EMPLOYEE STOCK COMPENSATION

On May 31, 2018 (the Effective Date), the Company's stockholders approved the Company's 2018 Omnibus Stock Incentive Plan (2018 Omnibus Plan). As of the Effective Date, the Company discontinued granting awards under the Company’s 2013 Omnibus Incentive Plan (2013 Omnibus Plan) or any prior equity incentive plans and future stock-based compensation awards to its directors and employees will be made pursuant to the 2018 Omnibus Plan. The 2018 Omnibus Plan provides that the maximum number of shares that will be available for awards is 4,417,882, which represents the number of shares that were available for new awards under the 2013 Omnibus Plan immediately prior to the Effective Date. As of September 30, 2018, 4,376,895 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, a Maryland statutory trust (the SECT), which was established to fund employee stock compensation and benefit obligations of the Company. The termination of the SECT was completed during the quarter ended September 30, 2018. See Note 15 for additional information.

Share-based Compensation Expense

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



	Three Months Ended September 30,				Nine Months Ended September 30,
($ in thousands)	2018		2017		2018		2017
Stock options	$	32	$	36	$	145	$	703
Restricted stock awards and units	1,366		2,185		5,128		9,167
Stock appreciation rights	—		—		—		42
Total share-based compensation expense	$	1,398	$	2,221	$	5,273	$	9,912
Related tax benefits	$	410	$	927	$	1,546	$	4,122

The following table presents unrecognized share-based compensation expense as of September 30, 2018:



($ in thousands)	Unrecognized Expense		Weighted-Average Remaining Expected Recognition Period
Stock option awards	$	173	1.6 years
Restricted stock awards and restricted stock units	10,853		2.4 years
Total	$	11,026	2.4 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 a stock option to the extent taxable income is recognized by the option holder. In the case of a non-qualified stock option, the option holder recognizes taxable income based on the fair market value of the shares acquired at the time of exercise less the exercise price.

The following table represents stock option activity for the three months ended September 30, 2018:



	Three Months Ended September 30, 2018
($ in thousands except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value
Outstanding at beginning of period	186,973	$	13.54	6.3 years	$	1,123
Outstanding at end of period	186,973	$	13.54	6.1 years	$	1,002
Exercisable at end of period	123,125	$	13.67	5.8 years	$	644

The following table represents stock option activity for the nine months ended September 30, 2018:



	Nine Months Ended September 30, 2018
($ in thousands except per share data)	Number of Shares		Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value
Outstanding at beginning of period	210,973		$	13.99	7.0 years	$	1,405
Exercised	(24,000	)	$	17.50	8.2 years	$	—
Outstanding at end of period	186,973		$	13.54	6.1 years	$	1,002
Exercisable at end of period	123,125		$	13.67	5.8 years	$	644

The following table sets forth information regarding unvested stock options for the three and nine months ended September 30, 2018.



	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Number of Shares		Weighted-Average Exercise Price Per Share		Number of Shares		Weighted-Average Exercise Price Per Share
Outstanding at beginning of period	73,324		$	13.32	105,432		$	13.31
Vested	(9,476	)	$	13.46	(41,584	)	$	13.32
Outstanding at end of period	63,848		$	13.30	63,848		$	13.30

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 holder of the restricted stock, generally upon vesting or, in the case of restricted stock units, when settled. The following table presents unvested restricted stock awards and restricted stock units activity for the three and nine months ended September 30, 2018:



	Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
	Number of Shares		Weighted Average Grant Date Fair Value Per Share		Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at beginning of period	985,237		$	18.84	911,633		$	18.73
Granted ⁽¹⁾	41,108		$	20.00	619,970		$	18.92
Vested ⁽¹⁾	(68,506	)	$	18.02	(386,723	)	$	18.84
Forfeited ⁽¹⁾	(45,140	)	$	18.23	(232,181	)	$	18.27
Outstanding at end of period	912,699		$	18.99	912,699		$	18.99

(1)

The number of granted shares/units includes aggregate performance-based shares of 0 and 306,801 for the three and nine months ended September 30, 2018, respectively. The number of vested shares includes aggregate performance-based shares of 0 and 44,817 for the three and nine months ended September 30, 2018, respectively. The number of forfeited shares includes aggregate performance-based shares of 12,958 and 60,378 for the three and nine months ended September 30, 2018, respectively. 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.

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 one-time performance, based restricted stock award with an aggregate grant date fair market value of $5.0 million, which was scheduled to 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 15. 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 following table represents SARs activity as of and for the three months ended September 30, 2018:



	Three Months Ended September 30, 2018
($ in thousands except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value
Outstanding at beginning of period	1,559,012	$	11.60	4.1 years	$	12,390
Outstanding at end of period	1,559,012	$	11.60	3.9 years	$	11,377
Exercisable at end of period	1,559,012	$	11.60	3.9 years	$	11,377

The following table represents SARs activity as of and for the nine months ended September 30, 2018:



	Nine Months Ended September 30, 2018
($ in thousands except per share data)	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contract Term	Aggregated Intrinsic Value
Outstanding at beginning of period	1,559,012	$	11.60	4.6 years	$	14,105
Outstanding at end of period	1,559,012	$	11.60	3.9 years	$	11,377
Exercisable at end of period	1,559,012	$	11.60	3.9 years	$	11,377