0001102112pacw:~~A68ClassifiedMemberpacw:OriginationDate2019Memberpacw:TermLoansByOriginationDateMember2020-09-30~~TermLoansByOriginationDateMemberpacw:OtherCommercialMemberus-gaap:CommercialPortfolioSegmentMemberpacw:OriginationDate2019Member2021-01-012021-06-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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


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

For the quarterly period ended ~~September~~June 30, ~~2020~~2021

Commission File No. 001-36408

PACWEST BANCORP

(Exact name of registrant as specified in its charter)


Delaware						33-0885320
(State of Incorporation)						(I.R.S. Employer Identification No.)

9701 Wilshire Blvd., Suite 700

Beverly Hills, CA 90212

(Address of Principal Executive Offices, Including Zip Code)

(310) 887-8500

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, par value $0.01 per share

PACW

The Nasdaq Stock Market, LLC

(Title of Each Class)

(Trading Symbol)

(Name of Exchange on Which Registered)

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 ☐☑ No ☑☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ 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. ~~(Check one):~~

☑

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

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 ☑

As of ~~October 29, 2020,~~July 30, 2021, there were ~~116,783,237~~117,213,554 shares of the registrant's common stock outstanding, excluding ~~1,701,004~~2,334,433 shares of unvested restricted stock.

PACWEST BANCORP

~~SEPTEMBER~~JUNE 30, ~~2020~~2021 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Earnings (Loss) (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	6
	Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows (Unaudited)	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	5253
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8786
Item 4.	Controls and Procedures	9190

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	9190
Item 1A.	Risk Factors	9190
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9390
Item 6.	Index to Exhibits	9491
Signatures		9693

PART I

Glossary of Acronyms, Abbreviations, and Terms

The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-Q, including "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."

ACL

Allowance for Credit Losses

FRB

Board of Governors of the Federal Reserve System

AFX

American Financial Exchange

~~GDP~~FRBSF

~~Gross Domestic Product~~Federal Reserve Bank of San Francisco

ALLL

Allowance for Loan and Lease Losses

~~IPO~~GDP

~~Initial Public Offering~~Gross Domestic Product

ALM

Asset Liability Management

~~IRR~~IPO

~~Interest Rate Risk~~Initial Public Offering

ASC

Accounting Standards Codification

~~LIBOR~~IRR

~~London Inter-bank Offered~~Interest Rate Risk

ASU

Accounting Standards Update

~~LIHTC~~LIBOR

~~Low Income Housing Tax Credit~~London Inter-bank Offered Rate

Basel III

A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013

~~MBS~~LIHTC

~~Mortgage-Backed Securities~~Low Income Housing Tax Credit

BHCA

Bank Holding Company Act of 1956, as amended

~~MVE~~MBS

~~Market Value of Equity~~Mortgage-Backed Securities

BOLI

Bank Owned Life Insurance

~~NAV~~MVE

~~Net Asset~~Market Value of Equity

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

~~NII~~NAV

Net ~~Interest Income~~Asset Value

CDI

Core Deposit Intangible Assets

~~NIM~~NII

Net Interest ~~Margin~~Income

CECL

Current Expected Credit Loss

~~NSF~~NIM

~~Non-Sufficient Funds~~Net Interest Margin

CET1

Common Equity Tier 1

NSF

Non-Sufficient Funds

Civic

Civic Financial Services, LLC (a company acquired on February 1, 2021)

OREO

Other Real Estate Owned

CMBS

Commercial Mortgage-Backed Securities

PD/LGD

Probability of Default/Loss Given Default

CMOs

Collateralized Mortgage Obligations

~~PPNR~~

~~Pre-Provision, Pre-Goodwill Impairment, Pre-Tax Net Revenue~~

~~COVID-19~~

~~Coronavirus Disease~~

PPP

Paycheck Protection Program

~~CPI~~COVID-19

~~Consumer Price Index~~Coronavirus Disease

PRSUs

Performance-Based Restricted Stock Units

~~CRA~~CPI

~~Community Reinvestment Act~~Consumer Price Index

PWAM

Pacific Western Asset Management Inc.

CRA

Community Reinvestment Act

ROU

Right-of-use

CRE

Commercial Real Estate

~~ROU~~SBA

~~Right-of-use~~Small Business Administration

CRI

Customer Relationship Intangible Assets

~~SBA~~SBIC

Small Business ~~Administration~~Investment Company

DFPI

California Department of Financial Protection and Innovation

~~SBIC~~SEC

~~Small Business Investment Company~~Securities and Exchange Commission

DTAs

Deferred Tax Assets

~~SEC~~SOFR

~~Securities and Exchange Commission~~Secured Overnight Financing Rate

Dodd-Frank Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

~~SOFR~~Tax Equivalent Net Interest Income

~~Secured Overnight Financing Rate~~Net interest income reflecting adjustments related to tax-exempt interest on certain loans and investment securities

EAD

Exposure at Default

Tax Equivalent ~~Net Interest Income~~NIM

~~Net interest income~~NIM reflecting adjustments related to tax-exempt interest on certain loans and investment securities

Efficiency Ratio

Noninterest expense (less intangible asset amortization, net foreclosed assets expense (income), goodwill impairment, and acquisition, integration and reorganization costs) divided by net revenues (the sum of tax equivalent net interest income plus noninterest income, less gain/loss on sale of securities and gain/loss on sales of assets other than loans and leases)

~~Tax Equivalent NIM~~TDRs

~~NIM reflecting adjustments related to tax-exempt interest on certain loans and investment securities~~Troubled Debt Restructurings

FASB

Financial Accounting Standards Board

~~TCJA~~TRSAs

~~Tax Cuts and Jobs Act~~Time-Based Restricted Stock Awards

FDIC

Federal Deposit Insurance Corporation

~~TDRs~~U.S. GAAP

~~Troubled Debt Restructurings~~U.S. Generally Accepted Accounting Principles

FHLB

Federal Home Loan Bank of San Francisco

~~TRSAs~~

~~Time-Based Restricted Stock Awards~~

~~FRB~~

~~Board of Governors of the Federal Reserve System~~

~~U.S. GAAP~~

~~U.S. Generally Accepted Accounting Principles~~

~~FRBSF~~

~~Federal Reserve Bank of San Francisco~~

VIE

Variable Interest Entity

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


		September 30,		December 31,			June 30,		December 31,
		2020		2019			2021		2020
		(Unaudited)					(Unaudited)
		(Dollars in thousands, except par value amounts)					(Dollars in thousands, except par value amounts)
ASSETS:	ASSETS:					ASSETS:
Cash and due from banks	Cash and due from banks	$	187,176	$	172,585	Cash and due from banks	$	179,505	$	150,464
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	2,766,020		465,039		Interest-earning deposits in financial institutions	5,678,587		3,010,197
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	2,953,196		637,624		Total cash, cash equivalents, and restricted cash	5,858,092		3,160,661
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value	4,532,614		3,797,187		Securities available-for-sale, at fair value	7,198,608		5,235,591
Federal Home Loan Bank stock, at cost	Federal Home Loan Bank stock, at cost	17,250		40,924		Federal Home Loan Bank stock, at cost	17,250		17,250
Total investment securities	Total investment securities	4,549,864		3,838,111		Total investment securities	7,215,858		5,252,841

Loans held for sale						Loans held for sale	0		0
Gross loans and leases held for investment	Gross loans and leases held for investment	19,101,680		18,910,740		Gross loans and leases held for investment	19,580,731		19,153,357
Deferred fees, net	Deferred fees, net	(75,480)		(63,868)		Deferred fees, net	(74,474)		(69,980)
Allowance for loan and lease losses	Allowance for loan and lease losses	(345,966)		(138,785)		Allowance for loan and lease losses	(225,600)		(348,181)
Total loans and leases held for investment, net	Total loans and leases held for investment, net	18,680,234		18,708,087		Total loans and leases held for investment, net	19,280,657		18,735,196
Equipment leased to others under operating leases	Equipment leased to others under operating leases	286,425		324,084		Equipment leased to others under operating leases	313,574		333,846
Premises and equipment, net	Premises and equipment, net	40,544		38,585		Premises and equipment, net	39,541		39,234
Foreclosed assets, net	Foreclosed assets, net	13,747		440		Foreclosed assets, net	13,227		14,027
Goodwill	Goodwill	1,078,670		2,548,670		Goodwill	1,204,118		1,078,670
Core deposit and customer relationship intangibles, net	Core deposit and customer relationship intangibles, net	26,813		38,394		Core deposit and customer relationship intangibles, net	18,423		23,641
Other assets	Other assets	797,223		636,811		Other assets	924,497		860,326
Total assets	Total assets	$	28,426,716	$	26,770,806	Total assets	$	34,867,987	$	29,498,442

LIABILITIES:	LIABILITIES:					LIABILITIES:
Noninterest-bearing deposits	Noninterest-bearing deposits	$	9,346,744	$	7,243,298	Noninterest-bearing deposits	$	11,252,286	$	9,193,827
Interest-bearing deposits	Interest-bearing deposits	14,618,951		11,989,738		Interest-bearing deposits	18,394,748		15,746,890
Total deposits	Total deposits	23,965,695		19,233,036		Total deposits	29,647,034		24,940,717
Borrowings	Borrowings	60,000		1,759,008		Borrowings	6,625		5,000
Subordinated debentures		463,282		458,209
Subordinated debt						Subordinated debt	861,788		465,812
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	451,508		365,856		Accrued interest payable and other liabilities	505,859		491,962
Total liabilities	Total liabilities	24,940,485		21,816,109		Total liabilities	31,021,306		25,903,491

Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0

STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)	Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)	0		0		Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)	0		0
Common stock ($0.01 par value, 200,000,000 shares authorized at September 30, 2020 and
December 31, 2019; 120,801,109 and 121,890,008 shares issued, respectively, includes
1,706,690 and 1,513,197 shares of unvested restricted stock, respectively)		1,208		1,219
Common stock ($0.01 par value, 200,000,000 shares authorized at June 30, 2021 and						Common stock ($0.01 par value, 200,000,000 shares authorized at June 30, 2021 and
December 31, 2020; 122,066,549 and 120,736,834 shares issued, respectively, includes						December 31, 2020; 122,066,549 and 120,736,834 shares issued, respectively, includes
2,341,548 and 1,608,126 shares of unvested restricted stock, respectively)						2,341,548 and 1,608,126 shares of unvested restricted stock, respectively)	1,221		1,207
Additional paid-in capital	Additional paid-in capital	3,125,554		3,306,006		Additional paid-in capital	3,056,522		3,100,633
Retained earnings	Retained earnings	292,561		1,652,248		Retained earnings	740,309		409,391
Treasury stock, at cost (2,311,182 and 2,108,403 shares at September 30, 2020 and
December 31, 2019)		(88,566)		(83,434)
Treasury stock, at cost (2,511,447 and 2,321,981 shares at June 30, 2021 and						Treasury stock, at cost (2,511,447 and 2,321,981 shares at June 30, 2021 and
December 31, 2020)						December 31, 2020)	(96,887)		(88,803)
Accumulated other comprehensive income, net	Accumulated other comprehensive income, net	155,474		78,658		Accumulated other comprehensive income, net	145,516		172,523
Total stockholders' equity	Total stockholders' equity	3,486,231		4,954,697		Total stockholders' equity	3,846,681		3,594,951
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	28,426,716	$	26,770,806	Total liabilities and stockholders' equity	$	34,867,987	$	29,498,442

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)


		Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,		March 31,		June 30,		June 30,
		2020		2020		2019		2020		2019			2021		2021		2020		2021		2020
		(Unaudited)											(Unaudited)
		(Dollars in thousands, except per share amounts)											(Dollars in thousands, except per share amounts)
Interest income:	Interest income:											Interest income:
Loans and leases	Loans and leases	$	240,811	$	247,851	$	275,978	$	750,940	$	834,443	Loans and leases	$	244,529	$	241,544	$	247,851	$	486,073	$	510,129
Investment securities	Investment securities	24,443		26,038		28,806		77,927		87,434		Investment securities	33,954		30,265		26,038		64,219		53,484
Deposits in financial institutions	Deposits in financial institutions	654		186		2,424		2,448		4,423		Deposits in financial institutions	2,022		1,528		186		3,550		1,794
Total interest income	Total interest income	265,908		274,075		307,208		831,315		926,300		Total interest income	280,505		273,337		274,075		553,842		565,407
Interest expense:	Interest expense:											Interest expense:
Deposits	Deposits	9,887		13,075		40,703		51,209		113,658		Deposits	7,269		7,500		13,075		14,769		41,322
Borrowings	Borrowings	27		1,319		6,852		8,124		21,772		Borrowings	265		193		1,319		458		8,097
Subordinated debentures		4,670		5,402		7,417		16,632		22,860
Subordinated debt												Subordinated debt	6,663		4,375		5,402		11,038		11,962
Total interest expense	Total interest expense	14,584		19,796		54,972		75,965		158,290		Total interest expense	14,197		12,068		19,796		26,265		61,381
Net interest income	Net interest income	251,324		254,279		252,236		755,350		768,010		Net interest income	266,308		261,269		254,279		527,577		504,026
Provision for credit losses	Provision for credit losses	97,000		120,000		7,000		329,000		19,000		Provision for credit losses	(88,000)		(48,000)		120,000		(136,000)		232,000
Net interest income after provision for credit losses	Net interest income after provision for credit losses	154,324		134,279		245,236		426,350		749,010		Net interest income after provision for credit losses	354,308		309,269		134,279		663,577		272,026
Noninterest income:	Noninterest income:											Noninterest income:
Leased equipment income												Leased equipment income	10,847		11,354		12,037		22,201		24,288
Other commissions and fees	Other commissions and fees	10,541		10,111		10,855		30,373		33,453		Other commissions and fees	10,704		9,158		10,111		19,862		19,832
Leased equipment income		9,900		12,037		9,615		34,188		28,079
Service charges on deposit accounts	Service charges on deposit accounts	2,570		2,004		3,525		7,232		11,026		Service charges on deposit accounts	3,452		2,934		2,004		6,386		4,662
Gain on sale of loans and leases	Gain on sale of loans and leases	35		346		765		468		1,091		Gain on sale of loans and leases	1,422		139		346		1,561		433
Gain on sale of securities	Gain on sale of securities	5,270		7,715		908		13,167		25,261		Gain on sale of securities	0		101		7,715		101		7,897
Other income	Other income	9,936		6,645		7,761		20,782		16,476		Other income	13,946		21,143		6,645		35,089		10,846
Total noninterest income	Total noninterest income	38,252		38,858		33,429		106,210		115,386		Total noninterest income	40,371		44,829		38,858		85,200		67,958
Noninterest expense:	Noninterest expense:											Noninterest expense:
Compensation	Compensation	75,131		61,910		71,424		198,323		211,225		Compensation	90,807		79,882		61,910		170,689		123,192
Occupancy	Occupancy	14,771		14,494		14,089		43,472		42,866		Occupancy	14,784		14,054		14,494		28,838		28,701
Leased equipment depreciation												Leased equipment depreciation	8,614		8,969		7,102		17,583		14,307
Data processing	Data processing	6,505		7,102		7,044		20,061		20,786		Data processing	7,758		6,957		7,102		14,715		13,556
Leased equipment depreciation		7,057		7,102		5,951		21,364		17,160
Intangible asset amortization		3,751		3,882		4,833		11,581		14,573
Other professional services	Other professional services	4,713		4,146		4,400		13,117		13,542		Other professional services	5,256		5,126		4,146		10,382		8,404
Insurance and assessments	Insurance and assessments	3,939		9,373		4,100		17,561		12,236		Insurance and assessments	3,745		4,903		9,373		8,648		13,622
Customer related expense	Customer related expense	4,762		4,408		3,539		13,102		9,887		Customer related expense	4,973		4,818		4,408		9,791		8,340
Loan expense	Loan expense	3,499		3,379		3,628		9,528		9,964		Loan expense	4,031		3,193		3,379		7,224		6,029
Intangible asset amortization												Intangible asset amortization	2,889		3,079		3,882		5,968		7,830
Acquisition, integration and reorganization costs	Acquisition, integration and reorganization costs	0		0		0		0		618		Acquisition, integration and reorganization costs	200		3,425		0		3,625		0
Foreclosed assets expense (income), net		335		(146)		8		255		(109)
Foreclosed assets (income) expense, net												Foreclosed assets (income) expense, net	(119)		1		(146)		(118)		(80)
Goodwill impairment	Goodwill impairment	0		0		0		1,470,000		0		Goodwill impairment	0		0		0		0		1,470,000
Other expense	Other expense	8,939		11,315		7,793		29,973		25,775		Other expense	8,812		15,729		11,315		24,541		21,034
Total noninterest expense	Total noninterest expense	133,402		126,965		126,809		1,848,337		378,523		Total noninterest expense	151,750		150,136		126,965		301,886		1,714,935
Earnings (loss) before income taxes	Earnings (loss) before income taxes	59,174		46,172		151,856		(1,315,777)		485,873		Earnings (loss) before income taxes	242,929		203,962		46,172		446,891		(1,374,951)
Income tax expense	Income tax expense	13,671		12,968		41,830		38,627		135,118		Income tax expense	62,417		53,556		12,968		115,973		24,956
Net earnings (loss)	Net earnings (loss)	$	45,503	$	33,204	$	110,026	$	(1,354,404)	$	350,755	Net earnings (loss)	$	180,512	$	150,406	$	33,204	$	330,918	$	(1,399,907)

Earnings (loss) per share:	Earnings (loss) per share:											Earnings (loss) per share:
Basic	Basic	$	0.38	$	0.28	$	0.92	$	(11.60)	$	2.91	Basic	$	1.52	$	1.27	$	0.28	$	2.78	$	(11.98)
Diluted	Diluted	$	0.38	$	0.28	$	0.92	$	(11.60)	$	2.91	Diluted	$	1.52	$	1.27	$	0.28	$	2.78	$	(11.98)

See Notes to Condensed Consolidated Financial Statements.

` PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


		Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,		March 31,		June 30,		June 30,
		2020		2020		2019		2020		2019			2021		2021		2020		2021		2020
		(Unaudited)											(Unaudited)
		(In thousands)											(In thousands)
Net earnings (loss)	Net earnings (loss)	$	45,503	$	33,204	$	110,026	$	(1,354,404)	$	350,755	Net earnings (loss)	$	180,512	$	150,406	$	33,204	$	330,918	$	(1,399,907)
Other comprehensive income, net of tax:
Unrealized net holding gains on securities
Other comprehensive income (loss), net of tax:												Other comprehensive income (loss), net of tax:
Unrealized net holding gains (losses) on securities												Unrealized net holding gains (losses) on securities
available-for-sale arising during the period	available-for-sale arising during the period	19,745		82,780		32,759		119,708		167,566		available-for-sale arising during the period	54,076		(91,523)		82,780		(37,447)		99,963
Income tax expense related to net unrealized
holding gains arising during the period		(5,510)		(23,095)		(9,287)		(33,399)		(47,504)
Unrealized net holding gains on securities
Income tax (expense) benefit related to net unrealized												Income tax (expense) benefit related to net unrealized
holding gains (losses) arising during the period												holding gains (losses) arising during the period	(14,941)		25,454		(23,095)		10,513		(27,889)
Unrealized net holding gains (losses) on securities												Unrealized net holding gains (losses) on securities
available-for-sale, net of tax	available-for-sale, net of tax	14,235		59,685		23,472		86,309		120,062		available-for-sale, net of tax	39,135		(66,069)		59,685		(26,934)		72,074
Reclassification adjustment for net gains	Reclassification adjustment for net gains											Reclassification adjustment for net gains
included in net earnings (1)	included in net earnings (1)	(5,270)		(7,715)		(908)		(13,167)		(25,261)		included in net earnings (1)	0		(101)		(7,715)		(101)		(7,897)
Income tax expense related to reclassification	Income tax expense related to reclassification											Income tax expense related to reclassification
adjustment	adjustment	1,471		2,152		257		3,674		7,161		adjustment	0		28		2,152		28		2,203
Reclassification adjustment for net gains	Reclassification adjustment for net gains											Reclassification adjustment for net gains
included in net earnings, net of tax	included in net earnings, net of tax	(3,799)		(5,563)		(651)		(9,493)		(18,100)		included in net earnings, net of tax	0		(73)		(5,563)		(73)		(5,694)
Other comprehensive income, net of tax		10,436		54,122		22,821		76,816		101,962
Other comprehensive income (loss), net of tax												Other comprehensive income (loss), net of tax	39,135		(66,142)		54,122		(27,007)		66,380
Comprehensive income (loss)	Comprehensive income (loss)	$	55,939	$	87,326	$	132,847	$	(1,277,588)	$	452,717	Comprehensive income (loss)	$	219,647	$	84,264	$	87,326	$	303,911	$	(1,333,527)

(1) Entire amounts are recognized in "Gain on sale of securities" on the Condensed Consolidated Statements of Earnings (Loss).

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


		Nine Months Ended September 30, 2020														Six Months Ended June 30, 2021
		Common Stock									Accumulated					Common Stock									Accumulated
					Additional						Other								Additional						Other
			Par		Paid-in		Retained		Treasury		Comprehensive						Par		Paid-in		Retained		Treasury		Comprehensive
		Shares	Value		Capital		Earnings		Stock		Income		Total			Shares	Value		Capital		Earnings		Stock		Income		Total
		(Unaudited)														(Unaudited)
		(Dollars in thousands)														(Dollars in thousands)
Balance, December 31, 2019		119,781,605	$	1,219	$	3,306,006	$	1,652,248	$	(83,434)	$	78,658	$	4,954,697
Cumulative effect of change in
accounting principle (1)		—	—		—		(5,283)		—		—		(5,283)
Net loss		—	—		—		(1,433,111)		—		—		(1,433,111)
Other comprehensive income - net
unrealized gain on securities
Balance, December 31, 2020															Balance, December 31, 2020	118,414,853	$	1,207	$	3,100,633	$	409,391	$	(88,803)	$	172,523	$	3,594,951
Net earnings															Net earnings	—	—		—		150,406		—		—		150,406
Other comprehensive loss - net															Other comprehensive loss - net
unrealized loss on securities															unrealized loss on securities
available-for-sale, net of tax	available-for-sale, net of tax	—	—		—		—		—		12,258		12,258		available-for-sale, net of tax	—	—		—		—		—		(66,142)		(66,142)
Restricted stock awarded and	Restricted stock awarded and														Restricted stock awarded and
earned stock compensation,	earned stock compensation,														earned stock compensation,
net of shares forfeited	net of shares forfeited	194,916	2		6,492		—		—		—		6,494		net of shares forfeited	743,444	8		6,409		—		—		—		6,417
Restricted stock surrendered	Restricted stock surrendered	(106,021)	—		—		—		(3,460)		—		(3,460)		Restricted stock surrendered	(52,655)	—		—		—		(1,908)		—		(1,908)
Common stock repurchased under
Stock Repurchase Program		(1,953,711)	(20)		(69,980)		—		—		—		(70,000)

Cash dividends paid:	Cash dividends paid:														Cash dividends paid:
Common stock, $0.60/share		—	—		(71,206)		—		—		—		(71,206)
Balance, March 31, 2020		117,916,789	$	1,201	$	3,171,312	$	213,854	$	(86,894)	$	90,916	$	3,390,389
Common stock, $0.25/share															Common stock, $0.25/share	—	—		(29,587)		—		—		—		(29,587)
Balance, March 31, 2021															Balance, March 31, 2021	119,105,642	$	1,215	$	3,077,455	$	559,797	$	(90,711)	$	106,381	$	3,654,137
Net earnings	Net earnings	—	—		—		33,204		—		—		33,204		Net earnings	—	—		—		180,512		—		—		180,512
Other comprehensive income - net	Other comprehensive income - net														Other comprehensive income - net
unrealized gain on securities	unrealized gain on securities														unrealized gain on securities
available-for-sale, net of tax	available-for-sale, net of tax	—	—		—		—		—		54,122		54,122		available-for-sale, net of tax	—	—		—		—		—		39,135		39,135
Restricted stock awarded and	Restricted stock awarded and														Restricted stock awarded and
earned stock compensation,	earned stock compensation,														earned stock compensation,
net of shares forfeited	net of shares forfeited	550,738	6		6,283		—		—		—		6,289		net of shares forfeited	586,271	6		8,983		—		—		—		8,989
Restricted stock surrendered	Restricted stock surrendered	(92,924)	—		—		—		(1,601)		—		(1,601)		Restricted stock surrendered	(136,811)	—		—		—		(6,176)		—		(6,176)

Cash dividends paid:	Cash dividends paid:														Cash dividends paid:
Common stock, $0.25/share	Common stock, $0.25/share	—	—		(29,505)		—		—		—		(29,505)		Common stock, $0.25/share	—	—		(29,916)		—		—		—		(29,916)
Balance, June 30, 2020		118,374,603	$	1,207	$	3,148,090	$	247,058	$	(88,495)	$	145,038	$	3,452,898
Net earnings		—	—		—		45,503		—		—		45,503
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax		—	—		—		—		—		10,436		10,436
Restricted stock awarded and
earned stock compensation,
net of shares forfeited		119,158	1		7,063		—		—		—		7,064
Restricted stock surrendered		(3,834)	—		—		—		(71)		—		(71)
Balance, June 30, 2021															Balance, June 30, 2021	119,555,102	$	1,221	$	3,056,522	$	740,309	$	(96,887)	$	145,516	$	3,846,681

Cash dividends paid:
Common stock, $0.25/share		—	—		(29,599)		—		—		—		(29,599)
Balance, September 30, 2020		118,489,927	$	1,208	$	3,125,554	$	292,561	$	(88,566)	$	155,474	$	3,486,231

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


	Six Months Ended June 30, 2020
	Common Stock									Accumulated
				Additional						Other
		Par		Paid-in		Retained		Treasury		Comprehensive
	Shares	Value		Capital		Earnings		Stock		Income		Total
	(Unaudited)
	(Dollars in thousands)
Balance, December 31, 2019	119,781,605	$	1,219	$	3,306,006	$	1,652,248	$	(83,434)	$	78,658	$	4,954,697
Cumulative effect of change in
accounting principle (1)	—	—		—		(5,283)		—		0		(5,283)
Net loss	—	—		—		(1,433,111)		—		—		(1,433,111)
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax	—	—		—		—		—		12,258		12,258
Restricted stock awarded and
earned stock compensation,
net of shares forfeited	194,916	2		6,492		—		—		—		6,494
Restricted stock surrendered	(106,021)	—		—		—		(3,460)		—		(3,460)
Common stock repurchased under
Stock Repurchase Program	(1,953,711)	(20)		(69,980)		—		—		—		(70,000)
Cash dividends paid:
Common stock, $0.60/share	—	—		(71,206)		—		—		—		(71,206)
Balance, March 31, 2020	117,916,789	$	1,201	$	3,171,312	$	213,854	$	(86,894)	$	90,916	$	3,390,389
Net earnings	—	—		—		33,204		—		—		33,204
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax	—	—		—		—		—		54,122		54,122
Restricted stock awarded and
earned stock compensation,
net of shares forfeited	550,738	6		6,283		—		—		—		6,289
Restricted stock surrendered	(92,924)	—		—		—		(1,601)		—		(1,601)


Cash dividends paid:
Common stock, $0.25/share	—	—		(29,505)		—		—		—		(29,505)
Balance, June 30, 2020	118,374,603	$	1,207	$	3,148,090	$	247,058	$	(88,495)	$	145,038	$	3,452,898

________________________

(1) Impact due to adoption on January 1, 2020 of ASU 2016-13, "Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments," and the related amendments, commonly referred to as CECL.

Nine Months Ended September 30, 2019
Common Stock Accumulated
Additional Other
Par Paid-in Retained Treasury Comprehensive
Shares Value Capital Earnings Stock Income (Loss) Total
(Unaudited)
(Dollars in thousands)
Balance, December 31, 2018 123,189,833 $ 1,251 $ 3,722,723 $ 1,182,674 $ (74,985) $ (6,075) $ 4,825,588
Cumulative effect of change in
accounting principle (2)
— — — 938 — 0 938
Net earnings — — — 112,604 — — 112,604
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax — — — — — 43,333 43,333
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 195,536 2 5,806 — — — 5,808
Restricted stock surrendered (113,544) — — — (4,522) — (4,522)
Common stock repurchased under
Stock Repurchase Program (3,070,676) (31) (119,556) — — — (119,587)
Cash dividends paid:
Common stock, $0.60/share — — (73,180) — — — (73,180)
Balance, March 31, 2019 120,201,149 $ 1,222 $ 3,535,793 $ 1,296,216 $ (79,507) $ 37,258 $ 4,790,982
Net earnings — — — 128,125 — — 128,125
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax — — — — — 35,808 35,808
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 619,653 6 6,715 — — — 6,721
Restricted stock surrendered (74,429) — — — (2,788) — (2,788)
Common stock repurchased under
Stock Repurchase Program (917,269) (9) (34,920) — — — (34,929)
Cash dividends paid:
Common stock, $0.60/share — — (71,909) — — — (71,909)
Balance, June 30, 2019 119,829,104 $ 1,219 $ 3,435,679 $ 1,424,341 $ (82,295) $ 73,066 $ 4,852,010
Net earnings — — — 110,026 — — 110,026
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax — — — — — 22,821 22,821
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 5,040 0 7,305 — — — 7,305
Restricted stock surrendered (2,952) — — — (102) — (102)
Cash dividends paid:
Common stock, $0.60/share — — (71,952) — — — (71,952)
Balance, September 30, 2019 119,831,192 $ 1,219 $ 3,371,032 $ 1,534,367 $ (82,397) $ 95,887 $ 4,920,108

~~________________________~~

~~(2) Impact due to adoption on January 1, 2019 of ASU 2016-02, "Leases(Topic 842),"~~ ~~and the related amendments.~~

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Nine Months Ended					Six Months Ended
		September 30,					June 30,
		2020		2019			2021		2020
		(Unaudited)					(Unaudited)
		(In thousands)					(In thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net (loss) earnings		$	(1,354,404)	$	350,755
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Net earnings (loss)						Net earnings (loss)	$	330,918	$	(1,399,907)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:						Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Goodwill impairment	Goodwill impairment	1,470,000		0		Goodwill impairment	0		1,470,000
Depreciation and amortization	Depreciation and amortization	33,303		28,266		Depreciation and amortization	25,564		22,124
Amortization of net premiums on securities available-for-sale	Amortization of net premiums on securities available-for-sale	9,994		11,078		Amortization of net premiums on securities available-for-sale	16,561		5,591
Amortization of intangible assets	Amortization of intangible assets	11,581		14,573		Amortization of intangible assets	5,968		7,830
Amortization of operating lease ROU assets	Amortization of operating lease ROU assets	22,080		22,028		Amortization of operating lease ROU assets	15,215		14,662
Provision for credit losses	Provision for credit losses	329,000		19,000		Provision for credit losses	(136,000)		232,000
Gain on sale of foreclosed assets	Gain on sale of foreclosed assets	(187)		(406)		Gain on sale of foreclosed assets	(214)		(112)
Provision for losses on foreclosed assets	Provision for losses on foreclosed assets	267		54		Provision for losses on foreclosed assets	14		110
Gain on sale of loans and leases	Gain on sale of loans and leases	(468)		(1,091)		Gain on sale of loans and leases	(1,561)		(433)
Loss (gain) on sale of premises and equipment		309		(34)
(Gain) loss on sale of premises and equipment						(Gain) loss on sale of premises and equipment	(58)		187
Gain on sale of securities	Gain on sale of securities	(13,167)		(25,261)		Gain on sale of securities	(101)		(7,897)

Unrealized loss (gain) on derivatives and foreign currencies, net		494		(16)
Gain on BOLI death benefit						Gain on BOLI death benefit	(51)		0
Unrealized (gain) loss on derivatives and foreign currencies, net						Unrealized (gain) loss on derivatives and foreign currencies, net	(995)		564
Earned stock compensation	Earned stock compensation	19,847		19,834		Earned stock compensation	15,406		12,783

(Increase) decrease in other assets		(60,450)		50,345
Decrease in other assets						Decrease in other assets	22,808		8,393
Decrease in accrued interest payable and other liabilities	Decrease in accrued interest payable and other liabilities	(125,262)		(41,530)		Decrease in accrued interest payable and other liabilities	(62,869)		(91,873)
Net cash provided by operating activities	Net cash provided by operating activities	342,937		447,595		Net cash provided by operating activities	230,605		274,022

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Cash paid for acquisition, net						Cash paid for acquisition, net	(123,090)		0
Net increase in loans and leases	Net increase in loans and leases	(269,253)		(894,624)		Net increase in loans and leases	(477,874)		(887,247)
Proceeds from sales of loans and leases	Proceeds from sales of loans and leases	6,536		102,507		Proceeds from sales of loans and leases	126,366		3,522
Proceeds from maturities and paydowns of securities available-for-sale	Proceeds from maturities and paydowns of securities available-for-sale	292,769		238,487		Proceeds from maturities and paydowns of securities available-for-sale	435,761		170,245
Proceeds from sales of securities available-for-sale	Proceeds from sales of securities available-for-sale	167,267		1,554,805		Proceeds from sales of securities available-for-sale	44,652		144,997
Purchases of securities available-for-sale	Purchases of securities available-for-sale	(1,085,749)		(1,444,720)		Purchases of securities available-for-sale	(2,497,439)		(274,824)
Net redemptions of Federal Home Loan Bank stock		23,674		5,238
Net purchases of Federal Home Loan Bank stock						Net purchases of Federal Home Loan Bank stock	0		23,674
Proceeds from sales of foreclosed assets	Proceeds from sales of foreclosed assets	983		4,322		Proceeds from sales of foreclosed assets	1,647		769
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(11,013)		(10,990)		Purchases of premises and equipment, net	(4,547)		(9,772)
Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	4		60		Proceeds from sales of premises and equipment	95		2
Proceeds from BOLI death benefit	Proceeds from BOLI death benefit	761		555		Proceeds from BOLI death benefit	1,188		761
Net decrease (increase) in equipment leased to others under operating leases		16,860		(19,981)
Net decrease in equipment leased to others under operating leases						Net decrease in equipment leased to others under operating leases	12,953		15,147
Net cash used in investing activities	Net cash used in investing activities	(857,161)		(464,341)		Net cash used in investing activities	(2,480,288)		(812,726)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase (decrease) in noninterest-bearing deposits		2,105,033		(446,400)
Net increase in noninterest-bearing deposits						Net increase in noninterest-bearing deposits	2,021,120		1,387,698
Net increase in interest-bearing deposits	Net increase in interest-bearing deposits	2,629,213		1,310,432		Net increase in interest-bearing deposits	2,647,858		2,309,298
Net decrease in borrowings	Net decrease in borrowings	(1,699,008)		(118,083)		Net decrease in borrowings	(48,585)		(1,699,008)

Proceeds from subordinated notes offering						Proceeds from subordinated notes offering	394,308		0
Common stock repurchased and restricted stock surrendered	Common stock repurchased and restricted stock surrendered	(75,132)		(161,928)		Common stock repurchased and restricted stock surrendered	(8,084)		(75,061)
Cash dividends paid	Cash dividends paid	(130,310)		(217,041)		Cash dividends paid	(59,503)		(100,711)
Net cash provided by financing activities	Net cash provided by financing activities	2,829,796		366,980		Net cash provided by financing activities	4,947,114		1,822,216

Net increase in cash, cash equivalents, and restricted cash	Net increase in cash, cash equivalents, and restricted cash	2,315,572		350,234		Net increase in cash, cash equivalents, and restricted cash	2,697,431		1,283,512
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	637,624		385,767		Cash, cash equivalents, and restricted cash, beginning of period	3,160,661		637,624
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	2,953,196	$	736,001	Cash, cash equivalents, and restricted cash, end of period	$	5,858,092	$	1,921,136

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Nine Months Ended					Six Months Ended
		September 30,					June 30,
		2020		2019			2021		2020
		(Unaudited)					(Unaudited)
		(In thousands)					(In thousands)
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for interest	Cash paid for interest	$	86,060	$	154,212	Cash paid for interest	$	24,683	$	68,390
Cash paid for income taxes	Cash paid for income taxes	92,953		89,505		Cash paid for income taxes	74,147		3,850

Loans transferred to foreclosed assets	Loans transferred to foreclosed assets	14,370		37		Loans transferred to foreclosed assets	647		1,776
Transfers from loans held for investment to loans held for sale	Transfers from loans held for investment to loans held for sale	0		25,124		Transfers from loans held for investment to loans held for sale	25,554		0

Effective February 1, 2021, the Company acquired Civic						Effective February 1, 2021, the Company acquired Civic
in a transaction summarized as follows:						in a transaction summarized as follows:
Fair value of assets acquired						Fair value of assets acquired	$	307,997	—
Cash paid						Cash paid	(160,420)		—
Liabilities assumed						Liabilities assumed	$	147,577	—

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

PacWest Bancorp, a Delaware corporation, is a bank holding company registered under the BHCA, with our corporate headquarters located in Beverly Hills, California. Our principal business is to serve as the holding company for our wholly-owned subsidiary, Pacific Western Bank. References to "Pacific Western" or the "Bank" refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to "we," "us," or the "Company" refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to "PacWest" or to the "holding company," we are referring to PacWest Bancorp, the parent company, on a stand-alone basis.

We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 7170 full-service branches located in California, 1 branch located in Durham, North Carolina, 1 branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.

We generate our revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities, and fees received in connection with deposit services, extending credit and other services offered, including foreign exchange services. Our major operating expenses are interest paid by the Bank on deposits and borrowings, compensation, occupancy, and general operating expenses.

Significant Accounting Policies

Our accounting policies are described in Note 1. Nature of Operations and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual ~~Report~~Report on Form 10-K for the year ended December 31, ~~2019~~2020 as filed with the Securities and Exchange Commission ("Form 10-K"). ~~Updates to our significant accounting policies described below reflect the impact of the adoption of ASU 2016-13, “Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments” and the related amendments, commonly referred to as CECL.~~

~~Investment Securities~~Accounting Standards Adopted in 2021

Prior to January 1, 2020, debt securities available-for-sale were measured at fair value and declines in the fair value were reviewed to determine whether the impairment was other-than-temporary. If the decline in fair value was considered temporary, the decline in fair value below the amortized cost basis of a security was recognized in other comprehensive income (loss). If we did not expect to recover the entire amortized cost basis of the security, then an other-than-temporary impairment was considered to have occurred. The cost basis of the security was written down to its estimated fair value and the amount of the write-down was recognized through a charge to earnings. If the amount of the amortized cost basis expected to be recovered increased in a future period, the cost basis of the security was not increased but rather recognized prospectively through interest income.

Effective January 1, ~~2020, upon~~2021, the Company adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” which simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendment also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

Effective January 1, 2021, the Company adopted ASU ~~2016-13, debt securities available-for-sale are measured at fair value~~2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and ~~are subject to impairment testing. A security is impaired if~~Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)” which clarifies that entities that apply the ~~fair value~~measurement alternative in ASC 321 should consider observable transactions that result in entities initially applying or discontinuing the use of the security is less than its amortized cost basis. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factorsequity method of accounting under ASC 323. The guidance also clarifies that certain forward contracts and then, (1) recognize an allowance for credit losses by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value decline (if any). If the amount of the amortized cost basis expectedpurchased options on equity securities that are not deemed to be ~~recovered increases~~in-substance common stock under ASC 323 or accounted for as derivatives under ASC 815 are in the scope of ASC 321. The adoption of this standard did not have a ~~future period,~~material impact on the ~~valuation allowance would be reduced, but not more than the amount of the current existing allowance for that security.~~Company’s condensed consolidated financial statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Purchased Loans with Credit Deterioration~~

~~Prior to January 1, 2020, purchased credit impaired loans were accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.”~~ ~~At the time of acquisition, these loans were recorded at estimated fair value based upon estimated future cash flows with no related allowance for credit losses.~~

Effective January 1, ~~2020, upon~~2021, the ~~adoption~~Company adopted ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs” which clarifies the Company should reevaluate whether a callable debt security that has multiple call dates is within the scope of ~~ASU 2016-13, an entity records purchased financial assets with credit deterioration ("PCD assets")~~ASC 310-20-35-33 at each reporting period. ASC 310-20-35-33 requires that, to the ~~purchase price plus the allowance for credit losses expected at the time of acquisition. This allowance is recognized through a gross-up that increases~~extent the amortized cost basis of an individual callable debt security exceeds the ~~asset with no effect on net income. Subsequent changes (favorable and unfavorable) in expected cash flows are recognized immediately in net income~~amount repayable by ~~adjusting~~ the ~~related allowance.~~

~~Allowance for Credit Losses on Loans and Leases Held for Investment~~

~~Effective January 1, 2020, upon~~issuer at the ~~adoption of ASU 2016-13,~~next call date, the ~~Company replaced the incurred loss accounting approach with the current expected credit loss ("CECL") approach for financial instruments measured at~~excess should be amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts.

The allowance for credit losses on loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The allowance for loan and lease losses is reported as a reduction of the amortized cost basis of loans and leases, while the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets. The amortized cost basis of loans and leases does not include accrued interest receivable, which is included in "Other assets" on the condensed consolidated balance sheets. The "Provision for credit losses" on the condensed consolidated statements of earnings (loss) is a combination of the provision for loan and lease losses and the provision for unfunded loan commitments.

Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates. The resulting allowance for loan and lease losses is deducted from the associated amortized cost basis to reflect the net amount expected to be collected. Subsequent changes in this estimate are recorded through the provision for credit losses and the allowance. The CECL methodology could result in significant changes to both the timing and amounts of provision for credit losses and the allowance as compared to historical periods. Loans and leases that are deemed to be uncollectable are charged off and deducted from the allowance. The provision for credit losses and recoveries on loans and leases previously charged off are added to the ~~allowance.~~

The allowance for loan and lease losses is comprised of an individually evaluated component for loans and leases that no longer share similar risk characteristics with other loans and leases and a pooled loans component for loans and leases that share similar risk characteristics.

~~A loan or lease with an outstanding balance greater than $250,000 is individually evaluated for expected credit loss when it is probable that we will be unable~~earliest call date. As the Company’s accounting policy to ~~collect all amounts due according~~amortize premiums on investments in callable debt securities to the original contractual terms of the agreement. We select loans and leases for individual assessment on an ongoing basis using certain criteria such as payment performance, borrower reported and forecasted financial results, and other external factors when appropriate. We measure the current expected credit loss of an individually evaluated loan or lease based upon the fair value of the underlying collateral if the loan or lease is collateral-dependent or the present value of cash flows, discounted at the effective interest rate, if the loan or lease is not collateral-dependent. To the extent a loan or lease balance exceeds the estimated collectable value, a reserve or charge-off is recorded depending upon either the certainty of the estimate of loss or the fair value of the loan’s collateral if the loan is collateral-dependent.

~~PACWEST BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Our CECL methodology for the pooled loans component includes both quantitative and qualitative loss factors which are applied to our population of loans and leases and assessed at a pool level. The quantitative CECL model estimates credit losses by applying pool-specific probability of default ("PD") and loss given default ("LGD") rates to the expected exposure at default ("EAD") over the contractual life of loans and leases. The qualitative component considers internal and external risk factors that may not be adequately assessed in the quantitative model.

The loan portfolio is segmented into 4 loan segments, 8 loan classes, and 19 loan pools (excluding Paycheck Protection Program loans, which are fully government guaranteed) based upon loan type that share similar default risk characteristics to calculate quantitative loss factors for each pool. NaN of these loan pools have insignificant current balances and/or insignificant historical losses, thus, estimated losses are calculated using historical loss rates from the first quarter of 2009 to the current period rather than econometric regression modeling. For the remaining 16 loan pools, we estimate the PD during the reasonable and supportable forecast period using 7 econometric regression models developed to correlate macroeconomic variables to historical credit performance (based on quarterly transition matrices from 2009 to 2019, which include risk rating upgrades/downgrades and defaults). The loans and unfunded commitments are grouped into 9 LGD pools based on portfolio classes that share similar collateral risk characteristics. LGD rates are computed based on the net charge-offs recognized divided by the EAD of defaulted loans starting with the first quarter of 2009 to the current period. The PD and LGD rates are applied to the EAD at the loan or lease level based on contractual scheduled payments and estimated prepayments. We use our actual historical loan prepayment experience from 2009 to 2019 to estimate future prepayments by loan pool.

~~For the reasonable and supportable forecast period, future macroeconomic events and circumstances are estimated over a 4-quarter time horizon using a single scenario baseline forecast that~~earliest call date is consistent with ~~management's current expectations for~~ the 16 loan pools. We use economic forecasts from Moody's Analytics in this process. The economic forecast is updated monthly; therefore, the one used for each quarter-end calculation is generally based on a one-month lag based on the timing of when the forecast is released. If economic conditions as of the balance sheet date change materially, management would consider a qualitative adjustment. The key macroeconomic assumptions used in each of the seven PD regression models include two or three of the following economic indicators: Real GDP, unemployment rates, CRE Price Index, the BBB corporate spread, nominal disposable income, and CPI. The quantitative CECL model applies the projected rates based on the economic forecasts for the 4-quarter reasonable and supportable forecast horizon to EAD to estimate defaulted loans. During this forecast horizon, prepayment rates during a historical period that exhibits economic conditions most similar to the economic forecast are used to estimate EAD. If no historical period from 2009 to 2019 exhibits economic conditions that are similar to the economic forecast, management considers the average of all historical prepayment experience to be a reasonable and supportable estimation of expected prepayments. Historical LGD rates are applied to estimated defaulted loans to determine estimated credit losses. ~~We then use a 2-quarter reversion p~~eriod to revert on a straight-line basis from the PD, LGD, and prepayment rates used during the reasonable and supportable forecast period to the Company’s historical PD, LGD, and prepayment experience. Subsequent to the reversion period for the remaining contractual life of loans and leases, the PD, LGD, and prepayment rates are based on historical experience from 2009 to 2019. PD regression models and prepayment rates are updated on an annual basis. LGD rates are updated every quarter to reflect current charge-off activity.

~~The PDs calculated~~manner required by the quantitative models are highly correlated to our internal risk ratings assigned to each loan and lease. To ensure the accuracy of our credit risk ratings, an independent credit review function assesses the appropriateness of the credit risk ratings assigned to loans and leases on a regular basis. The credit risk ratings assigned to every loan and lease are as follows:

•~~High Pass: (Risk ratings 1-2) Loans and leases rated as "high pass" exhibit a favorable credit profile and have minimal risk characteristics. Repayment in full is expected, even in adverse economic conditions.~~

•~~Pass: (Risk ratings 3-4) Loans and leases rated as "pass" are not adversely classified and collection and repayment in full are expected.~~

•~~Special Mention~~: (Risk rating 5) Loans and leases rated as "special mention" have a potential weakness that requires management's attention. If not addressed, these potential weaknesses may result in further deterioration in the borrower's ability to repay the loan or lease.

•~~Substandard~~: (Risk rating 6) Loans and leases rated as "substandard" have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the possibility that we will sustain some loss if the weaknesses are not corrected.

•~~Doubtful~~: (Risk rating 7) Loans and leases rated as "doubtful" have all the weaknesses of those rated as "substandard," with the additional trait that the weaknesses make collection or repayment in full highly questionable and improbable.

~~PACWEST BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

We may refer to the loans and leases with assigned credit risk ratings of "substandard" and "doubtful" together as "classified" loans and leases. For further information on classified loans and leases, see Note 4. ~~Loans and Leases~~ ~~of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."~~

In addition to our internal risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company’s loan and lease risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations. Risk rating downgrades generally result in increases in the provisions for credit losses and the allowance for credit losses.

The qualitative portion of the reserve on pooled loans and leases represents management’s judgment of additional considerations to account for internal and external risk factors that are not adequately measured in the quantitative reserve. The qualitative loss factors consider idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other relevant factors to ensure the allowance for credit losses reflects our best estimate of current expected credit losses. Current and forecasted economic trends and underlying market values for collateral dependent loans are generally considered to be encompassed within the CECL quantitative reserve. An incremental qualitative adjustment may be considered when economic forecasts exhibit higher levels of volatility or uncertainty.

~~In addition to economic conditions and collateral dependency, the other qualitative criteria we consider when establishing the loss factors include the following:~~

•~~Legal and Regulatory - matters that could impact our borrowers’ ability to repay our loans and leases;~~

•~~Concentrations - loan and lease portfolio composition and any loan concentrations;~~

•~~Lending Policy - current lending policies and the effects of any new policies or policy amendments;~~

•~~Nature and Volume - loan and lease production volume and mix;~~

•~~Problem Loan Trends - loan and lease portfolio credit performance trends, including a borrower's financial condition, credit rating, and ability to meet loan payment requirements;~~

•~~Loan Review - results of independent credit review; and~~

•~~Management - changes in management related to credit administration functions.~~

We estimate the reserve for unfunded loan commitments using the same PD, LGD, and prepayment rates for the quantitative credit losses and qualitative loss factors as used for the allowance for loan and lease losses. The EAD for the reserve for unfunded loan commitments is computed using expected future utilization rates of the unfunded commitments during the contractual life of the commitments based on historical usage by loan pool from 2015 to 2019. The utilization rates are updated on an annual basis.

The CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Most of the steps in the methodology involve judgment and are subjective in nature including, among other things: segmenting the loan and lease portfolio; determining the amount of loss history to consider; selecting predictive econometric regression models that use appropriate macroeconomic variables; determining the methodology to forecast prepayments; selecting the most appropriate economic forecast scenario; determining the length of the reasonable and supportable forecast and reversion periods; estimating expected utilization rates on unfunded loan commitments; and assessing relevant and appropriate qualitative factors. In addition, the CECL methodology is dependent on economic forecasts which are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered appropriate, there can be no assurance that it will be sufficient to absorb future losses.

Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan and lease portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements.

~~PACWEST BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Accounting Standards Adopted in 2020~~

~~Effective January 1, 2020, the Company adopted~~ ASU ~~2016-13 and the related amendments to ASC Topic 326, “Financial Instruments - Credit Losses~~,” to replace the incurred loss accounting approach with a current expected credit loss approach for financial instruments measured at amortized cost and other commitments to extend credit. The new standard is generally intended to require earlier recognition of credit losses. While the standard changes the measurement of the allowance for credit losses, it does not change the credit risk of our lending portfolios or the ultimate losses in those portfolios.

Under the CECL approach, the standard requires immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts. The standard modifies the other-than-temporary impairment model for available-for-sale debt securities to require entities to record an allowance when recognizing credit losses for available-for-sale securities, rather than reducing the amortized cost of the securities by direct write-offs.

The Company adopted the new standard using the modified retrospective approach and recognized a cumulative effect adjustment to decrease retained earnings by $5.3 million, net of taxes, and increase the allowance for credit losses by $7.3 million without restating prior periods and applied the requirements of the new standard prospectively. There was no cumulative effect adjustment related to available-for-sale securities at adoption. The Company elected to account for interest receivable separately from the amortized cost of loans and leases and investment securities. Interest receivable is included in "Other assets" on the condensed consolidated balance sheets. The Company elected the practical expedient to use the fair value of the collateral at the reporting date when recording the net carrying amount of the asset and determining the allowance for credit losses for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the entity’s assessment as of the reporting date (collateral dependent financial asset). Additionally, the Company implemented new business processes, new internal controls, and modified existing and/or implemented new internal models and tools to facilitate the ongoing application of the new standard. See Note 4. ~~Loans and Leases~~ ~~for further details.~~

~~Effective January 1, 2020, the Company adopted ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~" which simplifies goodwill impairment testing by eliminating the second step of the analysis under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit's fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit.

The Company used this approach to evaluate its goodwill during the first quarter of 2020, as an unprecedented decline in economic conditions triggered by the Coronavirus Disease ("COVID-19") pandemic caused a significant decline in stock market valuations in March 2020, including our stock price. These events indicated that goodwill may be impaired and resulted in us performing a goodwill impairment assessment. We applied the market approach using an average share price of the Company's stock and a control premium to determine the fair value of the reporting unit. As a result, a goodwill impairment charge of $1.47 billion was recorded in the first quarter of 2020 as the Company's estimated fair value was less than its book value.

~~Effective January 1, 2020, the Company adopted the provisions of ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurements~~" which add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty. Although the guidance modifies our disclosures in 2020, there was no impact to our condensed consolidated financial statements from2020-08, the adoption of this ~~new standard.~~

~~ASU 2020-03, "Codification Improvements to Financial Instruments" ("ASU 2020-03"), revised a wide variety of topics in~~standard had no impact on the Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. ASU 2020-03 was effective immediately upon its release in March 2020 and did not have a material impact to ourCompany’s condensed consolidated financial statements.

~~PACWEST BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Basis of Presentation

Our interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K.

Use of Estimates

We have made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses, the carrying value of goodwill and other intangible assets, and the realization of deferred tax assets. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.

Reclassifications

~~None.~~Certain prior period amounts have been reclassified to conform to the current period’s presentation format. In our loan and allowance tables, we realigned our venture capital subclasses to better reflect and report our lending. Prior to the realignment, our venture capital subclasses were: (1) equity fund loans, (2) early stage, (3) expansion stage, and (4) late stage. After the realignment, our venture capital subclasses are: (1) equity fund loans and (2) venture lending (which includes early stage, expansion stage, and late stage). Additionally, we realigned our other commercial subclasses by moving our cash flow subclass into the other lending subclass. All of the loan and allowance tables, both current period and prior periods, reflect these realignments. In our securities available-for-sale tables, we are presenting a new line for private label commercial MBS, which had previously been included with the asset-backed securities line. All of the securities available-for-sale tables, both current period and prior periods, reflect this new presentation.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 2. ACQUISITIONS

The following assets acquired and liabilities assumed, both tangible and intangible, of the acquired entity are presented at estimated fair value as of the acquisition date:


	Acquisition and
	Date Acquired
	Civic Financial
	Services
	February 1, 2021
	(In thousands)
Assets Acquired:
Cash and due from banks	$	37,331




Loans and leases	67,294
Premises and equipment	1,197


Goodwill	125,448
Customer relationship intangible	750
Other assets	75,977
Total assets acquired	$	307,997

Liabilities Assumed:
Noninterest-bearing demand deposits	$	37,339


Borrowings	50,210

Accrued interest payable and other liabilities	60,028
Total liabilities assumed	$	147,577

Total consideration - paid in cash	$	160,420

Acquisition of Civic

On February 1, 2021, the Bank completed the acquisition of Civic in an all-cash transaction. Civic, located in Redondo Beach, California, is one of the leading lenders in the United States specializing in residential non-owner-occupied investment properties. The acquisition of Civic advances the Bank’s strategy to diversify and expand its lending portfolio, diversify its revenue streams, and deploy excess liquidity into higher-yielding assets. Civic operates as a subsidiary of the Bank and at June 30, 2021 had $662.1 million of loans outstanding. The loans are categorized as either income producing and other residential real estate mortgage or residential real estate construction and land based on their purpose.

The Civic acquisition has been accounted for under the acquisition method of accounting. We acquired $308.0 million of assets and assumed $147.6 million of liabilities upon closing of the acquisition. We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and assumed liabilities. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. The application of the acquisition method of accounting resulted in the recognition of goodwill of $125.4 million. All of the recognized goodwill is expected to be deductible for tax purposes.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Homeowners Association Services Division Acquisition Announcement

On April 1, 2021, PacWest announced that the Bank entered into a definitive agreement to acquire MUFG Union Bank, N.A.’s (“Union Bank”) Homeowners Association (“HOA”) Services Division. The Bank will acquire certain assets and assume certain liabilities related to the HOA Services Division for a premium of 5.9% on deposits plus the net book values of certain assumed assets and liabilities for aggregate cash consideration of approximately $250 million. The final amount of consideration to be paid will be based on balances at closing, which is expected to occur in the fourth quarter of 2021 subject to customary closing conditions.

The HOA Services Division provides a full range of banking services to community HOA management companies and their homeowners associations. This acquisition will significantly expand the Bank’s existing HOA banking practice, which provides lockbox, electronic receivables processing and other financial services to HOA management companies. This acquisition advances the Bank’s strategy to expand its product offerings to its customers and to diversify its revenue and funding sources. Management believes that the HOA business unit’s high quality, low-cost deposits will diversify the Bank’s existing core deposits and provide an attractive funding source in a rising interest rate environment.

Union Bank’s HOA Services Division is a long-time provider of specialized HOA banking services to a national base of clients with approximately $4 billion in deposits. The existing management team and employees will transition with the HOA Services Division to the Bank in connection with the close of the acquisition.

NOTE 2.3. RESTRICTED CASH BALANCES

The FRBSF establishes cash reserve requirements that its member banks must maintain based on a percentage of deposit liabilities. On March 26, 2020, the FRBSF reduced the reserve requirement ratios to zero percent. There was 0 average reserves required to be held at the FRBSF for the six months ended June 30, 2021. The average reserves required to be held at the FRBSF for the ~~nine~~six months ended ~~September~~June 30,2020 ~~and the year ended December 31, 2019 were $55.2 million and $131.0~~was $83.1 million. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we pledged cash collateral for our derivative contracts of ~~$2.5~~$2.0 million and ~~$3.2~~$2.9 million.

1614

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 3.4. INVESTMENT SECURITIES

Securities Available-for-Sale

The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:


		September 30, 2020								December 31, 2019									June 30, 2021								December 31, 2020
				Gross		Gross						Gross		Gross							Gross		Gross						Gross		Gross
		Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair			Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
Security Type	Security Type	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value		Security Type	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
		(In thousands)																	(In thousands)
Municipal securities																		Municipal securities	$	1,735,937	$	83,607	$	(2,045)	$	1,817,499	$	1,438,004	$	93,631	$	(18)	$	1,531,617
Agency commercial MBS	Agency commercial MBS	$	1,129,060	$	75,309	$	(54)	$	1,204,315	$	1,083,182	$	25,579	$	(537)	$	1,108,224	Agency commercial MBS	1,203,537		56,261		(2,170)		1,257,628		1,207,676		74,238		(37)		1,281,877
Municipal securities		1,133,811		70,758		(1,539)		1,203,030		691,647		43,851		(339)		735,159
Agency residential CMOs	Agency residential CMOs	1,111,235		54,900		(263)		1,165,872		1,112,573		24,403		(579)		1,136,397		Agency residential CMOs	1,108,587		36,736		(2,925)		1,142,398		1,172,166		47,994		(280)		1,219,880
U.S. Treasury securities																		U.S. Treasury securities	873,480		4,266		(593)		877,153		4,989		313		0		5,302
Agency residential MBS	Agency residential MBS	233,513		13,018		(33)		246,498		294,606		10,593		(1)		305,198		Agency residential MBS	544,762		11,208		(3,559)		552,411		329,488		12,483		(897)		341,074
Asset-backed securities		236,081		554		(2,532)		234,103		216,133		320		(1,670)		214,783
Corporate debt securities	Corporate debt securities	173,707		726		(151)		174,282		17,000		3,748		0		20,748		Corporate debt securities	496,749		12,457		(498)		508,708		308,803		3,490		(404)		311,889
Collateralized loan obligations	Collateralized loan obligations	138,966		0		(3,633)		135,333		124,134		25		(403)		123,756		Collateralized loan obligations	382,935		260		(1,152)		382,043		136,777		23		(924)		135,876
Private label commercial MBS																		Private label commercial MBS	375,184		3,126		(75)		378,235		81,878		1,089		(10)		82,957
Asset-backed securities																		Asset-backed securities	148,965		961		(343)		149,583		166,861		445		(760)		166,546
Private label residential CMOs	Private label residential CMOs	115,101		6,089		(28)		121,162		96,066		3,430		(13)		99,483		Private label residential CMOs	93,011		4,141		(230)		96,922		110,891		6,076		(21)		116,946
SBA securities	SBA securities	40,515		2,194		(25)		42,684		47,765		506		(13)		48,258		SBA securities	34,388		1,659		(19)		36,028		39,437		2,217		(27)		41,627
U.S. Treasury securities		4,988		347		0		5,335		4,985		196		0		5,181

Total	Total	$	4,316,977	$	223,895	$	(8,258)	$	4,532,614	$	3,688,091	$	112,651	$	(3,555)	$	3,797,187	Total	$	6,997,535	$	214,682	$	(13,609)	$	7,198,608	$	4,996,970	$	241,999	$	(3,378)	$	5,235,591

As of ~~September~~June 30, ~~2020,~~2021, securities available-for-sale with a fair value of ~~$605.3~~$490.0 million were pledged as collateral for public deposits and other purposes as required by various statutes and agreements.

Realized Gains and Losses on Securities Available-for-Sale

The following table presents the amortized cost of securities sold with related gross realized gains, gross realized losses, and net realized gains for the years indicated:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
Sales of Securities Available-for-Sale	Sales of Securities Available-for-Sale	2020		2019		2020		2019		Sales of Securities Available-for-Sale	2021		2020		2021		2020
		(In thousands)									(In thousands)
Amortized cost of securities sold	Amortized cost of securities sold	$	17,000	$	143,388	$	154,100	$	1,529,544	Amortized cost of securities sold	$	0	$	122,334	$	44,551	$	137,100

Gross realized gains	Gross realized gains	$	5,270	$	1,187	$	13,199	$	29,400	Gross realized gains	$	0	$	7,747	$	101	$	7,929
Gross realized losses	Gross realized losses	0		(279)		(32)		(4,139)		Gross realized losses	0		(32)		0		(32)
Net realized gains	Net realized gains	$	5,270	$	908	$	13,167	$	25,261	Net realized gains	$	0	$	7,715	$	101	$	7,897

1715

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Unrealized Losses on Securities Available-for-Sale

The following tables present the gross unrealized losses and fair values of securities available-for-sale that were in unrealized loss positions as of the dates indicated:


		September 30, 2020													June 30, 2021
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
				Gross				Gross				Gross					Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Security Type	Security Type	Value		Losses		Value		Losses		Value		Losses		Security Type	Value		Losses		Value		Losses		Value		Losses
		(In thousands)													(In thousands)
Municipal securities														Municipal securities	$	203,261	$	(2,045)	$	0	$	0	$	203,261	$	(2,045)
Agency commercial MBS	Agency commercial MBS	$	3,066	$	(4)	$	9,241	$	(50)	$	12,307	$	(54)	Agency commercial MBS	126,899		(2,170)		0		0		126,899		(2,170)
Municipal securities		189,163		(1,539)		0		0		189,163		(1,539)
Agency residential CMOs	Agency residential CMOs	77,168		(263)		0		0		77,168		(263)		Agency residential CMOs	125,880		(2,925)		0		0		125,880		(2,925)
U.S. Treasury securities														U.S. Treasury securities	374,149		(593)		0		0		374,149		(593)
Agency residential MBS	Agency residential MBS	1,753		(33)		0		0		1,753		(33)		Agency residential MBS	303,546		(3,551)		687		(8)		304,233		(3,559)
Asset-backed securities		44,658		(339)		122,729		(2,193)		167,387		(2,532)
Corporate debt securities	Corporate debt securities	60,056		(151)		0		0		60,056		(151)		Corporate debt securities	57,401		(498)		0		0		57,401		(498)
Collateralized loan obligations	Collateralized loan obligations	102,396		(1,938)		32,937		(1,695)		135,333		(3,633)		Collateralized loan obligations	201,170		(995)		43,854		(157)		245,024		(1,152)
Private label commercial MBS														Private label commercial MBS	13,476		(67)		2,196		(8)		15,672		(75)
Asset-backed securities														Asset-backed securities	0		0		16,381		(343)		16,381		(343)
Private label residential CMOs	Private label residential CMOs	8,510		(26)		76		(2)		8,586		(28)		Private label residential CMOs	24,957		(216)		624		(14)		25,581		(230)
SBA securities	SBA securities	1,964		(25)		0		0		1,964		(25)		SBA securities	0		0		1,914		(19)		1,914		(19)

Total	Total	$	488,734	$	(4,318)	$	164,983	$	(3,940)	$	653,717	$	(8,258)	Total	$	1,430,739	$	(13,060)	$	65,656	$	(549)	$	1,496,395	$	(13,609)


		December 31, 2019													December 31, 2020
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
				Gross				Gross				Gross					Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Security Type	Security Type	Value		Losses		Value		Losses		Value		Losses		Security Type	Value		Losses		Value		Losses		Value		Losses
		(In thousands)													(In thousands)
Municipal securities														Municipal securities	$	5,919	$	(18)	$	0	$	0	$	5,919	$	(18)
Agency commercial MBS	Agency commercial MBS	$	214,862	$	(537)	$	0	$	0	$	214,862	$	(537)	Agency commercial MBS	58,408		(37)		0		0		58,408		(37)
Municipal securities		38,667		(339)		0		0		38,667		(339)
Agency residential CMOs	Agency residential CMOs	180,071		(572)		1,456		(7)		181,527		(579)		Agency residential CMOs	97,863		(280)		0		0		97,863		(280)
Agency residential MBS	Agency residential MBS	0		0		186		(1)		186		(1)		Agency residential MBS	90,722		(897)		0		0		90,722		(897)
Asset-backed securities	Asset-backed securities	165,575		(1,670)		0		0		165,575		(1,670)		Asset-backed securities	14,636		(53)		61,031		(707)		75,667		(760)
Corporate debt securities														Corporate debt securities	87,596		(404)		0		0		87,596		(404)
Collateralized loan obligations	Collateralized loan obligations	102,469		(403)		0		0		102,469		(403)		Collateralized loan obligations	96,442		(729)		28,972		(195)		125,414		(924)
Private label commercial MBS														Private label commercial MBS	3,058		(10)		0		0		3,058		(10)
Private label residential CMOs	Private label residential CMOs	9,872		(11)		114		(2)		9,986		(13)		Private label residential CMOs	788		(19)		74		(2)		862		(21)
SBA securities	SBA securities	4,565		(13)		0		0		4,565		(13)		SBA securities	2,127		(27)		0		0		2,127		(27)
Total	Total	$	716,081	$	(3,545)	$	1,756	$	(10)	$	717,837	$	(3,555)	Total	$	457,559	$	(2,474)	$	90,077	$	(904)	$	547,636	$	(3,378)

The securities that were in an unrealized loss position at ~~September~~June 30, ~~2020,~~2021, were considered impaired and required further review to determine if the unrealized losses were credit-related. We concluded ~~their~~the unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. We also considered the seniority of the tranches and U.S. government agency guarantees, if any, to assess whether an unrealized loss was credit-related. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive income" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.

1816

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Contractual Maturities of Securities Available-for-Sale

The following table presents the contractual maturities of our securities available-for-sale portfolio based on amortized cost and carrying value as of the date indicated:


		September 30, 2020					June 30, 2021
		Amortized		Fair			Amortized		Fair
Maturities	Maturities	Cost		Value		Maturities	Cost		Value
		(In thousands)					(In thousands)
Due in one year or less	Due in one year or less	$	8,226	$	8,310	Due in one year or less	$	27,259	$	27,267
Due after one year through five years	Due after one year through five years	508,645		532,309		Due after one year through five years	579,444		608,063
Due after five years through ten years	Due after five years through ten years	1,067,818		1,135,249		Due after five years through ten years	2,657,145		2,713,777
Due after ten years	Due after ten years	2,732,288		2,856,746		Due after ten years	3,733,687		3,849,501
Total securities available-for-sale	Total securities available-for-sale	$	4,316,977	$	4,532,614	Total securities available-for-sale	$	6,997,535	$	7,198,608

CMBS, CMOs, and MBS have contractual maturity dates, but require periodic payments based upon scheduled amortization terms. Actual principal collections on these securities usually occur more rapidly than the scheduled amortization terms because of prepayments made by obligors of the underlying loan collateral.

Interest Income on Investment Securities

The following table presents the composition of our interest income on investment securities for the periods indicated:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(In thousands)									(In thousands)
Taxable interest	Taxable interest	$	17,835	$	22,829	$	59,457	$	63,515	Taxable interest	$	25,206	$	19,836	$	47,176	$	41,622
Non-taxable interest	Non-taxable interest	6,272		5,565		17,113		22,705		Non-taxable interest	8,493		5,612		16,571		10,841
Dividend income	Dividend income	336		412		1,357		1,214		Dividend income	255		590		472		1,021
Total interest income on investment securities	Total interest income on investment securities	$	24,443	$	28,806	$	77,927	$	87,434	Total interest income on investment securities	$	33,954	$	26,038	$	64,219	$	53,484

1917

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4.5. LOANS AND LEASES

Our loans are carried at the principal amount outstanding, net of deferred fees and costs, and in the case of acquired and purchased loans, net of purchase discounts and premiums. Deferred fees and costs and purchase discounts and premiums on acquired loans are recognized as an adjustment to interest income over the contractual life of the loans primarily using the effective interest method or taken into income when the related loans are paid off or included in the carrying amount of loans that are sold.

Loans and Leases Held for Investment

The following table summarizes the composition of our loans and leases held for investment as of the dates indicated:


		September 30,		December 31,			June 30,		December 31,
		2020		2019			2021		2020
		(In thousands)					(In thousands)
Real estate mortgage	Real estate mortgage	$	7,883,473	$	7,982,383	Real estate mortgage	$	8,420,546	$	7,905,193
Real estate construction and land	Real estate construction and land	3,453,155		2,773,209		Real estate construction and land	3,544,890		3,393,145
Commercial	Commercial	7,402,854		7,714,358		Commercial	7,249,917		7,534,801
Consumer	Consumer	362,198		440,790		Consumer	365,378		320,218
Total gross loans and leases held for investment	Total gross loans and leases held for investment	19,101,680		18,910,740		Total gross loans and leases held for investment	19,580,731		19,153,357
Deferred fees, net	Deferred fees, net	(75,480)		(63,868)		Deferred fees, net	(74,474)		(69,980)
Total loans and leases held for investment, net of deferred fees	Total loans and leases held for investment, net of deferred fees	19,026,200		18,846,872		Total loans and leases held for investment, net of deferred fees	19,506,257		19,083,377
Allowance for loan and lease losses	Allowance for loan and lease losses	(345,966)		(138,785)		Allowance for loan and lease losses	(225,600)		(348,181)
Total loans and leases held for investment, net (1)	Total loans and leases held for investment, net (1)	$	18,680,234	$	18,708,087	Total loans and leases held for investment, net (1)	$	19,280,657	$	18,735,196

____________________

(1) Excludes accrued interest receivable of ~~$71.5~~$73.5 million and ~~$67.5~~$79.7 million at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, which is recorded in "Other assets" on the condensed consolidated balance sheets.

The following tables present an aging analysis of our loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:


		September 30, 2020											June 30, 2021
		30 - 89		90 or More									30 - 89		90 or More
		Days		Days		Total							Days		Days		Total
		Past Due		Past Due		Past Due		Current		Total			Past Due		Past Due		Past Due		Current		Total
		(In thousands)											(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	$	412	$	32,662	$	33,074	$	4,159,392	$	4,192,466	Commercial	$	445	$	2,955	$	3,400	$	3,788,798	$	3,792,198
Income producing and other residential	Income producing and other residential	1,761		537		2,298		3,682,281		3,684,579		Income producing and other residential	2,179		4,957		7,136		4,613,686		4,620,822
Total real estate mortgage	Total real estate mortgage	2,173		33,199		35,372		7,841,673		7,877,045		Total real estate mortgage	2,624		7,912		10,536		8,402,484		8,413,020
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	0		0		0		1,241,647		1,241,647		Commercial	0		0		0		930,785		930,785
Residential	Residential	3,108		0		3,108		2,178,992		2,182,100		Residential	22,714		1,934		24,648		2,550,151		2,574,799
Total real estate construction and land	Total real estate construction and land	3,108		0		3,108		3,420,639		3,423,747		Total real estate construction and land	22,714		1,934		24,648		3,480,936		3,505,584
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	0		2,248		2,248		3,150,800		3,153,048		Asset-based	0		1,484		1,484		3,549,419		3,550,903
Venture capital	Venture capital	2,319		0		2,319		1,634,813		1,637,132		Venture capital	0		335		335		1,749,097		1,749,432
Other commercial	Other commercial	185		10,751		10,936		2,562,058		2,572,994		Other commercial	320		1,740		2,060		1,919,849		1,921,909
Total commercial	Total commercial	2,504		12,999		15,503		7,347,671		7,363,174		Total commercial	320		3,559		3,879		7,218,365		7,222,244
Consumer	Consumer	791		116		907		361,327		362,234		Consumer	1,454		287		1,741		363,668		365,409
Total	Total	$	8,576	$	46,314	$	54,890	$	18,971,310	$	19,026,200	Total	$	27,112	$	13,692	$	40,804	$	19,465,453	$	19,506,257

2018

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		December 31, 2019											December 31, 2020
		30 - 89		90 or More									30 - 89		90 or More
		Days		Days		Total							Days		Days		Total
		Past Due		Past Due		Past Due		Current		Total			Past Due		Past Due		Past Due		Current		Total
		(In thousands)											(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	$	2,448	$	5,919	$	8,367	$	4,194,320	$	4,202,687	Commercial	$	6,750	$	29,145	$	35,895	$	4,060,776	$	4,096,671
Income producing and other residential	Income producing and other residential	2,105		802		2,907		3,767,153		3,770,060		Income producing and other residential	600		373		973		3,802,292		3,803,265
Total real estate mortgage	Total real estate mortgage	4,553		6,721		11,274		7,961,473		7,972,747		Total real estate mortgage	7,350		29,518		36,868		7,863,068		7,899,936
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	0		0		0		1,082,368		1,082,368		Commercial	0		0		0		1,117,121		1,117,121
Residential	Residential	1,429		0		1,429		1,654,005		1,655,434		Residential	759		0		759		2,242,401		2,243,160
Total real estate construction and land	Total real estate construction and land	1,429		0		1,429		2,736,373		2,737,802		Total real estate construction and land	759		0		759		3,359,522		3,360,281
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	19		0		19		3,748,388		3,748,407		Asset-based	0		2,128		2,128		3,427,155		3,429,283
Venture capital	Venture capital	0		0		0		2,179,422		2,179,422		Venture capital	540		0		540		1,697,968		1,698,508
Other commercial	Other commercial	2,781		4,164		6,945		1,760,722		1,767,667		Other commercial	2,323		4,766		7,089		2,368,025		2,375,114
Total commercial	Total commercial	2,800		4,164		6,964		7,688,532		7,695,496		Total commercial	2,863		6,894		9,757		7,493,148		7,502,905
Consumer	Consumer	1,006		200		1,206		439,621		440,827		Consumer	1,260		111		1,371		318,884		320,255
Total	Total	$	9,788	$	11,085	$	20,873	$	18,825,999	$	18,846,872	Total	$	12,232	$	36,523	$	48,755	$	19,034,622	$	19,083,377

It is our policy to discontinue accruing interest when principal or interest payments are past due 90 days or more (unless the loan is both well secured and in the process of collection) or when, in the opinion of management, there is a reasonable doubt as to the collectability of a loan or lease in the normal course of business. Interest income on nonaccrual loans is recognized only to the extent cash is received and the principal balance of the loan is deemed collectable.

The following table presents our nonaccrual and performing loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:


		September 30, 2020						December 31, 2019							June 30, 2021						December 31, 2020
		Nonaccrual		Performing		Total		Nonaccrual		Performing		Total			Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
		(In thousands)													(In thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	45,120	$	4,147,346	$	4,192,466	$	18,346	$	4,184,341	$	4,202,687	Commercial	$	32,065	$	3,760,133	$	3,792,198	$	43,731	$	4,052,940	$	4,096,671
Income producing and other residential	Income producing and other residential	2,008		3,682,571		3,684,579		2,478		3,767,582		3,770,060		Income producing and other residential	6,133		4,614,689		4,620,822		1,826		3,801,439		3,803,265
Total real estate mortgage	Total real estate mortgage	47,128		7,829,917		7,877,045		20,824		7,951,923		7,972,747		Total real estate mortgage	38,198		8,374,822		8,413,020		45,557		7,854,379		7,899,936
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	324		1,241,323		1,241,647		364		1,082,004		1,082,368		Commercial	284		930,501		930,785		315		1,116,806		1,117,121
Residential	Residential	0		2,182,100		2,182,100		0		1,655,434		1,655,434		Residential	1,934		2,572,865		2,574,799		0		2,243,160		2,243,160
Total real estate construction and land	Total real estate construction and land	324		3,423,423		3,423,747		364		2,737,438		2,737,802		Total real estate construction and land	2,218		3,503,366		3,505,584		315		3,359,966		3,360,281
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	2,817		3,150,231		3,153,048		30,162		3,718,245		3,748,407		Asset-based	1,973		3,548,930		3,550,903		2,679		3,426,604		3,429,283
Venture capital	Venture capital	2,001		1,635,131		1,637,132		12,916		2,166,506		2,179,422		Venture capital	2,717		1,746,715		1,749,432		1,980		1,696,528		1,698,508
Other commercial	Other commercial	32,941		2,540,053		2,572,994		27,594		1,740,073		1,767,667		Other commercial	11,337		1,910,572		1,921,909		40,243		2,334,871		2,375,114
Total commercial	Total commercial	37,759		7,325,415		7,363,174		70,672		7,624,824		7,695,496		Total commercial	16,027		7,206,217		7,222,244		44,902		7,458,003		7,502,905
Consumer	Consumer	404		361,830		362,234		493		440,334		440,827		Consumer	360		365,049		365,409		389		319,866		320,255
Total	Total	$	85,615	$	18,940,585	$	19,026,200	$	92,353	$	18,754,519	$	18,846,872	Total	$	56,803	$	19,449,454	$	19,506,257	$	91,163	$	18,992,214	$	19,083,377

2119

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

At ~~September~~June 30, ~~2020,~~2021, nonaccrual loans and leases included ~~$46.3~~$13.7 million of loans and leases 90 or more days past due, ~~$0.4~~$0.5 million of loans and leases 30 to 89 days past due, and ~~$38.9~~$42.6 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, ~~2019,~~2020, nonaccrual loans and leases included ~~$11.1~~$36.5 million of loans and leases 90 or more days past due, ~~$1.2~~$3.4 million of loans and leases 30 to 89 days past due, and ~~$80.0~~$51.3 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.

As of ~~September~~June 30, ~~2020,~~2021, our three largest loan relationships on nonaccrual status had an aggregate carrying value of ~~$49.3~~$12.9 million and represented ~~58%~~23% of total nonaccrual loans and leases.

The following tables present the credit risk rating categories for loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated. Classified loans and leases are those with a credit risk rating of either substandard or doubtful.


		September 30, 2020									June 30, 2021
		Classified		Special Mention		Pass		Total			Classified		Special Mention		Pass		Total
		(In thousands)									(In thousands)
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Commercial	Commercial	$	109,651	$	330,367	$	3,752,448	$	4,192,466	Commercial	$	62,827	$	242,159	$	3,487,212	$	3,792,198
Income producing and other residential	Income producing and other residential	9,558		63,378		3,611,643		3,684,579		Income producing and other residential	12,681		60,843		4,547,298		4,620,822
Total real estate mortgage	Total real estate mortgage	119,209		393,745		7,364,091		7,877,045		Total real estate mortgage	75,508		303,002		8,034,510		8,413,020
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	324		13,838		1,227,485		1,241,647		Commercial	284		67,292		863,209		930,785
Residential	Residential	0		0		2,182,100		2,182,100		Residential	1,934		8,234		2,564,631		2,574,799
Total real estate construction and land	Total real estate construction and land	324		13,838		3,409,585		3,423,747		Total real estate construction and land	2,218		75,526		3,427,840		3,505,584
Commercial:	Commercial:									Commercial:
Asset-based	Asset-based	27,900		190,193		2,934,955		3,153,048		Asset-based	24,351		102,734		3,423,818		3,550,903
Venture capital	Venture capital	15,078		123,675		1,498,379		1,637,132		Venture capital	5,708		33,910		1,709,814		1,749,432
Other commercial	Other commercial	111,553		57,787		2,403,654		2,572,994		Other commercial	39,005		18,340		1,864,564		1,921,909
Total commercial	Total commercial	154,531		371,655		6,836,988		7,363,174		Total commercial	69,064		154,984		6,998,196		7,222,244
Consumer	Consumer	508		4,518		357,208		362,234		Consumer	477		2,540		362,392		365,409
Total	Total	$	274,572	$	783,756	$	17,967,872	$	19,026,200	Total	$	147,267	$	536,052	$	18,822,938	$	19,506,257


		December 31, 2019									December 31, 2020
		Classified		Special Mention		Pass		Total			Classified		Special Mention		Pass		Total
		(In thousands)									(In thousands)
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Commercial	Commercial	$	33,535	$	30,070	$	4,139,082	$	4,202,687	Commercial	$	91,543	$	262,462	$	3,742,666	$	4,096,671
Income producing and other residential	Income producing and other residential	8,600		1,711		3,759,749		3,770,060		Income producing and other residential	8,767		61,384		3,733,114		3,803,265
Total real estate mortgage	Total real estate mortgage	42,135		31,781		7,898,831		7,972,747		Total real estate mortgage	100,310		323,846		7,475,780		7,899,936
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	364		0		1,082,004		1,082,368		Commercial	42,558		107,592		966,971		1,117,121
Residential	Residential	0		1,429		1,654,005		1,655,434		Residential	0		759		2,242,401		2,243,160
Total real estate construction and land	Total real estate construction and land	364		1,429		2,736,009		2,737,802		Total real estate construction and land	42,558		108,351		3,209,372		3,360,281
Commercial:	Commercial:									Commercial:
Asset-based	Asset-based	32,223		38,936		3,677,248		3,748,407		Asset-based	27,867		153,301		3,248,115		3,429,283
Venture capital	Venture capital	35,316		74,813		2,069,293		2,179,422		Venture capital	6,508		118,125		1,573,875		1,698,508
Other commercial	Other commercial	65,261		174,785		1,527,621		1,767,667		Other commercial	87,557		14,930		2,272,627		2,375,114
Total commercial	Total commercial	132,800		288,534		7,274,162		7,695,496		Total commercial	121,932		286,356		7,094,617		7,502,905
Consumer	Consumer	613		1,212		439,002		440,827		Consumer	462		2,732		317,061		320,255
Total	Total	$	175,912	$	322,956	$	18,348,004	$	18,846,872	Total	$	265,262	$	721,285	$	18,096,830	$	19,083,377

2220

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents our nonaccrual loans and leases by loan portfolio segment and class and by with and without an allowance recorded as of the date indicated and interest income recognized on nonaccrual loans and leases for the ~~period~~periods indicated:

At and For the Three Months Ended At and For the Nine Months Ended
September 30, 2020 September 30, 2020
Nonaccrual Interest Nonaccrual Interest
Recorded Income Recorded Income
Investment Recognized Investment Recognized
(In thousands) (In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial $ 736 $ 0 $ 736 $ 0
Income producing and other residential 1,163 0 1,163 0
Commercial:
Asset based 2,248 0 2,248 0
Venture capital 2,001 0 2,001 0
Other commercial 1,235 0 1,235 0
Consumer 404 0 404 0
With No Related Allowance Recorded:
Real estate mortgage:
Commercial $ 44,384 $ 155 $ 44,384 $ 285
Income producing and other residential 845 0 845 0
Real estate construction and land:
Commercial 324 0 324 0
Commercial:
Asset based 569 0 569 0
Other commercial 31,706 517 31,706 1,628
Total Loans and Leases With and
Without an Allowance Recorded:
Real estate mortgage $ 47,128 $ 155 $ 47,128 $ 285
Real estate construction and land 324 0 324 0
Commercial 37,759 517 37,759 1,628
Consumer 404 0 404 0
Total $ 85,615 $ 672 $ 85,615 $ 1,913


			Three Months		Six Months				Three Months		Six Months
			Ended		Ended				Ended		Ended
	June 30,		June 30,		June 30,		June 30,		June 30,		June 30,
	2021		2021		2021		2020		2020		2020
	Nonaccrual		Interest		Interest		Nonaccrual		Interest		Interest
	Recorded		Income		Income		Recorded		Income		Income
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	74	$	0	$	0	$	304	$	0	$	0
Income producing and other residential	2,806		0		0		1,445		0		0
Real estate construction and land:

Residential	403		0		0		0		0		0
Commercial:
Asset based	1,484		0		0		2,458		0		0
Venture capital	2,717		0		0		8,270		0		0
Other commercial	1,472		0		0		45,569		0		0
Consumer	360		0		0		520		0		0
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	31,991	$	140	$	430	$	61,467	$	62	$	130
Income producing and other residential	3,327		0		0		762		0		0
Real estate construction and land:
Commercial	284		0		0		337		0		0
Residential	1,531		0		0		0		0		0
Commercial:
Asset based	489		0		0		16,555		0		0

Other commercial	9,865		1,814		3,644		28,426		1,196		1,220

Total Loans and Leases With and
Without an Allowance Recorded:
Real estate mortgage	$	38,198	$	140	$	430	$	63,978	$	62	$	130
Real estate construction and land	2,218		0		0		337		0		0
Commercial	16,027		1,814		3,644		101,278		1,196		1,220
Consumer	360		0		0		520		0		0
Total	$	56,803	$	1,954	$	4,074	$	166,113	$	1,258	$	1,350

2321

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present our loans held for investment by loan portfolio segment and class, by credit quality indicator (internal risk ratings), and by year of origination (vintage year) as of the ~~date~~dates indicated:


																Revolving																			Revolving
																Converted																			Converted
Amortized Cost Basis(1)	Amortized Cost Basis(1)	Term Loans by Origination Year												Revolving		to Term				Amortized Cost Basis(1)	Term Loans by Origination Year												Revolving		to Term
September 30, 2020		2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
June 30, 2021																				June 30, 2021	2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
		(In thousands)																			(In thousands)
Real Estate Mortgage:	Real Estate Mortgage:																			Real Estate Mortgage:
Commercial	Commercial																			Commercial
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	0	$	28,297	$	15,106	$	13,295	$	7,746	$	47,517	$	0	$	0	$	111,961	1-2 High pass	$	0	$	3,604	$	53,211	$	5,853	$	9,062	$	38,846	$	3	$	0	$	110,579
3-4 Pass	3-4 Pass	459,907		453,362		646,326		804,351		362,735		846,325		63,689		3,792		3,640,487		3-4 Pass	171,826		541,881		352,574		532,213		622,252		1,079,673		61,007		15,207		3,376,633
5 Special mention	5 Special mention	0		70,371		79,083		3,034		75,221		102,658		0		0		330,367		5 Special mention	0		2,596		80,292		94,499		8,158		56,614		0		0		242,159
6-8 Classified	6-8 Classified	0		1,301		55,863		5,187		3,444		43,856		0		0		109,651		6-8 Classified	0		500		3,967		7,665		12,648		38,047		0		0		62,827
Total	Total	$	459,907	$	553,331	$	796,378	$	825,867	$	449,146	$	1,040,356	$	63,689	$	3,792	$	4,192,466	Total	$	171,826	$	548,581	$	490,044	$	640,230	$	652,120	$	1,213,180	$	61,010	$	15,207	$	3,792,198
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	0	$	3,330	$	0	$	2,677	$	0	$	0	$	6,007	Gross charge-offs	$	0	$	0	$	190	$	168	$	53	$	168	$	0	$	0	$	579
Gross recoveries	Gross recoveries	0		0		0		(9)		0		(262)		0		0		(271)		Gross recoveries	0		0		0		0		0		(5,421)		0		0		(5,421)
Net	Net	$	0	$	0	$	0	$	3,321	$	0	$	2,415	$	0	$	0	$	5,736	Net	$	0	$	0	$	190	$	168	$	53	$	(5,253)	$	0	$	0	$	(4,842)

Real Estate Mortgage:	Real Estate Mortgage:																			Real Estate Mortgage:
Income Producing and	Income Producing and																			Income Producing and
Other Residential	Other Residential																			Other Residential
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	27,760	$	25,590	$	36,440	$	35,858	$	46,419	$	12,260	$	0	$	0	$	184,327	1-2 High pass	$	7,474	$	40,341	$	65,881	$	30,001	$	12,927	$	27,593	$	0	$	0	$	184,217
3-4 Pass	3-4 Pass	256,056		844,049		1,179,643		587,821		247,643		199,144		112,390		570		3,427,316		3-4 Pass	632,881		634,036		794,568		1,037,846		644,016		343,522		276,013		199		4,363,081
5 Special mention	5 Special mention	12,308		4,207		42,660		1,863		0		0		2,340		0		63,378		5 Special mention	358		12,595		4,207		42,581		947		0		155		0		60,843
6-8 Classified	6-8 Classified	0		0		2,874		0		0		5,608		83		993		9,558		6-8 Classified	0		2,727		0		3,059		117		6,018		0		760		12,681
Total	Total	$	296,124	$	873,846	$	1,261,617	$	625,542	$	294,062	$	217,012	$	114,813	$	1,563	$	3,684,579	Total	$	640,713	$	689,699	$	864,656	$	1,113,487	$	658,007	$	377,133	$	276,168	$	959	$	4,620,822
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	51	$	0	$	175	$	226	Gross charge-offs	$	0	$	—	$	0	$	0	$	0	$	55	$	0	$	0	$	55
Gross recoveries	Gross recoveries	0		0		0		0		0		(88)		(1)		0		(89)		Gross recoveries	0		0		0		0		0		(5)		(1)		0		(6)
Net	Net	$	0	$	0	$	0	$	0	$	0	$	(37)	$	(1)	$	175	$	137	Net	$	0	$	0	$	0	$	0	$	0	$	50	$	(1)	$	0	$	49

Real Estate Construction	Real Estate Construction																			Real Estate Construction
and Land: Commercial	and Land: Commercial																			and Land: Commercial
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	1-2 High pass	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
3-4 Pass	3-4 Pass	38,945		335,115		385,317		209,380		106,937		139,453		6,630		5,708		1,227,485		3-4 Pass	12,713		88,977		359,970		384,692		730		16,127		0		0		863,209
5 Special mention	5 Special mention	0		0		13,838		0		0		0		0		0		13,838		5 Special mention	0		0		0		0		67,292		0		0		0		67,292
6-8 Classified	6-8 Classified	0		0		0		0		0		324		0		0		324		6-8 Classified	0		0		0		0		0		284		0		0		284
Total	Total	$	38,945	$	335,115	$	399,155	$	209,380	$	106,937	$	139,777	$	6,630	$	5,708	$	1,241,647	Total	$	12,713	$	88,977	$	359,970	$	384,692	$	68,022	$	16,411	$	0	$	0	$	930,785
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	Gross charge-offs	$	0	$	0	$	0	$	775	$	0	$	0	$	0	$	0	$	775
Gross recoveries	Gross recoveries	0		0		0		0		0		0		0		0		0		Gross recoveries	0		0		0		0		0		0		0		0		0
Net	Net	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	Net	$	0	$	0	$	0	$	775	$	0	$	0	$	0	$	0	$	775

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


															Revolving
															Converted
Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
June 30, 2021	2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
	(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
3-4 Pass	562,843		487,332		935,712		388,440		111,140		23,121		0		56,043		2,564,631
5 Special mention	3,679		4,555		0		0		0		0		0		0		8,234
6-8 Classified	547		974		413		0		0		0		0		0		1,934
Total	$	567,069	$	492,861	$	936,125	$	388,440	$	111,140	$	23,121	$	0	$	56,043	$	2,574,799
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Gross recoveries	0		0		0		0		0		0		0		0		0
Net	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

Commercial: Asset-Based
Internal risk rating:
1-2 High pass	$	58,134	$	82,132	$	165,284	$	113,965	$	72,924	$	203,548	$	480,376	$	73,966	$	1,250,329
3-4 Pass	66,807		104,947		67,780		56,499		20,667		42,132		1,802,197		12,460		2,173,489
5 Special mention	0		0		53,097		31,720		0		0		13,601		4,316		102,734
6-8 Classified	0		0		0		0		0		19,738		5,513		(900)		24,351
Total	$	124,941	$	187,079	$	286,161	$	202,184	$	93,591	$	265,418	$	2,301,687	$	89,842	$	3,550,903
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Gross recoveries	0		0		0		0		0		(359)		(14)		0		(373)
Net	$	0	$	0	$	0	$	0	$	0	$	(359)	$	(14)	$	0	$	(373)

Commercial: Venture
Capital
Internal risk rating:
1-2 High pass	$	0	$	1,999	$	0	$	0	$	(5)	$	22	$	227,411	$	0	$	229,427
3-4 Pass	54,712		63,937		74,756		18,347		2,256		18,158		1,238,948		9,273		1,480,387
5 Special mention	0		8,380		20,625		0		4,986		0		(81)		0		33,910
6-8 Classified	0		0		0		3,000		0		0		326		2,382		5,708
Total	$	54,712	$	74,316	$	95,381	$	21,347	$	7,237	$	18,180	$	1,466,604	$	11,655	$	1,749,432
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	620	$	0	$	0	$	620
Gross recoveries	0		0		0		(13)		(70)		(18)		0		0		(101)
Net	$	0	$	0	$	0	$	(13)	$	(70)	$	602	$	0	$	0	$	519

____________________

(1) Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


															Revolving
															Converted
Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
June 30, 2021	2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
	(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass	$	357,890	$	252,019	$	310	$	9	$	302	$	375	$	77,917	$	695	$	689,517
3-4 Pass	198,420		90,403		79,878		82,235		65,037		95,808		552,735		10,531		1,175,047
5 Special mention	0		1,639		3,364		2,546		115		10,231		445		0		18,340
6-8 Classified	2,042		1		593		23		16		4,611		26,405		5,314		39,005
Total	$	558,352	$	344,062	$	84,145	$	84,813	$	65,470	$	111,025	$	657,502	$	16,540	$	1,921,909
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	47	$	1	$	359	$	53	$	1,771	$	2,231
Gross recoveries	0		0		(18)		0		(34)		(1,127)		0		(73)		(1,252)
Net	$	0	$	0	$	(18)	$	47	$	(33)	$	(768)	$	53	$	1,698	$	979

Consumer
Internal risk rating:
1-2 High pass	$	0	$	12	$	0	$	6	$	9	$	0	$	666	$	0	$	693
3-4 Pass	115,446		34,877		83,346		50,146		27,398		41,878		8,573		35		361,699
5 Special mention	331		602		966		318		54		269		0		0		2,540
6-8 Classified	0		55		262		0		15		121		3		21		477
Total	$	115,777	$	35,546	$	84,574	$	50,470	$	27,476	$	42,268	$	9,242	$	56	$	365,409
Current YTD period:
Gross charge-offs	$	0	$	0	$	209	$	156	$	108	$	71	$	0	$	0	$	544
Gross recoveries	0		0		0		(26)		(5)		(38)		(1)		0		(70)
Net	$	0	$	0	$	209	$	130	$	103	$	33	$	(1)	$	0	$	474

Total Loans and Leases
Internal risk rating:
1-2 High pass	$	423,498	$	380,107	$	284,686	$	149,834	$	95,219	$	270,384	$	786,373	$	74,661	$	2,464,762
3-4 Pass	1,815,648		2,046,390		2,748,584		2,550,418		1,493,496		1,660,419		3,939,473		103,748		16,358,176
5 Special mention	4,368		30,367		162,551		171,664		81,552		67,114		14,120		4,316		536,052
6-8 Classified	2,589		4,257		5,235		13,747		12,796		68,819		32,247		7,577		147,267
Total	$	2,246,103	$	2,461,121	$	3,201,056	$	2,885,663	$	1,683,063	$	2,066,736	$	4,772,213	$	190,302	$	19,506,257
Current YTD period:
Gross charge-offs	$	0	$	0	$	399	$	1,146	$	162	$	1,273	$	53	$	1,771	$	4,804
Gross recoveries	0		0		(18)		(39)		(109)		(6,968)		(16)		(73)		(7,223)
Net	$	0	$	0	$	381	$	1,107	$	53	$	(5,695)	$	37	$	1,698	$	(2,419)

______________________

(1) Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Revolving
Converted
Amortized Cost Basis Term Loans by Origination Year Revolving to Term
September 30, 2020 2020 2019 2018 2017 2016 Prior Loans Loans Total
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
3-4 Pass 236,355 501,855 835,914 512,565 35,286 315 9,034 50,776 2,182,100
5 Special mention 0 0 0 0 0 0 0 0 0
6-8 Classified 0 0 0 0 0 0 0 0 0
Total $ 236,355 $ 501,855 $ 835,914 $ 512,565 $ 35,286 $ 315 $ 9,034 $ 50,776 $ 2,182,100
Current YTD period:
Gross charge-offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Gross recoveries 0 0 0 0 0 (21) 0 0 (21)
Net $ 0 $ 0 $ 0 $ 0 $ 0 $ (21) $ 0 $ 0 $ (21)
Commercial: Asset-Based
Internal risk rating:
1-2 High pass $ 33,273 $ 167,859 $ 116,944 $ 65,740 $ 120,644 $ 87,642 $ 231,234 $ 73,549 $ 896,885
3-4 Pass 61,548 123,290 81,362 36,075 13,181 48,991 1,653,848 19,775 2,038,070
5 Special mention 0 64,586 61,726 21,043 14,913 958 22,150 4,817 190,193
6-8 Classified 0 0 0 0 19,398 569 8,791 (858) 27,900
Total $ 94,821 $ 355,735 $ 260,032 $ 122,858 $ 168,136 $ 138,160 $ 1,916,023 $ 97,283 $ 3,153,048
Current YTD period:
Gross charge-offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 11,817 $ 0 $ 0 $ 11,817
Gross recoveries (39) 0 0 0 0 (323) (231) 0 (593)
Net $ (39) $ 0 $ 0 $ 0 $ 0 $ 11,494 $ (231) $ 0 $ 11,224
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass (1)
$ 2,003 $ 5,644 $ 0 $ (4) $ (6) $ (4) $ 234,321 $ 0 $ 241,954
3-4 Pass 59,229 133,479 44,599 9,733 32,079 6,550 965,206 5,550 1,256,425
5 Special mention 5,958 38,163 1,586 4,000 526 0 68,331 5,111 123,675
6-8 Classified 0 (1,663) 11,750 0 0 3,663 1,328 0 15,078
Total $ 67,190 $ 175,623 $ 57,935 $ 13,729 $ 32,599 $ 10,209 $ 1,269,186 $ 10,661 $ 1,637,132
Current YTD period:
Gross charge-offs $ 0 $ 0 $ 6,534 $ 0 $ (8) $ 150 $ 142 $ 0 $ 6,818
Gross recoveries 0 0 (177) (128) (145) (3) (450) 0 (903)
Net $ 0 $ 0 $ 6,357 $ (128) $ (153) $ 147 $ (308) $ 0 $ 5,915

~~____________________~~

~~(1) Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.~~


															Revolving
															Converted
Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
December 31, 2020	2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
	(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass	$	0	$	28,304	$	4,848	$	13,184	$	12,241	$	41,222	$	0	$	0	$	99,799
3-4 Pass	554,143		413,785		574,497		725,503		405,367		893,008		62,586		13,978		3,642,867
5 Special mention	2,622		78,484		99,397		14,625		9,967		57,367		0		0		262,462
6-8 Classified	504		1,255		7,489		7,869		16,797		57,629		0		0		91,543
Total	$	557,269	$	521,828	$	686,231	$	761,181	$	444,372	$	1,049,226	$	62,586	$	13,978	$	4,096,671
Current YTD period:
Gross charge-offs	$	0	$	0	$	154	$	3,330	$	0	$	6,694	$	0	$	0	$	10,178
Gross recoveries	0		0		0		(9)		0		(280)		0		0		(289)
Net	$	0	$	0	$	154	$	3,321	$	0	$	6,414	$	0	$	0	$	9,889

Real Estate Mortgage:
Income Producing and
Other Residential
Internal risk rating:
1-2 High pass	$	58,714	$	55,826	$	28,831	$	33,017	$	18,991	$	9,265	$	0	$	0	$	204,644
3-4 Pass	491,504		850,978		1,067,109		577,906		238,499		187,959		113,987		528		3,528,470
5 Special mention	12,307		4,207		42,455		1,554		0		0		861		0		61,384
6-8 Classified	0		0		2,862		0		0		4,950		118		837		8,767
Total	$	562,525	$	911,011	$	1,141,257	$	612,477	$	257,490	$	202,174	$	114,966	$	1,365	$	3,803,265
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	51	$	0	$	457	$	508
Gross recoveries	0		0		0		0		0		(327)		(1)		0		(328)
Net	$	0	$	0	$	0	$	0	$	0	$	(276)	$	(1)	$	457	$	180

Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
3-4 Pass	66,114		369,588		357,295		118,586		36,027		11,778		7,583		0		966,971
5 Special mention	0		0		40,396		67,196		0		0		0		0		107,592
6-8 Classified	0		0		0		0		42,243		315		0		0		42,558
Total	$	66,114	$	369,588	$	397,691	$	185,782	$	78,270	$	12,093	$	7,583	$	0	$	1,117,121
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Gross recoveries	0		0		0		0		0		0		0		0		0
Net	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


																Revolving																			Revolving
																Converted																			Converted
Amortized Cost Basis(1)	Amortized Cost Basis(1)	Term Loans by Origination Year												Revolving		to Term				Amortized Cost Basis(1)	Term Loans by Origination Year												Revolving		to Term
September 30, 2020		2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
December 31, 2020																				December 31, 2020	2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
		(In thousands)																			(In thousands)
Commercial: Other
Commercial
Real Estate Construction																				Real Estate Construction
and Land: Residential																				and Land: Residential
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	1,212,466	$	409	$	7	$	390	$	73	$	1,592	$	77,891	$	94	$	1,292,922	1-2 High pass	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
3-4 Pass	3-4 Pass	57,738		98,217		105,234		83,456		32,063		108,219		619,093		6,712		1,110,732		3-4 Pass	345,134		670,894		849,819		285,072		28,725		688		9,034		53,035		2,242,401
5 Special mention	5 Special mention	0		1,011		0		316		1,735		5,398		48,252		1,075		57,787		5 Special mention	759		0		0		0		0		0		0		0		759
6-8 Classified	6-8 Classified	0		2		84		48		2,969		7,723		97,357		3,370		111,553		6-8 Classified	0		0		0		0		0		0		0		0		0
Total	Total	$	1,270,204	$	99,639	$	105,325	$	84,210	$	36,840	$	122,932	$	842,593	$	11,251	$	2,572,994	Total	$	345,893	$	670,894	$	849,819	$	285,072	$	28,725	$	688	$	9,034	$	53,035	$	2,243,160
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	0	$	506	$	214	$	33,492	$	11,662	$	1,828	$	47,702	Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Gross recoveries	Gross recoveries	0		(9)		(8)		(26)		(84)		(2,683)		(100)		(4)		(2,914)		Gross recoveries	0		0		0		0		0		(21)		0		0		(21)
Net	Net	$	0	$	(9)	$	(8)	$	480	$	130	$	30,809	$	11,562	$	1,824	$	44,788	Net	$	0	$	0	$	0	$	0	$	0	$	(21)	$	0	$	0	$	(21)

Consumer
Commercial: Asset-Based																				Commercial: Asset-Based
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	22	$	0	$	9	$	16	$	0	$	101	$	453	$	0	$	601	1-2 High pass	$	116,247	$	173,457	$	111,630	$	69,244	$	121,838	$	88,201	$	275,093	$	72,017	$	1,027,727
3-4 Pass	3-4 Pass	45,224		126,060		69,895		44,717		48,158		14,164		8,383		6		356,607		3-4 Pass	155,221		84,798		85,539		42,928		8,227		46,663		1,750,934		46,078		2,220,388
5 Special mention	5 Special mention	0		0		2,332		534		1,172		480		0		0		4,518		5 Special mention	0		59,822		41,789		9,022		14,274		482		23,257		4,655		153,301
6-8 Classified	6-8 Classified	0		74		0		0		57		342		2		33		508		6-8 Classified	0		0		0		0		19,417		551		8,799		(900)		27,867
Total	Total	$	45,246	$	126,134	$	72,236	$	45,267	$	49,387	$	15,087	$	8,838	$	39	$	362,234	Total	$	271,468	$	318,077	$	238,958	$	121,194	$	163,756	$	135,897	$	2,058,083	$	121,850	$	3,429,283
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	97	$	86	$	152	$	295	$	44	$	22	$	9	$	705	Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	11,817	$	0	$	0	$	11,817
Gross recoveries	Gross recoveries	0		0		(1)		(8)		(15)		(24)		0		0		(48)		Gross recoveries	(52)		0		0		0		0		(420)		(236)		0		(708)
Net	Net	$	0	$	97	$	85	$	144	$	280	$	20	$	22	$	9	$	657	Net	$	(52)	$	0	$	0	$	0	$	0	$	11,397	$	(236)	$	0	$	11,109

Total Loans and Leases
Commercial: Venture																				Commercial: Venture
Capital																				Capital
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	1,275,524	$	227,799	$	168,506	$	115,295	$	174,876	$	149,108	$	543,899	$	73,643	$	2,728,650	1-2 High pass	$	1,999	$	4,797	$	0	$	(4)	$	(4)	$	52	$	167,296	$	0	$	174,136
3-4 Pass	3-4 Pass	1,215,002		2,615,427		3,348,290		2,288,098		878,082		1,363,161		3,438,273		92,889		15,239,222		3-4 Pass	48,132		103,437		37,818		7,789		29,738		5,494		1,161,606		5,725		1,399,739
5 Special mention	5 Special mention	18,266		178,338		201,225		30,790		93,567		109,494		141,073		11,003		783,756		5 Special mention	21,645		42,499		2,202		0		0		0		46,765		5,014		118,125
6-8 Classified	6-8 Classified	0		(286)		70,571		5,235		25,868		62,085		107,561		3,538		274,572		6-8 Classified	0		(1,710)		4,000		0		0		3,690		528		0		6,508
Total	Total	$	2,508,792	$	3,021,278	$	3,788,592	$	2,439,418	$	1,172,393	$	1,683,848	$	4,230,806	$	181,073	$	19,026,200	Total	$	71,776	$	149,023	$	44,020	$	7,785	$	29,734	$	9,236	$	1,376,195	$	10,739	$	1,698,508
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	97	$	6,620	$	3,988	$	501	$	48,231	$	11,826	$	2,012	$	73,275	Gross charge-offs	$	0	$	0	$	6,533	$	0	$	(8)	$	150	$	144	$	0	$	6,819
Gross recoveries	Gross recoveries	(39)		(9)		(186)		(171)		(244)		(3,404)		(782)		(4)		(4,839)		Gross recoveries	0		0		(478)		(176)		(154)		(3)		(450)		0		(1,261)
Net	Net	$	(39)	$	88	$	6,434	$	3,817	$	257	$	44,827	$	11,044	$	2,008	$	68,436	Net	$	0	$	0	$	6,055	$	(176)	$	(162)	$	147	$	(306)	$	0	$	5,558

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


															Revolving
															Converted
Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
December 31, 2020	2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
	(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass	$	1,057,405	$	380	$	4	$	366	$	69	$	1,350	$	74,206	$	80	$	1,133,860
3-4 Pass	88,875		95,110		99,434		77,557		23,305		89,865		657,088		7,533		1,138,767
5 Special mention	0		40		2,145		564		484		10,440		335		922		14,930
6-8 Classified	2		564		80		230		755		3,813		75,046		7,067		87,557
Total	$	1,146,282	$	96,094	$	101,663	$	78,717	$	24,613	$	105,468	$	806,675	$	15,602	$	2,375,114
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	506	$	239	$	33,521	$	27,332	$	1,871	$	63,469
Gross recoveries	0		(18)		(8)		(34)		(226)		(3,155)		(100)		(19)		(3,560)
Net	$	0	$	(18)	$	(8)	$	472	$	13	$	30,366	$	27,232	$	1,852	$	59,909

Consumer
Internal risk rating:
1-2 High pass	$	15	$	0	$	8	$	14	$	0	$	0	$	509	$	0	$	546
3-4 Pass	40,585		110,993		62,833		39,036		41,623		12,831		8,536		78		316,515
5 Special mention	45		137		1,628		261		422		239		0		0		2,732
6-8 Classified	0		35		0		36		56		306		2		27		462
Total	$	40,645	$	111,165	$	64,469	$	39,347	$	42,101	$	13,376	$	9,047	$	105	$	320,255
Current YTD period:
Gross charge-offs	$	0	$	97	$	86	$	177	$	363	$	44	$	22	$	9	$	798
Gross recoveries	0		0		(1)		(10)		(16)		(174)		0		0		(201)
Net	$	0	$	97	$	85	$	167	$	347	$	(130)	$	22	$	9	$	597

Total Loans and Leases
Internal risk rating:
1-2 High pass	$	1,234,380	$	262,764	$	145,321	$	115,821	$	153,135	$	140,090	$	517,104	$	72,097	$	2,640,712
3-4 Pass	1,789,708		2,699,583		3,134,344		1,874,377		811,511		1,248,286		3,771,354		126,955		15,456,118
5 Special mention	37,378		185,189		230,012		93,222		25,147		68,528		71,218		10,591		721,285
6-8 Classified	506		144		14,431		8,135		79,268		71,254		84,493		7,031		265,262
Total	$	3,061,972	$	3,147,680	$	3,524,108	$	2,091,555	$	1,069,061	$	1,528,158	$	4,444,169	$	216,674	$	19,083,377
Current YTD period:
Gross charge-offs	$	0	$	97	$	6,773	$	4,013	$	594	$	52,277	$	27,498	$	2,337	$	93,589
Gross recoveries	(52)		(18)		(487)		(229)		(396)		(4,380)		(787)		(19)		(6,368)
Net	$	(52)	$	79	$	6,286	$	3,784	$	198	$	47,897	$	26,711	$	2,318	$	87,221

______________________

(1) Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

TDRs are a result of rate reductions, term extensions, fee concessions, transfers to foreclosed assets, discounted loan payoffs, and debt forgiveness, or a combination thereof. The Company has granted various commercial and consumer loan modifications to provide borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company has elected to not apply TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act. The following table presents our troubled debt restructurings of loans held for investment by loan portfolio segment and class for the periods indicated:


		Three Months Ended September 30,											Three Months Ended June 30,
		2020					2019						2021					2020
			Pre-		Post-			Pre-		Post-				Pre-		Post-			Pre-		Post-
			Modification		Modification			Modification		Modification				Modification		Modification			Modification		Modification
		Number	Outstanding		Outstanding		Number	Outstanding		Outstanding			Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
		of	Recorded		Recorded		of	Recorded		Recorded			of	Recorded		Recorded		of	Recorded		Recorded
Troubled Debt Restructurings	Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment		Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment
		(Dollars in thousands)											(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	1	$	12,594	$	0	0	$	0	$	0	Commercial	1	$	0	$	0	7	$	3,745	$	3,745
Income producing and other residential	Income producing and other residential	2	157		157		2	495		495		Income producing and other residential	0	0		0		5	787		787
Real estate construction and land:												Real estate construction and land:

Residential												Residential	1	208		208		0	0		0
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	1	15,267		0		0	0		0		Asset-based	0	0		0		6	1,234		1,234
Venture capital	Venture capital	1	2,015		2,015		1	0		0		Venture capital	1	2,408		2,408		0	0		0
Other commercial	Other commercial	5	7,105		100		3	99		99		Other commercial	25	16,358		16,358		19	18,840		15,726

Consumer												Consumer	0	0		0		3	212		212
Total	Total	10	$	37,138	$	2,272	6	$	594	$	594	Total	28	$	18,974	$	18,974	40	$	24,818	$	21,704


	Six Months Ended June 30,
	2021					2020
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
	of	Recorded		Recorded		of	Recorded		Recorded
Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment
	(Dollars in thousands)
Real estate mortgage:
Commercial	2	$	647	$	0	8	$	3,745	$	3,745
Income producing and other residential	2	266		266		5	787		787
Real estate construction and land:

Residential	1	208		208		0	0		0
Commercial:
Asset-based	1	503		503		7	1,741		1,741
Venture capital	3	4,502		2,529		2	2,047		2,047
Other commercial	35	48,608		30,634		30	23,219		21,444
Consumer	1	20		20		3	212		212
Total	45	$	54,754	$	34,160	55	$	31,751	$	29,976

Nine Months Ended September 30,
2020 2019
Pre- Post- Pre- Post-
Modification Modification Modification Modification
Number Outstanding Outstanding Number Outstanding Outstanding
of Recorded Recorded of Recorded Recorded
Troubled Debt Restructurings Loans Investment Investment Loans Investment Investment
(Dollars in thousands)
Real estate mortgage:
Commercial 9 $ 16,339 $ 3,745 1 $ 37 $ 0
Income producing and other residential 6 911 911 7 1,280 1,280
Commercial:
Asset-based 8 17,008 1,741 1 620 620
Venture capital 2 2,047 2,047 11 16,076 16,214
Other commercial 33 30,324 21,544 14 792 792
Consumer 3 212 212 0 0 0
Total 61 $ 66,841 $ 30,200 34 $ 18,805 $ 18,906

~~During the three months ended September 30, 2020, there was 1 $412,000 real estate mortgage commercial loan restructured in the preceding 12-month period that subsequently defaulted. During the~~ ~~nine months ended~~ ~~September 30, 2020, there was 1 $412,000 real estate mortgage commercial loan and 1 $5,000~~ ~~other commercial loan~~ ~~restructured in the preceding 12-month period that subsequently defaulted.~~

~~During the three months ended September 30, 2019, there were~~ 3 other commercial loan of $133,000 and 1 income producing and other residential loan for $254,000 restructured in the preceding 12-month period that subsequently defaulted. During the nine months ended September 30, 2019, there were 2 venture capital loans totaling $441,000, 3 other commercial loans totaling $133,000, and 1 income producing and other residential loan for $254,000 restructured in the preceding 12-month period that subsequently defaulted.

2728

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

During the three and six months ended June 30, 2021, there were 2 other commercial loans totaling $134,000 restructured in the preceding 12-month period that subsequently defaulted. During the three months ended June 30, 2020, there was 1 $2.0 million venture capital loan restructured in the preceding 12-month period that subsequently defaulted. During the six months ended June 30, 2020, there was 1 $2.0 million venture capital loan and 1 $7,000 other commercial loan restructured in the preceding 12-month period that subsequently defaulted.

Leases Receivable

We provide equipment financing to our customers primarily with operating and direct financing leases. For direct financing leases, lease receivables are recorded on the balance sheet but the leased equipment is not, although we generally retain legal title to the leased equipment until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Direct financing leases are subject to our accounting for allowance for loan and lease losses. See Note 8.9. Leases for information regarding operating leases where we are the lessor.

The following table provides the components of leases receivable income for the periods indicated:

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(In thousands)
Component of leases receivable income:
Interest income on net investments in leases $ 1,869 $ 2,648 $ 6,224 $ 8,674


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands)
Component of leases receivable income:
Interest income on net investments in leases	$	2,278	$	2,103	$	4,358	$	4,355

The following table presents the components of leases receivable as of the dates indicated:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(In thousands)					(In thousands)
Net investment in direct financing leases:	Net investment in direct financing leases:					Net investment in direct financing leases:
Lease payments receivable	Lease payments receivable	$	124,550	$	147,729	Lease payments receivable	$	173,058	$	158,740
Unguaranteed residual assets	Unguaranteed residual assets	18,404		20,806		Unguaranteed residual assets	21,831		19,303
Deferred costs and other	Deferred costs and other	550		655		Deferred costs and other	1,285		996
Aggregate net investment in leases	Aggregate net investment in leases	$	143,504	$	169,190	Aggregate net investment in leases	$	196,174	$	179,039

The following table presents maturities of leases receivable as of the date indicated:

September 30, 2020
(In thousands)
Period ending December 31,
2020 $ 16,794
2021 61,600
2022 25,977
2023 15,329
2024 11,416
2025 and thereafter 3,160
Total undiscounted cash flows 134,276
Less: Unearned income (9,726)
Present value of lease payments $ 124,550


	June 30, 2021
	(In thousands)
Period ending December 31,
2021	$	39,885
2022	49,531
2023	36,807
2024	31,357
2025	17,956
Thereafter	16,335
Total undiscounted cash flows	191,871
Less: Unearned income	(18,813)
Present value of lease payments	$	173,058

2829

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Allowance for Loan and Lease Losses

The following tables present a summary of the activity in the allowance for loan and lease losses on loans and leases held for investment by loan portfolio segment for the periods indicated:


		Three Months Ended September 30, 2020											Three Months Ended June 30, 2021
				Real Estate											Real Estate
		Real Estate		Construction									Real Estate		Construction
		Mortgage		and Land		Commercial		Consumer		Total			Mortgage		and Land		Commercial		Consumer		Total
		(In thousands)											(In thousands)
Allowance for Loan and Lease Losses:	Allowance for Loan and Lease Losses:											Allowance for Loan and Lease Losses:
Balance, beginning of period	Balance, beginning of period	$	130,724	$	70,113	$	97,947	$	2,266	$	301,050	Balance, beginning of period	$	141,122	$	66,775	$	78,716	$	5,832	$	292,445
Charge-offs	Charge-offs	(1,551)		0		(35,666)		(67)		(37,284)		Charge-offs	(266)		(75)		(277)		(198)		(816)
Recoveries	Recoveries	109		21		1,063		7		1,200		Recoveries	4,882		0		1,029		60		5,971
Net charge-offs		(1,442)		21		(34,603)		(60)		(36,084)
Provision (negative provision)		(7,588)		20,039		64,921		3,628		81,000
Net (charge-offs) recoveries												Net (charge-offs) recoveries	4,616		(75)		752		(138)		5,155
Provision												Provision	(38,725)		(12,118)		(21,771)		614		(72,000)
Balance, end of period	Balance, end of period	$	121,694	$	90,173	$	128,265	$	5,834	$	345,966	Balance, end of period	$	107,013	$	54,582	$	57,697	$	6,308	$	225,600

													Six Months Ended June 30, 2021
															Real Estate
													Real Estate		Construction
													Mortgage		and Land		Commercial		Consumer		Total
													(In thousands)
Allowance for Loan and Lease Losses:												Allowance for Loan and Lease Losses:
Balance, beginning of period												Balance, beginning of period	$	138,342	$	78,356	$	126,403	$	5,080	$	348,181

Charge-offs												Charge-offs	(634)		(775)		(2,851)		(544)		(4,804)
Recoveries												Recoveries	5,427		0		1,726		70		7,223
Net (charge-offs) recoveries												Net (charge-offs) recoveries	4,793		(775)		(1,125)		(474)		2,419
Provision												Provision	(36,122)		(22,999)		(67,581)		1,702		(125,000)
Balance, end of period												Balance, end of period	$	107,013	$	54,582	$	57,697	$	6,308	$	225,600

Ending Allowance by												Ending Allowance by
Evaluation Methodology:												Evaluation Methodology:
Individually evaluated												Individually evaluated	$	203	$	0	$	3,265	$	0	$	3,468
Collectively evaluated												Collectively evaluated	$	106,810	$	54,582	$	54,432	$	6,308	$	222,132

Ending Loans and Leases by												Ending Loans and Leases by
Evaluation Methodology:												Evaluation Methodology:
Individually evaluated												Individually evaluated	$	41,145	$	3,254	$	46,400	$	0	$	90,799
Collectively evaluated												Collectively evaluated	8,371,875		3,502,330		7,175,844		365,409		19,415,458
Ending balance												Ending balance	$	8,413,020	$	3,505,584	$	7,222,244	$	365,409	$	19,506,257

Nine Months Ended September 30, 2020
Real Estate
Real Estate Construction
Mortgage and Land Commercial Consumer Total
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $ 44,575 $ 30,544 $ 61,528 $ 2,138 $ 138,785
Cumulative effect of change in accounting
principle - CECL 5,308 (8,592) 6,860 41 3,617
Balance, January 1, 2020 49,883 21,952 68,388 2,179 142,402
Charge-offs (6,233) 0 (66,337) (705) (73,275)
Recoveries 360 21 4,410 48 4,839
Net charge-offs (5,873) 21 (61,927) (657) (68,436)
Provision 77,684 68,200 121,804 4,312 272,000
Balance, end of period $ 121,694 $ 90,173 $ 128,265 $ 5,834 $ 345,966
Ending Allowance by
Evaluation Methodology:
Individually evaluated $ 340 $ 0 $ 2,584 $ 0 $ 2,924
Collectively evaluated $ 121,354 $ 90,173 $ 125,681 $ 5,834 $ 343,042
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated $ 51,852 $ 1,782 $ 41,501 $ 0 $ 95,135
Collectively evaluated 7,825,193 3,421,965 7,321,673 362,234 18,931,065
Ending balance $ 7,877,045 $ 3,423,747 $ 7,363,174 $ 362,234 $ 19,026,200

2930

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended September 30, 2019
Real Estate
Real Estate Construction
Mortgage and Land Commercial Consumer Total
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $ 46,826 $ 26,378 $ 59,401 $ 2,432 $ 135,037
Charge-offs (120) 0 (6,021) (360) (6,501)
Recoveries 95 0 1,898 23 2,016
Net charge-offs (25) 0 (4,123) (337) (4,485)
Provision (negative provision) (1,655) 683 8,907 65 8,000
Balance, end of period $ 45,146 $ 27,061 $ 64,185 $ 2,160 $ 138,552


		Nine Months Ended September 30, 2019											Three Months Ended June 30, 2020
				Real Estate											Real Estate
		Real Estate		Construction									Real Estate		Construction
		Mortgage		and Land		Commercial		Consumer		Total			Mortgage		and Land		Commercial		Consumer		Total
		(In thousands)											(In thousands)
Allowance for Loan and Lease Losses:	Allowance for Loan and Lease Losses:											Allowance for Loan and Lease Losses:
Balance, beginning of period	Balance, beginning of period	$	46,021	$	28,209	$	56,360	$	1,882	$	132,472	Balance, beginning of period	$	91,372	$	40,173	$	87,570	$	2,177	$	221,292
Charge-offs	Charge-offs	(850)		0		(25,951)		(802)		(27,603)		Charge-offs	(4,182)		0		(11,439)		(165)		(15,786)
Recoveries	Recoveries	478		0		11,084		121		11,683		Recoveries	127		0		2,392		25		2,544
Net charge-offs	Net charge-offs	(372)		0		(14,867)		(681)		(15,920)		Net charge-offs	(4,055)		0		(9,047)		(140)		(13,242)
Provision (negative provision)		(503)		(1,148)		22,692		959		22,000
Provision												Provision	43,407		29,940		19,424		229		93,000
Balance, end of period												Balance, end of period	$	130,724	$	70,113	$	97,947	$	2,266	$	301,050

													Six Months Ended June 30, 2020
															Real Estate
													Real Estate		Construction
													Mortgage		and Land		Commercial		Consumer		Total
													(In thousands)
Allowance for Loan and Lease Losses:												Allowance for Loan and Lease Losses:
Balance, beginning of period												Balance, beginning of period	$	44,575	$	30,544	$	61,528	$	2,138	$	138,785
Cumulative effect of change in accounting												Cumulative effect of change in accounting
principle - CECL												principle - CECL	5,308		(8,592)		6,860		41		3,617
Balance, January 1, 2020												Balance, January 1, 2020	49,883		21,952		68,388		2,179		142,402
Charge-offs												Charge-offs	(4,682)		0		(30,671)		(638)		(35,991)
Recoveries												Recoveries	251		0		3,347		41		3,639
Net charge-offs												Net charge-offs	(4,431)		0		(27,324)		(597)		(32,352)
Provision												Provision	85,272		48,161		56,883		684		191,000
Balance, end of period	Balance, end of period	$	45,146	$	27,061	$	64,185	$	2,160	$	138,552	Balance, end of period	$	130,724	$	70,113	$	97,947	$	2,266	$	301,050

Ending Allowance by	Ending Allowance by											Ending Allowance by
Evaluation Methodology:	Evaluation Methodology:											Evaluation Methodology:
Individually evaluated	Individually evaluated	$	248	$	0	$	9,082	$	0	$	9,330	Individually evaluated	$	211	$	0	$	8,282	$	0	$	8,493
Collectively evaluated	Collectively evaluated	$	44,898	$	27,061	$	55,103	$	2,160	$	129,222	Collectively evaluated	$	130,513	$	70,113	$	89,665	$	2,266	$	292,557

Ending Loans and Leases by	Ending Loans and Leases by											Ending Loans and Leases by
Evaluation Methodology:	Evaluation Methodology:											Evaluation Methodology:
Individually evaluated	Individually evaluated	$	29,808	$	5,357	$	75,455	$	0	$	110,620	Individually evaluated	$	68,240	$	1,799	$	105,661	$	0	$	175,700
Collectively evaluated	Collectively evaluated	7,867,116		2,546,117		7,803,102		408,588		18,624,923		Collectively evaluated	7,887,494		3,338,729		7,881,389		411,319		19,518,931
Ending balance	Ending balance	$	7,896,924	$	2,551,474	$	7,878,557	$	408,588	$	18,735,543	Ending balance	$	7,955,734	$	3,340,528	$	7,987,050	$	411,319	$	19,694,631

The allowance for loan and lease losses ~~increased~~decreased by ~~$44.9~~$66.8 million in the ~~third~~second quarter of ~~2020~~2021 to ~~$346.0~~$225.6 million due primarily to a provision for loan and lease losses benefit of ~~$81.0~~$72.0 million driven by ~~changes~~improvement in ~~the economic forecast, changes in modeling assumptions,~~both key macro-economic variables and ~~increased~~loan portfolio credit quality metrics along with decreased provisions for individually evaluated loans and leases.

We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act during ~~the second quarter of 2020.~~2020 and 2021. As of ~~September~~June 30, ~~2020,~~2021, PPP loans had an outstanding balance of approximately ~~$1.2 billion.~~$624.8 million. The loans ~~have two-year terms,~~ are fully guaranteed by the SBA, and do not carry an allowance. ~~As of September 30, 2020, none of the PPP loans have been forgiven.~~

3031

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

A loan is considered collateral-dependent, and is individually evaluated for reserve purposes, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent loans held for investment by collateral type as of the following ~~date:~~dates:


		September 30, 2020							June 30, 2021						December 31, 2020
		Real		Business					Real		Business				Real		Business
		Property		Assets		Total			Property		Assets		Total		Property		Assets		Total
		(In thousands)							(In thousands)
Real estate mortgage	Real estate mortgage	$	45,504	$	0	$	45,504	Real estate mortgage	$	35,146	$	0	$	35,146	$	43,656	$	0	$	43,656
Real estate construction and land	Real estate construction and land	1,782		0		1,782		Real estate construction and land	3,254		0		3,254		1,766		0		1,766
Commercial	Commercial	0		28,136		28,136		Commercial	0		4,100		4,100		0		31,100		31,100
Total	Total	$	47,286	$	28,136	$	75,422	Total	$	38,400	$	4,100	$	42,500	$	45,422	$	31,100	$	76,522

Allowance for Credit Losses

The allowance for credit losses is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets.

The following tables present a summary of the activity in the allowance for loan and lease losses and reserve for unfunded loan commitments for the periods indicated:


		Three Months Ended						Three Months Ended
		September 30, 2020						June 30, 2021
		Allowance for		Reserve for		Total				Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for				Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses				Lease Losses		Commitments		Credit Losses
		(In thousands)								(In thousands)
Balance, beginning of period	Balance, beginning of period	$	301,050	$	80,571	$	381,621		Balance, beginning of period	$	292,445	$	90,571	$	383,016
Charge-offs	Charge-offs	(37,284)		0		(37,284)			Charge-offs	(816)		0		(816)
Recoveries	Recoveries	1,200		0		1,200			Recoveries	5,971		0		5,971
Net charge-offs		(36,084)		0		(36,084)
Net recoveries									Net recoveries	5,155		0		5,155
Provision	Provision	81,000		16,000		97,000			Provision	(72,000)		(16,000)		(88,000)
Balance, end of period	Balance, end of period	$	345,966	$	96,571	$	442,537		Balance, end of period	$	225,600	$	74,571	$	300,171

										Six Months Ended
										June 30, 2021
										Allowance for		Reserve for		Total
										Loan and		Unfunded Loan		Allowance for
										Lease Losses		Commitments		Credit Losses
										(In thousands)
Balance, beginning of period									Balance, beginning of period	$	348,181	$	85,571	$	433,752
Charge-offs									Charge-offs	(4,804)		0		(4,804)
Recoveries									Recoveries	7,223		0		7,223
Net recoveries									Net recoveries	2,419		0		2,419
Provision									Provision	(125,000)		(11,000)		(136,000)
Balance, end of period									Balance, end of period	$	225,600	$	74,571	$	300,171

Nine Months Ended
September 30, 2020
Allowance for Reserve for Total
Loan and Unfunded Loan Allowance for
Lease Losses Commitments Credit Losses
(In thousands)
Balance, beginning of period $ 138,785 $ 35,861 $ 174,646
Cumulative effect of change in accounting
principle - CECL 3,617 3,710 7,327
Balance, January 1, 2020 142,402 39,571 181,973
Charge-offs (73,275) 0 (73,275)
Recoveries 4,839 0 4,839
Net charge-offs (68,436) 0 (68,436)
Provision 272,000 57,000 329,000
Balance, end of period $ 345,966 $ 96,571 $ 442,537

3132

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended
September 30, 2019
Allowance for Reserve for Total
Loan and Unfunded Loan Allowance for
Lease Losses Commitments Credit Losses
(In thousands)
Balance, beginning of period $ 135,037 $ 34,861 $ 169,898
Charge-offs (6,501) 0 (6,501)
Recoveries 2,016 0 2,016
Net charge-offs (4,485) 0 (4,485)
Provision (negative provision) 8,000 (1,000) 7,000
Balance, end of period $ 138,552 $ 33,861 $ 172,413


		Nine Months Ended						Three Months Ended
		September 30, 2019						June 30, 2020
		Allowance for		Reserve for		Total				Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for				Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses				Lease Losses		Commitments		Credit Losses
		(In thousands)								(In thousands)
Balance, beginning of period	Balance, beginning of period	$	132,472	$	36,861	$	169,333		Balance, beginning of period	$	221,292	$	53,571	$	274,863
Charge-offs	Charge-offs	(27,603)		0		(27,603)			Charge-offs	(15,786)		0		(15,786)
Recoveries	Recoveries	11,683		0		11,683			Recoveries	2,544		0		2,544
Net charge-offs	Net charge-offs	(15,920)		0		(15,920)			Net charge-offs	(13,242)		0		(13,242)
Provision (negative provision)		22,000		(3,000)		19,000
Provision									Provision	93,000		27,000		120,000
Balance, end of period	Balance, end of period	$	138,552	$	33,861	$	172,413		Balance, end of period	$	301,050	$	80,571	$	381,621

										Six Months Ended
										June 30, 2020
										Allowance for		Reserve for		Total
										Loan and		Unfunded Loan		Allowance for
										Lease Losses		Commitments		Credit Losses
										(In thousands)
Balance, beginning of period									Balance, beginning of period	$	138,785	$	35,861	$	174,646
Cumulative effect of change in accounting									Cumulative effect of change in accounting
principle - CECL									principle - CECL	3,617		3,710		7,327
Balance, January 1, 2020									Balance, January 1, 2020	142,402		39,571		181,973
Charge-offs									Charge-offs	(35,991)		0		(35,991)
Recoveries									Recoveries	3,639		0		3,639
Net charge-offs									Net charge-offs	(32,352)		0		(32,352)
Provision									Provision	191,000		41,000		232,000
Balance, end of period									Balance, end of period	$	301,050	$	80,571	$	381,621

3233

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5.6. FORECLOSED ASSETS, NET

The following table summarizes foreclosed assets, net of the valuation allowance, as of the dates indicated:


		September 30,		December 31,			June 30,		December 31,
Property Type	Property Type	2020		2019		Property Type	2021		2020
		(In thousands)					(In thousands)
Commercial real estate	Commercial real estate	$	12,594	$	221	Commercial real estate	$	12,594	$	12,979
Construction and land development	Construction and land development	219		219		Construction and land development	219		219

Total other real estate owned, net	Total other real estate owned, net	12,813		440		Total other real estate owned, net	12,813		13,198
Other foreclosed assets	Other foreclosed assets	934		0		Other foreclosed assets	414		829
Total foreclosed assets, net	Total foreclosed assets, net	$	13,747	$	440	Total foreclosed assets, net	$	13,227	$	14,027

The following table presents the changes in foreclosed assets, net of the valuation allowance, for the period indicated:


	Foreclosed
	Assets
	(In thousands)
Balance, December 31, ~~2019~~2020	$	~~440~~14,027

Transfers to foreclosed assets from loans	~~14,370~~647

Provision for losses	~~(267)~~(14)
Reductions related to sales	~~(796)~~(1,433)
Balance, ~~September~~June 30, ~~2020~~2021	$	~~13,747~~13,227

NOTE 6.7. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment annually unless a triggering event occurs thereby requiring an updated assessment. Our regular annual impairment assessment occurs in the fourth quarter. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds its fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the condensed consolidated statements of earnings (loss).

The unprecedented decline in economic conditions triggered by the COVID-19 pandemic caused a significant decline in stock market valuations in March 2020, including our stock price. These events indicated that goodwill may be impaired and resulted in us performing a goodwill impairment assessment. We applied the market approach using an average share price of the Company's stock and a control premium to determine the fair value of the reporting unit. As a result, we recorded a goodwill impairment charge of $1.47 billion in the first quarter of 2020 as the estimated fair value of equity was less than book value. This was a non-cash charge to earnings and had no impact on our regulatory capital ratios, cash flows, or liquidity position.

~~The~~ following table presents the changes in the carrying amount of goodwill for the period indicated:


	Goodwill
	(In thousands)
Balance, December 31, ~~2019~~	$	~~2,548,670~~
~~Impairment - March 2020~~	~~(1,470,000)~~
~~Balance, September 30,~~ 2020	$	1,078,670
Addition from the Civic acquisition	125,448
Balance, June 30, 2021	$	1,204,118

3334

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Our other intangible assets with definite lives ~~include~~are CDI and CRI. CDI and CRI are amortized over their respective estimated useful lives and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or customer relationships acquired.

The following table presents the estimated aggregate future amortization expense ~~is expected to be $14.8 million~~ for ~~2020. The estimated aggregate amortization expense related to~~ our current intangible assets ~~for each~~as of the next four years is $10.8 million for 2021, $7.4 million for 2022, $3.8 million for 2023, and $1.7 million for 2024. Our current intangible assets are estimated to be fully amortized by the end of 2024.date indicated:


	June 30, 2021
	(In thousands)
Period ending December 31,
2021	$	5,252
2022	7,672
2023	3,788
2024	1,711

Net CDI and CRI	$	18,423

The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(In thousands)
Gross Amount of CDI and CRI:
Balance, beginning of period $ 109,646 $ 119,497 $ 117,573 $ 119,497
Fully amortized portion 0 (1,924) (7,927) (1,924)
Balance, end of period 109,646 117,573 109,646 117,573
Accumulated Amortization:
Balance, beginning of period (79,082) (72,117) (79,179) (62,377)
Amortization (3,751) (4,833) (11,581) (14,573)
Fully amortized portion 0 1,924 7,927 1,924
Balance, end of period (82,833) (75,026) (82,833) (75,026)
Net CDI and CRI, end of period $ 26,813 $ 42,547 $ 26,813 $ 42,547

~~NOTE 7. OTHER ASSETS~~

~~The following table presents the detail of our other assets as of the dates indicated:~~

September 30, December 31,
Other Assets 2020 2019
(In thousands)
Cash surrender value of BOLI $ 201,884 $ 199,029
LIHTC investments (1)
200,352 75,149
Operating lease ROU assets, net (2)
121,887 129,301
Interest receivable 86,540 81,479
Taxes receivable 42,243 31,591
Equity investments without readily determinable fair values 33,783 27,738
SBIC investments (3)
27,357 16,505
Prepaid expenses 23,972 17,099
Equity warrants (4)
4,742 3,434
Equity investments with readily determinable fair values 1,135 2,998
Deferred tax assets, net 1,080 0
Other receivables/assets 52,248 52,488
Total other assets $ 797,223 $ 636,811

~~____________________~~

(1) During the first quarter of 2020, the Company increased the amount of its investment in low income housing project partnerships by $101 million representing the amount of related unfunded commitments, with an offset to a liability included in "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets.

~~(2) See Note 8.~~ ~~Leases~~ ~~for further details regarding the operating lease ROU assets.~~

~~(3) During the third quarter of 2020, the Company prospectively changed the accounting method for its SBIC investments from modified cost to NAV fair value.~~

~~(4) For information regarding equity warrants, see Note 10.~~ ~~Derivatives~~.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands)
Gross Amount of CDI and CRI:
Balance, beginning of period	$	100,550	$	117,573	$	109,646	$	117,573
Addition from Civic acquisition	0		0		750		0
Fully amortized portion	0		(7,927)		(9,846)		(7,927)

Balance, end of period	100,550		109,646		100,550		109,646
Accumulated Amortization:
Balance, beginning of period	(79,238)		(83,127)		(86,005)		(79,179)
Amortization expense	(2,889)		(3,882)		(5,968)		(7,830)
Fully amortized portion	0		7,927		9,846		7,927

Balance, end of period	(82,127)		(79,082)		(82,127)		(79,082)
Net CDI and CRI, end of period	$	18,423	$	30,564	$	18,423	$	30,564

3435

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 8. OTHER ASSETS

The following table presents the detail of our other assets as of the dates indicated:


	June 30,		December 31,
Other Assets	2021		2020
	(In thousands)
LIHTC investments	$	251,570	$	213,034
Cash surrender value of BOLI	204,146		203,031
Operating lease ROU assets, net (1)	120,595		119,787
Interest receivable	103,758		101,596
SBIC investments	36,816		32,327
Equity investments without readily determinable fair values	35,321		34,304
Taxes receivable	27,900		59,565
Prepaid expenses	25,409		22,999
Equity investments with readily determinable fair values	13,063		6,147
Equity warrants (2)	4,391		4,520

Other receivables/assets	101,528		63,016
Total other assets	$	924,497	$	860,326

____________________

(1) See Note 9. Leases for further details regarding the operating lease ROU assets.

(2) See Note 11. Derivatives for information regarding equity warrants.

NOTE 9. LEASES

Operating Leases as a Lessee

Our lease expense is a component of "Occupancy expense" on our condensed consolidated statements of earnings (loss). The following table presents the components of lease expense for the periods indicated:

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(In thousands)
Operating lease expense:
Fixed costs $ 8,950 $ 8,347 $ 26,027 $ 25,183
Variable costs 15 7 40 77
Short-term lease costs 117 126 312 849
Sublease income (1,081) (1,010) (3,100) (3,190)
Net lease expense $ 8,001 $ 7,470 $ 23,279 $ 22,919


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
	(In thousands)
Operating lease expense:
Fixed costs	$	8,776	$	8,832	$	17,272	$	17,077
Variable costs	9		12		24		25
Short-term lease costs	429		102		685		194
Sublease income	(1,084)		(1,003)		(2,183)		(2,019)
Net lease expense	$	8,130	$	7,943	$	15,798	$	15,277

The following table presents supplemental cash flow information related to leases for the periods indicated:

Nine Months Ended
September 30,
2020 2019
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 25,198 $ 24,674
ROU assets obtained in exchange for lease obligations:
Operating leases $ 19,027 $ 172,189

~~The following table presents supplemental balance sheet and other information related to operating leases as of the dates indicated:~~

September 30, December 31,
2020 2019
(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net $ 121,887 $ 129,301
Operating lease liabilities $ 142,016 $ 145,354
Weighted average remaining lease term (in years) 5.9 6.1
Weighted average discount rate 2.61 % 2.82 %


	Six Months Ended
	June 30,
	2021		2020
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	18,450	$	16,519
ROU assets obtained in exchange for lease obligations:
Operating leases	$	16,649	$	14,542

3536

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents supplemental balance sheet and other information related to operating leases as of the dates indicated:


	June 30,			December 31,
	2021			2020
	(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net	$	120,595		$	119,787
Operating lease liabilities	$	139,435		$	139,501

Weighted average remaining lease term (in years)	5.8			5.8
Weighted average discount rate	2.38		%	2.54		%

The following table presents the maturities of operating lease liabilities as of the date indicated:


		September 30, 2020			June 30, 2021
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2020		$	8,729
2021	2021	33,834		2021	$	17,733
2022	2022	28,190		2022	32,298
2023	2023	25,194		2023	29,411
2024	2024	17,989		2024	22,099
2025 and thereafter		39,926
2025				2025	15,293
Thereafter				Thereafter	33,447
Total operating lease liabilities	Total operating lease liabilities	153,862		Total operating lease liabilities	150,281
Less: Imputed interest	Less: Imputed interest	(11,846)		Less: Imputed interest	(10,846)
Present value of operating lease liabilities	Present value of operating lease liabilities	$	142,016	Present value of operating lease liabilities	$	139,435

Operating Leases as a Lessor

We provide equipment financing to our customers through operating leases where we facilitate the purchase of equipment leased to our customers. The equipment is shown on the condensed consolidated balance sheets as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the condensed consolidated statements of earnings (loss), according to our fixed asset accounting policy. We receive periodic rental income payments under the leases, which are recorded as "Noninterest Income" in the condensed consolidated statements of earnings (loss). The equipment is tested periodically for impairment. No impairment was recorded on "Equipment leased to others under operating leases" in the three or ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020.

The following table presents the rental payments to be received on operating leases as of the date indicated:


		September 30, 2020			June 30, 2021
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2020		$	8,573
2021	2021	33,629		2021	$	20,687
2022	2022	31,080		2022	41,447
2023	2023	23,931		2023	32,252
2024	2024	19,486		2024	26,567
2025 and thereafter		34,284
2025				2025	19,197
Thereafter				Thereafter	42,492
Total undiscounted cash flows	Total undiscounted cash flows	$	150,983	Total undiscounted cash flows	$	182,642

3637

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 9.10. BORROWINGS AND SUBORDINATED ~~DEBENTURES~~DEBT

Borrowings

The following table summarizes our borrowings as of the dates indicated:

September 30, 2020 December 31, 2019
Weighted Weighted
Average Average
Balance Rate Balance Rate
(Dollars in thousands)
FHLB secured advances $ 10,000 0 % $ 1,318,000 1.66 %
FHLB unsecured overnight advance 0 0 % 141,000 1.56 %
AFX short-term borrowings 50,000 0.06 % 300,000 1.61 %
Non-recourse debt 0 0 % 8 7.50 %
Total borrowings $ 60,000 0.05 % $ 1,759,008 1.64 %


	June 30, 2021				December 31, 2020
			Weighted				Weighted
			Average				Average
	Balance		Rate		Balance		Rate
	(Dollars in thousands)
FHLB secured advances	$	0	0	%	$	5,000	0	%


Other borrowings	6,625		6.50	%	0		0	%
Total borrowings	$	6,625	6.50	%	$	5,000	0	%

The other borrowings were assumed in connection with the Civic acquisition and have a weighted average remaining term of 3.1 months.

The Bank has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, the FRBSF, and other financial institutions.

FHLB Secured Line of Credit. The Bank had secured financing capacity with the FHLB as of ~~September~~June 30, ~~2020~~2021 of ~~$3.6~~$3.3 billion, collateralized by a blanket lien on ~~$5.6~~$5.5 billion of qualifying loans. During the second quarter of 2020, the Company prepaid $750.0 million of FHLB term advances and incurred $6.6 million of prepayment penalties, which is included in "Other expense" on the condensed consolidated statements of earnings (loss). The FHLB term advances had a weighted average interest rate of 0.96% and the prepayment decision was made after the significant drop in market interest rates in March 2020 and the expectation of continued low interest rates for an extended time.

The following table presents the interest rates and maturity dates of FHLB secured advances as of the dates indicated:

September 30, 2020 December 31, 2019
Maturity Maturity
Balance Rate Date Balance Rate Date
(Dollars in thousands)
Overnight advance $ 0 0 % — $ 1,318,000 1.66 % 1/2/2020
Term advance 5,000 0 % 11/6/2020 0 0 % —
Term advance 5,000 0 % 5/6/2021 0 0 % —
Total FHLB secured advances $ 10,000 0 % $ 1,318,000 1.66 %


	June 30, 2021					December 31, 2020
					Maturity					Maturity
	Balance		Rate		Date	Balance		Rate		Date
	(Dollars in thousands)

FHLB term advance	$	0	0	%		$	5,000	0	%	5/6/2021
Other borrowing	6,625		6.50	%	10/1/2021	0		0	%	—

Total	$	6,625	6.50	%		$	5,000	0	%

FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of ~~September~~June 30, ~~2020,~~2021, the Bank had secured borrowing capacity of ~~$1.6~~$1.4 billion collateralized by liens covering ~~$2.1~~$1.9 billion of qualifying loans. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there were 0 balances outstanding.

FHLB Unsecured Line of Credit. The Bank has a $112.0 million unsecured line of credit with the FHLB for the purchase of overnight funds, of which there were 0 balances outstanding at ~~September~~June 30, ~~2020. At~~2021 and December 31, ~~2019, the balance outstanding was~~ ~~$141.0 million~~.2020.

Federal Funds Arrangements with Commercial Banks. As of ~~September~~June 30, ~~2020,~~2021, the Bank had unsecured lines of credit of $180.0 million in the aggregate with several correspondent banks for the purchase of overnight funds, subject to availability of funds. These lines are renewable annually and have 0 unused commitment fees. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, there were 0 balances outstanding. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of ~~September~~June 30, 2021 and December 31, 2020, there ~~was a $50.0 million balance outstanding. As of December 31, 2019, there~~ were ~~$300.0 million in overnight~~0 borrowings outstanding.

~~PACWEST BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Subordinated Debentures~~

~~The following table summarizes the terms of each issuance of subordinated debentures outstanding as of the dates indicated:~~

September 30, 2020 December 31, 2019 Date Maturity Rate Index
Series Balance Rate Balance Rate Issued Date (Quarterly Reset)
(Dollars in thousands)
Trust V $ 10,310 3.35 % $ 10,310 5.00 % 8/15/2003 9/17/2033 3-month LIBOR + 3.10
Trust VI 10,310 3.30 % 10,310 4.94 % 9/3/2003 9/15/2033 3-month LIBOR + 3.05
Trust CII 5,155 3.20 % 5,155 4.85 % 9/17/2003 9/17/2033 3-month LIBOR + 2.95
Trust VII 61,856 3.02 % 61,856 4.69 % 2/5/2004 4/23/2034 3-month LIBOR + 2.75
Trust CIII 20,619 1.94 % 20,619 3.58 % 8/15/2005 9/15/2035 3-month LIBOR + 1.69
Trust FCCI 16,495 1.85 % 16,495 3.49 % 1/25/2007 3/15/2037 3-month LIBOR + 1.60
Trust FCBI 10,310 1.80 % 10,310 3.44 % 9/30/2005 12/15/2035 3-month LIBOR + 1.55
Trust CS 2005-1 82,475 2.20 % 82,475 3.85 % 11/21/2005 12/15/2035 3-month LIBOR + 1.95
Trust CS 2005-2 128,866 2.22 % 128,866 3.89 % 12/14/2005 1/30/2036 3-month LIBOR + 1.95
Trust CS 2006-1 51,545 2.22 % 51,545 3.89 % 2/22/2006 4/30/2036 3-month LIBOR + 1.95
Trust CS 2006-2 51,550 2.22 % 51,550 3.89 % 9/27/2006 10/30/2036 3-month LIBOR + 1.95
Trust CS 2006-3 (1)
30,211 1.60 % 28,902 1.64 % 9/29/2006 10/30/2036 3-month EURIBOR + 2.05
Trust CS 2006-4 16,470 2.22 % 16,470 3.89 % 12/5/2006 1/30/2037 3-month LIBOR + 1.95
Trust CS 2006-5 6,650 2.22 % 6,650 3.89 % 12/19/2006 1/30/2037 3-month LIBOR + 1.95
Trust CS 2007-2 39,177 2.22 % 39,177 3.89 % 6/13/2007 7/30/2037 3-month LIBOR + 1.95
Gross subordinated debentures 541,999 2.30 % 540,690 3.87 %
Unamortized discount (2)
(78,717) (82,481)
Net subordinated debentures $ 463,282 $ 458,209

~~___________________~~

~~(1) Denomination is in Euros with a value of €25.8 million.~~

~~(2) Amount represents the fair value adjustment on trust preferred securities assumed in acquisitions.~~

~~NOTE 10. DERIVATIVES~~

The Company uses derivatives to manage exposure to market risk, primarily foreign currency risk and interest rate risk, and to assist customers with their risk management objectives. The Company uses foreign exchange contracts to manage the foreign exchange rate risk associated with certain foreign currency-denominated assets and liabilities. As of September 30, 2020, all of our derivatives were held for risk management purposes and none were designated as accounting hedges. The objective is to manage the uncertainty of future foreign exchange rate fluctuations. These derivatives provide for a fixed exchange rate which has the effect of reducing or eliminating changes to anticipated cash flows to be received on assets and liabilities denominated in foreign currencies as the result of changes to exchange rates.Our derivatives are carried at fair value and recorded in other assets or other liabilities, as appropriate. The changes in fair value of our derivatives and the related interest are recognized in "Noninterest income - other" in the condensed consolidated statements of earnings (loss). For the nine months ended September 30, 2020, changes in fair value recorded through noninterest income in the condensed consolidated statements of earnings (loss) were immaterial.

In connection with negotiated credit facilities and certain other services, we may obtain equity warrant assets giving us the right to acquire stock in primarily private, venture-backed companies. We hold these assets for prospective investment gains. We do not use them to hedge any economic risks nor do we use other derivative instruments to hedge economic risks stemming from equity warrant assets. We account for equity warrant assets as derivatives when they contain net settlement terms and other qualifying criteria under ASC 815. These equity warrant assets are recorded at estimated fair value and are classified as "Other assets" on our condensed consolidated balance sheets at the time they are obtained. See Note 7. ~~Other Assets~~.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Derivative instruments expose us to credit risk in~~Subordinated Debt

The following table summarizes the ~~event~~terms of ~~nonperformance by counterparties. This risk exposure consists primarily~~each issuance of subordinated debt outstanding as of the ~~termination~~dates indicated:


	June 30, 2021				December 31, 2020				Date	Maturity	Rate Index
Series	Balance		Rate (1)		Balance		Rate (1)		Issued	Date	(Quarterly Reset)
	(Dollars in thousands)
Subordinated notes, net (2)	$	394,390	3.25	%	$	0	0	%	4/30/2021	5/1/2031	Fixed rate (3)
Trust V	10,310		3.22	%	10,310		3.33	%	8/15/2003	9/17/2033	3-month LIBOR + 3.10
Trust VI	10,310		3.17	%	10,310		3.27	%	9/3/2003	9/15/2033	3-month LIBOR + 3.05
Trust CII	5,155		3.07	%	5,155		3.18	%	9/17/2003	9/17/2033	3-month LIBOR + 2.95
Trust VII	61,856		2.94	%	61,856		2.96	%	2/5/2004	4/23/2034	3-month LIBOR + 2.75
Trust CIII	20,619		1.81	%	20,619		1.91	%	8/15/2005	9/15/2035	3-month LIBOR + 1.69
Trust FCCI	16,495		1.72	%	16,495		1.82	%	1/25/2007	3/15/2037	3-month LIBOR + 1.60
Trust FCBI	10,310		1.67	%	10,310		1.77	%	9/30/2005	12/15/2035	3-month LIBOR + 1.55
Trust CS 2005-1	82,475		2.07	%	82,475		2.17	%	11/21/2005	12/15/2035	3-month LIBOR + 1.95
Trust CS 2005-2	128,866		2.14	%	128,866		2.16	%	12/14/2005	1/30/2036	3-month LIBOR + 1.95
Trust CS 2006-1	51,545		2.14	%	51,545		2.16	%	2/22/2006	4/30/2036	3-month LIBOR + 1.95
Trust CS 2006-2	51,550		2.14	%	51,550		2.16	%	9/27/2006	10/30/2036	3-month LIBOR + 1.95
Trust CS 2006-3 (4)	30,564		1.52	%	31,487		1.54	%	9/29/2006	10/30/2036	3-month EURIBOR + 2.05
Trust CS 2006-4	16,470		2.14	%	16,470		2.16	%	12/5/2006	1/30/2037	3-month LIBOR + 1.95
Trust CS 2006-5	6,650		2.14	%	6,650		2.16	%	12/19/2006	1/30/2037	3-month LIBOR + 1.95
Trust CS 2007-2	39,177		2.14	%	39,177		2.16	%	6/13/2007	7/30/2037	3-month LIBOR + 1.95
Total subordinated debt	936,742		2.65	%	543,275		2.24	%
Acquisition discount (5)	(74,954)				(77,463)
Net subordinated debt	$	861,788			$	465,812

___________________

(1) Rates do not include the effects of discounts and issuance costs.

(2) Net of issuance costs of $5.6 million.

(3) Interest rate is fixed until May 1, 2026, when it changes to a floating rate and resets quarterly at a benchmark rate plus 252 basis points.

(4) Denomination is in Euros with a value of ~~agreements where we are~~€25.8 million.

(5) Amount represents the fair value adjustment on trust preferred securities assumed in acquisitions.

Subordinated Notes Offering

On April 30, 2021, the Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due May 1, 2031 (the “Maturity Date”). Subject to any redemption prior to the Maturity Date, the Notes will bear interest from and including the original issue date to, but excluding, May 1, 2026 (the “Reset Date”), at a ~~favorable position. We manage~~fixed rate of 3.25% per annum and from and including the ~~credit risk associated~~Reset Date, but excluding the Maturity Date, the Notes will bear interest at a floating per annum rate equal to a benchmark rate (which is expected to be the Three-Month Term SOFR) plus 252 basis points.

Interest on the Notes will be payable on May 1 and November 1 of each year through, but not including, the Reset Date, and quarterly thereafter on February 1, May 1, August 1, and November 1 of each year to, but not including, the Maturity Date or earlier redemption date. The first interest payment will be made on November 1, 2021. The Bank may, at its option, beginning with ~~various derivative agreements through bilateral collateral posting requirements, counterparty credit review,~~the interest payment date of May 1, 2026, and ~~monitoring procedures.~~on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part, from time to time, subject to any required regulatory approval to the extent such approval is then required, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption, subject to certain conditions. The costs incurred in connection with the Notes offering amortize to interest expense over the term of the Notes. The Notes qualify as Tier 2 capital for regulatory capital purposes.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 11. DERIVATIVES

The following table presents the U.S. dollar notional amounts and fair values of our derivative instruments included in the condensed consolidated balance sheets as of the dates indicated:


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
		Notional		Fair		Notional		Fair			Notional		Fair		Notional		Fair
Derivatives Not Designated As Hedging Instruments	Derivatives Not Designated As Hedging Instruments	Amount		Value		Amount		Value		Derivatives Not Designated As Hedging Instruments	Amount		Value		Amount		Value
		(In thousands)									(In thousands)
Derivative Assets:	Derivative Assets:									Derivative Assets:
Interest rate contracts	Interest rate contracts	$	10,364	$	81	$	15,159	$	71	Interest rate contracts	$	88,381	$	916	$	59,867	$	1,028
Foreign exchange contracts	Foreign exchange contracts	72,284		3,533		91,144		1,163		Foreign exchange contracts	28,463		2,411		73,108		3,202
Interest rate and economic contracts	Interest rate and economic contracts	82,648		3,614		106,303		1,234		Interest rate and economic contracts	116,844		3,327		132,975		4,230
Equity warrant assets	Equity warrant assets	25,729		4,742		26,079		3,434		Equity warrant assets	22,345		4,391		24,081		4,520
Total	Total	$	108,377	$	8,356	$	132,382	$	4,668	Total	$	139,189	$	7,718	$	157,056	$	8,750

Derivative Liabilities:	Derivative Liabilities:									Derivative Liabilities:
Interest rate contracts	Interest rate contracts	$	10,364	$	81	$	15,159	$	71	Interest rate contracts	$	88,381	$	844	$	59,867	$	1,004
Foreign exchange contracts	Foreign exchange contracts	72,284		0		91,144		684		Foreign exchange contracts	28,463		0		73,108		146
Total	Total	$	82,648	$	81	$	106,303	$	755	Total	$	116,844	$	844	$	132,975	$	1,150

For further information regarding our derivatives, see Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data" of the Form 10-K.

NOTE ~~11.~~12. COMMITMENTS AND CONTINGENCIES

The following table presents a summary of commitments described below as of the dates indicated:

September 30, December 31,
2020 2019
(In thousands)
Loan commitments to extend credit $ 7,178,506 $ 8,183,158
Standby letters of credit 353,820 355,503
Commitments to contribute capital to small business
investment companies and CRA-related loan pools 52,941 40,698
Commitments to contribute capital to low income housing
project partnerships (1)
0 88,515
Commitments to contribute capital to private equity funds 50 50
Total $ 7,585,317 $ 8,667,924

~~____________________~~

~~(1) During the first quarter of 2020, the Company increased the amount of its investment in low income housing project partnerships by~~ ~~$101 million~~ ~~representing the amount of related unfunded commitments, with an offset to a liability included in "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets.~~


	June 30,		December 31,
	2021		2020
	(In thousands)
Loan commitments to extend credit	$	7,891,875	$	7,601,390
Standby letters of credit	343,719		337,336
Commitments to contribute capital to SBICs
and CRA-related loan pools	55,906		55,499



Total	$	8,291,500	$	7,994,225

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement that the Company has in particular classes of financial instruments.

~~PACWEST BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Commitments to extend credit are contractual agreements to lend to our customers when customers are in compliance with their contractual credit agreements and when customers have contractual availability to borrow under such agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The estimated exposure to loss from these commitments is included in the reserve for unfunded loan commitments, which amounted to $74.6 million at June 30, 2021 and $85.6 million at December 31, 2020.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. Most guarantees expire within one year from the date of issuance. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation but would seek repayment of that financial obligation from the borrower. In some cases, borrowers have pledged cash and investment securities as collateral under these arrangements.

In addition, we invest in ~~small business investment companies~~SBICs that call for capital contributions up to an amount specified in the partnership agreements, and in CRA-related loan pools. As of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had commitments to contribute capital to these entities totaling ~~$52.9~~$55.9 million and ~~$40.7~~$55.5 million. ~~We also had commitments to contribute up to an additional $50,000 to private equity funds at September 30, 2020 and December 31, 2019.~~

The following table presents the years in which commitments are expected to be paid for our commitments to contribute capital to small business investment companies and CRA-related loan pools as of the date indicated:


		September 30, 2020			June 30, 2021
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2020		$	26,824
2021	2021	26,117		2021	$	27,953
2022				2022	27,953

Total	Total	$	52,941	Total	$	55,906

Legal Matters

In the ordinary course of our business, the Company is party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon currently available information, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations. The range of any reasonably possible liabilities is also not significant.

4041

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~12.~~13. FAIR VALUE MEASUREMENTS

The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and leases and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets.

For information regarding the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03), see Note 1. Nature of Operations and Summary of Significant Accounting Policies, and Note ~~14.~~13. Fair Value Measurements, to the Consolidated Financial Statements of the Company's ~~2019 Annual Report on~~ Form 10-K.

The Company also holds SBIC investments measured at fair value using the NAV per share practical expedient that are not required to be classified in the fair value hierarchy. At ~~September~~June 30, ~~2020,~~2021, the fair value of these investments was ~~$27.4~~$36.8 million.

The following tables present information on the assets and liabilities measured and recorded at fair value on a recurring basis as of the dates indicated:


		Fair Value Measurements as of									Fair Value Measurements as of
		September 30, 2020									June 30, 2021
Measured on a Recurring Basis	Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)									(In thousands)
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
Municipal securities										Municipal securities	$	1,817,499	$	0	$	1,817,499	$	0
Agency commercial MBS	Agency commercial MBS	$	1,204,315	$	0	$	1,204,315	$	0	Agency commercial MBS	1,257,628		0		1,257,628		0
Municipal securities		1,203,030		0		1,203,030		0
Agency residential CMOs	Agency residential CMOs	1,165,872		0		1,165,872		0		Agency residential CMOs	1,142,398		0		1,142,398		0
U.S. Treasury securities										U.S. Treasury securities	877,153		877,153		0		0
Agency residential MBS	Agency residential MBS	246,498		0		246,498		0		Agency residential MBS	552,411		0		552,411		0
Asset-backed securities		234,103		0		203,881		30,222
Corporate debt securities	Corporate debt securities	174,282		0		174,282		0		Corporate debt securities	508,708		0		508,708		0
Collateralized loan obligations	Collateralized loan obligations	135,333		0		135,333		0		Collateralized loan obligations	382,043		0		382,043		0
Private label commercial MBS										Private label commercial MBS	378,235		0		356,392		21,843
Asset-backed securities										Asset-backed securities	149,583		0		149,583		0
Private label residential CMOs	Private label residential CMOs	121,162		0		116,111		5,051		Private label residential CMOs	96,922		0		92,778		4,144
SBA securities	SBA securities	42,684		0		42,684		0		SBA securities	36,028		0		36,028		0
U.S. Treasury securities		5,335		5,335		0		0
Total securities available-for-sale	Total securities available-for-sale	$	4,532,614	$	5,335	$	4,492,006	$	35,273	Total securities available-for-sale	$	7,198,608	$	877,153	$	6,295,468	$	25,987
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	$	1,135	$	1,135	$	0	$	0	Equity investments with readily determinable fair values	$	13,063	$	13,063	$	0	$	0
Derivatives (1):	Derivatives (1):									Derivatives (1):
Equity warrants	Equity warrants	4,742		0		0		4,742		Equity warrants	4,391		0		0		4,391
Interest rate and economic contracts	Interest rate and economic contracts	3,614		0		3,614		0		Interest rate and economic contracts	3,327		0		3,327		0
Derivative liabilities	Derivative liabilities	81		0		81		0		Derivative liabilities	844		0		844		0

4142

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Fair Value Measurements as of									Fair Value Measurements as of
		December 31, 2019									December 31, 2020
Measured on a Recurring Basis	Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)									(In thousands)
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
Municipal securities										Municipal securities	$	1,531,617	$	0	$	1,531,617	$	0
Agency commercial MBS	Agency commercial MBS	$	1,108,224	$	0	$	1,108,224	$	0	Agency commercial MBS	1,281,877		0		1,281,877		0
Agency residential CMOs	Agency residential CMOs	1,136,397		0		1,136,397		0		Agency residential CMOs	1,219,880		0		1,219,880		0
Municipal securities		735,159		0		735,159		0
Agency residential MBS	Agency residential MBS	305,198		0		305,198		0		Agency residential MBS	341,074		0		341,074		0
Corporate debt securities										Corporate debt securities	311,889		0		311,889		0
Asset-backed securities	Asset-backed securities	214,783		0		198,348		16,435		Asset-backed securities	166,546		0		166,546		0
Collateralized loan obligations	Collateralized loan obligations	123,756		0		123,756		0		Collateralized loan obligations	135,876		0		135,876		0
Private label residential CMOs	Private label residential CMOs	99,483		0		93,219		6,264		Private label residential CMOs	116,946		0		112,299		4,647
Private label commercial MBS										Private label commercial MBS	82,957		0		57,232		25,725
SBA securities	SBA securities	48,258		0		48,258		0		SBA securities	41,627		0		41,627		0
Corporate debt securities		20,748		0		20,748		0
U.S. Treasury securities	U.S. Treasury securities	5,181		5,181		0		0		U.S. Treasury securities	5,302		5,302		0		0
Total securities available-for-sale	Total securities available-for-sale	$	3,797,187	$	5,181	$	3,769,307	$	22,699	Total securities available-for-sale	$	5,235,591	$	5,302	$	5,199,917	$	30,372
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	$	2,998	$	2,998	$	0	$	0	Equity investments with readily determinable fair values	$	6,147	$	6,147	$	0	$	0
Derivatives (1):	Derivatives (1):									Derivatives (1):
Equity warrants	Equity warrants	3,434		0		0		3,434		Equity warrants	4,520		0		0		4,520
Interest rate and economic contracts	Interest rate and economic contracts	1,234		0		1,234		0		Interest rate and economic contracts	4,230		0		4,230		0
Derivative liabilities	Derivative liabilities	755		0		755		0		Derivative liabilities	1,150		0		1,150		0

____________________

(1) For information regarding derivative instruments, see Note ~~10.~~11. Derivatives.

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, there was ~~an $8,000~~a $131,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis.

The following table presents information about quantitative inputs and assumptions used to determine the fair values provided by our third party pricing service for our Level 3 private label residential CMOs and ~~asset-backed securities~~private label commercial MBS available-for-sale measured at fair value on a recurring basis as of the date indicated:


		September 30, 2020					June 30, 2021
		Private Label Residential CMOs		Asset-Backed Securities			Private Label Residential CMOs		Private Label Commercial MBS
			Weighted	Input or	Weighted			Weighted	Input or	Weighted
		Range	Average	Range	Average		Range	Average	Range	Average
Unobservable Inputs	Unobservable Inputs	of Inputs	Input (1)	of Inputs	Input (2)	Unobservable Inputs	of Inputs	Input (1)	of Inputs	Input (2)
Voluntary annual prepayment speeds	Voluntary annual prepayment speeds	5.3% - 16.1%	10.7%	10.0% - 15.0%	12.1%	Voluntary annual prepayment speeds	4.3% - 20.6%	11.8%	10.0% - 15.0%	12.2%
Annual default rates (3)	Annual default rates (3)	0.7% - 29.8%	3.1%	2.0%	2.0%	Annual default rates (3)	0.9% - 10.3%	2.3%	2.0%	2.0%
Loss severity rates (3)	Loss severity rates (3)	1.9% - 165.2%	53.0%	60.0%	60.0%	Loss severity rates (3)	22.7% - 122.5%	55.1%	60.0%	60.0%
Discount rates	Discount rates	2.1% - 7.9%	6.0%	3.0% - 5.2%	3.8%	Discount rates	1.6% - 10.4%	6.9%	2.6% - 3.8%	2.8%

____________________

(1) Unobservable inputs for private label residential CMOs were weighted by the relative fair values of the instruments.

(2) Voluntary annual prepayment speeds and discount rates for ~~asset-backed securities~~private label commercial MBS were weighted by the relative fair values of the instruments.

(3) Annual default rates and loss severity rates were the same for all of the ~~asset-backed securities.~~private label commercial MBS.

4243

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents information about quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:


	~~September~~June 30, ~~2020~~2021
	Equity Warrants
		Weighted
	Range	Average
Unobservable Inputs	of Inputs	Input (1)
Volatility	~~23.7%~~18.4% - ~~224.4%~~166.3%	~~31.8%~~30.1%
Risk-free interest rate	0.1% - ~~0.3%~~0.9%	~~0.2%~~0.4%
Remaining life assumption (in years)	~~0.20~~0.08 - ~~4.95~~4.99	~~2.85~~2.90

____________________

(1) Unobservable inputs for equity warrants were weighted by the relative fair values of the instruments.

The following table summarizes activity for our Level 3 private label residential CMOs available-for-sale, ~~asset-backed securities~~private label commercial MBS available-for-sale, and equity warrants measured at fair value on a recurring basis for the period indicated:


		Private Label		Asset-Backed		Equity			Private Label		Private Label		Equity
		Residential CMOs		Securities		Warrants			Residential CMOs		Commercial MBS		Warrants
		(In thousands)							(In thousands)
Balance, December 31, 2019		$	6,264	$	16,435	$	3,434
Balance, December 31, 2020								Balance, December 31, 2020	$	4,647	$	25,725	$	4,520
Total included in earnings	Total included in earnings	326		42		3,310		Total included in earnings	166		(42)		11,773
Total included in other comprehensive income	Total included in other comprehensive income	(447)		(389)		0		Total included in other comprehensive income	(155)		28		0
Purchases		0		20,100		0

Issuances	Issuances	0		0		240		Issuances	0		0		173
Sales	Sales	0		0		(2,234)		Sales	0		0		(11,944)

Net settlements	Net settlements	(1,092)		(5,966)		0		Net settlements	(514)		(3,868)		0

Transfers to Level 1 (equity investments with readily	Transfers to Level 1 (equity investments with readily							Transfers to Level 1 (equity investments with readily
determinable fair values)	determinable fair values)	0		0		(8)		determinable fair values)	0		0		(131)
Balance, September 30, 2020		$	5,051	$	30,222	$	4,742
Balance, June 30, 2021								Balance, June 30, 2021	$	4,144	$	21,843	$	4,391

Unrealized net gains (losses) for the period included in other	Unrealized net gains (losses) for the period included in other							Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end	comprehensive income for securities held at quarter-end	$	1,239	$	(192)			comprehensive income for securities held at quarter-end	$	939	$	183

The following tables present assets measured at fair value on a non-recurring basis as of the dates indicated:


		Fair Value Measurement as of									Fair Value Measurement as of
		September 30, 2020									June 30, 2021
Measured on a Non-Recurring Basis	Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)									(In thousands)
Individually evaluated loans and leases (1)	Individually evaluated loans and leases (1)	$	63,865	$	0	$	3,031	$	60,834	Individually evaluated loans and leases (1)	$	39,538	$	0	$	0	$	39,538

Total non-recurring	Total non-recurring	$	63,865	$	0	$	3,031	$	60,834	Total non-recurring	$	39,538	$	0	$	0	$	39,538

______________________

(1) Includes nonaccrual loans and leases and performing TDRs with balances greater than $250,000.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Fair Value Measurement as of									Fair Value Measurement as of
		December 31, 2019									December 31, 2020
Measured on a Non-Recurring Basis	Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)									(In thousands)
Impaired loans and leases (1)		$	28,706	$	0	$	1,083	$	27,623
OREO		105		0		0		105
Individually evaluated loans and leases (1)										Individually evaluated loans and leases (1)	$	102,274	$	0	$	4,160	$	98,114

Total non-recurring	Total non-recurring	$	28,811	$	0	$	1,083	$	27,728	Total non-recurring	$	102,274	$	0	$	4,160	$	98,114

_____________________

(1) Includes ~~all~~ nonaccrual loans and leases and performing ~~TDRs.~~TDRs with balances greater than $250,000.

The following table presents losses recognized on assets measured on a nonrecurring basis for the periods indicated:

Three Months Ended Nine Months Ended
Losses on Assets September 30, September 30,
Measured on a Non-Recurring Basis 2020 2019 2020 2019
(In thousands)
Individually evaluated loans and leases (1)
$ 29,047 $ 8,339 $ 40,920 $ 10,091
OREO 157 54 267 54
Total losses $ 29,204 $ 8,393 $ 41,187 $ 10,145

~~_____________________~~

~~(1) For 2019, losses are based on impaired loans and leases.~~


	Three Months Ended				Six Months Ended
Losses on Assets	June 30,				June 30,
Measured on a Non-Recurring Basis	2021		2020		2021		2020
	(In thousands)
Individually evaluated loans and leases	$	1,951	$	9,483	$	2,653	$	29,317

OREO	0		5		14		110
Total losses	$	1,951	$	9,488	$	2,667	$	29,427

The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:

September 30, 2020

June 30, 2021

Valuation

Unobservable

Input or

Weighted

Valuation

Unobservable

Input or

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

Asset

Fair Value

Technique

Inputs

Range

Average

(In thousands)

Individually evaluated

loans and leases

26,357

Discounted cash flows

Discount rates

3.75% - 10.46%

8.19%

loans and leases

33,413

Discounted cash flows

Discount rates

3.75% - 7.75%

6.20%

Individually evaluated

Discount from

loans and leases (1)

26,889

Third party appraisal

appraisal

23.00%

Individually evaluated

loans and leases

7,588

Third party appraisals

No discounts

loans and leases

6,125

Third party appraisals

No discounts

Total non-recurring Level 3

60,834

Total non-recurring Level 3

39,538

~~_____________________~~

~~(1) Relates to one loan at September 30, 2020.~~

4445

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:


		September 30, 2020											June 30, 2021
		Carrying		Estimated Fair Value									Carrying		Estimated Fair Value
		Amount		Total		Level 1		Level 2		Level 3			Amount		Total		Level 1		Level 2		Level 3
		(In thousands)											(In thousands)
Financial Assets:	Financial Assets:											Financial Assets:
Cash and due from banks	Cash and due from banks	$	187,176	$	187,176	$	187,176	$	0	$	0	Cash and due from banks	$	179,505	$	179,505	$	179,505	$	0	$	0
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	2,766,020		2,766,020		2,766,020		0		0		Interest-earning deposits in financial institutions	5,678,587		5,678,587		5,678,587		0		0
Securities available-for-sale	Securities available-for-sale	4,532,614		4,532,614		5,335		4,492,006		35,273		Securities available-for-sale	7,198,608		7,198,608		877,153		6,295,468		25,987
Investment in FHLB stock	Investment in FHLB stock	17,250		17,250		0		17,250		0		Investment in FHLB stock	17,250		17,250		0		17,250		0

Loans and leases held for investment, net	Loans and leases held for investment, net	18,680,234		19,040,922		0		3,031		19,037,891		Loans and leases held for investment, net	19,280,657		19,844,500		0		0		19,844,500
Equity warrants	Equity warrants	4,742		4,742		0		0		4,742		Equity warrants	4,391		4,391		0		0		4,391
Interest rate and economic contracts	Interest rate and economic contracts	3,614		3,614		0		3,614		0		Interest rate and economic contracts	3,327		3,327		0		3,327		0
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	1,135		1,135		1,135		0		0		Equity investments with readily determinable fair values	13,063		13,063		13,063		0		0
Servicing rights												Servicing rights	2,628		2,628		0		0		2,628

Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Core deposits	Core deposits	21,117,629		21,117,629		0		21,117,629		0		Core deposits	27,038,161		27,038,161		0		27,038,161		0
Non-core non-maturity deposits	Non-core non-maturity deposits	1,123,909		1,123,909		0		1,123,909		0		Non-core non-maturity deposits	1,122,971		1,122,971		0		1,122,971		0
Time deposits	Time deposits	1,724,157		1,731,333		0		1,731,333		0		Time deposits	1,485,902		1,487,302		0		1,487,302		0
Borrowings	Borrowings	60,000		59,988		50,000		9,988		0		Borrowings	6,625		6,734		0		6,734		0
Subordinated debentures		463,282		445,978		0		445,978		0
Subordinated debt												Subordinated debt	861,788		916,612		0		916,612		0
Derivative liabilities	Derivative liabilities	81		81		0		81		0		Derivative liabilities	844		844		0		844		0


		December 31, 2019											December 31, 2020
		Carrying		Estimated Fair Value									Carrying		Estimated Fair Value
		Amount		Total		Level 1		Level 2		Level 3			Amount		Total		Level 1		Level 2		Level 3
		(In thousands)											(In thousands)
Financial Assets:	Financial Assets:											Financial Assets:
Cash and due from banks	Cash and due from banks	$	172,585	$	172,585	$	172,585	$	0	$	0	Cash and due from banks	$	150,464	$	150,464	$	150,464	$	0	$	0
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	465,039		465,039		465,039		0		0		Interest-earning deposits in financial institutions	3,010,197		3,010,197		3,010,197		0		0
Securities available-for-sale	Securities available-for-sale	3,797,187		3,797,187		5,181		3,769,307		22,699		Securities available-for-sale	5,235,591		5,235,591		5,302		5,199,917		30,372
Investment in FHLB stock	Investment in FHLB stock	40,924		40,924		0		40,924		0		Investment in FHLB stock	17,250		17,250		0		17,250		0
Loans and leases held for investment, net	Loans and leases held for investment, net	18,708,087		19,055,004		0		1,083		19,053,921		Loans and leases held for investment, net	18,735,196		19,305,998		0		4,160		19,301,838
Equity warrants	Equity warrants	3,434		3,434		0		0		3,434		Equity warrants	4,520		4,520		0		0		4,520
Interest rate and economic contracts	Interest rate and economic contracts	1,234		1,234		0		1,234		0		Interest rate and economic contracts	4,230		4,230		0		4,230		0
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	2,998		2,998		2,998		0		0		Equity investments with readily determinable fair values	6,147		6,147		6,147		0		0

Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Core deposits	Core deposits	16,187,287		16,187,287		0		16,187,287		0		Core deposits	22,264,480		22,264,480		0		22,264,480		0
Non-core non-maturity deposits	Non-core non-maturity deposits	496,407		496,407		0		496,407		0		Non-core non-maturity deposits	1,149,467		1,149,467		0		1,149,467		0
Time deposits	Time deposits	2,549,342		2,549,260		0		2,549,260		0		Time deposits	1,526,770		1,527,639		0		1,527,639		0
Borrowings	Borrowings	1,759,008		1,759,008		1,759,000		8		0		Borrowings	5,000		4,995		0		4,995		0
Subordinated debentures		458,209		441,617		0		441,617		0
Subordinated debt												Subordinated debt	465,812		448,036		0		448,036		0
Derivative liabilities	Derivative liabilities	755		755		0		755		0		Derivative liabilities	1,150		1,150		0		1,150		0

4546

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Limitations

Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of ~~September~~June 30, ~~2020,~~2021, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.

NOTE ~~13.~~14. EARNINGS (LOSS) PER SHARE

The following table presents the computations of basic and diluted net earnings (loss) per share for the periods indicated:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(Dollars in thousands, except per share data)									(Dollars in thousands, except per share data)
Basic Earnings (Loss) Per Share:	Basic Earnings (Loss) Per Share:									Basic Earnings (Loss) Per Share:
Net earnings (loss)	Net earnings (loss)	$	45,503	$	110,026	$	(1,354,404)	$	350,755	Net earnings (loss)	$	180,512	$	33,204	$	330,918	$	(1,399,907)
Less: Earnings allocated to unvested restricted stock(1)	Less: Earnings allocated to unvested restricted stock(1)	(578)		(1,369)		(1,603)		(3,725)		Less: Earnings allocated to unvested restricted stock(1)	(3,172)		(362)		(5,495)		(1,251)
Net earnings (loss) allocated to common shares	Net earnings (loss) allocated to common shares	$	44,925	$	108,657	$	(1,356,007)	$	347,030	Net earnings (loss) allocated to common shares	$	177,340	$	32,842	$	325,423	$	(1,401,158)

Weighted-average basic shares and unvested restricted	Weighted-average basic shares and unvested restricted									Weighted-average basic shares and unvested restricted
stock outstanding	stock outstanding	118,438		119,831		118,469		120,691		stock outstanding	119,386		118,192		119,121		118,484
Less: Weighted-average unvested restricted stock	Less: Weighted-average unvested restricted stock									Less: Weighted-average unvested restricted stock
outstanding	outstanding	(1,684)		(1,622)		(1,596)		(1,480)		outstanding	(2,356)		(1,606)		(2,181)		(1,551)
Weighted-average basic shares outstanding	Weighted-average basic shares outstanding	116,754		118,209		116,873		119,211		Weighted-average basic shares outstanding	117,030		116,586		116,940		116,933

Basic earnings (loss) per share	Basic earnings (loss) per share	$	0.38	$	0.92	$	(11.60)	$	2.91	Basic earnings (loss) per share	$	1.52	$	0.28	$	2.78	$	(11.98)

Diluted Earnings (Loss) Per Share:	Diluted Earnings (Loss) Per Share:									Diluted Earnings (Loss) Per Share:
Net earnings (loss) allocated to common shares	Net earnings (loss) allocated to common shares	$	44,925	$	108,657	$	(1,356,007)	$	347,030	Net earnings (loss) allocated to common shares	$	177,340	$	32,842	$	325,423	$	(1,401,158)

Weighted-average diluted shares outstanding	Weighted-average diluted shares outstanding	116,754		118,209		116,873		119,211		Weighted-average diluted shares outstanding	117,030		116,586		116,940		116,933

Diluted earnings (loss) per share	Diluted earnings (loss) per share	$	0.38	$	0.92	$	(11.60)	$	2.91	Diluted earnings (loss) per share	$	1.52	$	0.28	$	2.78	$	(11.98)

________________________

(1) Represents cash dividends paid to holders of unvested restricted stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.

4647

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~14.~~15. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table presents interest income and noninterest income, the components of total revenue, as disclosed in the condensed consolidated statements of earnings (loss) and the related amounts which are from contracts with customers within the scope of ASC Topic 606, "Revenue from Contracts with Customers," for the periods indicated. As illustrated here, substantially all of our revenue is specifically excluded from the scope of ASC Topic 606.


		Three Months Ended September 30,									Three Months Ended June 30,
		2020				2019					2021				2020
		Total		Revenue from		Total		Revenue from			Total		Revenue from		Total		Revenue from
		Recorded		Contracts with		Recorded		Contracts with			Recorded		Contracts with		Recorded		Contracts with
		Revenue		Customers		Revenue		Customers			Revenue		Customers		Revenue		Customers
		(In thousands)									(In thousands)
Total interest income	Total interest income	$	265,908	$	0	$	307,208	$	0	Total interest income	$	280,505	$	0	$	274,075	$	0
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	2,570		2,570		3,525		3,525		Service charges on deposit accounts	3,452		3,452		2,004		2,004
Other commissions and fees	Other commissions and fees	10,541		3,228		10,855		4,965		Other commissions and fees	10,704		2,603		10,111		3,006
Leased equipment income	Leased equipment income	9,900		0		9,615		0		Leased equipment income	10,847		0		12,037		0
Gain on sale of loans	Gain on sale of loans	35		0		765		0		Gain on sale of loans	1,422		0		346		0
Gain on sale of securities	Gain on sale of securities	5,270		0		908		0		Gain on sale of securities	0		0		7,715		0
Other income	Other income	9,936		289		7,761		428		Other income	13,946		394		6,645		336
Total noninterest income	Total noninterest income	38,252		6,087		33,429		8,918		Total noninterest income	40,371		6,449		38,858		5,346
Total revenue	Total revenue	$	304,160	$	6,087	$	340,637	$	8,918	Total revenue	$	320,876	$	6,449	$	312,933	$	5,346

The following table presents revenue from contracts with customers based on the timing of revenue recognition for the periods indicated:

Three Months Ended
September 30,
2020 2019
(In thousands)
Products and services transferred at a point in time $ 3,189 $ 5,046
Products and services transferred over time 2,898 3,872
Total revenue from contracts with customers $ 6,087 $ 8,918


	Three Months Ended
	June 30,
	2021		2020
	(In thousands)
Products and services transferred at a point in time	$	3,068	$	2,727
Products and services transferred over time	3,381		2,619
Total revenue from contracts with customers	$	6,449	$	5,346

4748

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Nine Months Ended September 30,									Six Months Ended June 30,
		2020				2019					2021				2020
		Total		Revenue from		Total		Revenue from			Total		Revenue from		Total		Revenue from
		Recorded		Contracts with		Recorded		Contracts with			Recorded		Contracts with		Recorded		Contracts with
		Revenue		Customers		Revenue		Customers			Revenue		Customers		Revenue		Customers
		(In thousands)									(In thousands)
Total interest income	Total interest income	$	831,315	$	0	$	926,300	$	0	Total interest income	$	553,842	$	0	$	565,407	$	0
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	7,232		7,232		11,026		11,026		Service charges on deposit accounts	6,386		6,386		4,662		4,662
Other commissions and fees	Other commissions and fees	30,373		10,388		33,453		14,661		Other commissions and fees	19,862		5,460		19,832		7,160
Leased equipment income	Leased equipment income	34,188		0		28,079		0		Leased equipment income	22,201		0		24,288		0
Gain on sale of loans	Gain on sale of loans	468		0		1,091		0		Gain on sale of loans	1,561		0		433		0
Gain on sale of securities	Gain on sale of securities	13,167		0		25,261		0		Gain on sale of securities	101		0		7,897		0
Other income	Other income	20,782		961		16,476		1,253		Other income	35,089		574		10,846		672
Total noninterest income	Total noninterest income	106,210		18,581		115,386		26,940		Total noninterest income	85,200		12,420		67,958		12,494
Total revenue	Total revenue	$	937,525	$	18,581	$	1,041,686	$	26,940	Total revenue	$	639,042	$	12,420	$	633,365	$	12,494

The following table presents revenue from contracts with customers based on the timing of revenue recognition for the periods indicated:


		Nine Months Ended					Six Months Ended
		September 30,					June 30,
		2020		2019			2021		2020
		(In thousands)					(In thousands)
Products and services transferred at a point in time	Products and services transferred at a point in time	$	10,152	$	14,579	Products and services transferred at a point in time	$	6,065	$	6,963
Products and services transferred over time	Products and services transferred over time	8,429		12,361		Products and services transferred over time	6,355		5,531
Total revenue from contracts with customers	Total revenue from contracts with customers	$	18,581	$	26,940	Total revenue from contracts with customers	$	12,420	$	12,494

Contract Balances

The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of the dates indicated:


		September 30, 2020		December 31, 2019			June 30, 2021		December 31, 2020
		(In thousands)					(In thousands)
Receivables, which are included in "Other assets"	Receivables, which are included in "Other assets"	$	1,207	$	1,094	Receivables, which are included in "Other assets"	$	1,296	$	1,046
Contract assets, which are included in "Other assets"	Contract assets, which are included in "Other assets"	$	0	$	0	Contract assets, which are included in "Other assets"	$	0	$	0
Contract liabilities, which are included in "Accrued interest payable and other liabilities"	Contract liabilities, which are included in "Accrued interest payable and other liabilities"	$	392	$	490	Contract liabilities, which are included in "Accrued interest payable and other liabilities"	$	294	$	359

Contract liabilities relate to advance consideration received from customers for which revenue is recognized over the life of the contract. The change in contract liabilities for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 due to revenue recognized that was included in the contract liability balance at the beginning of the period was ~~$98,000~~$65,000.

4849

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~15.~~16. STOCK-BASED COMPENSATION

~~The Company’s~~At the annual meeting of stockholders held on May 11, 2021, the Company's stockholders approved the Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan ~~or the~~(the “Amended and Restated 2017 Plan”). The Company’s Amended and Restated 2017 Plan permits stock-based compensation awards to officers, directors, employees, and ~~consultants.~~ consultants and will remain in effect until December 31, 2026.

The Amended and Restated 2017 Plan ~~authorized~~authorizes grants of stock-based compensation instruments to purchase or issue up to 6,650,000 shares, representing 4,000,000 shares originally approved for grant under the Original 2017 Stock Incentive Plan plus 2,650,000 shares added as result of ~~Company common stock.~~the approval of the Amended and Restated 2017 Plan. As of ~~September~~June 30, ~~2020,~~2021, there were ~~1,670,705~~3,054,299 shares available for grant under the Amended and Restated 2017 Plan. ~~Though frozen for new issuances, certain awards issued under the 2003 Stock Incentive Plan remain outstanding, but are due to vest no later than February 2021.~~

Restricted Stock

Restricted stock amortization totaled $~~7.1~~8.2 million and ~~$7.3~~$5.7 million for the three months ended ~~September~~June 30, 2021 and 2020 and ~~2019, and~~ $~~19.2~~14.6 million and ~~$19.3~~$12.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019.~~2020. Such amounts are included in "Compensation expense" on the condensed consolidated statements of earnings (loss). The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of ~~September~~June 30, ~~2020~~2021 totaled $~~50.6~~83.7 million.

Time-Based Restricted Stock Awards

At ~~September~~June 30, ~~2020,~~2021, there ~~were~~ wer~~1,706,690~~e 2,341,548 shar ~~shares~~es of unvested TRSAs ~~outstanding pursuant to the Company's 2003 and 2017 Stock Incentive Plans. The TRSAs~~outstanding. RSAs generally vest ratably over a service period of three toor four years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs is based on the fair value of the underlying award on the grant date and is recognized over the vesting period using the straight-line method.

Performance-Based Restricted Stock Units

At ~~September~~June 30, ~~2020,~~2021, there were ~~315,008~~512,863 units of unvested PRSUs that have been granted. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a three-year performance period. The shares underlying the PRSUs are not considered issued and outstanding until they vest. PRSUs are granted and initially expensed based on a target number. The number of shares that will ultimately vest based on actual performance will range from 0 to a maximum of either 150% or 200% of target.

Compensation expense related to PRSUs is based on the fair value of the underlying award on the grant date and is amortized over the vesting period using the straight-line method unless it is determined that: (1) attainment of the financial metrics is less than probable, in which case a portion or all of the amortization is suspended, or (2) attainment of the financial metrics is improbable, in which case a portion or all of the previously recognized amortization is reversed and also suspended. If it is determined that attainment of a financial measure higher than target is probable, the amortization will increase to up to 150% or 200% of the target amortization amount. Annual PRSU expense may vary during the three-year performance period based upon changes in management's estimate of the number of shares that may ultimately vest. In the case where the performance target for the PRSU is based on a market condition (such as total shareholder return), the amortization is neither reversed nor suspended if it is subsequently determined that the attainment of the performance target is less than probable or improbable and the employee continues to meet the service requirement of the award.

4950

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~16.~~17. RECENTLY ISSUED ACCOUNTING STANDARDS

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

ASU ~~2019-12,~~ 2020-04, "~~"Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes"~~

This Update simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The ASU also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates an clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

~~January 1, 2021~~

~~The adoption of this guidance is not expected to have a material impact on the Company's condensed consolidated financial statements.~~

~~Effective~~

~~Effect on the Financial Statements~~

~~Standard~~

~~Description~~

~~Date~~

~~or Other Significant Matters~~

~~ASU 2020-01,~~ ~~"Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323),~~ ~~and~~ ~~Derivatives and Hedging (Topic 815)"~~

This Update clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815.

~~January 1, 2021~~

~~The adoption of this guidance is not expected to have a material impact on the Company's condensed consolidated financial statements.~~

~~PACWEST BANCORP AND SUBSIDIARIES~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~Effective~~

~~Effect on the Financial Statements~~

~~Standard~~

~~Description~~

~~Date~~

~~or Other Significant Matters~~

~~ASU 2020-04,~~ "Reference Rate Reform (Topic 848)" and ASU 2021-01, “Reference Rate Reform (Topic 848): Scope)"

This Update provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other agreements affected by the anticipated transition away from LIBOR toward new interest reference rates. For agreements that are modified because of reference rate reform and that meet certain scope ~~guidance~~guidance: (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ~~This Update also provides numerous~~Additionally, the amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative ~~accounting. An entity~~instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. ASU 2020-04 is effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. ASU 2021-01 is also effective immediately. Entities may elect to apply ~~this Update for contract modifications~~the amendments on a full retrospective basis as of ~~January 1, 2020, or prospectively~~any date from ~~a date within~~the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021 and up to ~~the date that the financial statements are available to be issued. We anticipate that ASU 2020-04 will simplify any modifications we execute between the selected start date (not yet determined) and~~ December 31, ~~2022 that are directly related to LIBOR transition.~~2022.

Effective upon the issuance date of March 12, 2020, ~~through~~and once adopted, will apply to contract modifications made and hedging relationships entered into on or before December 31, ~~2022~~2022.

The Company has established a cross-functional project team and implementation plan to facilitate the LIBOR transition. As of June 30, 2021, the Company has completed its readiness efforts to identify loans and other financial instruments that are impacted by the discontinuance of LIBOR. We have also completed our review for fallback language contained in contracts for LIBOR-based loans and other financial instruments and have begun to execute a transition plan to amend those legacy contracts that do not have or have inadequate fallback language. With the impending phase-out of LIBOR, the Company has considered several viable alternative reference rates. Based on our current assessment, we will plan to offer SOFR as the primary alternative reference rate, but may consider alternate rates such as the American Interbank Offered Rate (“Ameribor”) and others based on customer demands and/or the type of loan or financial instrument. The Company will also continue to assess impacts to our operations, financial models, data and technology as part of our transition plan. The Company plans to adopt these Updates this year. The adoption of this guidance is not expected to have a material impact on the Company’s ~~condensed~~ consolidated financial statements.

~~Effective~~

~~Effect on the Financial Statements~~

~~Standard~~

~~Description~~

~~Date~~

~~or Other Significant Matters~~

~~ASU 2020-08,~~ ~~"Codification Improvements to Subtopic 31-20, Receivables - Nonrefundable Fees and Other Costs"~~

This Update clarifies that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period, which impacts the amortization period for nonrefundable fees and other costs.

~~January 1, 2021~~

~~The adoption of this guidance is not expected to have a material impact on the Company's condensed consolidated financial statements.~~

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~17.~~18. SUBSEQUENT EVENTS

Common Stock Dividends

On August 2, 2021, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.25 per common share. The cash dividend is payable on August 31, 2021 to stockholders of record at the close of business on August 17, 2021.

The Company has evaluated events that have occurred subsequent to ~~September~~June 30, ~~2020~~2021 and have concluded there are no other subsequent events that would require recognition in the accompanying condensed consolidated financial statements.

5152

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information

This Form 10-Q contains certain “forward-looking statements” about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, strategies, goals, and projections and including statements about our expectations regarding our operating expenses, profitability, allowance for loan and lease losses, net interest margin, net interest income, deposit growth, loan and lease portfolio growth and production, acquisitions, maintaining capital adequacy, liquidity, goodwill, and interest rate risk management. All statements contained in this Form 10-Q that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:

•the COVID-19 pandemic ~~is adversely affecting~~continues to affect the Company, its employees, customers and third-party service providers, and the ultimate extent of the impacts of the pandemic and related government stimulus programs on its business, financial position, results of operations, liquidity and prospects is ~~uncertain. Continued deterioration~~still uncertain, due in part to the Delta variant of COVID-19. Weaker than expected improvement in general business and economic conditions could adversely affect the Company’s revenues, ~~and~~ the values of its assets and liabilities ~~lead~~and continue to ~~a tightening of credit and increase stock price volatility;~~negatively impact loan growth;

•our ability to complete pending and future acquisitions, and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;

•our ability to compete effectively against other financial service providers in our markets;

•the impact of changes in interest rates or levels of market activity, especially on the fair value of our loan and investment portfolios;

•deterioration, weaker than expected improvement, or other changes in the state of the economy or the markets in which we conduct business (including the levels of IPOs and mergers and acquisitions), which may affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;

•changes in credit quality and the effect of credit quality and the CECL accounting standard on our provision for credit losses and allowance for ~~loan and lease~~credit losses;

•our ability to attract deposits and other sources of funding or liquidity;

•our ability to efficiently deploy excess liquidity;

•the need to retain capital for strategic or regulatory reasons;

•compression of the net interest margin due to changes in the interest rate environment, forward yield curves, loan products offered, spreads on newly originated loans and leases, changes in our asset or liability mix, and/or changes to the cost of deposits and borrowings;

•uncertainty regarding the future of LIBOR and the transition away from LIBOR toward new reference rates by the end of 2021;

•reduced demand for our services due to strategic or regulatory reasons or reduced demand for our products due to legislative changes such as new rent control laws;

•our ability to successfully execute on initiatives relating to enhancements of our technology infrastructure, including client-facing systems and applications;

•legislative or regulatory requirements or changes, including an increase of capital requirements, and increased political and regulatory uncertainty;

•the impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties;

•higher than anticipated increases in operating expenses;

•lower than expected dividends paid from the Bank to the holding company;

•the amount and exact timing of any common stock repurchases will depend upon market conditions and other factors;

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•a deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge;

•the effectiveness of our risk management framework and quantitative models;

•the costs and effects of legal, compliance, and regulatory actions, changes and developments, including the impact of adverse judgments or settlements in litigation, the initiation and resolution of regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews;

•the impact of changes made to tax laws or regulations affecting our business, including the disallowance of tax benefits by tax authorities and/or changes in tax filing jurisdictions or entity classifications; and

•our success at managing risks involved in the foregoing items and all other risk factors described in our audited consolidated financial statements, and other risk factors described in this Form 10-Q and other documents filed or furnished by PacWest with the SEC.

All forward-looking statements included in this Form 10-Q are based on information available at the time the statement is made. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise except as required by law.

Overview

The Bank is focused on relationship-based business banking to small, middle-market, and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services ~~through 71 full-service~~through 70 full-service branches located in California, one branch located in Durham, North Carolina, one branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.

In managing the top line of our business, we focus on loan growth, loan yield, deposit cost, and net interest margin. Net interest income, on a year-to-date basis in ~~2020,~~2021, accounted for~~87.7%~~ 86.1% of net revenue (net interest income plus noninterest income).

At ~~September~~June 30, ~~2020,~~2021, the Company had total assets of ~~$28.4~~$34.9 billion,, including ~~$19.0 billion~~ ~~of total loans and leases, net of deferred fees, and~~ ~~$4.5 billion~~ ~~of securities available-for-sale, compared to $26.8 billion of total assets, including $18.8~~$19.5 billion of total loans and leases, net of deferred fees, ~~and $3.8~~$7.2 billion of securities available-for-sale, and $5.7 billion of interest-earning deposits in financial institutions compared to $29.5 billion of total assets, including $19.1 billion of total loans and leases, net of deferred fees, $5.2 billion of securities available-for-sale, and $3.0 billion of interest-earning deposits in financial institutions at December 31, ~~2019.~~2020. The ~~$1.7~~$5.4 billion i~~ncrease~~increase in total assets since year-end was due primarily to a ~~$2.3~~$2.7 billion increase in interest-earning deposits in financial institutions, ~~and~~ a ~~$735.4 million~~$2.0 billion increase in securities available-for-sale, ~~offset partially by~~and a ~~$1.47 billion~~ ~~write-down~~$422.9 million increase in loans and leases, net of ~~goodwill.~~deferred fees.

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At ~~September~~June 30, ~~2020,~~2021, the Company had total liabilities of ~~$24.9~~$31.0 billion,, including total deposits of ~~$24.0~~$29.6 billion and ~~borrowings~~subordinated debt of ~~$60.0~~$861.8 million,, compared to ~~$21.8~~$25.9 billion of total liabilities, including ~~$19.2~~$24.9 billion of total deposits and ~~$1.8 billion~~$465.8 million of ~~borrowings~~subordinated debt at December 31, ~~2019.~~2020. The ~~$3.1~~$5.1 billion increase in total liabilities since year-end was due mainly to increases of ~~$4.9~~$4.8 billion in core deposits and ~~$627.5~~$396.0 million in ~~non-core non-maturity deposits, offset partially by decreases of~~ ~~$1.7 billion~~ ~~in borrowings, primarily FHLB advances, and~~ ~~$825.2 million~~ ~~in time deposits.~~subordinated debt. The increase in core deposits was due primarily to ~~PPP loan proceeds being deposited into customers' accounts and capital market activities by~~continued strong deposit growth from our venture banking ~~clients, which saw deposits increase by $3.0 billion to $10.1 billion at September~~clients. At June 30, ~~2020. At September 30, 2020,~~2021, core deposits totaled ~~$21.1~~$27.0 billion,, or ~~88%~~91% of total deposits, including ~~$9.3~~$11.3 billion ofof noninterest-bearing demand deposits, or ~~39%~~38% of total deposits. The increase in subordinated debt was due to the $400 million of subordinated notes issued by the Bank on April 30, 2021. The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.

At ~~September~~June 30, ~~2020,~~2021, the Company had total stockholders' equity of ~~$3.5~~$3.8 billion compared to ~~$5.0~~$3.6 billion at December 31, ~~2019.~~2020. The ~~$1.5 billion~~ ~~decrease~~$251.7 million increase in stockholders' equity since year-end was due mainly to $330.9 million in net earnings, offset partially by a ~~$1.35 billion net loss, attributable primarily to a $1.47 billion goodwill impairment charge, $130.3~~$27.0 million decrease in accumulated other comprehensive income and $59.5 million of cash dividends ~~paid, and $70.0 million of common stock repurchased under the Stock Repurchase Program, offset partially by a $76.8 million increase in accumulated other comprehensive income.~~paid. Consolidated capital ratios remained strong ~~and continued to increase~~ with Tier 1 capital and total capital ratios of ~~10.45%~~10.41% and ~~13.74%~~14.99% at ~~September~~June 30, ~~2020.~~2021.

Recent Events

~~COVID-19 Pandemic~~Acquisition of Civic

~~The outbreak~~On February 1, 2021, the Bank completed the acquisition of Civic in an all-cash transaction. Civic, located in Redondo Beach, California, is one of the ~~Coronavirus Disease ("COVID-19") pandemic has impacted our business~~leading lenders in the United States specializing in residential non-owner-occupied investment properties. The acquisition of Civic advances the Bank’s strategy to diversify and ~~operations in several ways~~expand its lending portfolio, diversify its revenue streams, and deploy excess liquidity into higher-yielding assets. Civic operates as ~~outlined below. Our first~~a subsidiary of the Bank and ~~continuing priority remains the safety and health~~at June 30, 2021 had $662.1 million of ~~our employees and customers~~ loans outstanding.

The Civic acquisition has ~~we navigate our way through the pandemic. In the first quarter, we activated our Business Continuity Team and Pandemic Plan~~been accounted for under the ~~direction~~acquisition method of ~~a special task force comprised~~accounting which resulted in the recognition of ~~executive level management from various departments to work closely with the Business Continuity Team to help lead our people and our business through this period~~goodwill of ~~uncertainty. The special task force has continued to meet multiple times per week since the onset~~$125.4 million. All of the ~~pandemic.~~recognized goodwill is expected to be deductible for tax purposes. For further information, see Note 2. Acquisitions in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

~~Our Employees~~Homeowners Association Services Division Acquisition Announcement

~~We took several actions~~On April 1, 2021, PacWest announced that the Bank entered into a definitive agreement to acquire MUFG Union Bank, N.A.’s (“Union Bank”) Homeowners Association (“HOA”) Services Division. The Bank will acquire certain assets and assume certain liabilities related to the HOA Services Division for a premium of 5.9% on deposits plus the net book values of certain assumed assets and liabilities for aggregate cash consideration of approximately $250 million. The final amount of consideration to be paid will be based on balances at closing, which is expected to occur in ~~March~~the fourth quarter of 2021 subject to ~~move everyone possible~~customary closing conditions. For further information, see Note 2. Acquisitions in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

Subordinated Notes Offering

On April 30, 2021, the Bank issued $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes (the “Notes”) due May 1, 2031 (the “Maturity Date”), if not previously redeemed. Subject to any redemption prior to the Maturity Date, the Notes will bear interest from and including the original issue date to, but excluding, May 1, 2026 (the “Reset Date”), at a fixed rate of 3.25% per annum and from and including the Reset Date to, but excluding the Maturity Date, the Notes will bear interest at a floating per annum rate equal to a ~~remote working environment, which has continued~~benchmark rate (which is expected to this day; however, as an essential business service, some of our employees are required to work at one of our critical offices or at one of our branch locations where we are practicing social distancingbe the Three-Month Term SOFR) plus 252 basis points. For further information, see Note 10. Borrowings and other safety measures to the best of our ability. We have applied social distancing, wearing of face masks, remote working, additional cleaning, reminders of frequent handwashing, installation of plexi-glass barriers among other steps to ensure the health and safety of employees and customers. We suspended all employee business travel and canceled all hosted client events. We require anyone who has traveled personally to a foreign country or on a cruise, to self-quarantine for 14 days. Despite these restrictions, we have remained fully operational and able to meet the needs of our clients and the communities we serve. To recognize our employees who must work in our branches or critical locations, we paid a special bonus of up to $1,000Subordinated Debt in the ~~second quarter of 2020. We have begun~~Notes to re-open some office locations if permitted under local government guidance, but any such re-openings generally remain limited to no more than a 50% capacity. Despite some re-openings, the vast majority of our non-branch employees continue to work remotely.

~~Our Clients and Branch Operations~~Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

Our primary branch operations are within California, which continues to work its way through the State's Resilience Roadmap from the initial "Stay-at-home" order issued on March 13, 2020 to the subsequent executive orders and phased-in guidance issued for re-openings. As a large state, the stages of re-opening vary by county and thus the impact to our operations varies by county. At the outset of the pandemic, we closed 19 branches along with the lobbies of 27 additional branches where drive-up tellers are available. On June 1st, we re-opened 17 of the 19 branches and decided to permanently close two branches in the third quarter. We continue to monitor the pandemic's impact on our branch operations and have alternative plans in place in the event we need to reduce branch hours, temporarily close branches in close proximity to each other, or stagger the hours of our employees, all in an effort to keep our employees and customers safe while meeting the needs of our customers.

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COVID-19 Pandemic - Impact to Our Business

~~To date, from~~From a business perspective, the ~~impacts~~impact in 2021 from the COVID-19 pandemic ~~have been primarily related~~has decreased, however, new variants may continue to impact key macro-economic indicators such as unemployment and GDP and we will continue to closely monitor our loan portfolio. ~~We have~~In the early stages of the COVID-19 pandemic, we experienced an increase in customers seeking loan modifications through payment deferrals and extension of terms. ~~As of September 30, 2020, active loan payment deferral modifications represented approximately 3.3% of the loan portfolio, down from approximately 6.6% of the loan portfolio at June 30, 2020.~~ Most of the modifications were for payment deferrals for three months, while some deferrals were up to six months. Some loans were subsequently modified with deferrals of three to twelve months. As of ~~September~~June 30, ~~2020, approximately 13%~~2021, there were 29 loans with a balance of $48.4 million on deferral. The Company did not apply a TDR classification to COVID-19 related loan modifications that met all of the ~~loans that were granted a payment deferral received a second modification. Of~~requisite criteria as stipulated in the remaining $625 million of loans on deferral as of September 30, 2020, 95% expire by December 31, 2020.We also granted maturity extensions totaling approximately $315 million primarily for three months, while some extensions were for one year. The table below presents the amount of active loan payment or deferral modifications by loan segment for the periods indicated:

Deferrals as % of
Total Loans Total Loans
Loan and Lease Portfolio Loan Deferrals Outstanding and Leases and Leases
Segment and Class June 30, 2020 September 30, 2020 September 30, 2020 September 30, 2020
(Dollars in thousands)
Real estate mortgage:
Commercial $ 810,689 $ 430,682 $ 4,192,466 10.3 %
Income producing and other residential 187,641 42,448 3,684,579 1.2 %
Real estate construction and land:
Commercial 208,866 86,963 1,241,647 7.0 %
Residential 329 — 2,182,100 — %
Commercial:
Asset-based 30,572 30,507 3,153,048 1.0 %
Venture capital 12,497 2,849 1,637,132 0.2 %
Other commercial 42,687 30,556 2,572,994 1.2 %
Consumer 4,230 632 362,234 0.2 %
Total $ 1,297,511 $ 624,637 $ 19,026,200 3.3 %
As % of total loans and leases 6.6 % 3.3 %
CARES Act.

We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the ~~Coronavirus Aid, Relief, and Economic Security ("CARES")~~CARES Act. As of ~~September~~June 30, ~~2020,~~2021, PPP loans had an outstanding balance of approximately ~~$1.2 billion.~~$624.8 million. In the second quarter of 2021, we originated approximately $31.0 million in PPP loans with a five-year term, while loans forgiven under the PPP program totaled approximately $505.5 million. The loans have ~~two-year terms with a 1% loan coupon rate and~~ origination fees that ~~varied from 1% to 5% depending on the size of the loan. These fees, which totaled approximately $36.4 million,~~ are recognized over the ~~two-year~~ life of the loan with the fee recognition accelerated upon forgiveness or repayment of the loan. ~~The~~Fees recognized in the second quarter of 2021 were $8.8 million. As of June 30, 2021, the remaining unamortized fees, net of deferred costs, totaled $15.6 million. The PPP loans are fully guaranteed by the SBA and do not carry an allowance. Our participation in the PPP ~~resulted in a corresponding~~contributed to the increase in core deposits beginning in the second quarter of 2020 due to PPP loan proceeds being deposited into ~~customers'~~customers' accounts.

As ~~events~~the COVID-19 pandemic unfolded in March 2020, we immediately ~~increased~~enhanced the ~~enhanced~~ monitoring of our loan and lease portfolio with particular emphasis on certain loan and lease portfolios that we expected to be most impacted by the COVID-19 pandemic, such as the hotel, retail, commercial aviation, restaurant, and oil services loan and lease portfolios. We continue to closely monitor all of our portfolios, although with the increase in oil prices, the credit risk in the oil services portfolio has diminished. The ~~economic impacts caused by the COVID-19 pandemic precipitated~~hotel portfolio as of June 30, 2021 is comprised of hotel CRE loans of $521.9 million, hotel construction loans of $482.9 million, and hotel SBA loans of $29.5 million. In July 2021, our single classified commercial aviation loan and lease risk rating downgrades across these loan and lease portfolios, resulting in increases of $460.8 million in special mention loans and $98.7 million in classified loans during the nine months ended September 30, 2020.paid off.

~~Our~~The table below shows our exposure to these loan and lease portfolios, which includes equipment leased to others under operating leases, is as ~~follows:~~of the date indicated:


		September 30, 2020											June 30, 2021
										% of											% of
				Special						Total Loans					Special						Total Loans
Loan and Lease Portfolio	Loan and Lease Portfolio	Classified		Mention		Pass		Total		and Leases		Loan and Lease Portfolio	Classified		Mention		Pass		Total		and Leases
		(Dollars in thousands)											(Dollars in thousands)
Hotel	Hotel	$	57,635	$	281,044	$	847,960	$	1,186,639	6.2	%	Hotel	$	16,678	$	224,812	$	792,773	$	1,034,263	5.3	%
Retail CRE	Retail CRE	27,678		497		417,311		445,486		2.3	%	Retail CRE	233		1,449		432,533		434,215		2.2	%
Commercial aviation	Commercial aviation	19,397		140,246		96,335		255,978		1.3	%	Commercial aviation	19,248		77,236		89,410		185,894		1.0	%
Restaurant	Restaurant	8,379		8,920		131,497		148,796		0.8	%	Restaurant	5,090		28,883		121,672		155,645		0.8	%
Oil services		12,883		5,438		74,305		92,626		0.5	%
Total	Total	$	125,972	$	436,145	$	1,567,408	$	2,129,525	11.2	%	Total	$	41,249	$	332,380	$	1,436,388	$	1,810,017	9.3	%

~~The deterioration in~~From a credit perspective, most of our credit metrics improved during the second quarter of 2021 as economic conditions ~~caused by the COVID-19 pandemic has significantly impacted the~~and economic forecasts ~~and assumptions used in our estimation process for the allowance for credit losses under CECL. Although our~~continued to improve. This improvement led to a provision for credit losses ~~for the third quarter~~benefit of ~~2020 decreased by $23.0~~$88.0 million ~~from~~for the second quarter of ~~2020~~2021 compared to ~~$97.0 million, the~~a provision for credit losses ~~increased by $310.0~~benefit of $48.0 million ~~to $329.0 million during~~for the ~~nine months ended September 30, 2020 when~~first quarter of 2021 compared to ~~the same period in 2019. Deterioration in the macro-economic variables used in economic forecasts used in the allowance for credit losses process has contributed to~~ a ~~higher~~ provision for credit losses of $120.0 million for the ~~first nine months~~second quarter of ~~the year.~~2020. For further details on ~~CECL~~CECL and the impacts to our process, ~~in the third quarter,~~ see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein. .

During the first quarter of 2020, the economic impact of the COVID-19 pandemic also resulted in market volatility and a significant decline in stock market valuations, including our stock price. As a result, we performed an updated goodwill impairment assessment and recorded goodwill impairment of $1.47 billion in the first quarter, as the estimated fair value of equity was less than book value as of March 31, 2020. This is a non-cash charge and had no impact on our regulatory capital ratios, cash flows, or liquidity position. The goodwill impairment charge resulted in a net loss of $1.43 billion in the first quarter and although our net earnings excluding the goodwill impairment charge were $36.9 million, or $0.31 per diluted share, the results contributed to our decision to reduce our quarterly dividend from $0.60 per share to $0.25 per share beginning in the second quarter.

On March 23, 2020, we announced the temporary suspension of share repurchases under our stock repurchase program until June 30, 2020 and, subsequently announced on April 21, 2020, the indefinite suspension of any repurchases in light of the COVID-19 pandemic. We have not repurchased any shares since February 28, 2020.

Looking ahead, we expect the operating environment to remain challenging as the severity and duration of the pandemic remains uncertain. We expect to see some requests for further loan modifications as the initial modifications expire in the next few months, while the level of provisions for credit losses will continue to be impacted by the economic forecasts and overall credit performance of the loan portfolio.

Key Performance Indicators

Among other factors, our operating results generally depend on the following key performance indicators:

The Level of Net Interest Income

Net interest income is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities. Net interest margin is net interest income (annualized if related to a quarterly period) expressed as a percentage of average interest-earning assets. Tax equivalent net interest income is net interest income increased by an adjustment for tax-exempt interest on certain loans and investment securities based on a 21% federal statutory tax rate. Tax equivalent net interest margin is calculated as tax equivalent net interest income divided by average interest-earning assets.

Net interest income is affected by changes in both interest rates and the volume of average interest-earning assets and interest-bearing liabilities. Our primary interest-earning assets are loans and investment securities, and our primary interest-bearing liabilities are deposits and borrowings. Contributing to our high net interest margin is our high yield on loans and leases and competitive cost of deposits. While our deposit balances will fluctuate depending on deposit holders’ perceptions of alternative yields available in the market, we seek to minimize the impact of these variances by attracting a high percentage of noninterest-bearing deposits.

Loan and Lease Growth

We actively seek new lending opportunities under an array of lending products. Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, and a small amount of consumer lending. Our commercial real estate loans and real estate construction loans are secured by a range of property types. Our commercial loans and leases portfolio is diverse and generally includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies during the various phases of their early life cycles, and secured business loans.

Our loan origination process emphasizes credit quality. To augment our internal loan production, we have historically purchased multi-family loans from other banks and private student loans from third-party lenders. These loan purchases help us manage the concentrations in our portfolio as they diversify the geographic, interest-rate risk, credit risk, and product composition of our loan portfolio. Achieving net loan growth is subject to many factors, including maintaining strict credit standards, competition from other lenders, and borrowers that opt to prepay loans.

The Magnitude of Credit Losses

We emphasize credit quality in originating and monitoring our loans and leases, and we measure our success by the levels of our classified loans and leases, nonaccrual loans and leases, and net charge-offs. We maintain an allowance for credit losses on loans and leases, which is the sum of the allowance for loan and lease losses and the reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off-balance sheet credit exposures. Loans and leases that are deemed uncollectable are charged off and deducted from the allowance for loan and lease losses. Recoveries on loans and leases previously charged off are added to the allowance for loan and lease losses. The provision for credit losses on the loan and lease portfolio is based on our allowance methodology, which considers the impact of assumptions and is reflective of historical experience, economic forecasts viewed to be reasonable and supportable by management, the current loan and lease composition, and relative credit risks known as of the balance sheet date. For originated and acquired credit-deteriorated loans, a provision for credit losses may be recorded to reflect credit deterioration after the origination date or after the acquisition date, respectively.

We regularly review loans and leases to determine whether there has been any deterioration in credit quality resulting from borrower operations or changes in collateral value or other factors which may affect collectability of our loans and leases. Changes in economic conditions, such as the rate of economic growth, the unemployment rate, rate of inflation, increases in the general level of interest rates, declines in real estate values, changes in commodity prices, and adverse conditions in borrowers’ businesses, could negatively impact our borrowers and cause us to adversely classify loans and leases. An increase in classified loans and leases generally results in increased provisions for credit losses and an increased allowance for credit losses. Any deterioration in the commercial real estate market may lead to increased provisions for credit losses because our loans are concentrated in commercial real estate loans.

The Level of Noninterest Expense

Our noninterest expense includes fixed and controllable overhead, the largest components of which are compensation and occupancy expense. It also includes costs that tend to vary based on the volume of activity, such as loan and lease production and the number and complexity of foreclosed assets. We measure success in controlling both fixed and variable costs through monitoring of the efficiency ratio, which is calculated by dividing noninterest expense (less intangible asset amortization, net foreclosed assets expense (income), goodwill impairment, and acquisition, integration and reorganization costs) by net revenues (the sum of tax equivalent net interest income plus noninterest income, less gain (loss) on sale of securities and gain (loss) on sales of assets other than loans and leases).

The following table presents the calculation of our efficiency ratio for the periods indicated:


			Three Months Ended									Nine Months Ended								Three Months Ended									Six Months Ended
			September 30,			June 30,			September 30,			September 30,								June 30,			March 31,			June 30,			June 30,
Efficiency Ratio	Efficiency Ratio		2020			2020			2019			2020			2019			Efficiency Ratio		2021			2021			2020			2021			2020
			(Dollars in thousands)																	(Dollars in thousands)
Noninterest expense	Noninterest expense		$	133,402		$	126,965		$	126,809		$	1,848,337		$	378,523		Noninterest expense		$	151,750		$	150,136		$	126,965		$	301,886		$	1,714,935
Less:	Less:	Intangible asset amortization	3,751			3,882			4,833			11,581			14,573			Less:	Intangible asset amortization	2,889			3,079			3,882			5,968			7,830
		Foreclosed assets expense (income), net	335			(146)			8			255			(109)				Foreclosed assets (income) expense, net	(119)			1			(146)			(118)			(80)
		Goodwill impairment	—			—			—			1,470,000			—				Goodwill impairment	—			—			—			—			1,470,000
		Acquisition, integration and reorganization costs	—			—			—			—			618				Acquisition, integration and reorganization costs	200			3,425			—			3,625			—
Noninterest expense used for efficiency ratio			$	129,316		$	123,229		$	121,968		$	366,501		$	363,441
																			Noninterest expense used for efficiency ratio	$	148,780		$	143,631		$	123,229		$	292,411		$	237,185

Net interest income (tax equivalent)	Net interest income (tax equivalent)		$	253,632		$	256,294		$	255,974		$	761,354		$	773,716		Net interest income (tax equivalent)		$	270,083		$	264,635		$	256,294		$	534,718		$	507,722
Noninterest income	Noninterest income		38,252			38,858			33,429			106,210			115,386			Noninterest income		40,371			44,829			38,858			85,200			67,958
Net revenues			291,884			295,152			289,403			867,564			889,102
																			Net revenues	310,454			309,464			295,152			619,918			575,680
Less:	Less:	Gain on sale of securities	5,270			7,715			908			13,167			25,261			Less:	Gain on sale of securities	—			101			7,715			101			7,897
Net revenues used for efficiency ratio			$	286,614		$	287,437		$	288,495		$	854,397		$	863,841
																			Net revenues used for efficiency ratio	$	310,454		$	309,363		$	287,437		$	619,817		$	567,783

Efficiency ratio	Efficiency ratio		45.1		%	42.9		%	42.3		%	42.9		%	42.1		%	Efficiency ratio		47.9		%	46.4		%	42.9		%	47.2		%	41.8		%

Critical Accounting Policies and Estimates

Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates relate to the allowance for credit losses on loans and leases held for investment, the carrying value of goodwill and other intangible assets, and the realization of deferred income tax assets and liabilities.

Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~Annual Report on~~ Form ~~10-K for the year ended December 31, 2019 as filed with the SEC. Updates to our critical accounting policies and estimates are described below.~~10-K.

~~Goodwill and Other Intangible Assets~~

~~Allowance for Credit Losses on Loans and Leases Held for Investment~~

For information regarding the calculation of the allowance for credit losses on loans and leases held for investment using the CECL methodology effective January 1, 2020, see " - Balance Sheet Analysis - ~~Allowance for Credit Losses on Loans and Leases Held for Investment" and "Note 1. Organization -~~ ~~Significant Accounting Policies~~ ~~and~~ ~~Accounting Standards Adopted in 2020~~," of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)." For further information regarding our critical accounting policies and estimates, refer to our Annual Report on Form 10-K for the year ended December 31, 2019.

Non-GAAP Measurements

We use certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. We used the following non-GAAP measures in this Form 10-Q:

•Return on average tangible equity, tangible common equity ratio, and tangible book value per share: Given that the use of these measures is prevalent among banking regulators, investors, and analysts, we disclose them in addition to the related GAAP measures of return on average equity, equity to assets ratio, and book value per share, respectively. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.


			Three Months Ended									Nine Months Ended								Three Months Ended									Six Months Ended
			September 30,			June 30,			September 30,			September 30,								June 30,			March 31,			June 30,			June 30,
Return on Average Tangible Equity	Return on Average Tangible Equity		2020			2020			2019			2020			2019			Return on Average Tangible Equity		2021			2021			2020			2021			2020
			(Dollars in thousands)																	(Dollars in thousands)
Net earnings (loss)	Net earnings (loss)		$	45,503		$	33,204		$	110,026		$	(1,354,404)		$	350,755		Net earnings (loss)		$	180,512		$	150,406		$	33,204		$	330,918		$	(1,399,907)
Add:	Add:	Intangible asset amortization	3,751			3,882			4,833			11,581			14,573			Add:	Intangible asset amortization	2,889			3,079			3,882			5,968			7,830
		Goodwill impairment	—			—			—			1,470,000			—				Goodwill impairment	—			—			—			—			1,470,000
		Adjusted net earnings used for return																	Adjusted net earnings used for return on
		on average tangible equity	$	49,254		$	37,086		$	114,859		$	127,177		$	365,328			average tangible equity	$	183,401		$	153,485		$	37,086		$	336,886		$	77,923

Average stockholders' equity	Average stockholders' equity		$	3,497,869		$	3,446,850		$	4,890,746		$	3,965,453		$	4,842,140		Average stockholders' equity		$	3,739,042		$	3,617,248		$	3,446,850		$	3,678,481		$	4,201,814
Less:	Less:	Average intangible assets	1,107,548			1,111,302			2,593,925			1,594,231			2,598,806			Less:	Average intangible assets	1,224,208			1,192,780			1,111,302			1,208,581			1,840,246
Average tangible common equity			$	2,390,321		$	2,335,548		$	2,296,821		$	2,371,222		$	2,243,334
																			Average tangible common equity	$	2,514,834		$	2,424,468		$	2,335,548		$	2,469,900		$	2,361,568

Return on average equity (1)	Return on average equity (1)		5.18		%	3.87		%	8.93		%	(45.62)		%	9.68		%	Return on average equity (1)		19.36		%	16.86		%	3.87		%	18.14		%	(67.00)		%
Return on average tangible equity (2)	Return on average tangible equity (2)		8.20		%	6.39		%	19.84		%	7.16		%	21.77		%	Return on average tangible equity (2)		29.25		%	25.67		%	6.39		%	27.51		%	6.64		%

(1) Annualized net earnings (loss) divided by average stockholders' equity.

(2) Annualized adjusted net earnings divided by average tangible common equity.


Tangible Common Equity Ratio/		September 30,			December 31,
Tangible Common Equity Ratio and								Tangible Common Equity Ratio and	June 30,			December 31,
Tangible Book Value Per Share	Tangible Book Value Per Share	2020			2019			Tangible Book Value Per Share	2021			2020
		(Dollars in thousands, except per share data)							(Dollars in thousands, except per share data)
Stockholders’ equity	Stockholders’ equity	$	3,486,231		$	4,954,697		Stockholders’ equity	$	3,846,681		$	3,594,951
Less: Intangible assets	Less: Intangible assets	1,105,483			2,587,064			Less: Intangible assets	1,222,541			1,102,311
Tangible common equity	Tangible common equity	$	2,380,748		$	2,367,633		Tangible common equity	$	2,624,140		$	2,492,640

Total assets	Total assets	$	28,426,716		$	26,770,806		Total assets	$	34,867,987		$	29,498,442
Less: Intangible assets	Less: Intangible assets	1,105,483			2,587,064			Less: Intangible assets	1,222,541			1,102,311
Tangible assets	Tangible assets	$	27,321,233		$	24,183,742		Tangible assets	$	33,645,446		$	28,396,131

Equity to assets ratio	Equity to assets ratio	12.26		%	18.51		%	Equity to assets ratio	11.03		%	12.19		%
Tangible common equity ratio (1)	Tangible common equity ratio (1)	8.71		%	9.79		%	Tangible common equity ratio (1)	7.80		%	8.78		%
Book value per share	Book value per share	$	29.42		$	41.36		Book value per share	$	32.17		$	30.36
Tangible book value per share (2)	Tangible book value per share (2)	$	20.09		$	19.77		Tangible book value per share (2)	$	21.95		$	21.05
Shares outstanding	Shares outstanding	118,489,927			119,781,605			Shares outstanding	119,555,102			118,414,853

_______________________________________

(1) Tangible common equity divided by tangible assets.

(2) Tangible common equity divided by shares outstanding.

•~~PPNR and PPNR return on average assets:~~ Given that the use of PPNR is prevalent among bank investors and analysts during periods of economic stress and elevated loan provisioning, we disclose it and the PPNR return on average assets, in addition to the related GAAP measures ofAdjusted net earnings and ~~return on average assets. The reconciliations of these~~adjusted earnings per share: These non-GAAP ~~measurements to the GAAP~~ measurements are presented in the following tables for the periods presented. See Note 14. Earnings (Loss) Per Share for the GAAP calculation of earnings per share.


		Three Months Ended						Six Months Ended
Adjusted Net Earnings and		June 30,		March 31,		June 30,		June 30,
Adjusted Earnings Per Share		2021		2021		2020		2021		2020
		(Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss)		$	180,512	$	150,406	$	33,204	$	330,918	$	(1,399,907)
Add:	Goodwill impairment	—		—		—		—		1,470,000
	Adjusted net earnings	$	180,512	$	150,406	$	33,204	$	330,918	$	70,093

Adjusted Basic Earnings Per Share:
Adjusted net earnings		$	180,512	$	150,406	$	33,204	$	330,918	$	70,093
Less:	Earnings allocated to unvested restricted stock	(3,172)		(2,355)		(362)		(5,495)		(1,251)
	Adjusted net earnings allocated to
	common shares	$	177,340	$	148,051	$	32,842	$	325,423	$	68,842

Weighted-average basic shares and unvested restricted
	stock outstanding	119,386		118,852		118,192		119,121		118,484
Less:	Weighted-average unvested restricted stock
	outstanding	(2,356)		(2,003)		(1,606)		(2,181)		(1,551)
	Weighted-average basic shares outstanding	117,030		116,849		116,586		116,940		116,933

Adjusted basic earnings per share		$	1.52	$	1.27	$	0.28	$	2.78	$	0.59

Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares		$	177,340	$	148,051	$	32,842	$	325,423	$	68,842
Weighted-average diluted shares outstanding		117,030		116,849		116,586		116,940		116,933
Adjusted diluted earnings per share		$	1.52	$	1.27	$	0.28	$	2.78	$	0.59

Three Months Ended Nine Months Ended
PPNR and PPNR Return September 30, June 30, September 30, September 30,
on Average Assets 2020 2020 2019 2020 2019
(Dollars in thousands)
Net earnings (loss) $ 45,503 $ 33,204 $ 110,026 $ (1,354,404) $ 350,755
Add: Provision for credit losses 97,000 120,000 7,000 329,000 19,000
Goodwill impairment — — — 1,470,000 —
Income tax expense 13,671 12,968 41,830 38,627 135,118
Pre-provision, pre-goodwill impairment
pre-tax net revenue ("PPNR") $ 156,174 $ 166,172 $ 158,856 $ 483,223 $ 504,873
Average assets $ 27,935,193 $ 26,621,227 $ 26,406,603 $ 27,221,102 $ 26,012,890
Return on average assets (1)
0.65 % 0.50 % 1.65 % (6.65) % 1.80 %
PPNR return on average assets (2)
2.22 % 2.51 % 2.39 % 2.37 % 2.59 %

~~(1) Annualized net earnings (loss) divided by average assets.~~

~~(2) Annualized PPNR divided by average assets.~~

Results of Operations

Earnings Performance

The following table presents performance metrics for the periods indicated:


		Three Months Ended									Nine Months Ended							Three Months Ended									Six Months Ended
		September 30,			June 30,			September 30,			September 30,							June 30,			March 31,			June 30,			June 30,
		2020			2020			2019			2020			2019				2021			2021			2020			2021			2020
		(Dollars in thousands, except per share data)																(Dollars in thousands, except per share data)
Earnings Summary:	Earnings Summary:																Earnings Summary:
Interest income	Interest income	$	265,908		$	274,075		$	307,208		$	831,315		$	926,300		Interest income	$	280,505		$	273,337		$	274,075		$	553,842		$	565,407
Interest expense	Interest expense	(14,584)			(19,796)			(54,972)			(75,965)			(158,290)			Interest expense	(14,197)			(12,068)			(19,796)			(26,265)			(61,381)
Net interest income	Net interest income	251,324			254,279			252,236			755,350			768,010			Net interest income	266,308			261,269			254,279			527,577			504,026
Provision for credit losses	Provision for credit losses	(97,000)			(120,000)			(7,000)			(329,000)			(19,000)			Provision for credit losses	88,000			48,000			(120,000)			136,000			(232,000)
Noninterest income	Noninterest income	38,252			38,858			33,429			106,210			115,386			Noninterest income	40,371			44,829			38,858			85,200			67,958
Operating expense	Operating expense	(133,402)			(126,965)			(126,809)			(378,337)			(378,523)			Operating expense	(151,750)			(150,136)			(126,965)			(301,886)			(244,935)
Goodwill impairment	Goodwill impairment	—			—			—			(1,470,000)			—			Goodwill impairment	—			—			—			—			(1,470,000)

Earnings (loss) before income taxes	Earnings (loss) before income taxes	59,174			46,172			151,856			(1,315,777)			485,873			Earnings (loss) before income taxes	242,929			203,962			46,172			446,891			(1,374,951)
Income tax expense	Income tax expense	(13,671)			(12,968)			(41,830)			(38,627)			(135,118)			Income tax expense	(62,417)			(53,556)			(12,968)			(115,973)			(24,956)
Net earnings (loss)	Net earnings (loss)	$	45,503		$	33,204		$	110,026		$	(1,354,404)		$	350,755		Net earnings (loss)	$	180,512		$	150,406		$	33,204		$	330,918		$	(1,399,907)

Pre-provision, pre-goodwill impairment,
pre-tax net revenue ("PPNR") (2)		$	156,174		$	166,172		$	158,856		$	483,223		$	504,873
Per Common Share Data:																	Per Common Share Data:
Diluted earnings (loss) per share																	Diluted earnings (loss) per share	$	1.52		$	1.27		$	0.28		$	2.78		$	(11.98)
Book value per share																	Book value per share	$	32.17		$	30.68		$	29.17
Tangible book value per share (1)																	Tangible book value per share (1)	$	21.95		$	20.39		$	19.80

Performance Measures:
Diluted earnings (loss) per share		$	0.38		$	0.28		$	0.92		$	(11.60)		$	2.91
Performance Ratios:																	Performance Ratios:
Return on average assets	Return on average assets	0.65		%	0.50		%	1.65		%	(6.65)		%	1.80		%	Return on average assets	2.11		%	1.94		%	0.50		%	2.03		%	(10.48)		%
PPNR return on average assets (2)		2.22		%	2.51		%	2.39		%	2.37		%	2.59		%
Return on average tangible equity ~~(2)~~(1)	Return on average tangible equity ~~(2)~~(1)	8.20		%	6.39		%	19.84		%	7.16		%	21.77		%	Return on average tangible equity ~~(2)~~(1)	29.25		%	25.67		%	6.39		%	27.51		%	6.64		%
Net interest margin (tax equivalent)	Net interest margin (tax equivalent)	3.90		%	4.20		%	4.46		%	4.13		%	4.62		%	Net interest margin (tax equivalent)	3.40		%	3.69		%	4.20		%	3.53		%	4.26		%
Yield on average loans and leases (tax equivalent)	Yield on average loans and leases (tax equivalent)	5.01		%	5.01		%	5.91		%	5.18		%	6.11		%	Yield on average loans and leases (tax equivalent)	5.18		%	5.20		%	5.01		%	5.19		%	5.27		%
Cost of average total deposits	Cost of average total deposits	0.17		%	0.25		%	0.83		%	0.32		%	0.79		%	Cost of average total deposits	0.10		%	0.11		%	0.25		%	0.11		%	0.41		%
Efficiency ratio	Efficiency ratio	45.1		%	42.9		%	42.3		%	42.9		%	42.1		%	Efficiency ratio	47.9		%	46.4		%	42.9		%	47.2		%	41.8		%

Capital Ratios (consolidated):																	Capital Ratios (consolidated):
Common equity tier 1 capital ratio																	Common equity tier 1 capital ratio	10.41		%	10.39		%	9.97		%
Total capital ratio																	Total capital ratio	14.99		%	13.60		%	13.18		%

_____________________________

(1) ~~Calculation reduces average stockholder's equity by average intangible assets.~~

~~(2)~~ See "- Non-GAAP Measurements."

~~Third~~

Second Quarter of ~~2020~~2021 Compared to First Quarter of 2021

Net earnings for the second quarter of 2021 were $180.5 million, or $1.52 per diluted share, compared to net earnings for the first quarter of 2021 of $150.4 million, or $1.27 per diluted share. The $30.1 million increase in net earnings from the prior quarter was due to a lower provision for credit losses of $40.0 million and higher net interest income of $5.0 million, offset partially by higher income tax expense of $8.9 million, lower noninterest income of $4.5 million, and higher noninterest expense of $1.6 million. The decrease in the provision for credit losses reflected improvement in both macro-economic forecast variables and loan portfolio credit quality metrics along with decreased provisions for individually evaluated loans and leases and for unfunded commitments in the second quarter of 2021. Net interest income increased due mainly to higher income on investment securities and loans and leases as a result of higher average balances, offset partially by higher interest expense resulting from the $400 million of subordinated debt issued on April 30, 2021. The increase in income tax expense was primarily due to higher pre-tax earnings in the second quarter of 2021 compared to the first quarter of 2021. Noninterest income decreased due primarily to a decrease of $5.5 million in dividends and gains on equity investments and a $1.2 million decrease in other income, offset partially by increases of $1.5 million in other commissions and fees and $1.3 million in gain on sale of loans and leases. Noninterest expense increased due mostly to a $10.9 million increase in compensation expense, offset partially by decreases of $6.9 million in other expense, $3.2 million in acquisition, integration and reorganization costs, and $1.2 million in insurance and assessments expense.

Second Quarter of 2021 Compared to Second Quarter of 2020

Net earnings for the ~~third~~second quarter of ~~2020~~2021 were ~~$45.5~~$180.5 million, or ~~$0.38~~$1.52 per diluted share, compared to net earnings for the second quarter of 2020 of $33.2 million, or $0.28 per diluted share. The ~~$12.3~~$147.3 million increase in net earnings from the ~~prior~~year-ago quarter was due ~~primarily~~mainly to a lower provision for credit losses of ~~$23.0~~$208.0 million and higher net interest income of $12.0 million, offset partially by ~~lower net interest~~higher income tax expense of ~~$3.0~~$49.4 million and higher ~~noninterest~~operating expense of ~~$6.4~~$24.8 million. The decrease in the provision for credit losses for the second quarter of 2021 from the year-ago quarter reflected improvement in certain key macro-economic forecast variables ~~(unemployment~~ and real GDP growth), offset partially by deterioration in other key macro-economic variables, including CRE price index and BBB spreads, and increased provisions for individually evaluated loans and leases.loan portfolio credit quality metrics. Net interest income ~~decreased due mainly to a lower balance of average loans and leases, offset partially by a lower cost of average interest-bearing liabilities. Noninterest expense~~ increased due ~~mainly~~ to ~~an increase of $13.2 million in compensation expense, offset partially by decreases of $5.4 million in insurance and assessments expense and $2.4 million in other expense.~~

~~Third Quarter of 2020 Compared to Third Quarter of 2019~~

Net earnings for the third quarter of 2020 were $45.5 million, or $0.38 per diluted share, compared to net earnings for the third quarter of 2019 of $110.0 million, or $0.92 per diluted share. The $64.5 million decrease in net earnings from the year-ago quarter was due primarily to a higher provision for credit losses of $90.0 million and higher noninterest expense of $6.6 million, offset partially by higher noninterest income of $4.8 million and lower income tax expense of $28.2 million. The increase in the provision for credit losses for the third quarter of 2020 from the year-ago quarter was the result of the impact of the current economic forecast used in our CECL process, which reflected a significant deterioration in key macro-economic forecast variables such as unemployment and GDP growth as a result of COVID-19. Noninterest expense increased due mostly to increases of $3.7 million in compensation expense, $1.2 million in customer related expense, and $1.1 million in other expense. Noninterest income increased due principally to increases of $6.9 million in dividends and gains on equity investments and $4.4 million in gain on sale of securities, offset partially by a $3.4 million decrease in warrant income. The decrease in income tax expense is mostly due to lower pre-tax earnings in the third quarter of 2020 compared to the year-ago quarter.

~~Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019~~

Net loss for the nine months ended September 30, 2020 was $1.35 billion, or a loss of $11.60 per diluted share, compared to net earnings for the nine months ended September 30, 2019 of $350.8 million, or $2.91 per diluted share. The $1.71 billion decrease in net earnings from the year-ago period was due primarily to a $1.47 billion goodwill impairment charge in the first quarter of 2020, a higher provision for credit losses of $310.0 million, lower noninterest income of $9.2 million, and lower net interest income of $12.7 million, offset partially by lower income tax expense of $96.5 million. The increase in the provision for credit losses for the nine months ended September 30, 2020 was the result of the impact of the current economic forecast used in our CECL process, which reflected a significant deterioration in key macro-economic forecast variables such as unemployment and GDP growth as a result of COVID-19. The decrease in noninterest income for the first nine months of 2020 compared to the same period a year ago was due primarily to a $12.1 million decrease in the gain on sale of securities. Net interest income decreased due mainly to lower yields on average loans and leases and securities as a result of lower market rates, offset partially by a lower cost of average interest-bearing liabilities and a higher balance of average-interest earning assets, offset partially by a lower yield on average ~~loans~~interest-earning assets and ~~leases.~~the negative impact on net interest income due to the change in the mix of average interest-earning assets. The increase in income tax expense was due primarily to higher pre-tax earnings in the second quarter of 2021 compared to the year-ago quarter. Noninterest expense increased due mostly to an increase of $28.9 million in compensation expense, due mostly to the incremental expense of the Civic operations in 2021, offset partially by a $5.6 million decrease in insurance and assessments expense due to lower FDIC assessment expense attributable to a decrease in the assessment rate.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Net earnings for the six months ended June 30, 2021 were $330.9 million, or $2.78 per diluted share, compared to a net loss for the six months ended June 30, 2020 of $1.40 billion, or $11.98 loss per diluted share. The $1.73 billion increase in net earnings from the year-ago period was due mainly to a $1.47 billion decrease in goodwill impairment expense combined with a decrease in the provision for credit losses of $368.0 million due to improvements in both macro-economic forecast variables and loan portfolio credit quality metrics.

Net Interest Income

The following tables summarize the distribution of average assets, liabilities, and stockholders’ equity, as well as interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities, presented on a tax equivalent basis, for the periods indicated:


		Three Months Ended																			Three Months Ended
		September 30, 2020						June 30, 2020						September 30, 2019							June 30, 2021						March 31, 2021						June 30, 2020
				Interest		Yields				Interest		Yields				Interest		Yields					Interest		Yields				Interest		Yields				Interest		Yields
		Average		Income/		and		Average		Income/		and		Average		Income/		and			Average		Income/		and		Average		Income/		and		Average		Income/		and
		Balance		Expense		Rates		Balance		Expense		Rates		Balance		Expense		Rates			Balance		Expense		Rates		Balance		Expense		Rates		Balance		Expense		Rates
		(Dollars in thousands)																			(Dollars in thousands)
ASSETS:	ASSETS:																			ASSETS:
Loans and leases (1)(2)(3)	Loans and leases (1)(2)(3)	$	19,195,737	$	241,547	5.01	%	$	19,951,603	$	248,474	5.01	%	$	18,539,281	$	276,309	5.91	%	Loans and leases (1)(2)(3)	$	19,057,420	$	246,147	5.18	%	$	18,927,314	$	242,846	5.20	%	$	19,951,603	$	248,474	5.01	%
Investment securities (2)(4)	Investment securities (2)(4)	4,107,915		26,015		2.52	%	3,846,459		27,430		2.87	%	3,809,243		32,213		3.36	%	Investment securities (2)(4)	6,492,721		36,111		2.23	%	5,383,140		32,329		2.44	%	3,846,459		27,430		2.87	%
Deposits in financial institutions	Deposits in financial institutions	2,554,349		654		0.10	%	733,142		186		0.10	%	445,152		2,424		2.16	%	Deposits in financial institutions	6,347,764		2,022		0.13	%	4,790,231		1,528		0.13	%	733,142		186		0.10	%
Total interest‑earning assets (2)	Total interest‑earning assets (2)	25,858,001		268,216		4.13	%	24,531,204		276,090		4.53	%	22,793,676		310,946		5.41	%	Total interest‑earning assets (2)	31,897,905		284,280		3.57	%	29,100,685		276,703		3.86	%	24,531,204		276,090		4.53	%
Other assets	Other assets	2,077,192						2,090,023						3,612,927						Other assets	2,428,207						2,315,197						2,090,023
Total assets	Total assets	$	27,935,193					$	26,621,227					$	26,406,603					Total assets	$	34,326,112					$	31,415,882					$	26,621,227

LIABILITIES AND	LIABILITIES AND																			LIABILITIES AND
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:																			STOCKHOLDERS’ EQUITY:
Interest checking	Interest checking	$	4,904,614	2,019		0.16	%	$	4,001,750	1,573		0.16	%	$	3,598,698	11,942		1.32	%	Interest checking	$	7,235,726	2,394		0.13	%	$	6,401,869	2,232		0.14	%	$	4,001,750	1,573		0.16	%
Money market	Money market	7,170,842		3,081		0.17	%	6,114,354		2,856		0.19	%	5,121,856		14,807		1.15	%	Money market	8,484,933		3,318		0.16	%	7,975,996		3,278		0.17	%	6,114,354		2,856		0.19	%
Savings	Savings	565,395		35		0.02	%	524,335		33		0.03	%	515,649		218		0.17	%	Savings	598,225		36		0.02	%	572,959		35		0.02	%	524,335		33		0.03	%
Time	Time	1,876,072		4,752		1.01	%	2,475,858		8,613		1.40	%	2,795,573		13,736		1.95	%	Time	1,498,169		1,521		0.41	%	1,493,267		1,955		0.53	%	2,475,858		8,613		1.40	%
Total interest‑bearing deposits	Total interest‑bearing deposits	14,516,923		9,887		0.27	%	13,116,297		13,075		0.40	%	12,031,776		40,703		1.34	%	Total interest‑bearing deposits	17,817,053		7,269		0.16	%	16,444,091		7,500		0.18	%	13,116,297		13,075		0.40	%
Borrowings	Borrowings	181,315		27		0.06	%	871,110		1,319		0.61	%	1,181,313		6,852		2.30	%	Borrowings	225,446		265		0.47	%	226,053		193		0.35	%	871,110		1,319		0.61	%
Subordinated debentures		462,375		4,670		4.02	%	459,466		5,402		4.73	%	456,011		7,417		6.45	%
Subordinated debt																				Subordinated debt	735,725		6,663		3.63	%	466,101		4,375		3.81	%	459,466		5,402		4.73	%
Total interest‑bearing liabilities	Total interest‑bearing liabilities	15,160,613		14,584		0.38	%	14,446,873		19,796		0.55	%	13,669,100		54,972		1.60	%	Total interest‑bearing liabilities	18,778,224		14,197		0.30	%	17,136,245		12,068		0.29	%	14,446,873		19,796		0.55	%
Noninterest‑bearing demand deposits	Noninterest‑bearing demand deposits	8,812,391						8,292,151						7,487,555						Noninterest‑bearing demand deposits	11,304,757						10,173,459						8,292,151
Other liabilities	Other liabilities	464,320						435,353						359,202						Other liabilities	504,089						488,930						435,353
Total liabilities	Total liabilities	24,437,324						23,174,377						21,515,857						Total liabilities	30,587,070						27,798,634						23,174,377
Stockholders’ equity	Stockholders’ equity	3,497,869						3,446,850						4,890,746						Stockholders’ equity	3,739,042						3,617,248						3,446,850
Total liabilities and	Total liabilities and																			Total liabilities and
stockholders' equity	stockholders' equity	$	27,935,193					$	26,621,227					$	26,406,603					stockholders' equity	$	34,326,112					$	31,415,882					$	26,621,227
Net interest income (2)	Net interest income (2)			$	253,632					$	256,294					$	255,974			Net interest income (2)			$	270,083					$	264,635					$	256,294
Net interest rate spread (2)	Net interest rate spread (2)					3.75	%					3.98	%					3.81	%	Net interest rate spread (2)					3.27	%					3.57	%					3.98	%
Net interest margin (2)	Net interest margin (2)					3.90	%					4.20	%					4.46	%	Net interest margin (2)					3.40	%					3.69	%					4.20	%

Total deposits (5)	Total deposits (5)	$	23,329,314	$	9,887	0.17	%	$	21,408,448	$	13,075	0.25	%	$	19,519,331	$	40,703	0.83	%	Total deposits (5)	$	29,121,810	$	7,269	0.10	%	$	26,617,550	$	7,500	0.11	%	$	21,408,448	$	13,075	0.25	%

_____________________

(1) Includes nonaccrual loans and leases and loan fees. Includes tax-equivalent adjustments related to tax-exempt interest on loans.

(2) Tax equivalent.

(3) Includes ~~discount accretion on acquired loans~~net loan premium amortization of $~~2.0~~1.5 million~~, $2.5~~ and $1.2 million and ~~$2.6~~net loan discount accretion of $1.2 million for the three months ended ~~September~~June 30, ~~2020,~~2021, March 31, 2021, and June 30, 2020, ~~and September 30, 2019,~~ respectively.

(4) Includes tax-equivalent adjustments of $~~1.6~~2.2 million, ~~$1.4~~$2.1 million, and ~~$3.4~~$1.4 million for the three months ended ~~September~~June 30, ~~2020,~~2021, March 31, 2021, and June 30, 2020, ~~and September 30, 2019,~~ respectively, related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.

(5) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.


		Nine Months Ended													Six Months Ended
		September 30, 2020						September 30, 2019							June 30, 2021						June 30, 2020
				Interest		Yields				Interest		Yields					Interest		Yields				Interest		Yields
		Average		Income/		and		Average		Income/		and			Average		Income/		and		Average		Income/		and
		Balance		Expense		Rates		Balance		Expense		Rates			Balance		Expense		Rates		Balance		Expense		Rates
		(Dollars in thousands)													(Dollars in thousands)
ASSETS:	ASSETS:													ASSETS:
Loans and leases (1)(2)(3)	Loans and leases (1)(2)(3)	$	19,403,365	$	752,785	5.18	%	$	18,282,807	$	835,335	6.11	%	Loans and leases (1)(2)(3)	$	18,992,727	$	488,993	5.19	%	$	19,508,319	$	511,238	5.27	%
Investment securities (2)(4)	Investment securities (2)(4)	3,936,492		82,086		2.79	%	3,855,486		92,248		3.20	%	Investment securities (2)(4)	5,940,995		68,440		2.32	%	3,849,838		56,071		2.93	%
Deposits in financial institutions	Deposits in financial institutions	1,279,628		2,448		0.26	%	263,155		4,423		2.25	%	Deposits in financial institutions	5,573,300		3,550		0.13	%	635,263		1,794		0.57	%
Total interest-earning assets (2)	Total interest-earning assets (2)	24,619,485		837,319		4.54	%	22,401,448		932,006		5.56	%	Total interest-earning assets (2)	30,507,022		560,983		3.71	%	23,993,420		569,103		4.77	%
Other assets	Other assets	2,601,617						3,611,442						Other assets	2,372,015						2,866,713
Total assets	Total assets	$	27,221,102					$	26,012,890					Total assets	$	32,879,037					$	26,860,133

LIABILITIES AND	LIABILITIES AND													LIABILITIES AND
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:													STOCKHOLDERS’ EQUITY:
Interest checking	Interest checking	$	4,127,239	10,727		0.35	%	$	3,296,533	31,907		1.29	%	Interest checking	$	6,821,101	4,626		0.14	%	$	3,734,281	8,708		0.47	%
Money market	Money market	6,181,312		15,953		0.34	%	5,147,060		44,319		1.15	%	Money market	8,231,870		6,596		0.16	%	5,681,110		12,872		0.46	%
Savings	Savings	529,362		228		0.06	%	531,306		687		0.17	%	Savings	585,662		71		0.02	%	511,147		193		0.08	%
Time	Time	2,343,645		24,301		1.39	%	2,606,417		36,745		1.88	%	Time	1,495,731		3,476		0.47	%	2,580,001		19,549		1.52	%
Total interest-bearing deposits	Total interest-bearing deposits	13,181,558		51,209		0.52	%	11,581,316		113,658		1.31	%	Total interest-bearing deposits	17,134,364		14,769		0.17	%	12,506,539		41,322		0.66	%
Borrowings	Borrowings	1,023,307		8,124		1.06	%	1,180,482		21,772		2.47	%	Borrowings	225,748		458		0.41	%	1,448,929		8,097		1.12	%
Subordinated debentures		460,088		16,632		4.83	%	455,045		22,860		6.72	%
Subordinated debt														Subordinated debt	601,658		11,038		3.70	%	458,932		11,962		5.24	%
Total interest-bearing liabilities	Total interest-bearing liabilities	14,664,953		75,965		0.69	%	13,216,843		158,290		1.60	%	Total interest-bearing liabilities	17,961,770		26,265		0.29	%	14,414,400		61,381		0.86	%
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	8,157,169						7,603,993						Noninterest-bearing demand deposits	10,742,233						7,824,934
Other liabilities	Other liabilities	433,527						349,914						Other liabilities	496,553						418,985
Total liabilities	Total liabilities	23,255,649						21,170,750						Total liabilities	29,200,556						22,658,319
Stockholders’ equity	Stockholders’ equity	3,965,453						4,842,140						Stockholders’ equity	3,678,481						4,201,814
Total liabilities and	Total liabilities and													Total liabilities and
stockholders' equity	stockholders' equity	$	27,221,102					$	26,012,890					stockholders' equity	$	32,879,037					$	26,860,133
Net interest income (2)	Net interest income (2)			$	761,354					$	773,716			Net interest income (2)			$	534,718					$	507,722
Net interest rate spread (2)	Net interest rate spread (2)					3.85	%					3.96	%	Net interest rate spread (2)					3.42	%					3.91	%
Net interest margin (2)	Net interest margin (2)					4.13	%					4.62	%	Net interest margin (2)					3.53	%					4.26	%

Total deposits (5)	Total deposits (5)	$	21,338,727	$	51,209	0.32	%	$	19,185,309	$	113,658	0.79	%	Total deposits (5)	$	27,876,597	$	14,769	0.11	%	$	20,331,473	$	41,322	0.41	%

_____________________

(1) Includes nonaccrual loans and leases and loan fees. Includes tax-equivalent adjustments related to tax-exempt interest on loans.

(2) Tax equivalent.

(3) Includes ~~discount accretion on acquired loans~~net loan premium amortization of $~~9.3~~2.7 million and ~~$9.1~~net loan discount accretion of $4.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020, respectively.

(4) Includes tax-equivalent adjustments of ~~$4.2~~$4.2 million and ~~$4.8~~$2.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020, respectively, related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.

~~Third~~Second Quarter of ~~2020~~2021 Compared to First Quarter of 2021

Net interest income increased by $5.0 million to $266.3 million for the second quarter of 2021 compared to $261.3 million for the first quarter of 2021 due mainly to higher income on investment securities and loans and leases due mostly to higher average balances, offset partially by higher interest expense resulting from the $400 million of subordinated debt issued on April 30, 2021. The tax-equivalent yield on average loans and leases was 5.18% for the second quarter of 2021 compared to 5.20% for the first quarter of 2021.

The tax equivalent NIM was 3.40% for the second quarter of 2021 compared to 3.69% for the first quarter of 2021. The decrease in the tax equivalent NIM was due primarily to the change in the earning assets mix driven by the increase in investment securities and deposits in financial institutions as a percentage of earning assets. The average balance of deposits in financial institutions increased by $1.6 billion to $6.3 billion, the average balance of investment securities increased by $1.1 billion to $6.5 billion, and the average balance of loans and leases increased by $130.1 million to $19.1 billion in the second quarter of 2021. Average loans and leases as a percentage of average interest-earning assets was 60% for the second quarter of 2021 compared to 65% for the first quarter of 2021. This excess liquidity had a negative impact on the second quarter tax equivalent NIM of approximately 73 basis points.

The cost of average total deposits decreased to 0.10% for the second quarter of 2021 from 0.11% for the first quarter of 2021. The lower cost of average total deposits was due primarily to the increased average balance of noninterest-bearing deposits.

Second Quarter of 2021 Compared to Second Quarter of 2020

Net interest income ~~decreased~~increased by ~~$3.0~~$12.0 million to ~~$251.3~~$266.3 million for the ~~third~~second quarter of ~~2020~~2021 compared to $254.3 million for the second quarter of 2020 due mainly to higher income on investment securities attributable to a higher average balance combined with lower ~~balance of average~~interest expense, offset partially by lower income on loans and leases due mainly to a lower average balance. Interest expense declined due principally to lower rates and average balances for time deposits and borrowings, offset partially by a ~~lower cost~~higher balance of average ~~interest-bearing liabilities.~~ subordinated debt attributable to the $400 million of subordinated notes issued in the second quarter of 2021. The ~~tax-equivalent~~tax equivalent yield on average loans and leases was ~~5.01%~~5.18% for ~~both~~ the ~~third quarter and~~ second quarter of 2021 compared to 5.01% for the same quarter of 2020. The increase in the yield on average loans and leases was due mainly to higher loan prepayment fees and higher amortized loan fee income (mainly from PPP loans), offset partially by lower loan coupon interest from the repricing of variable-rate loans in conjunction with decreased market rates.

The tax equivalent NIM was ~~3.90%~~3.40% for the ~~third~~second quarter of ~~2020~~2021 compared to 4.20% for the ~~second~~same quarter ~~of 2020.~~last year. The decrease in the tax equivalent NIM was due mostly to the change in the ~~earning asset mix.~~mix of average interest-earning assets, offset partially by lower deposit and borrowing costs. The change in mix of average interest-earning assets was due to a $5.6 billion increase in average deposits in financial institutions, a $2.6 billion increase in average investment securities, and a $894.1 million decrease in average loans and leases. Average loans and leases ~~decreased by $756 million, while~~as a percentage of average interest-earning assets was 60% for the ~~average balance of deposits in financial institutions increased by $1.8 billion in the third~~second quarter of ~~2020. This excess liquidity had a negative impact on~~2021 compared to 81% for the ~~third~~second quarter ~~tax equivalent NIM~~ of ~~32 basis points, while the PPP loans, which have a coupon rate of 1%, had a negative impact of seven basis points.~~2020.

The cost of average total deposits decreased to ~~0.17%~~0.10% for the ~~third~~second quarter of ~~2020~~2021 from 0.25% for the second quarter of ~~2020. The lower cost of average total deposits was due primarily to the repricing of maturing time deposits. The cost of deposits was 0.13% at September 30, 2020.~~

~~Third Quarter of~~ 2020 ~~Compared to Third Quarter of 2019~~

Net interest income decreased by $0.9 million to $251.3 million for the third quarter of 2020 compared to $252.2 million for the third quarter of 2019 due mainly to a lower yield on average loans and leases, offset partially by a lower cost of average interest-bearing liabilities and a higher balance of average loans and leases. The tax equivalent yield on average loans and leases was 5.01% for the third quarter of 2020 compared to 5.91% for the same quarter of 2019. The decrease in the yield on average loans and leases was due mainly to lower loan coupon interest from the repricing of variable-rate loans in conjunction with decreased market rates and a lower rate on loan production from the impact of the PPP loans.

The tax equivalent NIM was 3.90% for the third quarter of 2020 compared to 4.46% for the same quarter last year. The decrease in the tax equivalent NIM was due mostly to the decrease in the yield on average loans and leases as described above, offset partially by lower deposit and borrowing costs. Total discount accretion on acquired loans contributed three basis points to the NIM for the third quarter of 2020 compared to four basis points for the third quarter of 2019.

~~The cost of average total deposits decreased to 0.17% for the third quarter of 2020 from 0.83% for the third quarter of 2019~~ due mainly to lower rates paid on deposits in conjunction with decreased market rates.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020

Net interest income ~~decreased~~increased by ~~$12.7~~$23.6 million to ~~$755.4~~$527.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~$768.0~~$504.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 due mainly to higher income on investment securities attributable to a higher average balance combined with lower interest expense due to lower rates paid on deposits and borrowings in conjunction with decreased market rates, offset partially by lower income on loans and leases due to a lower ~~yield on~~ average loans and leases ~~and higher balances of average interest-bearing deposits and borrowings, offset partially by~~balance coupled with a lower ~~cost of average interest-bearing liabilities~~loan and ~~a higher balance of average loans and leases.~~ lease yield in conjunction with decreased market rates. The tax equivalent yield on average loans and leases was ~~5.18%~~5.19% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~6.11%~~5.27% for the same period in 2019. The decrease in the yield on average loans and leases was due mainly to lower loan coupon interest from the repricing of variable-rate loans in conjunction with decreased market rates and a lower rate on loan production from the impact of the PPP loans. Excluding the PPP loans, which have a coupon rate of 1%, the tax equivalent yield on average loans and leases was 5.28% in the 2020 period.2020.

The tax equivalent NIM was ~~4.13%~~3.53% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 compared to ~~4.62%~~4.26% for the same period last ~~year.~~year. The decrease in the tax equivalent NIM was due mostly to the ~~decrease~~change in the ~~yield on~~mix of average ~~loans and leases as described above,~~interest-earning assets, offset partially by lower deposit and borrowing costs. ~~Excluding the PPP~~The change in mix of average interest-earning assets was due to a $4.9 billion increase in average deposits in financial institutions, a $2.1 billion increase in average investment securities, and a $515.6 million decrease in average loans ~~the tax equivalent NIM~~and leases. Average loans and leases as a percentage of average interest-earning assets was ~~4.17%~~62% for the ~~nine~~six months ended ~~September~~June 30, 2021 compared to 81% for the six months ended June 30, 2020.

The cost of average total deposits decreased to ~~0.32%~~0.11% for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 from ~~0.79%~~0.41% for the ~~nine months ended September 30, 2019~~ same period last year due mainly to lower rates paid on deposits ~~resulting from~~in conjunction with decreased market rates.

Provision for Credit Losses

The following table sets forth the details of the provision for credit losses on loans and leases held for investment and information regarding credit quality metrics for the periods indicated:


		Three Months Ended									Nine Months Ended							Three Months Ended									Six Months Ended
		September 30,			June 30,			September 30,			September 30,							June 30,			March 31,			June 30,			June 30,
		2020			2020			2019			2020			2019				2021			2021			2020			2021			2020
		(Dollars in thousands)																(Dollars in thousands)
Provision For Credit Losses:	Provision For Credit Losses:																Provision For Credit Losses:
Addition to allowance for loan and lease losses		$	81,000		$	93,000		$	8,000		$	272,000		$	22,000
Addition to (reduction in) reserve for unfunded
(Reduction in) addition to allowance for loan and lease losses																	(Reduction in) addition to allowance for loan and lease losses	$	(72,000)		$	(53,000)		$	93,000		$	(125,000)		$	191,000
(Reduction in) addition to reserve for unfunded																	(Reduction in) addition to reserve for unfunded
loan commitments	loan commitments	16,000			27,000			(1,000)			57,000			(3,000)			loan commitments	(16,000)			5,000			27,000			(11,000)			41,000
Total provision for credit losses	Total provision for credit losses	$	97,000		$	120,000		$	7,000		$	329,000		$	19,000		Total provision for credit losses	$	(88,000)		$	(48,000)		$	120,000		$	(136,000)		$	232,000

Credit Quality Metrics:	Credit Quality Metrics:																Credit Quality Metrics:
Net charge-offs on loans and leases held for
investment (1)		$	36,084		$	13,242		$	4,485		$	68,436		$	15,920
Net (recoveries) charge-offs on loans and leases																	Net (recoveries) charge-offs on loans and leases
held for investment (1)																	held for investment (1)	$	(5,155)		$	2,736		$	13,242		$	(2,419)		$	32,352
Annualized net charge-offs to average loans and leases	Annualized net charge-offs to average loans and leases	0.75		%	0.27		%	0.10		%	0.47		%	0.12		%	Annualized net charge-offs to average loans and leases	(0.11)		%	0.06		%	0.27		%	(0.03)		%	0.33		%
At quarter-end:	At quarter-end:																At quarter-end:
Allowance for credit losses	Allowance for credit losses	$	442,537		$	381,621		$	172,413								Allowance for credit losses	$	300,171		$	383,016		$	381,621
Allowance for credit losses to loans and leases	Allowance for credit losses to loans and leases																Allowance for credit losses to loans and leases
held for investment	held for investment	2.33		%	1.94		%	0.92		%							held for investment	1.54		%	2.02		%	1.94		%
Allowance for credit losses to nonaccrual	Allowance for credit losses to nonaccrual																Allowance for credit losses to nonaccrual
loans and leases held for investment	loans and leases held for investment	516.9		%	229.7		%	174.0		%							loans and leases held for investment	528.4		%	566.2		%	229.7		%

Nonaccrual loans and leases held for investment	Nonaccrual loans and leases held for investment	$	85,615		$	166,113		$	99,113								Nonaccrual loans and leases held for investment	$	56,803		$	67,652		$	166,113
Performing TDRs held for investment	Performing TDRs held for investment	$	13,679		$	15,037		$	16,329								Performing TDRs held for investment	$	40,129		$	27,999		$	15,037
Classified loans and leases held for investment	Classified loans and leases held for investment	$	274,572		$	293,230		$	188,607								Classified loans and leases held for investment	$	147,267		$	163,117		$	293,230

______________________

(1) See "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment" for detail of charge-offs and recoveries by loan portfolio segment, class, and subclass for the periods presented.

Provisions for credit losses are charged to earnings for both the allowance for loan and lease losses and the reserve for unfunded loan commitments (collectively, the allowance for credit losses). The provision for credit losses on our loans and leases held for investment is based on our allowance methodology and is an expense that, in our judgment, is required to maintain an adequate allowance for credit losses. For further details on our allowance for credit losses methodology, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.

The provision for credit losses decreased by ~~$23.0~~$40.0 million to ~~$97.0~~a benefit of $88.0 million for the ~~third~~second quarter of ~~2020~~2021 compared to a benefit of $48.0 million for the first quarter of 2021 as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics along with decreased provisions for individually evaluated loans and leases and for unfunded commitments.

The provision for credit losses decreased by $208.0 million to a benefit of $88.0 million for the second quarter of 2021 compared to a provision of $120.0 million for the second quarter of 2020 as a result of improvement in ~~certain key~~both macro-economic forecast variables ~~(unemployment~~ and real GDP growth), offset partially by deterioration in other key macro-economic variables, including CRE price index and BBB spreads, and increased provisions for individually evaluated loans and leases.loan portfolio credit quality metrics.

The provision for credit losses ~~increased~~decreased by ~~$90.0~~$368.0 million to ~~$97.0~~a benefit of $136.0 million for the ~~third quarter of 2020~~six months ended June 30, 2021 compared to ~~$7.0~~a provision of $232.0 million for the ~~third quarter of 2019~~six months ended June 30, 2020 as a result of ~~the impact of the current economic forecast used~~improvement in ~~our CECL process, which reflected a significant deterioration in key~~both macro-economic forecast variables ~~such as unemployment~~ and ~~GDP growth as a result of COVID-19.~~

~~The provision for~~loan portfolio credit losses increased by $310.0 million to $329.0 million for the nine months ended September 30, 2020 compared to $19.0 million for the nine months ended September 30, 2019 as a result of the impact of the current economic forecast used in our CECL process, which reflected a significant deterioration in key macro-economic forecast variables such as unemployment and GDP growth as a result of COVID-19.

quality metrics.

Certain circumstances may lead to increased provisions for credit losses in the future. Examples of such circumstances include deterioration in economic conditions and forecasts, an increased amount of classified and/or criticized loans and leases, and net loan and lease and unfunded commitment growth. Deterioration in economic conditions and forecasts include the rate of economic growth, the unemployment rate, the rate of inflation, changes in the general level of interest rates, changes in real estate values, and adverse conditions in borrowers’ businesses. See further discussion in “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.

Noninterest Income

The following table summarizes noninterest income by category for the periods indicated:


		Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,		March 31,		June 30,		June 30,
Noninterest Income	Noninterest Income	2020		2020		2019		2020		2019		Noninterest Income	2021		2021		2020		2021		2020
		(In thousands)											(In thousands)
Leased equipment income	Leased equipment income	$	9,900	$	12,037	$	9,615	$	34,188	$	28,079	Leased equipment income	$	10,847	$	11,354	$	12,037	$	22,201	$	24,288
Other commissions and fees	Other commissions and fees	10,541		10,111		10,855		30,373		33,453		Other commissions and fees	10,704		9,158		10,111		19,862		19,832
Service charges on deposit accounts	Service charges on deposit accounts	2,570		2,004		3,525		7,232		11,026		Service charges on deposit accounts	3,452		2,934		2,004		6,386		4,662
Gain on sale of loans and leases	Gain on sale of loans and leases	35		346		765		468		1,091		Gain on sale of loans and leases	1,422		139		346		1,561		433
Gain on sale of securities	Gain on sale of securities	5,270		7,715		908		13,167		25,261		Gain on sale of securities	—		101		7,715		101		7,897
Other income:	Other income:											Other income:
Dividends and gains (losses) on equity investments	Dividends and gains (losses) on equity investments	6,945		2,947		14		9,920		227		Dividends and gains (losses) on equity investments	5,394		10,904		2,947		16,298		2,975
Warrant income	Warrant income	500		1,973		3,936		3,310		7,429		Warrant income	5,650		6,123		1,973		11,773		2,810
Other	Other	2,491		1,725		3,811		7,552		8,820		Other	2,902		4,116		1,725		7,018		5,061
Total noninterest income	Total noninterest income	$	38,252	$	38,858	$	33,429	$	106,210	$	115,386	Total noninterest income	$	40,371	$	44,829	$	38,858	$	85,200	$	67,958

~~Third~~Second Quarter of ~~2020~~2021 Compared to First Quarter of 2021

Noninterest income decreased by $4.5 million to $40.4 million for the second quarter of 2021 compared to $44.8 million for the first quarter of 2021 due mostly to a decrease of $5.5 million in dividends and gains on equity investments and a $1.2 million decrease in other income, offset partially by increases of $1.5 million in other commissions and fees and $1.3 million in gain on sale of loans and leases. The decrease in dividends and gains on equity investments was due primarily to a $10.1 million gain on one equity investment in the first quarter of 2021, offset partially by higher net fair value gains on equity investments still held. The decrease in other income was due primarily to lower foreign currency translation gains and negative fair value adjustments related to servicing assets. The increase in gain on sale of loans and leases resulted from the sales of $52.2 million of loans for gains of $1.4 million in the second quarter of 2021 compared to sales of $72.6 million for gains of $0.1 million in the first quarter of 2021. The decrease in warrant income was primarily attributable to lower gains from exercised warrants due to elevated gains in the first quarter of 2021.

Second Quarter of 2021 Compared to Second Quarter of 2020

Noninterest income ~~decreased~~increased by ~~$0.6~~$1.5 million to ~~$38.3~~$40.4 million for the ~~third~~second quarter of ~~2020~~2021 compared to $38.9 million for the second quarter of 2020 due mainly to ~~decreases~~increases of $3.7 million in warrant income, $2.4 million in dividends and gains on equity investments, $1.2 million in other income, and $1.1 million in gain on sale of ~~securities, $2.1 million in leased equipment income, and $1.5 million in warrant income,~~loans, offset partially by a ~~$4.0~~$7.7 million ~~increase in dividends and gains on equity investments. The~~ decrease in gain on sale of securities resulted from the sale of $17.0 million of securities for a gain of $5.3 million in the third quarter compared to sales of $122.3 million of securities for a gain of $7.7 million in the second quarter. Leased equipment income decreased due mainly to lower gains from early lease terminations and lower rental income attributable to operating leases placed on nonaccrual status in the third quarter.securities. Warrant income ~~decreased~~increased due principally to ~~lower~~higher gains from exercised ~~warrants.~~warrants, driven by the active capital markets. The increase in dividends and gains on equity investments ~~resulted~~was due primarily ~~from net~~to higher gains on sales and higher fair value gains ~~of $5.9 million recorded in the third quarter of 2020~~ on equity investments still held. The increase in gain on sale of loans was primarily due to a $1.4 million gain on one loan sold in the second quarter of 2021. The decrease in gain on sale of securities was due to no sales in the second quarter of 2021.

~~Third Quarter of 2020~~Six Months Ended June 30, 2021 Compared to ~~Third Quarter of 2019~~Six Months Ended June 30, 2020

Noninterest income increased by ~~$4.8~~$17.2 million to ~~$38.3~~$85.2 million for the ~~third quarter of 2020~~six months ended June 30, 2021 compared to ~~$33.4~~$68.0 million for the ~~third quarter of 2019~~six months ended June 30, 2020 due mainly to increases of ~~$6.9~~$13.3 million in dividends and gains on equity investments, $9.0 million in warrant income, and ~~$4.4~~$1.7 million in service charges on deposit accounts, offset partially by a $7.8 million decrease in gain on sale of ~~securities, offset partially by a decrease of $3.4 million in warrant income.~~securities. The increase in dividends and gains on equity investments ~~resulted~~was due primarily ~~from net~~to higher gains on sales and higher fair value gains ~~of $5.9 million~~ on equity investments still held recorded in the third quarter of 2020. The increase in gain on sale of securities resulted from the sale of $17.0 million of securities for a gain of $5.3 million in the third quarter of 2020 compared to sales of $143.4 million of securities for a gain of $0.9 million in the third quarter of 2019.held. Warrant income ~~decreased~~increased due principally to ~~lower~~higher gains from exercised ~~warrants.~~

~~Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019~~

~~Noninterest income decreased~~warrants, driven by ~~$9.2 million to $106.2 million for~~ the nine months ended September 30, 2020 compared to $115.4 million for the nine months ended September 30, 2019 due mainly to decreases of $12.1 million in gain on sale of securities, $4.1 million in warrant income, $3.8 millionactive capital markets. The increase in service charges on deposit accounts ~~and $3.1 million~~was due primarily to fee waivers we granted customers in ~~other commissions and fees, offset partially by increases of $9.7 million in dividends and gains on equity investments and $6.1 million in leased equipment income.~~2020 during the COVID pandemic. The decrease in gain on sale of securities resulted from the sale of $154.1 million of securities for a gain of $13.2 million for the nine months ended September 30, 2020 compared to sales of $1.5 billion of securities for a gain of $25.3 million for the nine months ended September 30, 2019. Warrant income decreased due principally to lower gains from exercised warrants. Service charges on deposit accounts decreased due primarily to lower analysis fees and NSF fees for the nine months ended September 30, 2020 as compared to the same period last year as we waived certain fees for a period of time as part of our response to the COVID-19 pandemic. Other commissions and fees decreased primarilywas due to ~~lower foreign exchange fees and lower credit card fee income, offset partially by higher customer success fees. Dividends and gains on equity investments increased due primarily to increases~~minimal sales in the fair value of equity investments still held and higher gains on sale of equity investments sold. Leased equipment income increased due to early lease terminations resulting in higher termination gains in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 and a higher average balance of leases in 2020 resulting in higher lease income as compared to the 2019 period, offset partially by lower rental income attributable to operating leases placed on nonaccrual status in 2020.2021 period.

Noninterest Expense

The following table summarizes noninterest expense by category for the periods indicated:


		Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,		March 31,		June 30,		June 30,
Noninterest Expense	Noninterest Expense	2020		2020		2019		2020		2019		Noninterest Expense	2021		2021		2020		2021		2020
		(In thousands)											(In thousands)
Compensation	Compensation	$	75,131	$	61,910	$	71,424	$	198,323	$	211,225	Compensation	$	90,807	$	79,882	$	61,910	$	170,689	$	123,192
Occupancy	Occupancy	14,771		14,494		14,089		43,472		42,866		Occupancy	14,784		14,054		14,494		28,838		28,701
Leased equipment depreciation	Leased equipment depreciation	7,057		7,102		5,951		21,364		17,160		Leased equipment depreciation	8,614		8,969		7,102		17,583		14,307
Data processing	Data processing	6,505		7,102		7,044		20,061		20,786		Data processing	7,758		6,957		7,102		14,715		13,556
Other professional services	Other professional services	4,713		4,146		4,400		13,117		13,542		Other professional services	5,256		5,126		4,146		10,382		8,404
Customer related expense												Customer related expense	4,973		4,818		4,408		9,791		8,340
Loan expense												Loan expense	4,031		3,193		3,379		7,224		6,029
Insurance and assessments	Insurance and assessments	3,939		9,373		4,100		17,561		12,236		Insurance and assessments	3,745		4,903		9,373		8,648		13,622
Intangible asset amortization	Intangible asset amortization	3,751		3,882		4,833		11,581		14,573		Intangible asset amortization	2,889		3,079		3,882		5,968		7,830
Customer related expense		4,762		4,408		3,539		13,102		9,887
Loan expense		3,499		3,379		3,628		9,528		9,964
Foreclosed assets expense (income), net		335		(146)		8		255		(109)
Acquisition, integration and reorganization costs	Acquisition, integration and reorganization costs	—		—		—		—		618		Acquisition, integration and reorganization costs	200		3,425		—		3,625		—
Foreclosed assets (income) expense, net												Foreclosed assets (income) expense, net	(119)		1		(146)		(118)		(80)
Other	Other	8,939		11,315		7,793		29,973		25,775		Other	8,812		15,729		11,315		24,541		21,034
Total operating expense	Total operating expense	133,402		126,965		126,809		378,337		378,523		Total operating expense	151,750		150,136		126,965		301,886		244,935
Goodwill impairment	Goodwill impairment	—		—		—		1,470,000		—		Goodwill impairment	—		—		—		—		1,470,000
Total noninterest expense	Total noninterest expense	$	133,402	$	126,965	$	126,809	$	1,848,337	$	378,523	Total noninterest expense	$	151,750	$	150,136	$	126,965	$	301,886	$	1,714,935

~~Third~~Second Quarter of ~~2020~~2021 Compared to First Quarter of 2021

Noninterest expense increased by $1.6 million to $151.8 million for the second quarter of 2021 compared to $150.1 million for the first quarter of 2021 due mostly to an increase of $10.9 million in compensation expense, offset partially by decreases of $6.9 million in other expense, $3.2 million in acquisition, integration and reorganization costs, and $1.2 million in insurance and assessments expense. The increase in compensation expense was due mostly to compensation expense related to the Civic operations as a result of three months of activity in the second quarter of 2021 compared to two months of activity in the first quarter of 2021, in addition to growth across the Company which contributed to an increase in variable compensation during the second quarter of 2021. The decrease in other expense was due largely to a legal settlement accrual in the first quarter of 2021. The decrease in acquisition, integration and reorganization costs was due to lower advisory services and integration expenses related to the closed Civic acquisition and the pending acquisition of MUFG Union Bank's HOA Services Division. The decrease in insurance and assessments expense was due primarily to lower FDIC assessment expense resulting from a lower assessment rate, offset partially by a higher assessment base.

Second Quarter of 2021 Compared to Second Quarter of 2020

Noninterest expense increased by ~~$6.4~~$24.8 million to ~~$133.4~~$151.8 million for the ~~third~~second quarter of ~~2020~~2021 compared to $127.0 million for the second quarter of 2020 ~~attributable~~due primarily to a ~~$13.2~~$28.9 million increase in compensation expense offset partially by decreases of $5.4 million in insurance and assessments expense and $2.4 million in other expense. Compensation expense increased due mainly to higher bonus accruals of $12.4 million and stock compensation expense of $1.4 million. Projections for accruals for discretionary bonuses were reduced in the first quarter with the onset of the pandemic and continued at the lower accrual rate in the second quarter, before being increased in the third quarter causing an incremental increase in the third quarter based on the updated bonus projections. The updated annual bonus projections remain below normal historical levels and are subject to change. Insurance and assessments expense decreased due mostly to ~~a decline in FDIC assessment~~the incremental compensation expense for Civic, which was attributable primarily to increases in liquidity and uninsured deposits during the last two quarters. The decrease in other expense was due primarily to $6.6 million in prepayment penalties incurred in the second quarter from the early payoff of $750 million of FHLB term advances, offset partially by higher legal accruals in the third quarter.acquired on February 1, 2021.

~~Third Quarter of 2020~~Six Months Ended June 30, 2021 Compared to ~~Third Quarter of 2019~~Six Months Ended June 30, 2020

Noninterest expense ~~increased~~decreased by ~~$6.6 million~~$1.41 billion to ~~$133.4~~$301.9 million for the ~~third quarter of 2020~~six months ended June 30, 2021 compared to $126.8 million for the third quarter of 2019 due mainly to increases of $3.7 million in compensation expense, $1.2 million in customer related expense, and $1.1 million in other expense. Compensation expense increased due mostly to higher bonus expense reflecting the incremental increase to the annual bonus projection discussed above and higher vacation accrual expense. Customer related expense increased due primarily to higher customer analysis expenses. Other expense increased due mainly to higher legal accruals, offset partially by lower business development expenses as a result of COVID-19.

~~Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019~~

~~Noninterest expense increased by $1.47 billion to $1.85~~$1.71 billion for the ~~nine~~six months ended ~~September~~June 30, 2020 ~~compared to $378.5 million for the nine months ended September 30, 2019~~ due ~~mainly~~primarily to a $1.47 billion goodwill impairment ~~charge.~~in the 2020 period. Excluding the goodwill impairment, ~~charge,~~ noninterest expense ~~decreased~~increased by ~~$0.2~~$57.0 million in the 2021 period compared to ~~$378.3 million.~~the 2020 period. This ~~decrease~~increase was due ~~mainly~~primarily to ~~decreases of $12.9~~a $47.5 million increase in compensation expense and ~~$3.0~~a $3.6 million increase in ~~intangible asset amortization, offset partially by increases~~acquisition, integration and reorganization costs. The increase in compensation expense was due to the incremental compensation expense from five months of ~~$5.3 million~~Civic operations in ~~insurance~~the 2021 period and ~~assessments, $4.2 million in leased equipment depreciation, and $4.2 million in other expense. Compensation expense decreased due mainly to lower~~higher bonus expense, given the operating results in 2021, while the 2020 period compared to the prior year. Intangible asset amortization decreased due mostly to lower CDI amortization related to a financial institution acquired in 2017. Insurance and assessments expense increased due primarily to an increase in our FDIC assessment ratebonus amounts were below historical levels as a result of the ~~first quarter 2020 loss from~~higher provisions for credit losses in 2020. The increase in acquisition, integration, and reorganization costs was due to the goodwill impairment charge. Leased equipment depreciation increased due principally to a higher average balance of leased equipment. Other expense increased due mainly to $6.6 million in prepayment penalties incurredcosts in the ~~second quarter from~~2021 period related to the ~~early payoff~~closed Civic acquisition and the pending acquisition of ~~$750 million of FHLB term advances and higher legal accruals, offset partially by lower business development expenses and employee related expenses as a result of COVID-19.~~MUFG Union Bank's HOA Services Division.

Income Taxes

The effective tax rate for the ~~third~~second quarter of ~~2020~~2021 was ~~23.1%~~25.7% compared to 26.3% for the first quarter of 2021 and 28.1% for the second quarter of ~~2020 and 27.5% for the third quarter of 2019.~~2020. The ~~lower~~decreased effective tax rate in the ~~third~~second quarter of 2021 compared to the first quarter of 2021 and the second quarter of 2020 was primarily due ~~mainly~~ to tax benefits resulting from the ~~tax effects~~vesting of restricted stock ~~vestings~~and return-to-provision adjustments recorded in the second quarter ~~that elevated the second quarter effective tax rate.~~of 2021. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~(2.9)%~~26.0% compared to ~~27.8%~~(1.8)% for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. Excluding non-deductible goodwill impairment, the effective income tax rate was ~~25.0%~~26.3% for the ~~nine~~six months ended ~~September~~June 30, 2020. The Company’s blended statutory tax rate for federal and state is ~~27.9% and~~27.6% and the effective tax rate for the full year ~~2020, excluding non-deductible goodwill impairment,~~2021 is estimated to be in the range of 25-27%.

Balance Sheet Analysis

Securities Available-for-Sale

The following table presents the composition and durations of our securities available-for-sale as of the dates indicated:


		September 30, 2020					June 30, 2020					December 31, 2019						June 30, 2021					March 31, 2021					December 31, 2020
		Fair		% of		Duration	Fair		% of		Duration	Fair		% of		Duration		Fair		% of		Duration	Fair		% of		Duration	Fair		% of		Duration
Security Type	Security Type	Value		Total		(in years)	Value		Total		(in years)	Value		Total		(in years)	Security Type	Value		Total		(in years)	Value		Total		(in years)	Value		Total		(in years)
		(Dollars in thousands)																(Dollars in thousands)
Municipal securities																	Municipal securities	$	1,817,499	25	%	8.2	$	1,646,054	28	%	8.5	$	1,531,617	29	%	8.2
Agency commercial MBS	Agency commercial MBS	$	1,204,315	27	%	2.6	$	1,133,086	29	%	2.8	$	1,108,224	29	%	4.4	Agency commercial MBS	1,257,628		18	%	3.6	1,273,402		22	%	3.8	1,281,877		24	%	3.2
Municipal securities		1,203,030		27	%	7.7	888,338		23	%	7.2	735,159		19	%	7.6
Agency residential CMOs	Agency residential CMOs	1,165,872		26	%	2.8	1,049,742		27	%	2.9	1,136,397		30	%	3.7	Agency residential CMOs	1,142,398		16	%	3.0	1,108,828		19	%	2.8	1,219,880		23	%	2.7
U.S. Treasury securities																	U.S. Treasury securities	877,153		12	%	7.7	491,358		8	%	7.4	5,302		—	%	1.3
Agency residential MBS	Agency residential MBS	246,498		5	%	1.8	248,934		6	%	2.5	305,198		8	%	3.3	Agency residential MBS	552,411		8	%	3.3	433,100		7	%	2.5	341,074		7	%	1.9
Asset-backed securities		234,103		5	%	0.7	227,206		6	%	0.6	214,783		6	%	1.1
Corporate debt securities	Corporate debt securities	174,282		4	%	3.7	20,458		1	%	9.9	20,748		1	%	11.3	Corporate debt securities	508,708		7	%	3.8	380,407		6	%	3.9	311,889		6	%	3.7
Collateralized loan obligations	Collateralized loan obligations	135,333		3	%	—	136,663		4	%	(0.1)	123,756		3	%	0.2	Collateralized loan obligations	382,043		5	%	—	244,240		4	%	—	135,876		3	%	—
Private label commercial MBS																	Private label commercial MBS	378,235		5	%	7.4	71,033		1	%	2.2	82,957		2	%	1.8
Asset-backed securities																	Asset-backed securities	149,583		2	%	0.1	152,982		3	%	0.1	166,546		3	%	0.1
Private label residential CMOs	Private label residential CMOs	121,162		2	%	2.5	96,775		3	%	2.3	99,483		3	%	3.2	Private label residential CMOs	96,922		1	%	2.5	103,376		2	%	2.6	116,946		2	%	2.1
SBA securities	SBA securities	42,684		1	%	3.0	44,576		1	%	3.0	48,258		1	%	4.0	SBA securities	36,028		1	%	3.7	36,910		—	%	3.7	41,627		1	%	3.2
U.S. Treasury securities		5,335		—	%	1.4	5,363		—	%	1.6	5,181		—	%	3.2
Total securities available-	Total securities available-																Total securities available-
for-sale	for-sale	$	4,532,614	100	%	3.8	$	3,851,141	100	%	3.6	$	3,797,187	100	%	4.4	for-sale	$	7,198,608	100	%	5.1	$	5,941,690	100	%	4.8	$	5,235,591	100	%	4.3

The following table shows the geographic composition of the majority of our municipal securities portfolio as of the date indicated:


		September 30, 2020					June 30, 2021
		Fair		% of			Fair		% of
Municipal Securities by State	Municipal Securities by State	Value		Total		Municipal Securities by State	Value		Total
		(Dollars in thousands)					(Dollars in thousands)
California	California	$	376,174	31	%	California	$	471,398	26	%
Texas	Texas	176,618		15	%	Texas	325,433		18	%
Washington	Washington	168,705		14	%	Washington	284,026		15	%
Maryland						Maryland	74,684		4	%
Oregon						Oregon	71,513		4	%
Georgia	Georgia	67,524		6	%	Georgia	68,952		4	%
Oregon		52,616		4	%
New York	New York	52,325		4	%	New York	67,159		4	%
Utah		41,282		3	%
Maryland		29,052		3	%
Florida		24,468		2	%
Illinois		23,469		2	%
Colorado						Colorado	58,954		3	%
Ohio						Ohio	39,666		2	%
Tennessee						Tennessee	35,617		2	%
Total of ten largest states	Total of ten largest states	1,012,233		84	%	Total of ten largest states	1,497,402		82	%

All other states	All other states	190,797		16	%	All other states	320,097		18	%
Total municipal securities	Total municipal securities	$	1,203,030	100	%	Total municipal securities	$	1,817,499	100	%

Loans and Leases Held for Investment

The following table presents the composition of our loans and leases held for investment, net of deferred fees, by loan portfolio segment, class, and subclass as of the dates indicated:


		September 30, 2020				June 30, 2020				December 31, 2019					June 30, 2021				March 31, 2021				December 31, 2020
				% of				% of				% of					% of				% of				% of
Loan and Lease Portfolio	Loan and Lease Portfolio	Balance		Total		Balance		Total		Balance		Total		Loan and Lease Portfolio	Balance		Total		Balance		Total		Balance		Total
		(Dollars in thousands)													(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Other commercial real estate														Other commercial real estate	$	2,483,856	13	%	$	2,617,227	14	%	$	2,747,526	14	%
SBA program														SBA program	625,023		3	%	610,086		3	%	599,788		3	%
Hotel														Hotel	521,869		2	%	539,139		3	%	571,917		3	%
Healthcare real estate	Healthcare real estate	$	202,570	1	%	$	237,287	1	%	$	334,070	2	%	Healthcare real estate	161,450		1	%	175,158		1	%	177,440		1	%
Hotel		648,523		4	%	648,081		4	%	625,798		3	%
SBA program		600,668		3	%	573,149		3	%	556,889		3	%
Other commercial real estate		2,740,705		14	%	2,763,558		14	%	2,685,930		14	%
Total commercial real estate mortgage	Total commercial real estate mortgage	4,192,466		22	%	4,222,075		22	%	4,202,687		22	%	Total commercial real estate mortgage	3,792,198		19	%	3,941,610		21	%	4,096,671		21	%
Income producing and other residential	Income producing and other residential	3,592,905		19	%	3,638,835		19	%	3,665,790		19	%	Income producing and other residential	4,378,932		23	%	3,823,179		20	%	3,718,457		20	%
Other residential real estate	Other residential real estate	91,674		—	%	94,824		—	%	104,270		1	%	Other residential real estate	241,890		1	%	222,424		1	%	84,808		—	%
Total income producing and other	Total income producing and other													Total income producing and other
residential real estate mortgage	residential real estate mortgage	3,684,579		19	%	3,733,659		19	%	3,770,060		20	%	residential real estate mortgage	4,620,822		24	%	4,045,603		21	%	3,803,265		20	%
Total real estate mortgage	Total real estate mortgage	7,877,045		41	%	7,955,734		41	%	7,972,747		42	%	Total real estate mortgage	8,413,020		43	%	7,987,213		42	%	7,899,936		41	%
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	1,241,647		7	%	1,167,609		6	%	1,082,368		6	%	Commercial	930,785		5	%	990,035		5	%	1,117,121		6	%
Residential	Residential	2,182,100		11	%	2,172,919		11	%	1,655,434		9	%	Residential	2,574,799		13	%	2,575,788		14	%	2,243,160		12	%
Total real estate construction and land (1)	Total real estate construction and land (1)	3,423,747		18	%	3,340,528		17	%	2,737,802		15	%	Total real estate construction and land (1)	3,505,584		18	%	3,565,823		19	%	3,360,281		18	%
Total real estate	Total real estate	11,300,792		59	%	11,296,262		58	%	10,710,549		57	%	Total real estate	11,918,604		61	%	11,553,036		61	%	11,260,217		59	%
Commercial:	Commercial:													Commercial:
Lender finance	Lender finance	1,819,169		10	%	1,979,392		10	%	2,118,767		11	%	Lender finance	2,256,828		12	%	2,113,395		11	%	2,095,963		11	%
Equipment finance	Equipment finance	692,089		4	%	786,388		4	%	852,278		5	%	Equipment finance	638,898		3	%	647,423		4	%	700,042		4	%
Premium finance	Premium finance	k		#VALUE!		420,479		2	%	467,469		2	%	Premium finance	482,822		2	%	449,440		2	%	438,761		2	%
Other asset-based	Other asset-based	219,804		#VALUE!		226,172		1	%	309,893		2	%	Other asset-based	172,355		1	%	173,145		1	%	194,517		1	%
Total asset-based	Total asset-based	3,153,048		17	%	3,412,431		17	%	3,748,407		20	%	Total asset-based	3,550,903		18	%	3,383,403		18	%	3,429,283		18	%
Equity fund loans	Equity fund loans	745,596		4	%	739,761		4	%	1,199,268		6	%	Equity fund loans	1,245,283		6	%	889,828		5	%	1,032,718		5	%
Venture lending	Venture lending	891,536		5	%	1,074,580		5	%	980,154		6	%	Venture lending	504,149		3	%	605,970		3	%	665,790		4	%
Total venture capital	Total venture capital	1,637,132		9	%	1,814,341		9	%	2,179,422		12	%	Total venture capital	1,749,432		9	%	1,495,798		8	%	1,698,508		9	%
Paycheck Protection Program	Paycheck Protection Program	1,212,477		6	%	1,211,163		6	%	—		—	%	Paycheck Protection Program	609,200		3	%	1,079,258		5	%	1,057,422		5	%
Secured business loans	Secured business loans	411,559		2	%	501,680		3	%	583,300		3	%	Secured business loans	434,032		2	%	397,558		2	%	430,263		2	%
Security monitoring	Security monitoring	411,271		2	%	498,895		2	%	619,260		3	%	Security monitoring	207,232		1	%	205,798		1	%	329,312		2	%
Other lending	Other lending	507,105		3	%	511,655		3	%	527,049		3	%	Other lending	671,445		4	%	524,025		3	%	558,117		3	%
Cash flow		30,582		—	%	36,885		—	%	38,058		—	%
Total other commercial	Total other commercial	2,572,994		13	%	2,760,278		14	%	1,767,667		9	%	Total other commercial	1,921,909		10	%	2,206,639		11	%	2,375,114		12	%
Total commercial	Total commercial	7,363,174		39	%	7,987,050		40	%	7,695,496		41	%	Total commercial	7,222,244		37	%	7,085,840		37	%	7,502,905		39	%
Consumer	Consumer	362,234		2	%	411,319		2	%	440,827		2	%	Consumer	365,409		2	%	340,352		2	%	320,255		2	%
Total loans and leases held for investment,	Total loans and leases held for investment,													Total loans and leases held for investment,
net of deferred fees	net of deferred fees	$	19,026,200	100	%	$	19,694,631	100	%	$	18,846,872	100	%	net of deferred fees	$	19,506,257	100	%	$	18,979,228	100	%	$	19,083,377	100	%

________________________________

(1) Includes land and acquisition and development loans of ~~$154.1 million at September 30, 2020, $145.5~~$153.1 million at June 30, ~~2020,~~2021, $148.1 million at March 31, 2021 and ~~$173.4~~$167.1 million at December 31, ~~2019.~~2020.

The following table presents the geographic composition of our real estate loans held for investment, net of deferred fees, by the top 10 states and all other states combined (in the order presented for the current quarter-end) as of the dates indicated:


		September 30, 2020				December 31, 2019					June 30, 2021				December 31, 2020
				% of				% of					% of				% of
Real Estate Loans by State	Real Estate Loans by State	Balance		Total		Balance		Total		Real Estate Loans by State	Balance		Total		Balance		Total
		(Dollars in thousands)									(Dollars in thousands)
California	California	$	6,783,946	60	%	$	6,510,094	61	%	California	$	7,238,094	61	%	$	6,942,768	62	%
New York	New York	719,294		7	%	711,301		7	%	New York	728,125		6	%	716,329		6	%
Florida	Florida	679,130		6	%	598,561		5	%	Florida	715,790		6	%	598,167		5	%
Colorado										Colorado	560,049		5	%	386,480		3	%
Washington	Washington	386,659		3	%	324,588		3	%	Washington	408,010		3	%	413,014		4	%
Colorado		354,968		3	%	126,370		1	%
Oregon										Oregon	299,084		2	%	269,600		2	%
Texas	Texas	282,806		3	%	260,513		2	%	Texas	243,830		2	%	263,731		2	%
Oregon		270,765		2	%	288,764		3	%
Arizona	Arizona	193,400		2	%	162,317		1	%	Arizona	197,542		2	%	171,533		2	%
Nevada	Nevada	167,943		1	%	88,650		1	%	Nevada	185,716		2	%	195,663		2	%
District of Columbia		154,242		1	%	166,641		2	%
Georgia										Georgia	172,794		1	%	116,444		1	%
Total of 10 largest states	Total of 10 largest states	9,993,153		88	%	9,237,799		86	%	Total of 10 largest states	10,749,034		90	%	10,073,729		89	%
All other states	All other states	1,307,639		12	%	1,472,750		14	%	All other states	1,169,570		10	%	1,186,488		11	%
Total real estate loans held for investment, net of deferred fees	Total real estate loans held for investment, net of deferred fees	$	11,300,792	100	%	$	10,710,549	100	%	Total real estate loans held for investment, net of deferred fees	$	11,918,604	100	%	$	11,260,217	100	%

The following table presents a roll forward of loans and leases held for investment, net of deferred fees, for the periods indicated:


		Three Months Ended			Nine Months Ended				Three Months Ended			Six Months Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)	Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)	September 30, 2020			September 30, 2020			Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)	June 30, 2021			June 30, 2021
		(Dollars in thousands)							(Dollars in thousands)
Balance, beginning of period	Balance, beginning of period	$	19,694,631		$	18,846,872		Balance, beginning of period	$	18,979,228		$	19,083,377
Additions:	Additions:							Additions:
Production ~~(2)~~	Production ~~(2)~~	519,671			3,112,373			Production ~~(2)~~	1,663,151			3,275,928
Disbursements	Disbursements	1,008,336			3,805,874			Disbursements	1,662,644			2,685,630
Total production and disbursements	Total production and disbursements	1,528,007			6,918,247			Total production and disbursements	3,325,795			5,961,558
Reductions:	Reductions:							Reductions:
Payoffs	Payoffs	(982,889)			(2,408,433)			Payoffs	(1,969,118)			(3,604,382)
Paydowns	Paydowns	(1,160,692)			(4,236,773)			Paydowns	(802,222)			(1,869,640)
Total payoffs and paydowns	Total payoffs and paydowns	(2,143,581)			(6,645,206)			Total payoffs and paydowns	(2,771,340)			(5,474,022)
Sales	Sales	(2,979)			(6,068)			Sales	(26,610)			(99,251)
Transfers to foreclosed assets	Transfers to foreclosed assets	(12,594)			(14,370)			Transfers to foreclosed assets	—			(647)
Charge-offs	Charge-offs	(37,284)			(73,275)			Charge-offs	(816)			(4,804)

Transfers to loans held for sale								Transfers to loans held for sale	—			(25,554)
Total reductions	Total reductions	(2,196,438)			(6,738,919)			Total reductions	(2,798,766)			(5,604,278)

Net (decrease) increase		(668,431)			179,328
Loans and leases acquired through acquisition								Loans and leases acquired through acquisition	—			65,600
Net increase								Net increase	527,029			422,880
Balance, end of period	Balance, end of period	$	19,026,200		$	19,026,200		Balance, end of period	$	19,506,257		$	19,506,257

Weighted average rate on production ~~(3)~~(2)	Weighted average rate on production ~~(3)~~(2)	4.95		%	3.27		%	Weighted average rate on production ~~(3)~~(2)	4.55		%	4.46		%

_______________________________________

(1) Includes direct financing leases but excludes equipment leased to others under operating leases.

(2) ~~Production for the nine months ended September 30, 2020 includes $1.2 billion of PPP loans originated in the second quarter.~~

~~(3)~~ The weighted average rate on production presents contractual rates on a tax equivalent basis and does not include amortized fees. Amortized fees added approximately ~~26 and 23~~41 basis points to loan yields for the ~~three and nine~~six months ended ~~September~~June 30, ~~2020. Excluding PPP loans, which were at a 1% rate, the weighted average rate on production for the nine months ended September 30, 2020 was 4.81%.~~

2021.

Allowance for Credit Losses on Loans and Leases Held for Investment

The allowance for credit losses on loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The allowance for loan and lease losses is reported as a reduction of the amortized cost basis of loans and leases, while the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets. The amortized cost basis of loans and leases does not include interest receivable, which is included in "Other assets" on the condensed consolidated balance sheets. The "Provision for credit losses" on the condensed consolidated statement of earnings (loss) is a combination of the provision for loan and lease losses and the provision for unfunded loan commitments.

For further information regarding the calculation of the allowance for credit losses on loans and leases held for investment using the CECL methodology, ~~effective January 1, 2020,~~ see Note 1. ~~Organization -~~Nature of Operations and Summary of Significant Accounting Policies ~~and~~ ~~Accounting Standards Adopted in 2020~~ of the Notes to ~~Condensed~~ Consolidated Financial Statements ~~(Unaudited)~~ contained in "Item ~~1. Condensed Consolidated~~8. Financial Statements ~~(Unaudited)."~~and Supplementary Data" of our Form 10-K.

In calculating our allowance for credit losses, ~~in the third quarter of 2020,~~ we continued to consider the impacts of the ongoing COVID-19 pandemic on our estimation of expected credit losses given the changes in economic forecasts and assumptions along with the uncertainty related to the severity and duration of the economic consequences of the COVID-19 pandemic. Our methodology and framework along with the 4-quarter reasonable and supportable forecast period and 2-quarter reversion period have remained consistent since the implementation of CECL on January 1, 2020. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.

In the second quarter of 2020, we updated our estimated prepayment rates and expected future utilization rates for the reserve for unfunded commitments, while during the third quarter of 2020, we updated our PD econometric regression models.

~~In the second and third quarters of 2020,~~2021, we used the Moody’s Consensus ~~Scenario~~ Forecast dated June ~~11, 2020 and September 11, 2020, respectively,~~9, 2021 for the calculation of our quantitative component, ~~unlike~~which is consistent with the first quarter of 2021 when ~~we used~~ the ~~Moody’s Baseline~~Moody's Consensus Forecast dated March ~~27, 2020,~~20, 2021 was used. The key macro-economic variables used improved from previous economic forecasts which, when combined with improvements in other credit quality metrics such as a decline in classified and special mention loans, drove the Consensus Scenario Forecast at that time was considered stale due to the fact it was dated March 12, 2020 and did not reflect the pandemic and rapidly changing environment. For the first and second quarters of 2020, we made additional adjustments todecrease in the quantitative calculation due to regression model limitations caused by the sudden and unprecedented changes in macroeconomic variables and for imprecision inherent in the economic forecasts. In the third quarter of 2020, as part of the planned annual update of the PD regression models, we recalibrated the models in consideration of known model limitations to improve performance when applying highly volatile economic forecasts. The recalibration of models included expanding the number of macroeconomic variables and the variable transformations used to correlate to historical credit performance. As a result of the updated PD regression models, adjustments that were made to the quantitative calculation in the first and second quarters were not necessary in the third quarter.

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. 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~~losses in the second quarter. During the first quarter of 2021, we added qualitative components that were based on management’s assessment of various qualitative factors such as economic conditions and collateral dependency. These qualitative components were primarily related to ~~be assessed from~~certain loan portfolios including hotels, retail, and office properties that may react more slowly to the improvements in the general economic conditions. These sectors may see a slower economic recovery to pre-pandemic levels due to changes in consumer behavior such as less business travel due to more virtual meetings, more online shopping versus in person shopping, or the potential for more permanent shifts to remote or hybrid working arrangements. Additionally, small businesses in these sectors may face greater challenges once debt relief and PPP funding is exhausted. During the second quarter of 2021, these qualitative ~~perspective potentially requiring further~~ adjustments towere updated resulting in a decrease in the qualitative component, primarily to ~~arrive at a reasonable and appropriate allowance~~reflect an improved forecast for ~~credit losses.~~

hotel properties, compared to the first quarter of 2021.

The determination of the allowance for credit losses is complex and highly dependent on numerous models, assumptions, and judgments made by management. Management's current expectation for credit losses as quantified in the allowance for credit losses considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan and lease composition, and relative credit risks known as of the balance sheet date.

The following table presents information regarding the allowance for credit losses on loans and leases held for investment as of the dates indicated:

September 30, June 30, December 31, September 30,
Allowance for Credit Losses Data
2020 2020 2019 2019
(Dollars in thousands)
Allowance for loan and lease losses $ 345,966 $ 301,050 $ 138,785 $ 138,552
Reserve for unfunded loan commitments 96,571 80,571 35,861 33,861
Total allowance for credit losses $ 442,537 $ 381,621 $ 174,646 $ 172,413
Allowance for loan and lease losses to loans and leases held for investment 1.82 % 1.53 % 0.74 % 0.74 %
Allowance for credit losses to loans and leases held for investment 2.33 % 1.94 % 0.93 % 0.92 %
Allowance for credit losses to nonaccrual loans and leases held for investment 516.9 % 229.7 % 189.1 % 174.0 %


	June 30,			March 31,			December 31,			June 30,
Allowance for Credit Losses Data	2021			2021			2020			2020
	(Dollars in thousands)
Allowance for loan and lease losses	$	225,600		$	292,445		$	348,181		$	301,050
Reserve for unfunded loan commitments	74,571			90,571			85,571			80,571
Total allowance for credit losses	$	300,171		$	383,016		$	433,752		$	381,621

Allowance for loan and lease losses to loans and leases held for investment	1.16		%	1.54		%	1.82		%	1.53		%
Allowance for loan and lease losses to loans and leases held for investment,
excluding PPP loans	1.19		%	1.63		%	1.93		%	1.63		%
Allowance for credit losses to loans and leases held for investment	1.54		%	2.02		%	2.27		%	1.94		%
Allowance for credit losses to loans and leases held for investment,
excluding PPP loans	1.59		%	2.14		%	2.41		%	2.06		%

The following table presents the changes in our allowance for credit losses on loans and leases held for investment for the periods indicated:

Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
Allowance for Credit Losses Roll Forward
2020 2020 2019 2020 2019
(Dollars in thousands)
Balance, beginning of period $ 381,621 $ 274,863 $ 169,898 $ 174,646 $ 169,333
Cumulative effect of change in accounting
principle - CECL, as of January 1, 2020:
Allowance for loan and lease losses — — — 3,617 —
Reserve for unfunded loan commitments — — — 3,710 —
Total cumulative effect — — — 7,327 —
Provision for credit losses:
Addition to allowance for loan and lease losses 81,000 93,000 8,000 272,000 22,000
Addition to (reduction in) reserve for unfunded
loan commitments 16,000 27,000 (1,000) 57,000 (3,000)
Total provision for credit losses 97,000 120,000 7,000 329,000 19,000
Loans and leases charged off:
Real estate mortgage (1,551) (4,182) (120) (6,233) (850)
Real estate construction and land — — — — —
Commercial (35,666) (11,439) (6,021) (66,337) (25,951)
Consumer (67) (165) (360) (705) (802)
Total loans and leases charged off (37,284) (15,786) (6,501) (73,275) (27,603)
Recoveries on loans charged off:
Real estate mortgage 109 127 95 360 478
Real estate construction and land 21 — — 21 —
Commercial 1,063 2,392 1,898 4,410 11,084
Consumer 7 25 23 48 121
Total recoveries on loans charged off 1,200 2,544 2,016 4,839 11,683
Net charge-offs (36,084) (13,242) (4,485) (68,436) (15,920)
Balance, end of period $ 442,537 $ 381,621 $ 172,413 $ 442,537 $ 172,413
Annualized net charge-offs to average loans and leases 0.75 % 0.27 % 0.10 % 0.47 % 0.12 %


	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,
Allowance for Credit Losses Roll Forward	2021			2021			2020			2021			2020
	(Dollars in thousands)
Balance, beginning of period	$	383,016		$	433,752		$	274,863		$	433,752		$	174,646
Cumulative effect of change in accounting
principle - CECL, as of January 1, 2020:
Allowance for loan and lease losses	—			—			—			—			3,617
Reserve for unfunded loan commitments	—			—			—			—			3,710
Total cumulative effect	—			—			—			—			7,327
Provision for credit losses:
(Reduction in) addition to allowance for loan and lease losses	(72,000)			(53,000)			93,000			(125,000)			191,000
Addition to (reduction in) reserve for unfunded
loan commitments	(16,000)			5,000			27,000			(11,000)			41,000
Total provision for credit losses	(88,000)			(48,000)			120,000			(136,000)			232,000
Loans and leases charged off:
Real estate mortgage	(266)			(368)			(4,182)			(634)			(4,682)
Real estate construction and land	(75)			(700)			—			(775)			—
Commercial	(277)			(2,574)			(11,439)			(2,851)			(30,671)
Consumer	(198)			(346)			(165)			(544)			(638)
Total loans and leases charged off	(816)			(3,988)			(15,786)			(4,804)			(35,991)
Recoveries on loans charged off:
Real estate mortgage	4,882			545			127			5,427			251
Real estate construction and land	—			—			—			—			—
Commercial	1,029			697			2,392			1,726			3,347
Consumer	60			10			25			70			41
Total recoveries on loans charged off	5,971			1,252			2,544			7,223			3,639
Net recoveries (charge-offs)	5,155			(2,736)			(13,242)			2,419			(32,352)
Balance, end of period	$	300,171		$	383,016		$	381,621		$	300,171		$	381,621

Annualized net (recoveries) charge-offs to
average loans and leases	(0.11)		%	0.06		%	0.27		%	(0.03)		%	0.33		%

7574

The following table presents charge-offs by loan portfolio segment, class, and subclass for the periods indicated:


		Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,		March 31,		June 30,		June 30,
Allowance for Credit Losses Charge-offs	Allowance for Credit Losses Charge-offs	2020		2020		2019		2020		2019		Allowance for Credit Losses Charge-offs	2021		2021		2020		2021		2020
		(In thousands)											(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Healthcare real estate	Healthcare real estate	$	—	$	—	$	—	$	—	$	—	Healthcare real estate	$	—	$	—	$	—	$	—	$	—
Hotel	Hotel	—		—		—		—		—		Hotel	—		343		—		343		—
SBA program	SBA program	6		76		120		280		750		SBA program	211		25		76		236		274
Other commercial real estate	Other commercial real estate	1,494		4,106		—		5,727		9		Other commercial real estate	—		—		4,106		—		4,233
Total commercial real estate mortgage	Total commercial real estate mortgage	1,500		4,182		120		6,007		759		Total commercial real estate mortgage	211		368		4,182		579		4,507
Income producing and other residential	Income producing and other residential	—		—		—		—		—		Income producing and other residential	55		—		—		55		—
Other residential real estate	Other residential real estate	51		—		—		226		91		Other residential real estate	—		—		—		—		175
Total income producing and other residential	Total income producing and other residential											Total income producing and other residential
real estate mortgage	real estate mortgage	51		—		—		226		91		real estate mortgage	55		—		—		55		175
Total real estate mortgage	Total real estate mortgage	1,551		4,182		120		6,233		850		Total real estate mortgage	266		368		4,182		634		4,682
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	—		—		—		—		—		Commercial	75		700		—		775		—
Residential	Residential	—		—		—		—		—		Residential	—		—		—		—		—
Total real estate construction and land	Total real estate construction and land	—		—		—		—		—		Total real estate construction and land	75		700		—		775		—
Commercial:	Commercial:											Commercial:
Lender finance	Lender finance	—		—		—		—		—		Lender finance	—		—		—		—		—
Equipment finance	Equipment finance	267		—		—		11,817		—		Equipment finance	—		—		—		—		11,550
Premium finance	Premium finance	—		—		—		—		—		Premium finance	—		—		—		—		—
Other asset-based	Other asset-based	—		—		—		—		11,800		Other asset-based	—		—		—		—		—
Total asset-based	Total asset-based	267		—		—		11,817		11,800		Total asset-based	—		—		—		—		11,550
Equity fund loans	Equity fund loans	—		—		—		—		—		Equity fund loans	—		—		—		—		—
Venture lending	Venture lending	5		6,470		4,367		6,818		6,130		Venture lending	—		620		6,470		620		6,813
Total venture capital	Total venture capital	5		6,470		4,367		6,818		6,130		Total venture capital	—		620		6,470		620		6,813
Paycheck Protection Program	Paycheck Protection Program	—		—		—		—		—		Paycheck Protection Program	—		—		—		—		—
Security monitoring	Security monitoring	33,796		4,180		—		44,032		1,707		Security monitoring	—		—		4,180		—		10,236
Secured business loans	Secured business loans	—		—		1,111		—		1,220		Secured business loans	—		47		—		47		2,072
Other lending	Other lending	1,353		789		437		3,425		2,133		Other lending	277		1,907		789		2,184		—
Cash flow		245		—		106		245		2,961
Total other commercial	Total other commercial	35,394		4,969		1,654		47,702		8,021		Total other commercial	277		1,954		4,969		2,231		12,308
Total commercial	Total commercial	35,666		11,439		6,021		66,337		25,951		Total commercial	277		2,574		11,439		2,851		30,671
Consumer	Consumer	67		165		360		705		802		Consumer	198		346		165		544		638
Total charge-offs	Total charge-offs	$	37,284	$	15,786	$	6,501	$	73,275	$	27,603	Total charge-offs	$	816	$	3,988	$	15,786	$	4,804	$	35,991

7675

The following table presents recoveries by portfolio segment, class, and subclass for the periods indicated:


		Three Months Ended						Nine Months Ended					Three Months Ended						Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,		March 31,		June 30,		June 30,
Allowance for Credit Losses Recoveries	Allowance for Credit Losses Recoveries	2020		2020		2019		2020		2019		Allowance for Credit Losses Recoveries	2021		2021		2020		2021		2020
		(In thousands)											(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Healthcare real estate	Healthcare real estate	$	—	$	—	$	—	$	—	$	—	Healthcare real estate	$	—	$	—	$	—	$	—	$	—
Hotel	Hotel	—		—		—		—		—		Hotel	—		—		—		—		—
SBA program	SBA program	31		15		77		153		198		SBA program	20		17		15		37		122
Other commercial real estate	Other commercial real estate	3		103		12		118		143		Other commercial real estate	4,860		524		103		5,384		115
Total commercial real estate mortgage	Total commercial real estate mortgage	34		118		89		271		341		Total commercial real estate mortgage	4,880		541		118		5,421		237
Income producing and other residential	Income producing and other residential	—		—		—		—		—		Income producing and other residential	—		—		—		—		—
Other residential real estate	Other residential real estate	75		9		6		89		137		Other residential real estate	2		4		9		6		14
Total income producing and other	Total income producing and other											Total income producing and other
residential real estate mortgage	residential real estate mortgage	75		9		6		89		137		residential real estate mortgage	2		4		9		6		14
Total real estate mortgage	Total real estate mortgage	109		127		95		360		478		Total real estate mortgage	4,882		545		127		5,427		251
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	—		—		—		—		—		Commercial	—		—		—		—		—
Residential	Residential	21		—		—		21		—		Residential	—		—		—		—		—
Total real estate construction and land	Total real estate construction and land	21		—		—		21		—		Total real estate construction and land	—		—		—		—		—
Commercial:	Commercial:											Commercial:
Lender finance	Lender finance	—		—		3		—		5		Lender finance	—		—		—		—		—
Equipment finance	Equipment finance	31		8		—		269		11		Equipment finance	7		107		8		114		238
Premium finance	Premium finance	—		—		—		—		—		Premium finance	—		—		—		—		—
Other asset-based	Other asset-based	175		14		227		324		545		Other asset-based	98		161		14		259		149
Total asset-based	Total asset-based	206		22		230		593		561		Total asset-based	105		268		22		373		387
Equity fund loans	Equity fund loans	—		—		—		—		—		Equity fund loans	—		—		—		—		—
Venture lending	Venture lending	604		114		428		903		7,503		Venture lending	44		57		114		101		299
Total venture capital	Total venture capital	604		114		428		903		7,503		Total venture capital	44		57		114		101		299
Paycheck Protection Program	Paycheck Protection Program	—		—		—		—		—		Paycheck Protection Program	—		—		—		—		—
Security monitoring	Security monitoring	—		—		181		—		181		Security monitoring	—		—		—		—		—
Secured business loans	Secured business loans	56		139		731		273		2,176		Secured business loans	73		126		139		199		217
Other lending	Other lending	115		117		297		497		612		Other lending	807		246		2,117		1,053		2,444
Cash flow		82		2,000		31		2,144		51
Total other commercial	Total other commercial	253		2,256		1,240		2,914		3,020		Total other commercial	880		372		2,256		1,252		2,661
Total commercial	Total commercial	1,063		2,392		1,898		4,410		11,084		Total commercial	1,029		697		2,392		1,726		3,347
Consumer	Consumer	7		25		23		48		121		Consumer	60		10		25		70		41
Total recoveries	Total recoveries	$	1,200	$	2,544	$	2,016	$	4,839	$	11,683	Total recoveries	$	5,971	$	1,252	$	2,544	$	7,223	$	3,639

The increase in recoveries during the second quarter of 2021 was due mainly to a single commercial real estate loan related to a lifestyle retail center which paid off in full during the second quarter.

7776

Deposits

The following table presents the balance of each major category of deposits as of the dates indicated:


		September 30, 2020				June 30, 2020				December 31, 2019					June 30, 2021				March 31, 2021				December 31, 2020
				% of				% of				% of					% of				% of				% of
Deposit Composition	Deposit Composition	Balance		Total		Balance		Total		Balance		Total		Deposit Composition	Balance		Total		Balance		Total		Balance		Total
		(Dollars in thousands)													(Dollars in thousands)
Noninterest-bearing demand	Noninterest-bearing demand	$	9,346,744	39	%	$	8,629,543	38	%	$	7,243,298	38	%	Noninterest-bearing demand	$	11,252,286	38	%	$	11,017,462	39	%	$	9,193,827	37	%
Interest checking	Interest checking	4,657,511		20	%	4,858,168		21	%	3,753,978		19	%	Interest checking	7,394,472		25	%	6,862,398		25	%	5,974,910		24	%
Money market	Money market	6,539,313		27	%	5,498,150		24	%	4,690,420		24	%	Money market	7,777,199		26	%	7,112,610		25	%	6,532,917		26	%
Savings	Savings	574,061		2	%	549,953		2	%	499,591		3	%	Savings	614,204		2	%	583,878		2	%	562,826		2	%
Total core deposits	Total core deposits	21,117,629		88	%	19,535,814		85	%	16,187,287		84	%	Total core deposits	27,038,161		91	%	25,576,348		91	%	22,264,480		89	%
Non-core non-maturity deposits	Non-core non-maturity deposits	1,123,909		5	%	1,217,266		5	%	496,407		3	%	Non-core non-maturity deposits	1,122,971		4	%	1,162,590		4	%	1,149,467		5	%
Total non-maturity deposits	Total non-maturity deposits	22,241,538		93	%	20,753,080		90	%	16,683,694		87	%	Total non-maturity deposits	28,161,132		95	%	26,738,938		95	%	23,413,947		94	%
Time deposits $250,000 and under	Time deposits $250,000 and under	1,047,621		4	%	1,522,928		7	%	2,065,733		11	%	Time deposits $250,000 and under	913,371		3	%	940,340		3	%	994,197		4	%
Time deposits over $250,000	Time deposits over $250,000	676,536		3	%	652,571		3	%	483,609		2	%	Time deposits over $250,000	572,531		2	%	544,013		2	%	532,573		2	%
Total time deposits	Total time deposits	1,724,157		7	%	2,175,499		10	%	2,549,342		13	%	Total time deposits	1,485,902		5	%	1,484,353		5	%	1,526,770		6	%
Total deposits	Total deposits	$	23,965,695	100	%	$	22,928,579	100	%	$	19,233,036	100	%	Total deposits	$	29,647,034	100	%	$	28,223,291	100	%	$	24,940,717	100	%

During the ~~third~~second quarter of ~~2020,~~2021, total deposits increased by $~~1.0~~1.4 billion to $~~24.0~~29.6 billion, due ~~mainly~~primarily to ~~increases~~an increase of $~~1.6~~1.5 billion in core ~~deposits, offset partially by a decrease of $451.3 million in time deposits and a decrease of~~ ~~$93.4 million~~ ~~in non-core non-maturity~~ deposits. The increase in core deposits in the ~~third~~second quarter of 2021 was driven primarily by continued strong deposit growth from our venture banking ~~clients.~~customers. At ~~September~~June 30, ~~2020,~~2021, core deposits totaled $~~21.1~~27.0 billion, or ~~88%~~91% of total deposits, including $~~9.3~~11.3 billion of noninterest-bearing demand deposits, or ~~39%~~38% of total deposits.

The following table summarizes the maturities of time deposits as of the date indicated:


		Time Deposits							Time Deposits
		$250,000		Over					$250,000		Over
September 30, 2020		and Under		$250,000		Total
June 30, 2021								June 30, 2021	and Under		$250,000		Total
		(In thousands)							(In thousands)
Maturities:	Maturities:							Maturities:
Due in three months or less	Due in three months or less	$	303,866	$	261,245	$	565,111	Due in three months or less	$	247,102	$	94,967	$	342,069
Due in over three months through six months	Due in over three months through six months	203,783		187,586		391,369		Due in over three months through six months	198,239		129,168		327,407
Due in over six months through twelve months	Due in over six months through twelve months	276,297		174,570		450,867		Due in over six months through twelve months	231,172		337,799		568,971
Total due within twelve months	Total due within twelve months	783,946		623,401		1,407,347		Total due within twelve months	676,513		561,934		1,238,447
Due in over 12 months through 24 months	Due in over 12 months through 24 months	90,807		51,311		142,118		Due in over 12 months through 24 months	101,988		8,296		110,284
Due in over 24 months	Due in over 24 months	172,868		1,824		174,692		Due in over 24 months	134,870		2,301		137,171
Total	Total	$	1,047,621	$	676,536	$	1,724,157	Total	$	913,371	$	572,531	$	1,485,902

Client Investment Funds

In addition to deposit products, we also offer select clients non-depository cash investment options through PWAM, our registered investment adviser subsidiary, and third-party money market sweep products. PWAM provides customized investment advisory and asset management solutions. At ~~September~~June 30, ~~2020,~~2021, total off-balance sheet client investment funds were $~~1.2~~1.3 billion, of which $1.0 billion was managed by PWAM. At December 31, ~~2019,~~2020, total off-balance sheet client investment funds were ~~$1.5~~$1.3 billion, of which ~~$1.2~~$1.0 billion was managed by PWAM.

7877

Credit Quality

Nonperforming Assets, Performing TDRs, and Classified Loans and Leases

The following table presents information on our nonperforming assets, performing TDRs, and classified loans and leases as of the dates indicated:


		September 30,			June 30,			December 31,			September 30,				June 30,			March 31,			December 31,			June 30,
		2020			2020			2019			2019				2021			2021			2020			2020
		(Dollars in thousands)													(Dollars in thousands)
Nonaccrual loans and leases held for investment	Nonaccrual loans and leases held for investment	$	85,615		$	166,113		$	92,353		$	99,113		Nonaccrual loans and leases held for investment	$	56,803		$	67,652		$	91,163		$	166,113

Foreclosed assets, net	Foreclosed assets, net	13,747			1,449			440			1,366			Foreclosed assets, net	13,227			14,298			14,027			1,449
Total nonperforming assets	Total nonperforming assets	$	99,362		$	167,562		$	92,793		$	100,479		Total nonperforming assets	$	70,030		$	81,950		$	105,190		$	167,562

Performing TDRs held for investment	Performing TDRs held for investment	$	13,679		$	15,037		$	12,257		$	16,329		Performing TDRs held for investment	$	40,129		$	27,999		$	14,254		$	15,037
Classified loans and leases held for investment	Classified loans and leases held for investment	$	274,572		$	293,230		$	175,912		$	188,607		Classified loans and leases held for investment	$	147,267		$	163,117		$	265,262		$	293,230
Nonaccrual loans and leases held for investment to	Nonaccrual loans and leases held for investment to													Nonaccrual loans and leases held for investment to
loans and leases held for investment	loans and leases held for investment	0.45		%	0.84		%	0.49		%	0.53		%	loans and leases held for investment	0.29		%	0.36		%	0.48		%	0.84		%
Nonperforming assets to loans and leases held for investment	Nonperforming assets to loans and leases held for investment													Nonperforming assets to loans and leases held for investment
and foreclosed assets, net	and foreclosed assets, net	0.52		%	0.85		%	0.49		%	0.54		%	and foreclosed assets, net	0.36		%	0.43		%	0.55		%	0.85		%
Allowance for credit losses to nonaccrual loans and leases														Allowance for credit losses to nonaccrual loans and leases
held for investment														held for investment	528.4		%	566.2		%	475.8		%	229.7		%
Classified loans and leases held for investment	Classified loans and leases held for investment													Classified loans and leases held for investment
to loans and leases held for investment	to loans and leases held for investment	1.44		%	1.49		%	0.93		%	1.01		%	to loans and leases held for investment	0.75		%	0.86		%	1.39		%	1.49		%

Nonaccrual Loans and Leases Held for Investment

The following table presents our nonaccrual loans and leases held for investment and accruing loans and leases past due between 30 and 89 days by loan portfolio segment and class as of the dates indicated:


		September 30, 2020				June 30, 2020				Increase (Decrease)					June 30, 2021				March 31, 2021				Increase (Decrease)
				Accruing				Accruing				Accruing					Accruing				Accruing				Accruing
				and 30-89				and 30-89				and 30-89					and 30-89				and 30-89				and 30-89
				Days Past				Days Past				Days Past					Days Past				Days Past				Days Past
		Nonaccrual		Due		Nonaccrual		Due		Nonaccrual		Due			Nonaccrual		Due		Nonaccrual		Due		Nonaccrual		Due
		(Dollars in thousands)													(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	45,120	$	—	$	61,771	$	—	$	(16,651)	$	—	Commercial	$	32,065	$	—	$	46,436	$	5	$	(14,371)	$	(5)
Income producing and other residential	Income producing and other residential	2,008		1,761		2,207		—		(199)		1,761		Income producing and other residential	6,133		2,179		2,471		6,339		3,662		(4,160)
Total real estate mortgage	Total real estate mortgage	47,128		1,761		63,978		—		(16,850)		1,761		Total real estate mortgage	38,198		2,179		48,907		6,344		(10,709)		(4,165)
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	324		—		337		—		(13)		—		Commercial	284		—		302		—		(18)		—
Residential	Residential	—		3,108		—		1,021		—		2,087		Residential	1,934		22,714		416		1,241		1,518		21,473
Total real estate construction and land	Total real estate construction and land	324		3,108		337		1,021		(13)		2,087		Total real estate construction and land	2,218		22,714		718		1,241		1,500		21,473
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	2,817		—		19,013		3,697		(16,196)		(3,697)		Asset-based	1,973		—		2,379		—		(406)		—
Venture capital	Venture capital	2,001		2,319		8,270		1,924		(6,269)		395		Venture capital	2,717		—		2,432		6,750		285		(6,750)
Other commercial	Other commercial	32,941		185		73,995		191		(41,054)		(6)		Other commercial	11,337		270		12,660		1,251		(1,323)		(981)
Total commercial	Total commercial	37,759		2,504		101,278		5,812		(63,519)		(3,308)		Total commercial	16,027		270		17,471		8,001		(1,444)		(7,731)
Consumer	Consumer	404		791		520		1,067		(116)		(276)		Consumer	360		1,454		556		954		(196)		500
Total held for investment	Total held for investment	$	85,615	$	8,164	$	166,113	$	7,900	$	(80,498)	$	264	Total held for investment	$	56,803	$	26,617	$	67,652	$	16,540	$	(10,849)	$	10,077

7978

The increase in 30-89 days delinquent residential construction loans in the second quarter of 2021 is due to an increase in delinquent short-term, single-family renovation loans. With this product, it is common for the borrower to let the loan become delinquent once they enter escrow to sell the renovated home as the loan will be paid off through the close of escrow.

During the ~~third~~second quarter of ~~2020,~~2021, nonaccrual loan and leases held for investment decreased by ~~$80.5~~$10.8 million to ~~$85.6~~$56.8 million at ~~September~~June 30, ~~2020~~2021 due mainly to charge-offs of ~~$36.3 million, transfers to foreclosed assets of $12.6~~$0.5 million and principal payments and other reductions of ~~$37.0~~$26.7 million, offset partially by additions of ~~$5.4~~$16.3 million. Included in principal payments and other reductions was the payoff of one nonaccrual commercial real estate mortgage loan for $22.6 million. As of ~~September~~June 30, ~~2020,~~2021, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of ~~$49.3~~$12.9 million and represented ~~58%~~23% of total nonaccrual loans and leases.

Foreclosed Assets

The following table presents foreclosed assets (primarily OREO), net of the valuation allowance, by property type as of the dates indicated:


		September 30,		June 30,		December 31,		September 30,			June 30,		March 31,		December 31,		June 30,
Property Type	Property Type	2020		2019		2019		2019		Property Type	2021		2021		2020		2020
		(In thousands)									(In thousands)
Commercial real estate	Commercial real estate	$	12,594	$	28	$	221	$	199	Commercial real estate	$	12,594	$	13,612	$	12,979	$	28
Single-family residence	Single-family residence	—		—		—		948		Single-family residence	—		—		—		—
Construction and land development	Construction and land development	219		219		219		219		Construction and land development	219		219		219		219

Total OREO, net	Total OREO, net	12,813		247		440		1,366		Total OREO, net	12,813		13,831		13,198		247
Other foreclosed assets	Other foreclosed assets	934		1,202		—		—		Other foreclosed assets	414		467		829		1,202
Total foreclosed assets, net	Total foreclosed assets, net	$	13,747	$	1,449	$	440	$	1,366	Total foreclosed assets, net	$	13,227	$	14,298	$	14,027	$	1,449

During the ~~third~~second quarter of ~~2020,~~2021, foreclosed assets ~~increased~~decreased by $~~12.3~~$1.1 million to ~~$13.7~~$13.2 million at ~~September~~June 30, ~~2020,~~2021 due ~~mainly~~ to ~~additions of $12.6 million related to a retail lifestyle center, offset partially by impairment losses of $0.2 million and~~ sales of ~~$0.1~~$1.1 million.

Performing TDRs Held for Investment

The following table presents our performing TDRs held for investment by loan portfolio segment as of the dates indicated:


		September 30, 2020			June 30, 2020			December 31, 2019				June 30, 2021			March 31, 2021			December 31, 2020
				Number			Number			Number				Number			Number			Number
				of			of			of				of			of			of
Performing TDRs	Performing TDRs	Balance		Loans	Balance		Loans	Balance		Loans	Performing TDRs	Balance		Loans	Balance		Loans	Balance		Loans
		(Dollars in thousands)										(Dollars in thousands)
Real estate mortgage	Real estate mortgage	$	6,678	20	$	6,900	21	$	10,165	22	Real estate mortgage	$	6,415	19	$	6,584	20	$	6,631	20
Real estate construction and land	Real estate construction and land	1,458		1	1,462		1	1,470		1	Real estate construction and land	1,439		1	1,445		1	1,451		1
Commercial	Commercial	5,487		16	6,612		12	550		12	Commercial	32,250		20	19,944		23	6,146		21
Consumer	Consumer	56		2	63		2	72		2	Consumer	25		1	26		1	26		1
Total performing TDRs held for investment	Total performing TDRs held for investment	$	13,679	39	$	15,037	36	$	12,257	37	Total performing TDRs held for investment	$	40,129	41	$	27,999	45	$	14,254	43

During the ~~third~~second quarter of ~~2020,~~2021, performing TDRs held for investment ~~decreased~~increased by $~~1.4~~12.1 million to $~~13.7~~40.1 million at ~~September~~June 30, ~~2020~~2021 attributable primarily to the addition of a $13.2 million security monitoring loan, offset by principal payments and other reductions of ~~$1.6~~$1.1 million.

8079

Classified and Special Mention Loans and Leases Held for Investment

The following table presents the credit risk ratings of our loans and leases held for investment, net of deferred fees, as of the dates indicated:


		September 30,		June 30,		December 31,		September 30,			June 30,		March 31,		December 31,		June 30,
Loan and Lease Credit Risk Ratings	Loan and Lease Credit Risk Ratings	2020		2020		2019		2019		Loan and Lease Credit Risk Ratings	2021		2021		2020		2020
		(Dollars in thousands)									(Dollars in thousands)
Pass	Pass	$	17,967,872	$	18,635,004	$	18,348,004	$	18,279,011	Pass	$	18,822,938	$	18,183,114	$	18,096,830	$	18,635,004
Special mention	Special mention	783,756		766,397		322,956		267,925		Special mention	536,052		632,997		721,285		766,397
Classified	Classified	274,572		293,230		175,912		188,607		Classified	147,267		163,117		265,262		293,230
Total loans and leases held for investment, net of deferred fees	Total loans and leases held for investment, net of deferred fees	$	19,026,200	$	19,694,631	$	18,846,872	$	18,735,543	Total loans and leases held for investment, net of deferred fees	$	19,506,257	$	18,979,228	$	19,083,377	$	19,694,631

Classified and special mention loans and leases fluctuate from period to period as a result of loan repayments and downgrades or upgrades from our ongoing active portfolio management.

During the ~~third~~second quarter of ~~2020,~~2021, classified loans and leases decreased by $15.9 million to $147.3 million at June 30, 2021~~$18.7 million~~ to ~~$274.6 million~~ ~~at September 30, 2020~~ due mostly to ~~charge-offs~~ a decrease of ~~$35.7 million, transfers to foreclosed assets of $12.6 million, and principal payments and other reductions of $55.0 million, offset partially by the migration of $66.0~~$14.6 million in commercial real estate mortgage loans. Classified loans and leases ~~from special mention and downgrades from pass~~peaked in the second quarter of ~~$19.4~~2020 at $293.2 million.

During the ~~third~~second quarter of ~~2020,~~2021, special mention loans and leases ~~increased~~decreased by ~~$17.4~~$96.9 million to ~~$783.8~~$536.1 million at ~~September~~June 30, ~~2020~~2021 due mainly to ~~downgrades from pass~~decreases of ~~$167.3~~$55.5 million ~~offset partially by the migration of $66.0~~in venture capital loans and $39.4 million in asset-based loans. Special mention loans and leases ~~to classified, upgrades to pass~~peaked in the first quarter of ~~$39.4~~2020 at $898.7 million, ~~and principal payments and other reductions~~as we proactively downgraded certain loans at the onset of ~~$44.5 million.~~the COVID-19 pandemic.

The following table presents the classified and special mention credit risk rating categories for loans and leases held for investment, net of deferred fees, by loan portfolio segment and class and the related net changes as of the dates indicated:


		September 30, 2020				June 30, 2020				Increase (Decrease)					June 30, 2021				March 31, 2021				Increase (Decrease)
				Special				Special				Special					Special				Special				Special
		Classified		Mention		Classified		Mention		Classified		Mention			Classified		Mention		Classified		Mention		Classified		Mention
		(In thousands)													(In thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	109,651	$	330,367	$	71,446	$	322,312	$	38,205	$	8,055	Commercial	$	62,827	$	242,159	$	77,444	$	254,463	$	(14,617)	$	(12,304)
Income producing and other residential	Income producing and other residential	9,558		63,378		6,941		6,150		2,617		57,228		Income producing and other residential	12,681		60,843		9,064		63,231		3,617		(2,388)
Total real estate mortgage	Total real estate mortgage	119,209		393,745		78,387		328,462		40,822		65,283		Total real estate mortgage	75,508		303,002		86,508		317,694		(11,000)		(14,692)
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	324		13,838		337		12,354		(13)		1,484		Commercial	284		67,292		302		66,790		(18)		502
Residential	Residential	—		—		—		—		—		—		Residential	1,934		8,234		416		602		1,518		7,632
Total real estate construction and land	Total real estate construction and land	324		13,838		337		12,354		(13)		1,484		Total real estate construction and land	2,218		75,526		718		67,392		1,500		8,134
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	27,900		190,193		25,008		186,813		2,892		3,380		Asset-based	24,351		102,734		24,941		142,122		(590)		(39,388)
Venture capital	Venture capital	15,078		123,675		29,054		138,403		(13,976)		(14,728)		Venture capital	5,708		33,910		8,727		89,423		(3,019)		(55,513)
Other commercial	Other commercial	111,553		57,787		159,814		82,313		(48,261)		(24,526)		Other commercial	39,005		18,340		41,597		13,535		(2,592)		4,805
Total commercial	Total commercial	154,531		371,655		213,876		407,529		(59,345)		(35,874)		Total commercial	69,064		154,984		75,265		245,080		(6,201)		(90,096)
Consumer	Consumer	508		4,518		630		18,052		(122)		(13,534)		Consumer	477		2,540		626		2,831		(149)		(291)
Total	Total	$	274,572	$	783,756	$	293,230	$	766,397	$	(18,658)	$	17,359	Total	$	147,267	$	536,052	$	163,117	$	632,997	$	(15,850)	$	(96,945)

8180

Regulatory Matters

Capital

Bank regulatory agencies measure capital adequacy through standardized risk-based capital guidelines that compare different levels of capital (as defined by such guidelines) to risk-weighted assets and off-balance sheet obligations. At ~~September~~June 30, ~~2020,~~2021, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%.

Basel III currently requires all banking organizations to maintain a 2.50% capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the common equity tier 1, tier 1, and total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At ~~September~~June 30, ~~2020,~~2021, the Company and Bank were in compliance with the capital conservation buffer requirement.

The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the ~~September~~June 30, ~~2020~~2021 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, 2022. This cumulative amount will then be phased out of regulatory capital over the next three years from 2023 to 2025. The add-back as of ~~September~~June 30, ~~2020 added approximately 24~~2021 ranged from 0 basis points to 14 basis points for the capital ratios below.

The following tables present a comparison of our actual capital ratios to the minimum required ratios and well capitalized ratios as of the dates indicated:

Minimum Required
For Capital For Capital For Well
Adequacy Conservation Capitalized
Actual Purposes Buffer Classification
September 30, 2020
PacWest Bancorp Consolidated
Tier 1 capital (to average assets) 8.66% 4.00% 4.00% N/A
CET1 capital (to risk weighted assets) 10.45% 4.50% 7.00% N/A
Tier 1 capital (to risk weighted assets) 10.45% 6.00% 8.50% N/A
Total capital (to risk weighted assets) 13.74% 8.00% 10.50% N/A
Pacific Western Bank
Tier 1 capital (to average assets) 9.70% 4.00% 4.00% 5.00%
CET1 capital (to risk weighted assets) 11.70% 4.50% 7.00% 6.50%
Tier 1 capital (to risk weighted assets) 11.70% 6.00% 8.50% 8.00%
Total capital (to risk weighted assets) 12.95% 8.00% 10.50% 10.00%


		Minimum Required
		For Capital	For Capital	For Well
		Adequacy	Conservation	Capitalized
	Actual	Purposes	Buffer	Classification
June 30, 2021
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio	7.67%	4.00%	4.00%	N/A
CET1 capital ratio	10.41%	4.50%	7.00%	N/A
Tier 1 capital ratio	10.41%	6.00%	8.50%	N/A
Total capital ratio	14.99%	8.00%	10.50%	N/A

Pacific Western Bank
Tier 1 leverage capital ratio	8.47%	4.00%	4.00%	5.00%
CET1 capital ratio	11.51%	4.50%	7.00%	6.50%
Tier 1 capital ratio	11.51%	6.00%	8.50%	8.00%
Total capital ratio	14.22%	8.00%	10.50%	10.00%

8281

Minimum Required
For Capital For Capital For Well
Adequacy Conservation Capitalized
Actual Purposes Buffer Classification
December 31, 2019
PacWest Bancorp Consolidated
Tier 1 capital (to average assets) 9.74% 4.00% 4.00% N/A
CET1 capital (to risk weighted assets) 9.78% 4.50% 7.00% N/A
Tier 1 capital (to risk weighted assets) 9.78% 6.00% 8.50% N/A
Total capital (to risk weighted assets) 12.41% 8.00% 10.50% N/A
Pacific Western Bank
Tier 1 capital (to average assets) 10.95% 4.00% 4.00% 5.00%
CET1 capital (to risk weighted assets) 11.00% 4.50% 7.00% 6.50%
Tier 1 capital (to risk weighted assets) 11.00% 6.00% 8.50% 8.00%
Total capital (to risk weighted assets) 11.74% 8.00% 10.50% 10.00%


		Minimum Required
		For Capital	For Capital	For Well
		Adequacy	Conservation	Capitalized
	Actual	Purposes	Buffer	Classification
December 31, 2020
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio	8.55%	4.00%	4.00%	N/A
CET1 capital ratio	10.53%	4.50%	7.00%	N/A
Tier 1 capital ratio	10.53%	6.00%	8.50%	N/A
Total capital ratio	13.76%	8.00%	10.50%	N/A

Pacific Western Bank
Tier 1 leverage capital ratio	9.53%	4.00%	4.00%	5.00%
CET1 capital ratio	11.73%	4.50%	7.00%	6.50%
Tier 1 capital ratio	11.73%	6.00%	8.50%	8.00%
Total capital ratio	12.99%	8.00%	10.50%	10.00%

Subordinated ~~Debentures~~Debt

We issued or assumed through mergers subordinated ~~debentures~~debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. On April 30, 2021, the Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due May 1, 2031. For further information, see Note 10. Borrowings and Subordinated Debt in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

The carrying value of subordinated ~~debentures~~debt totaled ~~$463.3~~$861.8 million at ~~September~~June 30, ~~2020.~~2021. At ~~September~~June 30, ~~2020,~~2021, none of the trust preferred securities ~~were~~was included in the Company's Tier I capital under the phase-out limitations of Basel III, and ~~$449.4~~$847.8 million were included in Tier II capital.

Dividends on Common Stock and Interest on Subordinated ~~Debentures~~Debt

As a bank holding company, PacWest is required to notify and receive approval from the FRB prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. Interest payments made on subordinated ~~debentures~~debt are considered dividend payments under FRB regulations. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. ~~Due to~~Given the impact of the goodwill impairment charge on net earnings in the first quarter of 2020, we ~~are~~were required to receive ~~such~~ approval from the FRB prior to declaring a ~~dividend. The FRB approved our third quarter~~ dividend ~~which was paid on September 10,~~from March 31, 2020 ~~and we~~through March 31, 2021, but are ~~currently awaiting their approval for our fourth quarter dividend.~~no longer required to obtain such approval.

Liquidity

Liquidity Management

The goals of our liquidity management are to ensure the ability of the Company to meet its financial commitments when contractually due and to respond to other demands for funds such as the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers who have unfunded commitments. We have an Executive Management Asset/Liability Management Committee ("Executive ALM Committee") that is comprised of members of senior management and is responsible for managing commitments to meet the needs of customers while achieving our financial objectives. Our Executive ALM Committee meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.

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

As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of ~~$3.62~~$3.3 billion at ~~September~~June 30, ~~2020,~~2021, of which ~~$3.61 billion~~all was available on that date. The FHLB secured credit line was collateralized by a blanket lien on ~~$5.6~~$5.5 billion of certain qualifying loans. The Bank also had secured borrowing capacity with the FRBSF of ~~$1.6~~$1.4 billion at ~~September~~June 30, ~~2020,~~2021, all of which was available on that date. The FRBSF secured credit line was collateralized by liens on ~~$2.1~~$1.9 billion of qualifying loans.

In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the purpose of borrowing overnight funds, subject to availability, of $112.0 million with the FHLB and $180.0 million in the aggregate with several correspondent banks. As of ~~September~~June 30, ~~2020,~~2021, there was no balance outstanding related to the FHLB unsecured line of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of ~~September~~June 30, ~~2020,~~2021, the Bank had ~~$50.0 million of borrowings outstanding~~borrowed nothing through the AFX.

The following tables provide a summary of the Bank’s primary and secondary liquidity levels at the dates indicated:


		September 30,			June 30,			December 31,				June 30,			March 31,			December 31,
Primary Liquidity - On-Balance Sheet	Primary Liquidity - On-Balance Sheet	2020			2020			2019			Primary Liquidity - On-Balance Sheet	2021			2021			2020
		(Dollars in thousands)										(Dollars in thousands)
Cash and due from banks	Cash and due from banks	$	187,176		$	174,059		$	172,585		Cash and due from banks	$	179,505		$	177,199		$	150,464
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	2,766,020			1,747,077			465,039			Interest-earning deposits in financial institutions	5,678,587			5,517,667			3,010,197
Securities available-for-sale	Securities available-for-sale	4,532,614			3,851,141			3,797,187			Securities available-for-sale	7,198,608			5,941,690			5,235,591
Less: pledged securities	Less: pledged securities	(605,258)			(642,029)			(486,200)			Less: pledged securities	(489,976)			(488,047)			(449,330)
Total primary liquidity	Total primary liquidity	$	6,880,552		$	5,130,248		$	3,948,611		Total primary liquidity	$	12,566,724		$	11,148,509		$	7,946,922

Ratio of primary liquidity to total deposits	Ratio of primary liquidity to total deposits	28.7		%	22.4		%	20.5		%	Ratio of primary liquidity to total deposits	42.4		%	39.5		%	31.9		%


Secondary Liquidity - Off-Balance Sheet	Secondary Liquidity - Off-Balance Sheet	September 30,		June 30,		December 31,		Secondary Liquidity - Off-Balance Sheet	June 30,		March 31,		December 31,
Available Secured Borrowing Capacity	Available Secured Borrowing Capacity	2020		2020		2019		Available Secured Borrowing Capacity	2021		2021		2020
		(In thousands)							(In thousands)
Secured borrowing capacity with the FHLB	Secured borrowing capacity with the FHLB	$	3,623,177	$	4,201,095	$	4,229,788	Secured borrowing capacity with the FHLB	$	3,307,329	$	3,459,294	$	3,330,715
Less: secured advances outstanding	Less: secured advances outstanding	(10,000)		(10,000)		(1,318,000)		Less: secured advances outstanding	—		(5,000)		(5,000)
Available secured borrowing capacity with the FHLB	Available secured borrowing capacity with the FHLB	3,613,177		4,191,095		2,911,788		Available secured borrowing capacity with the FHLB	3,307,329		3,454,294		3,325,715
Available secured borrowing capacity with the FRBSF	Available secured borrowing capacity with the FRBSF	1,560,042		1,552,204		1,988,028		Available secured borrowing capacity with the FRBSF	1,436,648		1,413,182		1,409,452
Total secondary liquidity	Total secondary liquidity	$	5,173,219	$	5,743,299	$	4,899,816	Total secondary liquidity	$	4,743,977	$	4,867,476	$	4,735,167

During the three months ended ~~September~~June 30, ~~2020,~~2021, the Company's primary liquidity increased by ~~$1.8~~$1.4 billion to ~~$6.9~~$12.6 billion at ~~September~~June 30, ~~2020~~2021 due mainly to a ~~$1.0~~$1.3 billion increase in securities available-for-sale and a $160.9 million increase in interest-earning deposits in financial ~~institutions, a $681.5 million increase in securities available-for-sale, and a $36.8 million decrease in pledged securities.~~institutions. During the ~~third~~second quarter of ~~2020,~~2021, the Company's secondary liquidity decreased by ~~$570.1~~$123.5 million to ~~$5.2~~$4.7 billion at ~~September~~June 30, ~~2020~~2021 due ~~mostly~~primarily to a ~~$577.9~~$147.0 million decrease in secured borrowing capacity with the FHLB, ~~attributable to~~offset partially by a ~~decrease~~$23.5 million increase in ~~pledged loans.~~secured borrowing capacity with the FRBSF.

In addition to our primary liquidity, we generate liquidity from cash flows from our loan and securities portfolios and from our large base of core deposits, defined as noninterest-bearing demand, interest checking, savings, and non-brokered money market accounts. At ~~September~~June 30, ~~2020,~~2021, core deposits totaled ~~$21.1~~$27.0 billion and represented ~~88%~~91% of the Company's total deposits. Core deposits are normally less volatile, often with customer relationships tied to other products offered by the Bank promoting long-standing relationships and stable funding sources. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our core deposits.

8483

Our deposit balances may decrease if customers withdraw funds from the Bank. In order to address the Bank’s liquidity risk from fluctuating deposit balances, the Bank maintains adequate levels of available liquidity on and off the balance sheet.

We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At ~~September~~June 30, ~~2020,~~2021, brokered deposits totaled ~~$1.4~~$1.3 billion, consisting primarily of $1.1 billion of non-maturity brokered accounts and ~~$240.8~~$195.7 million of brokered time deposits. At December 31, ~~2019,~~2020, brokered deposits totaled ~~$1.7~~$1.3 billion, consisting mainly of ~~$1.2~~$1.1 billion of non-maturity brokered accounts and $195.7 million of brokered time ~~deposits and $496.4 million of non-maturity brokered accounts.~~deposits.

Our liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Liquidity Buffer Coverage Ratio (the ratio of cash and unpledged securities to the estimated 30 day cash outflow in a defined stress scenario), Liquidity Stress Test Survival Horizon (the number of days that the Bank’s liquidity buffer plus available secured borrowing capacity is sufficient to offset cumulative cash outflow in a defined stress scenario), Loan to Funding Ratio (measurement of gross loans net of fees divided by deposits plus borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. At ~~September~~June 30, ~~2020,~~2021, the Bank was in compliance with all established liquidity guidelines.

Holding Company Liquidity

PacWest acts a source of financial strength for the Bank which can also include being a source of liquidity. The primary sources of liquidity for the holding company include dividends from the Bank, intercompany tax payments from the Bank, and PacWest's ability to raise capital, issue subordinated debt, and secure outside borrowings. PacWest's ability to obtain funds for the payment of dividends to our stockholders, the repurchase of shares of common stock, and other cash requirements is largely dependent upon the Bank’s earnings. The Bank is subject to restrictions under certain federal and state laws and regulations that limit its ability to transfer funds to the holding company through intercompany loans, advances, or cash dividends. ~~Our~~PacWest's ability to pay dividends is also subject to the restrictions set forth in Delaware law, by the FRB, and by certain covenants contained in our subordinated ~~debentures.~~debt. Approval by the FRB is ~~also~~ required prior to our declaring and paying a cash dividend during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. PacWest may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. In addition, we may be restricted by applicable law or regulation or actions taken by our regulators, now or in the future, from paying dividends. Due to the impact of the goodwill impairment charge on net earnings in the first quarter of 2020, we ~~are now~~were required to receive approval from the FRB, as described above, prior to declaring a ~~dividend.~~dividend, for the period of March 31, 2020 to March 31, 2021, but are no longer required to obtain such approval.

Dividends paid by California state-chartered banks are regulated by the FDIC for non-member banks and the DFPI under their general supervisory authority. The Bank may declare a dividend without the approval of the DFPI and FDIC as long as the total dividends declared in a calendar year do not exceed either the retained earnings or the total of net earnings for the three previous fiscal years less any dividends paid during such period. The ~~Bank's~~Bank had a net ~~earnings~~loss of $256.7 million during the three fiscal years of 2020, 2019, and 2018, ~~and 2017 exceeded~~compared to dividends of $1.3 billion paid by the Bank during that same ~~period by $34.8 million.~~period. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, PacWest received $33.0 million and ~~$225.0~~$66.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of ~~$2.1~~$1.7 billion at ~~September~~June 30, ~~2020,~~2021, for the foreseeable future any dividends from the Bank to PacWest will continue to require DFPI and FDIC approval consistent with what has been required since 2008 when Bank first had an accumulated deficit triggered by goodwill impairment write-downs during the ~~Financial Crisis.~~financial crisis of 2007-2008.

At ~~September~~June 30, ~~2020,~~2021, PacWest had ~~$123.3~~$133.4 million in cash and cash equivalents, of which substantially all is 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.

8584

~~Stock Repurchase Programs~~

~~In February 2020, we repu~~rchased 1,953,711 shares of common stock for a total amount of $70.0 million at an average price of $35.83 under the former Stock Repurchase Program. All shares repurchased under the former Stock Repurchase Program were retired upon settlement.

On February 12, 2020, PacWest's Board of Directors authorized a new Stock Repurchase Program to purchase shares of its common stock for an aggregate purchase price not to exceed $200 million until February 28, 2021, effective upon the maturity of the former Stock Repurchase Program on February 29, 2020. No shares have been repurchased under the new Stock Repurchase Program and the entire $200 million is remaining at September 30, 2020. On April 21, 2020, stock repurc~~hases under the new Stock Repurchase Program were suspended indefinitely.~~

Contractual Obligations

The following table summarizes the known contractual obligations of the Company as of the date indicated:


				Due After		Due After									Due After		Due After
		Due		One Year		Three Years		Due					Due		One Year		Three Years		Due
		Within		Through		Through		After					Within		Through		Through		After
September 30, 2020		One Year		Three Years		Five Years		Five Years		Total
June 30, 2021												June 30, 2021	One Year		Three Years		Five Years		Five Years		Total
		(In thousands)											(In thousands)
Time deposits	Time deposits	$	1,407,347	$	197,366	$	119,444	$	—	$	1,724,157	Time deposits	$	1,238,447	$	168,107	$	79,348	$	—	$	1,485,902
Short-term borrowings	Short-term borrowings	60,000		—		—		—		60,000		Short-term borrowings	6,625		—		—		—		6,625
Long-term debt obligations (1)	Long-term debt obligations (1)	—		—		—		541,999		541,999		Long-term debt obligations (1)	—		—		—		942,352		942,352
Contractual interest (2)	Contractual interest (2)	4,279		2,232		2,286		—		8,797		Contractual interest (2)	14,891		28,153		25,558		—		68,602
Operating lease obligations	Operating lease obligations	34,675		55,113		33,168		30,091		153,047		Operating lease obligations	35,231		59,113		31,109		28,309		153,762
Other contractual obligations	Other contractual obligations	68,945		88,668		14,644		24,868		197,125		Other contractual obligations	76,958		113,426		11,150		25,822		227,356
Total	Total	$	1,575,246	$	343,379	$	169,542	$	596,958	$	2,685,125	Total	$	1,372,152	$	368,799	$	147,165	$	996,483	$	2,884,599

_______________________________________

(1) Excludes issuance costs and purchase accounting fair value adjustments.

(2) Excludes interest on variable rate subordinated ~~debentures as these instruments are variable rate.~~debt instruments.

Long-term debt obligations include subordinated ~~debentures.~~debt. Debt obligations are also discussed in Note 9.10. Borrowings and Subordinated ~~Debentures~~Debt, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in “Item 1. Condensed Consolidated Financial Statements (Unaudited).” Operating lease obligations are discussed in the Notes to Consolidated Financial Statements included in our ~~Annual Report on~~ Form ~~10-K for the year ended December 31, 2019.~~10-K. The other contractual obligations relate to our minimum liability associated with our data and item processing contract with a third-party provider, commitments to contribute capital to investments in low income housing project partnerships and private equity funds, and commitments under deferred compensation arrangements.

We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate liquidity levels. We expect to maintain adequate liquidity levels through profitability, loan and lease payoffs, securities repayments and maturities, and continued deposit gathering activities. We also have in place various borrowing mechanisms for both short-term and long-term liquidity needs.

Off-Balance Sheet Arrangements

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 ~~September~~June 30, ~~2020,~~2021, our loan commitments and standby letters of credit were ~~$7.2~~$7.9 billion and ~~$353.8~~$343.7 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.~~12. Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This analysis should be read in conjunction with text under the caption ~~"Quantitative~~"Quantitative and Qualitative Disclosures About Market ~~Risk"~~Risk" in our ~~Annual Report on~~ Form 10-K, ~~for the year ended December 31, 2019,~~ which text is incorporated herein by reference. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Item 2 regarding such forward-looking information.

Market Risk - Foreign Currency ~~Exchange~~Exposure

We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps ~~and foreign exchange forward contracts~~ to hedge exposures to ~~loans and~~ debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar, and the derivatives that hedge those exposures. As of ~~September~~June 30, ~~2020,~~2021, the U.S. Dollar notional amounts of ~~loans receivable and~~ subordinated ~~debentures~~debt payable denominated in foreign currencies ~~were $41.7 million and $30.2~~was $30.6 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures ~~were $43.8 million and~~was $28.5 million. We recognized a foreign currency translation net ~~loss~~gain of ~~$368,000~~$218,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and a foreign currency translation net ~~gain~~loss of ~~$8,000~~$614,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

Asset/Liability Management and Interest Rate Sensitivity

Interest Rate Risk

We measure our IRR position on a monthly basis using two methods: (i) NII simulation analysis; and (ii) MVE modeling. The Executive ALM Committee and the Board Asset/Liability Management Committee review the results of these analyses quarterly. If hypothetical changes to interest rates cause changes to our simulated net present value of equity and/or net interest income outside our pre-established limits, we may adjust our asset and liability mix in an effort to bring our interest rate risk exposure within our established limits.

We evaluated the results of our NII simulation model and MVE model prepared as of ~~September~~June 30, ~~2020,~~2021, the results of which are presented below. Our NII simulation and MVE model indicate that our balance sheet is asset-sensitive. An asset-sensitive profile would suggest that a sudden sustained increase in rates would result in an increase in our estimated NII and MVE, while a liability-sensitive profile would suggest that these amounts would decrease.

Net Interest Income Simulation

We used a NII simulation model to measure the estimated changes in NII that would result over the next 12 months from immediate and sustained changes in interest rates as of ~~September~~June 30, ~~2020.~~2021. This model is an interest rate risk management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth or changes in the product mix of either our total interest-sensitive assets or liabilities over the next 12 months, therefore the results reflect an interest rate shock to a static balance sheet.

This analysis calculates the difference between NII forecasted using both increasing and decreasing interest rate scenarios using the forward yield curve at ~~September~~June 30, ~~2020.~~2021. In order to arrive at the base case, we extend our balance sheet at ~~September~~June 30, ~~2020~~2021 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of ~~September~~June 30, ~~2020.~~2021. Based on such repricing, we calculate an estimated NII and NIM for each rate scenario.

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The NII simulation model is dependent upon numerous assumptions. For example, the majority of our loans are variable rate that are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (embedded options) and the simulation model uses prepayment assumptions to estimate these accelerated cash flows and reinvest these proceeds at current simulated yields. Our interest-bearing deposits reprice at our discretion and are assumed to reprice at a rate less than the change in market rates. The 12-month NII simulation model as of ~~September~~June 30, ~~2020~~2021 assumes interest-bearing deposits reprice at ~~31% of~~28% of the change in market rates in a rising interest rate scenario, depending on the amount of the rate change (this is commonly referred to as the "deposit beta"). The effects of certain balance sheet attributes, such as fixed-rate loans, variable-rate loans that have reached their floors, and the volume of noninterest-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our NII simulation model. Additionally, we assume that all market interest rates have an interest rate floor of 0%. Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, loan and deposit pricing, changes in the mix of earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.

The following table presents forecasted net interest income and net interest margin for the next 12 months using the static balance sheet and forward yield curve as the base scenario, with immediate and sustained parallel upward movements in interest rates of 100, 200, and 300 basis points and sustained parallel downward movements in interest rates of 25, 50, and 100 basis points as of the date indicated:


		Forecasted			Forecasted	Forecasted		Forecasted			Forecasted	Forecasted
		Net Interest		Percentage	Net Interest	Net Interest		Net Interest		Percentage	Net Interest	Net Interest
		Income		Change	Margin	Margin Change		Income		Change	Margin	Margin Change
September 30, 2020		(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
June 30, 2021							June 30, 2021	(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
		(Dollars in millions)						(Dollars in millions)
Interest Rate Scenario:	Interest Rate Scenario:						Interest Rate Scenario:
Up 300 basis points	Up 300 basis points	$	1,163.3	20.2%	4.54%	0.76%	Up 300 basis points	$	1,296.5	25.1%	4.08%	0.82%
Up 200 basis points	Up 200 basis points	$	1,078.0	11.4%	4.21%	0.43%	Up 200 basis points	$	1,192.6	15.1%	3.75%	0.49%
Up 100 basis points	Up 100 basis points	$	1,008.7	4.2%	3.94%	0.16%	Up 100 basis points	$	1,101.1	6.3%	3.47%	0.21%
BASE CASE	BASE CASE	$	967.8	—	3.78%	—	BASE CASE	$	1,036.1	—	3.26%	—
Down 25 basis points	Down 25 basis points	$	962.9	(0.5)%	3.76%	(0.02)%	Down 25 basis points	$	1,033.3	(0.3)%	3.25%	(0.01)%
Down 50 basis points	Down 50 basis points	$	959.1	(0.9)%	3.74%	(0.04)%	Down 50 basis points	$	1,026.4	(0.9)%	3.23%	(0.03)%
Down 100 basis points	Down 100 basis points	$	958.8	(0.9)%	3.74%	(0.04)%	Down 100 basis points	$	1,022.0	(1.4)%	3.22%	(0.04)%

During the ~~third~~second quarter of ~~2020,~~2021, total base case year 1 tax equivalent NII ~~decreased~~increased by ~~$37.3~~$1.7 million to ~~$967.8 million~~$1.0 billion at ~~September~~June 30, ~~2020,~~2021, and the base case tax equivalent NIM decreased to ~~3.78%~~3.26% from ~~4.08%~~3.48%. The ~~decrease~~increase in year 1 NII compared to March 31, 2021 NII was attributable ~~primarily~~ to ~~lower loan income due to unfavorable rate~~balance sheet growth (interest-earning deposits in financial institutions, investment securities, and ~~volume changes,~~loans and leases), offset partially by lower ~~cost of funds~~loan yields. The tax equivalent NIM decreased due to the ~~shift in the funding mix from borrowings to core deposits. The decrease in NIM was due almost entirely to the quarter-over-quarter shift in~~lower loan yields and the earning assets mix inshift from the ~~static balance sheet, as~~increase in the balance of low yielding interest-earning deposits in financial institutions ~~increased by $1.0 billion from the large increase in core deposits~~ during the ~~third quarter. The core deposits increase related primarily to the strong deposit growth from our venture banking clients.~~second quarter of 2021.

In addition to parallel interest rate shock scenarios, we also model various alternative rate vectors. The most favorable alternate rate vector that we model is the “Bear ~~Flattener”~~Flattener Severe” scenario, when short-term rates increase faster than long-term rates. In the “Bear ~~Flattener”~~Flattener Severe” scenario, Year 1 tax equivalent NII increases by ~~1.9%~~4.79%. ~~Because~~Because of the low level of market interest rates and the assumption that market rates contain a 0% floor, the ad hoc scenarios that assume decreasing interest rates do not differ materially from the base case scenario.

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At ~~September~~June 30, ~~2020,~~2021, we had ~~$19.1~~$19.6 billion of total loans that included ~~$10.6~~$10.9 billion with variable interest rate terms (excluding hybrid loans discussed below). Of the variable interest rate loans, ~~$8.7~~$9.1 billion, or 83%, contained interest rate floor provisions, which included ~~$8.6~~$9.0 billion of loans with "in-the-money" floors, meaning the loan coupon will not adjust down if there are future decreases to the index interest rate. The following table summarizes the estimated balance of loans with "in-the-money" floors for the indicated increases in interest rates:


~~September~~June 30, ~~2020~~2021
						Total Amount of
						Loans With
Basis Points of						"In-the-Money"
Rate Increases						Loan Floors
(Dollars in millions)
50 bps						$~~6,674~~5,932
100 bps						$~~4,823~~3,728
150 bps						$~~2,944~~2,518
200 bps						$~~1,108~~1,044
250 bps						$~~167~~76

At ~~September~~June 30, ~~2020,~~2021, we also had ~~$3.8~~$2.9 billion of variable-rate hybrid loans that do not immediately reprice because the loans contain an initial fixed-rate period before they become variable. The cumulative amounts of hybrid loans that would switch from being fixed-rate to variable-rate because the initial fixed-rate term would expire were approximately ~~$441~~$144.5 million, ~~$2.1 billion~~,$486.2 million, and ~~$2.8 billion~~$925.1 million in the next one, two, and three years.

LIBOR is expected to be phased out after 2021, as such the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR. The business processes impacted relate primarily to our variable-rate loans and our subordinated ~~debentures,~~debt, both of which are indexed to LIBOR. For further information, see Item 1A. "Risk ~~Factors~~Factors" of our ~~Annual Report on~~ Form ~~10-K for the year ended December 31, 2019.~~10-K.

Market Value of Equity

We measure the impact of market interest rate changes on the net present value of estimated cash flows from our assets, liabilities, and off-balance sheet items, defined as the market value of equity, using our MVE model. This simulation model assesses the changes in the market value of our interest-sensitive financial instruments that would occur in response to an instantaneous and sustained increase in market interest rates of 100, 200, and 300 basis points and sustained decrease in market interest rates of 50 and 100 basis points. This analysis assigns significant value to our noninterest-bearing deposit balances. The projections include various assumptions regarding cash flows and interest rates and are by their nature forward-looking and inherently uncertain.

The MVE model is an interest rate risk management tool and the results are not necessarily an indication of our actual future results. Actual results may vary significantly from the results suggested by the market value of equity table. Loan prepayments and deposit attrition, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, among others, may vary significantly from our assumptions. The base case is determined by applying various current market discount rates to the estimated cash flows from the different types of assets, liabilities, and off-balance sheet items existing at ~~September~~June 30, ~~2020.~~2021.

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The following table shows the projected change in the market value of equity for the rate scenarios presented as of the date indicated:


										Ratio of											Ratio of
		Projected		Dollar		Percentage		Percentage		Projected			Projected		Dollar		Percentage		Percentage		Projected
		Market Value		Change		Change		of Total		Market Value			Market Value		Change		Change		of Total		Market Value
September 30, 2020		of Equity		From Base		From Base		Assets		to Book Value
June 30, 2021												June 30, 2021	of Equity		From Base		From Base		Assets		to Book Value
		(Dollars in millions)											(Dollars in millions)
Interest Rate Scenario:	Interest Rate Scenario:											Interest Rate Scenario:
Up 300 basis points	Up 300 basis points	$	5,692.9	$	889.7	18.5	%	20.0	%	163.3	%	Up 300 basis points	$	6,927.4	$	882.7	14.6	%	19.9	%	180.1	%
Up 200 basis points	Up 200 basis points	$	5,384.2	$	581.0	12.1	%	18.9	%	154.4	%	Up 200 basis points	$	6,661.4	$	616.7	10.2	%	19.1	%	173.2	%
Up 100 basis points	Up 100 basis points	$	5,066.7	$	263.5	5.5	%	17.8	%	145.3	%	Up 100 basis points	$	6,361.2	$	316.5	5.2	%	18.2	%	165.4	%
BASE CASE	BASE CASE	$	4,803.3	$	—	—	%	16.9	%	137.8	%	BASE CASE	$	6,044.7	$	—	—	%	17.3	%	157.1	%
Down 50 basis points	Down 50 basis points	$	4,642.8	$	(160.4)	(3.3)	%	16.3	%	133.2	%	Down 50 basis points	$	5,885.1	$	(159.6)	(2.6)	%	16.9	%	153.0	%
Down 100 basis points	Down 100 basis points	$	4,512.7	$	(290.5)	(6.0)	%	15.9	%	129.4	%	Down 100 basis points	$	5,771.4	$	(273.3)	(4.5)	%	16.6	%	150.0	%

During the ~~third~~second quarter of ~~2020,~~2021, total base case projected market value of equity ~~decreased~~increased by ~~$347~~$45.3 million to ~~$4.8~~$6.0 billion. This ~~decrease~~increase in base case projected MVE was due ~~primarily~~mostly to: (1) a $532 million increase in the mark-to-market adjustment for total deposits from the lower market interest rates used for the deposit valuation, offset partially by (2) a $150 million increase in the mark-to-market adjustment for loans and leases due to the impact of lower credit spreads used for calculating the valuation; and (3) a $33$192.5 million increase in the book value of stockholders' equity due mainly to ~~$46~~$180.5 million of net earnings and a ~~$10~~$39.1 million increase in accumulated other comprehensive income, offset partially by ~~$30 million~~$29.9 of cash dividends ~~paid.~~paid; offset partially by (2) a $62.2 million decrease in the mark-to-market adjustment for loans and leases; (3) a $16.3 million increase in the mark-to-market adjustment for total deposits; and (4) a $72.4 million increase in the mark-to-market adjustment for subordinated debt due primarily to the updated tighter credit spreads used for the valuation of holding company TRUPS.

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ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, an evaluation was carried out by the Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective.

There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth in Note ~~11.~~12. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements (Unaudited) is incorporated herein by reference.

In addition, in the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations.

ITEM 1A. RISK FACTORS

For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors disclosed in the ~~"Risk Factors"~~"Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. See also "Forward-Looking Information" disclosed in Part I, Item 2 of this quarterly report on Form ~~10-Q and the updated Risk Factors below.~~10-Q.

Since March 13, 2020, the United States has been operating under a state of emergency declared by President Trump in response to the spread of COVID-19. COVID-19 and related governmental responses have affected economic and financial market conditions as well as the operations, results, and prospects of companies across many industries. In connection with the impact of COVID-19 on the economy and the Company, the Company has supplemented the risk factors previously disclosed in the Company's most recent Annual Report on Form 10-K as follows:

~~General Economic and Market Conditions Risk~~

The recent outbreak of the novel coronavirus (COVID-19) pandemic and resulting economic conditions have adversely impacted our business operations, asset valuations and financial results, and the ultimate impact on our business and financial results is uncertain.

The novel coronavirus (COVID-19) pandemic has created economic and financial disruptions that have adversely affected, and are likely to continue to adversely affect, our business operations, asset valuations and financial results. The pandemic has negatively impacted the global economy, disrupted global supply chains, lowered equity market valuations, created significant volatility and disruption in financial markets, and increased unemployment levels at an unprecedented pace. In addition, the pandemic has resulted in temporary closures of many businesses and the practice of social distancing and stay-at-home requirements in many states and communities. As a result, the demand for our products and services may be significantly impacted. Disruptions to our customers could result in increased risk of delinquencies, defaults, foreclosures and losses on our loans. The escalation of the pandemic may also negatively impact economic conditions for a period of time, resulting in declines in loan demand, liquidity of loan guarantors, loan collateral values (particularly in real estate), and deposit outflows.

Furthermore, the pandemic has influenced and could further influence the recognition of credit losses in our loan portfolios and has increased and could further increase our allowance for credit losses, particularly as businesses remain closed and as more customers may draw on their lines of credit or seek additional loans to help finance their businesses.

Similarly, because of changing economic and market conditions affecting issuers, the securities we hold may lose value. The volatility in the equity markets has already impacted our asset valuations, as evidenced by our goodwill impairment charge in the first quarter, and asset valuations of goodwill or other assets could be further impacted depending on future developments caused by COVID-19.

Our business operations may also be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. To protect the health and safety of our employees and communities, we have temporarily closed certain of our branches and offices and many of our employees are working remotely. We may experience operational difficulties, including increased cybersecurity risk, due to the remote working environments of our employees. We may also experience additional operational risk due to difficulties experienced by our third-party service providers.

~~Because there have been no comparable recent global pandemics that resulted in a similar impact on the U.S. economy, t~~he full extent to which the COVID-19 pandemic will impact our business operations, asset valuations and financial results will depend on future developments which are highly uncertain and cannot be predicted. These include the scope and duration of the pandemic, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our employees, customers and third-party service providers, as well as other market participants, and the effectiveness of actions taken by governmental authorities and other third parties in response to the pandemic. We are continuing to monitor the COVID-19 pandemic and related risks, although the rapid development and fluidity of the situation precludes any specific prediction as to its ultimate impact on us. However, if the pandemic continues to spread or otherwise results in a continuation or worsening of the current economic and commercial environments, our business, financial condition, results of operations, cash flows, and ability to pay dividends, as well as our regulatory capital and liquidity ratios could be materially adversely affected and many of the risks described in our 2019 Form 10-K will be heightened.

~~Regulatory, Compliance and Legal Risk~~

Our participation in the SBA PPP loan program exposes us to risks related to noncompliance with the PPP, as well as litigation risk related to our administration of the PPP loan program, which could have a material adverse impact on our business, financial condition and results of operations.

The Company is a participating lender in the PPP, a loan program administered through the SBA, that was created to help eligible businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic. Under this program, the SBA guarantees 100% of the amounts loaned under the PPP. The PPP opened on April 3, 2020; however, because of the short window between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. For instance, other financial institutions have experienced litigation related to their process and procedures used in processing applications for the PPP. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations. In addition, the Company may be exposed to credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced. If a deficiency is identified, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

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

The following table presents stock purchases made during the ~~third~~second quarter of ~~2020:~~2021:

Total Number of Maximum Dollar
Shares Purchased Value of Shares
Total as Part of That May Yet
Number of Average Publicly Be Purchased
Shares Price Paid Announced Under the
Purchase Dates
Purchased (1)
Per Share
Program (2)
Program (2)
(In thousands)
July 1 – July 31, 2020 — $ — — $ 200,000
August 1 – August 31, 2020 3,220 $ 19.15 — $ 200,000
September 1 – September 30, 2020 614 $ 16.19 — $ 200,000
Total 3,834 $ 18.67 —


				Total Number of	Maximum Dollar
				Shares Purchased	Value of Shares
	Total			as Part of	That May Yet
	Number of	Average		Publicly	Be Purchased
	Shares	Price Paid		Announced	Under the
Purchase Dates	Purchased (1)	Per Share		Program (2)	Program (2)
					(In thousands)
April 1 - April 30, 2021	—	$	—	—	$	—
May 1 - May 31, 2021	135,663	$	45.17	—	$	—
June 1 - June 30, 2021	1,148	$	41.16	—	$	—
Total	136,811	$	45.14	—

__________________________

(1) ~~Includes shares~~Shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock ~~awards, and shares repurchased pursuant to the Company's publicly announced Stock Repurchase Program, described in (2) below.~~awards.

(2) On February 12, 2020, PacWest's Board ~~of Directors~~ authorized a new Stock Repurchase Program to purchase shares of its common stock for an aggregate purchase price not to exceed $200 million, ~~until~~ effective February ~~28, 2021. On April 21,~~29, 2020 ~~stock repurchases~~. No shares were repurchased under the ~~current~~new Stock Repurchase Program ~~were suspended indefinitely. All shares repurchased under the various Stock Repurchase Programs were retired upon settlement.~~prior to expiration on February 28, 2021.

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ITEM 6. INDEX TO EXHIBITS


Exhibit Number			Description
2.1			Purchase and Assumption Agreement, dated March 31, 2021, between Pacific Western Bank and MUFG Union Bank, N.A. (Exhibit 2.1 to Form 8-K filed on April 1, 2021 and incorporated herein by this reference).*
3.1			Certificate of Incorporation, as amended, of PacWest Bancorp, a Delaware corporation, dated April 22, 2008 (Exhibit 3.1 to Form 8-K filed on May 14, 2008 and incorporated herein by this reference).
3.2			Certificate of Amendment of Certificate of Incorporation of PacWest Bancorp, a Delaware Corporation, dated May 14, 2010 (Exhibit 3.1 to Form 8-K filed on May 14, 2010 and incorporated herein by this reference).
3.3			Second Amended and Restated Bylaws of PacWest Bancorp, a Delaware Corporation, dated October 25, 2019 (Exhibit 3.5 to Form 8-K filed on October 29, 2019 and incorporated herein by this reference).
4.1			Description of Registered Securities (Exhibit 4.2 to Form 10-K filed on February 28, 2020 and incorporated herein by this reference).
10.1			PacWest Bancorp ~~2003 Stock Incentive Plan, as amended and restated, dated May 16, 2016 (Exhibit 10.1 to Form 8-K filed on May 18, 2016 and incorporated herein by this reference).~~
~~10.2~~			Form of Stock Award Agreement and Grant Notice pursuant to the Company's 2003 Stock Incentive Plan, as amended and restated (Exhibit 10.2 to Form 10-Q filed on November 7, 2016 and incorporated herein by this reference).
~~10.3~~			Form of Stock Unit Award Agreement pursuant to the Company's 2003 Stock Incentive Plan, as amended and restated (Exhibit 10.3 to Form 10-Q filed on November 7, 2016 and incorporated herein by this reference).
~~10.4~~			~~PacWest Bancorp~~ 2017 Stock Incentive Plan, as amended, dated May 15, 2017 (Exhibit 10.1 to Form S-8 filed on May 15, 2017 and incorporated herein by this reference).
~~10.5~~10.2			Form of Stock Unit Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan (Exhibit 10.2 to Form 8-K filed on May 18, 2017 and incorporated herein by reference).
~~10.6~~10.3			Form of Stock Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan (Exhibit 10.3 to Form 8-K filed on May 18, 2017 and incorporated herein by reference).
~~10.7~~10.4			Form of Stock Unit Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan, as amended (Exhibit 10.7 to Form 10-Q filed on August 8, 2019 and incorporated herein by this reference).
~~10.8~~10.5			Form of Stock Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan, as amended (Exhibit 10.8 for Form 10-Q filed on August 8, 2019 and incorporated herein by this reference).
~~10.9~~10.6			2018 Executive Incentive Plan, as amended and restated February 14, 2018 (Exhibit 10.1 to Form 8-K filed on February 16, 2018 and incorporated herein by this reference).
~~10.10~~10.7			Indemnification Agreement applicable to the directors and executive officers of the Company (Exhibit 10.10 to Form 10-K filed on February 28, 2020 and incorporated herein by this reference).
~~10.11~~10.8			PacWest Bancorp Change in Control Severance Plan, dated February 12, 2020 (Exhibit 10.1 to Form 8-K filed on February 14, 2020 and incorporated herein by this reference).
10.9			Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (Appendix A to the Company's Definitive Proxy Statement filed on March 26, 2021 and incorporated herein by this reference).
10.10			Form of Stock Award Agreement and Grant Notice pursuant to the Company's Amended and Restated 2017 Stock Incentive Plan (Filed herewith)
31.1			Section 302 Certification of Chief Executive Officer (Filed herewith).
31.2			Section 302 Certification of Chief Financial Officer (Filed herewith).
32.1			Section 906 Certification of Chief Executive Officer (Filed herewith).
32.2			Section 906 Certification of Chief Financial Officer (Filed herewith).


Exhibit Number			Description
101			Interactive data files pursuant to Rule 405 of Regulation ~~S-T:~~S-T formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020, (ii) the Condensed Consolidated Statements of Earnings (Loss) for the three months ended ~~September~~June 30, ~~2020,~~2021, March 31, 2021 and June 30, 2020 and ~~September 30, 2019 and nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended ~~September~~June 30, ~~2020,~~2021, March 31, 2021 and June 30, 2020 and ~~September 30, 2019 and nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020, (iv) the Condensed Consolidated Statement of Changes in Stockholders’ Equity for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020, (v) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020, and (vi) the Notes to Condensed Consolidated Financial Statements. (Pursuant to Rule 406T of Regulation S-T, this information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.) (Filed herewith).
104			Cover page of PacWest Bancorp’s Quarterly Report on Form 10-Q formatted as Inline XBRL and contained in Exhibit 101.

* Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company will furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.

9592

Signatures

Pursuant to the requirements of Section 13 or 15(d) 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.


		PACWEST BANCORP

Date:	~~November~~August 6, ~~2020~~2021	/s/ Bart R. Olson
		Bart R. Olson
		~~Deputy~~ Chief Financial Officer and Principal ~~Accounting~~Financial Officer

9693


	At and For the Three Months Ended				At and For the Nine Months Ended
	September 30, 2020				September 30, 2020
	Nonaccrual		Interest		Nonaccrual		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(In thousands)				(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	736	$	0	$	736	$	0
Income producing and other residential	1,163		0		1,163		0



Commercial:
Asset based	2,248		0		2,248		0
Venture capital	2,001		0		2,001		0
Other commercial	1,235		0		1,235		0
Consumer	404		0		404		0
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	44,384	$	155	$	44,384	$	285
Income producing and other residential	845		0		845		0
Real estate construction and land:
Commercial	324		0		324		0

Commercial:
Asset based	569		0		569		0

Other commercial	31,706		517		31,706		1,628

Total Loans and Leases With and
Without an Allowance Recorded:
Real estate mortgage	$	47,128	$	155	$	47,128	$	285
Real estate construction and land	324		0		324		0
Commercial	37,759		517		37,759		1,628
Consumer	404		0		404		0
Total	$	85,615	$	672	$	85,615	$	1,913


															Revolving
															Converted
Amortized Cost Basis	Term Loans by Origination Year												Revolving		to Term
September 30, 2020	2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
	(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
3-4 Pass	236,355		501,855		835,914		512,565		35,286		315		9,034		50,776		2,182,100
5 Special mention	0		0		0		0		0		0		0		0		0
6-8 Classified	0		0		0		0		0		0		0		0		0
Total	$	236,355	$	501,855	$	835,914	$	512,565	$	35,286	$	315	$	9,034	$	50,776	$	2,182,100
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Gross recoveries	0		0		0		0		0		(21)		0		0		(21)
Net	$	0	$	0	$	0	$	0	$	0	$	(21)	$	0	$	0	$	(21)

Commercial: Asset-Based
Internal risk rating:
1-2 High pass	$	33,273	$	167,859	$	116,944	$	65,740	$	120,644	$	87,642	$	231,234	$	73,549	$	896,885
3-4 Pass	61,548		123,290		81,362		36,075		13,181		48,991		1,653,848		19,775		2,038,070
5 Special mention	0		64,586		61,726		21,043		14,913		958		22,150		4,817		190,193
6-8 Classified	0		0		0		0		19,398		569		8,791		(858)		27,900
Total	$	94,821	$	355,735	$	260,032	$	122,858	$	168,136	$	138,160	$	1,916,023	$	97,283	$	3,153,048
Current YTD period:
Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	11,817	$	0	$	0	$	11,817
Gross recoveries	(39)		0		0		0		0		(323)		(231)		0		(593)
Net	$	(39)	$	0	$	0	$	0	$	0	$	11,494	$	(231)	$	0	$	11,224

Commercial: Venture
Capital
Internal risk rating:
1-2 High pass (1)	$	2,003	$	5,644	$	0	$	(4)	$	(6)	$	(4)	$	234,321	$	0	$	241,954
3-4 Pass	59,229		133,479		44,599		9,733		32,079		6,550		965,206		5,550		1,256,425
5 Special mention	5,958		38,163		1,586		4,000		526		0		68,331		5,111		123,675
6-8 Classified	0		(1,663)		11,750		0		0		3,663		1,328		0		15,078
Total	$	67,190	$	175,623	$	57,935	$	13,729	$	32,599	$	10,209	$	1,269,186	$	10,661	$	1,637,132
Current YTD period:
Gross charge-offs	$	0	$	0	$	6,534	$	0	$	(8)	$	150	$	142	$	0	$	6,818
Gross recoveries	0		0		(177)		(128)		(145)		(3)		(450)		0		(903)
Net	$	0	$	0	$	6,357	$	(128)	$	(153)	$	147	$	(308)	$	0	$	5,915















	Three Months Ended September 30, 2019
			Real Estate
	Real Estate		Construction
	Mortgage		and Land		Commercial		Consumer		Total
	(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period	$	46,826	$	26,378	$	59,401	$	2,432	$	135,037
Charge-offs	(120)		0		(6,021)		(360)		(6,501)
Recoveries	95		0		1,898		23		2,016
Net charge-offs	(25)		0		(4,123)		(337)		(4,485)
Provision (negative provision)	(1,655)		683		8,907		65		8,000
Balance, end of period	$	45,146	$	27,061	$	64,185	$	2,160	$	138,552


									Deferrals as % of
							Total Loans		Total Loans
Loan and Lease Portfolio	Loan Deferrals Outstanding						and Leases		and Leases
Segment and Class	June 30, 2020			September 30, 2020			September 30, 2020		September 30, 2020
	(Dollars in thousands)
Real estate mortgage:
Commercial	$	810,689		$	430,682		$	4,192,466	10.3	%
Income producing and other residential	187,641			42,448			3,684,579		1.2	%
Real estate construction and land:
Commercial	208,866			86,963			1,241,647		7.0	%
Residential	329			—			2,182,100		—	%
Commercial:
Asset-based	30,572			30,507			3,153,048		1.0	%
Venture capital	12,497			2,849			1,637,132		0.2	%
Other commercial	42,687			30,556			2,572,994		1.2	%
Consumer	4,230			632			362,234		0.2	%
Total	$	1,297,511		$	624,637		$	19,026,200	3.3	%

As % of total loans and leases	6.6		%	3.3		%


		Three Months Ended									Nine Months Ended
PPNR and PPNR Return		September 30,			June 30,			September 30,			September 30,
on Average Assets		2020			2020			2019			2020			2019
		(Dollars in thousands)
Net earnings (loss)		$	45,503		$	33,204		$	110,026		$	(1,354,404)		$	350,755
Add:	Provision for credit losses	97,000			120,000			7,000			329,000			19,000
	Goodwill impairment	—			—			—			1,470,000			—
	Income tax expense	13,671			12,968			41,830			38,627			135,118
	Pre-provision, pre-goodwill impairment
	pre-tax net revenue ("PPNR")	$	156,174		$	166,172		$	158,856		$	483,223		$	504,873

Average assets		$	27,935,193		$	26,621,227		$	26,406,603		$	27,221,102		$	26,012,890

Return on average assets (1)		0.65		%	0.50		%	1.65		%	(6.65)		%	1.80		%
PPNR return on average assets (2)		2.22		%	2.51		%	2.39		%	2.37		%	2.59		%