months ended March 31, 2017 and 2016, respectively, and net income available to common stockholders was $12.1 million and $15.1 million for the three months ended March 31, 2017 and 2016, respectively.

Reconciliation of Consolidated Statement of Operations of Consolidated Operations

The following table presents a reconciliation of Consolidated Statement of Operations of consolidated operations:



	Three Months Ended March 31, 2017
	Continuing Operations			Discontinued Operations		Consolidated Operations
	(In thousands)
Interest and dividend income	$	98,842		$	3,266	$	102,108
Interest expense	18,361			—		18,361
Net interest income	80,481			3,266		83,747
Provision for loan and lease losses	2,583			—		2,583
Noninterest income	14,903			44,801		59,704
Noninterest expense	89,896			34,719		124,615
Income from continuing operations before income taxes	2,905			13,348		16,253
Income tax (benefit) expense	(6,471		)	5,523		(948		)
Net income	$	9,376		$	7,825	$	17,201

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Net Interest Income

The following table presents interest income, average interest-earning assets, interest expense, average interest-bearing liabilities, and their correspondent yields and costs expressed both in dollars and rates, on a consolidated operations basis, for the three months ended March 31, 2017 and 2016:



	Three Months Ended March 31,
	2017							2016
	Average Balance			Interest		Yield/ Cost		Average Balance			Interest		Yield/ Cost
	($ in thousands)
Interest-earning assets:
Total loans and leases ⁽¹⁾	$	6,785,013		$	72,773	4.35	%	$	5,995,436		$	67,144	4.50	%
Securities	3,376,698			27,239		3.27	%	2,128,882			16,047		3.03	%
Other interest-earning assets ⁽²⁾	500,123			2,096		1.70	%	219,849			1,049		1.92	%
Total interest-earning assets	10,661,834			102,108		3.88	%	8,344,167			84,240		4.06	%
ALLL	(41,285		)					(35,575		)
BOLI and non-interest earning assets ⁽³⁾	568,257							524,584
Total assets	$	11,188,806						$	8,833,176
Interest-bearing liabilities:
Savings	$	1,042,031		2,292		0.89	%	$	834,965		1,572		0.76	%
Interest-bearing checking	2,008,828			3,414		0.69	%	1,900,834			3,244		0.69	%
Money market	2,735,810			4,691		0.70	%	1,437,332			1,679		0.47	%
Certificates of deposit	1,937,392			3,563		0.75	%	1,158,901			1,612		0.56	%
FHLB advances	812,444			1,423		0.71	%	955,659			1,262		0.53	%
Securities sold under repurchase agreements	2,123			6		1.15	%	90,395			160		0.71	%
Long term debt and other interest-bearing liabilities	244,040			2,972		4.94	%	263,656			4,294		6.55	%
Total interest-bearing liabilities	8,782,668			18,361		0.85	%	6,641,742			13,823		0.84	%
Noninterest-bearing deposits	1,181,279							1,230,991
Non-interest-bearing liabilities	223,075							197,520
Total liabilities	10,187,022							8,070,253
Total stockholders’ equity	1,001,784							762,923
Total liabilities and stockholders’ equity	$	11,188,806						$	8,833,176
Net interest income/spread				$	83,747	3.03	%				$	70,417	3.22	%
Net interest margin ⁽⁴⁾						3.19	%						3.39	%

(1)

Total loans and leases include loans held-for-sale and loans and leases held-for-investment, and are net of deferred fees, related direct costs and discounts, but exclude the ALLL. Non-accrual loans and leases are included in the average balance. Loan fees (costs) of $708 thousand and $85 thousand and accretion of discount on purchased loans of $2.1 million and $10.6 million for the three months ended March 31, 2017 and 2016, 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 $102.7 million and $100.4 million for the three months ended March 31, 2017 and 2016, respectively.


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

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Rate/Volume Analysis

The following table presents the changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. Information is provided on 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, 2017 vs. 2016
	Increase (Decrease) Due to						Net Increase (Decrease)
	Volume			Rate			Net Increase (Decrease)
	(In thousands)
Interest-earning assets:
Total loans and leases	$	8,031		$	(2,402	)	$	5,629
Securities	9,859			1,333			11,192
Other interest-earning assets	1,179			(132		)	1,047
Total interest-earning assets	$	19,069		$	(1,201	)	$	17,868
Interest-bearing liabilities:
Savings	$	426		$	294		$	720
Interest-bearing checking	170			—			170
Money market	1,954			1,058			3,012
Certificates of deposit	1,296			655			1,951
FHLB advances	(210		)	371			161
Securities sold under repurchase agreements	(214		)	60			(154		)
Long term debt and other interest-bearing liabilities	(307		)	(1,015		)	(1,322		)
Total interest-bearing liabilities	3,115			1,423			4,538
Net interest income	$	15,954		$	(2,624	)	$	13,330

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Net interest income was $83.7 million for the three months ended March 31, 2017, an increase of $13.3 million, or 18.9 percent, from $70.4 million for the three months ended March 31, 2016. The growth in net interest income from the prior period was largely due to higher interest income from higher average balances of interest-earning assets partially offset by higher interest expense on higher average balances of interest-bearing liabilities and lower average yield on total loans and leases.

Interest income on total loans and leases was $72.8 million for the three months ended March 31, 2017, an increase of $5.6 million, or 8.4 percent, from $67.1 million for the three months ended March 31, 2016. The increase in interest income on loans and leases was due to a $789.6 million increase in average total loans and leases, partially offset by a 15 basis points (bps) decrease in average yield. The increase in average balance was due mainly to an increase in loan and lease originations and purchases. The decrease in average yield was mainly due to the lower yields on newly originated loans and leases, the sale of the Company's lease financing portfolio, which earned a higher yield than other loan portfolios during 2016, and a decrease in the proportion of seasoned SFR mortgage loan pools to total loans and leases, due to sales in 2016, where discounts on these pools generate additional interest income. The discount accretion totaled $2.1 million and $10.6 million for the three months ended March 31, 2017 and 2016, respectively.

Interest income on securities was $27.2 million for the three months ended March 31, 2017, an increase of $11.2 million, or 69.7 percent, from $16.0 million for the three months ended March 31, 2016. The increase in interest income on securities was due to a $1.25 billion increase in average balance and a 24 bps increase in average yield. The increase in average balance was mainly due to purchases of securities to deploy the proceeds from the preferred stock and common stock offerings in 2016 and the deposit balance increase during the period. The increase in average yield was due to higher interest rates on newly purchased investment securities. During the three months ended March 31, 2017, the Company purchased $472.9 million of securities available-for-sale and sold $375.2 million of securities available-for-sale. The Company continued to reposition its securities available-for-sale portfolio to navigate a volatile rate environment, and enhance the consistency and predictability of its earnings during the three months ended March 31, 2017.

Dividends and interest income on other interest-earning assets was $2.1 million for the three months ended March 31, 2017, an increase of $1.0 million, or 99.8 percent, from $1.0 million for the three months ended March 31, 2016. The increase in dividends and interest income on other interest-earning assets was due to a $280.3 million increase in average balance, partially offset by a 22 bps decrease in average yield. The increase in average balance was mainly due to the excess cash from the common stock offerings during the second quarter of 2016 and deposit increase. The decrease in average yield was mainly due

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to an increase in interest-earning deposits in financial institutions, which earn lower yields than other interest-earning assets, partially offset by an increase in dividend income from FHLB stock.

Interest expense on interest-bearing deposits was $14.0 million for the three months ended March 31, 2017, an increase of $5.9 million, or 72.2 percent, from $8.1 million for the three months ended March 31, 2016. The increase in interest expense on interest-bearing deposits resulted from a $2.39 billion increase in average balance and a 12 bps increase in average cost. The increase in average balance was mainly due to strong deposit growth across the Company's business units, including strong growth from the financial institutions banking business, as well as an increased average balance per account. The Company also strategically added brokered certificates of deposit in order to maintain a sufficient level of deposit funding.

Interest expense on FHLB advances was $1.4 million for the three months ended March 31, 2017, an increase of $161 thousand, or 12.8 percent, from $1.3 million for the three months ended March 31, 2016. The increase was due mainly to an 18 bps increase in average cost, partially offset by a $143.2 million decrease in average balance. The increase in average cost was due to a rising interest rate environment.

Interest expense on securities sold under repurchase agreements was $6 thousand for the three months ended March 31, 2017, a decrease of $154 thousand, or 96.3 percent, from $160 thousand for the three months ended March 31, 2016. The Company utilized a decreased amount of repurchase agreements during the three months ended March 31, 2017.

Interest expense on long term debt and other interest-bearing liabilities was $3.0 million for the three months ended March 31, 2017, a decrease of $1.3 million, or 30.8 percent, from $4.3 million for the three months ended March 31, 2016. The decrease was due mainly to the redemption of the Senior Notes I during the second quarter of 2016.

Provision for Loan and Lease Losses

Provisions for loan and lease losses are charged to operations at a level required to reflect inherent credit losses in the loan and lease portfolio. The Company recorded provisions for loan and lease losses of $2.6 million and $321 thousand, respectively, for the three months ended March 31, 2017 and 2016. The increase was mainly due to increases in commercial and industrial loans, construction loans and multi-family loans, partially offset by decreases in SFR mortgage loans and lease financing.

On a quarterly basis, the Company evaluates the PCI loans and the loan pools for potential impairment. The provision for losses on PCI loans is the result of changes in expected cash flows, both in amount and timing, due to loan payments and the Company’s revised loss forecasts. The revisions to the loss forecasts were based on the results of management’s review of the credit quality of the outstanding loans/loan pools and the analysis of the loan performance data since the acquisition of these loans. On a quarterly basis, the Company also evaluates whether a reforecast of cash flow projections is necessary. Due to the uncertainty in the future performance of the PCI loans, additional impairments may be recognized in the future.

See further discussion in "Allowance for Loan and Lease Losses."

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Noninterest Income

The following table presents the breakdown of non-interest income for the periods indicated:



	Three Months Ended
	March 31,
	2017		2016
	(In thousands)
Customer service fees	$	1,623	$	848
Loan servicing income (loss)	2,756		(2,205		)
Income from bank owned life insurance	581		563
Net gain on sale of securities available-for-sale	3,356		16,789
Net gain on sale of loans	4,019		2,195
Loan brokerage income	1,027		901
Other income	1,541		2,102
Total noninterest income	$	14,903	$	21,193

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Noninterest income was $14.9 million for the three months ended March 31, 2017, a decrease of $6.3 million, or 29.7 percent, from $21.2 million for the three months ended March 31, 2016. The decrease in noninterest income was mainly due to decreases in net gain on sale of securities available-for-sale and other income, partially offset by increases in loan servicing income, net gain on sale of loans, customer services fees, and loan brokerage income.

Customer service fees were $1.6 million for the three months ended March 31, 2017, an increase of $775 thousand, or 91.4 percent, from $848 thousand for the three months ended March 31, 2016. The increase was mainly due to the increase in average deposit balances.

Loan servicing income (loss) was $2.8 million for the three months ended March 31, 2017, an increase of $5.0 million, or 225.0 percent, from $(2.2) million for the three months ended March 31, 2016. On a consolidated operations basis, total income (loss) from servicing rights was $4.3 million and $(5.3) million, respectively, for the three months ended March 31, 2017 and 2016. The increase was mainly due to an increase in servicing fees from the increased volume of loans sold with servicing retained, and a decrease in losses on the fair value of mortgage servicing rights. Losses on fair value and runoff of servicing assets were $1.9 million and $10.2 million for the three months ended March 31, 2017 and 2016, respectively. Servicing fees were $6.2 million and $4.9 million for the three months ended March 31, 2017 and 2016, respectively, and the increase in servicing fees was due to higher unpaid principal balances of loans sold with servicing retained.

Net gain on sale of securities available-for-sale was $3.4 million for the three months ended March 31, 2017, compared to $16.8 million for the three months ended March 31, 2016. During the three months ended March 31, 2017, the Company sold $375.2 million of securities available-for-sale, as compared to $2.23 billion of securities available-for-sale during the three months ended March 31, 2016. The Company continued to reposition its securities available-for-sale portfolio to navigate a volatile rate environment, and enhance the consistency and predictability of its earnings during the three months ended March 31, 2017.

Net gain on sale of loans was $4.0 million for the three months ended March 31, 2017, an increase of $1.8 million from $2.2 million for the three months ended March 31, 2016. During the three months ended March 31, 2017, the Company sold jumbo SFR mortgage loans of $345.2 million with a gain of $2.8 million, SBA loans of $9.0 million with a gain of $895 thousand, and multi-family loans of $8.0 million with a gain of $421 thousand. During the three months ended March 31, 2016, the Company sold jumbo SFR mortgage loans of $92.8 million with a gain of $1.1 million and SBA loans of $14.1 million with a gain of $1.1 million.

Loan brokerage income was $1.0 million for the three months ended March 31, 2017, an increase of $126 thousand, or 14.0 percent, from $901 thousand for the three months ended March 31, 2016. The increase was mainly due to an increase in the volume of brokered loans.

Other income was $1.5 million for the three months ended March 31, 2017, a decrease of $561 thousand from $2.1 million for the three months ended March 31, 2016. The decrease was mainly due to a decrease in advisory service fees. The decrease in advisory service fees was due to the sale of The Palisades Group on May 5, 2016. The Company does not expect to have advisory service fee income in future periods.

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Noninterest Expense

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



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Salaries and employee benefits	32,443			33,469
Occupancy and equipment	10,668			8,941
Professional fees	15,073			5,903
Outside service fees	1,883			1,625
Data processing	2,179			1,686
Advertising	1,725			986
Regulatory assessments	2,441			1,736
Loss on investments in alternative energy partnerships	8,682			—
Reversal for loan repurchases	(325		)	(359		)
Amortization of intangible assets	1,090			1,322
Impairment on intangible assets	336			—
Restructuring expense	5,287			—
All other expense	8,414			3,835
Total noninterest expense	$	89,896		$	59,144

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Noninterest expense was $89.9 million for the three months ended March 31, 2017, an increase of $30.8 million, or 52.0 percent, from $59.1 million for the three months ended March 31, 2016. The increase was mainly due to the special committee and governmental investigations and restructuring, as well as an increase in expense related to increased loan originations and a recognition of loss on investments in alternative energy partnerships, during the three months ended March 31, 2017.

Total salaries and employee benefits was $32.4 million for the three months ended March 31, 2017, a decrease of $1.0 million, or 3.1 percent, from $33.5 million for the three months ended March 31, 2016. The decrease was due mainly to a reversal of bonus accrual, partially offset by an increase in salaries. At December 31, 2016 the Company accrued a liability for estimated discretionary incentive compensation payments to certain employees. The amount paid was less than the accrued liability. Consequently, the Company reversed the excess accrual and recorded a credit to salaries and employee benefits on the consolidated statements of operations of $7.8 million during the three months ended March 31, 2017. The reversal, based on new information driven by changes to certain facts and circumstances, was determined to be a change in estimate.

Occupancy and equipment expenses were $10.7 million for the three months ended March 31, 2017, an increase of $1.7 million, or 19.3 percent, from $8.9 million for the three months ended March 31, 2016. The increase was due mainly to increased building and maintenance costs associated with additional facilities resulting from the new headquarters building in Santa Ana.

Professional fees were $15.1 million for the three months ended March 31, 2017, an increase of $9.2 million, or 155.3 percent, from $5.9 million for the three months ended March 31, 2016. The increase was mainly due to the special committee investigation, pending SEC investigation and increased audit fees.

Outside service fees were $1.9 million for the three months ended March 31, 2017, an increase of $258 thousand, or 15.9 percent, from $1.6 million for the three months ended March 31, 2016. The increase was mainly due to an increase in loan sub-servicing expenses resulting from the growth in the loan portfolio.

Data processing expense was $2.2 million for the three months ended March 31, 2017, an increase of $493 thousand, or 29.2 percent, from $1.7 million for the three months ended March 31, 2016. The increase was mainly due to a higher volume of transactions related to loan and deposit growth.

Advertising costs were $1.7 million for the three months ended March 31, 2017, an increase of $739 thousand, or 74.9 percent, from $1.0 million for the three months ended March 31, 2016. The increase was mainly due to the Company's higher overall marketing cost associated with the continued expansion of its business footprint.

Regulatory assessments were $2.4 million for the three months ended March 31, 2017, an increase of $705 thousand, or 40.6 percent, from $1.7 million for the three months ended March 31, 2016. The increase was due to year-over-year balance sheet growth.

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Loss on investments in alternative energy partnerships of $8.7 million was recognized during the three months ended March 31, 2017, with no similar transaction during the three months ended March 31, 2016.

Reversal for loan repurchases was $325 thousand and $359 thousand for the three months ended March 31, 2017 and 2016, respectively. Additionally, the Company recorded an initial provision for loan repurchases of $842 thousand and $738 thousand during the three months ended March 31, 2017 and 2016, respectively. Total provision for loan repurchases were $517 thousand and $379 thousand for the three months ended March 31, 2017 and 2016, respectively. The increase in the initial provision was mainly due to a reflection of most recent reserve utilization trend history and the decrease in provision for loan repurchases in noninterest expense was due to the lower reserve requirement compared to the preceding period.

Amortization of intangible assets was $1.1 million for the three months ended March 31, 2017, a decrease of $232 thousand, or 17.5 percent, from $1.3 million for the three months ended March 31, 2016. The decrease was mainly due to an impairment on customer relationship intangible without additional new intangible assets.

The Company recognized restructuring expense of $5.3 million during the three months ended March 31, 2017. In connection with the sale of the Banc Home Loans division and additional cost reduction initiatives, the Company restructured certain aspects of its infrastructure and back office operations by realigning back office staffing and amending certain system contracts in order to improve the Company's efficiency.

Other expenses were $8.4 million for the three months ended March 31, 2017, an increase of $4.6 million, or 119.4 percent, from $3.8 million for the three months ended March 31, 2016. The increase was mainly due to increases in loan related expense and reserve for unfunded loan commitments due to the increased loan originations.

Income Tax Expense

For the three months ended March 31, 2017 and 2016, income tax (benefit) expense from consolidated operations was $(948) thousand and $13.3 million, respectively, and the effective tax rate was (5.8) percent and 40.3 percent, respectively. The Company’s effective tax rate was lower in the 2017 period due to the recognition of year-to-date tax credits from the investments in alternative energy partnerships of approximately $8.8 million. The Company uses the flow-through income statement method to account for the investment tax credits earned on the solar investments. 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 11 to Consolidated Financial Statements (unaudited) in this report.

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Discontinued Operations

During the three months ended March 31, 2017, the Company completed the sale of the Banc Home Loans division, which largely represented the Company's Mortgage Banking segment. In accordance with Accounting Standards Codification (ASC) 205-20, the Company determined that the sale of the Banc Home Loans division and certain other mortgage banking related assets and liabilities that will be sold or settled separately within one year met the criteria to be classified as a discontinued operation and its operating results and financial condition have been presented as discontinued operations in the consolidated financial statements. Certain components of the Company’s Mortgage Banking segment including MSRs on certain conventional government SFR mortgage loans that were not sold as part of the Banc Home Loans sale, and the repurchase reserves related to previously sold loans, have been classified as continuing operations in the financial statements as they will continue to be part of the Company’s ongoing operations.

Interest Income

Interest income of discontinued operations was $3.3 million for the three months ended March 31, 2017, an increase of $88 thousand, or 2.8 percent, from $3.2 million for the three months ended March 31, 2016. The increase was mainly due to an increase in average balance of loans held-for-sale. Average balances of loans held-for-sales were $388.2 million and $363.5 million, respectively, for the three months ended March 31, 2017 and 2016.

Noninterest Income

Noninterest income of discontinued operations was $44.8 million for the three months ended March 31, 2017, an increase of $14.0 million, or 45.6 percent, from $30.8 million for the three months ended March 31, 2016. The increase was mainly due to a net gain on disposal of discontinued operations and an increase in loan servicing income (loss), partially offset by a decrease in net revenue from mortgage banking activities.

Net gain on disposal of discontinued operations was $13.3 million.

Loan servicing income (loss) was $1.6 million for the three months ended March 31, 2017, an increase of $4.6 million, or 150.3 percent, from $(3.1) million for the three months ended March 31, 2016.

Net revenue on mortgage banking activities was $29.4 million for the three months ended March 31, 2017, an decrease of $4.3 million, or 12.6 percent, from $33.7 million for the three months ended March 31, 2016. During the three months ended March 31, 2017, the Bank originated $934.6 million and sold $934.1 million of conforming SFR mortgage loans in the secondary market. The net gain and margin were $26.3 million and 2.81 percent, respectively, and loan origination fees were $3.2 million for the three months ended March 31, 2017. Included in the net gain is the initial capitalized value of our MSRs, which totaled $7.3 million on loans sold to Fannie Mae, Freddie Mac and Ginnie Mae for the three months ended March 31, 2017. During the three months ended March 31, 2016, the Bank originated $1.02 billion and sold $976.1 million of conforming SFR mortgage loans in the secondary market. The net gain and margin were $29.7 million and 2.90 percent, respectively, and loan origination fees were $4.0 million for the three months ended March 31, 2016. Included in the net gain is the initial capitalized value of our MSRs, which totaled $8.4 million on loans sold to Fannie Mae, Freddie Mac and Ginnie Mae for the three months ended March 31, 2016.

Noninterest Expense

Noninterest expense of discontinued operations was $34.7 million for the three months ended March 31, 2017, an increase of $4.8 million, or 15.9 percent, from $30.0 million for the three months ended March 31, 2016. The increase was mainly due to a restructuring expense for the three months ended March 31, 2017 and increases in salaries and employee benefits, outside service fees and all other expense, partially offset by decreases in occupancy and equipment and professional fees.

Restructuring expense was $3.2 million for the three months ended March 31, 2017. In connection with the sale of Banc Home Loans division, the Company restructured certain aspects of its infrastructure and back office operations by realigning back office staffing and amending certain system contracts in order to improve the Company's efficiency.

For additional information, see Note 2 to Consolidated Financial Statements (unaudited) in this report.

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FINANCIAL CONDITION

Investment Securities

Investment securities are classified as held-to-maturity or available-for-sale in accordance with GAAP. The Company currently has no investment securities classified as trading. Investment securities that the Company has the ability and the intent to hold to maturity are classified as held-to-maturity. All other securities are classified as available-for-sale. Investment securities classified as held-to-maturity are carried at amortized cost. Investment securities classified as available-for-sale are carried at their estimated fair values with the changes in fair values recorded in accumulated other comprehensive income, as a component of stockholders’ equity.

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, repurchase agreements, certain public funds deposits, and for Federal Reserve Discount Window availability.

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



	March 31, 2017							December 31, 2016
	Amortized Cost		Fair Value		Unrealized Gain (Loss)			Amortized Cost		Fair Value		Unrealized Gain (Loss)
	(In thousands)
Securities held-to-maturity:
Corporate bonds	$	240,304	$	254,026	$	13,722		$	240,090	$	253,031	$	12,941
Collateralized loan obligations	317,223		318,637		1,414			338,226		339,626		1,400
Commercial mortgage-backed securities	305,742		307,235		1,493			305,918		307,086		1,168
Total securities held-to-maturity	$	863,269	$	879,898	$	16,629		$	884,234	$	899,743	$	15,509
Securities available-for-sale:
SBA loan pool securities	$	1,138	$	1,145	$	7		$	1,221	$	1,221	$	—
Private label residential mortgage-backed securities	121,214		116,757		(4,457		)	121,397		117,177		(4,220		)
Corporate bonds	19,134		19,144		10			48,574		48,948		374
Collateralized loan obligations	1,489,865		1,502,253		12,388			1,395,094		1,406,869		11,775
Agency mortgage-backed securities	819,800		795,242		(24,558		)	830,682		807,273		(23,409		)
Total securities available-for-sale	$	2,451,151	$	2,434,541	$	(16,610	)	$	2,396,968	$	2,381,488	$	(15,480	)

Securities available-for-sale were $2.43 billion at March 31, 2017, an increase of $53.1 million, or 2.2 percent, from $2.38 billion at December 31, 2016. The increase was mainly due to purchases of $472.9 million, partially offset by sales of $375.2 million and principal payments of $10.7 million. Securities available-for-sale had a net unrealized loss of $16.6 million at March 31, 2017, compared to a net unrealized loss of $15.5 million at December 31, 2016. Securities held-to-maturity were $863.3 million and $884.2 million at March 31, 2017 and December 31, 2016, respectively. The Company continued to reposition its securities available-for-sale portfolio to navigate a volatile rate environment, and enhance the consistency and predictability of its earnings during the three months ended March 31, 2017.

Collateralized loan obligations (CLOs) totaled $1.81 billion and $1.73 billion, respectively, in amortized cost basis at March 31, 2017 and December 31, 2016. 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 to equity tranches.

The Company believes that its CLO portfolio, consisting entirely of variable rate securities, supports the Company’s interest rate risk management strategy by lowering the extension risk and duration risk inherent to certain fixed rate investment securities. At March 31, 2017, the Company owned AAA and AA rated CLOs and did not own CLOs rated below AA. As all CLOs are also rated above investment grade credit ratings and were diversified across issuers, the Company believes that these CLOs enhance the Company's liquidity position. The Company also maintains pre-purchase due diligence and ongoing review processes by a dedicated credit administration team. The ongoing review process includes monitoring of performance factors including external credit ratings, collateralization levels, collateral concentration levels and other performance factors. The Company only acquires CLOs that are Volcker Rule compliant.

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The Company did not record OTTI for investment securities for the three months ended March 31, 2017 or 2016. The Company monitors its securities portfolio to ensure it has adequate credit support. As of March 31, 2017, the Company believes there is no OTTI and did not have the intent to sell these securities and it is not likely that it will be required to sell the securities before their anticipated recovery. The Company considers the lowest credit rating for identification of potential OTTI. As of March 31, 2017, all of the Company's investment securities in an unrealized loss position received an investment grade credit rating.

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The following table presents the composition of the repricing and yield information, at amortized cost, of the investment securities portfolio as of March 31, 2017:



	One Year or Less				More than One Year through Five Years				More than Five Years through Ten Years				More than Ten Years				Total
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield
	($ in thousands)
Securities held-to-maturity:
Corporate bonds	$	—	—	%	$	15,000	5.00	%	$	225,304	5.06	%	$	—	—	%	$	240,304	5.05	%
Collateralized loan obligations	317,223		3.06	%	—		—	%	—		—	%	—		—	%	317,223		3.06	%
Commercial mortgage-backed securities	—		—	%	—		—	%	223,691		3.96	%	82,051		3.81	%	305,742		3.92	%
Total securities held-to-maturity	$	317,223	3.06	%	$	15,000	5.00	%	$	448,995	4.51	%	$	82,051	3.81	%	$	863,269	3.92	%
Securities available-for-sale:
SBA loan pools securities	$	—	—	%	$	—	—	%	$	—	—	%	$	1,138	2.69	%	$	1,138	2.69	%
Private label residential mortgage-backed securities	51,384		3.68	%	496		3.89	%	—		—	%	69,334		3.37	%	121,214		3.50	%
Corporate bonds	—		—	%	10,000		7.00	%	9,134		5.91	%	—		—	%	19,134		6.48	%
Collateralized loan obligations	1,489,865		3.04	%	—		—	%	—		—	%	—		—	%	1,489,865		3.04	%
Agency mortgage-backed securities	504		0.86	%	7,390		1.56	%	—		—	%	811,906		2.75	%	819,800		2.74	%
Total securities available-for-sale	$	1,541,753	3.06	%	$	17,886	4.66	%	$	9,134	5.91	%	$	882,378	2.80	%	$	2,451,151	2.99	%

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Loans Held-for-Sale

Total loans held-for-sale on a consolidated operations basis were $649.3 million and $704.7 million, respectively, at March 31, 2017 and December 31, 2016. Loans held-for-sale consisted of two components; loans held-for-sale carried at fair value and loans held-for-sale carried at lower of cost or fair value.

Loans held-for-sale carried at fair value are mainly conforming SFR mortgage loans originated through the Company's mortgage banking activities. Loans held-for-sale carried at fair value on a consolidated operations basis were $422.1 million and $417.0 million, respectively, at March 31, 2017 and December 31, 2016. The $5.2 million, or 1.2 percent, increase was mainly due to originations of $947.2 million and repurchases of $13.6 million, partially offset by sales of $955.6 million. During the three months ended March 31, 2017, the Company completed the sale of its Banc Home Loans division, which reflected the Company's Mortgage Banking segment, and determined that the sale of Mortgage Banking segment met the criteria to be classified as a discontinued operation. Loans held-for-sale carried at fair value related to the Banc Home Loans division were transferred to Assets of Discontinued Operations on the Consolidated Statements of Financial Condition. Such loans totaled $420.4 million and $406.3 million, respectively, at March 31, 2017 and December 31, 2016.

Loans held-for-sale carried at the lower of cost or fair value are mainly non-conforming jumbo mortgage loans. Loans held-for-sale carried at lower of cost or fair value on a consolidated operations basis was $227.2 million and $287.7 million, respectively, at March 31, 2017 and December 31, 2016. The $60.5 million, or 21.0 percent, decrease was due mainly to sales of $341.1 million and paydowns and amortization of $13.0 million, partially offset by originations of $51.4 million and loans transferred from loans and leases receivable of $242.3 million.

Loans and Leases Receivable, Net

The following table presents the composition of the Company’s loan and lease portfolio as of the dates indicated:



	March 31, 2017			December 31, 2016			Amount Change			Percentage Change
	($ in thousands)
Commercial:
Commercial and industrial	$	1,585,656		$	1,522,960		$	62,696		4.1	%
Commercial real estate	750,592			729,959			20,633			2.8	%
Multi-family	1,449,715			1,365,262			84,453			6.2	%
SBA	76,040			73,840			2,200			3.0	%
Construction	142,164			125,100			17,064			13.6	%
Lease financing	285			379			(94		)	(24.8	)%
Consumer:
Single family residential mortgage	1,889,390			2,019,161			(129,771		)	(6.4	)%
Green Loans (HELOC)—first liens	85,665			87,469			(1,804		)	(2.1	)%
Green Loans (HELOC)—second liens	3,549			3,559			(10		)	(0.3	)%
Other consumer	122,265			107,063			15,202			14.2	%
Total loans and leases	6,105,321			6,034,752			70,569			1.2	%
ALLL	(42,736		)	(40,444		)	(2,292		)	5.7	%
Loans and leases receivable, net	$	6,062,585		$	5,994,308		$	68,277		1.1	%

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Seasoned SFR Mortgage Loan Acquisitions

The Company did not purchase any seasoned SFR mortgage loan pools during the three months ended March 31, 2017 or 2016.

The total unpaid principal balance and carrying value of the seasoned SFR mortgage loan pools were $173.6 million and $152.7 million, respectively at March 31, 2017 and $177.1 million and $155.2 million, respectively, at December 31, 2016. The total unpaid principal balance and carrying value of PCI loans included in these pools were $150.9 million and $131.3 million, respectively at March 31, 2017 and $153.9 million and $133.2 million, respectively, at December 31, 2016.

At March 31, 2017 and December 31, 2016, approximately 4.06 percent and 4.42 percent of unpaid principal balance of the seasoned SFR mortgage loan pools were delinquent 60 or more days, respectively, and 2.84 percent and 2.39 percent were in bankruptcy or foreclosure, respectively.

As part of the acquisition program, the Company may sell from time to time seasoned SFR mortgage loans that do not meet the Company’s investment standards. The Company also sells seasoned SFR mortgage loans opportunistically and to appropriately match asset and liability maturities. The Company did not sell any seasoned SFR mortgage loan pools during the three months ended March 31, 2017 or 2016.

Seasoned SFR Mortgage Loan Acquisition Due Diligence

The acquisition program implemented and executed by the Company involves a multifaceted due diligence process that includes compliance reviews, title analyses, review of modification agreements, updated property valuation assessments, collateral inventory and other undertakings related to the scope of due diligence. Prior to acquiring mortgage loans, the Company, its affiliates, sub-advisors or due diligence partners typically will review the loan portfolio and conduct certain due diligence on a loan by loan basis according to its proprietary diligence plan. This due diligence encompasses analyzing the title, subordinate liens and judgments as well as a comprehensive reconciliation of current property value. The Company, its affiliates, and its sub-advisors prepare a customized version of its diligence plan for each mortgage loan pool being reviewed that is designed to address certain identified pool specific risks. The diligence plan generally reviews several factors, including but not limited to, obtaining and reconciling property value, confirming chain of titles, reviewing assignments, confirming lien position, confirming regulatory compliance, updating borrower credit, certifying collateral, and reviewing servicing notes. In certain transactions, a portion of the diligence may be provided by the seller. In those instances, the Company reviews the mortgage loan portfolio to confirm the accuracy of the provided diligence information and supplements as appropriate.

As part of the confirmation of property values in the diligence process, the Company conducts independent due diligence on the individual properties and borrowers prior to the acquisition of the mortgage loans. In addition, market conditions, regional mortgage loan information and local trends in home values, coupled with market knowledge, are used by the Company in calculating the appropriate additional risk discount to compensate for potential property declines, foreclosures, defaults or other risks associated with the mortgage loan portfolio to be acquired. Typically, the Company may enter into one or more agreements with affiliates or third parties to perform certain of these due diligence tasks with respect to acquiring potential mortgage loans.

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Non-Traditional Mortgage Portfolio

The Company’s 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, 2017 and December 31, 2016, the NTM portfolio totaled $818.0 million, or 13.4 percent of the total gross loan portfolio, and $885.1 million, or 14.7 percent of the total gross loan portfolio, respectively. The total NTM portfolio decreased by $67.1 million, or 7.6 percent during the period. The decrease was primarily due to paydowns and amortization of $55.5 million and loans transferred to held-for-sale of $46.9 million, partially offset by originations of $43.1 million of Interest Only loans.

The initial credit guidelines for the NTM portfolio were established based on the borrower's FICO score, LTV ratio, property type, occupancy type, loan amount, and geography. Additionally, from an ongoing credit risk management perspective, the Company has determined that the most significant performance indicators for NTMs are LTV ratios and FICO scores. The Company reviews the NTM loan portfolio periodically, which includes refreshing FICO scores on the Green Loans and HELOCs and ordering third party AVM to confirm collateral values.

Green Loans

The Company discontinued the origination of Green Loan products in 2011. Green Loans are SFR first and second mortgage lines of credit with a linked checking account that allows all types of deposits and withdrawals to be performed. The loans are generally interest only with a 15 year balloon payment due at maturity. The Company initiated the Green Loan products in 2005 and proactively refined underwriting and credit management practices and credit guidelines in response to changing economic environments, competitive conditions and portfolio performance. The Company continues to manage credit risk, to the extent possible, throughout the borrower’s credit cycle.

Green Loans totaled $89.2 million at March 31, 2017, a decrease of $1.8 million, or 2.0 percent from $91.0 million at December 31, 2016, primarily due to reductions in principal balances and payoffs. At March 31, 2017 and December 31, 2016, none of the Company’s Green Loans were non-performing. As a result of their unique payment feature, Green Loans possess higher credit risk due to the potential of negative amortization; however, management believes the risk is mitigated through the Company’s loan terms and underwriting standards, including its policies on loan-to-value ratios and the Company’s contractual ability to curtail loans when the value of underlying collateral declines.

The Green Loans are similar to HELOCs in that they are collateralized primarily by the equity in the borrower's home. However, some Green Loans are subject to differences from HELOCs relating to certain characteristics including one-action laws. Similar to Green Loans, HELOCs allow the borrower to draw down on the credit line based on an established loan amount for a period of time, typically 10 years, requiring an interest only payment with an option to pay principal at any time. A typical HELOC provides that at the end of the term the borrower can continue to make monthly principal and interest payments based on the loan balance until the maturity date. The Green Loan is an interest only loan with a maturity of 15 years, at which time the loan comes due and payable with a balloon payment at maturity. The unique payment structure also differs from a traditional HELOC in that payments are made through the direct linkage of a personal checking account to the loan through a nightly sweep of funds into the Green Loan Account. This reduces any outstanding balance on the loan by the total amount deposited into the checking account. As a result, every time a deposit is made, effectively a payment to the Green Loan is made. HELOCs typically do not cause the loan to be paid down by a borrower’s depositing of funds into their checking account at the same bank.

Credit guidelines for Green Loans were established based on borrower FICO scores, property type, occupancy type, loan amount, and geography. Property types include single family residences and second trust deeds where the Company owned the first liens, owner occupied as well as non-owner occupied properties. The Company utilized its underwriting guidelines for first liens to underwrite the Green Loan secured by second trust deeds as if the combined loans were a single Green Loan. For all Green Loans, the loan income was underwritten using either full income documentation or alternative income documentation.

Interest Only Loans

Interest only loans are primarily SFR mortgage loans with payment features that allow interest only payment in initial periods before converting to a fully amortizing loan. Interest only loans totaled $725.0 million at March 31, 2017, an decrease of $59.4 million, or 7.6 percent, from $784.4 million at December 31, 2016. The decrease was primarily due to paydowns and amortization of $55.5 million and loans transferred to held-for-sale of $46.9 million, partially offset by originations of $43.1 million. As of March 31, 2017 and December 31, 2016, $468 thousand and $467 thousand of the interest only loans were non-performing, respectively.

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Loans with the Potential for Negative Amortization

Negative amortization loans other than Green Loans totaled $3.8 million at March 31, 2017, a decrease of $6.0 million, or 61.1 percent, from $9.8 million as of December 31, 2016. The Company discontinued origination of negative amortization loans in 2007. At March 31, 2017 and December 31, 2016, none of the loans that had the potential for negative amortization were non-performing. These loans pose a potentially higher credit risk because of the lack of principal amortization and potential for negative amortization; however, management believes the risk is mitigated through the loan terms and underwriting standards, including the Company’s policies on loan-to-value ratios.

NTM Loan Credit Risk Management

The Company performs detailed reviews of collateral values on loans collateralized by residential real property including its NTM portfolio based on appraisals or estimates from third party AVMs to analyze property value trends periodically. AVMs are used to identify loans that have experienced potential collateral deterioration. Once a loan has been identified that may have experienced collateral deterioration, the Company will obtain updated drive by or full appraisals in order to confirm the valuation. This information is used to update key monitoring metrics such as LTV ratios. Additionally, FICO scores are obtained in conjunction with the collateral analysis. In addition to LTV ratios and FICO scores, the Company evaluates the portfolio on a specific loan basis through delinquency and portfolio charge-offs to determine whether any risk mitigation or portfolio management actions are warranted. The borrowers may be contacted as necessary to discuss material changes in loan performance or credit metrics.

The Company’s risk management policy and credit monitoring includes reviewing delinquency, FICO scores, and collateral values on the NTM loan portfolio. The Company also continuously monitors market conditions for our geographic lending areas. The Company has determined that the most significant performance indicators for NTM are LTV ratios and FICO scores. The loan review provides an effective method of identifying borrowers who may be experiencing financial difficulty before they fail to make a loan payment. Upon receipt of the updated FICO scores, an exception report is run to identify loans with a decrease in FICO score of 10 percent or more and a resulting FICO score of 620 or less. The loans are then further analyzed to determine if the risk rating should be downgraded, which may require an increase in the ALLL the Company needs to establish for potential losses. A report is prepared and regularly monitored.

On the interest only loans, the Company projects future payment changes to determine if there will be an increase in payment of 3.50 percent or greater and then monitors the loans for possible delinquencies. The individual loans are monitored for possible downgrading of risk rating, and trends within the portfolio are identified that could affect other interest only loans scheduled for payment changes in the near future.

As these loans are revolving lines of credit, the Company, based on the loan agreement and loan covenants of the particular loan, as well as applicable rules and regulations, could suspend the borrowing privileges or reduce the credit limit at any time the Company reasonably believes that the borrower will be unable to fulfill their repayment obligations under the agreement or certain other conditions are met. In many cases, the decrease in FICO score is the first red flag that the borrower may have difficulty in making their future payment obligations.

As a result, the Company proactively manages the portfolio by performing a detailed analysis with emphasis on the non-traditional mortgage portfolio. The Company’s Internal Asset Review Committee (IARC) conducts regular meetings to review the loans classified as special mention, substandard, or doubtful and determines whether suspension or reduction in credit limit is warranted. If the line has been suspended and the borrower would like to have their credit privileges reinstated, they would need to provide updated financials showing their ability to meet their payment obligations. From the most recent review completed during the three months ended March 31, 2017, the Company made no curtailment in available commitments on Green Loans.

Consumer and NTM loans may entail greater risk than do traditional SFR mortgage loans, particularly in the case of consumer loans that are secured by rapidly depreciable assets, such as automobiles and recreational vehicles. In these cases, any repossessed collateral for a consumer and NTM loan are more dependent on the borrower‘s continued financial stability and, thus, are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy.

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Non-Performing Assets

The following table presents a summary of total non-performing assets as of the dates indicated:



	March 31, 2017			December 31, 2016			Amount Change			Percentage Change
	($ in thousands)
Loans past due 90 days or more still on accrual	$	—		$	—		$	—		NM
Nonaccrual loans and leases	16,222			14,942			1,280			8.6	%
Total non-performing loans	16,222			14,942			1,280			8.6	%
Other real estate owned	3,345			2,502			843			33.7	%
Total non-performing assets	$	19,567		$	17,444		$	2,123		12.2	%
Performing restructured loans ⁽¹⁾	$	4,309		$	4,827		$	(518	)	(10.7	)%
Total non-performing loans and leases to total loans and leases	0.27		%	0.25		%
Total non-performing assets to total assets	0.18		%	0.16		%
ALLL to non-performing loans and leases	263.44		%	270.67		%

(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 adequately collateralized 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 income of approximately $193 thousand would have been recorded during the three months ended March 31, 2017, respectively, had these loans been paid in accordance with their original terms throughout the periods indicated.

Troubled Debt Restructurings

TDRs of loans are defined by ASC 310-40, “Troubled Debt Restructurings by Creditors” and ASC 470-60, “Troubled Debt Restructurings by Debtors” and evaluated for impairment in accordance with ASC 310-10-35. The concessions may be granted in various forms, including reduction in the stated interest rate, reduction in the amount of principal amortization, forgiveness of a portion of a loan balance or accrued interest, or extension of the maturity date. 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 the Company’s internal underwriting policy.

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



	March 31, 2017						December 31, 2016
	NTM Loans		Traditional Loans		Total		NTM Loans		Traditional Loans		Total
	(In thousands)
Consumer:
Single family residential mortgage	487		2,435		2,922		853		1,440		2,293
Green Loans (HELOC) - first liens	2,237		—		2,237		2,240		—		2,240
Green Loans (HELOC) - second liens	294		—		294		294		—		294
Total	$	3,018	$	2,435	$	5,453	$	3,387	$	1,440	$	4,827

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Allowance for Loan and Lease Losses

The Company maintains an ALLL to absorb probable incurred losses inherent in the loan and lease portfolio at the balance sheet date. The ALLL is based on ongoing assessment of the estimated probable losses presently inherent in the loan portfolio. In evaluating the level of the ALLL, management considers the types of loans and leases and the amount of loans and leases in the portfolio, peer group information, historical loss experience, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This methodology takes into account many factors, including the Company’s own historical and peer loss trends, loan and lease-level credit quality ratings, loan and lease specific attributes along with a review of various credit metrics and trends. The process involves subjective as well as complex judgments. In addition, the Company uses adjustments for numerous factors including those found in the federal banking agencies' joint Interagency Policy Statement on ALLL, which include current economic conditions, loan and lease seasoning, underwriting experience, and collateral value changes among others. The Company evaluates all impaired loans and leases individually using guidance from ASC 310 primarily through the evaluation of cash flows or collateral values. During the three months ended March 31, 2017, the Company, as part of its continuous evaluation of the ALLL methodology and assumptions, determined it appropriate to change from a rolling 28-quarter look-back period to a pegged 36-quarter look-back period. This update to the assumption did not have a material impact. The Company believes that an extended period of observed credit loss stability warranted the review of a longer historical period that captured a full credit cycle.

The Company has acquired PCI loans through business acquisitions and purchases of seasoned SFR mortgage loan pools. The Company may recognize provision for loan and lease losses in the future should there be further deterioration in these loans after the purchase date to the point where the impairment exceeds the non-accretable yield and purchased discount. On a quarterly basis, the Company re-forecasts its expected cash flows for the PCI loans to be evaluated for potential impairment. The provision for PCI loans reflected a decrease in expected cash flows on PCI loans compared to those previously estimated. The impairment reserve for PCI loans was $161 thousand and $104 thousand at March 31, 2017 and December 31, 2016, respectively.

Provision for loan and lease losses was $2.6 million for the three months ended March 31, 2017, an increase of $2.3 million, or 704.7 percent, from $321 thousand for the three months ended March 31, 2016. The increase was mainly due to increases in commercial and industrial loans, construction loans and multi-family loans, partially offset by decreases in SFR mortgage loans and lease financing.

The following table provides a summary of the allocation of the ALLL by loan and lease category as well as loans and leases receivable for each category as of the dates indicated:



	March 31, 2017				December 31, 2016
	ALLL		Loans and Leases Receivable		ALLL		Loans and Leases Receivable
	(In thousands)
Commercial:
Commercial and industrial	$	10,888	$	1,585,656	$	7,584	$	1,522,960
Commercial real estate	4,543		750,592		5,467		729,959
Multi-family	11,029		1,449,715		11,376		1,365,262
SBA	1,146		76,040		939		73,840
Construction	3,018		142,164		2,015		125,100
Lease financing	5		285		6		379
Consumer:
Single family residential mortgage	11,240		1,975,055		12,075		2,106,630
Other consumer	867		125,814		982		110,622
Total	$	42,736	$	6,105,321	$	40,444	$	6,034,752

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The following table provides information regarding activity in the ALLL during the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	($ in thousands)
ALLL at beginning of period	$	40,444		$	35,533
Charge-offs:
Commercial and industrial	(250		)	—
Commercial real estate	—			—
Multi-family	—			—
SBA	—			—
Construction	—			—
Lease financing	—			(102		)
Single family residential mortgage	(81		)	—
Other consumer	(26		)	—
Total charge-offs	(357		)	(102		)
Recoveries:
Commercial and industrial	—			—
Commercial real estate	—			—
Multi-family	—			—
SBA	43			31
Construction	—			—
Lease financing	19			61
Single family residential mortgage	1			—
Other consumer	3			1
Total recoveries	66			93
Provision for loan and lease losses	2,583			321
ALLL at end of period	$	42,736		$	35,845
Average total loans and leases held-for-investment	$	6,085,342		$	5,234,613
Total loans and leases held-for-investment at end of period	$	6,105,321		$	5,463,068
Ratios:
Annualized net charge-offs (recoveries) to average total loans and leases held-for-investment	0.02		%	0.00		%
ALLL to total loans and leases held-for-investment	0.70		%	0.66		%

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The following table presents the ALLL allocation among loan and lease origination types as of the dates indicated:



	March 31, 2017			December 31, 2016			Amount Change			Percentage Change
	($ in thousands)
Loan breakdown by ALLL evaluation type:
Originated loans and leases
Individually evaluated for impairment	$	12,518		$	10,168		$	2,350		23.1	%
Collectively evaluated for impairment	5,096,657			4,933,381			163,276			3.3	%
Acquired loans not impaired at acquisition
Individually evaluated for impairment	—			2,429			(2,429		)	(100.0	)%
Collectively evaluated for impairment	834,983			924,993			(90,010		)	(9.7	)%
Seasoned SFR mortgage loan pools - non-impaired
Individually evaluated for impairment	877			755			122			16.2	%
Collectively evaluated for impairment	20,587			21,200			(613		)	(2.9	)%
Acquired with deteriorated credit quality	139,699			141,826			(2,127		)	(1.5	)%
Total loans	$	6,105,321		$	6,034,752		$	70,569		1.2	%
ALLL breakdown:
Originated loans and leases
Individually evaluated for impairment	$	130		$	137		$	(7	)	(5.1	)%
Collectively evaluated for impairment	41,091			38,394			2,697			7.0	%
Acquired loans not impaired at acquisition
Individually evaluated for impairment	—			—			—			NM
Collectively evaluated for impairment	1,234			1,703			(469		)	(27.5	)%
Seasoned SFR mortgage loan pools - non-impaired
Individually evaluated for impairment	120			106			14			13.2	%
Collectively evaluated for impairment	—			—			—			NM
Acquired with deteriorated credit quality	161			104			58			55.8	%
Total ALLL	$	42,736		$	40,444		$	2,293		5.7	%
Discount on purchased/acquired Loans:
Acquired loans through business acquisitions not impaired at acquisition	$	16,275		$	17,820		$	(1,545	)	(8.7	)%
Seasoned SFR mortgage loan pools - non-impaired	1,219			1,280			(61		)	(4.8	)%
Acquired with deteriorated credit quality	21,538			22,454			(916		)	(4.1	)%
Total discount	$	39,032		$	41,554		$	(2,522	)	(6.1	)%
Ratios:
To originated loans and leases:
Individually evaluated for impairment	1.04		%	1.35		%	(0.31		)%
Collectively evaluated for impairment	0.81		%	0.78		%	0.03		%
Total ALLL	0.81		%	0.78		%	0.03		%
To originated loans and leases and acquired loans not impaired at acquisition
Individually evaluated for impairment	1.04		%	1.09		%	(0.05		)%
Collectively evaluated for impairment	0.71		%	0.68		%	0.03		%
Total ALLL	0.71		%	0.69		%	0.02		%
To total loans and leases:
Individually evaluated for impairment	1.87		%	1.82		%	0.05		%
Collectively evaluated for impairment	0.71		%	0.68		%	0.03		%
Total ALLL	0.70		%	0.67		%	0.03		%

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Servicing Rights

Total mortgage and SBA servicing rights were $44.5 million and $77.6 million at March 31, 2017 and December 31, 2016, respectively. The fair value of the MSRs amounted to $42.8 million and $76.1 million and the amortized cost of the SBA servicing rights was $1.6 million and $1.5 million at March 31, 2017 and December 31, 2016, respectively. The Company retains servicing rights from certain of its sales of SFR mortgage loans and SBA loans.

The aggregate principal balance of the loans underlying our total MSRs and SBA servicing rights was $4.15 billion and $81.4 million, respectively, at March 31, 2017 and $7.58 billion and $74.0 million, respectively, at December 31, 2016. The recorded amount of the MSR and SBA servicing rights as a percentage of the unpaid principal balance of the loans we are servicing was 1.03 percent and 1.99 percent, respectively, at March 31, 2017 as compared to 1.00 percent and 2.02 percent, respectively, at December 31, 2016.

During the year ended December 31, 2016, the Company entered into a flow-agreement establishing general terms for the purchase and sale to a third party MSR investor in connection with residential mortgage loan sales to GSEs. The flow-agreement allowed the Company to sell its MSRs to a third party MSR investor contemporaneous with the Company’s sales of its servicing retained residential mortgages to the GSEs. Accordingly, entering into the flow-agreement reduced the impact of volatility associated with the Company's MSRs by allowing the Company to sell its MSRs immediately, thus reducing the Company's exposure to market and other conditions. During the three months ended March 31, 2017, the Company suspended sales of MSRs under the flow-agreement. The Company does not expect to resume sales under the flow-agreement as it has discontinued its Mortgage Banking segment operations.

During the three months ended March 31, 2017, the Company sold $37.8 million of MSRs recognized as a part of discontinued operations.

For additional information, see Note 6 to Consolidated Financial Statements (unaudited) in this report.

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Alternative Energy Partnerships

As the Company’s respective investments in these entities are more than minor, the Company has significant influence, but not control, over the investee’s activities that most significantly impact its economic performance. As a result, the Company is 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 the Company’s investment. As a result, the Company applies the HLBV method of the equity method of accounting.

The HLBV method is a balance sheet approach where a calculation is prepared at each balance sheet date to estimate the amount that the Company 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 the Company’s share of the earnings or losses from the equity investment for the period.

The following table presents the activity related to the Company’s investment in alternative energy partnerships for the three months ended March 31, 2017.



	Three Months Ended
	March 31, 2017
	(In thousands)
Balance at beginning of period	$	25,639
New funding	30,927
Cash distribution from investments	(251		)
Loss on investments using HLBV method	(8,682		)
Balance at end of period	$	47,633
Unfunded equity commitments	$	111,732

The Company’s investments in alternative energy partnerships are primarily returned through the realization of energy tax credits and other tax benefits rather than through distributions or through the sale of the investment. During the three months ended March 31, 2017, the Company recognized energy tax credits of $8.8 million offset by $1.5 million of deferred tax expenses in connection with new equipment being placed into service as well as income tax benefits of $3.6 million (based on a current effective tax rate of 41.37 percent which excludes the foregoing energy tax credits and related deferred tax expense) related to the recognition of its loss through its HLBV application.

The HLBV loss for the period is 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.

For additional information, see Note 17 to Consolidated Financial Statements (unaudited) in this report.

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Deposits

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



	March 31, 2017		December 31, 2016		Change			Change
	($ in thousands)
Noninterest-bearing deposits	$	1,273,649	$	1,282,629	$	(8,980	)	(0.7	)%
Interest-bearing demand deposits	1,998,778		2,048,839		(50,061		)	(2.4	)%
Money market accounts	2,610,376		2,731,314		(120,938		)	(4.4	)%
Savings accounts	1,008,218		1,118,175		(109,957		)	(9.8	)%
Certificates of deposit of under $100,000	1,035,771		1,300,733		(264,962		)	(20.4	)%
Certificates of deposit of $100,000 through $250,000	235,483		249,502		(14,019		)	(5.6	)%
Certificates of deposit of more than $250,000	435,418		410,958		24,460			6.0	%
Total deposits	$	8,597,693	$	9,142,150	$	(544,457	)	(6.0	)%

Total deposits were $8.60 billion at March 31, 2017, a decrease of $544.5 million, or 6.0 percent, from $9.14 billion at December 31, 2016. The decrease was mainly due to a planned reduction of brokered deposits and outflows from the Company's private banking and commercial banking business units. Brokered deposits were $2.01 billion at March 31, 2017, a decrease of $236.3 million, or 10.5 percent, from $2.25 billion at December 31, 2016.

Borrowings

The Company utilizes FHLB advances 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 Company also maintains additional borrowing availabilities from FRB discount window, unsecured federal funds lines of credit, and an unsecured line of credit with an unaffiliated financial party.

FHLB advances totaled $1.08 billion and $490.0 million, respectively, and securities sold under repurchase agreements totaled $26.3 million and $0, respectively, at March 31, 2017 and December 31, 2016. The Company also had $68.0 million in outstanding borrowings under an unsecured line of credit with an unaffiliated financial party at March 31, 2017 and December 31, 2016. For additional information, see Note 9 to Consolidated Financial Statements (unaudited) included in Part I of this Quarterly Report on Form 10-Q.

Long Term Debt

The Company's long-term debt consists of Senior Notes and Amortizing Notes. For additional information, see Note 10 to Consolidated Financial Statements (unaudited) included Part I of this Quarterly Report on Form 10-Q. The following table presents the Company's long term debts as of the dates indicated:



	March 31, 2017				December 31, 2016
	Par Value		Unamortized Debt Issuance Cost and Discount		Par Value		Unamortized Debt Issuance Cost and Discount
	($ in thousands)
Senior Note II, 5.25% per annum	$	175,000	$	2,259	$	175,000	$	2,281
Amortizing Note, 7.50% per annum	1,355		6		2,684		25
Total	$	176,355	$	2,265	$	177,684	$	2,306

On April 15, 2016, the Company completed the redemption of all of its outstanding Senior Notes I, which had an aggregate outstanding principal amount of $84.8 million, at a redemption price of 100 percent of the principal amount plus accrued and unpaid interest to the redemption date.

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Reserve for Unfunded Loan Commitments

The Company maintains a reserve for unfunded loan commitments at a level that is considered adequate to cover the estimated and known inherent risks. The probability of usage of the unfunded loan commitments and credit risk factors are determined based on the outstanding loan balance of the same customer or outstanding loans that share similar credit risk exposure. As of March 31, 2017 and December 31, 2016, the reserve for unfunded loan commitments was $3.2 million and $2.4 million, respectively. The increase was mainly due to an increase in unfunded loan commitments.

The following table presents a summary of activity in the reserve for unfunded loan commitments for the periods indicated:



	Three Months Ended
	March 31,
	2017		2016
	(In thousands)
Balance at beginning of period	$	2,385	$	2,067
Provision for unfunded loan commitments	833		(739		)
Balance at end of period	$	3,218	$	1,328

Reserve for Loss on Repurchased Loans

Reserve for loss on repurchased loans was $8.1 million and $8.0 million at March 31, 2017 and December 31, 2016, respectively. This reserve relates to the Company's mortgage banking activities. When the Company sells residential mortgage loans into the secondary mortgage market, the Company makes customary representations and warranties to the purchasers about various characteristics of each loan, such as the manner of origination, the nature and extent of underwriting standards applied and the types of documentation being provided. Typically, these representations and warranties are in place for the life of the loan. If a defect in the origination process is identified, the Company may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. If there are no such defects, generally the Company has no liability to the purchaser for losses it may incur on such loan. In addition, the Company has the option to buy out severely delinquent loans at par from Ginnie Mae pools for which the Company is the servicer and issuer of the pool. The Company maintains a reserve for losses on repurchased loans to account for the expected losses related to loans the Company might be required to repurchase (or the indemnity payments the Company may have to make to purchasers). The reserve takes into account both the estimate of expected losses on loans sold during the current accounting period, as well as adjustments to the previous estimates of expected losses on loans sold. In each case, these estimates are based on the most recent data available, including data from third parties, regarding demand for loan repurchases, actual loan repurchases, and actual credit losses on repurchased loans, among other factors.

Provisions added to the reserve for loss on repurchased loans are initially recorded against net revenue on mortgage banking activities at the time of sale, and any subsequent increase or decrease in the provision is then recorded under non-interest expense in the Consolidated Statements of Operations as an increase or decrease to provision for loan repurchases.

The following table presents a summary of activity in the reserve for losses on repurchased loans for the periods indicated:



	Three Months Ended
	March 31,
	2017			2016
	(In thousands)
Balance at beginning of period	$	7,974		$	9,700
Provision for loan repurchases	517			379
Utilization of reserve for loan repurchases	(373		)	(298		)
Balance at end of period	$	8,118		$	9,781

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Liquidity Management

The Company is 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, the Company has maintained liquid assets above levels believed to be adequate to meet the requirements of normal operations, including potential deposit outflows, and dividend payments. Cash flow projections are regularly reviewed and updated to ensure that adequate liquidity is maintained.

Banc of California, N.A.

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; 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 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 the wholesale and treasury operations. 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.

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 bank may make capital distributions during any calendar year equal to up to 100 percent of net income for the year-to-date plus retained net income for the two preceding years without prior OCC approval. On this basis, at March 31, 2017, the Bank had $221.9 million available to pay dividends to the holding company. At March 31, 2017, Banc of California, Inc. had $122.7 million in cash, all of which was on deposit at the Bank.

On a consolidated basis, the Company maintained $409.3 million of cash and cash equivalents, which was 3.7 percent of total assets at March 31, 2017. The Company also maintained $1.1 million of unpledged securities available-for-sale issued by U.S. Treasury and direct government obligations at March 31, 2017, which the Company considers in its assessment of cash and cash equivalents as they are highly liquid. These securities and cash and cash equivalents together represented 3.7 percent of total assets as of March 31, 2017. The Company maintained unpledged investment securities, both available-for-sale and held-to-maturity, of $1.37 billion at March 31, 2017.

At March 31, 2017, the Bank had available unused secured borrowing capacities of $1.80 billion from FHLB and $191.8 million from Federal Reserve Discount Window, as well as $210.0 million from unused unsecured federal funds lines of credit at the Bank. The Bank also maintained repurchase agreements and $26.3 million of outstanding securities sold under agreements to repurchase at March 31, 2017. Availabilities and terms on repurchase agreements are subject to the counterparties' discretion and pledging additional investment securities.

In addition, Banc of California, Inc. maintains a $75.0 million line of credit with an unaffiliated third party financial institution of which $7.0 million was unused and available at March 31, 2017. On April 17, 2017, the Company and the administrative agent and the lender entered into an amendment of the credit agreement that extended the maturity date from April 18, 2017 to July 17, 2017.

The Company believes that its liquidity sources are stable and are adequate to meet its day-to-day cash flow requirements. As of March 31, 2017, the Company believes that there are no events, uncertainties, material commitments, or capital expenditures that were reasonably likely to have a material effect on its liquidity position.

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Commitments and Contractual Obligations

The following table presents the Company’s commitments and contractual obligations as of March 31, 2017:



	Commitments and Contractual Obligations
	Total Amount Committed		Less Than One Year		More Than One Year Through Three Years		More Than Three Year Through Five Years		Over Five Years
	(In thousands)
Commitments to extend credit	$	314,456	$	128,600	$	110,938	$	29,433	$	45,485
Unused lines of credit	952,944		594,943		83,823		174,955		99,223
Standby letters of credit	11,416		7,787		750		2,159		720
Total commitments	$	1,278,816	$	731,330	$	195,511	$	206,547	$	145,428
FHLB advances	$	1,080,000	$	930,000	$	50,000	$	—	$	100,000
Securities sold under repurchase agreements	26,320		26,320		—		—		—
Other borrowings	68,000		68,000		—		—		—
Long-term debt	254,474		10,568		18,375		18,375		207,156
Operating and capital lease obligations	39,576		9,650		14,382		8,941		6,603
Certificate of deposits	1,706,672		1,602,415		95,681		7,925		651
Total contractual obligations	$	3,175,042	$	2,646,953	$	178,438	$	35,241	$	314,410

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Capital

In order to maintain adequate level of capital, the Company continuously assesses projected sources and uses of capital to support projected asset growth, operating needs and credit risk. The Company considers, among other things, earnings generated from operations and access to capital from financial markets through issuing additional preferred and common stock to meet the Company's capital requirements for the foreseeable future. In addition, the Company performs capital stress tests on an annual basis to assess the impact of adverse changes in the economy on the Company's 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 will be phased in through 2019. For additional information on BASEL III capital rules, see Note 16 to Consolidated Financial Statements (unaudited) in this report. The following table presents the regulatory capital ratios for the Company and the Bank as of dates indicated:



	Banc of California, Inc.		Banc of California, NA		Minimum Regulatory Requirements		Well Capitalized Requirements (Bank)
March 31, 2017
Total risk-based capital ratio	13.72	%	15.11	%	8.00	%	10.00	%
Tier 1 risk-based capital ratio	13.08	%	14.48	%	6.00	%	8.00	%
Common equity tier 1 capital ratio	9.37	%	14.48	%	4.50	%	6.50	%
Tier 1 leverage ratio	8.51	%	9.43	%	4.00	%	5.00	%
December 31, 2016
Total risk-based capital ratio	13.70	%	14.73	%	8.00	%	10.00	%
Tier 1 risk-based capital ratio	13.22	%	14.12	%	6.00	%	8.00	%
Common equity tier 1 capital ratio	9.44	%	14.12	%	4.50	%	6.50	%
Tier 1 leverage ratio	8.17	%	8.71	%	4.00	%	5.00	%

In addition, the Dodd-Frank Act requires publicly-traded bank holding companies with assets of $10 billion or more to perform capital stress testing and establish a risk committee responsible for enterprise-wide risk management practices, comprised of independent directors, including one risk management expert. These provisions become applicable if the average of the total consolidated assets of the bank holding company, as reported in its quarterly Consolidated Financial Statements for Bank Holding Companies, for the four most recent consecutive quarters exceed $10 billion. The Dodd-Frank Act Stress Tests (DFAST) stress tests are designed to determine whether the capital planning of the Company, assessment of its capital adequacy and risk management practices adequately protect it and its affiliates in the event of an economic downturn. The Company must establish adequate internal controls, documentation, policies and procedures to ensure the annual stress test adequately meets these objectives. The board of directors of the Company will be required to review the Company’s policies and procedures at least annually. The Company will be required to report the results of its annual stress tests to the Federal Reserve, and it will be required to consider the results of the Company’s stress tests as part of its capital planning and risk management practices. If a bank holding company fails DFAST when it is a mandatorily compliant, then such failure could result in, for example, restrictions on the Company’s growth, its ability to both pay dividends and repurchase shares.

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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 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.

In order to manage the potential for adverse effects of material and prolonged increases in interest rates on our results of operations, we adopted asset and liability management policies to better align the maturities and repricing terms of our interest-earning assets and interest-bearing liabilities. These policies are implemented by the asset and liability management committee. The asset and liability management committee is chaired by the treasurer and is comprised of members of our senior management. Asset and 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 asset liability management committee monitors adherence to these 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 asset and liability management committee meets periodically 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. At each meeting, the asset and liability management committee recommends appropriate strategy changes based on this review. The treasurer or his/her designee is responsible for reviewing and reporting on the effects of the policy implementations and strategies to the board of directors on a regular basis.

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,


•	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 asset and liability management committee may determine to increase the Company’s interest rate risk position within the asset liability tolerance set by the Bank’s policies.

As part of its procedures, the asset and liability management committee regularly reviews 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 that are authorized by the Board of Directors of the Company.

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Interest Rate Sensitivity of Economic Value of Equity and Net Interest Income

The following table presents the projected change in the Bank’s economic value of equity and net interest income at March 31, 2017 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.



	March 31, 2017
Change in Interest Rates in Basis Points (bp) ⁽¹⁾	Economic Value of Equity							Net Interest Income
Change in Interest Rates in Basis Points (bp) ⁽¹⁾	Amount		Amount Change			Percentage Change		Amount		Amount Change			Percentage Change
	($ in thousands)
+200 bp	$	1,081,133	$	(180,198	)	(14.3	)%	$	313,380	$	(4,990	)	(1.6	)%
+100 bp	1,180,283		(81,048		)	(6.4	)%	316,290		(2,080		)	(0.7	)%
0 bp	1,261,331							318,370
-100 bp	1,302,136		40,805			3.2	%	318,457		87			—	%


(1)	Assumes an instantaneous uniform change in interest rates at all maturities

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.

At March 31, 2017, the Company did not maintain any securities for trading purposes or engage in trading activities. The Company does use derivative instruments to hedge its mortgage banking risks. In addition, interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign currency exchange risk and commodity price risk, do not arise in the normal course of the Company’s business activities and operations.

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ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to the issuer’s management, including its Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Following this evaluation, due to the identification of a material weakness in the design and operating effectiveness of our internal control over financial reporting, as previously reported in Part II, Item 9A of our Annual Report on Form 10-K for the year ended December 31, 2016, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2017. The material weakness was due to an inadequate tone at the top regarding the importance of internal control over financial reporting. This resulted in a failure to appropriately prioritize the Company’s internal control over financial reporting, which has not been sufficient to address new and evolving sources of potential misstatement largely driven by the increased complexity and growth in the size and scale of our business.

Notwithstanding the identified material weakness as of March 31, 2017, related to the Company’s control environment, the Company believes the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

Changes in Internal Control Over Financial Reporting

During the three months ended March 31, 2017, as disclosed in our financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, the Company completed the sale of its Banc Home Loans division, which represented the Company's Mortgage Banking segment. In connection with the sale, the Company restructured certain aspects of its infrastructure and back office operations to improve efficiency. In addition, various governance enhancements were initiated during the first quarter of 2017 as further described below. These combined initiatives were determined to have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. We will continue to monitor internal control over financial reporting throughout the process.

Limitations on the Effectiveness of Controls

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.

The Company's Plan to Remediate the Material Weakness

As reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, management identified a material weakness in the design and operating effectiveness of our internal control over financial reporting as it relates to our control environment due to an inadequate tone at the top regarding the importance of internal control over financial reporting. Specifically, the Company’s tone at the top did not appropriately prioritize the Company’s internal control over financial reporting which has not been sufficient to address new and evolving sources of potential misstatement largely driven by the increased complexity and growth in the size and scale of the business.

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In order to remediate the inadequate tone at the top regarding the importance of internal control over financial reporting, the Company has initiated or will initiate the following steps:


•	We have appointed Robert D. Sznewajs, Chairman of the Joint Audit Committee of the Boards of Directors of the Company and the Bank (the Board), to the position of Chairman of the Board - thereby separating the role of Chairman of the Board and Chief Executive Officer. This followed the resignation of Steven A. Sugarman from the Board and his position of President and Chief Executive Officer

•

We have appointed Douglas H. Bowers as President and Chief Executive Officer of the Company and the Bank, and as a director of the Bank, effective May 8, 2017. Mr. Bowers also was appointed as a director of the Company, with a term planned to commence at the conclusion of the Company's 2017 Annual Meeting of Stockholders. The terms of Mr. Bowers’ employment agreement with the Company require him to resign as a director of the Company and the Bank in the event of the termination of his employment. Mr. Bowers' appointment as President and Chief Executive Officer replaced the interim appointments within the “Office of the CEO/President.” Accordingly, upon the effective date of Mr. Bowers' appointment, Hugh F. Boyle, who had been acting as Interim Chief Executive Officer and Chief Risk Officer, continued to serve as Chief Risk Officer. In addition, J. Francisco A. Turner, who had been acting as Interim President, Interim Chief Financial Officer and Chief Strategy Officer, continued to serve as Interim Chief Financial Officer (the Company’s principal financial officer) and Chief Strategy Officer

•

We have eliminated the lead independent and vice chair roles and appointed new independent Board members, Richard Lashley and W. Kirk Wycoff, to fill the vacancies created by the resignation of Mr. Sugarman and the retirement of Chad T. Brownstein as Vice Chair of the Board. We have also appointed two additional independent directors, Mary A. Curran and Bonnie G. Hill, whose terms are expected to commence at the conclusion of the Company's 2017 Annual Meeting of Stockholders. Ms. Curran and Dr. Hill will add diversity to the Board and broaden the Board’s expertise in risk management and corporate governance

•

We have improved our Disclosure Controls and Procedures by implementing a new Disclosure Controls and Procedure Policy which expands internal approval requirements for public statements, and we revised the Company’s Disclosure Committee charter. In addition, we have enhanced resources related to the Company’s Sarbanes-Oxley program by terminating the Director of Financial Controls and engaging a new Sarbanes-Oxley outsourcing vendor. Our Chief Accounting Officer, who began during the quarter ended September 30, 2016, will oversee the program going forward, which will be subject to monitoring activities performed by the Company’s Internal Audit division


•	We have enhanced the efficiency and transparency of our Board committees by eliminating the Executive and Strategic Committees of the Board, and separating the Compensation and Nominating/Governance Committees into two committees, with one committee focused on compensation-related matters and the other on nominating and corporate governance-related matters


•	We have approved new policies to tighten controls on Outside Business Activities and to add rigor to the review of Related Party Transactions


•	We revised our Public Communications Policy to enhance the level of diligence and review in connection with our public disclosures and external communications


•	We enhanced our Recoupment policy to enable the Board to recover or cancel cash incentive compensation and equity awards


•	We amended the Company’s bylaws to facilitate the submission by stockholders of director nominations and other proposals for future annual meetings, and to conform the majority voting standard for electing directors more closely to the advisory motion approved by stockholders at the 2016 Annual Meeting


•	We will further enhance our risk assessment and monitoring activities by implementing new training activities, hiring additional capable resources, improving our certification and sub-certification quarterly processes, and enhancing our Risk and Fraud Risk assessment processes to ensure appropriate resources and controls are in place to mitigate risks commensurate with the risk assessment


•	We will continue to strengthen our governance and controls by further developing consistent, standardized and repeatable desktop procedures for all significant financial controls and processes

The Company believes the foregoing remedial actions continue to strengthen the Company's internal control over financial reporting and will remediate the material weaknesses identified. However, as of March 31, 2017, these remediation measures were still ongoing and had not been in operation long enough to measure their operating effectiveness in order to conclude that the identified material weakness was fully remediated. The Company will continue to monitor the effectiveness of these remediation activities and expects to make further changes to improve its internal control over financial reporting.

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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 January 23, 2017, the first of three putative class action lawsuits, Garcia v. Banc of California, et al., Case No. 8:17-cv-00118, was filed against Banc of California, James J. McKinney, Ronald J. Nicolas, Jr., and Steven A. Sugarman in the United States District Court for the Central District of California. Thereafter, two related putative class action lawsuits were filed in the United States District Court for the Central District of California: (1) Malak v. Banc of California, et al., Case No. 8:17-cv-00138 (January 26, 2017), asserting claims against Banc of California, James J. McKinney, and Steven A. Sugarman, and (2) Cardona v. Banc of California, et al., Case No. 2:17-cv-00621 (January 26, 2017), asserting claims against Banc of California, James J. McKinney, Ronald J. Nicolas, Jr., and Steven A. Sugarman. The lawsuits allege that the defendants violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934. In general, they assert that the purported concealment of the defendants’ alleged relationship with Jason Galanis caused various statements made by the defendants to be allegedly false and misleading. The lawsuits purport to be brought on behalf of stockholders who purchased stock in the Company between varying dates, inclusive of August 7, 2015 through January 23, 2017. The lawsuits seek class certification, an award of unspecified compensatory and punitive damages, an award of reasonable costs and expenses, including attorneys’ fees, and other further relief as the Court may deem just and proper. The lawsuits are at a very early stage. Based on a review of the allegations, we believe that they are without merit and intend to vigorously contest them.

ITEM 1A - RISK FACTORS

Except as set forth below, there have been no material changes to the risk factors that appeared under “Part I, Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.

The recently completed sale of our Banc Home Loans division could adversely affect our revenues and profitability.

The sale of our Banc Home Loans division, which we completed on March 30, 2017, involves significant risks, including:


•	diversion of management's attention and resources from other business concerns;


•	the potential loss of key employees as a result of the transaction;


•	the potential loss of customers;


•	a reduced footprint in our key market area of California; and


•	other unanticipated problems.

We may not be able to replace the revenues generated by Banc Home Loans or achieve the cost savings and other efficiencies anticipated from this transaction. The transaction also includes reliance on the purchaser to assist with closing Banc Home Loans’ remaining pipeline through a transition service agreement. Other conditions outside of our control that could impact the Company's future financial results include, but are not limited to, the ability of the purchaser to successfully transition Banc Home Loans personnel. To the extent the purchaser is unable to retain key loan officers, this could negatively affect the future earn-out consideration we receive.

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ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

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

From January 31, 2017 to January 31, 2017

—

From February 1, 2017 to February 28, 2017

—

From March 1, 2017 to March 31, 2017

—

Total

—

During the three months ended March 31, 2017, the Company did not purchase any equity securities. On October 18, 2016, the Company announced that its Board of Directors approved a share buyback program under Rule 10b-18 authorizing the Company to buy back, from time to time during the 12 months ending on October 18, 2017, an aggregate amount representing up to 10 percent of the Company's currently outstanding common shares.

The Company has a practice of buying back stock for tax purposes pertaining to employee benefit plans, and does not count these purchases toward the allotment of the shares. The Company did not purchase any shares during the three months ended March 31, 2017 related to tax liability sales for employee stock benefit plans.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4 MINE SAFETY DISCLOSURES

Not applicable

ITEM 5 - OTHER INFORMATION

None

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ITEM 6 - EXHIBITS



2.1	Stock Purchase Agreement, dated as of June 3, 2011, by and among Banc of California, Inc., (f/k/a First PacTrust Bancorp, Inc.) (sometimes referred to below as the Registrant or the Company), Gateway Bancorp, Inc. (Gateway), each of the stockholders of Gateway and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)

2.1A	Amendment No. 1, dated as of November 28, 2011, to Stock Purchase Agreement, dated as of June 3, 2011, by and among The Registrant, Gateway Bancorp, the Sellers named therein and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)(1)

2.2B	Amendment No. 2, dated as of February 24, 2012, to Stock Purchase Agreement, dated as of June 3, 2011, by and among the Registrant, Gateway Bancorp, the Sellers named therein and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)(2)

2.2C	Amendment No. 3, dated as of June 30, 2012, to Stock Purchase Agreement, dated as of June 3, 2011, by and among the Registrant, Gateway Bancorp, the Sellers named therein and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)(3)

2.2D	Amendment No. 4, dated as of July 31, 2012, to Stock Purchase Agreement, dated as of June 3, 2011, by and among the Registrant, Gateway Bancorp, the Sellers named therein and the D & E Tarbell Trust, u/d/t dated February 19, 2002 (in its capacity as the Sellers’ Representative)	(a)(4)

2.3	Agreement and Plan of Merger, dated as of August 30, 2011, by and between the Registrant and Beach Business Bank, as amended by Amendment No. 1thereto dated as of October 31, 2011	(b)

2.4	Agreement and Plan of Merger, dated as of August 21, 2012, by and among First PacTrust Bancorp, Inc., Beach Business Bank and The Private Bank of California	(c)

2.5	Amendment No. 1, dated as of May 5, 2013, to Agreement and Plan of Merger, dated as of August 21, 2012, by and among the Registrant, Beach Business Bank and The Private Bank of California	(x)

2.6	Agreement and Plan of Merger, dated as of October 25, 2013, by and among the Registrant, Banc of California, National Association, CS Financial, Inc., the Sellers named therein and the Sellers’ Representative named therein	(y)

2.7	Purchase and Assumption Agreement, dated as of April 22, 2014, by and between Banco Popular North America and Banc of California, National Association	(aa)

2.8	Asset Purchase Agreement, dated February 28, 2017, by and between Banc of California, N. A. and Caliber Home Loans, Inc.	(eee)

2.9	Bulk Servicing Rights Purchase and Sale Agreement, dated February 28, 2017, by and between Banc of California, N. A. and Caliber Home Loans, Inc.	(eee)

3.1	Articles of Incorporation of the Registrant	(d)

3.2	Articles of Amendment to the Charter of the Registrant increasing the authorized capital stock of the Registrant	(e)

3.3	Articles supplementary to the Charter of the Registrant containing the terms of the Registrant’s Senior Non-Cumulative Perpetual Preferred Stock, Series A	(f)

3.4	Articles supplementary to the Charter of the Registrant containing the terms of the Registrant’s Class B Non-Voting Common Stock	(g)

3.5	Articles of Amendment to Articles Supplementary to the Charter of the Registrant containing the terms of the Registrant’s Class B Non-Voting Common Stock	(h)

3.6	Articles supplementary to the Charter of the Registrant containing the terms of the Registrant’s 8.00% Non-Cumulative Perpetual Preferred Stock, Series C	(o)

3.7	Articles supplementary to the Charter of the Registrant containing the terms of the Registrant’s Non-Cumulative Perpetual Preferred Stock, Series B	(p)

3.8	Articles of Amendment to the Charter of the Registrant changing the Registrant’s name	(q)

3.9	Articles of Amendment to the Charter of the Registrant increasing the authorized capital stock of the Registrant	(bb)

3.10	Articles supplementary to the Charter of the Registrant containing the terms of the Registrant’s 7.375% Non-Cumulative Perpetual Preferred Stock, Series D	(mm)

3.11	Articles supplementary to the Charter of the Registrant containing the terms of the Registrant’s 7.00% Non-Cumulative Perpetual Preferred Stock, Series E	(rr)

3.12	Fourth Amended and Restated Bylaws of the Registrant	(ii)

3.12A	Amendment No. 1 to Fourth Amended and Restated Bylaws of the Registrant	(ww)

3.12B	Amendment No. 2 to Fourth Amended and Restated Bylaws of the Registrant	(xx)

3.12C	Amendment No. 3 to Fourth Amended and Restated Bylaws of the Registrant	(yy)

3.12D	Amendment No. 4 to Fourth Amended and Restated Bylaws of the Registrant	(aaa)

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3.12E	Amendment No. 5 to Fourth Amended and Restated Bylaws of the Registrant	(ddd)

4.1	Warrant to purchase up to 1,395,000 shares of the Registrant common stock originally issued on November 1, 2010	(g)

4.2	Senior Debt Securities Indenture, dated as of April 23, 2012, between the Registrant and U.S. Bank National Association, as Trustee	(l)

4.3	Supplemental Indenture, dated as of April 23, 2012, between the Registrant and U.S. Bank National Association, as Trustee, relating to the Registrant’s 7.50% Senior Notes due April 15, 2020 and form of 7.50% Senior Notes due April 15, 2020	(l)

4.4	Second Supplemental Indenture, dated as of April 6, 2015, between the Registrant and U.S. Bank National Association, as Trustee, relating to the Registrant’s 5.25% Senior Notes due April 15, 2025 and form of 5.25% Senior Notes due April 15, 2025	(ll)

4.5	Deposit Agreement, dated as of June 12, 2013, among the Registrant, Registrar and Transfer Company, as Depositary and the holders from time to time of the depositary receipts described therein	(o)

4.6	Deposit Agreement, dated as of April 8, 2015, among the Registrant, Computershare Inc. and Computershare Trust Company, N.A., collectively as Depositary, and the holders from time to time of the depositary receipts described therein	(mm)

4.7	Purchase Contract Agreement, dated May 21, 2014, between the Company and U.S. Bank National Association	(ee)

4.8	Indenture, dated May 21, 2014, between the Company and U.S. Bank National Association	(ee)

4.9	First Supplemental Indenture, dated May 21, 2014, between the Company and U.S. Bank National Association relating to the Registrant's 8% Tangible Equity Units due May 15, 2017	(ee)

4.10	Deposit Agreement, dated as of February 8, 2016, among the Registrant, Computershare Inc. and Computershare Trust Company, N.A., collectively as Depositary, and the holders from time to time of the depositary receipts described therein.	(rr)

10.1	Employment Agreement, dated as of August 21, 2012, by and between the Registrant and Steven A. Sugarman	(i)

10.1A	Stock Appreciation Right Grant Agreement between the Registrant and Steven A. Sugarman dated August 21, 2012	(i)

10.1B	Amendment dated December 13, 2013 to Stock Appreciation Right Grant Agreement between the Registrant and Steven Sugarman dated August 21, 2012	(ff)

10.1C	Letter Agreement, dated as of May 23, 2014, by and between the Registrant and Steven A. Sugarman, relating to Stock Appreciation Rights issued with respect to Tangible Equity Units	(gg)

10.1D	Letter Agreement, dated as of March 2, 2016, by and between the Registrant and Steven A. Sugarman	(tt)

10.1E	Amended and Restated Employment Agreement, dated as of March 24, 2016, by and among Banc of California, Inc., Banc of California, National Association, and Steven A. Sugarman	(uu)

10.1F	Letter Agreement, dated as of March 24, 2016, by and between the Registrant and Steven A. Sugarman	(uu)

10.1G	Employment Separation Agreement and Release, dated as of January 23, 2017, by and among the Registrant, Banc of California, N.A. and Steven A. Sugarman	(zz)

10.2	Reserved

10.3	Employment Agreement, dated as of August 22, 2012, by and among the Registrant and John C. Grosvenor	(i)

10.3A	First Amendment to Employment Agreement, dated January 1, 2016, by and between the Registrant and John C. Grosvenor	(ss)

10.4	Employment Agreement, dated as of November 5, 2012, by and among the Registrant and Ronald J. Nicolas, Jr.	(i)

10.4A	Separation and Settlement Agreement, dated as of August 12, 2015, by and between the Registrant and Ronald J. Nicolas, Jr.	(qq)

10.5	Employment Agreement, dated as of September 17, 2013, by and among the Registrant and Hugh F. Boyle	(cc)

10.5A	First Amendment to Employment Agreement, dated as of January 1, 2016 by and between Registrant and Hugh F. Boyle	(ss)

10.6	Registrant’s 2011 Omnibus Incentive Plan	(j)

10.7A	Form of Incentive Stock Option Agreement under 2011 Omnibus Incentive Plan	(m)

10.7B	Form of Non-Qualified Stock Option Agreement under 2011 Omnibus Incentive Plan	(m)

10.7C	Form of Restricted Stock Agreement Under 2011 Omnibus Incentive Plan	(m)

10.8	Registrant’s 2003 Stock Option and Incentive Plan	(k)

10.9	Registrant’s 2003 Recognition and Retention Plan	(k)

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10.10	Small Business Lending Fund-Securities Purchase Agreement, dated August 30, 2011, between the Registrant and the Secretary of the United States Treasury	(f)

10.11	Management Services Agreement, dated as of December 27, 2012, by and between CS Financial, Inc. and Pacific Trust Bank	(n)

10.12	Employment Agreement, dated as of May 13, 2013, by and among Pacific Trust Bank and Jeffrey T. Seabold	(z)

10.12A	Amended and Restated Employment Agreement, effective as of April 1, 2015, by and among Banc of California, National Association, and Jeffrey T. Seabold	(kk)

10.12B	First Amendment to Amended and Restated Employment Agreement, dated effective as of January 1, 2016, by between Banc of California, National Association and Jeffrey T. Seabold	(ss)

10.13	Registrant’s 2013 Omnibus Stock Incentive Plan	(r)

10.13A	Form of Incentive Stock Option Agreement under 2013 Omnibus Stock Incentive Plan	(s)

10.13B	Form of Non-Qualified Stock Option Agreement under 2013 Omnibus Stock Incentive Plan	(s)

10.13C	Form of Restricted Stock Agreement under 2013 Omnibus Stock Incentive Plan	(s)

10.13D	Form of Restricted Stock Unit Agreement under 2013 Omnibus Stock Incentive Plan	(dd)

10.13E	Form of Restricted Stock Unit Agreement for Employee Equity Ownership Program under 2013 Omnibus Stock Incentive Plan	(dd)

10.13F	Form of Non-Qualified Stock Option Agreement for Non-Employee Directors under 2013 Omnibus Stock Incentive Plan	(gg)

10.13G	Form of Restricted Stock Agreement for Non-Employee Directors under 2013 Omnibus Stock Incentive Plan	(gg)

10.13H	Form of Performance Unit Agreement under 2013 Omnibus Stock Incentive Plan	(kk)

10.13I	Form of Performance-Based Incentive Stock Option Agreement under the 2013 Omnibus Stock Incentive Plan	(kk)

10.13J	Form of Performance-Based Non-Qualified Stock Option Agreement under the 2013 Omnibus Stock Incentive Plan	(kk)

10.13K	Form of Performance-Based Restricted Stock Agreement under the 2013 Omnibus Stock Incentive Plan.	(kk)

10.14	Agreement to Assume Liabilities and to Acquire Assets of Branch Banking Offices, dated as of May 31, 2013, between Pacific Trust Bank and AmericanWest Bank	(t)

10.15	Common Stock Share Exchange Agreement, dated as of May 29, 2013, by and between the Registrant and TCW Shared Opportunity Fund V, L.P.	(u)

10.15A	Assignment and Assumption Agreement, dated as of December 10, 2014, by and among Crescent Special Situations Fund (Investor Group), L.P., Crescent Special Situations Fund (Legacy V), L.P., TCW Shared Opportunity Fund V, L.P. and the Registrant.	(jj)

10.16	Purchase and Sale Agreement and Escrow Instructions, dated as of July 24, 2013, by and between the Registrant and Memorial Health Services	(v)

10.17	Assumption Agreement, dated as of July 1, 2013, by and between the Registrant and The Private Bank of California	(w)

10.18	Securities Purchase Agreement, dated as of April 22, 2014, by and between the Registrant and OCM BOCA Investor, LLC	(aa)

10.18A	Acknowledgment and Amendment to Securities Purchase Agreement, dated as of October 28, 2014 by and between Banc of California, Inc. and OCM BOCA Investor, LLC.	(hh)

10.19	Securities Purchase Agreement, dated as of October 30, 2014, by and among the Registrant, Patriot Financial Partners, L.P. and Patriot Financial Partners Parallel L.P., Patriot Financial Partners II, L.P., and Patriot Financial Partners Parallel II, L.P.	(hh)

10.20	Purchase and Sale Agreement and Escrow Instructions, dated as of May 19, 2015, by and between Banc of California, N.A. and VF Outdoor, Inc.	(nn)

10.21	Amendment to Purchase and Sale Agreement and Escrow Instructions, dated as of May 19, 2015, by and between Banc of California, N.A. and VF Outdoor, Inc.	(oo)

10.22	Employment Agreement, dated as of July 29, 2015, by and among the Registrant and James J. McKinney	(pp)

10.22A	Amended and Restated Employment Agreement, dated as of March 24, 2016, by and between Banc of California, Inc. and James J. McKinney	(uu)

10.23	Agreement of Purchase and Sale, dated as of October 2, 2015, by and between The Realty Associates Fund IX, L.P. and Banc of California, National Association	(ii)

10.24	Employment Agreement, dated as of January 6, 2014, by and among Banc of California, National Association and J. Francisco A. Turner	(ss)

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10.24A	Amended and Restated Employment Agreement, dated as of March 24, 2016, by and between Banc of California, National Association, and J. Francisco A. Turner	(uu)

10.25	Form Director and Executive Officer Indemnification Agreement	(ss)

10.26	Employment Agreement, dated as of March 24, 2016, by and between Banc of California, Inc. and Brian Kuelbs	(uu)

10.27	Amended and Restated Employment Agreement, dated as of March 24, 2016, by and among Banc of California, Inc. and Thedora Nickel	(uu)

10.28	Trust Agreement, dated as of August 3, 2016, by and between Banc of California, Inc. and Evercore Trust Company, N.A., as trustee.	(vv)

10.29	Common Stock Purchase Agreement, dated as of August 3, 2016, by and between Banc of California, Inc. and Banc of California Capital and Liquidity Enhancement Employee Compensation Trust.	(vv)

10.30	Separation Agreement and Release, dated as of February 8, 2017, by and between the Registrant and Chad T. Brownstein	(bbb)

10.31	Cooperation Agreement, dated as of February 8, 2017, by and between the Registrant and PL Capital Advisors, LLC	(aaa)

10.32	Cooperation Agreement, dated as of March 13, 2017, by and between the Registrant and Legion Partners Asset Management, LLC, Legion Partners, L.P. I, Legion Partners, L.P. II, Legion Partners Special Opportunities, L.P. I, Legion Partners Special Opportunities, L.P. V, Legion Partners, LLC, Legion Partners Holdings, LLC, Bradley S. Vizi, Christopher S. Kiper and Raymond White.	(ccc)

10.33	Employment Agreement, dated as of April 24, 2017, by and between Banc of California, Inc. and Douglas H. Bowers	(fff)

11.0	Statement regarding computation of per share earnings	(ggg)

31.1	Rule 13a-14(a) Certification (Principal Executive Officer)	31.1

31.2	Rule 13a-14(a) Certification (Principal Financial Officer)	31.2

31.3	Rule 13a-14(a) Certification (Chief Risk Officer)	31.3

32.0	Rule 13a-14(b) and 18 U.S.C. 1350 Certification	32.0

101.0	The following financial statements and footnotes from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Statements of Financial Condition; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Comprehensive Income; (iv) Consolidated Statements of Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) the Notes to Consolidated Financial Statements.	101.0


(a)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 9, 2011 and incorporated herein by reference.


(a)(1)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on December 1, 2011 and incorporated herein by reference.


(a)(2)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on February 28, 2012 and incorporated herein by reference.


(a)(3)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 2, 2012 and incorporated herein by reference.


(a)(4)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on August 2, 2012 and incorporated herein by reference.


(b)	Filed as Appendix A to the proxy statement/prospectus included in the Registrant’s Registration Statement on Form S-4 filed on November 1, 2011 and incorporated herein by reference.


(c)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on August 27, 2012 and incorporated herein by reference.


(d)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 filed on March 28, 2002 and incorporated herein by reference.


(e)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on March 4, 2011 and incorporated herein by reference.


(f)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on August 30, 2011 and incorporated herein by reference.


(g)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K/A filed on November 16, 2010 and incorporated herein by reference.


(h)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on May 12, 2011 and incorporated herein by reference.


(i)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 and incorporated herein by reference.


(j)	Filed as an appendix to the Registrant’s definitive proxy statement filed on April 25, 2011 and incorporated herein by reference.


(k)	Filed as an appendix to the Registrant’s definitive proxy statement filed on March 21, 2003 and incorporated herein by reference.


(l)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 23, 2012 and incorporated herein by reference.


(m)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 and incorporated herein by reference.


(n)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on January 3, 2013 and incorporated herein by reference.


(o)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 12, 2013 and incorporated herein by reference.


(p)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 3, 2013 and incorporated herein by reference.


(q)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 17, 2013 and incorporated herein by reference.


(r)	Filed as an appendix to the Registrant’s definitive proxy statement filed on June 11, 2013 and incorporated herein by reference.

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(s)	Filed as an exhibit to the Registrant’s Registration Statement on Form S-8 filed on July 31, 2013 and incorporated herein by reference.


(t)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 3, 2013 and incorporated herein by reference.


(u)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on June 4, 2013 and incorporated herein by reference.


(v)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 30, 2013 and incorporated herein by reference.


(w)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on July 3, 2013 and incorporated herein by reference.


(x)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on May 6, 2013 and incorporated herein by reference.


(y)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on October 31, 2013 and incorporated herein by reference.


(z)	Field as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 and incorporated herein by reference.


(aa)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on April 25, 2014 and incorporated herein by reference.


(bb)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on November 22, 2013 and incorporated herein by reference.


(cc)	Field as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 and incorporated herein by reference.


(dd)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference.


(ee)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on May 21, 2014 and incorporated herein by reference.


(ff)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 and incorporated herein by reference.


(gg)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 and incorporated herein by reference.


(hh)	Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed on October 30, 2014 and incorporated herein by reference.


(ii)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on October 2, 2015 and incorporated herein by reference.


(jj)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2014 and incorporated herein by reference.


(kk)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015 and incorporated herein by reference.


(ll)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on April 6, 2015 and incorporated herein by reference.


(mm)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on April 8, 2015 and incorporated herein by reference.


(nn)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on May 28, 2015 and incorporated herein by reference.


(oo)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on June 16, 2015 and incorporated herein by reference.


(pp)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 and incorporated herein by reference.


(qq)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on August 12, 2015 and incorporated herein by reference.


(rr)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on February 8, 2016 and incorporated herein by reference.


(ss)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 and incorporated herein by reference.


(tt)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on March 8, 2016 and incorporated herein by reference.


(uu)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on March 25, 2016 and incorporated herein by reference.


(vv)	Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 and incorporated herein by reference.


(ww)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on July 1, 2016 and incorporated herein by reference.


(xx)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on November 16, 2016 and incorporated herein by reference.


(yy)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on January 13, 2017 and incorporated herein by reference.


(zz)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on January 25, 2017 and incorporated herein by reference.


(aaa)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on February 8, 2017 and incorporated herein by reference.


(bbb)	Filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference.


(ccc)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on March 14, 2017 and incorporated herein by reference.


(ddd)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on April 4, 2017 and incorporated herein by reference.


(eee)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on April 5, 2017 and incorporated herein by reference.


(fff)	Filed as an exhibit to the Registrant's Current Report on Form 8-K filed on April 27, 2017 and incorporated herein by reference.


(ggg)	Refer to Note 18 of the Notes to Consolidated Financial Statements contained in Item 1 of Part I of this report.

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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:	May 10, 2017	/s/ Douglas H. Bowers
		Douglas H. Bowers
		President/Chief Executive Officer (Principal Executive Officer)

Date:	May 10, 2017	/s/ J. Francisco A. Turner
		J. Francisco A. Turner
		Executive Vice President/Chief Strategy Officer and Interim Chief Financial Officer (Principal Financial Officer)

Date:	May 10, 2017	/s/ Hugh F. Boyle
		Hugh F. Boyle
		Executive Vice President/Chief Risk Officer

Date:	May 10, 2017	/s/ Albert J. Wang
		Albert J. Wang
		Executive Vice President/Chief Accounting Officer (Principal Accounting Officer)

117