BANC OF CALIFORNIA INC

Previous wording

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, 2024. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (the "Form 10-K") and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q.

Current wording

The following is management's discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the three and six months ended June 30, 2024. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2023 (the "Form 10-K") and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q.

Previous wording

At March 31, 2024, the Company had total assets of$36.1 billion, including$25.6 billion of total loans and leases, net of deferred fees,$2.3 billion of securities available-for-sale,$2.3 billion of securities held-to-maturity, and$2.9 billion of interest-earning deposits in financial institutions compared to $38.5 billion of total assets at December 31, 2023, including $25.6 billion of total loans and leases, net of deferred fees, $2.3 billion of securities available-for-sale, $2.3 billion securities held-to-maturity, and $5.2 billion of interest-earning deposits in financial institutions. The$2.5 billion decrease in total assets since year-end was due primarily to a$2.3 billion decrease in interest-earning deposits in financial institutions.

Current wording

At June 30, 2024, the Company had total assets of$35.2 billion, including$25.2 billion of total loans and leases, net of deferred fees,$2.2 billion of securities available-for-sale,$2.3 billion of securities held-to-maturity, and$2.5 billion of interest-earning deposits in financial institutions compared to $38.5 billion of total assets at December 31, 2023, including $25.6 billion of total loans and leases, net of deferred fees, $2.3 billion of securities available-for-sale, $2.3 billion securities held-to-maturity, and $5.2 billion of interest-earning deposits in financial institutions. The$3.3 billion decrease in total assets since year-end was due primarily to a$2.7 billion decrease in interest-earning deposits in financial institutions.

Previous wording

At March 31, 2024, the Company had total liabilities of$32.7 billion, including total deposits of$28.9 billion and borrowings of$2.1 billion, compared to $35.1 billion of total liabilities at December 31, 2023, including $30.4 billion of total deposits and $2.9 billion borrowings. The$2.5 billion decrease in total liabilities since year-end was due mainly to a$1.5 billion decrease in deposits and a$771.8 million decrease in borrowings.

Current wording

At June 30, 2024, the Company had total liabilities of$31.8 billion, including total deposits of$28.8 billion and borrowings of$1.4 billion, compared to $35.1 billion of total liabilities at December 31, 2023, including $30.4 billion of total deposits and $2.9 billion borrowings. The$3.3 billion decrease in total liabilities since year-end was due mainly to a$1.6 billion decrease in deposits and a$1.5 billion decrease in borrowings.

Previous wording

The Company had total stockholders' equity of $3.4 billion at March 31, 2024 and at December 31, 2023. Net earnings for the first quarter of 2024 were mostly offset by dividends declared and paid. Our consolidated common equity Tier 1 (CET1), Tier 1 capital and Total capital ratios were 10.09%, 12.38%, and 16.40% at March 31, 2024.

Current wording

The Company had total stockholders' equity of$3.4 billion at June 30, 2024 and at December 31, 2023. Net earnings for the six months ended June 30, 2024 were mostly offset by dividends declared and paid. Our consolidated common equity Tier 1 (CET1), Tier 1 capital and Total capital ratios were 10.27%,12.62%, and 16.57% at June 30, 2024.

Previous wording

The Merger was accounted for as a reverse merger using the acquisition method of accounting, therefore, PacWest Bancorp was deemed the accounting acquirer, even though Banc of California, Inc. was the legal acquirer. We recorded the legacy Banc of California, Inc. acquired assets and assumed liabilities, both tangible and intangible, at their estimated fair values as of the acquisition date. The application of the acquisition method of accounting resulted in goodwill of $198.6 million. The Bank is headquartered in Los Angeles, California, and operates more than 90 branches in California, as well as branches in North Carolina and Colorado. We completed the Merger to, among other things, enhance our scale and presence in California and augment and diversify our sources of revenue.

Current wording

The Merger was accounted for as a reverse merger using the acquisition method of accounting, therefore, PacWest Bancorp was deemed the accounting acquirer, even though Banc of California, Inc. was the legal acquirer. We recorded the legacy Banc of California, Inc. acquired assets and assumed liabilities, both tangible and intangible, at their estimated fair values as of the acquisition date. The application of the acquisition method of accounting resulted in goodwill of $215.9 million. The Bank is headquartered in Los Angeles, California, and operates more than 80 branches in California, as well as branches in North Carolina and Colorado. We completed the Merger to, among other things, enhance our scale and presence in California and augment and diversify our sources of revenue.

Previous wording

(1) Effective tax rates of 27.2% and 26.8% used for the effect of the three months ended March 31, 2024 and December 31, 2023; adjusted effective tax rate of 28.4% used for the three months ended March 31, 2023 to normalize goodwill impairment.

Current wording

(1) Effective tax rates of 32.0%and 27.2% used for the three months ended June 30, 2024 and March 31, 2024. Effective tax rate of 29.7% used for the six months ended June 30, 2024. Adjusted effective tax rate of 32.0% used to normalize the effect of goodwill impairment for the six months ended June 30, 2023.

Previous wording

Net earnings available to common and equivalent stockholders for the first quarter of 2024 was $20.9 million, or $0.12 per diluted share, compared to a net loss available to common and equivalent stockholders for the first quarter of 2023 of $1.2 billion, or a loss of $15.56 per diluted share. The $1.2 billion increase in net earnings available to common and equivalent stockholders from the first quarter of 2023 was due mainly to a $1.36 billion decrease in noninterest expense, offset partially by a $50.2 million decrease in net interest income and a $76.5 million increase in income tax expense. The decrease in noninterest expense was due, in part, to a $1.38 billion goodwill impairment charge in the first quarter of 2023. The decrease in net interest income was due primarily to our interest-bearing liabilities repricing faster than our interest-bearing assets when interest rates rapidly increased over the last year. Also, the mix of our interest-bearing liabilities changed significantly to higher-cost borrowings and brokered deposits from lower-cost customer deposits, as the closure of three banks in the first half of 2023 caused an outflow of such lower-cost customer deposits. The increase in income tax expense is due to the income tax expense recorded on earnings before taxes in the first quarter of 2024, compared to an income tax benefit recorded on a net loss before income taxes in the first quarter of 2023.

Current wording

Net earnings available to common and equivalent stockholders for the six months ended June 30, 2024 was $41.3 million, or $0.25 per diluted share, compared to a net loss available to common and equivalent stockholders for the six months ended June 30, 2023 of $1.4 billion, or a loss of $18.21 per diluted share. The $1.5 billion increase in net earnings available to common and equivalent stockholders was due mainly to a $1.5 billion decrease in noninterest expense and a $155.3 million increase in noninterest income, offset partially by a $6.8 million decrease in net interest income, a $16.0 million increase in the provision for credit losses, and a $157.8 million increase in income tax expense. The decrease in noninterest expense was due, in part, to a $1.38 billion goodwill impairment charge in the first quarter of 2023. The increase in noninterest income was due almost entirely to a decrease in the loss on sale of loans and leases of $156.6 million. The decrease in net interest income was due primarily to lower interest income on lower interest-earning assets and higher interest expense on deposits, offset partially by lower interest expense on borrowings. The increase in income tax expense was due to the income tax expense recorded on earnings before taxes in the six months ended June 30, 2024, compared to an income tax benefit recorded on a net loss before income taxes in the six months ended June 30, 2023.

Previous wording

(2) Includes net loan discount accretion of $22.4 million and $15.7 million for the three months ended March 31, 2024 and December 31, 2023 and net loan premium amortization of $2.8 million for the three months ended March 31, 2023.

Current wording

(2) Includes net loan discount accretion of $44.3 million for the six months ended June 30, 2024 and net loan premium amortization of $4.4 million for the six months ended June 30, 2023.

Previous wording

(3) Includes tax-equivalent adjustments of $0.0 million, $0.0 million, and $2.3 million for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023 related to tax-exempt income on loans. The federal statutory rate utilized was 21%.

Current wording

(3) Includes tax-equivalent adjustments of $0.0 million and $2.3 million for the six months ended June 30, 2024 and 2023, related to tax-exempt income on loans. The federal statutory rate utilized was 21%.

Previous wording

Net interest income increased by $78.1 million to $229.1 million for the first quarter of 2024 compared to $151.1 million for the fourth quarter of 2023 due to lower borrowing balances and costs, higher asset yields that were driven by changes in the interest-earning asset mix, and lower deposit costs.

Current wording

Net interest income increased by $0.4 million to $229.5 million for the second quarter of 2024 compared to $229.1 million for the first quarter of 2024 due to lower interest expense on interest-bearing liabilities, offset partially by lower interest income on interest-earning assets.

Previous wording

The NIM was 2.66% for the first quarter of 2024 compared to 1.69% for the fourth quarter of 2023. The increase in the NIM was due to the average yield on interest-earning assets increasing by 33 basis points, while the average total cost of funds decreased by 66 basis points, which was positively impacted by an increase in average noninterest-bearing deposits. The average yield on interest-earning assets increased by 33 basis points to 5.56% for the first quarter from 5.23% in the fourth quarter due mainly to the change in the interest-earning asset mix due to an increase in the average balance of loans and leases as a percentage of average interest-earning assets while the average balance of investment securities and deposits in financial institutions as a percentage of average assets decreased.

Current wording

Average interest-earning assets decreased by$1.7 billion to $32.9 billion for the second quarter of 2024 due mainly to the $1.4 billion decrease in average deposits in financial institutions which was attributable to a $1.0 billion paydown of BTFP in the second quarter of 2024. The NIM was 2.80% for the second quarter of 2024 compared to 2.66% for the first quarter of 2024 due to the average yield on interest-earning assets increasing by 9 basis points, while the average total cost of funds decreased by 7 basis points, which was positively impacted by an increase in average noninterest-bearing deposits. The average yield on interest-earning assets increased by 9 basis points to 5.65% for the second quarter from 5.56% in the first quarter due mainly to the increase in the average yield on loans and leases.

Previous wording

The average total cost of funds decreased by 66 basis points to 3.02% for the first quarter from 3.68% in the fourth quarter due mainly to decreases in higher-cost borrowings and interest-bearing deposits combined with an increase in average noninterest-bearing deposits. The average cost of interest-bearing liabilities decreased by 59 basis points to 3.92% for the first quarter from 4.51% for the fourth quarter. The average total cost of deposits decreased by 28 basis points to 2.66% for the first quarter compared to 2.94% in the fourth quarter. Average noninterest-bearing deposits increased by $1.4 billion for the first quarter compared to the fourth quarter and average total deposits increased by $1.5 billion due mainly to the acquired deposits.

Current wording

The average total cost of funds decreased by 7 basis points to 2.95% for the second quarter from 3.02% in the first quarter due mainly to decreases in average interest-bearing deposits combined with an increase in average noninterest-bearing deposits. The average cost of interest-bearing liabilities increased by 1 basis point to 3.93% for the second quarter from 3.92% for the first quarter. The average total cost of deposits decreased by 6 basis points to 2.60% for the second quarter compared to 2.66% in the first quarter. Average noninterest-bearing deposits increased by $196.6 million for the second quarter compared to the first quarter and average total deposits decreased by $655.5 million.

Previous wording

The provision for credit losses increased by $7.0 million to $10.0 million for the first quarter of 2024 compared to $3.0 million for the first quarter of 2023. The provision for the first quarter of 2024 was primarily due to an increase in qualitative reserves for loans secured by office properties and an increase in quantitative reserves due to an increase in nonaccrual and classified loans and leases. The $3.0 million provision for the first quarter of 2023 was primarily attributable to reserves needed due to a less favorable economic forecast, partially offset by a decrease in COVID-related qualitative reserves.

Current wording

The provision for credit losses was$11.0 millionfor the second quarter compared to$10.0 millionfor the first quarter. The$11.0 million second quarter provision was driven mainly by higher net charge-offs, higher qualitative reserves for office loans and other concentrations of credit, and an increase in special mention and classified loans and leases, offset partially by the reserves released for the Civic loans transferred to held for sale. The $10.0 million first quarter provision was driven by an increase in qualitative reserves related to loans secured by office properties and an increase in quantitative reserves due to an increase in nonaccrual and classified loans and leases.

Previous wording

(1) Includes land and acquisition and development loans of $235.7 million at March 31, 2024 and $228.9 million at December 31, 2023.

Current wording

(1) Includes land and acquisition and development loans of $213.6 million at June 30, 2024 and $228.9 million at December 31, 2023.

Previous wording

For the first quarter of 2024, we used the Moody’s March 31, 2024 Baseline, S2 Downside 75th Percentile, and S7 Next-Cycle Recession forecast scenarios for the calculation of our quantitative component. The weightings of the scenarios were based on management’s current expectations for the economic forecast, acknowledging the risk of a near-term recession and inherent uncertainty. Compared to the fourth quarter of 2023, the economic forecasts were relatively consistent, resulting in an immaterial impact to the allowance for credit losses.

Current wording

For the second quarter of 2024, we used the Moody’s June 30, 2024 Baseline, S2 Downside 75th Percentile, and S7 Next-Cycle Recession forecast scenarios for the calculation of our quantitative component. The weightings of the scenarios were based on management’s current expectations for the economic forecast, acknowledging the risk of recession over our reasonable and supportable forecast period and inherent uncertainty in the economy. Compared to the first quarter of 2024, the economic forecasts were relatively consistent, resulting in an immaterial impact to the allowance for credit losses.

Previous wording

The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of allowance for credit losses. As part of our allowance for credit losses process, sensitivity analyses are performed to assess the impact of how changing certain assumptions could impact the estimated allowance for credit losses. At times, these analyses can provide information to further assist management in making decisions on certain assumptions. We calculated alternative values for our March 31, 2024 ACL using various alternative forecast scenarios weightings and the calculated amounts for the quantitative component differed from the probability-weighted multiple scenario forecast ranging from lower reserves by 2.47% to higher reserves by 3.00%. However, changing one assumption and not reassessing other assumptions used in the quantitative or qualitative process could yield results that are not reasonable or appropriate, hence all assumptions and information must be considered. From a sensitivity analysis perspective, changing key assumptions such as the macro-economic variable inputs from the economic forecasts, the reasonable and supportable forecast period, prepayment rates, loan segmentation, historical loss factors and/or periods, among others, would all change the outcome of the quantitative components of the allowance for credit losses. Those results would then need to be assessed from a qualitative perspective potentially requiring further adjustments to the qualitative component to arrive at a reasonable and appropriate allowance for credit losses.

Current wording

The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of allowance for credit losses. As part of our allowance for credit losses process, sensitivity analyses are performed to assess the impact of how changing certain assumptions could impact the estimated allowance for credit losses. At times, these analyses can provide information to further assist management in making decisions related to certain assumptions. We calculated alternative values for our ACL using various alternative forecast scenarios weightings and the calculated amounts for the quantitative component differed from the probability-weighted multiple scenario forecast ranging from lower reserves by 3.12% to higher reserves by 3.88%. However, changing one assumption and not reassessing other assumptions used in the quantitative or qualitative process could yield results that are not reasonable or appropriate, hence all assumptions and information must be considered. From a sensitivity analysis perspective, changing key assumptions such as the macro-economic variable inputs from the economic forecasts, the reasonable and supportable forecast period, prepayment rates, loan segmentation, historical loss factors and/or periods, among others, would all change the outcome of the quantitative components of the allowance for credit losses. Those results would then need to be assessed from a qualitative perspective potentially requiring further adjustments to the qualitative component to arrive at a reasonable and appropriate allowance for credit losses.

Previous wording

During the three months ended March 31, 2024, total deposits decreased by $1.5 billion, or 5.0%, to $28.9 billion at March 31, 2024 due primarily to a decrease of $1.2 billion in money market accounts and a decrease of $0.4 billion in non-brokered time deposits. At March 31, 2024, noninterest-bearing deposits totaled $7.8 billion, or 27%, of total deposits and interest-bearing deposits totaled $21.1 billion, or 73%, of total deposits.

Current wording

During the six months ended June 30, 2024, total deposits decreased by$1.6 billion, or 5.3%, to$28.8 billion at June 30, 2024 due primarily to a decrease of$1.4 billion in money market accounts and a decrease of $0.5 billion in interest-bearing checking accounts. At June 30, 2024, noninterest-bearing deposits totaled$7.8 billion, or 27%, of total deposits and interest-bearing deposits totaled$21.0 billion, or 73%, of total deposits.

Previous wording

As of March 31, 2024, FDIC-insured deposits represented approximately 74% of total deposits, including accounts eligible for pass-through insurance, down from 76% as of December 31, 2023. Available liquidity (on-balance sheet liquidity plus unused borrowing capacity and unpledged AFS securities) was $16.8 billion at March 31, 2024, which exceeded uninsured and uncollateralized deposits of $7.1 billion, with a coverage ratio of 238% as compared to a coverage ratio of 247% at December 31, 2023. Available liquidity also represented 58% of total deposits at March 31, 2024.

Current wording

As of June 30, 2024, FDIC-insured deposits represented approximately 74% of total deposits, including accounts eligible for pass-through insurance, down from 76% as of December 31, 2023. Available liquidity (on-balance sheet liquidity plus unused borrowing capacity and unpledged AFS securities) was $16.9 billion at June 30, 2024, which exceeded uninsured and uncollateralized deposits of$6.8 billion, with a coverage ratio of 247% as compared to a coverage ratio of 247%at December 31, 2023. Available liquidity also represented 59% of total deposits at June 30, 2024.

Previous wording

The Bank is a participant in the IntraFi Network, a network that offers deposit placement services such as ICS and CDARS, and other reciprocal deposit networks which offer products that qualify large deposits for FDIC insurance. At March 31, 2024, the Bank had $8.1 billion of reciprocal deposits compared to $8.9 billion at December 31, 2023.

Current wording

The Bank is a participant in the IntraFi Network, a network that offers deposit placement services such as ICS and CDARS, and other reciprocal deposit networks which offer products that qualify large deposits for FDIC insurance. At June 30, 2024, the Bank had$8.0 billion of reciprocal deposits compared to $8.9 billion at December 31, 2023.

Previous wording

In addition to deposit products, we also offer select clients non-depository cash investment options through BAM, our registered investment adviser subsidiary, and third-party money market sweep products. BAM provides customized investment advisory and asset management solutions. At March 31, 2024, total off-balance sheet client investment funds were $1.2 billion, of which $0.6 billion was managed by BAM. At December 31, 2023, total off-balance sheet client investment funds were $0.6 billion, of which $0.2 billion was managed by BAM.

Current wording

In addition to deposit products, we also offer select clients non-depository cash investment options through BAM, our registered investment adviser subsidiary, and third-party money market sweep products. BAM provides customized investment advisory and asset management solutions. At June 30, 2024, total off-balance sheet client investment funds were$1.2 billion, of which$0.7 billion was managed by BAM. At December 31, 2023, total off-balance sheet client investment funds were $0.6 billion, of which $0.2 billion was managed by BAM.

Previous wording

During the three months ended March 31, 2024, nonperforming loan and leases held for investment incr eased by$71.5 million to$145.8 million at March 31, 2024 due mainly to additions of$90.7 million, offset partially by transfers to accrual status of$12.8 million, principal and other reductions including sales of$5.0 million, and charge-offs of $1.4 million. Included in additions are four commercial real estate mortgage loans (three office properties and one retail) totaling$51.6 million and Civic loans of $25.0 million. As of March 31, 2024, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of $46.3 million and represented 32% of total nonaccrual loans and leases.

Current wording

During the six months ended June 30, 2024, nonperforming loan and leases held for investment incr eased by$42.8 million to$117.1 million at June 30, 2024 due mainly to additions of$119.0 million, offset partially bytransfers to held for sale of$19.6 million, transfers to accrual status of$14.1 million, charge-offs of $13.6 million, andprincipal and other reductions of$29.0 million. As of June 30, 2024, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of $35.9 million and represented 31% of total nonaccrual loans and leases.

Previous wording

Loans and leases accruing 30-89 days past due generally fluctuate from period to period. The $16.9 million increase to $118.8 million as of March 31, 2024 was due mainly to an increase in commercial real estate and asset-based delinquent loans.

Current wording

Loans and leases accruing 30-89 days past due generally fluctuate from period to period. The $76.8 million decrease to $25.1 million as of June 30, 2024 was due mainly to decreases in other residential and commercial real estate delinquent loans.

Previous wording

During the three months ended March 31, 2024, foreclosed assets increased by$5.1 million to$12.5 million at March 31, 2024 due mainly to additions of$11.0 million, offset partially by sales of $5.6 million.

Current wording

During the six months ended June 30, 2024, foreclosed assets increased by$5.9 million to$13.3 million at June 30, 2024 due mainly to additions of$14.8 million, offset partially by sales of $8.1 million.

Previous wording

During the three months ended March 31, 2024, classified loans and leases increased by$138.3 million to$366.7 million at March 31, 2024 due mainly to increases of$98.8 million in commercial real estate mortgage classified loans, the majority of which relates to four large CRE relationships, and $28.3 million in other residential real estate mortgage classified loans (Civic loans).

Current wording

During the six months ended June 30, 2024, classified loans and leases increased by$187.1 million to$415.5 million at June 30, 2024 due mainly to increases of$112.8 million in commercial real estate mortgage classified loans,$39.6 million in multi-family real estate mortgage classified loans,$13.8 million in other residential real estate mortgage classified loans, and$12.5 million in venture capital classified loans.

Previous wording

During thethree months ended March 31, 2024, special mention loans and leases increased by $43.2 million to $556.5 million at March 31, 2024 due primarily to an increase of $99.7 million in venture capital commercial special mention loans, offset partially by decreases of$23.2 million in commercial real estate mortgage special mention loansand $22.6 million in other residential real estate mortgage special mention loans.

Current wording

During thesix months ended June 30, 2024, special mention loans and leases increased by $167.4 million to $680.7 million at June 30, 2024 due mainly to increases of $107.4 million in commercial real estate construction and land special mention loans,$90.4 million in venture capital special mention loans, and $54.1 million in commercial real estate mortgage special mention loans, offset partially by decreases of $53.5 million in multi-family real estate mortgage special mention loansand$32.8 million in other residential real estate mortgage special mention loans.

Previous wording

Regulatory capital requirements limit the amount of deferred tax assets that may be included when determining the amount of regulatory capital. Deferred tax asset amounts in excess of the calculated limit are disallowed from regulatory capital. At March 31, 2024, such disallowed amounts was $243.3 million for the Company. No assurance can be given that the regulatory capital deferred tax asset limitation will not increase in the future or that the Company will not have increased deferred tax assets that are disallowed.

Current wording

Regulatory capital requirements limit the amount of deferred tax assets that may be included when determining the amount of regulatory capital. Deferred tax asset amounts in excess of the calculated limit are disallowed from regulatory capital. At June 30, 2024, such disallowed amounts was $252.8 million for the Company. No assurance can be given that the regulatory capital deferred tax asset limitation will not increase in the future or that the Company will not have increased deferred tax assets that are disallowed.

Previous wording

The Company and the Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the March 31, 2024 ratios include this election. This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2021. This cumulative amount is now being phased out of regulatory capital evenly over the three years from 2022 to 2024. The add-back as of March 31, 2024 ranged from 0 basis points to 2 basis points for the capital ratios below.

Current wording

The Company and the Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the June 30, 2024 ratios include this election. This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2021. This cumulative amount is now being phased out of regulatory capital evenly over the three years from 2022 to 2024. The add-back as of June 30, 2024 ranged from 0 basis points to 3 basis points for the capital ratios below.

Previous wording

The Company's consolidated common equity Tier 1 (CET1), Tier 1 and Total capital ratios decreased during the three months ended March 31, 2024 due mainly to an increase in risk-weighted assets, partially offset by positive earnings. The consolidated Tier 1 leverage ratio increased during the three months ended March 31, 2024 due mainly to a decrease in average assets attributable primarily to decreased cash and cash equivalents.

Current wording

The Company's consolidated risk-based capital ratios increased during the six months ended June 30, 2024 due mainly to a decrease in risk-weighted assets and positive earnings for the period. The consolidated Tier 1 leverage ratio increased during the six months ended June 30, 2024 due mainly to a decrease in average assets attributable primarily to decreased cash and cash equivalents.

Previous wording

We issued or assumed through mergers subordinated debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. As of March 31, 2024, the carrying value of subordinated debt totaled $937.7 million. At March 31, 2024, $131.0 million of the trust preferred securities were included in the Company's Tier I capital and $791.9 million were included in Tier II capital.

Current wording

We issued or assumed through mergers subordinated debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. As of June 30, 2024, the carrying value of subordinated debt totaled $939.3 million. At June 30, 2024, $131.0 million of the trust preferred securities were included in the Company's Tier I capital and $793.4 million were included in Tier II capital.

Previous wording

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

Current wording

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

Previous wording

As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of $6.3 billion at March 31, 2024, and $307.4 million was pledged for letters of credit and the balance outstanding was $300.0 million as of that date. The FHLB secured credit line was collateralized by a blanket lien on $10.2 billion of certain qualifying loans and $20.1 million of securities. The Bank also had secured borrowing capacity with the FRBSF under the Discount Window program totaling $6.9 billion at March 31, 2024, all of which was available, and $1.5 billion under the Bank Term Funding Program, which was fully borrowed as of that date. The FRBSF Discount Window secured credit line was collateralized by liens on $7.7 billion of qualifying loans and $1.0 billion of pledged securities, and the Bank Term Funding Program credit line was collateralized by pledged securities with a market value of $1.3 billion and a par value of $1.6 billion. The Bank Term Funding Program provides borrowing capacity on qualifying government and government agency guaranteed securities based on the collateral par value.

Current wording

As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of $6.7 billion at June 30, 2024, and $372.9 million pledged for letters of credit and a balance outstanding of $600.0 million as of that date. The FHLB secured credit line was collateralized by a blanket lien on $10.6 billion of certain qualifying loans and $20.2 million of securities. The Bank also had secured borrowing capacity with the FRBSF under the Discount Window program totaling $6.6 billion at June 30, 2024, all of which was available, and $545.0 million under the Bank Term Funding Program, which was fully borrowed as of that date. The FRBSF Discount Window secured credit line was collateralized by liens on $7.1 billion of qualifying loans and $1.1 billion of pledged securities, and the Bank Term Funding Program credit line was collateralized by pledged securities with a market value of $481.9 million and a par value of $584.4 million. The Bank Term Funding Program provides borrowing capacity on qualifying government and government agency guaranteed securities based on the collateral par value.

Previous wording

During the three months ended March 31, 2024, the Company's primary liquidity decreased by $1.1 billion to $4.7 billion at March 31, 2024 due mainly to a $2.3 billion decrease in interest-earning deposits in financial institutions, offset partially by a decrease of $1.3 billion in pledged AFS securities. During the three months ended March 31, 2024, the Company's secondary liquidity increased by $576.6 million to $12.6 billion at March 31, 2024 due mainly to an increase in available secured borrowing capacity with the FHLB of $632.6 million.

Current wording

During the six months ended June 30, 2024, the Company's primary liquidity decreased by $721.2 million to $4.8 billion at June 30, 2024 due mainly to a $2.7 billion decrease in interest-earning deposits in financial institutions, offset partially by a decrease of $2.1 billion in pledged AFS securities. During the six months ended June 30, 2024, the Company's secondary liquidity increased by $345.9 million to $12.3 billion at June 30, 2024 due mainly to an increase in available secured borrowing capacity with the FHLB of $669.4 million, offset partially by a decrease in available secured borrowing capacity with the FRB of $323.6 million.

Previous wording

We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At March 31, 2024, brokered deposits totaled $4.1 billion, consisting of $662.8 million of non-maturity brokered accounts and $3.4 billion of brokered time deposits. At December 31, 2023, brokered deposits totaled $4.6 billion, consisting of $1.1 billion of non-maturity brokered accounts and $3.5 billion of brokered time deposits.

Current wording

We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At June 30, 2024, brokered deposits totaled $4.5 billion, consisting of $449.5 million of non-maturity brokered accounts and $4.0 billion of brokered time deposits. At December 31, 2023, brokered deposits totaled $4.6 billion, consisting of $1.1 billion of non-maturity brokered accounts and $3.5 billion of brokered time deposits.

Previous wording

Our liquidity policy includes guidelines, which are governed by the Company's Risk Appetite Statement, which include the following metrics: Balance Sheet Liquidity Ratio (unencumbered liquid assets divided by the sum of deposits and borrowings), Brokered Deposits to Total Funding Ratio (wholesale deposits to total deposits plus borrowings), Total Borrowings to Total Funding Ratio (borrowings to total deposits and borrowings), Short-Term Non-Core Funding Ratio (retail time deposits of $250,000 or more that mature within one year, brokered deposits that mature within one year, listing service deposits that mature within one year, official checks, escrow and title company deposits, 1031 exchange accommodator deposits, Federal Funds purchased, and borrowings that mature within one year as a percentage of total assets) and the Wholesale Funding Ratio (wholesale deposits to total deposits and borrowings). At March 31, 2024, the Bank was in compliance with all of its funding concentration liquidity guidelines.

Current wording

Our liquidity policy includes guidelines, which are governed by the Company's Risk Appetite Statement, which include the following metrics: Primary Liquidity Ratio (unencumbered liquid assets and the market value of unpledged AFS securities, net of a haircut, divided by total assets), Brokered Deposits to Total Funding Ratio (wholesale deposits to total deposits plus borrowings), Total Borrowings to Total Funding Ratio (borrowings to total deposits and borrowings), Short-Term Non-Core Funding Ratio (retail time deposits of $250,000 or more that mature within one year, brokered deposits that mature within one year, listing service deposits that mature within one year, official checks, escrow and title company deposits, 1031 exchange accommodator deposits, Federal Funds purchased, and borrowings that mature within one year as a percentage of total assets) and the Wholesale Funding Ratio (wholesale deposits to total deposits and borrowings). At June 30, 2024, the Bank was in compliance with all of its funding concentration liquidity guidelines.

Previous wording

At March 31, 2024, Banc of California, Inc. had $233.9 million in cash and cash equivalents, of which a substantial amount was on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months.

Current wording

At June 30, 2024, Banc of California, Inc. had $189.0 million in cash and cash equivalents, of which a substantial amount was on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months.

Previous wording

Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At March 31, 2024, our loan commitments and standby letters of credit were $5.5 billion and $248.5 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity -Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 10. Commitments and Contingencies, of our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Current wording

Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At June 30, 2024, our loan commitments and standby letters of credit were $5.3 billion and $209.9 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity -Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 11. Commitments and Contingencies, of our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.