EMPLOYEE STOCK COMPENSATION

The Company issues stock-based compensation awards to its directors and employees from the Company's 2013 Omnibus Stock Incentive Plan (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 December 31, 2017, based on the number of shares then registered for issuance under the 2013 Omnibus Plan, 1,277,247 shares were available for future awards.

On December 28, 2017, the Company initiated the termination of the Banc of California Capital and Liquidity Enhancement Employee Compensation Trust (the SECT) that was established to fund employee stock compensation and benefit obligations of the Company. See Note 18 for additional information.

Stock-based Compensation Expense

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



	Year Ended December 31,
($ in thousands)	2017		2016		2015
Stock options	$	360	$	531	$	528
Restricted stock awards and units	11,732		11,398		8,598
Stock appreciation rights	42		18		202
Total stock-based compensation expense	$	12,134	$	11,947	$	9,328
Related tax benefits	$	5,078	$	4,963	$	3,922

The following table presents unrecognized stock-based compensation expense as of December 31, 2017:



($ in thousands)	Unrecognized Expense		Weighted-Average Remaining Expected Recognition Period
Stock option awards	$	267	2.3 years
Restricted stock awards and restricted stock units	9,762		2.5 years
Total	$	10,029	2.5 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 Company recognizes an income tax deduction upon exercise of the stock option by the option holder in an amount equal to the taxable income reported by the option holders. The option holder recognize taxable income based on the closing market price immediately before the exercise date less the exercise price stated in the grant agreement.

The weighted-average estimated fair value per share options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions.



	Year Ended December 31,
($ in thousands, except per share data)	2017		2016		2015
Granted date fair value of options granted	$	—	$	1,630	$	729
Fair value of options vested	$	611	$	497	$	481
Total intrinsic value of options exercised	$	3,747	$	722	$	75
Cash received from options exercised	$	2,043	$	—	$	501
Weighted-average estimated fair value per share of options granted	$	—	$	5.09	$	3.76

Expected volatility was determined based on the historical monthly volatility of our stock price over a period equal to the expected term of the options granted. The expected term of the options represents the period that options granted are expected to be outstanding based primarily on the historical exercise behavior associated with previous options grants. The risk-free interest rate was based on the U.S. Treasury yield curve at the time of grant for a period equal to the expected term of the options granted.

The following table presents a summary of weighted-average assumptions used for calculating fair value options for the periods indicated:



	Year Ended December 31,
	2017		2016		2015
Dividend yield	—	%	3.57	%	4.14	%
Expected volatility	—	%	43.30	%	43.04	%
Expected term	0.0 years		6.5 years		6.4 years
Risk-free interest rate	—	%	1.61	%	1.68	%

The following table represents stock option activity and weighted-average exercise price per share for the periods indicated:



	Year Ended December 31,
	2017				2016				2015
	Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share
Outstanding at beginning of year	968,591		$	13.95	960,879		$	12.86	879,070		$	12.67
Granted	—		$	—	320,000		$	16.78	193,696		$	13.28
Cash settled	—		$	—	55,826		$	14.33	—		$	—
Exercised	(488,281	)	$	12.53	(51,666	)	$	11.48	(43,333	)	$	11.55
Forfeited	(269,337	)	$	16.49	(202,743	)	$	13.84	(68,554	)	$	12.38
Expired	—		$	—	(2,053	)	$	13.88	—		$	—
Outstanding at end of year	210,973		$	13.99	968,591		$	13.95	960,879		$	12.86
Exercisable at end of year	105,541		$	14.68	449,655		$	12.68	394,613		$	12.70

The following table represents changes in unvested stock options and related information as of and for the periods indicated:



	Year Ended December 31,
	2017				2016				2015
	Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share
Outstanding at beginning of year	518,936		$	15.04	566,266		$	12.99	552,672		$	12.74
Granted	—		$	—	320,000		$	16.77	193,696		$	13.28
Vested	(174,833	)	$	14.10	(170,837	)	$	12.81	(170,102	)	$	12.57
Forfeited	(238,671	)	$	16.50	(196,493	)	$	13.86	(10,000	)	$	12.03
Outstanding at end of year	105,432		$	13.31	518,936		$	15.04	566,266		$	12.99

The following table presents a summary of stock options outstanding as of December 31, 2017:



	Options Outstanding						Options Exercisable
	Number of Shares	Intrinsic Value		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Life	Number of Shares	Intrinsic Value		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Life
$10.89 to $12.21	7,344	$	71,604	$	10.90	6.5 years	4,400	$	42,900	$	10.90	6.5 years
$12.21 to $13.53	116,000	853,760		$	13.29	7.4 years	32,000	235,520		$	13.29	7.4 years
$13.53 to $14.85	47,464	325,502		$	13.79	6.6 years	28,976	198,334		$	13.81	6.3 years
$14.85 to $16.17	16,165	78,239		$	15.81	3.5 years	16,165	78,239		$	15.81	3.5 years
$16.17 to $17.50	24,000	75,600		$	17.50	8.2 years	24,000	75,600		$	17.50	8.2 years
Total	210,973	$	1,404,705	$	13.99	7.0 years	105,541	$	630,593	$	14.68	6.6 years

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 upon vesting or, in the case of restricted stock units, when settled. The following table presents unvested restricted stock awards and restricted stock units activity as of and for the periods indicated:



	Year Ended December 31,
	2017				2016				2015
	Number of Shares		Weighted-Average Price per Share		Number of Shares		Weighted-Average Price per Share		Number of Shares		Weighted-Average Price per Share
Outstanding at beginning of year	1,417,144		$	16.16	1,516,361		$	12.40	1,287,302		$	12.53
Granted ^{(1) (2)}	859,722		$	20.81	1,711,968		$	17.99	930,830		$	12.31
Vested ^{(1) (3)}	(854,031	)	$	15.95	(758,999	)	$	13.12	(451,196	)	$	12.64
Forfeited ^{(1) (4)}	(511,202	)	$	17.80	(1,052,186	)	$	13.92	(250,575	)	$	12.29
Outstanding at end of year	911,633		$	18.73	1,417,144		$	16.16	1,516,361		$	12.40

(1)

The vesting of these awards is subject to certain performance targets and goals being met. These performance targets include conditions relating to the Company’s profitability and regulatory standing. The actual amounts of stock released upon vesting will be determined by the Compensation Committee of the Company's Board of Directors upon the Committee's certification of the satisfaction of the target level of performance.


(2)	The number of granted shares/units includes aggregate performance-based shares of 152,709, 602,671 and 62,552, respectively, for the years ended December 31, 2017, 2016 and 2015.


(3)	The number of vested shares includes aggregate performance-based shares/units of 10,000, 0 and 0, respectively, for the years ended December 31, 2017, 2016 and 2015


(4)	The number of forfeited shares includes aggregate performance-based shares/units of 107,545, 615,223 and 0, respectively, for the years ended December 31, 2017, 2016 and 2015.

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) for 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 vesting 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 TEUs on May 21, 2014 that has different terms (Additional TEU SAR).

Regarding the Additional TEU SAR, each TEU contained a Purchase Contract that could 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 18. The Additional TEU SAR was calculated using the initial maximum settlement rate and, therefore, the number of shares underlying the Additional TEU SAR was subject to adjustment and forfeiture if the aggregate number of shares of stock issued in settlement of any single Purchase Contract was 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.

The weighted-average estimated fair value per share of SARs granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions.



	Year Ended December 31,
	2017			2016			2015
Dividend yield	—		%	—		%	—		%
Expected volatility	—		%	—		%	23.79		%
Expected term	0.0 years			0.0 years			2.0 years
Risk-free interest rate	—		%	—		%	0.64		%
Weighted-average estimated fair value per share of SARs granted	$	—		$	—		$	1.72

The following table represents SARs activity and the weighted-average exercise price per share for the periods indicated:



	Year Ended December 31,
	2017				2016				2015
	Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share
Outstanding at beginning of year	1,559,047		$	11.60	1,561,681		$	11.60	1,575,394		$	11.58
Granted	—		$	—	—		$	—	2,973		$	12.27
Exercised	—		$	—	—		$	—	—		$	—
Forfeited	(35	)	$	10.09	(2,634	)	$	10.09	(16,686	)	$	10.09
Outstanding at end of year	1,559,012		$	11.60	1,559,047		$	11.60	1,561,681		$	11.60
Exercisable at end of year	1,559,012		$	11.60	1,550,978		$	11.61	1,535,718		$	11.63

The following table represents changes in unvested SARs and related information as of and for the periods indicated:



	Year Ended December 31,
	2017				2016				2015
	Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share		Number of Shares		Weighted-Average Exercise Price per Share
Outstanding at beginning of year	8,069		$	10.09	25,963		$	10.09	147,589		$	10.09
Granted	—		$	—	—		$	—	2,973		$	12.27
Vested	(8,034	)	$	10.09	(15,260	)	$	10.09	(107,913	)	$	10.15
Forfeited	(35	)	$	10.09	(2,634	)	$	10.09	(16,686	)	$	10.09
Outstanding at end of year	—		$	—	8,069		$	10.09	25,963		$	10.09