0001102112pacw:~~TermLoansByOriginationDateMemberpacw:OtherCommercialMemberus-gaap:CommercialPortfolioSegmentMemberpacw:OriginationDate2019Member2021-01-012021-06-30~~OriginationDate2021Memberpacw:TermLoansByOriginationDateMemberus-gaap:ConsumerPortfolioSegmentMemberpacw:A68ClassifiedMember2022-03-31

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 ~~June 30, 2021~~March 31, 2022

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.

☑

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 ~~July 30, 2021,~~April 28, 2022, there were ~~117,213,554~~117,447,120 shares of the registrant's common stock outstanding, excluding ~~2,334,433~~2,151,411 shares of unvested restricted stock.

PACWEST BANCORP

~~JUNE 30, 2021~~MARCH 31, 2022 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)	98
	Notes to Condensed Consolidated Financial Statements (Unaudited)	1110
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	5349
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8678
Item 4.	Controls and Procedures	9082

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	9082
Item 1A.	Risk Factors	9082
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9082
Item 6.	Index to Exhibits	9183
Signatures		9384

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

FRBSF

Federal Reserve Bank of San Francisco

ALLL

Allowance for Loan and Lease Losses

GDP

Gross Domestic Product

ALM

Asset Liability Management

~~IPO~~HOA Business

~~Initial Public Offering~~Homeowners Association Services Division of MUFG Union Bank, N.A. (a business acquired on October 8, 2021)

ASC

Accounting Standards Codification

~~IRR~~IPO

~~Interest Rate Risk~~Initial Public Offering

ASU

Accounting Standards Update

~~LIBOR~~IRR

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

Basel III

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

~~LIHTC~~LIBOR

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

BHCA

Bank Holding Company Act of 1956, as amended

~~MBS~~LIHTC

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

BOLI

Bank Owned Life Insurance

~~MVE~~MBS

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

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

~~NAV~~MVE

~~Net Asset~~Market Value of Equity

CDI

Core Deposit Intangible Assets

~~NII~~NAV

Net ~~Interest Income~~Asset Value

CECL

Current Expected Credit Loss

~~NIM~~NII

Net Interest ~~Margin~~Income

CET1

Common Equity Tier 1

~~NSF~~NIM

~~Non-Sufficient Funds~~Net Interest Margin

Civic

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

~~OREO~~NSF

~~Other Real Estate Owned~~Non-Sufficient Funds

CMBS

Commercial Mortgage-Backed Securities

~~PD/LGD~~OREO

~~Probability of Default/Loss Given Default~~Other Real Estate Owned

CMOs

Collateralized Mortgage Obligations

PPP

Paycheck Protection Program

~~COVID-19~~Core Deposits

~~Coronavirus Disease~~Includes noninterest-bearing checking accounts, interest checking accounts, money market accounts, and savings accounts

PRSUs

Performance-Based Restricted Stock Units

~~CPI~~COVID-19

~~Consumer Price Index~~Coronavirus Disease

PWAM

Pacific Western Asset Management Inc.

CPI

Consumer Price Index

ROU

Right-of-use

CRA

Community Reinvestment Act

~~ROU~~SBA

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

CRE

Commercial Real Estate

~~SBA~~SBIC

Small Business ~~Administration~~Investment Company

CRI

Customer Relationship Intangible Assets

~~SBIC~~SEC

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

DFPI

California Department of Financial Protection and Innovation

~~SEC~~

~~Securities and Exchange Commission~~

~~DTAs~~

~~Deferred Tax Assets~~

SOFR

Secured Overnight Financing Rate

~~Dodd-Frank Act~~DTAs

~~Dodd-Frank Wall Street Reform and Consumer Protection Act~~Deferred Tax Assets

Tax Equivalent Net Interest Income

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

~~EAD~~Dodd-Frank Act

~~Exposure at Default~~Dodd-Frank Wall Street Reform and Consumer Protection Act

Tax Equivalent NIM

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)

TDRs

Troubled Debt Restructurings

FASB

Financial Accounting Standards Board

TRSAs

Time-Based Restricted Stock Awards

FDIC

Federal Deposit Insurance Corporation

U.S. GAAP

U.S. Generally Accepted Accounting Principles

FHLB

Federal Home Loan Bank of San Francisco

VIE

Variable Interest Entity

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021
		(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	$	179,505	$	150,464	Cash and due from banks	$	205,446	$	112,548
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	5,678,587		3,010,197		Interest-earning deposits in financial institutions	1,865,235		3,944,686
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	5,858,092		3,160,661		Total cash, cash equivalents, and restricted cash	2,070,681		4,057,234
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value	7,198,608		5,235,591		Securities available-for-sale, at fair value	9,975,109		10,694,458
Federal Home Loan Bank stock, at cost	Federal Home Loan Bank stock, at cost	17,250		17,250		Federal Home Loan Bank stock, at cost	17,250		17,250
Total investment securities	Total investment securities	7,215,858		5,252,841		Total investment securities	9,992,359		10,711,708
Loans held for sale		0		0

Gross loans and leases held for investment	Gross loans and leases held for investment	19,580,731		19,153,357		Gross loans and leases held for investment	24,439,749		23,026,308
Deferred fees, net	Deferred fees, net	(74,474)		(69,980)		Deferred fees, net	(87,677)		(84,760)
Allowance for loan and lease losses	Allowance for loan and lease losses	(225,600)		(348,181)		Allowance for loan and lease losses	(197,398)		(200,564)
Total loans and leases held for investment, net	Total loans and leases held for investment, net	19,280,657		18,735,196		Total loans and leases held for investment, net	24,154,674		22,740,984
Equipment leased to others under operating leases	Equipment leased to others under operating leases	313,574		333,846		Equipment leased to others under operating leases	325,305		339,150
Premises and equipment, net	Premises and equipment, net	39,541		39,234		Premises and equipment, net	51,011		46,740
Foreclosed assets, net	Foreclosed assets, net	13,227		14,027		Foreclosed assets, net	304		12,843
Goodwill	Goodwill	1,204,118		1,078,670		Goodwill	1,405,736		1,405,736
Core deposit and customer relationship intangibles, net	Core deposit and customer relationship intangibles, net	18,423		23,641		Core deposit and customer relationship intangibles, net	41,308		44,957
Other assets	Other assets	924,497		860,326		Other assets	1,208,261		1,083,992
Total assets	Total assets	$	34,867,987	$	29,498,442	Total assets	$	39,249,639	$	40,443,344

LIABILITIES:	LIABILITIES:					LIABILITIES:
Noninterest-bearing deposits	Noninterest-bearing deposits	$	11,252,286	$	9,193,827	Noninterest-bearing deposits	$	14,057,051	$	14,543,133
Interest-bearing deposits	Interest-bearing deposits	18,394,748		15,746,890		Interest-bearing deposits	19,167,844		20,454,624
Total deposits	Total deposits	29,647,034		24,940,717		Total deposits	33,224,895		34,997,757
Borrowings	Borrowings	6,625		5,000		Borrowings	991,000		—
Subordinated debt	Subordinated debt	861,788		465,812		Subordinated debt	863,880		863,283
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	505,859		491,962		Accrued interest payable and other liabilities	519,269		582,674
Total liabilities	Total liabilities	31,021,306		25,903,491		Total liabilities	35,599,044		36,443,714

Commitments and contingencies	Commitments and contingencies	0		0		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)	—		—
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
2,341,548 and 1,608,126 shares of unvested restricted stock, respectively)		1,221		1,207
Common stock ($0.01 par value, 200,000,000 shares authorized at March 31, 2022 and						Common stock ($0.01 par value, 200,000,000 shares authorized at March 31, 2022 and
December 31, 2021; 122,215,319 and 122,105,853 shares issued, respectively, includes						December 31, 2021; 122,215,319 and 122,105,853 shares issued, respectively, includes
2,154,646 and 2,312,080 shares of unvested restricted stock, respectively)						2,154,646 and 2,312,080 shares of unvested restricted stock, respectively)	1,222		1,221
Additional paid-in capital	Additional paid-in capital	3,056,522		3,100,633		Additional paid-in capital	2,991,159		3,013,399
Retained earnings	Retained earnings	740,309		409,391		Retained earnings	1,136,478		1,016,350
Treasury stock, at cost (2,511,447 and 2,321,981 shares at June 30, 2021 and
December 31, 2020)		(96,887)		(88,803)
Accumulated other comprehensive income, net		145,516		172,523
Treasury stock, at cost (2,613,553 and 2,520,999 shares at March 31, 2022 and						Treasury stock, at cost (2,613,553 and 2,520,999 shares at March 31, 2022 and
December 31, 2021)						December 31, 2021)	(101,789)		(97,308)
Accumulated other comprehensive (loss) income, net						Accumulated other comprehensive (loss) income, net	(376,475)		65,968
Total stockholders' equity	Total stockholders' equity	3,846,681		3,594,951		Total stockholders' equity	3,650,595		3,999,630
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	34,867,987	$	29,498,442	Total liabilities and stockholders' equity	$	39,249,639	$	40,443,344

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS ~~(LOSS)~~


		Three Months Ended						Six Months Ended					Three Months Ended
		June 30,		March 31,		June 30,		June 30,					March 31,
		2021		2021		2020		2021		2020			2022		2021
		(Unaudited)											(Unaudited)
		(Dollars in thousands, except per share amounts)											(In thousands, except per share amounts)
Interest income:	Interest income:											Interest income:
Loans and leases	Loans and leases	$	244,529	$	241,544	$	247,851	$	486,073	$	510,129	Loans and leases	$	267,759	$	241,544
Investment securities	Investment securities	33,954		30,265		26,038		64,219		53,484		Investment securities	53,422		30,265
Deposits in financial institutions	Deposits in financial institutions	2,022		1,528		186		3,550		1,794		Deposits in financial institutions	1,723		1,528
Total interest income	Total interest income	280,505		273,337		274,075		553,842		565,407		Total interest income	322,904		273,337
Interest expense:	Interest expense:											Interest expense:
Deposits	Deposits	7,269		7,500		13,075		14,769		41,322		Deposits	6,208		7,500
Borrowings	Borrowings	265		193		1,319		458		8,097		Borrowings	161		193
Subordinated debt	Subordinated debt	6,663		4,375		5,402		11,038		11,962		Subordinated debt	7,818		4,375
Total interest expense	Total interest expense	14,197		12,068		19,796		26,265		61,381		Total interest expense	14,187		12,068
Net interest income	Net interest income	266,308		261,269		254,279		527,577		504,026		Net interest income	308,717		261,269
Provision for credit losses	Provision for credit losses	(88,000)		(48,000)		120,000		(136,000)		232,000		Provision for credit losses	—		(48,000)
Net interest income after provision for credit losses	Net interest income after provision for credit losses	354,308		309,269		134,279		663,577		272,026		Net interest income after provision for credit losses	308,717		309,269
Noninterest income:	Noninterest income:											Noninterest income:
Leased equipment income	Leased equipment income	10,847		11,354		12,037		22,201		24,288		Leased equipment income	13,094		11,354
Other commissions and fees	Other commissions and fees	10,704		9,158		10,111		19,862		19,832		Other commissions and fees	11,580		9,158
Service charges on deposit accounts	Service charges on deposit accounts	3,452		2,934		2,004		6,386		4,662		Service charges on deposit accounts	3,571		2,934
Gain on sale of loans and leases	Gain on sale of loans and leases	1,422		139		346		1,561		433		Gain on sale of loans and leases	60		139
Gain on sale of securities	Gain on sale of securities	0		101		7,715		101		7,897		Gain on sale of securities	104		101
Dividends and (losses) gains on equity investments												Dividends and (losses) gains on equity investments	(11,375)		10,904
Warrant income												Warrant income	629		6,123
Other income	Other income	13,946		21,143		6,645		35,089		10,846		Other income	3,155		4,116
Total noninterest income	Total noninterest income	40,371		44,829		38,858		85,200		67,958		Total noninterest income	20,818		44,829
Noninterest expense:	Noninterest expense:											Noninterest expense:
Compensation	Compensation	90,807		79,882		61,910		170,689		123,192		Compensation	92,240		79,882
Occupancy	Occupancy	14,784		14,054		14,494		28,838		28,701		Occupancy	15,200		14,054
Leased equipment depreciation	Leased equipment depreciation	8,614		8,969		7,102		17,583		14,307		Leased equipment depreciation	9,189		8,969
Data processing	Data processing	7,758		6,957		7,102		14,715		13,556		Data processing	9,629		6,957
Other professional services	Other professional services	5,256		5,126		4,146		10,382		8,404		Other professional services	5,954		5,126
Insurance and assessments	Insurance and assessments	3,745		4,903		9,373		8,648		13,622		Insurance and assessments	5,490		4,903
Customer related expense	Customer related expense	4,973		4,818		4,408		9,791		8,340		Customer related expense	12,655		4,818
Loan expense	Loan expense	4,031		3,193		3,379		7,224		6,029		Loan expense	5,157		3,193
Intangible asset amortization	Intangible asset amortization	2,889		3,079		3,882		5,968		7,830		Intangible asset amortization	3,649		3,079
Acquisition, integration and reorganization costs	Acquisition, integration and reorganization costs	200		3,425		0		3,625		0		Acquisition, integration and reorganization costs	—		3,425
Foreclosed assets (income) expense, net	Foreclosed assets (income) expense, net	(119)		1		(146)		(118)		(80)		Foreclosed assets (income) expense, net	(3,353)		1
Goodwill impairment		0		0		0		0		1,470,000
Other expense	Other expense	8,812		15,729		11,315		24,541		21,034		Other expense	11,616		15,729
Total noninterest expense	Total noninterest expense	151,750		150,136		126,965		301,886		1,714,935		Total noninterest expense	167,426		150,136
Earnings (loss) before income taxes		242,929		203,962		46,172		446,891		(1,374,951)
Earnings before income taxes												Earnings before income taxes	162,109		203,962
Income tax expense	Income tax expense	62,417		53,556		12,968		115,973		24,956		Income tax expense	41,981		53,556
Net earnings (loss)		$	180,512	$	150,406	$	33,204	$	330,918	$	(1,399,907)
Net earnings												Net earnings	$	120,128	$	150,406

Earnings (loss) per share:
Earnings per share:												Earnings per share:
Basic	Basic	$	1.52	$	1.27	$	0.28	$	2.78	$	(11.98)	Basic	$	1.01	$	1.27
Diluted	Diluted	$	1.52	$	1.27	$	0.28	$	2.78	$	(11.98)	Diluted	$	1.01	$	1.27

See Notes to Condensed Consolidated Financial Statements.

` PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2021 2021 2020 2021 2020
(Unaudited)
(In thousands)
Net earnings (loss) $ 180,512 $ 150,406 $ 33,204 $ 330,918 $ (1,399,907)
Other comprehensive income (loss), net of tax:
Unrealized net holding gains (losses) on securities
available-for-sale arising during the period 54,076 (91,523) 82,780 (37,447) 99,963
Income tax (expense) benefit related to net unrealized
holding gains (losses) arising during the period (14,941) 25,454 (23,095) 10,513 (27,889)
Unrealized net holding gains (losses) on securities
available-for-sale, net of tax 39,135 (66,069) 59,685 (26,934) 72,074
Reclassification adjustment for net gains
included in net earnings (1)
0 (101) (7,715) (101) (7,897)
Income tax expense related to reclassification
adjustment 0 28 2,152 28 2,203
Reclassification adjustment for net gains
included in net earnings, net of tax 0 (73) (5,563) (73) (5,694)
Other comprehensive income (loss), net of tax 39,135 (66,142) 54,122 (27,007) 66,380
Comprehensive income (loss) $ 219,647 $ 84,264 $ 87,326 $ 303,911 $ (1,333,527)


	Three Months Ended
	March 31,
	2022		2021
	(Unaudited)
	(In thousands)
Net earnings	$	120,128	$	150,406
Other comprehensive income (loss), net of tax:
Unrealized net holding (losses) gains on securities available-for-sale arising during the period	(609,826)		(91,523)
Income tax benefit (expense) related to net unrealized holding (losses) gains
arising during the period	167,458		25,454
Unrealized net holding (losses) gains on securities available-for-sale, net of tax	(442,368)		(66,069)
Reclassification adjustment for net gains included in net earnings (1)	(104)		(101)
Income tax expense related to reclassification adjustment	29		28
Reclassification adjustment for net gains included in net earnings, net of tax	(75)		(73)
Other comprehensive (loss) income, net of tax	(442,443)		(66,142)
Comprehensive (loss) income	$	(322,315)	$	84,264

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


		Six Months Ended June 30, 2021														Three Months Ended March 31, 2022
		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 (Loss)		Total
		(Unaudited)														(Unaudited)
		(Dollars in thousands)														(In thousands, except per share amount)
Balance, December 31, 2020		118,414,853	$	1,207	$	3,100,633	$	409,391	$	(88,803)	$	172,523	$	3,594,951
Balance, December 31, 2021															Balance, December 31, 2021	119,584,854	$	1,221	$	3,013,399	$	1,016,350	$	(97,308)	$	65,968	$	3,999,630
Net earnings	Net earnings	—	—		—		150,406		—		—		150,406		Net earnings	—	—		—		120,128		—		—		120,128
Other comprehensive loss - net	Other comprehensive loss - net														Other comprehensive loss - net
unrealized loss on securities	unrealized loss on securities														unrealized loss on securities
available-for-sale, net of tax	available-for-sale, net of tax	—	—		—		—		—		(66,142)		(66,142)		available-for-sale, net of tax	—	—		—		—		—		(442,443)		(442,443)
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	743,444	8		6,409		—		—		—		6,417		net of shares forfeited	109,466	1		7,556		—		—		—		7,557
Restricted stock surrendered	Restricted stock surrendered	(52,655)	—		—		—		(1,908)		—		(1,908)		Restricted stock surrendered	(92,554)	—		—		—		(4,481)		—		(4,481)

Cash dividends paid:	Cash dividends paid:														Cash dividends paid:
Common stock, $0.25/share	Common stock, $0.25/share	—	—		(29,587)		—		—		—		(29,587)		Common stock, $0.25/share	—	—		(29,796)		—		—		—		(29,796)
Balance, March 31, 2021		119,105,642	$	1,215	$	3,077,455	$	559,797	$	(90,711)	$	106,381	$	3,654,137
Net earnings		—	—		—		180,512		—		—		180,512
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax		—	—		—		—		—		39,135		39,135
Restricted stock awarded and
earned stock compensation,
net of shares forfeited		586,271	6		8,983		—		—		—		8,989
Restricted stock surrendered		(136,811)	—		—		—		(6,176)		—		(6,176)

Cash dividends paid:
Common stock, $0.25/share		—	—		(29,916)		—		—		—		(29,916)
Balance, June 30, 2021		119,555,102	$	1,221	$	3,056,522	$	740,309	$	(96,887)	$	145,516	$	3,846,681
Balance, March 31, 2022															Balance, March 31, 2022	119,601,766	$	1,222	$	2,991,159	$	1,136,478	$	(101,789)	$	(376,475)	$	3,650,595

~~See Notes to Condensed Consolidated Financial Statements.~~


	Three Months Ended March 31, 2021
	Common Stock									Accumulated
				Additional						Other
		Par		Paid-in		Retained		Treasury		Comprehensive
	Shares	Value		Capital		Earnings		Stock		Income		Total
	(Unaudited)
	(In thousands, except per share amount)
Balance, December 31, 2020	118,414,853	$	1,207	$	3,100,633	$	409,391	$	(88,803)	$	172,523	$	3,594,951
Net earnings	—	—		—		150,406		—		—		150,406
Other comprehensive loss - net
unrealized loss on securities
available-for-sale, net of tax	—	—		—		—		—		(66,142)		(66,142)
Restricted stock awarded and
earned stock compensation,
net of shares forfeited	743,444	8		6,409		—		—		—		6,417
Restricted stock surrendered	(52,655)	—		—		—		(1,908)		—		(1,908)


Cash dividends paid:
Common stock, $0.25/share	—	—		(29,587)		—		—		—		(29,587)
Balance, March 31, 2021	119,105,642	$	1,215	$	3,077,455	$	559,797	$	(90,711)	$	106,381	$	3,654,137

~~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.~~

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Six Months Ended					Three Months Ended
		June 30,					March 31,
		2021		2020			2022		2021
		(Unaudited)					(Unaudited)
		(In thousands)					(In thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net earnings (loss)		$	330,918	$	(1,399,907)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Goodwill impairment		0		1,470,000
Net earnings						Net earnings	$	120,128	$	150,406
Adjustments to reconcile net earnings to net cash provided by operating activities:						Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization	Depreciation and amortization	25,564		22,124		Depreciation and amortization	13,577		12,924
Amortization of net premiums on securities available-for-sale	Amortization of net premiums on securities available-for-sale	16,561		5,591		Amortization of net premiums on securities available-for-sale	15,606		7,575
Amortization of intangible assets	Amortization of intangible assets	5,968		7,830		Amortization of intangible assets	3,649		3,079
Amortization of operating lease ROU assets	Amortization of operating lease ROU assets	15,215		14,662		Amortization of operating lease ROU assets	7,443		7,548
Provision for credit losses	Provision for credit losses	(136,000)		232,000		Provision for credit losses	—		(48,000)
Gain on sale of foreclosed assets	Gain on sale of foreclosed assets	(214)		(112)		Gain on sale of foreclosed assets	(3,177)		(73)
Provision for losses on foreclosed assets	Provision for losses on foreclosed assets	14		110		Provision for losses on foreclosed assets	—		14
Gain on sale of loans and leases	Gain on sale of loans and leases	(1,561)		(433)		Gain on sale of loans and leases	(60)		(139)
(Gain) loss on sale of premises and equipment		(58)		187
Gain on sale of premises and equipment						Gain on sale of premises and equipment	(2)		(28)
Gain on sale of securities	Gain on sale of securities	(101)		(7,897)		Gain on sale of securities	(104)		(101)
Gain on BOLI death benefit		(51)		0
Unrealized (gain) loss on derivatives and foreign currencies, net		(995)		564

Unrealized gain on derivatives and foreign currencies, net						Unrealized gain on derivatives and foreign currencies, net	(1,176)		(546)
Earned stock compensation	Earned stock compensation	15,406		12,783		Earned stock compensation	7,557		6,417

Decrease in other assets	Decrease in other assets	22,808		8,393		Decrease in other assets	29,162		60,160
Decrease in accrued interest payable and other liabilities	Decrease in accrued interest payable and other liabilities	(62,869)		(91,873)		Decrease in accrued interest payable and other liabilities	(58,397)		(52,533)
Net cash provided by operating activities	Net cash provided by operating activities	230,605		274,022		Net cash provided by operating activities	134,206		146,703

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		Cash paid for acquisition, net	—		(121,909)
Net increase in loans and leases		(477,874)		(887,247)
Net (increase) decrease in loans and leases						Net (increase) decrease in loans and leases	(1,448,692)		68,916
Proceeds from sales of loans and leases	Proceeds from sales of loans and leases	126,366		3,522		Proceeds from sales of loans and leases	36,758		72,780
Proceeds from maturities and paydowns of securities available-for-sale	Proceeds from maturities and paydowns of securities available-for-sale	435,761		170,245		Proceeds from maturities and paydowns of securities available-for-sale	243,921		200,367
Proceeds from sales of securities available-for-sale	Proceeds from sales of securities available-for-sale	44,652		144,997		Proceeds from sales of securities available-for-sale	206,192		44,652
Purchases of securities available-for-sale	Purchases of securities available-for-sale	(2,497,439)		(274,824)		Purchases of securities available-for-sale	(356,196)		(1,050,217)
Net purchases of Federal Home Loan Bank stock		0		23,674

Proceeds from sales of foreclosed assets	Proceeds from sales of foreclosed assets	1,647		769		Proceeds from sales of foreclosed assets	16,020		435
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(4,547)		(9,772)		Purchases of premises and equipment, net	(7,287)		(1,936)
Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	95		2		Proceeds from sales of premises and equipment	3		64
Proceeds from BOLI death benefit		1,188		761
Net decrease in equipment leased to others under operating leases		12,953		15,147

Net decrease (increase) in equipment leased to others under operating leases						Net decrease (increase) in equipment leased to others under operating leases	4,661		(4,289)
Net cash used in investing activities	Net cash used in investing activities	(2,480,288)		(812,726)		Net cash used in investing activities	(1,304,620)		(791,137)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in noninterest-bearing deposits		2,021,120		1,387,698
Net increase in interest-bearing deposits		2,647,858		2,309,298
Net decrease in borrowings		(48,585)		(1,699,008)
Proceeds from subordinated notes offering		394,308		0
Net (decrease) increase in noninterest-bearing deposits						Net (decrease) increase in noninterest-bearing deposits	(486,082)		1,786,655
Net (decrease) increase in interest-bearing deposits						Net (decrease) increase in interest-bearing deposits	(1,286,780)		1,458,939
Net increase (decrease) in borrowings						Net increase (decrease) in borrowings	991,000		(35,460)

Common stock repurchased and restricted stock surrendered	Common stock repurchased and restricted stock surrendered	(8,084)		(75,061)		Common stock repurchased and restricted stock surrendered	(4,481)		(1,908)
Cash dividends paid	Cash dividends paid	(59,503)		(100,711)		Cash dividends paid	(29,796)		(29,587)
Net cash provided by financing activities		4,947,114		1,822,216
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(816,139)		3,178,639

Net increase in cash, cash equivalents, and restricted cash		2,697,431		1,283,512
Net (decrease) increase in cash, cash equivalents, and restricted cash						Net (decrease) increase in cash, cash equivalents, and restricted cash	(1,986,553)		2,534,205
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	3,160,661		637,624		Cash, cash equivalents, and restricted cash, beginning of period	4,057,234		3,160,661
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	5,858,092	$	1,921,136	Cash, cash equivalents, and restricted cash, end of period	$	2,070,681	$	5,694,866

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Six Months Ended					Three Months Ended
		June 30,					March 31,
		2021		2020			2022		2021
		(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	$	24,683	$	68,390	Cash paid for interest	$	10,635	$	12,421
Cash paid for income taxes	Cash paid for income taxes	74,147		3,850		Cash paid for income taxes	2,138		2,706

Loans transferred to foreclosed assets	Loans transferred to foreclosed assets	647		1,776		Loans transferred to foreclosed assets	304		647
Transfers from loans held for investment to loans held for sale	Transfers from loans held for investment to loans held for sale	25,554		0		Transfers from loans held for investment to loans held for sale	—		25,554

Effective February 1, 2021, the Company acquired Civic	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:					in a transaction summarized as follows:
Fair value of assets acquired	Fair value of assets acquired	$	307,997	—		Fair value of assets acquired			$	308,019
Cash paid	Cash paid	(160,420)		—		Cash paid			(159,237)
Liabilities assumed	Liabilities assumed	$	147,577	—		Liabilities assumed			$	148,782

See Notes to Condensed Consolidated Financial Statements.

109

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 7069 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~~provides 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. The Bank also offers financing of business-purpose, non-owner-occupied investor properties through Civic, a wholly-owned subsidiary. The Bank also provides a specialized suite of services for the HOA industry. 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~~treasury management and investment management 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 on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the Securities and Exchange Commission ("Form 10-K").

Accounting Standards Adopted in ~~2021~~2022

Effective January 1, ~~2021,~~2022, the Company partially adopted ASU ~~2019-12, “~~2022-02, ~~Income Taxes~~“Financial Instruments – Credit Losses (Topic ~~740): Simplifying~~326),” specifically the ~~Accounting for Income Taxes” which simplifies the accounting for income taxes by eliminating certain exceptions~~amendment 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 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)~~”vintage disclosures, which clarifies that entities that apply the measurement alternative in ASC 321 should consider observable transactions that result in entities initially applying or discontinuing the use of the equity method of accounting under ASC 323. The guidance also clarifies that certain forward contracts and purchased options on equity securitiesrequires creditors that are ~~not deemed~~public entities to ~~be in-substance common stock under ASC 323 or accounted~~disclose current-period gross charge-offs by year of origination for ~~as derivatives under ASC 815 are~~financing receivables and net investments in ~~the scope of ASC 321. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.~~

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

~~Effective January 1, 2021, the 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~~leases within the scope of ASC ~~310-20-35-33~~326-20, “Financial Instruments – Credit Losses – Measured at ~~each reporting period.~~Amortized Cost.” The amendment also eliminates the disclosure of gross recoveries by year of origination previously presented in Example 15 in ASC ~~310-20-35-33 requires that,~~326-20-50-79, since it is not required under the guidance in ASC 326-20-50-6. The Company updated the vintage table disclosure in Note 4. Loans and Leases to ~~the extent the amortized cost basis~~present only current-period gross charge-offs by year of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess should be amortized to the earliest call date. As the Company’s accounting policy to amortize premiums on investments in callable debt securities to the earliest call date is consistent with the manner required by ASU 2020-08, theorigination. The adoption of this ~~standard had no~~amendment did not have a material impact on the Company’s condensed consolidated financial statements.

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.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments), 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

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~~On 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. Allconsolidated statements 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~~earnings, 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~~lines are presented ~~at estimated fair value~~for "Dividends and gains (losses) on equity investments" and "Warrant income," as ofthose categories exceeded 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 occurdisclosure materiality threshold in the fourth quarter of 2021, ~~subject to customary closing conditions.~~

~~The HOA Services Division provides a full range~~which previously had been included as part 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."Other income."

NOTE 3.2. 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~~were no average reserves required to be held at the FRBSF for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021. ~~The average reserves required to be held at the FRBSF for the six months ended June 30,2020 was $83.1 million.~~ As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we pledged cash collateral for our derivative contracts of $2.0 ~~million and $2.9~~ million.

1411

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4.3. 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:


		June 30, 2021								December 31, 2020									March 31, 2022								December 31, 2021
				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)
Agency residential MBS																		Agency residential MBS	$	2,982,056	$	3,461	$	(196,703)	$	2,788,814	$	2,921,993	$	8,866	$	(32,649)	$	2,898,210
Municipal securities	Municipal securities	$	1,735,937	$	83,607	$	(2,045)	$	1,817,499	$	1,438,004	$	93,631	$	(18)	$	1,531,617	Municipal securities	2,234,457		15,158		(124,454)		2,125,161		2,248,749		75,192		(7,973)		2,315,968
Agency commercial MBS	Agency commercial MBS	1,203,537		56,261		(2,170)		1,257,628		1,207,676		74,238		(37)		1,281,877		Agency commercial MBS	1,627,516		3,968		(69,147)		1,562,337		1,660,516		37,664		(9,213)		1,688,967
Agency residential CMOs	Agency residential CMOs	1,108,587		36,736		(2,925)		1,142,398		1,172,166		47,994		(280)		1,219,880		Agency residential CMOs	962,218		2,181		(23,685)		940,714		1,021,716		22,288		(5,870)		1,038,134
U.S. Treasury securities	U.S. Treasury securities	873,480		4,266		(593)		877,153		4,989		313		0		5,302		U.S. Treasury securities	973,803		57		(66,117)		907,743		973,555		1,641		(8,298)		966,898
Agency residential MBS		544,762		11,208		(3,559)		552,411		329,488		12,483		(897)		341,074
Corporate debt securities	Corporate debt securities	496,749		12,457		(498)		508,708		308,803		3,490		(404)		311,889		Corporate debt securities	513,981		2,619		(7,444)		509,156		514,077		13,774		(757)		527,094
Private label commercial MBS																		Private label commercial MBS	439,909		—		(38,617)		401,292		453,314		147		(3,244)		450,217
Collateralized loan obligations	Collateralized loan obligations	382,935		260		(1,152)		382,043		136,777		23		(924)		135,876		Collateralized loan obligations	365,355		236		(1,785)		363,806		385,410		396		(444)		385,362
Private label commercial MBS		375,184		3,126		(75)		378,235		81,878		1,089		(10)		82,957
Private label residential CMOs																		Private label residential CMOs	256,274		88		(18,202)		238,160		265,851		1,857		(3,291)		264,417
Asset-backed securities	Asset-backed securities	148,965		961		(343)		149,583		166,861		445		(760)		166,546		Asset-backed securities	112,875		375		(373)		112,877		129,387		484		(324)		129,547
Private label residential CMOs		93,011		4,141		(230)		96,922		110,891		6,076		(21)		116,946
SBA securities	SBA securities	34,388		1,659		(19)		36,028		39,437		2,217		(27)		41,627		SBA securities	25,655		—		(606)		25,049		28,950		726		(32)		29,644

Total	Total	$	6,997,535	$	214,682	$	(13,609)	$	7,198,608	$	4,996,970	$	241,999	$	(3,378)	$	5,235,591	Total	$	10,494,099	$	28,143	$	(547,133)	$	9,975,109	$	10,603,518	$	163,035	$	(72,095)	$	10,694,458

As of ~~June 30, 2021,~~March 31, 2022, the Company had not recorded an allowance for credit losses on securities available-for-sale. The Company does not consider unrealized losses on such securities to be attributable to credit-related factors, as the unrealized losses have occurred as a result of changes in non-credit related factors such as interest rates, market spreads, and market conditions subsequent to purchase.

As of March 31, 2022, securities available-for-sale with a fair value of ~~$490.0~~$558.0 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				Six Months Ended					Three Months Ended
		June 30,				June 30,					March 31,
Sales of Securities Available-for-Sale	Sales of Securities Available-for-Sale	2021		2020		2021		2020		Sales of Securities Available-for-Sale	2022		2021
		(In thousands)									(In thousands)
Amortized cost of securities sold	Amortized cost of securities sold	$	0	$	122,334	$	44,551	$	137,100	Amortized cost of securities sold	$	206,088	$	44,551

Gross realized gains	Gross realized gains	$	0	$	7,747	$	101	$	7,929	Gross realized gains	$	1,190	$	101
Gross realized losses	Gross realized losses	0		(32)		0		(32)		Gross realized losses	(1,086)		—
Net realized gains	Net realized gains	$	0	$	7,715	$	101	$	7,897	Net realized gains	$	104	$	101

1512

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:


		June 30, 2021													March 31, 2022
		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)
Agency residential MBS														Agency residential MBS	$	2,559,148	$	(189,302)	$	98,722	$	(7,401)	$	2,657,870	$	(196,703)
Municipal securities	Municipal securities	$	203,261	$	(2,045)	$	0	$	0	$	203,261	$	(2,045)	Municipal securities	1,584,374		(120,665)		31,483		(3,789)		1,615,857		(124,454)
Agency commercial MBS	Agency commercial MBS	126,899		(2,170)		0		0		126,899		(2,170)		Agency commercial MBS	993,615		(57,209)		102,398		(11,938)		1,096,013		(69,147)
Agency residential CMOs	Agency residential CMOs	125,880		(2,925)		0		0		125,880		(2,925)		Agency residential CMOs	441,966		(14,558)		96,639		(9,127)		538,605		(23,685)
U.S. Treasury securities	U.S. Treasury securities	374,149		(593)		0		0		374,149		(593)		U.S. Treasury securities	902,691		(66,117)		—		—		902,691		(66,117)
Agency residential MBS		303,546		(3,551)		687		(8)		304,233		(3,559)
Corporate debt securities	Corporate debt securities	57,401		(498)		0		0		57,401		(498)		Corporate debt securities	276,481		(7,444)		—		—		276,481		(7,444)
Private label commercial MBS														Private label commercial MBS	390,858		(38,033)		10,433		(584)		401,291		(38,617)
Collateralized loan obligations	Collateralized loan obligations	201,170		(995)		43,854		(157)		245,024		(1,152)		Collateralized loan obligations	189,361		(1,036)		78,503		(749)		267,864		(1,785)
Private label commercial MBS		13,476		(67)		2,196		(8)		15,672		(75)
Private label residential CMOs														Private label residential CMOs	214,766		(18,202)		—		—		214,766		(18,202)
Asset-backed securities	Asset-backed securities	0		0		16,381		(343)		16,381		(343)		Asset-backed securities	51,934		(373)		—		—		51,934		(373)
Private label residential CMOs		24,957		(216)		624		(14)		25,581		(230)
SBA securities	SBA securities	0		0		1,914		(19)		1,914		(19)		SBA securities	23,249		(531)		1,800		(75)		25,049		(606)

Total	Total	$	1,430,739	$	(13,060)	$	65,656	$	(549)	$	1,496,395	$	(13,609)	Total	$	7,628,443	$	(513,470)	$	419,978	$	(33,663)	$	8,048,421	$	(547,133)


		December 31, 2020													December 31, 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)
Agency residential MBS														Agency residential MBS	$	2,502,536	$	(31,670)	$	57,329	$	(979)	$	2,559,865	$	(32,649)
Municipal securities	Municipal securities	$	5,919	$	(18)	$	0	$	0	$	5,919	$	(18)	Municipal securities	505,080		(6,965)		29,726		(1,008)		534,806		(7,973)
Agency commercial MBS	Agency commercial MBS	58,408		(37)		0		0		58,408		(37)		Agency commercial MBS	440,938		(5,066)		106,745		(4,147)		547,683		(9,213)
Agency residential CMOs	Agency residential CMOs	97,863		(280)		0		0		97,863		(280)		Agency residential CMOs	216,445		(3,757)		67,340		(2,113)		283,785		(5,870)
Agency residential MBS		90,722		(897)		0		0		90,722		(897)
U.S. Treasury securities														U.S. Treasury securities	628,767		(8,298)		—		—		628,767		(8,298)
Corporate debt securities														Corporate debt securities	32,761		(757)		—		—		32,761		(757)
Private label commercial MBS														Private label commercial MBS	397,619		(3,244)		—		—		397,619		(3,244)
Collateralized loan obligations														Collateralized loan obligations	137,619		(374)		43,730		(70)		181,349		(444)
Private label residential CMOs														Private label residential CMOs	201,988		(3,291)		—		—		201,988		(3,291)
Asset-backed securities	Asset-backed securities	14,636		(53)		61,031		(707)		75,667		(760)		Asset-backed securities	38,742		(137)		15,762		(187)		54,504		(324)
Corporate debt securities		87,596		(404)		0		0		87,596		(404)
Collateralized loan obligations		96,442		(729)		28,972		(195)		125,414		(924)
Private label commercial MBS		3,058		(10)		0		0		3,058		(10)
Private label residential CMOs		788		(19)		74		(2)		862		(21)
SBA securities	SBA securities	2,127		(27)		0		0		2,127		(27)		SBA securities	—		—		1,864		(32)		1,864		(32)
Total	Total	$	457,559	$	(2,474)	$	90,077	$	(904)	$	547,636	$	(3,378)	Total	$	5,102,495	$	(63,559)	$	322,496	$	(8,536)	$	5,424,991	$	(72,095)

The securities that were in an unrealized loss position at ~~June 30, 2021,~~March 31, 2022, were considered impaired and required further review to determine if the unrealized losses were credit-related. We concluded 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"~~income (loss)" 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.

1613

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:


		June 30, 2021					March 31, 2022
		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	$	27,259	$	27,267	Due in one year or less	$	43,600	$	43,705
Due after one year through five years	Due after one year through five years	579,444		608,063		Due after one year through five years	667,668		670,477
Due after five years through ten years	Due after five years through ten years	2,657,145		2,713,777		Due after five years through ten years	3,547,627		3,354,275
Due after ten years	Due after ten years	3,733,687		3,849,501		Due after ten years	6,235,204		5,906,652
Total securities available-for-sale	Total securities available-for-sale	$	6,997,535	$	7,198,608	Total securities available-for-sale	$	10,494,099	$	9,975,109

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				Six Months Ended					Three Months Ended
		June 30,				June 30,					March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands)									(In thousands)
Taxable interest	Taxable interest	$	25,206	$	19,836	$	47,176	$	41,622	Taxable interest	$	44,642	$	21,970
Non-taxable interest	Non-taxable interest	8,493		5,612		16,571		10,841		Non-taxable interest	8,519		8,078
Dividend income	Dividend income	255		590		472		1,021		Dividend income	261		217
Total interest income on investment securities	Total interest income on investment securities	$	33,954	$	26,038	$	64,219	$	53,484	Total interest income on investment securities	$	53,422	$	30,265

1714

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5.4. 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:


		June 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Real estate mortgage	Real estate mortgage	$	8,420,546	$	7,905,193	Real estate mortgage	$	12,052,868	$	11,189,278
Real estate construction and land	Real estate construction and land	3,544,890		3,393,145		Real estate construction and land	3,748,539		3,491,340
Commercial	Commercial	7,249,917		7,534,801		Commercial	8,133,779		7,888,068
Consumer	Consumer	365,378		320,218		Consumer	504,563		457,622
Total gross loans and leases held for investment	Total gross loans and leases held for investment	19,580,731		19,153,357		Total gross loans and leases held for investment	24,439,749		23,026,308
Deferred fees, net	Deferred fees, net	(74,474)		(69,980)		Deferred fees, net	(87,677)		(84,760)
Total loans and leases held for investment, net of deferred fees	Total loans and leases held for investment, net of deferred fees	19,506,257		19,083,377		Total loans and leases held for investment, net of deferred fees	24,352,072		22,941,548
Allowance for loan and lease losses	Allowance for loan and lease losses	(225,600)		(348,181)		Allowance for loan and lease losses	(197,398)		(200,564)
Total loans and leases held for investment, net (1)	Total loans and leases held for investment, net (1)	$	19,280,657	$	18,735,196	Total loans and leases held for investment, net (1)	$	24,154,674	$	22,740,984

____________________

(1) Excludes accrued interest receivable of ~~$73.5~~$82.7 million and ~~$79.7~~$80.3 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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:


		June 30, 2021											March 31, 2022
		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	$	445	$	2,955	$	3,400	$	3,788,798	$	3,792,198	Commercial	$	3,777	$	2,323	$	6,100	$	3,663,641	$	3,669,741
Income producing and other residential		2,179		4,957		7,136		4,613,686		4,620,822
Residential												Residential	36,703		8,547		45,250		8,324,300		8,369,550
Total real estate mortgage	Total real estate mortgage	2,624		7,912		10,536		8,402,484		8,413,020		Total real estate mortgage	40,480		10,870		51,350		11,987,941		12,039,291
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	0		0		0		930,785		930,785		Commercial	—		—		—		802,022		802,022
Residential	Residential	22,714		1,934		24,648		2,550,151		2,574,799		Residential	21,413		5,818		27,231		2,864,236		2,891,467
Total real estate construction and land	Total real estate construction and land	22,714		1,934		24,648		3,480,936		3,505,584		Total real estate construction and land	21,413		5,818		27,231		3,666,258		3,693,489
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	0		1,484		1,484		3,549,419		3,550,903		Asset-based	—		449		449		4,738,771		4,739,220
Venture capital	Venture capital	0		335		335		1,749,097		1,749,432		Venture capital	—		—		—		2,077,339		2,077,339
Other commercial	Other commercial	320		1,740		2,060		1,919,849		1,921,909		Other commercial	167		549		716		1,297,420		1,298,136
Total commercial	Total commercial	320		3,559		3,879		7,218,365		7,222,244		Total commercial	167		998		1,165		8,113,530		8,114,695
Consumer	Consumer	1,454		287		1,741		363,668		365,409		Consumer	995		369		1,364		503,233		504,597
Total	Total	$	27,112	$	13,692	$	40,804	$	19,465,453	$	19,506,257	Total	$	63,055	$	18,055	$	81,110	$	24,270,962	$	24,352,072

1815

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		December 31, 2020											December 31, 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	$	6,750	$	29,145	$	35,895	$	4,060,776	$	4,096,671	Commercial	$	5,307	$	2,236	$	7,543	$	3,754,756	$	3,762,299
Income producing and other residential		600		373		973		3,802,292		3,803,265
Residential												Residential	40,505		9,666		50,171		7,366,250		7,416,421
Total real estate mortgage	Total real estate mortgage	7,350		29,518		36,868		7,863,068		7,899,936		Total real estate mortgage	45,812		11,902		57,714		11,121,006		11,178,720
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	0		0		0		1,117,121		1,117,121		Commercial	—		—		—		832,591		832,591
Residential	Residential	759		0		759		2,242,401		2,243,160		Residential	7,271		2,223		9,494		2,595,042		2,604,536
Total real estate construction and land	Total real estate construction and land	759		0		759		3,359,522		3,360,281		Total real estate construction and land	7,271		2,223		9,494		3,427,633		3,437,127
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	0		2,128		2,128		3,427,155		3,429,283		Asset-based	—		464		464		4,075,013		4,075,477
Venture capital	Venture capital	540		0		540		1,697,968		1,698,508		Venture capital	—		—		—		2,320,593		2,320,593
Other commercial	Other commercial	2,323		4,766		7,089		2,368,025		2,375,114		Other commercial	955		3,601		4,556		1,467,425		1,471,981
Total commercial	Total commercial	2,863		6,894		9,757		7,493,148		7,502,905		Total commercial	955		4,065		5,020		7,863,031		7,868,051
Consumer	Consumer	1,260		111		1,371		318,884		320,255		Consumer	1,004		276		1,280		456,370		457,650
Total	Total	$	12,232	$	36,523	$	48,755	$	19,034,622	$	19,083,377	Total	$	55,042	$	18,466	$	73,508	$	22,868,040	$	22,941,548

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:


		June 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
		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	$	32,065	$	3,760,133	$	3,792,198	$	43,731	$	4,052,940	$	4,096,671	Commercial	$	32,071	$	3,637,670	$	3,669,741	$	27,540	$	3,734,759	$	3,762,299
Income producing and other residential		6,133		4,614,689		4,620,822		1,826		3,801,439		3,803,265
Residential														Residential	17,463		8,352,087		8,369,550		12,292		7,404,129		7,416,421
Total real estate mortgage	Total real estate mortgage	38,198		8,374,822		8,413,020		45,557		7,854,379		7,899,936		Total real estate mortgage	49,534		11,989,757		12,039,291		39,832		11,138,888		11,178,720
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	284		930,501		930,785		315		1,116,806		1,117,121		Commercial	—		802,022		802,022		—		832,591		832,591
Residential	Residential	1,934		2,572,865		2,574,799		0		2,243,160		2,243,160		Residential	6,215		2,885,252		2,891,467		4,715		2,599,821		2,604,536
Total real estate construction and land	Total real estate construction and land	2,218		3,503,366		3,505,584		315		3,359,966		3,360,281		Total real estate construction and land	6,215		3,687,274		3,693,489		4,715		3,432,412		3,437,127
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	1,973		3,548,930		3,550,903		2,679		3,426,604		3,429,283		Asset-based	1,323		4,737,897		4,739,220		1,464		4,074,013		4,075,477
Venture capital	Venture capital	2,717		1,746,715		1,749,432		1,980		1,696,528		1,698,508		Venture capital	3,659		2,073,680		2,077,339		2,799		2,317,794		2,320,593
Other commercial	Other commercial	11,337		1,910,572		1,921,909		40,243		2,334,871		2,375,114		Other commercial	5,420		1,292,716		1,298,136		11,950		1,460,031		1,471,981
Total commercial	Total commercial	16,027		7,206,217		7,222,244		44,902		7,458,003		7,502,905		Total commercial	10,402		8,104,293		8,114,695		16,213		7,851,838		7,868,051
Consumer	Consumer	360		365,049		365,409		389		319,866		320,255		Consumer	387		504,210		504,597		414		457,236		457,650
Total	Total	$	56,803	$	19,449,454	$	19,506,257	$	91,163	$	18,992,214	$	19,083,377	Total	$	66,538	$	24,285,534	$	24,352,072	$	61,174	$	22,880,374	$	22,941,548

1916

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

At ~~June 30, 2021,~~March 31, 2022, nonaccrual loans and leases included ~~$13.7~~$18.1 million of loans and leases 90 or more days past due, ~~$0.5~~$7.4 million of loans and leases 30 to 89 days past due, and ~~$42.6~~$41.1 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, ~~2020,~~2021, nonaccrual loans and leases included ~~$36.5~~$18.5 million of loans and leases 90 or more days past due, ~~$3.4~~$6.3 million of loans and leases 30 to 89 days past due, and ~~$51.3~~$36.4 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.

As of ~~June 30, 2021,~~March 31, 2022, our three largest loan relationships on nonaccrual status had an aggregate carrying value of ~~$12.9~~$21.6 million and represented ~~23%~~32% 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.


		June 30, 2021									March 31, 2022
		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	$	62,827	$	242,159	$	3,487,212	$	3,792,198	Commercial	$	35,463	$	168,240	$	3,466,038	$	3,669,741
Income producing and other residential		12,681		60,843		4,547,298		4,620,822
Residential										Residential	22,844		13,450		8,333,256		8,369,550
Total real estate mortgage	Total real estate mortgage	75,508		303,002		8,034,510		8,413,020		Total real estate mortgage	58,307		181,690		11,799,294		12,039,291
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	284		67,292		863,209		930,785		Commercial	—		68,864		733,158		802,022
Residential	Residential	1,934		8,234		2,564,631		2,574,799		Residential	6,215		15,780		2,869,472		2,891,467
Total real estate construction and land	Total real estate construction and land	2,218		75,526		3,427,840		3,505,584		Total real estate construction and land	6,215		84,644		3,602,630		3,693,489
Commercial:	Commercial:									Commercial:
Asset-based	Asset-based	24,351		102,734		3,423,818		3,550,903		Asset-based	4,449		60,367		4,674,404		4,739,220
Venture capital	Venture capital	5,708		33,910		1,709,814		1,749,432		Venture capital	3,722		37,083		2,036,534		2,077,339
Other commercial	Other commercial	39,005		18,340		1,864,564		1,921,909		Other commercial	8,911		10,914		1,278,311		1,298,136
Total commercial	Total commercial	69,064		154,984		6,998,196		7,222,244		Total commercial	17,082		108,364		7,989,249		8,114,695
Consumer	Consumer	477		2,540		362,392		365,409		Consumer	464		2,617		501,516		504,597
Total	Total	$	147,267	$	536,052	$	18,822,938	$	19,506,257	Total	$	82,068	$	377,315	$	23,892,689	$	24,352,072


		December 31, 2020									December 31, 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	$	91,543	$	262,462	$	3,742,666	$	4,096,671	Commercial	$	62,206	$	191,809	$	3,508,284	$	3,762,299
Income producing and other residential		8,767		61,384		3,733,114		3,803,265
Residential										Residential	17,700		19,848		7,378,873		7,416,421
Total real estate mortgage	Total real estate mortgage	100,310		323,846		7,475,780		7,899,936		Total real estate mortgage	79,906		211,657		10,887,157		11,178,720
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	42,558		107,592		966,971		1,117,121		Commercial	—		67,727		764,864		832,591
Residential	Residential	0		759		2,242,401		2,243,160		Residential	4,715		1,720		2,598,101		2,604,536
Total real estate construction and land	Total real estate construction and land	42,558		108,351		3,209,372		3,360,281		Total real estate construction and land	4,715		69,447		3,362,965		3,437,127
Commercial:	Commercial:									Commercial:
Asset-based	Asset-based	27,867		153,301		3,248,115		3,429,283		Asset-based	4,591		78,305		3,992,581		4,075,477
Venture capital	Venture capital	6,508		118,125		1,573,875		1,698,508		Venture capital	4,794		14,833		2,300,966		2,320,593
Other commercial	Other commercial	87,557		14,930		2,272,627		2,375,114		Other commercial	21,659		15,528		1,434,794		1,471,981
Total commercial	Total commercial	121,932		286,356		7,094,617		7,502,905		Total commercial	31,044		108,666		7,728,341		7,868,051
Consumer	Consumer	462		2,732		317,061		320,255		Consumer	439		1,841		455,370		457,650
Total	Total	$	265,262	$	721,285	$	18,096,830	$	19,083,377	Total	$	116,104	$	391,611	$	22,433,833	$	22,941,548

2017

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 periods indicated:


				Three Months		Six Months				Three Months		Six Months					Three Months				Three Months
				Ended		Ended				Ended		Ended					Ended				Ended
		June 30,		June 30,		June 30,		June 30,		June 30,		June 30,			March 31,		March 31,		March 31,		March 31,
		2021		2021		2021		2020		2020		2020			2022		2022		2021		2021
		Nonaccrual		Interest		Interest		Nonaccrual		Interest		Interest			Nonaccrual		Interest		Nonaccrual		Interest
		Recorded		Income		Income		Recorded		Income		Income			Recorded		Income		Recorded		Income
		Investment		Recognized		Recognized		Investment		Recognized		Recognized			Investment		Recognized		Investment		Recognized
		(In thousands)													(In thousands)
With An Allowance Recorded:	With An Allowance Recorded:													With An Allowance Recorded:
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	74	$	0	$	0	$	304	$	0	$	0	Commercial	$	68	$	—	$	76	$	—
Income producing and other residential		2,806		0		0		1,445		0		0
Residential														Residential	4,003		—		1,883		—
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:

Commercial														Commercial	—		—		—		—
Residential	Residential	403		0		0		0		0		0		Residential	600		—		116		—
Commercial:	Commercial:													Commercial:
Asset based	Asset based	1,484		0		0		2,458		0		0		Asset based	874		—		1,880		—
Venture capital	Venture capital	2,717		0		0		8,270		0		0		Venture capital	3,659		—		2,432		—
Other commercial	Other commercial	1,472		0		0		45,569		0		0		Other commercial	1,274		—		1,655		—
Consumer	Consumer	360		0		0		520		0		0		Consumer	387		—		556		—
With No Related Allowance Recorded:	With No Related Allowance Recorded:													With No Related Allowance Recorded:
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	31,991	$	140	$	430	$	61,467	$	62	$	130	Commercial	$	32,003	$	17	$	46,360	$	287
Income producing and other residential		3,327		0		0		762		0		0
Residential														Residential	13,460		—		588		—
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	284		0		0		337		0		0		Commercial	—		—		302		—
Residential	Residential	1,531		0		0		0		0		0		Residential	5,615		—		300		—
Commercial:	Commercial:													Commercial:
Asset based	Asset based	489		0		0		16,555		0		0		Asset based	449		—		500		—

Venture capital														Venture capital	—		—		—		—
Other commercial	Other commercial	9,865		1,814		3,644		28,426		1,196		1,220		Other commercial	4,146		354		11,004		1,830

Consumer														Consumer	—		—		—		—
Total Loans and Leases With and	Total Loans and Leases With and													Total Loans and Leases With and
Without an Allowance Recorded:	Without an Allowance Recorded:													Without an Allowance Recorded:
Real estate mortgage	Real estate mortgage	$	38,198	$	140	$	430	$	63,978	$	62	$	130	Real estate mortgage	$	49,534	$	17	$	48,907	$	287
Real estate construction and land	Real estate construction and land	2,218		0		0		337		0		0		Real estate construction and land	6,215		—		718		—
Commercial	Commercial	16,027		1,814		3,644		101,278		1,196		1,220		Commercial	10,402		354		17,471		1,830
Consumer	Consumer	360		0		0		520		0		0		Consumer	387		—		556		—
Total	Total	$	56,803	$	1,954	$	4,074	$	166,113	$	1,258	$	1,350	Total	$	66,538	$	371	$	67,652	$	2,117

2118

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 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
June 30, 2021		2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
March 31, 2022																				March 31, 2022	2022		2021		2020		2019		2018		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	$	3,604	$	53,211	$	5,853	$	9,062	$	38,846	$	3	$	0	$	110,579	1-2 High pass	$	—	$	3,047	$	9,084	$	33,387	$	5,171	$	36,008	$	27,646	$	—	$	114,343
3-4 Pass	3-4 Pass	171,826		541,881		352,574		532,213		622,252		1,079,673		61,007		15,207		3,376,633		3-4 Pass	81,116		497,356		544,479		307,947		500,197		1,332,409		77,592		10,599		3,351,695
5 Special mention	5 Special mention	0		2,596		80,292		94,499		8,158		56,614		0		0		242,159		5 Special mention	—		—		4,783		73,552		50,681		39,224		—		—		168,240
6-8 Classified	6-8 Classified	0		500		3,967		7,665		12,648		38,047		0		0		62,827		6-8 Classified	—		—		482		2,158		14,404		18,419		—		—		35,463
Total	Total	$	171,826	$	548,581	$	490,044	$	640,230	$	652,120	$	1,213,180	$	61,010	$	15,207	$	3,792,198	Total	$	81,116	$	500,403	$	558,828	$	417,044	$	570,453	$	1,426,060	$	105,238	$	10,599	$	3,669,741
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	190	$	168	$	53	$	168	$	0	$	0	$	579	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	168	$	—	$	—	$	168
Gross recoveries		0		0		0		0		0		(5,421)		0		0		(5,421)
Net		$	0	$	0	$	190	$	168	$	53	$	(5,253)	$	0	$	0	$	(4,842)

Real Estate Mortgage:	Real Estate Mortgage:																			Real Estate Mortgage:
Income Producing and
Other Residential
Residential																				Residential
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	7,474	$	40,341	$	65,881	$	30,001	$	12,927	$	27,593	$	0	$	0	$	184,217	1-2 High pass	$	—	$	94,641	$	23,097	$	52,848	$	50,593	$	45,650	$	1,000	$	—	$	267,829
3-4 Pass	3-4 Pass	632,881		634,036		794,568		1,037,846		644,016		343,522		276,013		199		4,363,081		3-4 Pass	1,346,363		4,241,531		559,766		559,016		531,570		686,935		140,148		98		8,065,427
5 Special mention	5 Special mention	358		12,595		4,207		42,581		947		0		155		0		60,843		5 Special mention	—		—		315		13,007		—		128		—		—		13,450
6-8 Classified	6-8 Classified	0		2,727		0		3,059		117		6,018		0		760		12,681		6-8 Classified	—		9,751		6,695		—		2,791		3,370		—		237		22,844
Total	Total	$	640,713	$	689,699	$	864,656	$	1,113,487	$	658,007	$	377,133	$	276,168	$	959	$	4,620,822	Total	$	1,346,363	$	4,345,923	$	589,873	$	624,871	$	584,954	$	736,083	$	141,148	$	335	$	8,369,550
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	—	$	0	$	0	$	0	$	55	$	0	$	0	$	55	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Gross recoveries		0		0		0		0		0		(5)		(1)		0		(6)
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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	3-4 Pass	12,713		88,977		359,970		384,692		730		16,127		0		0		863,209		3-4 Pass	22,136		105,608		93,720		341,314		155,658		14,722		—		—		733,158
5 Special mention	5 Special mention	0		0		0		0		67,292		0		0		0		67,292		5 Special mention	—		—		—		—		—		68,864		—		—		68,864
6-8 Classified	6-8 Classified	0		0		0		0		0		284		0		0		284		6-8 Classified	—		—		—		—		—		—		—		—		—
Total	Total	$	12,713	$	88,977	$	359,970	$	384,692	$	68,022	$	16,411	$	0	$	0	$	930,785	Total	$	22,136	$	105,608	$	93,720	$	341,314	$	155,658	$	83,586	$	—	$	—	$	802,022
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	0	$	775	$	0	$	0	$	0	$	0	$	775	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Gross recoveries		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
March 31, 2022	2022		2021		2020		2019		2018		Prior		Loans		Loans		Total
	(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	182,292		872,932		789,164		807,854		169,889		15,040		21,516		10,785		2,869,472
5 Special mention	14,796		—		984		—		—		—		—		—		15,780
6-8 Classified	(356)		799		4,925		588		—		259		—		—		6,215
Total	$	196,732	$	873,731	$	795,073	$	808,442	$	169,889	$	15,299	$	21,516	$	10,785	$	2,891,467
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial: Asset-Based
Internal risk rating:
1-2 High pass	$	68,608	$	151,162	$	57,290	$	187,578	$	127,761	$	248,433	$	781,457	$	25,004	$	1,647,293
3-4 Pass	255,030		243,085		69,827		57,963		41,262		39,438		2,320,506		—		3,027,111
5 Special mention	—		—		—		33,826		11,118		3,857		11,566		—		60,367
6-8 Classified	—		—		—		—		—		(451)		4,026		874		4,449
Total	$	323,638	$	394,247	$	127,117	$	279,367	$	180,141	$	291,277	$	3,117,555	$	25,878	$	4,739,220
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial: Venture
Capital
Internal risk rating:
1-2 High pass	$	(17)	$	—	$	1,999	$	—	$	—	$	6	$	137,784	$	—	$	139,772
3-4 Pass	14,765		165,342		44,015		41,113		5,745		5,155		1,617,921		2,706		1,896,762
5 Special mention	—		26,956		2,445		4,538		—		1,481		1,663		—		37,083
6-8 Classified	—		492		—		—		1,500		—		63		1,667		3,722
Total	$	14,748	$	192,790	$	48,459	$	45,651	$	7,245	$	6,642	$	1,757,431	$	4,373	$	2,077,339
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

____________________

(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
March 31, 2022	2022		2021		2020		2019		2018		Prior		Loans		Loans		Total
	(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass	$	—	$	62,070	$	9,051	$	240	$	4	$	246	$	20,646	$	—	$	92,257
3-4 Pass	23,414		301,454		71,590		49,401		55,452		117,879		558,276		8,588		1,186,054
5 Special mention	—		—		—		—		1,564		9,204		47		99		10,914
6-8 Classified	—		2		1		376		(3)		3,369		3,994		1,172		8,911
Total	$	23,414	$	363,526	$	80,642	$	50,017	$	57,017	$	130,698	$	582,963	$	9,859	$	1,298,136
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	1,010	$	1,775	$	48	$	2,833

Consumer
Internal risk rating:
1-2 High pass	$	—	$	35	$	10	$	—	$	4	$	1	$	626	$	—	$	676
3-4 Pass	86,309		243,928		21,440		65,561		31,735		47,998		3,869		—		500,840
5 Special mention	145		1,496		51		519		—		406		—		—		2,617
6-8 Classified	—		170		—		199		—		76		1		18		464
Total	$	86,454	$	245,629	$	21,501	$	66,279	$	31,739	$	48,481	$	4,496	$	18	$	504,597
Current YTD period:
Gross charge-offs	$	—	$	—	$	22	$	120	$	—	$	91	$	—	$	—	$	233

Total Loans and Leases
Internal risk rating:
1-2 High pass	$	68,591	$	310,955	$	100,531	$	274,053	$	183,533	$	330,344	$	969,159	$	25,004	$	2,262,170
3-4 Pass	2,011,425		6,671,236		2,194,001		2,230,169		1,491,508		2,259,576		4,739,828		32,776		21,630,519
5 Special mention	14,941		28,452		8,578		125,442		63,363		123,164		13,276		99		377,315
6-8 Classified	(356)		11,214		12,103		3,321		18,692		25,042		8,084		3,968		82,068
Total	$	2,094,601	$	7,021,857	$	2,315,213	$	2,632,985	$	1,757,096	$	2,738,126	$	5,730,347	$	61,847	$	24,352,072
Current YTD period:
Gross charge-offs	$	—	$	—	$	22	$	120	$	—	$	1,269	$	1,775	$	48	$	3,234

______________________

(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
December 31, 2021	2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
	(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass	$	561	$	9,148	$	32,304	$	8,289	$	6,248	$	33,493	$	3	$	—	$	90,046
3-4 Pass	499,626		531,989		321,728		578,436		489,727		932,950		51,805		11,977		3,418,238
5 Special mention	—		4,811		63,381		76,372		6,533		40,712		—		—		191,809
6-8 Classified	—		488		17,037		5,340		6,278		33,063		—		—		62,206
Total	$	500,187	$	546,436	$	434,450	$	668,437	$	508,786	$	1,040,218	$	51,808	$	11,977	$	3,762,299
Current YTD period:
Gross charge-offs	$	—	$	—	$	189	$	168	$	344	$	264	$	—	$	—	$	965
Gross recoveries	—		—		—		—		(8)		(6,073)		—		—		(6,081)
Net	$	—	$	—	$	189	$	168	$	336	$	(5,809)	$	—	$	—	$	(5,116)

Real Estate Mortgage:
Residential
Internal risk rating:
1-2 High pass	$	95,016	$	29,339	$	57,874	$	47,688	$	11,776	$	16,703	$	28,115	$	—	$	286,511
3-4 Pass	4,405,055		623,207		573,718		616,515		547,531		234,525		91,655		156		7,092,362
5 Special mention	2,871		3,810		13,007		—		—		—		160		—		19,848
6-8 Classified	5,161		5,217		—		3,323		304		3,424		—		271		17,700
Total	$	4,508,103	$	661,573	$	644,599	$	667,526	$	559,611	$	254,652	$	119,930	$	427	$	7,416,421
Current YTD period:
Gross charge-offs	$	28	$	80	$	—	$	—	$	—	$	55	$	—	$	—	$	163
Gross recoveries	(28)		—		—		—		—		(357)		—		(301)		(686)
Net	$	—	$	80	$	—	$	—	$	—	$	(302)	$	—	$	(301)	$	(523)

Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	96,108		96,448		386,832		152,444		720		14,122		18,190		—		764,864
5 Special mention	—		—		—		—		67,727		—		—		—		67,727
6-8 Classified	—		—		—		—		—		—		—		—		—
Total	$	96,108	$	96,448	$	386,832	$	152,444	$	68,447	$	14,122	$	18,190	$	—	$	832,591
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	775	$	—	$	—	$	—	$	—	$	775
Gross recoveries	—		—		—		—		—		—		—		—		—
Net	$	—	$	—	$	—	$	775	$	—	$	—	$	—	$	—	$	775

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
June 30, 2021		2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
December 31, 2021																				December 31, 2021	2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
		(In thousands)																			(In thousands)
Real Estate Construction	Real Estate Construction																			Real Estate Construction
and Land: Residential	and Land: Residential																			and Land: Residential
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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	3-4 Pass	562,843		487,332		935,712		388,440		111,140		23,121		0		56,043		2,564,631		3-4 Pass	849,188		672,864		851,127		163,950		17,526		3,970		28,804		10,672		2,598,101
5 Special mention	5 Special mention	3,679		4,555		0		0		0		0		0		0		8,234		5 Special mention	276		1,185		—		—		259		—		—		—		1,720
6-8 Classified	6-8 Classified	547		974		413		0		0		0		0		0		1,934		6-8 Classified	849		3,278		588		—		—		—		—		—		4,715
Total	Total	$	567,069	$	492,861	$	936,125	$	388,440	$	111,140	$	23,121	$	0	$	56,043	$	2,574,799	Total	$	850,313	$	677,327	$	851,715	$	163,950	$	17,785	$	3,970	$	28,804	$	10,672	$	2,604,536
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	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Gross recoveries	Gross recoveries	0		0		0		0		0		0		0		0		0		Gross recoveries	—		—		—		—		—		—		—		—		—
Net	Net	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	$	0	Net	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7

Commercial: Asset-Based	Commercial: Asset-Based																			Commercial: Asset-Based
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	58,134	$	82,132	$	165,284	$	113,965	$	72,924	$	203,548	$	480,376	$	73,966	$	1,250,329	1-2 High pass	$	138,836	$	72,725	$	178,291	$	123,947	$	71,940	$	188,411	$	706,656	$	50,495	$	1,531,301
3-4 Pass	3-4 Pass	66,807		104,947		67,780		56,499		20,667		42,132		1,802,197		12,460		2,173,489		3-4 Pass	242,209		71,930		59,748		45,375		8,350		34,833		1,992,677		6,158		2,461,280
5 Special mention	5 Special mention	0		0		53,097		31,720		0		0		13,601		4,316		102,734		5 Special mention	—		—		48,796		13,138		—		—		12,393		3,978		78,305
6-8 Classified	6-8 Classified	0		0		0		0		0		19,738		5,513		(900)		24,351		6-8 Classified	—		—		—		—		—		464		4,027		100		4,591
Total	Total	$	124,941	$	187,079	$	286,161	$	202,184	$	93,591	$	265,418	$	2,301,687	$	89,842	$	3,550,903	Total	$	381,045	$	144,655	$	286,835	$	182,460	$	80,290	$	223,708	$	2,715,753	$	60,731	$	4,075,477
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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	232	$	232
Gross recoveries	Gross recoveries	0		0		0		0		0		(359)		(14)		0		(373)		Gross recoveries	—		—		—		—		—		(691)		(28)		—		(719)
Net	Net	$	0	$	0	$	0	$	0	$	0	$	(359)	$	(14)	$	0	$	(373)	Net	$	—	$	—	$	—	$	—	$	—	$	(691)	$	(28)	$	232	$	(487)

Commercial: Venture	Commercial: Venture																			Commercial: Venture
Capital	Capital																			Capital
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	0	$	1,999	$	0	$	0	$	(5)	$	22	$	227,411	$	0	$	229,427	1-2 High pass	$	—	$	1,999	$	—	$	—	$	(4)	$	14	$	228,820	$	—	$	230,829
3-4 Pass	3-4 Pass	54,712		63,937		74,756		18,347		2,256		18,158		1,238,948		9,273		1,480,387		3-4 Pass	229,567		58,283		46,007		7,241		1,614		4,166		1,715,057		8,202		2,070,137
5 Special mention	5 Special mention	0		8,380		20,625		0		4,986		0		(81)		0		33,910		5 Special mention	8,980		2,778		499		—		—		2,593		(17)		—		14,833
6-8 Classified	6-8 Classified	0		0		0		3,000		0		0		326		2,382		5,708		6-8 Classified	500		—		—		2,000		—		—		(6)		2,300		4,794
Total	Total	$	54,712	$	74,316	$	95,381	$	21,347	$	7,237	$	18,180	$	1,466,604	$	11,655	$	1,749,432	Total	$	239,047	$	63,060	$	46,506	$	9,241	$	1,610	$	6,773	$	1,943,854	$	10,502	$	2,320,593
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	620	$	0	$	0	$	620	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	620	$	—	$	—	$	620
Gross recoveries	Gross recoveries	0		0		0		(13)		(70)		(18)		0		0		(101)		Gross recoveries	—		—		(127)		(37)		(158)		(82)		—		—		(404)
Net	Net	$	0	$	0	$	0	$	(13)	$	(70)	$	602	$	0	$	0	$	519	Net	$	—	$	—	$	(127)	$	(37)	$	(158)	$	538	$	—	$	—	$	216

____________________

(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																			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
June 30, 2021		2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
December 31, 2021																				December 31, 2021	2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
		(In thousands)																			(In thousands)
Commercial: Other	Commercial: Other																			Commercial: Other
Commercial	Commercial																			Commercial
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	357,890	$	252,019	$	310	$	9	$	302	$	375	$	77,917	$	695	$	689,517	1-2 High pass	$	134,825	$	22,556	$	261	$	4	$	246	$	(50)	$	18,206	$	693	$	176,741
3-4 Pass	3-4 Pass	198,420		90,403		79,878		82,235		65,037		95,808		552,735		10,531		1,175,047		3-4 Pass	286,281		73,328		77,487		67,591		46,939		89,408		607,197		9,822		1,258,053
5 Special mention	5 Special mention	0		1,639		3,364		2,546		115		10,231		445		0		18,340		5 Special mention	—		291		1		2,088		115		11,911		1,061		61		15,528
6-8 Classified	6-8 Classified	2,042		1		593		23		16		4,611		26,405		5,314		39,005		6-8 Classified	53		1		395		(3)		223		4,212		15,731		1,047		21,659
Total	Total	$	558,352	$	344,062	$	84,145	$	84,813	$	65,470	$	111,025	$	657,502	$	16,540	$	1,921,909	Total	$	421,159	$	96,176	$	78,144	$	69,680	$	47,523	$	105,481	$	642,195	$	11,623	$	1,471,981
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	0	$	47	$	1	$	359	$	53	$	1,771	$	2,231	Gross charge-offs	$	1,992	$	—	$	122	$	47	$	139	$	797	$	985	$	2,364	$	6,446
Gross recoveries	Gross recoveries	0		0		(18)		0		(34)		(1,127)		0		(73)		(1,252)		Gross recoveries	—		—		(42)		—		(268)		(4,076)		(57)		(145)		(4,588)
Net	Net	$	0	$	0	$	(18)	$	47	$	(33)	$	(768)	$	53	$	1,698	$	979	Net	$	1,992	$	—	$	80	$	47	$	(129)	$	(3,279)	$	928	$	2,219	$	1,858

Consumer	Consumer																			Consumer
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	0	$	12	$	0	$	6	$	9	$	0	$	666	$	0	$	693	1-2 High pass	$	36	$	11	$	—	$	5	$	4	$	—	$	646	$	—	$	702
3-4 Pass	3-4 Pass	115,446		34,877		83,346		50,146		27,398		41,878		8,573		35		361,699		3-4 Pass	261,678		24,195		73,860		35,623		21,707		31,916		5,689		—		454,668
5 Special mention	5 Special mention	331		602		966		318		54		269		0		0		2,540		5 Special mention	797		363		496		—		50		135		—		—		1,841
6-8 Classified	6-8 Classified	0		55		262		0		15		121		3		21		477		6-8 Classified	—		22		123		111		21		143		—		19		439
Total	Total	$	115,777	$	35,546	$	84,574	$	50,470	$	27,476	$	42,268	$	9,242	$	56	$	365,409	Total	$	262,511	$	24,591	$	74,479	$	35,739	$	21,782	$	32,194	$	6,335	$	19	$	457,650
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	209	$	156	$	108	$	71	$	0	$	0	$	544	Gross charge-offs	$	—	$	185	$	654	$	156	$	270	$	188	$	—	$	54	$	1,507
Gross recoveries	Gross recoveries	0		0		0		(26)		(5)		(38)		(1)		0		(70)		Gross recoveries	—		—		—		(27)		(13)		(79)		(1)		—		(120)
Net	Net	$	0	$	0	$	209	$	130	$	103	$	33	$	(1)	$	0	$	474	Net	$	—	$	185	$	654	$	129	$	257	$	109	$	(1)	$	54	$	1,387

Total Loans and Leases	Total Loans and Leases																			Total Loans and Leases
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	423,498	$	380,107	$	284,686	$	149,834	$	95,219	$	270,384	$	786,373	$	74,661	$	2,464,762	1-2 High pass	$	369,274	$	135,778	$	268,730	$	179,933	$	90,210	$	238,571	$	982,446	$	51,188	$	2,316,130
3-4 Pass	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		3-4 Pass	6,869,712		2,152,244		2,390,507		1,667,175		1,134,114		1,345,890		4,511,074		46,987		20,117,703
5 Special mention	5 Special mention	4,368		30,367		162,551		171,664		81,552		67,114		14,120		4,316		536,052		5 Special mention	12,924		13,238		126,180		91,598		74,684		55,351		13,597		4,039		391,611
6-8 Classified	6-8 Classified	2,589		4,257		5,235		13,747		12,796		68,819		32,247		7,577		147,267		6-8 Classified	6,563		9,006		18,143		10,771		6,826		41,306		19,752		3,737		116,104
Total	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	Total	$	7,258,473	$	2,310,266	$	2,803,560	$	1,949,477	$	1,305,834	$	1,681,118	$	5,526,869	$	105,951	$	22,941,548
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	0	$	0	$	399	$	1,146	$	162	$	1,273	$	53	$	1,771	$	4,804	Gross charge-offs	$	2,027	$	265	$	965	$	1,146	$	753	$	1,924	$	985	$	2,650	$	10,715
Gross recoveries	Gross recoveries	0		0		(18)		(39)		(109)		(6,968)		(16)		(73)		(7,223)		Gross recoveries	(28)		—		(169)		(64)		(447)		(11,358)		(86)		(446)		(12,598)
Net	Net	$	0	$	0	$	381	$	1,107	$	53	$	(5,695)	$	37	$	1,698	$	(2,419)	Net	$	1,999	$	265	$	796	$	1,082	$	306	$	(9,434)	$	899	$	2,204	$	(1,883)

~~______________________~~____________________

(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
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
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 Construction
and Land: Residential
Internal risk rating:
1-2 High pass $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
3-4 Pass 345,134 670,894 849,819 285,072 28,725 688 9,034 53,035 2,242,401
5 Special mention 759 0 0 0 0 0 0 0 759
6-8 Classified 0 0 0 0 0 0 0 0 0
Total $ 345,893 $ 670,894 $ 849,819 $ 285,072 $ 28,725 $ 688 $ 9,034 $ 53,035 $ 2,243,160
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 $ 116,247 $ 173,457 $ 111,630 $ 69,244 $ 121,838 $ 88,201 $ 275,093 $ 72,017 $ 1,027,727
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 0 59,822 41,789 9,022 14,274 482 23,257 4,655 153,301
6-8 Classified 0 0 0 0 19,417 551 8,799 (900) 27,867
Total $ 271,468 $ 318,077 $ 238,958 $ 121,194 $ 163,756 $ 135,897 $ 2,058,083 $ 121,850 $ 3,429,283
Current YTD period:
Gross charge-offs $ 0 $ 0 $ 0 $ 0 $ 0 $ 11,817 $ 0 $ 0 $ 11,817
Gross recoveries (52) 0 0 0 0 (420) (236) 0 (708)
Net $ (52) $ 0 $ 0 $ 0 $ 0 $ 11,397 $ (236) $ 0 $ 11,109
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$ 1,999 $ 4,797 $ 0 $ (4) $ (4) $ 52 $ 167,296 $ 0 $ 174,136
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 21,645 42,499 2,202 0 0 0 46,765 5,014 118,125
6-8 Classified 0 (1,710) 4,000 0 0 3,690 528 0 6,508
Total $ 71,776 $ 149,023 $ 44,020 $ 7,785 $ 29,734 $ 9,236 $ 1,376,195 $ 10,739 $ 1,698,508
Current YTD period:
Gross charge-offs $ 0 $ 0 $ 6,533 $ 0 $ (8) $ 150 $ 144 $ 0 $ 6,819
Gross recoveries 0 0 (478) (176) (154) (3) (450) 0 (1,261)
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.~~Act during its applicable period beginning on March 1, 2020 and ending on January 1, 2022. 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 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 1 $ 0 $ 0 7 $ 3,745 $ 3,745
Income producing and other residential 0 0 0 5 787 787
Real estate construction and land:
Residential 1 208 208 0 0 0
Commercial:
Asset-based 0 0 0 6 1,234 1,234
Venture capital 1 2,408 2,408 0 0 0
Other commercial 25 16,358 16,358 19 18,840 15,726
Consumer 0 0 0 3 212 212
Total 28 $ 18,974 $ 18,974 40 $ 24,818 $ 21,704


		Six Months Ended June 30,											Three Months Ended March 31,
		2021					2020						2022					2021
			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	2	$	647	$	0	8	$	3,745	$	3,745	Commercial	—	$	—	$	—	1	$	647	$	—
Income producing and other residential		2	266		266		5	787		787
Real estate construction and land:
Residential												Residential	1	304		—		2	266		266

Residential		1	208		208		0	0		0

Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	1	503		503		7	1,741		1,741		Asset-based	—	—		—		1	503		503
Venture capital	Venture capital	3	4,502		2,529		2	2,047		2,047		Venture capital	—	—		—		3	4,502		2,529
Other commercial	Other commercial	35	48,608		30,634		30	23,219		21,444		Other commercial	13	1,074		1,074		12	32,250		14,276
Consumer	Consumer	1	20		20		3	212		212		Consumer	—	—		—		1	20		20
Total	Total	45	$	54,754	$	34,160	55	$	31,751	$	29,976	Total	14	$	1,378	$	1,074	20	$	38,188	$	17,594

During the three months ended March 31, 2022, there were 2 other commercial loans for $78,000 restructured in the preceding 12-month period that subsequently defaulted. During the three months ended March 31, 2021, there was 1 residential real estate mortgage loan for $163,000 and 1 other commercial

loan for

$87,000 restructured in the preceding 12-month period that subsequently defaulted.

2825

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 9.8. 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				Six Months Ended					Three Months Ended
		June 30,				June 30,					March 31,
		2021		2020		2021		2020			2022		2021
		(In thousands)									(In thousands)
Component of leases receivable income:	Component of leases receivable income:									Component of leases receivable income:
Interest income on net investments in leases	Interest income on net investments in leases	$	2,278	$	2,103	$	4,358	$	4,355	Interest income on net investments in leases	$	2,388	$	2,080

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


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(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	$	173,058	$	158,740	Lease payments receivable	$	189,992	$	190,025
Unguaranteed residual assets	Unguaranteed residual assets	21,831		19,303		Unguaranteed residual assets	22,146		21,487
Deferred costs and other	Deferred costs and other	1,285		996		Deferred costs and other	1,352		1,373
Aggregate net investment in leases	Aggregate net investment in leases	$	196,174	$	179,039	Aggregate net investment in leases	$	213,490	$	212,885

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


		June 30, 2021			March 31, 2022
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2021		$	39,885
2022	2022	49,531		2022	$	43,028
2023	2023	36,807		2023	49,649
2024	2024	31,357		2024	45,301
2025	2025	17,956		2025	29,371
2026				2026	18,268
Thereafter	Thereafter	16,335		Thereafter	26,760
Total undiscounted cash flows	Total undiscounted cash flows	191,871		Total undiscounted cash flows	212,377
Less: Unearned income	Less: Unearned income	(18,813)		Less: Unearned income	(22,385)
Present value of lease payments	Present value of lease payments	$	173,058	Present value of lease payments	$	189,992

2926

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 June 30, 2021
Real Estate
Real Estate Construction
Mortgage and Land Commercial Consumer Total
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $ 141,122 $ 66,775 $ 78,716 $ 5,832 $ 292,445
Charge-offs (266) (75) (277) (198) (816)
Recoveries 4,882 0 1,029 60 5,971
Net (charge-offs) recoveries 4,616 (75) 752 (138) 5,155
Provision (38,725) (12,118) (21,771) 614 (72,000)
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:
Balance, beginning of period $ 138,342 $ 78,356 $ 126,403 $ 5,080 $ 348,181
Charge-offs (634) (775) (2,851) (544) (4,804)
Recoveries 5,427 0 1,726 70 7,223
Net (charge-offs) recoveries 4,793 (775) (1,125) (474) 2,419
Provision (36,122) (22,999) (67,581) 1,702 (125,000)
Balance, end of period $ 107,013 $ 54,582 $ 57,697 $ 6,308 $ 225,600
Ending Allowance by
Evaluation Methodology:
Individually evaluated $ 203 $ 0 $ 3,265 $ 0 $ 3,468
Collectively evaluated $ 106,810 $ 54,582 $ 54,432 $ 6,308 $ 222,132
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated $ 41,145 $ 3,254 $ 46,400 $ 0 $ 90,799
Collectively evaluated 8,371,875 3,502,330 7,175,844 365,409 19,415,458
Ending balance $ 8,413,020 $ 3,505,584 $ 7,222,244 $ 365,409 $ 19,506,257
















	Three Months Ended March 31, 2022
			Real Estate
	Real Estate		Construction
	Mortgage		and Land		Commercial		Consumer		Total
	(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period	$	98,053	$	45,079	$	48,718	$	8,714	$	200,564



Charge-offs	(168)		—		(2,833)		(233)		(3,234)
Recoveries	163		149		1,735		21		2,068
Net (charge-offs) recoveries	(5)		149		(1,098)		(212)		(1,166)
Provision	(11,333)		(1,067)		9,436		964		(2,000)
Balance, end of period	$	86,715	$	44,161	$	57,056	$	9,466	$	197,398

Ending Allowance by
Evaluation Methodology:
Individually evaluated	$	156	$	—	$	1,023	$	—	$	1,179
Collectively evaluated	$	86,559	$	44,161	$	56,033	$	9,466	$	196,219

Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated	$	44,392	$	13,403	$	17,813	$	—	$	75,608
Collectively evaluated	11,994,899		3,680,086		8,096,882		504,597		24,276,464
Ending balance	$	12,039,291	$	3,693,489	$	8,114,695	$	504,597	$	24,352,072

3027

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Three Months Ended June 30, 2020											Three Months Ended March 31, 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	$	91,372	$	40,173	$	87,570	$	2,177	$	221,292	Balance, beginning of period	$	138,342	$	78,356	$	126,403	$	5,080	$	348,181
Charge-offs	Charge-offs	(4,182)		0		(11,439)		(165)		(15,786)		Charge-offs	(368)		(700)		(2,574)		(346)		(3,988)
Recoveries	Recoveries	127		0		2,392		25		2,544		Recoveries	545		—		697		10		1,252
Net charge-offs		(4,055)		0		(9,047)		(140)		(13,242)
Provision		43,407		29,940		19,424		229		93,000
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:
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		(4,682)		0		(30,671)		(638)		(35,991)
Recoveries		251		0		3,347		41		3,639
Net charge-offs		(4,431)		0		(27,324)		(597)		(32,352)
Net (charge-offs) recoveries												Net (charge-offs) recoveries	177		(700)		(1,877)		(336)		(2,736)
Provision	Provision	85,272		48,161		56,883		684		191,000		Provision	2,603		(10,881)		(45,810)		1,088		(53,000)
Balance, end of period	Balance, end of period	$	130,724	$	70,113	$	97,947	$	2,266	$	301,050	Balance, end of period	$	141,122	$	66,775	$	78,716	$	5,832	$	292,445

Ending Allowance by	Ending Allowance by											Ending Allowance by
Evaluation Methodology:	Evaluation Methodology:											Evaluation Methodology:
Individually evaluated	Individually evaluated	$	211	$	0	$	8,282	$	0	$	8,493	Individually evaluated	$	220	$	—	$	1,581	$	—	$	1,801
Collectively evaluated	Collectively evaluated	$	130,513	$	70,113	$	89,665	$	2,266	$	292,557	Collectively evaluated	$	140,902	$	66,775	$	77,135	$	5,832	$	290,644

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	$	68,240	$	1,799	$	105,661	$	0	$	175,700	Individually evaluated	$	52,823	$	2,047	$	35,285	$	—	$	90,155
Collectively evaluated	Collectively evaluated	7,887,494		3,338,729		7,881,389		411,319		19,518,931		Collectively evaluated	7,934,390		3,563,776		7,050,555		340,352		18,889,073
Ending balance	Ending balance	$	7,955,734	$	3,340,528	$	7,987,050	$	411,319	$	19,694,631	Ending balance	$	7,987,213	$	3,565,823	$	7,085,840	$	340,352	$	18,979,228

The allowance for loan and lease losses decreased by ~~$66.8~~$3.2 million in the ~~second~~first quarter of ~~2021~~2022 to ~~$225.6~~$197.4 million due primarily to a provision for loan and lease losses benefit of ~~$72.0~~$2.0 million driven by improvement in ~~both key macro-economic variables and~~ loan portfolio credit quality metrics ~~along~~combined with ~~decreased~~changes in our loan portfolio composition, offset partially by increased provisions for ~~individually evaluated loans~~unfunded commitments and ~~leases.~~loan growth.

We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act during 2020 and ~~2021.~~2021, originating $1.65 billion of such loans. As of ~~June 30, 2021,~~March 31, 2022, PPP loans ~~had an outstanding balance~~totaled $70.4 million, net of ~~approximately $624.8 million.~~deferred fees. The loans ~~are~~have two or five year terms, are fully guaranteed by the SBA, and do not carry an allowance.

~~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 dates:


		June 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
		Real		Business				Real		Business					Real		Business				Real		Business
		Property		Assets		Total		Property		Assets		Total			Property		Assets		Total		Property		Assets		Total
		(In thousands)													(In thousands)
Real estate mortgage	Real estate mortgage	$	35,146	$	0	$	35,146	$	43,656	$	0	$	43,656	Real estate mortgage	$	44,662	$	—	$	44,662	$	30,817	$	—	$	30,817
Real estate construction and land	Real estate construction and land	3,254		0		3,254		1,766		0		1,766		Real estate construction and land	7,578		—		7,578		10,421		—		10,421
Commercial	Commercial	0		4,100		4,100		0		31,100		31,100		Commercial	—		1,986		1,986		—		7,586		7,586
Total	Total	$	38,400	$	4,100	$	42,500	$	45,422	$	31,100	$	76,522	Total	$	52,240	$	1,986	$	54,226	$	41,238	$	7,586	$	48,824

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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
		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		$	292,445	$	90,571	$	383,016
Charge-offs		(816)		0		(816)
Recoveries		5,971		0		5,971
Net recoveries		5,155		0		5,155
Provision		(72,000)		(16,000)		(88,000)
Balance, end of period		$	225,600	$	74,571	$	300,171

		Six Months Ended						Three Months Ended
		June 30, 2021						March 31, 2022
		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	$	348,181	$	85,571	$	433,752		Balance, beginning of period	$	200,564	$	73,071	$	273,635
Charge-offs	Charge-offs	(4,804)		0		(4,804)			Charge-offs	(3,234)		—		(3,234)
Recoveries	Recoveries	7,223		0		7,223			Recoveries	2,068		—		2,068
Net recoveries		2,419		0		2,419
Net charge-offs									Net charge-offs	(1,166)		—		(1,166)
Provision	Provision	(125,000)		(11,000)		(136,000)			Provision	(2,000)		2,000		—
Balance, end of period	Balance, end of period	$	225,600	$	74,571	$	300,171		Balance, end of period	$	197,398	$	75,071	$	272,469

~~PACWEST BANCORP AND SUBSIDIARIES~~

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


		Three Months Ended						Three Months Ended
		June 30, 2020								March 31, 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	$	221,292	$	53,571	$	274,863		Balance, beginning of period	$	348,181	$	85,571	$	433,752
Charge-offs	Charge-offs	(15,786)		0		(15,786)			Charge-offs	(3,988)		—		(3,988)
Recoveries	Recoveries	2,544		0		2,544			Recoveries	1,252		—		1,252
Net charge-offs	Net charge-offs	(13,242)		0		(13,242)			Net charge-offs	(2,736)		—		(2,736)
Provision	Provision	93,000		27,000		120,000			Provision	(53,000)		5,000		(48,000)
Balance, end of period	Balance, end of period	$	301,050	$	80,571	$	381,621		Balance, end of period	$	292,445	$	90,571	$	383,016

		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		$	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		(35,991)		0		(35,991)
Recoveries		3,639		0		3,639
Net charge-offs		(32,352)		0		(32,352)
Provision		191,000		41,000		232,000
Balance, end of period		$	301,050	$	80,571	$	381,621

3329

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6.5. FORECLOSED ASSETS, NET

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


		June 30,		December 31,			March 31,		December 31,
Property Type	Property Type	2021		2020		Property Type	2022		2021
		(In thousands)					(In thousands)
Commercial real estate	Commercial real estate	$	12,594	$	12,979	Commercial real estate	$	—	$	12,594
Construction and land development		219		219

Multi‑family						Multi‑family	304		—
Total other real estate owned, net	Total other real estate owned, net	12,813		13,198		Total other real estate owned, net	304		12,594
Other foreclosed assets	Other foreclosed assets	414		829		Other foreclosed assets	—		249
Total foreclosed assets, net	Total foreclosed assets, net	$	13,227	$	14,027	Total foreclosed assets, net	$	304	$	12,843

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


	Foreclosed
	Assets, Net
	(In thousands)
Balance, December 31, ~~2020~~2021	$	~~14,027~~12,843

Transfers to foreclosed assets from loans	~~647~~304

~~Provision for losses~~	~~(14)~~
Reductions related to sales	~~(1,433)~~(12,843)
Balance, ~~June 30, 2021~~March 31, 2022	$	~~13,227~~304

NOTE 7.6. 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 following table presents the changes in the carrying amount of goodwill for the period indicated:~~


	~~Goodwill~~
	~~(In thousands)~~
~~Balance, December 31, 2020~~	$	~~1,078,670~~
~~Addition from the Civic acquisition~~	~~125,448~~
~~Balance, June 30, 2021~~	$	~~1,204,118~~

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

earnings.

Our other intangible assets with definite lives 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 for our current intangible assets as of the 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 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

~~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 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:~~

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

3630

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


	Three Months Ended
	March 31,
	2022		2021
	(In thousands)
Gross Amount of CDI and CRI:
Balance, beginning of period	$	133,850	$	109,646
Addition from Civic acquisition	—		750
Fully amortized portion	—		(9,846)

Balance, end of period	133,850		100,550
Accumulated Amortization:
Balance, beginning of period	(88,893)		(86,005)
Amortization expense	(3,649)		(3,079)
Fully amortized portion	—		9,846

Balance, end of period	(92,542)		(79,238)
Net CDI and CRI, end of period	$	41,308	$	21,312

The following table presents the estimated aggregate future amortization expense for our current CDI and CRI as of the date indicated:


	March 31, 2022
	(In thousands)
Period ending December 31,
2022	$	9,926
2023	9,085
2024	6,404
2025	4,087
2026	3,482
Thereafter	8,324
Net CDI and CRI	$	41,308

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 7. OTHER ASSETS

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


	March 31,		December 31,
Other Assets	2022		2021
	(In thousands)
LIHTC investments	$	298,233	$	297,746
Cash surrender value of BOLI	204,938		203,836
Deferred tax asset, net (1)	141,008		—
Operating lease ROU assets, net (2)	130,267		123,225
Interest receivable	120,997		120,329
Equity investments without readily determinable fair values	63,279		62,975
SBIC investments	50,558		46,861
Prepaid expenses	26,502		27,632
Taxes receivable	10,591		36,011
Equity investments with readily determinable fair values	8,814		28,578
Equity warrants (3)	3,771		3,555

Other receivables/assets	149,303		133,244
Total other assets	$	1,208,261	$	1,083,992

____________________

(1) At December 31, 2021, this was a net deferred tax liability of $19.6 million.

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

(3) See Note 10. Derivatives forinformation regarding equity warrants.

NOTE 8. LEASES

Operating Leases as a Lessee

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


	Three Months Ended
	March 31,
	2022		2021
	(In thousands)
Operating lease expense:
Fixed costs	$	8,479	$	8,496
Variable costs	23		15
Short-term lease costs	364		256
Sublease income	(1,076)		(1,099)
Net lease expense	$	7,790	$	7,668

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


	Three Months Ended
	March 31,
	2022		2021
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	8,839	$	9,278
ROU assets obtained in exchange for lease obligations:
Operating leases	$	17,301	$	10,482

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:


	March 31,			December 31,
	2022			2021
	(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net	$	130,267		$	123,225
Operating lease liabilities	$	151,459		$	142,117

Weighted average remaining lease term (in years)	6.0			5.6
Weighted average discount rate	2.23		%	2.23		%

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:

June 30, 2021
(In thousands)
Period ending December 31,
2021 $ 17,733
2022 32,298
2023 29,411
2024 22,099
2025 15,293
Thereafter 33,447
Total operating lease liabilities 150,281
Less: Imputed interest (10,846)
Present value of operating lease liabilities $ 139,435


	March 31, 2022
	(In thousands)
Period ending December 31,
2022	$	27,467
2023	34,955
2024	27,881
2025	21,023
2026	15,889
Thereafter	35,547
Total operating lease liabilities	162,762
Less: Imputed interest	(11,303)
Present value of operating lease liabilities	$	151,459

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).~~earnings. The equipment is tested periodically for impairment. No impairment was recorded on "Equipment leased to others under operating leases" in the three ~~or six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

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

June 30, 2021
(In thousands)
Period ending December 31,
2021 $ 20,687
2022 41,447
2023 32,252
2024 26,567
2025 19,197
Thereafter 42,492
Total undiscounted cash flows $ 182,642


	March 31, 2022
	(In thousands)
Period ending December 31,
2022	$	35,552
2023	39,743
2024	34,753
2025	27,428
2026	21,670
Thereafter	43,191
Total undiscounted cash flows	$	202,337

3733

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~10.~~9. BORROWINGS AND SUBORDINATED DEBT

Borrowings

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

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.~~


	March 31, 2022				December 31, 2021
			Weighted				Weighted
			Average				Average
	Balance		Rate		Balance		Rate
	(Dollars in thousands)
FHLB secured advances	$	629,000	0.43	%	$	—	—	%
FHLB unsecured overnight advance	112,000		0.34	%	—		—	%
AFX short-term borrowings	250,000		0.36	%	—		—	%

Total borrowings	$	991,000	0.40	%	$	—	—	%

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 ~~June 30, 2021~~March 31, 2022 of ~~$3.3~~$3.6 billion, collateralized by a blanket lien on ~~$5.5~~$5.6 billion of qualifying loans.

~~The following table presents~~ As of March 31, 2022, the ~~interest rates and maturity dates~~balance outstanding was $629.0 million, which consisted of ~~FHLB secured advances as~~a $629.0 million overnight advance. As of ~~the dates indicated:~~

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 %
December 31, 2021, there was no balance outstanding.

FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of ~~June 30, 2021,~~March 31, 2022, the Bank had secured borrowing capacity of ~~$1.4~~$2.4 billion collateralized by liens covering ~~$1.9~~$2.9 billion of qualifying loans. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were 0no 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~~was a $112.0 million balance outstanding at ~~June 30, 2021~~March 31, 2022 and no balance outstanding at December 31, ~~2020.~~2021.

Federal Funds Arrangements with Commercial Banks. As of ~~June 30, 2021,~~March 31, 2022, 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 0no unused commitment fees. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were 0no 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 ~~June 30, 2021 and~~March 31, 2022, the balance outstanding was $250.0 million, which consisted of $250.0 million in overnight borrowings. As of December 31, ~~2020,~~2021, there ~~were 0 borrowings~~was no balance outstanding.

3834

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Subordinated Debt

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


		June 30, 2021				December 31, 2020				Date	Maturity	Rate Index		March 31, 2022				December 31, 2021				Date	Maturity	Rate Index
Series	Series	Balance		Rate (1)		Balance		Rate (1)		Issued	Date	(Quarterly Reset)	Series	Balance		Rate (1)		Balance		Rate (1)		Issued	Date	(Quarterly Reset) (6)
		(Dollars in thousands)												(Dollars in thousands)
Subordinated notes, net (2)	Subordinated notes, net (2)	$	394,390	3.25	%	$	0	0	%	4/30/2021	5/1/2031	Fixed rate (3)	Subordinated notes, net (2)	$	394,758	3.25	%	$	394,634	3.25	%	4/30/2021	5/1/2031	Fixed rate (3)
Trust V	Trust V	10,310		3.22	%	10,310		3.33	%	8/15/2003	9/17/2033	3-month LIBOR + 3.10	Trust V	10,310		4.02	%	10,310		3.32	%	8/15/2003	9/17/2033	3-month LIBOR + 3.10
Trust VI	Trust VI	10,310		3.17	%	10,310		3.27	%	9/3/2003	9/15/2033	3-month LIBOR + 3.05	Trust VI	10,310		3.88	%	10,310		3.25	%	9/3/2003	9/15/2033	3-month LIBOR + 3.05
Trust CII	Trust CII	5,155		3.07	%	5,155		3.18	%	9/17/2003	9/17/2033	3-month LIBOR + 2.95	Trust CII	5,155		3.87	%	5,155		3.17	%	9/17/2003	9/17/2033	3-month LIBOR + 2.95
Trust VII	Trust VII	61,856		2.94	%	61,856		2.96	%	2/5/2004	4/23/2034	3-month LIBOR + 2.75	Trust VII	61,856		3.05	%	61,856		2.88	%	2/5/2004	4/23/2034	3-month LIBOR + 2.75
Trust CIII	Trust CIII	20,619		1.81	%	20,619		1.91	%	8/15/2005	9/15/2035	3-month LIBOR + 1.69	Trust CIII	20,619		2.52	%	20,619		1.89	%	8/15/2005	9/15/2035	3-month LIBOR + 1.69
Trust FCCI	Trust FCCI	16,495		1.72	%	16,495		1.82	%	1/25/2007	3/15/2037	3-month LIBOR + 1.60	Trust FCCI	16,495		2.43	%	16,495		1.80	%	1/25/2007	3/15/2037	3-month LIBOR + 1.60
Trust FCBI	Trust FCBI	10,310		1.67	%	10,310		1.77	%	9/30/2005	12/15/2035	3-month LIBOR + 1.55	Trust FCBI	10,310		2.38	%	10,310		1.75	%	9/30/2005	12/15/2035	3-month LIBOR + 1.55
Trust CS 2005-1	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 2005-1	82,475		2.78	%	82,475		2.15	%	11/21/2005	12/15/2035	3-month LIBOR + 1.95
Trust CS 2005-2	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 2005-2	128,866		2.25	%	128,866		2.08	%	12/14/2005	1/30/2036	3-month LIBOR + 1.95
Trust CS 2006-1	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 2006-1	51,545		2.25	%	51,545		2.08	%	2/22/2006	4/30/2036	3-month LIBOR + 1.95
Trust CS 2006-2	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 2006-2	51,550		2.25	%	51,550		2.08	%	9/27/2006	10/30/2036	3-month LIBOR + 1.95
Trust CS 2006-3 (4)	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 2006-3 (4)	28,525		1.50	%	29,306		1.49	%	9/29/2006	10/30/2036	3-month EURIBOR + 2.05
Trust CS 2006-4	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 2006-4	16,470		2.25	%	16,470		2.08	%	12/5/2006	1/30/2037	3-month LIBOR + 1.95
Trust CS 2006-5	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 2006-5	6,650		2.25	%	6,650		2.08	%	12/19/2006	1/30/2037	3-month LIBOR + 1.95
Trust CS 2007-2	Trust CS 2007-2	39,177		2.14	%	39,177		2.16	%	6/13/2007	7/30/2037	3-month LIBOR + 1.95	Trust CS 2007-2	39,177		2.25	%	39,177		2.08	%	6/13/2007	7/30/2037	3-month LIBOR + 1.95
Total subordinated debt	Total subordinated debt	936,742		2.65	%	543,275		2.24	%				Total subordinated debt	935,071		2.81	%	935,728		2.64	%
Acquisition discount (5)	Acquisition discount (5)	(74,954)				(77,463)							Acquisition discount (5)	(71,191)				(72,445)
Net subordinated debt	Net subordinated debt	$	861,788			$	465,812						Net subordinated debt	$	863,880			$	863,283

___________________

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

(2) Net of unamortized issuance costs of ~~$5.6~~$5.2 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 €25.8 million.

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

(6) Interest rate will default to the last published or determined rate of LIBOR, and for Trust CS 2006-4, the Base Rate, defined as the greater of Prime and the federal funds rate, upon cessation of LIBOR and effectively converting these instruments to fixed rate, if not modified prior to June 30, 2023.

~~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 fixed rate of 3.25% per annum and from and including the 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 the interest payment date of May 1, 2026, and 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.

3935

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~11.~~10. 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:


		June 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
		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	$	88,381	$	916	$	59,867	$	1,028	Interest rate contracts	$	87,003	$	2,620	$	87,470	$	992
Foreign exchange contracts	Foreign exchange contracts	28,463		2,411		73,108		3,202		Foreign exchange contracts	28,463		1,936		28,463		1,517
Interest rate and economic contracts	Interest rate and economic contracts	116,844		3,327		132,975		4,230		Interest rate and economic contracts	115,466		4,556		115,933		2,509
Equity warrant assets	Equity warrant assets	22,345		4,391		24,081		4,520		Equity warrant assets	18,602		3,771		18,539		3,555
Total	Total	$	139,189	$	7,718	$	157,056	$	8,750	Total	$	134,068	$	8,327	$	134,472	$	6,064

Derivative Liabilities:	Derivative Liabilities:									Derivative Liabilities:
Interest rate contracts	Interest rate contracts	$	88,381	$	844	$	59,867	$	1,004	Interest rate contracts	$	87,003	$	2,500	$	87,470	$	931
Foreign exchange contracts	Foreign exchange contracts	28,463		0		73,108		146		Foreign exchange contracts	28,463		—		28,463		—
Total	Total	$	116,844	$	844	$	132,975	$	1,150	Total	$	115,466	$	2,500	$	115,933	$	931

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 ~~12.~~11. COMMITMENTS AND CONTINGENCIES

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


		June 30,		December 31,			March 31,		December 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Loan commitments to extend credit	Loan commitments to extend credit	$	7,891,875	$	7,601,390	Loan commitments to extend credit	$	9,899,345	$	9,006,350
Standby letters of credit	Standby letters of credit	343,719		337,336		Standby letters of credit	321,742		345,769
Commitments to contribute capital to SBICs
and CRA-related loan pools		55,906		55,499

Total	Total	$	8,291,500	$	7,994,225	Total	$	10,221,087	$	9,352,119

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.

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~~$75.1 million at ~~June 30, 2021~~March 31, 2022 and ~~$85.6~~$73.1 million at December 31, ~~2020.~~2021.

4036

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 SBICs that call for capital contributions up to an amount specified in the partnership agreements, and in CRA-related loan pools. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, we had commitments to contribute capital to these entities totaling ~~$55.9~~$84.8 million and ~~$55.5~~$85.9 million.

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~~SBICs and CRA-related loan pools as of the date indicated:


		June 30, 2021			March 31, 2022
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2021		$	27,953
2022	2022	27,953		2022	$	38,496
2023				2023	46,276

Total	Total	$	55,906	Total	$	84,772

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.

4137

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~13.~~12. 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 ~~13.~~15. Fair Value Measurements, to the Consolidated Financial Statements of the Company's 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 ~~June 30, 2021,~~March 31, 2022, the fair value of these investments was ~~$36.8~~$50.6 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
		June 30, 2021									March 31, 2022
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:
Agency residential MBS										Agency residential MBS	$	2,788,814	$	—	$	2,788,814	$	—
Municipal securities	Municipal securities	$	1,817,499	$	0	$	1,817,499	$	0	Municipal securities	2,125,161		—		2,125,161		—
Agency commercial MBS	Agency commercial MBS	1,257,628		0		1,257,628		0		Agency commercial MBS	1,562,337		—		1,562,337		—
Agency residential CMOs	Agency residential CMOs	1,142,398		0		1,142,398		0		Agency residential CMOs	940,714		—		940,714		—
U.S. Treasury securities	U.S. Treasury securities	877,153		877,153		0		0		U.S. Treasury securities	907,743		907,743		—		—
Agency residential MBS		552,411		0		552,411		0
Corporate debt securities	Corporate debt securities	508,708		0		508,708		0		Corporate debt securities	509,156		—		509,156		—
Private label commercial MBS										Private label commercial MBS	401,292		—		395,716		5,576
Collateralized loan obligations	Collateralized loan obligations	382,043		0		382,043		0		Collateralized loan obligations	363,806		—		363,806		—
Private label commercial MBS		378,235		0		356,392		21,843
Private label residential CMOs										Private label residential CMOs	238,160		—		238,160		—
Asset-backed securities	Asset-backed securities	149,583		0		149,583		0		Asset-backed securities	112,877		—		112,877		—
Private label residential CMOs		96,922		0		92,778		4,144
SBA securities	SBA securities	36,028		0		36,028		0		SBA securities	25,049		—		25,049		—
Total securities available-for-sale	Total securities available-for-sale	$	7,198,608	$	877,153	$	6,295,468	$	25,987	Total securities available-for-sale	$	9,975,109	$	907,743	$	9,061,790	$	5,576
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	$	13,063	$	13,063	$	0	$	0	Equity investments with readily determinable fair values	$	8,814	$	8,814	$	—	$	—
Derivatives (1):	Derivatives (1):									Derivatives (1):
Equity warrants	Equity warrants	4,391		0		0		4,391		Equity warrants	3,771		—		—		3,771
Interest rate and economic contracts	Interest rate and economic contracts	3,327		0		3,327		0		Interest rate and economic contracts	4,556		—		4,556		—
Derivative liabilities	Derivative liabilities	844		0		844		0		Derivative liabilities	2,500		—		2,500		—

4238

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Fair Value Measurements as of									Fair Value Measurements as of
		December 31, 2020									December 31, 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:
Agency residential MBS										Agency residential MBS	$	2,898,210	$	—	$	2,898,210	$	—
Municipal securities	Municipal securities	$	1,531,617	$	0	$	1,531,617	$	0	Municipal securities	2,315,968		—		2,315,968		—
Agency commercial MBS	Agency commercial MBS	1,281,877		0		1,281,877		0		Agency commercial MBS	1,688,967		—		1,688,967		—
Agency residential CMOs	Agency residential CMOs	1,219,880		0		1,219,880		0		Agency residential CMOs	1,038,134		—		1,038,134		—
Agency residential MBS		341,074		0		341,074		0
U.S. Treasury securities										U.S. Treasury securities	966,898		966,898		—		—
Corporate debt securities	Corporate debt securities	311,889		0		311,889		0		Corporate debt securities	527,094		—		527,094		—
Asset-backed securities		166,546		0		166,546		0
Private label commercial MBS										Private label commercial MBS	450,217		—		435,216		15,001
Collateralized loan obligations	Collateralized loan obligations	135,876		0		135,876		0		Collateralized loan obligations	385,362		—		385,362		—
Private label residential CMOs	Private label residential CMOs	116,946		0		112,299		4,647		Private label residential CMOs	264,417		—		264,417		—
Private label commercial MBS		82,957		0		57,232		25,725
Asset-backed securities										Asset-backed securities	129,547		—		129,547		—
SBA securities	SBA securities	41,627		0		41,627		0		SBA securities	29,644		—		29,644		—
U.S. Treasury securities		5,302		5,302		0		0
Total securities available-for-sale	Total securities available-for-sale	$	5,235,591	$	5,302	$	5,199,917	$	30,372	Total securities available-for-sale	$	10,694,458	$	966,898	$	9,712,559	$	15,001
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	$	6,147	$	6,147	$	0	$	0	Equity investments with readily determinable fair values	$	28,578	$	28,578	$	—	$	—
Derivatives (1):	Derivatives (1):									Derivatives (1):
Equity warrants	Equity warrants	4,520		0		0		4,520		Equity warrants	3,555		—		—		3,555
Interest rate and economic contracts	Interest rate and economic contracts	4,230		0		4,230		0		Interest rate and economic contracts	2,509		—		2,509		—
Derivative liabilities	Derivative liabilities	1,150		0		1,150		0		Derivative liabilities	931		—		931		—

____________________

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

During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, there was a ~~$131,000~~$7,000 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 private label~~ commercial MBS available-for-sale measured at fair value on a recurring basis as of the date indicated:

June 30, 2021

March 31, 2022

Private Label Residential CMOs

Private Label Commercial MBS

Weighted

Input or

Weighted

Input or

Weighted

Range

Average

Range

Average

Range

Average

Unobservable Inputs

of Inputs

Input (1)

of Inputs

Input (2)

Unobservable Inputs

of Inputs

Input (1)

Voluntary annual prepayment speeds(2)

4.3% - 20.6%

11.8%

10.0% - 15.0%

12.2%

Voluntary annual prepayment speeds(2)

15.0%

Annual default rates ~~(3)~~(2)

0.9% - 10.3%

2.3%

2.0%

Annual default rates ~~(3)~~(2)

2.0%

Loss severity rates ~~(3)~~(2)

22.7% - 122.5%

55.1%

60.0%

Loss severity rates ~~(3)~~(2)

60.0%

Discount rates

1.6% - 10.4%

6.9%

2.6% - 3.8%

2.8%

Discount rates

4.6% - 4.8%

4.8%

____________________

(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~~Discount rates for private label commercial MBS were weighted by the relative fair values of the instruments.

~~(3) Annual~~(2) Voluntary annual prepayment speeds, annual default rates, and loss severity rates were the same for all of the private label commercial MBS.

4339

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:


	~~June 30, 2021~~March 31, 2022
	Equity Warrants
		Weighted
	Range	Average
Unobservable Inputs	of Inputs	Input (1)
Volatility	~~18.4%~~22.6% - ~~166.3%~~124.9%	~~30.1%~~28.2%
Risk-free interest rate	~~0.1%~~0.2% - ~~0.9%~~2.5%	~~0.4%~~2.3%
Remaining life assumption (in years)	0.08 - ~~4.99~~4.98	~~2.90~~3.07

____________________

(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, private label~~ commercial MBS available-for-sale and equity warrants measured at fair value on a recurring basis for the period indicated:


		Private Label		Private Label		Equity			Private Label		Equity
		Residential CMOs		Commercial MBS		Warrants			Commercial MBS		Warrants
		(In thousands)							(In thousands)
Balance, December 31, 2020		$	4,647	$	25,725	$	4,520
Balance, December 31, 2021								Balance, December 31, 2021	$	15,001	$	3,555
Total included in earnings	Total included in earnings	166		(42)		11,773		Total included in earnings	(4)		629
Total included in other comprehensive income		(155)		28		0
Total included in other comprehensive income (loss)								Total included in other comprehensive income (loss)	(94)		—

Issuances	Issuances	0		0		173		Issuances	—		178
Sales		0		0		(11,944)

Net settlements	Net settlements	(514)		(3,868)		0		Net settlements	(9,327)		—

Exercises and settlements								Exercises and settlements	—		(584)
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		(131)		determinable fair values)	—		(7)
Balance, June 30, 2021		$	4,144	$	21,843	$	4,391
Balance, March 31, 2022								Balance, March 31, 2022	$	5,576	$	3,771

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	$	939	$	183			comprehensive income for securities held at quarter-end	$	(53)

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

Fair Value Measurement as of
June 30, 2021
Measured on a Non-Recurring Basis Total Level 1 Level 2 Level 3
(In thousands)
Individually evaluated loans and leases (1)
$ 39,538 $ 0 $ 0 $ 39,538
Total non-recurring $ 39,538 $ 0 $ 0 $ 39,538
~~______________________~~

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


	Fair Value Measurement as of
	March 31, 2022
Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Individually evaluated loans and leases	$	13,243	$	—	$	—	$	13,243


Total non-recurring	$	13,243	$	—	$	—	$	13,243


	Fair Value Measurement as of
	December 31, 2021
Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Individually evaluated loans and leases	$	30,882	$	—	$	2,915	$	27,967

Total non-recurring	$	30,882	$	—	$	2,915	$	27,967

4440

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value Measurement as of
December 31, 2020
Measured on a Non-Recurring Basis Total Level 1 Level 2 Level 3
(In thousands)
Individually evaluated loans and leases (1)
$ 102,274 $ 0 $ 4,160 $ 98,114
Total non-recurring $ 102,274 $ 0 $ 4,160 $ 98,114

~~_____________________~~

~~(1) Includes nonaccrual loans and leases and performing 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				Six Months Ended					Three Months Ended
Losses on Assets	Losses on Assets	June 30,				June 30,				Losses on Assets	March 31,
Measured on a Non-Recurring Basis	Measured on a Non-Recurring Basis	2021		2020		2021		2020		Measured on a Non-Recurring Basis	2022		2021
		(In thousands)									(In thousands)
Individually evaluated loans and leases	Individually evaluated loans and leases	$	1,951	$	9,483	$	2,653	$	29,317	Individually evaluated loans and leases	$	434	$	702

OREO	OREO	0		5		14		110		OREO	—		14
Total losses	Total losses	$	1,951	$	9,488	$	2,667	$	29,427	Total losses	$	434	$	716

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:

June 30, 2021

March 31, 2022

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)

(Dollars in thousands)

Individually evaluated

loans and leases

33,413

Discounted cash flows

Discount rates

3.75% - 7.75%

6.20%

loans and leases

9,609

Discounted cash flows

Discount rates

5.50% - 9.25%

6.82%

Individually evaluated

loans and leases

6,125

Third party appraisals

No discounts

loans and leases

3,634

Third party appraisals

No discounts

Total non-recurring Level 3

39,538

Total non-recurring Level 3

13,243

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


	March 31, 2022
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	205,446	$	205,446	$	205,446	$	—	$	—
Interest-earning deposits in financial institutions	1,865,235		1,865,235		1,865,235		—		—
Securities available-for-sale	9,975,109		9,975,109		907,743		9,061,790		5,576
Investment in FHLB stock	17,250		17,250		—		17,250		—

Loans and leases held for investment, net	24,154,674		23,922,460		—		—		23,922,460
Equity investments with readily determinable fair values	8,814		8,814		8,814		—		—
Equity warrants	3,771		3,771		—		—		3,771
Interest rate and economic contracts	4,556		4,556		—		4,556		—
Servicing rights	1,002		1,002		—		—		1,002

Financial Liabilities:
Core deposits	31,676,404		31,676,404		—		31,676,404		—
Non-core non-maturity deposits	322,732		322,732		—		322,732		—
Time deposits	1,225,759		1,216,711		—		1,216,711		—
Borrowings	991,000		991,000		991,000		—		—
Subordinated debt	863,880		883,960		—		883,960		—
Derivative liabilities	2,500		2,500		—		2,500		—

4541

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:~~

June 30, 2021
Carrying Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(In thousands)
Financial Assets:
Cash and due from banks $ 179,505 $ 179,505 $ 179,505 $ 0 $ 0
Interest-earning deposits in financial institutions 5,678,587 5,678,587 5,678,587 0 0
Securities available-for-sale 7,198,608 7,198,608 877,153 6,295,468 25,987
Investment in FHLB stock 17,250 17,250 0 17,250 0
Loans and leases held for investment, net 19,280,657 19,844,500 0 0 19,844,500
Equity warrants 4,391 4,391 0 0 4,391
Interest rate and economic contracts 3,327 3,327 0 3,327 0
Equity investments with readily determinable fair values 13,063 13,063 13,063 0 0
Servicing rights 2,628 2,628 0 0 2,628
Financial Liabilities:
Core deposits 27,038,161 27,038,161 0 27,038,161 0
Non-core non-maturity deposits 1,122,971 1,122,971 0 1,122,971 0
Time deposits 1,485,902 1,487,302 0 1,487,302 0
Borrowings 6,625 6,734 0 6,734 0
Subordinated debt 861,788 916,612 0 916,612 0
Derivative liabilities 844 844 0 844 0

December 31, 2020
Carrying Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(In thousands)
Financial Assets:
Cash and due from banks $ 150,464 $ 150,464 $ 150,464 $ 0 $ 0
Interest-earning deposits in financial institutions 3,010,197 3,010,197 3,010,197 0 0
Securities available-for-sale 5,235,591 5,235,591 5,302 5,199,917 30,372
Investment in FHLB stock 17,250 17,250 0 17,250 0
Loans and leases held for investment, net 18,735,196 19,305,998 0 4,160 19,301,838
Equity warrants 4,520 4,520 0 0 4,520
Interest rate and economic contracts 4,230 4,230 0 4,230 0
Equity investments with readily determinable fair values 6,147 6,147 6,147 0 0
Financial Liabilities:
Core deposits 22,264,480 22,264,480 0 22,264,480 0
Non-core non-maturity deposits 1,149,467 1,149,467 0 1,149,467 0
Time deposits 1,526,770 1,527,639 0 1,527,639 0
Borrowings 5,000 4,995 0 4,995 0
Subordinated debt 465,812 448,036 0 448,036 0
Derivative liabilities 1,150 1,150 0 1,150 0

~~PACWEST BANCORP AND SUBSIDIARIES~~

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


	December 31, 2021
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	112,548	$	112,548	$	112,548	$	—	$	—
Interest-earning deposits in financial institutions	3,944,686		3,944,686		3,944,686		—		—
Securities available-for-sale	10,694,458		10,694,458		966,898		9,712,559		15,001
Investment in FHLB stock	17,250		17,250		—		17,250		—
Loans and leases held for investment, net	22,740,984		23,461,156		—		2,915		23,458,241
Equity investments with readily determinable fair values	28,578		28,578		28,578		—		—
Equity warrants	3,555		3,555		—		—		3,555
Interest rate and economic contracts	2,509		2,509		—		2,509		—
Servicing rights	1,228		1,228		—		—		1,228

Financial Liabilities:
Core deposits	32,734,949		32,734,949		—		32,734,949		—
Non-core non-maturity deposits	889,976		889,976		—		889,976		—
Time deposits	1,372,832		1,371,527		—		1,371,527		—
Borrowings	—		—		—		—		—
Subordinated debt	863,283		917,342		—		917,342		—
Derivative liabilities	931		931		—		931		—

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 ~~June 30, 2021,~~March 31, 2022, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~14.~~13. 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				Six Months Ended					Three Months Ended
		June 30,				June 30,					March 31,
		2021		2020		2021		2020			2022		2021
		(Dollars in thousands, except per share data)									(Dollars in thousands, except per share data)
Basic Earnings (Loss) Per Share:
Net earnings (loss)		$	180,512	$	33,204	$	330,918	$	(1,399,907)
Basic Earnings Per Share:										Basic Earnings Per Share:
Net earnings										Net earnings	$	120,128	$	150,406
Less: Earnings allocated to unvested restricted stock(1)	Less: Earnings allocated to unvested restricted stock(1)	(3,172)		(362)		(5,495)		(1,251)		Less: Earnings allocated to unvested restricted stock(1)	(2,037)		(2,355)
Net earnings (loss) allocated to common shares		$	177,340	$	32,842	$	325,423	$	(1,401,158)
Net earnings allocated to common shares										Net earnings allocated to common shares	$	118,091	$	148,051

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	119,386		118,192		119,121		118,484		stock outstanding	119,595		118,852
Less: Weighted-average unvested restricted stock	Less: Weighted-average unvested restricted stock									Less: Weighted-average unvested restricted stock
outstanding	outstanding	(2,356)		(1,606)		(2,181)		(1,551)		outstanding	(2,246)		(2,003)
Weighted-average basic shares outstanding	Weighted-average basic shares outstanding	117,030		116,586		116,940		116,933		Weighted-average basic shares outstanding	117,349		116,849

Basic earnings (loss) per share		$	1.52	$	0.28	$	2.78	$	(11.98)
Basic earnings per share										Basic earnings per share	$	1.01	$	1.27

Diluted Earnings (Loss) Per Share:
Net earnings (loss) allocated to common shares		$	177,340	$	32,842	$	325,423	$	(1,401,158)
Diluted Earnings Per Share:										Diluted Earnings Per Share:
Net earnings allocated to common shares										Net earnings allocated to common shares	$	118,091	$	148,051

Weighted-average diluted shares outstanding	Weighted-average diluted shares outstanding	117,030		116,586		116,940		116,933		Weighted-average diluted shares outstanding	117,349		116,849

Diluted earnings (loss) per share		$	1.52	$	0.28	$	2.78	$	(11.98)
Diluted earnings per share										Diluted earnings per share	$	1.01	$	1.27

________________________

(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.

4743

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~15.~~14. 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 June 30,									Three Months Ended March 31,
		2021				2020					2022				2021
		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	$	280,505	$	0	$	274,075	$	0	Total interest income	$	322,904	$	—	$	273,337	$	—
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	3,452		3,452		2,004		2,004		Service charges on deposit accounts	3,571		3,571		2,934		2,934
Other commissions and fees	Other commissions and fees	10,704		2,603		10,111		3,006		Other commissions and fees	11,580		3,773		9,158		2,857
Leased equipment income	Leased equipment income	10,847		0		12,037		0		Leased equipment income	13,094		—		11,354		—
Gain on sale of loans	Gain on sale of loans	1,422		0		346		0		Gain on sale of loans	60		—		139		—
Gain on sale of securities	Gain on sale of securities	0		0		7,715		0		Gain on sale of securities	104		—		101		—
Dividends and (losses) gains on equity securities										Dividends and (losses) gains on equity securities	(11,375)		—		10,904		—
Warrant income										Warrant income	629		—		6,123		—
Other income	Other income	13,946		394		6,645		336		Other income	3,155		(2)		4,116		180
Total noninterest income	Total noninterest income	40,371		6,449		38,858		5,346		Total noninterest income	20,818		7,342		44,829		5,971
Total revenue	Total revenue	$	320,876	$	6,449	$	312,933	$	5,346	Total revenue	$	343,722	$	7,342	$	318,166	$	5,971

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

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

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

Six Months Ended June 30,
2021 2020
Total Revenue from Total Revenue from
Recorded Contracts with Recorded Contracts with
Revenue Customers Revenue Customers
(In thousands)
Total interest income $ 553,842 $ 0 $ 565,407 $ 0
Noninterest income:
   Service charges on deposit accounts 6,386 6,386 4,662 4,662
   Other commissions and fees 19,862 5,460 19,832 7,160
   Leased equipment income 22,201 0 24,288 0
   Gain on sale of loans 1,561 0 433 0
   Gain on sale of securities 101 0 7,897 0
   Other income 35,089 574 10,846 672
      Total noninterest income 85,200 12,420 67,958 12,494
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:~~


		Six Months Ended					Three Months Ended
		June 30,					March 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Products and services transferred at a point in time	Products and services transferred at a point in time	$	6,065	$	6,963	Products and services transferred at a point in time	$	3,926	$	2,997
Products and services transferred over time	Products and services transferred over time	6,355		5,531		Products and services transferred over time	3,416		2,974
Total revenue from contracts with customers	Total revenue from contracts with customers	$	12,420	$	12,494	Total revenue from contracts with customers	$	7,342	$	5,971

Contract Balances

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

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


	March 31, 2022		December 31, 2021
	(In thousands)
Receivables, which are included in "Other assets"	$	1,152	$	1,066
Contract assets, which are included in "Other assets"	$	—	$	—
Contract liabilities, which are included in "Accrued interest payable and other liabilities"	$	196	$	229

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 ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 due to revenue recognized that was included in the contract liability balance at the beginning of the period was ~~$65,000~~$33,000.

4944

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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 (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 and will remain in effect until December 31, 2026.

The Amended and Restated 2017 Plan 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 the approval of the Amended and Restated 2017 Plan.shares. As of ~~June 30, 2021,~~March 31, 2022, there were ~~3,054,299~~2,905,529 shares available for grant under the Amended and Restated 2017 Plan.

Restricted Stock

Restricted stock amortization totaled $~~8.2~~7.6 million and ~~$5.7~~$6.4 million for the three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020 and~~ ~~$14.6 million~~ ~~and $12.2 million for the six months ended June 30, 2021 and 2020.~~2021. Such amounts are included in "Compensation expense" on the condensed consolidated statements of ~~earnings (loss).~~earnings. The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of ~~June 30, 2021~~March 31, 2022 totaled $~~83.7~~67.3 million.

Time-Based Restricted Stock Awards

At ~~June 30, 2021,~~March 31, 2022, there were ~~2,341,548~~2,154,646 shares of unvested TRSAs outstanding. ~~RSAs~~TRSAs generally vest ratably over a service period of three or 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 ~~June 30, 2021,~~March 31, 2022, there were ~~512,863~~505,647 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 0zero 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.

5045

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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~~standard 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: (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. 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 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 the amendments on a full retrospective basis as of any date from 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 December 31, 2022.

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

The Company has established a cross-functional project team and implementation plan to facilitate the LIBOR transition.

As of ~~June 30,~~December 31, 2021, the Company permanently ceased originating any new loans or entering into any transaction that would increase its LIBOR-based exposure. For all new variable-rate and hybrid loans, the Company primarily offers Prime and SOFR as the variable-rate index, but may consider alternate rates such as the American Interbank Offered Rate (“Ameribor”) and others based on market conditions and/or the type of loan or financial instrument.

The Company has completed its readiness efforts to identify loans and other financial instruments that are impacted by the discontinuance of LIBOR. ~~We have~~The Company has also completed ~~our~~its review for fallback language contained in contracts for LIBOR-based loans and other financial instruments and ~~have~~has begun to execute a transition plan to amend those legacy contracts maturing after June 30, 2023 that do not have or have inadequate fallback ~~language. With~~language by adding fallback language or to convert the ~~impending phase-out~~base rate of ~~LIBOR,~~ the ~~Company has considered several viable alternative reference rates. Based on our current assessment, we will plan~~contract to ~~offer SOFR as~~a SOFR-based rate or another rate or index offered by 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. Company.

The Company will also continue to assess impacts to ~~our~~its operations, financial models, data and technology as part of our transition plan. The Company ~~plans to adopt these Updates this year. The adoption~~is currently evaluating the impact of this ~~guidance is~~Update on its consolidated financial statements but does not ~~expected~~expect it to have a material ~~impact on the Company’s consolidated financial statements.~~impact.

5146

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 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

This standard requires that an entity (acquirer) recognizes and measures contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At acquisition date, an acquirer should account for the related revenue contracts with customers in accordance with Topic 606 as if it had originated the contracts. The acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception or contract modification to determine what should be recorded at the acquisition date. The amendments improve comparability by providing consistent recognition and measurement guidance for revenue contracts with customers whether they are acquired and not acquired in a business combination. The amendments should be applied prospectively to business combinations occurring on or after the effective date. Additionally, early adoption is permitted.

January 1, 2023

The Company will apply the amendments prospectively to business combinations occurring on or after the effective date. This standard is not expected to have a material impact on the Company’s 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 2022-02, Financial Instruments – Credit Losses (Topic 326)

This standard eliminates the accounting guidance for troubled debt restructurings (TDRs) by creditors, in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for restructurings involving borrowers that are experiencing financial difficulty. Additionally, the amendments in this standard eliminate inconsistency in previous guidance by requiring creditors that are public business entities to disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases, but eliminates the disclosure of gross recoveries by year of origination previously presented in Example 15 in ASC 326-20-50-79.

An entity may elect to adopt the amendments on TDRs and related disclosure enhancements separately from the amendments relating to vintage disclosures. The amendments should be applied prospectively except as provided in the next sentence. For amendments related to the recognition and measurement of TDRs, an entity has the option to apply the amendments either prospectively or through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption using the modified retrospective transition method. Additionally, early adoption is permitted.

January 1, 2023

The Company has elected to adopt the amendments on TDRs and related disclosure enhancements separately from the amendments relating to vintage disclosures, which we early adopted on January 1, 2022.

The Company is currently evaluating the impact the TDR amendments will have on its consolidated financial statements and related disclosures upon adoption.

NOTE 17. RELATED PARTY TRANSACTIONS

In February 2022, the Company purchased $133.1 million in unpaid principal balances of single-family residential mortgage loans from a privately owned non-affiliated bank holding company. In addition, the Company entered into a subservicing agreement with the bank holding company pursuant to which it would service the purchased loans on an ongoing basis and the Company could outsource servicing of loans purchased from third parties to it. The Company’s Chairman of the Board of Directors is a director of the non-affiliated bank holding company.

The transactions described above were approved by the Audit Committee of the Board of Directors in accordance with our related party transactions policy.

NOTE 18. SUBSEQUENT EVENTS

Common Stock Dividends

On ~~August~~May 2, ~~2021,~~2022, 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~~May 31, ~~2021~~2022 to stockholders of record at the close of business on ~~August 17, 2021.~~May 16, 2022.

The Company has evaluated events that have occurred subsequent to ~~June 30, 2021~~March 31, 2022 and have concluded there are no other subsequent events that would require recognition in the accompanying condensed consolidated financial statements.

5248

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 ongoing COVID-19 pandemic 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 still uncertain, due in part to the ~~Delta variant~~new variants of ~~COVID-19. Weaker~~COVID-19;

•weaker than expected ~~improvement in~~ general business and economic conditions could adversely affect the Company’s revenues, the values of its assets and liabilities and ~~continue to~~ 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~~initial public offerings 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~~current expected credit loss accounting standard on our provision for credit losses and allowance for 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~~impact of the ~~future of LIBOR and~~benchmark interest rate reform in the U.S. including the transition away from ~~LIBOR toward new~~the U.S. dollar London Inter-bank Offering Rate ("LIBOR") to alternative reference ~~rates by the end of 2021;~~rates;

•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;

•the impact of climate change, public health issues, natural or man-made disasters such as wildfires, droughts and earthquakes, all of which are particularly common in California;

•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;

•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 throug~~h 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 ~~2021,~~2022, accounted for ~~86.1%~~ 93.7% of net revenue (net interest income plus noninterest income).

At ~~June 30, 2021,~~March 31, 2022, the Company had total assets of ~~$34.9~~$39.2 billion, including ~~$19.5~~$24.4 billion of total loans and leases, net of deferred fees, ~~$7.2~~$10.0 billion of securities available-for-sale, and ~~$5.7~~$1.9 billion of interest-earning deposits in financial institutions compared to ~~$29.5~~$40.4 billion of total assets, including ~~$19.1~~$22.9 billion of total loans and leases, net of deferred fees, ~~$5.2~~$10.7 billion of securities available-for-sale, and ~~$3.0~~$3.9 billion of interest-earning deposits in financial institutions at December 31, ~~2020.~~2021. The ~~$5.4~~$1.2 billion ~~increase~~decrease in total assets since year-end was due primarily to a ~~$2.7~~$2.1 billion ~~increase~~decrease in interest-earning deposits in financial institutions and a ~~$2.0 billion increase~~$719.3 million decrease in securities available-for-sale, ~~and~~offset partially by a ~~$422.9 million~~$1.4 billion increase in loans and leases, net of deferred fees.

The decrease in investment securities was due primarily to a decline in fair value as the portfolio had a net pre-tax unrealized gain of $90.9 million at December 31, 2021 that decreased to a net pre-tax unrealized loss of $519.0 million at March 31, 2022.

At ~~June 30, 2021,~~March 31, 2022, the Company had total liabilities of ~~$31.0~~$35.6 billion, including total deposits of ~~$29.6~~$33.2 billion and ~~subordinated debt~~borrowings of ~~$861.8~~$991.0 million, compared to ~~$25.9~~$36.4 billion of total liabilities, including ~~$24.9~~$35.0 billion of total deposits and ~~$465.8 million of subordinated debt~~no borrowings at December 31, ~~2020.~~2021. The ~~$5.1 billion increase~~$844.7 million decrease in total liabilities since year-end was due mainly to ~~increases~~decreases of ~~$4.8~~$1.1 billion in core deposits and ~~$396.0~~$567.2 million in ~~subordinated debt.~~non-core non-maturity deposits, offset partially by an increase in overnight borrowings of $991.0 million. The ~~increase~~decrease in core deposits was due primarily to ~~continued strong deposit growth~~a decline in balances from our venture banking ~~clients.~~clients of $1.5 billion, offset partially by an increase in community banking and national lending deposits of $415 million. At ~~June 30, 2021,~~March 31, 2022, core deposits totaled ~~$27.0~~$31.7 billion, or ~~91%~~95% of total deposits, including ~~$11.3~~$14.1 billion of noninterest-bearing demand deposits, or ~~38%~~42% 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 ~~June 30, 2021,~~March 31, 2022, the Company had total stockholders' equity of ~~$3.8~~$3.7 billion compared to ~~$3.6~~$4.0 billion at December 31, ~~2020.~~2021. The ~~$251.7~~$349.0 million ~~increase~~decrease in stockholders' equity since year-end was due mainly to ~~$330.9 million in net earnings, offset partially by~~ a ~~$27.0~~$442.4 million decrease in accumulated other comprehensive income (loss) due to the investment securities portfolio going from a net unrealized gain of $66.0 million to a net unrealized loss of $376.5 million, and ~~$59.5~~$29.8 million of cash dividends ~~paid.~~paid, offset partially by $120.1 million in net earnings. Consolidated capital ratios ~~remained strong with~~decreased given the increase in risk-weighted assets of $1.8 billion, primarily from loan growth, resulting in common equity Tier 1 capital, Tier 1 capital, and total capital ratios of ~~10.41%~~8.64%, 9.07%, and ~~14.99%~~12.27% at ~~June 30, 2021.~~March 31, 2022.

Recent Events

~~Acquisition of Civic~~Stock Repurchase Program

On February 15, 2022, PacWest's Board of Directors authorized a new Stock Repurchase Program, effective March 1, ~~2021, the Bank completed the acquisition~~2022, to repurchase shares of ~~Civic in~~its common stock for 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 strategyaggregate purchase price not 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~~exceed $100 million ~~of loans outstanding.~~

~~The Civic acquisition h~~as been accounted for under the acquisition method of accounting which resulted in the recognition of goodwill of $125.4 million. All of the 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)."~~

~~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. 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 benchmark rate (which is expected to be the Three-Month Term SOFR) plus 252 basis points. 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)."~~

~~COVID-19 Pandemic - Impact to Our Business~~

From a business perspective, the impact in 2021 from the COVID-19 pandemic 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. 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. 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 June 30, 2021, there were 29 loans with a ~~balance~~program maturity date 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 requisite criteria as stipulated in the CARES Act.~~February 28, 2023.

~~We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act. As of June 30, 2021,~~ ~~PPP loans had an outstanding balance of approximately $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 origination fees that are recognized over the life of the loan with the fee recognition accelerated upon forgiveness or repayment of the loan. 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. Th~~e PPP loans are fully guaranteed by the SBA and do not carry an allowance. Our participation in the PPP contributed to the increase in core deposits beginning in the second quarter of 2020 due to PPP loan proceeds being deposited into customer~~s' accounts.~~

As the COVID-19 pandemic unfolded in March 2020, we immediately enhanced the 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 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 paid off.

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

June 30, 2021
% of
Special Total Loans
Loan and Lease Portfolio Classified Mention Pass Total and Leases
(Dollars in thousands)
Hotel $ 16,678 $ 224,812 $ 792,773 $ 1,034,263 5.3 %
Retail CRE 233 1,449 432,533 434,215 2.2 %
Commercial aviation 19,248 77,236 89,410 185,894 1.0 %
Restaurant 5,090 28,883 121,672 155,645 0.8 %
Total $ 41,249 $ 332,380 $ 1,436,388 $ 1,810,017 9.3 %

~~From a credit perspective, most of our credit metrics improved during the second~~ quarter of 2021 as economic conditions and economic forecasts continued to improve. This improvement led to a provision for credit losses benefit of $88.0 million for the second quarter of 2021 compared to a provision for credit losses benefit of $48.0 million for the first quarter of 2021 compared to a provision for credit losses of $120.0 million for the second quarter of 2020. For further details on C~~ECL and the impacts to our process, see “- Balance Sheet Analysis~~ ~~- Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.~~

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~~strong net interest margin is our ~~high~~strong 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 loans such as multi-family loans from other banks, ~~and~~ private student loans from third-party ~~lenders.~~lenders, and, most recently, single-family residential mortgage loans. Prior to our acquisition of Civic, we also purchased loans from Civic. 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									Six Months Ended								Three Months Ended
			June 30,			March 31,			June 30,			June 30,								March 31,
Efficiency Ratio	Efficiency Ratio		2021			2021			2020			2021			2020			Efficiency Ratio		2022			2021
			(Dollars in thousands)																	(Dollars in thousands)
Noninterest expense	Noninterest expense		$	151,750		$	150,136		$	126,965		$	301,886		$	1,714,935		Noninterest expense		$	167,426		$	150,136
Less:	Less:	Intangible asset amortization	2,889			3,079			3,882			5,968			7,830			Less:	Intangible asset amortization	3,649			3,079
		Foreclosed assets (income) expense, net	(119)			1			(146)			(118)			(80)				Foreclosed assets (income) expense, net	(3,353)			1
		Goodwill impairment	—			—			—			—			1,470,000				Acquisition, integration and reorganization costs	—			3,425
		Acquisition, integration and reorganization costs	200			3,425			—			3,625			—				Noninterest expense used for efficiency ratio	$	167,130		$	143,631
		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)		$	270,083		$	264,635		$	256,294		$	534,718		$	507,722		Net interest income (tax equivalent)		$	312,651		$	264,635
Noninterest income	Noninterest income		40,371			44,829			38,858			85,200			67,958			Noninterest income		20,818			44,829
		Net revenues	310,454			309,464			295,152			619,918			575,680				Net revenues	333,469			309,464
Less:	Less:	Gain on sale of securities	—			101			7,715			101			7,897			Less:	Gain on sale of securities	104			101
		Net revenues used for efficiency ratio	$	310,454		$	309,363		$	287,437		$	619,817		$	567,783			Net revenues used for efficiency ratio	$	333,365		$	309,363

Efficiency ratio	Efficiency ratio		47.9		%	46.4		%	42.9		%	47.2		%	41.8		%	Efficiency ratio		50.1		%	46.4		%

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 Form 10-K.

5853

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									Six Months Ended								Three Months Ended
			June 30,			March 31,			June 30,			June 30,								March 31,
Return on Average Tangible Equity	Return on Average Tangible Equity		2021			2021			2020			2021			2020			Return on Average Tangible Equity		2022			2021
			(Dollars in thousands)																	(Dollars in thousands)
Net earnings (loss)			$	180,512		$	150,406		$	33,204		$	330,918		$	(1,399,907)
Net earnings																		Net earnings		$	120,128		$	150,406
Add:	Add:	Intangible asset amortization	2,889			3,079			3,882			5,968			7,830			Add:	Intangible asset amortization	3,649			3,079
		Goodwill impairment	—			—			—			—			1,470,000
		Adjusted net earnings used for return on
		average tangible equity	$	183,401		$	153,485		$	37,086		$	336,886		$	77,923			Adjusted net earnings used for return on average tangible equity	$	123,777		$	153,485

Average stockholders' equity	Average stockholders' equity		$	3,739,042		$	3,617,248		$	3,446,850		$	3,678,481		$	4,201,814		Average stockholders' equity		$	3,847,481		$	3,617,248
Less:	Less:	Average intangible assets	1,224,208			1,192,780			1,111,302			1,208,581			1,840,246			Less:	Average intangible assets	1,449,056			1,192,780
		Average tangible common equity	$	2,514,834		$	2,424,468		$	2,335,548		$	2,469,900		$	2,361,568			Average tangible common equity	$	2,398,425		$	2,424,468

Return on average equity (1)	Return on average equity (1)		19.36		%	16.86		%	3.87		%	18.14		%	(67.00)		%	Return on average equity (1)		12.66		%	16.86		%
Return on average tangible equity (2)	Return on average tangible equity (2)		29.25		%	25.67		%	6.39		%	27.51		%	6.64		%	Return on average tangible equity (2)		20.93		%	25.67		%

(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 and	Tangible Common Equity Ratio and	June 30,			December 31,			Tangible Common Equity Ratio and	March 31,			December 31,
Tangible Book Value Per Share	Tangible Book Value Per Share	2021			2020			Tangible Book Value Per Share	2022			2021
		(Dollars in thousands, except per share data)							(Dollars in thousands, except per share data)
Stockholders’ equity	Stockholders’ equity	$	3,846,681		$	3,594,951		Stockholders’ equity	$	3,650,595		$	3,999,630
Less: Intangible assets	Less: Intangible assets	1,222,541			1,102,311			Less: Intangible assets	1,447,044			1,450,693
Tangible common equity	Tangible common equity	$	2,624,140		$	2,492,640		Tangible common equity	$	2,203,551		$	2,548,937

Total assets	Total assets	$	34,867,987		$	29,498,442		Total assets	$	39,249,639		$	40,443,344
Less: Intangible assets	Less: Intangible assets	1,222,541			1,102,311			Less: Intangible assets	1,447,044			1,450,693
Tangible assets	Tangible assets	$	33,645,446		$	28,396,131		Tangible assets	$	37,802,595		$	38,992,651

Equity to assets ratio	Equity to assets ratio	11.03		%	12.19		%	Equity to assets ratio	9.30		%	9.89		%
Tangible common equity ratio (1)	Tangible common equity ratio (1)	7.80		%	8.78		%	Tangible common equity ratio (1)	5.83		%	6.54		%
Book value per share	Book value per share	$	32.17		$	30.36		Book value per share	$	30.52		$	33.45
Tangible book value per share (2)	Tangible book value per share (2)	$	21.95		$	21.05		Tangible book value per share (2)	$	18.42		$	21.31
Shares outstanding	Shares outstanding	119,555,102			118,414,853			Shares outstanding	119,601,766			119,584,854

_______________________________________

(1) Tangible common equity divided by tangible assets.

(2) Tangible common equity divided by shares outstanding.

•~~Adjusted net earnings and adjusted earnings per share:~~ ~~These non-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

6054

Results of Operations

Earnings Performance

The following table presents performance metrics for the periods indicated:


		Three Months Ended									Six Months Ended							Three Months Ended
		June 30,			March 31,			June 30,			June 30,							March 31,
		2021			2021			2020			2021			2020				2022			2021
		(Dollars in thousands, except per share data)																(Dollars in thousands, except per share data)
Earnings Summary:	Earnings Summary:																Earnings Summary:
Interest income	Interest income	$	280,505		$	273,337		$	274,075		$	553,842		$	565,407		Interest income	$	322,904		$	273,337
Interest expense	Interest expense	(14,197)			(12,068)			(19,796)			(26,265)			(61,381)			Interest expense	(14,187)			(12,068)
Net interest income	Net interest income	266,308			261,269			254,279			527,577			504,026			Net interest income	308,717			261,269
Provision for credit losses	Provision for credit losses	88,000			48,000			(120,000)			136,000			(232,000)			Provision for credit losses	—			48,000
Noninterest income	Noninterest income	40,371			44,829			38,858			85,200			67,958			Noninterest income	20,818			44,829
Operating expense		(151,750)			(150,136)			(126,965)			(301,886)			(244,935)
Goodwill impairment		—			—			—			—			(1,470,000)

Earnings (loss) before income taxes		242,929			203,962			46,172			446,891			(1,374,951)
Noninterest expense																	Noninterest expense	(167,426)			(150,136)
Earnings before income taxes																	Earnings before income taxes	162,109			203,962
Income tax expense	Income tax expense	(62,417)			(53,556)			(12,968)			(115,973)			(24,956)			Income tax expense	(41,981)			(53,556)
Net earnings (loss)		$	180,512		$	150,406		$	33,204		$	330,918		$	(1,399,907)
Net earnings																	Net earnings	$	120,128		$	150,406

Per Common Share Data:	Per Common Share Data:																Per Common Share Data:
Diluted earnings (loss) per share		$	1.52		$	1.27		$	0.28		$	2.78		$	(11.98)
Diluted earnings per share																	Diluted earnings per share	$	1.01		$	1.27
Book value per share	Book value per share	$	32.17		$	30.68		$	29.17								Book value per share	$	30.52		$	30.68
Tangible book value per share (1)	Tangible book value per share (1)	$	21.95		$	20.39		$	19.80								Tangible book value per share (1)	$	18.42		$	20.39

Performance Ratios:	Performance Ratios:																Performance Ratios:
Return on average assets	Return on average assets	2.11		%	1.94		%	0.50		%	2.03		%	(10.48)		%	Return on average assets	1.22		%	1.94		%
Return on average tangible equity (1)	Return on average tangible equity (1)	29.25		%	25.67		%	6.39		%	27.51		%	6.64		%	Return on average tangible equity (1)	20.93		%	25.67		%
Net interest margin (tax equivalent)	Net interest margin (tax equivalent)	3.40		%	3.69		%	4.20		%	3.53		%	4.26		%	Net interest margin (tax equivalent)	3.43		%	3.69		%
Yield on average loans and leases (tax equivalent)	Yield on average loans and leases (tax equivalent)	5.18		%	5.20		%	5.01		%	5.19		%	5.27		%	Yield on average loans and leases (tax equivalent)	4.66		%	5.20		%
Cost of average total deposits	Cost of average total deposits	0.10		%	0.11		%	0.25		%	0.11		%	0.41		%	Cost of average total deposits	0.07		%	0.11		%
Efficiency ratio	Efficiency ratio	47.9		%	46.4		%	42.9		%	47.2		%	41.8		%	Efficiency ratio	50.1		%	46.4		%

Capital Ratios (consolidated):	Capital Ratios (consolidated):																Capital Ratios (consolidated):
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	10.41		%	10.39		%	9.97		%							Common equity tier 1 capital ratio	8.64		%	10.39		%
Tier 1 capital ratio																	Tier 1 capital ratio	9.07		%	10.39		%
Total capital ratio	Total capital ratio	14.99		%	13.60		%	13.18		%							Total capital ratio	12.27		%	13.60		%

_____________________________

(1) See "- Non-GAAP Measurements."

6155

~~Second~~First Quarter of ~~2021~~2022 Compared to First Quarter of 2021

Net earnings for the ~~second~~first quarter of ~~2021~~2022 were ~~$180.5~~$120.1 million, or ~~$1.52~~$1.01 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~~$30.3 million ~~increase~~decrease in net earnings from the ~~prior~~year-ago quarter was due mainly to a ~~lower~~higher provision for credit losses of ~~$40.0~~$48.0 million, lower noninterest income of $24.0 million and higher operating expense of $17.3 million, offset partially by higher net interest income of ~~$5.0~~$47.4 million ~~offset partially by higher~~and lower income tax expense of ~~$8.9 million, lower noninterest income of $4.5 million, and higher noninterest expense of $1.6~~$11.6 million. The ~~decrease~~increase in the provision for credit losses ~~reflected improvement~~for the first quarter of 2022 from the year-ago quarter was due to no provision in ~~both~~the first quarter of 2022 compared to a provision benefit of $48.0 million in the first quarter of 2021 as there were improvements in certain key 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~~first quarter of 2021. Noninterest income decreased primarily due to a $22.3 million decrease in dividends and gains on equity investments and a $5.5 million decrease in warrant income due to less capital markets activity in the first quarter of 2022. Noninterest expense increased primarily due to an increase of $12.4 million in compensation expense, due mostly to the incremental expense of the higher headcount in 2022 from the acquired operations of Civic and the HOA Business. 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 second quarter of 2021 were $180.5 million, or $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 $147.3 million increase in net earnings from the year-ago quarter was due mainly to a lower provision for credit losses of $208.0 million and higher ~~net interest income of $12.0 million, offset partially by higher income tax expense of $49.4 million and higher operating expense of $24.8 million.~~average balances. 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 and loan portfolio credit quality metrics. Net interest income increased due to 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 interest-earning assets and 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~~lower pre-tax earnings in the ~~second~~first quarter of ~~2021~~2022 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.

6256

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
		June 30, 2021						March 31, 2021						June 30, 2020							March 31, 2022						March 31, 2021
				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
		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)	$	19,057,420	$	246,147	5.18	%	$	18,927,314	$	242,846	5.20	%	$	19,951,603	$	248,474	5.01	%	Loans and leases (1)(2)(3)	$	23,433,019	$	269,521	4.66	%	$	18,927,314	$	242,846	5.20	%
Investment securities (2)(4)	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	%	Investment securities (2)(4)	10,397,709		55,594		2.17	%	5,383,140		32,329		2.44	%
Deposits in financial institutions	Deposits in financial institutions	6,347,764		2,022		0.13	%	4,790,231		1,528		0.13	%	733,142		186		0.10	%	Deposits in financial institutions	3,083,159		1,723		0.23	%	4,790,231		1,528		0.13	%
Total interest‑earning assets (2)	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	%	Total interest‑earning assets (2)	36,913,887		326,838		3.59	%	29,100,685		276,703		3.86	%
Other assets	Other assets	2,428,207						2,315,197						2,090,023						Other assets	2,969,417						2,315,197
Total assets	Total assets	$	34,326,112					$	31,415,882					$	26,621,227					Total assets	$	39,883,304					$	31,415,882

LIABILITIES AND	LIABILITIES AND																			LIABILITIES AND
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:																			STOCKHOLDERS’ EQUITY:
Interest checking	Interest checking	$	7,235,726	2,394		0.13	%	$	6,401,869	2,232		0.14	%	$	4,001,750	1,573		0.16	%	Interest checking	$	7,094,623	1,776		0.10	%	$	6,401,869	2,232		0.14	%
Money market	Money market	8,484,933		3,318		0.16	%	7,975,996		3,278		0.17	%	6,114,354		2,856		0.19	%	Money market	10,852,454		3,461		0.13	%	7,975,996		3,278		0.17	%
Savings	Savings	598,225		36		0.02	%	572,959		35		0.02	%	524,335		33		0.03	%	Savings	642,709		39		0.02	%	572,959		35		0.02	%
Time	Time	1,498,169		1,521		0.41	%	1,493,267		1,955		0.53	%	2,475,858		8,613		1.40	%	Time	1,278,609		932		0.30	%	1,493,267		1,955		0.53	%
Total interest‑bearing deposits	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	%	Total interest‑bearing deposits	19,868,395		6,208		0.13	%	16,444,091		7,500		0.18	%
Borrowings	Borrowings	225,446		265		0.47	%	226,053		193		0.35	%	871,110		1,319		0.61	%	Borrowings	298,444		161		0.22	%	226,053		193		0.35	%
Subordinated debt	Subordinated debt	735,725		6,663		3.63	%	466,101		4,375		3.81	%	459,466		5,402		4.73	%	Subordinated debt	863,572		7,818		3.67	%	466,101		4,375		3.81	%
Total interest‑bearing liabilities	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	%	Total interest‑bearing liabilities	21,030,411		14,187		0.27	%	17,136,245		12,068		0.29	%
Noninterest‑bearing demand deposits	Noninterest‑bearing demand deposits	11,304,757						10,173,459						8,292,151						Noninterest‑bearing demand deposits	14,463,667						10,173,459
Other liabilities	Other liabilities	504,089						488,930						435,353						Other liabilities	541,745						488,930
Total liabilities	Total liabilities	30,587,070						27,798,634						23,174,377						Total liabilities	36,035,823						27,798,634
Stockholders’ equity	Stockholders’ equity	3,739,042						3,617,248						3,446,850						Stockholders’ equity	3,847,481						3,617,248
Total liabilities and	Total liabilities and																			Total liabilities and
stockholders' equity	stockholders' equity	$	34,326,112					$	31,415,882					$	26,621,227					stockholders' equity	$	39,883,304					$	31,415,882
Net interest income (2)	Net interest income (2)			$	270,083					$	264,635					$	256,294			Net interest income (2)			$	312,651					$	264,635
Net interest rate spread (2)	Net interest rate spread (2)					3.27	%					3.57	%					3.98	%	Net interest rate spread (2)					3.32	%					3.57	%
Net interest margin (2)	Net interest margin (2)					3.40	%					3.69	%					4.20	%	Net interest margin (2)					3.43	%					3.69	%

Total deposits (5)	Total deposits (5)	$	29,121,810	$	7,269	0.10	%	$	26,617,550	$	7,500	0.11	%	$	21,408,448	$	13,075	0.25	%	Total deposits (5)	$	34,332,062	$	6,208	0.07	%	$	26,617,550	$	7,500	0.11	%

_____________________

(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 net loan premium amortization of o~~$1.5 million~~ ~~and $1.2~~f $5.7 million and ~~net loan discount accretion of~~ $1.2 million for the three months ended ~~June 30, 2021,~~ March 31, ~~2021,~~2022 and ~~June 30, 2020,~~2021, respectively.

(4) Includes tax-equivalent adjustments of ~~$2.2~~$2.2 million and $2.1 million ~~and $1.4 million~~ for the three months ended ~~June 30, 2021,~~ March 31, 2022 and 2021, ~~and June 30, 2020,~~ respectively, related to tax-exempt ~~income~~interest on investment securities. The fe~~deral~~federal statutory ~~tax~~ rate utilized ~~was~~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.

6357

Six Months Ended
June 30, 2021 June 30, 2020
Interest Yields Interest Yields
Average Income/ and Average Income/ and
Balance Expense Rates Balance Expense Rates
(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)
$ 18,992,727 $ 488,993 5.19 % $ 19,508,319 $ 511,238 5.27 %
Investment securities (2)(4)
5,940,995 68,440 2.32 % 3,849,838 56,071 2.93 %
Deposits in financial institutions 5,573,300 3,550 0.13 % 635,263 1,794 0.57 %
Total interest-earning assets (2)
30,507,022 560,983 3.71 % 23,993,420 569,103 4.77 %
Other assets 2,372,015 2,866,713
Total assets $ 32,879,037 $ 26,860,133
LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking $ 6,821,101 4,626 0.14 % $ 3,734,281 8,708 0.47 %
Money market 8,231,870 6,596 0.16 % 5,681,110 12,872 0.46 %
Savings 585,662 71 0.02 % 511,147 193 0.08 %
Time 1,495,731 3,476 0.47 % 2,580,001 19,549 1.52 %
Total interest-bearing deposits 17,134,364 14,769 0.17 % 12,506,539 41,322 0.66 %
Borrowings 225,748 458 0.41 % 1,448,929 8,097 1.12 %
Subordinated debt 601,658 11,038 3.70 % 458,932 11,962 5.24 %
Total interest-bearing liabilities 17,961,770 26,265 0.29 % 14,414,400 61,381 0.86 %
Noninterest-bearing demand deposits 10,742,233 7,824,934
Other liabilities 496,553 418,985
Total liabilities 29,200,556 22,658,319
Stockholders’ equity 3,678,481 4,201,814
Total liabilities and
stockholders' equity $ 32,879,037 $ 26,860,133
Net interest income (2)
$ 534,718 $ 507,722
Net interest rate spread (2)
3.42 % 3.91 %
Net interest margin (2)
3.53 % 4.26 %
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 net loan premium amortization of~~ ~~$2.7 million~~ ~~and net loan discount accretion of $4.4 million for the six months ended June 30, 2021 and 2020~~, ~~respectively.~~

~~(4) Includes tax-equivalent adjustments of$4.2 million~~ ~~and $2.6 million for the six months ended June 30, 2021 and 2020~~, ~~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.

~~Second~~First Quarter of ~~2021~~2022 Compared to First Quarter of 2021

Net interest income increased by ~~$5.0~~$47.4 million to ~~$266.3~~$308.7 million for the ~~second~~first quarter of ~~2021~~2022 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~~and investment securities attributable 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~~lower yields on average loans and leases and average investment securities. The tax-equivalent yield on investment securities was ~~5.18% for the second quarter of 2021 compared to 5.20%~~2.17% for the first quarter of ~~2021.~~

~~The tax equivalent NIM was 3.40%~~2022, compared to 2.44% 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 increased by $12.0 million to $266.3 million for the second quarter of 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 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 higher balance of average subordinated debt attributable to the $400 million of subordinated notes issued in the secondsame quarter of 2021. The tax equivalent yield on average loans and leases was ~~5.18%~~4.66% for the ~~second~~first quarter of ~~2021~~2022, compared to ~~5.01%~~5.20% for the same quarter of ~~2020.~~2021. 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 ~~3.40%~~3.43% for the ~~second~~first quarter of ~~2021~~2022 compared to ~~4.20%~~3.69% for the ~~same~~comparable quarter last year. The decrease in the tax equivalent NIM was due mostly to the lower yields on average loans and leases and average investment securities, offset partially by the change in the mix of average interest-earning assets ~~offset partially~~driven by ~~lower deposit and borrowing costs. The change in mix of average interest-earning assets was due to a $5.6 billion~~the increase in ~~average deposits in financial institutions, a $2.6 billion increase in average investment securities, and a $894.1 million decrease in~~the balance of average loans and ~~leases. Average loans~~leases and ~~leases~~investment securities as a percentage of average interest-earning assets ~~was 60% for~~from 84% to 92% and the ~~second quarter~~decrease in the balance of ~~2021 compared~~average deposits in financial institutions as a percentage of average interest-earning assets from 16% to ~~81% for~~8%. The balance of average loans and leases increased by $4.5 billion, the ~~second quarter~~balance of ~~2020.~~average investment securities increased by $5.0 billion, and the balance of average deposits in financial institutions declined by $1.7 billion.

The cost of average total deposits decreased to ~~0.10%~~0.07% for the ~~second~~first quarter of ~~2021~~2022 from ~~0.25% for the second quarter of 2020~~ ~~due mainly to lower rates paid on deposits in conjunction with decreased market rates.~~

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

Net interest income increased by $23.6 million to $527.6 million for the six months ended June 30, 2021 compared to $504.0 million for the six months ended June 30, 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 average loans and leases balance coupled with a lower loan and lease yield in conjunction with decreased market rates. ~~The tax equivalent yield on average loans and leases was 5.19% for the~~ ~~six months ended June 30, 2021~~ ~~compared to 5.27% for the same period in 2020.~~

~~The tax equivalent NIM was 3.53% for the~~ ~~six months ended June 30, 2021~~ ~~compared to 4.26% for the same period last ye~~ar. The decrease in the tax equivalent NIM was due mostly to the change in the 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 $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 and leases. Average loans and leases as a percentage of average interest-earning assets was 62% for the six months ended June 30, 2021 compared to 81% for the six months ended June 30, 2020.

~~The cost of average total deposits decreased to~~ 0.11% for the ~~six months ended June 30,~~first quarter of 2021 ~~from 0.41% for the same period last year~~ due mainly to lower rates paid on deposits 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									Six Months Ended							Three Months Ended
		June 30,			March 31,			June 30,			June 30,							March 31,
		2021			2021			2020			2021			2020				2022			2021
		(Dollars in thousands)																(Dollars in thousands)
Provision For Credit Losses:	Provision For Credit Losses:																Provision For Credit Losses:
(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 allowance for loan and lease losses	$	(2,000)		$	(53,000)
(Reduction in) addition to reserve for unfunded
loan commitments		(16,000)			5,000			27,000			(11,000)			41,000
Addition to (reduction in) reserve for unfunded loan commitments																	Addition to (reduction in) reserve for unfunded loan commitments	2,000			5,000
Total provision for credit losses	Total provision for credit losses	$	(88,000)		$	(48,000)		$	120,000		$	(136,000)		$	232,000		Total provision for credit losses	$	—		$	(48,000)

Credit Quality Metrics:	Credit Quality Metrics:																Credit Quality Metrics:
Net (recoveries) charge-offs on loans and leases
Net charge-offs on loans and leases																	Net charge-offs on loans and leases
held for investment (1)	held for investment (1)	$	(5,155)		$	2,736		$	13,242		$	(2,419)		$	32,352		held for investment (1)	$	1,166		$	2,736
Annualized net charge-offs to average loans and leases	Annualized net charge-offs to average loans and leases	(0.11)		%	0.06		%	0.27		%	(0.03)		%	0.33		%	Annualized net charge-offs to average loans and leases	0.02		%	0.06		%
At quarter-end:	At quarter-end:																At quarter-end:
Allowance for credit losses	Allowance for credit losses	$	300,171		$	383,016		$	381,621								Allowance for credit losses	$	272,469		$	383,016
Allowance for credit losses to loans and leases
held for investment		1.54		%	2.02		%	1.94		%
Allowance for credit losses to nonaccrual
loans and leases held for investment		528.4		%	566.2		%	229.7		%
Allowance for credit losses to loans and leases held for investment																	Allowance for credit losses to loans and leases held for investment	1.12		%	2.02		%
Allowance for credit losses to nonaccrual loans and leases held for investment																	Allowance for credit losses to nonaccrual loans and leases held for investment	409.5		%	566.2		%
Nonaccrual loans and leases held for investment	Nonaccrual loans and leases held for investment	$	56,803		$	67,652		$	166,113								Nonaccrual loans and leases held for investment	$	66,538		$	67,652
Performing TDRs held for investment	Performing TDRs held for investment	$	40,129		$	27,999		$	15,037								Performing TDRs held for investment	$	16,781		$	27,999
Classified loans and leases held for investment	Classified loans and leases held for investment	$	147,267		$	163,117		$	293,230								Classified loans and leases held for investment	$	82,068		$	163,117
Special mention loans and leases held for investment																	Special mention loans and leases held for investment	$	377,315		$	632,997

______________________

(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~~There was no provision for credit losses ~~decreased by $40.0 million~~for the first quarter of 2022 compared to a ~~benefit of $88.0 million for the second quarter of 2021 compared to a~~provision benefit of $48.0 million for the first quarter of ~~2021 as a result~~2021. During the first quarter of 2022, continued credit quality improvement combined with the changes in ~~both macro-economic forecast variables and~~our loan portfolio ~~credit quality metrics along with decreased provisions~~composition, offset by the provision need for ~~individually evaluated~~growth in loans and ~~leases and for~~ unfunded ~~commitments.~~

~~The~~commitments, resulted in no provision for ~~credit losses decreased by $208.0 million to a benefit of $88.0 million for~~ the ~~second~~quarter. During the first quarter of 2021, ~~compared to~~ a provision ~~of $120.0 million for the second quarter of 2020 as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics.~~

~~The provision for credit losses decreased by $368.0 million to a~~ benefit ~~of $136.0 million for the six months ended June 30, 2021 compared to a provision of $232.0 million for the six months ended June 30, 2020~~was recorded as a result of improvement in both macro-economic forecast variables and loan portfolio credit 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						Six Months Ended					Three Months Ended
		June 30,		March 31,		June 30,		June 30,					March 31,
Noninterest Income	Noninterest Income	2021		2021		2020		2021		2020		Noninterest Income	2022		2021
		(In thousands)											(In thousands)
Other commissions and fees												Other commissions and fees	$	11,580	$	9,158
Leased equipment income	Leased equipment income	$	10,847	$	11,354	$	12,037	$	22,201	$	24,288	Leased equipment income	13,094		11,354
Other commissions and fees		10,704		9,158		10,111		19,862		19,832
Service charges on deposit accounts	Service charges on deposit accounts	3,452		2,934		2,004		6,386		4,662		Service charges on deposit accounts	3,571		2,934
Gain on sale of loans and leases	Gain on sale of loans and leases	1,422		139		346		1,561		433		Gain on sale of loans and leases	60		139
Gain on sale of securities	Gain on sale of securities	—		101		7,715		101		7,897		Gain on sale of securities	104		101
Other income:
Dividends and gains (losses) on equity investments		5,394		10,904		2,947		16,298		2,975
Dividends and (losses) gains on equity investments												Dividends and (losses) gains on equity investments	(11,375)		10,904
Warrant income	Warrant income	5,650		6,123		1,973		11,773		2,810		Warrant income	629		6,123
Other	Other	2,902		4,116		1,725		7,018		5,061		Other	3,155		4,116
Total noninterest income	Total noninterest income	$	40,371	$	44,829	$	38,858	$	85,200	$	67,958	Total noninterest income	$	20,818	$	44,829

~~Second~~First Quarter of ~~2021~~2022 Compared to First Quarter of 2021

Noninterest income decreased by ~~$4.5~~$24.0 million to ~~$40.4~~$20.8 million for the ~~second~~first quarter of ~~2021~~2022 compared to $44.8 million for the first quarter of 2021 due ~~mostly~~mainly to ~~a decrease~~decreases of $5.5 million in warrant income and $22.3 million in dividends and gains (losses) on equity ~~investments~~investments. Both of these items decreased in the first quarter of 2022 due to decreased capital market activity and ~~a $1.2 million decrease in other~~volatility resulting from geopolitical tensions and inflationary pressures. Warrant income ~~offset partially~~decreased due principally to fewer gains from exercised warrants, driven by ~~increases of $1.5 million in other commissions and fees and $1.3 million in gain on sale of loans and leases.~~the less active capital markets. The decrease in dividends and gains (losses) on equity investments was due primarily to ~~a $10.1 million gain~~lower gains on ~~one~~sales of equity ~~investment in the first quarter of 2021, offset partially by~~investments, higher ~~net~~ fair value ~~gains~~losses on equity investments still ~~held. The decrease in other~~held, and lower income ~~was due primarily to lower foreign currency translation gains~~distributions and ~~negative~~ fair value ~~adjustments related to servicing assets.~~ marks on SBIC investments. The ~~increase in gain~~net realized and unrealized losses 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~~equity investments were $12.2 million in the first quarter of ~~2021.~~ ~~The decrease~~2022, with one equity investment accounting for $7.5 million of the total net losses. As of March 31, 2022, we held six equity investments with a carrying value of $8.8 million, two of which were sold in ~~warrant income was primarily attributable~~April reducing the balance to ~~lower gains from exercised warrants due to elevated gains in the first quarter of 2021.~~$0.1 million.

6759

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

Noninterest income increased by $1.5 million to $40.4 million for the second quarter of 2021 compared to $38.9 million for the second quarter of 2020 due mainly to 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 loans, offset partially by a $7.7 million decrease in gain on sale of securities. Warrant income increased due principally to higher gains from exercised warrants, driven by the active capital markets. The increase in dividends and gains on equity investments was due primarily to higher gains on sales and higher fair value gains 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.

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

Noninterest income increased by $17.2 million to $85.2 million for the six months ended June 30, 2021 compared to $68.0 million for the six months ended June 30, 2020 due mainly to increases of $13.3 million in dividends and gains on equity investments, $9.0 million in warrant income, and $1.7 million in service charges on deposit accounts, offset partially by a $7.8 million decrease in gain on sale of securities. The increase in dividends and gains on equity investments was due primarily to higher gains on sales and higher fair value gains on equity investments still held. Warrant income increased due principally to higher gains from exercised warrants, driven by the active capital markets. The increase in service charges on deposit accounts was due primarily to fee waivers we granted customers in 2020 during the COVID pandemic. The decrease in gain on sale of securities was due to minimal sales in the 2021 period.

Noninterest Expense

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


		Three Months Ended						Six Months Ended					Three Months Ended
		June 30,		March 31,		June 30,		June 30,					March 31,
Noninterest Expense	Noninterest Expense	2021		2021		2020		2021		2020		Noninterest Expense	2022		2021
		(In thousands)											(In thousands)
Compensation	Compensation	$	90,807	$	79,882	$	61,910	$	170,689	$	123,192	Compensation	$	92,240	$	79,882
Occupancy	Occupancy	14,784		14,054		14,494		28,838		28,701		Occupancy	15,200		14,054
Leased equipment depreciation	Leased equipment depreciation	8,614		8,969		7,102		17,583		14,307		Leased equipment depreciation	9,189		8,969
Data processing	Data processing	7,758		6,957		7,102		14,715		13,556		Data processing	9,629		6,957
Other professional services	Other professional services	5,256		5,126		4,146		10,382		8,404		Other professional services	5,954		5,126
Customer related expense	Customer related expense	4,973		4,818		4,408		9,791		8,340		Customer related expense	12,655		4,818
Loan expense	Loan expense	4,031		3,193		3,379		7,224		6,029		Loan expense	5,157		3,193
Insurance and assessments	Insurance and assessments	3,745		4,903		9,373		8,648		13,622		Insurance and assessments	5,490		4,903
Intangible asset amortization	Intangible asset amortization	2,889		3,079		3,882		5,968		7,830		Intangible asset amortization	3,649		3,079
Acquisition, integration and reorganization costs	Acquisition, integration and reorganization costs	200		3,425		—		3,625		—		Acquisition, integration and reorganization costs	—		3,425
Foreclosed assets (income) expense, net	Foreclosed assets (income) expense, net	(119)		1		(146)		(118)		(80)		Foreclosed assets (income) expense, net	(3,353)		1
Other	Other	8,812		15,729		11,315		24,541		21,034		Other	11,616		15,729
Total operating expense		151,750		150,136		126,965		301,886		244,935
Goodwill impairment		—		—		—		—		1,470,000
Total noninterest expense	Total noninterest expense	$	151,750	$	150,136	$	126,965	$	301,886	$	1,714,935	Total noninterest expense	$	167,426	$	150,136

~~Second~~First Quarter of ~~2021~~2022 Compared to First Quarter of 2021

Noninterest expense increased by ~~$1.6~~$17.3 million to ~~$151.8~~$167.4 million for the ~~second~~first quarter of ~~2021~~2022 compared to $150.1 million for the first quarter of 2021 due ~~mostly~~primarily to an increase of ~~$10.9~~$12.4 million in compensation expense, ~~offset partially by decreases~~an increase of ~~$6.9~~$7.8 million in ~~other~~customer related expense, ~~$3.2~~and an increase of $2.7 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 $24.8 million to $151.8 million for the second quarter of 2021 compared to $127.0 million for the second quarter of 2020 due primarily to a $28.9 million increase in compensationdata processing expense due mostly to the incremental ~~compensation~~ expense ~~for Civic, which was acquired on February 1, 2021.~~

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

Noninterest expense decreased by $1.41 billion to $301.9 million for the six months ended June 30, 2021 compared to $1.71 billion for the six months ended June 30, 2020 due primarily to a $1.47 billion goodwill impairment in the 2020 period. Excluding the goodwill impairment, noninterest expense increased by $57.0 million in the 2021 period comparedrelated to the ~~2020 period. This increase was~~increased headcount and operations in 2022 due ~~primarily~~ to the Civic and HOA Business operations that were acquired in 2021. These increases were partially offset by a ~~$47.5~~$3.4 million increase in ~~compensation expense and~~foreclosed assets income due mostly to a ~~$3.6~~$3.2 million ~~increase in acquisition, integration and reorganization costs. The increase in compensation expense was due to~~gain on the ~~incremental compensation expense from five months~~sale of ~~Civic operations~~our largest foreclosed asset in the ~~2021 period and higher bonus expense, given the operating results in 2021, while the 2020 bonus amounts were below historical levels as a result~~first quarter of the higher provisions for credit losses in 2020. The increase in acquisition, integration, and reorganization costs was due to the costs in the 2021 period related to the closed Civic acquisition and the pending acquisition of MUFG Union Bank's HOA Services Division.2022.

Income Taxes

The effective tax rate for the ~~second~~first quarter of ~~2021~~2022 was ~~25.7%~~25.9% compared to 26.3% for the first quarter of 2021 and 28.1% for the second quarter of 2020. The decreased effective tax rate in the second quarter of 2021 compared to the first quarter of 2021 and the second quarter of 2020 was primarily due to tax benefits resulting from the vesting of restricted stock and return-to-provision adjustments recorded in the second quarter of 2021. The effective tax rate for the six months ended June 30, 2021 was 26.0% compared to (1.8)% for the six months ended June 30, 2020. Excluding non-deductible goodwill impairment, the effective income tax rate was 26.3% for the six months ended June 30, 2020. The Company’s blended statutory tax rate for federal and state is 27.5%~~27.6%~~ and the effective tax rate for the full year ~~2021~~2022 is estimated to be in the range of 25-27%.

6960

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:


		June 30, 2021					March 31, 2021					December 31, 2020						March 31, 2022					December 31, 2021
		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)
		(Dollars in thousands)																(Dollars in thousands)
Agency residential MBS																	Agency residential MBS	$	2,788,814	28	%	6.2		$	2,898,210	27	%	2.9
Municipal securities	Municipal securities	$	1,817,499	25	%	8.2	$	1,646,054	28	%	8.5	$	1,531,617	29	%	8.2	Municipal securities	2,125,161		21	%	8.0		2,315,968		22	%	7.7
Agency commercial MBS	Agency commercial MBS	1,257,628		18	%	3.6	1,273,402		22	%	3.8	1,281,877		24	%	3.2	Agency commercial MBS	1,562,337		16	%	5.1		1,688,967		16	%	5.2
Agency residential CMOs	Agency residential CMOs	1,142,398		16	%	3.0	1,108,828		19	%	2.8	1,219,880		23	%	2.7	Agency residential CMOs	940,714		10	%	3.4		1,038,134		10	%	3.2
U.S. Treasury securities	U.S. Treasury securities	877,153		12	%	7.7	491,358		8	%	7.4	5,302		—	%	1.3	U.S. Treasury securities	907,743		9	%	6.3		966,898		9	%	6.6
Agency residential MBS		552,411		8	%	3.3	433,100		7	%	2.5	341,074		7	%	1.9
Corporate debt securities	Corporate debt securities	508,708		7	%	3.8	380,407		6	%	3.9	311,889		6	%	3.7	Corporate debt securities	509,156		5	%	3.9		527,094		5	%	4.2
Private label commercial MBS																	Private label commercial MBS	401,292		4	%	7.4		450,217		4	%	7.5
Collateralized loan obligations	Collateralized loan obligations	382,043		5	%	—	244,240		4	%	—	135,876		3	%	—	Collateralized loan obligations	363,806		4	%	0.1		385,362		4	%	0.1
Private label commercial MBS		378,235		5	%	7.4	71,033		1	%	2.2	82,957		2	%	1.8
Private label residential CMOs																	Private label residential CMOs	238,160		2	%	5.3		264,417		2	%	3.9
Asset-backed securities	Asset-backed securities	149,583		2	%	0.1	152,982		3	%	0.1	166,546		3	%	0.1	Asset-backed securities	112,877		1	%	—		129,547		1	%	0.1
Private label residential CMOs		96,922		1	%	2.5	103,376		2	%	2.6	116,946		2	%	2.1
SBA securities	SBA securities	36,028		1	%	3.7	36,910		—	%	3.7	41,627		1	%	3.2	SBA securities	25,049		—	%	2.4		29,644		—	%	3.7
Total securities available-
for-sale		$	7,198,608	100	%	5.1	$	5,941,690	100	%	4.8	$	5,235,591	100	%	4.3

Total securities available-for-sale																	Total securities available-for-sale	$	9,975,109	100	%	5.7		$	10,694,458	100	%	4.8

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


		June 30, 2021					March 31, 2022
		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	$	471,398	26	%	California	$	517,471	24	%
Texas	Texas	325,433		18	%	Texas	456,268		21	%
Washington	Washington	284,026		15	%	Washington	329,987		16	%
Oregon						Oregon	132,834		6	%
Maryland	Maryland	74,684		4	%	Maryland	66,926		3	%
Oregon		71,513		4	%
Georgia	Georgia	68,952		4	%	Georgia	61,836		3	%
New York	New York	67,159		4	%	New York	61,669		3	%
Minnesota						Minnesota	60,445		3	%
Colorado	Colorado	58,954		3	%	Colorado	53,637		3	%
Ohio		39,666		2	%
Tennessee		35,617		2	%
Florida						Florida	40,397		2	%
Total of ten largest states	Total of ten largest states	1,497,402		82	%	Total of ten largest states	1,781,470		84	%
All other states	All other states	320,097		18	%	All other states	343,691		16	%
Total municipal securities	Total municipal securities	$	1,817,499	100	%	Total municipal securities	$	2,125,161	100	%

7061

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:


		June 30, 2021				March 31, 2021				December 31, 2020					March 31, 2022				December 31, 2021
				% 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
		(Dollars in thousands)													(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Other commercial real estate		$	2,483,856	13	%	$	2,617,227	14	%	$	2,747,526	14	%
Commercial real estate														Commercial real estate	$	2,495,649	10	%		$	2,545,517	11	%
SBA program	SBA program	625,023		3	%	610,086		3	%	599,788		3	%	SBA program	621,911		3	%		623,579		3	%
Hotel	Hotel	521,869		2	%	539,139		3	%	571,917		3	%	Hotel	552,181		2	%		593,203		3	%
Healthcare real estate		161,450		1	%	175,158		1	%	177,440		1	%
Total commercial real estate mortgage	Total commercial real estate mortgage	3,792,198		19	%	3,941,610		21	%	4,096,671		21	%	Total commercial real estate mortgage	3,669,741		15	%		3,762,299		17	%
Income producing and other residential		4,378,932		23	%	3,823,179		20	%	3,718,457		20	%
Other residential real estate		241,890		1	%	222,424		1	%	84,808		—	%
Total income producing and other
residential real estate mortgage		4,620,822		24	%	4,045,603		21	%	3,803,265		20	%
Multi-family														Multi-family	4,080,257		17	%		3,916,317		17	%
Residential mortgage														Residential mortgage	2,977,986		12	%		2,449,693		11	%
Investor-owned residential														Investor-owned residential	1,311,307		6	%		1,050,411		4	%
Total residential real estate mortgage														Total residential real estate mortgage	8,369,550		35	%		7,416,421		32	%
Total real estate mortgage	Total real estate mortgage	8,413,020		43	%	7,987,213		42	%	7,899,936		41	%	Total real estate mortgage	12,039,291		50	%		11,178,720		49	%
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial		930,785		5	%	990,035		5	%	1,117,121		6	%
Residential		2,574,799		13	%	2,575,788		14	%	2,243,160		12	%
Commercial real estate construction and land														Commercial real estate construction and land	802,022		3	%		832,591		4	%
Residential construction														Residential construction	2,421,694		10	%		2,182,091		9	%
Construction - renovation														Construction - renovation	469,773		2	%		422,445		2	%
Total residential real estate construction and land														Total residential real estate construction and land	2,891,467		12	%		2,604,536		11	%
Total real estate construction and land (1)	Total real estate construction and land (1)	3,505,584		18	%	3,565,823		19	%	3,360,281		18	%	Total real estate construction and land (1)	3,693,489		15	%		3,437,127		15	%
Total real estate	Total real estate	11,918,604		61	%	11,553,036		61	%	11,260,217		59	%	Total real estate	15,732,780		65	%		14,615,847		64	%
Commercial:	Commercial:													Commercial:
Lender finance	Lender finance	2,256,828		12	%	2,113,395		11	%	2,095,963		11	%	Lender finance	3,100,621		13	%		2,617,712		11	%
Equipment finance	Equipment finance	638,898		3	%	647,423		4	%	700,042		4	%	Equipment finance	770,761		3	%		681,266		3	%
Premium finance	Premium finance	482,822		2	%	449,440		2	%	438,761		2	%	Premium finance	650,791		2	%		586,267		3	%
Other asset-based	Other asset-based	172,355		1	%	173,145		1	%	194,517		1	%	Other asset-based	217,047		1	%		190,232		1	%
Total asset-based	Total asset-based	3,550,903		18	%	3,383,403		18	%	3,429,283		18	%	Total asset-based	4,739,220		19	%		4,075,477		18	%
Equity fund loans	Equity fund loans	1,245,283		6	%	889,828		5	%	1,032,718		5	%	Equity fund loans	1,543,491		7	%		1,707,143		7	%
Venture lending	Venture lending	504,149		3	%	605,970		3	%	665,790		4	%	Venture lending	533,848		2	%		613,450		3	%
Total venture capital	Total venture capital	1,749,432		9	%	1,495,798		8	%	1,698,508		9	%	Total venture capital	2,077,339		9	%		2,320,593		10	%
Secured business loans														Secured business loans	478,560		2	%		486,088		2	%
Paycheck Protection Program	Paycheck Protection Program	609,200		3	%	1,079,258		5	%	1,057,422		5	%	Paycheck Protection Program	70,420		—	%		156,699		1	%
Secured business loans		434,032		2	%	397,558		2	%	430,263		2	%
Security monitoring		207,232		1	%	205,798		1	%	329,312		2	%
Other lending	Other lending	671,445		4	%	524,025		3	%	558,117		3	%	Other lending	749,156		3	%		829,194		3	%
Total other commercial	Total other commercial	1,921,909		10	%	2,206,639		11	%	2,375,114		12	%	Total other commercial	1,298,136		5	%		1,471,981		6	%
Total commercial	Total commercial	7,222,244		37	%	7,085,840		37	%	7,502,905		39	%	Total commercial	8,114,695		33	%		7,868,051		34	%
Consumer	Consumer	365,409		2	%	340,352		2	%	320,255		2	%	Consumer	504,597		2	%		457,650		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	$	19,506,257	100	%	$	18,979,228	100	%	$	19,083,377	100	%	net of deferred fees	$	24,352,072	100	%		$	22,941,548	100	%

________________________________

(1) Includes land and acquisition and development loans of ~~$153.1 million at June 30, 2021, $148.1~~$165.4 million at March 31, ~~2021~~2022 and ~~$167.1~~$151.8 million at December 31, ~~2020.~~2021.

7162

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:


		June 30, 2021				December 31, 2020					March 31, 2022				December 31, 2021
				% 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	$	7,238,094	61	%	$	6,942,768	62	%	California	$	9,372,463	60	%	$	8,916,633	61	%
Colorado										Colorado	779,652		5	%	721,343		5	%
Florida										Florida	735,154		5	%	556,057		4	%
New York	New York	728,125		6	%	716,329		6	%	New York	620,051		4	%	675,948		5	%
Florida		715,790		6	%	598,167		5	%
Colorado		560,049		5	%	386,480		3	%
Washington	Washington	408,010		3	%	413,014		4	%	Washington	532,633		3	%	500,836		3	%
Texas										Texas	475,204		3	%	392,836		3	%
Oregon	Oregon	299,084		2	%	269,600		2	%	Oregon	406,690		3	%	375,223		3	%
Texas		243,830		2	%	263,731		2	%
Nevada										Nevada	375,481		2	%	346,838		2	%
Arizona	Arizona	197,542		2	%	171,533		2	%	Arizona	335,602		2	%	253,289		2	%
Nevada		185,716		2	%	195,663		2	%
Georgia		172,794		1	%	116,444		1	%
New Jersey										New Jersey	250,997		1	%	214,087		1	%
Total of 10 largest states	Total of 10 largest states	10,749,034		90	%	10,073,729		89	%	Total of 10 largest states	13,883,927		88	%	12,953,090		89	%
All other states	All other states	1,169,570		10	%	1,186,488		11	%	All other states	1,848,853		12	%	1,662,757		11	%
Total real estate loans held for investment, net of deferred fees	Total real estate loans held for investment, net of deferred fees	$	11,918,604	100	%	$	11,260,217	100	%	Total real estate loans held for investment, net of deferred fees	$	15,732,780	100	%	$	14,615,847	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 Six Months Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)
June 30, 2021 June 30, 2021
(Dollars in thousands)
Balance, beginning of period $ 18,979,228 $ 19,083,377
Additions:
Production 1,663,151 3,275,928
Disbursements 1,662,644 2,685,630
Total production and disbursements 3,325,795 5,961,558
Reductions:
Payoffs (1,969,118) (3,604,382)
Paydowns (802,222) (1,869,640)
Total payoffs and paydowns (2,771,340) (5,474,022)
Sales (26,610) (99,251)
Transfers to foreclosed assets — (647)
Charge-offs (816) (4,804)
Transfers to loans held for sale — (25,554)
Total reductions (2,798,766) (5,604,278)
Loans and leases acquired through acquisition — 65,600
Net increase 527,029 422,880
Balance, end of period $ 19,506,257 $ 19,506,257
Weighted average rate on production (2)
4.55 % 4.46 %


	Three Months Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)	March 31, 2022
	(Dollars in thousands)
Balance, beginning of period	$	22,941,548
Additions:
Production	2,574,860
Disbursements	1,589,152
Total production and disbursements	4,164,012
Reductions:
Payoffs	(1,448,680)
Paydowns	(1,264,571)
Total payoffs and paydowns	(2,713,251)
Sales	(36,698)
Transfers to foreclosed assets	(305)
Charge-offs	(3,234)

Total reductions	(2,753,488)

Net increase	1,410,524
Balance, end of period	$	24,352,072

Weighted average rate on production (2)	4.31		%

_______________________________________

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

(2) The weighted average rate on production presents contractual rates on a tax equivalent basis and does not include amortized fees. Amortized fees added approximately 4124 basis points to loan yields for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

7263

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.

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.

For further information regarding the calculation of the allowance for credit losses on loans and leases held for investment using the CECL methodology, 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 our Form 10-K.

In calculating our allowance for credit losses, we continued to consider the ~~impacts of the~~ ongoing COVID-19 pandemic onas well as recent increases in inflation and the Russia-Ukraine conflict in our ~~estimation of~~process for estimating 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.~~resulting from such events. 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~~first quarter of ~~2021,~~2022, we used the Moody’s Consensus Forecast dated ~~June 9, 2021~~March 10, 2022 for the calculation of our quantitative component, which is consistent with each of the ~~first quarter of 2021 when~~quarters in 2021. The economic forecast was relatively consistent with the Moody's Consensus Forecast dated March 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 decrease inprior quarter; however, the quantitative ~~calculation~~component of the allowance for credit losses increased due to provisions for net loan growth.

As part of our allowance for credit losses methodology, we consistently incorporate the use of qualitative factors in determining the ~~second quarter.~~ overall allowance for credit losses to capture risks that may not be adequately reflected in our quantitative models. 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 certain loan portfolios including hotels, retail, and office properties that were more directly affected by the COVID-19 pandemic and 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~~Throughout 2021, these qualitative adjustments were updated ~~resulting in a decrease in~~based on evolving forecasts of property values and the ~~qualitative component, primarily to reflect an improved forecast~~pace of recovery for ~~hotel properties, compared to~~small businesses.During the first quarter of ~~2021.~~2022, forecasted property values for hotels, retail, and office properties improved and, therefore, our pandemic-specific qualitative adjustments were decreased.

The decrease in qualitative adjustments were offset by an increase in the quantitative reserve for net loan growth and, as a result, no credit loss provision was recognized during the first quarter of 2022.The allowance for credit losses as a percentage of loans and leases held for investment decreased slightly due to loan growth in lending areas with lower credit risk and is consistent with improvements in credit quality and minimal charge-offs.

The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of allowance for credit losses. As part of our allowance for credit losses process, sensitivity analyses are performed to assess the impact of how changing certain assumptions could impact the estimated allowance for credit losses. At times, these analyses can provide information to further assist management in making decisions on certain assumptions. We calculated alternative values for our March 31, 2022 ACL using various alternative forecast scenarios provided by Moody’s including Moody's Baseline, S5 Slower Trend Growth, and Russia-Ukraine Lengthy Conflict and the calculated amounts for the quantitative component differed from the Consensus Forecast ranging from lower by 0.31% to higher by 3.89%. However, changing one assumption and not reassessing other assumptions used in the quantitative or qualitative process could yield results that are not reasonable or appropriate, hence all assumptions and information must be considered. From a sensitivity analysis perspective, changing key assumptions such as the macro-economic variable inputs from the economic forecasts, the reasonable and supportable forecast period, prepayment rates, loan segmentation, historical loss factors and/or periods, among others, would all change the outcome of the quantitative components of the allowance for credit losses. Those results would then need to be assessed from a qualitative perspective potentially requiring further adjustments to the qualitative component to arrive at a reasonable and appropriate allowance for credit losses.

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.

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.

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


	March 31,			December 31,
Allowance for Credit Losses Data	2022			2021
	(Dollars in thousands)
Allowance for loan and lease losses	$	197,398		$	200,564
Reserve for unfunded loan commitments	75,071			73,071
Total allowance for credit losses	$	272,469		$	273,635

Allowance for loan and lease losses to loans and leases held for investment	0.81		%	0.87		%
Allowance for loan and lease losses to loans and leases held for investment,
excluding PPP loans	0.81		%	0.88		%
Allowance for credit losses to loans and leases held for investment	1.12		%	1.19		%
Allowance for credit losses to loans and leases held for investment,
excluding PPP loans	1.12		%	1.20		%

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 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 %


	Three Months Ended
	March 31,
Allowance for Credit Losses Roll Forward	2022			2021
	(Dollars in thousands)
Balance, beginning of period	$	273,635		$	433,752





Provision for credit losses:
Reduction in allowance for loan and lease losses	(2,000)			(53,000)
Addition to reserve for unfunded loan commitments	2,000			5,000
Total provision for credit losses	—			(48,000)
Loans and leases charged off:
Real estate mortgage	(168)			(368)
Real estate construction and land	—			(700)
Commercial	(2,833)			(2,574)
Consumer	(233)			(346)
Total loans and leases charged off	(3,234)			(3,988)
Recoveries on loans charged off:
Real estate mortgage	163			545
Real estate construction and land	149			—
Commercial	1,735			697
Consumer	21			10
Total recoveries on loans charged off	2,068			1,252
Net charge-offs	(1,166)			(2,736)
Balance, end of period	$	272,469		$	383,016

Annualized net charge-offs to
average loans and leases	0.02		%	0.06		%

7466

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

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
Allowance for Credit Losses Charge-offs
2021 2021 2020 2021 2020
(In thousands)
Real estate mortgage:
Healthcare real estate $ — $ — $ — $ — $ —
Hotel — 343 — 343 —
SBA program 211 25 76 236 274
Other commercial real estate — — 4,106 — 4,233
Total commercial real estate mortgage 211 368 4,182 579 4,507
Income producing and other residential 55 — — 55 —
Other residential real estate — — — — 175
Total income producing and other residential
real estate mortgage 55 — — 55 175
Total real estate mortgage 266 368 4,182 634 4,682
Real estate construction and land:
Commercial 75 700 — 775 —
Residential — — — — —
Total real estate construction and land 75 700 — 775 —
Commercial:
Lender finance — — — — —
Equipment finance — — — — 11,550
Premium finance — — — — —
Other asset-based — — — — —
Total asset-based — — — — 11,550
Equity fund loans — — — — —
Venture lending — 620 6,470 620 6,813
Total venture capital — 620 6,470 620 6,813
Paycheck Protection Program — — — — —
Security monitoring — — 4,180 — 10,236
Secured business loans — 47 — 47 2,072
Other lending 277 1,907 789 2,184 —
Total other commercial 277 1,954 4,969 2,231 12,308
Total commercial 277 2,574 11,439 2,851 30,671
Consumer 198 346 165 544 638
Total charge-offs $ 816 $ 3,988 $ 15,786 $ 4,804 $ 35,991


	Three Months Ended
	March 31,
Allowance for Credit Losses Charge-offs	2022		2021
	(In thousands)
Real estate mortgage:
Commercial real estate	$	—	$	—
SBA program	113		25
Hotel	55		343
Total commercial real estate mortgage	168		368
Multi-family	—		—
Residential mortgage	—		—
Investor-owned residential	—		—
Total residential real estate mortgage	—		—
Total real estate mortgage	168		368
Real estate construction and land:
Commercial real estate construction and land	—		700
Residential construction	—		—
Construction - renovation	—		—
Total residential real estate construction and land	—		—
Total real estate construction and land	—		700
Commercial:
Lender finance	—		—
Equipment finance	—		—
Premium finance	—		—
Other asset-based	—		—
Total asset-based	—		—
Equity fund loans	—		—
Venture lending	—		620
Total venture capital	—		620
Secured business loans	244		47
Paycheck Protection Program	—		—
Other lending	2,589		1,907
Total other commercial	2,833		1,954
Total commercial	2,833		2,574
Consumer	233		346
Total charge-offs	$	3,234	$	3,988

7567

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

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
Allowance for Credit Losses Recoveries 2021 2021 2020 2021 2020
(In thousands)
Real estate mortgage:
Healthcare real estate $ — $ — $ — $ — $ —
Hotel — — — — —
SBA program 20 17 15 37 122
Other commercial real estate 4,860 524 103 5,384 115
Total commercial real estate mortgage 4,880 541 118 5,421 237
Income producing and other residential — — — — —
Other residential real estate 2 4 9 6 14
Total income producing and other
residential real estate mortgage 2 4 9 6 14
Total real estate mortgage 4,882 545 127 5,427 251
Real estate construction and land:
Commercial — — — — —
Residential — — — — —
Total real estate construction and land — — — — —
Commercial:
Lender finance — — — — —
Equipment finance 7 107 8 114 238
Premium finance — — — — —
Other asset-based 98 161 14 259 149
Total asset-based 105 268 22 373 387
Equity fund loans — — — — —
Venture lending 44 57 114 101 299
Total venture capital 44 57 114 101 299
Paycheck Protection Program — — — — —
Security monitoring — — — — —
Secured business loans 73 126 139 199 217
Other lending 807 246 2,117 1,053 2,444
Total other commercial 880 372 2,256 1,252 2,661
Total commercial 1,029 697 2,392 1,726 3,347
Consumer 60 10 25 70 41
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.


	Three Months Ended
	March 31,
Allowance for Credit Losses Recoveries	2022		2021
	(In thousands)
Real estate mortgage:
Commercial real estate	$	—	$	524
SBA program	12		17
Hotel	—		—
Total commercial real estate mortgage	12		541
Multi-family	—		—
Residential mortgage	151		4
Investor-owned residential	—		—
Total residential real estate mortgage	151		4
Total real estate mortgage	163		545
Real estate construction and land:
Commercial real estate construction and land	149		—
Residential construction	—		—
Construction - renovation	—		—
Total residential real estate construction and land	—		—
Total real estate construction and land	149		—
Commercial:
Lender finance	—		—
Equipment finance	163		107
Premium finance	—		—
Other asset-based	92		161
Total asset-based	255		268
Equity fund loans	—		—
Venture lending	122		57
Total venture capital	122		57
Secured business loans	30		126
Paycheck Protection Program	—		—
Other lending	1,328		246
Total other commercial	1,358		372
Total commercial	1,735		697
Consumer	21		10
Total recoveries	$	2,068	$	1,252

7668

Deposits

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


		June 30, 2021				March 31, 2021				December 31, 2020					March 31, 2022				December 31, 2021
				% of				% of				% of					% of					% of
Deposit Composition	Deposit Composition	Balance		Total		Balance		Total		Balance		Total		Deposit Composition	Balance		Total			Balance		Total
		(Dollars in thousands)													(Dollars in thousands)
Noninterest-bearing demand	Noninterest-bearing demand	$	11,252,286	38	%	$	11,017,462	39	%	$	9,193,827	37	%	Noninterest-bearing demand	$	14,057,051	42	%		$	14,543,133	41	%
Interest checking	Interest checking	7,394,472		25	%	6,862,398		25	%	5,974,910		24	%	Interest checking	6,673,696		20	%		7,319,898		21	%
Money market	Money market	7,777,199		26	%	7,112,610		25	%	6,532,917		26	%	Money market	10,301,996		31	%		10,241,265		29	%
Savings	Savings	614,204		2	%	583,878		2	%	562,826		2	%	Savings	643,661		2	%		630,653		2	%
Total core deposits	Total core deposits	27,038,161		91	%	25,576,348		91	%	22,264,480		89	%	Total core deposits	31,676,404		95	%		32,734,949		93	%
Non-core non-maturity deposits	Non-core non-maturity deposits	1,122,971		4	%	1,162,590		4	%	1,149,467		5	%	Non-core non-maturity deposits	322,732		1	%		889,976		3	%
Total non-maturity deposits	Total non-maturity deposits	28,161,132		95	%	26,738,938		95	%	23,413,947		94	%	Total non-maturity deposits	31,999,136		96	%		33,624,925		96	%
Time deposits $250,000 and under	Time deposits $250,000 and under	913,371		3	%	940,340		3	%	994,197		4	%	Time deposits $250,000 and under	878,383		3	%		885,938		3	%
Time deposits over $250,000	Time deposits over $250,000	572,531		2	%	544,013		2	%	532,573		2	%	Time deposits over $250,000	347,376		1	%		486,894		1	%
Total time deposits	Total time deposits	1,485,902		5	%	1,484,353		5	%	1,526,770		6	%	Total time deposits	1,225,759		4	%		1,372,832		4	%
Total deposits	Total deposits	$	29,647,034	100	%	$	28,223,291	100	%	$	24,940,717	100	%	Total deposits	$	33,224,895	100	%		$	34,997,757	100	%

During the ~~second~~first quarter of ~~2021,~~2022, total deposits ~~increased~~decreased by $~~1.4~~1.8 billion to $~~29.6~~33.2 billion, due primarily to ~~an increase~~declines of ~~$1.5~~$1.1 billion in core deposits and $567.2 million in non-core non-maturity deposits. The ~~increase~~decrease in core deposits in the ~~second~~first quarter of ~~2021~~2022 was driven primarily by ~~continued strong deposit growth~~a decrease in balances from our venture banking ~~customers.~~clients of $1.5 billion, offset partially by an increase in deposits from our community banking and national lending clients of $415 million. The decrease in non-core non-maturity deposits of $0.6 billion included the planned maturity of a $0.5 billion wholesale deposit. At ~~June 30, 2021,~~March 31, 2022, core deposits totaled $~~27.0~~31.7 billion, or ~~91%~~95% of total deposits, including $~~11.3~~14.1 billion of noninterest-bearing demand deposits, or ~~38%~~42% 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
June 30, 2021		and Under		$250,000		Total
March 31, 2022								March 31, 2022	and Under		$250,000		Total
		(In thousands)							(In thousands)
Maturities:	Maturities:							Maturities:
Due in three months or less	Due in three months or less	$	247,102	$	94,967	$	342,069	Due in three months or less	$	314,591	$	208,715	$	523,306
Due in over three months through six months	Due in over three months through six months	198,239		129,168		327,407		Due in over three months through six months	163,021		52,110		215,131
Due in over six months through twelve months	Due in over six months through twelve months	231,172		337,799		568,971		Due in over six months through twelve months	198,549		79,906		278,455
Total due within twelve months	Total due within twelve months	676,513		561,934		1,238,447		Total due within twelve months	676,161		340,731		1,016,892
Due in over 12 months through 24 months	Due in over 12 months through 24 months	101,988		8,296		110,284		Due in over 12 months through 24 months	89,638		4,161		93,799
Due in over 24 months	Due in over 24 months	134,870		2,301		137,171		Due in over 24 months	112,584		2,484		115,068
Total due over twelve months								Total due over twelve months	202,222		6,645		208,867
Total	Total	$	913,371	$	572,531	$	1,485,902	Total	$	878,383	$	347,376	$	1,225,759

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 ~~June 30, 2021,~~March 31, 2022, total off-balance sheet client investment funds were $~~1.3~~1.7 billion, of which $1.0 billion was managed by PWAM. At December 31, ~~2020,~~2021, total off-balance sheet client investment funds were ~~$1.3~~$1.4 billion, of which ~~$1.0~~$0.9 billion was managed by PWAM.

7769

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:


		June 30,			March 31,			December 31,			June 30,				March 31,			December 31,
		2021			2021			2020			2020				2022			2021
		(Dollars in thousands)													(Dollars in thousands)
Nonaccrual loans and leases held for investment	Nonaccrual loans and leases held for investment	$	56,803		$	67,652		$	91,163		$	166,113		Nonaccrual loans and leases held for investment	$	66,538		$	61,174

Foreclosed assets, net	Foreclosed assets, net	13,227			14,298			14,027			1,449			Foreclosed assets, net	304			12,843
Total nonperforming assets	Total nonperforming assets	$	70,030		$	81,950		$	105,190		$	167,562		Total nonperforming assets	$	66,842		$	74,017

Performing TDRs held for investment	Performing TDRs held for investment	$	40,129		$	27,999		$	14,254		$	15,037		Performing TDRs held for investment	$	16,781		$	24,430
Classified loans and leases held for investment	Classified loans and leases held for investment	$	147,267		$	163,117		$	265,262		$	293,230		Classified loans and leases held for investment	$	82,068		$	116,104
Special mention loans and leases held for investment														Special mention loans and leases held for investment	$	377,315		$	391,611
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	0.29		%	0.36		%	0.48		%	0.84		%	loans and leases held for investment	0.27		%	0.27		%
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	0.36		%	0.43		%	0.55		%	0.85		%	and foreclosed assets, net	0.27		%	0.32		%
Allowance for credit losses to nonaccrual loans and leases
held for investment		528.4		%	566.2		%	475.8		%	229.7		%
Allowance for credit losses to nonaccrual loans and leases held for investment														Allowance for credit losses to nonaccrual loans and leases held for investment	409.5		%	447.3		%
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	0.75		%	0.86		%	1.39		%	1.49		%	to loans and leases held for investment	0.34		%	0.51		%

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:


		June 30, 2021				March 31, 2021				Increase (Decrease)					March 31, 2022				December 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)													(In thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	32,065	$	—	$	46,436	$	5	$	(14,371)	$	(5)	Commercial	$	32,071	$	2,090	$	27,540	$	2,165	$	4,531	$	(75)
Income producing and other residential		6,133		2,179		2,471		6,339		3,662		(4,160)
Residential														Residential	17,463		31,103		12,292		39,929		5,171		(8,826)
Total real estate mortgage	Total real estate mortgage	38,198		2,179		48,907		6,344		(10,709)		(4,165)		Total real estate mortgage	49,534		33,193		39,832		42,094		9,702		(8,901)
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	284		—		302		—		(18)		—		Commercial	—		—		—		—		—		—
Residential	Residential	1,934		22,714		416		1,241		1,518		21,473		Residential	6,215		21,413		4,715		5,031		1,500		16,382
Total real estate construction and land	Total real estate construction and land	2,218		22,714		718		1,241		1,500		21,473		Total real estate construction and land	6,215		21,413		4,715		5,031		1,500		16,382
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	1,973		—		2,379		—		(406)		—		Asset-based	1,323		—		1,464		—		(141)		—
Venture capital	Venture capital	2,717		—		2,432		6,750		285		(6,750)		Venture capital	3,659		—		2,799		—		860		—
Other commercial	Other commercial	11,337		270		12,660		1,251		(1,323)		(981)		Other commercial	5,420		47		11,950		630		(6,530)		(583)
Total commercial	Total commercial	16,027		270		17,471		8,001		(1,444)		(7,731)		Total commercial	10,402		47		16,213		630		(5,811)		(583)
Consumer	Consumer	360		1,454		556		954		(196)		500		Consumer	387		994		414		1,004		(27)		(10)
Total held for investment	Total held for investment	$	56,803	$	26,617	$	67,652	$	16,540	$	(10,849)	$	10,077	Total held for investment	$	66,538	$	55,647	$	61,174	$	48,759	$	5,364	$	6,888

7870

~~The increase in 30-89 days delinquent residential construction loans in~~During the ~~second~~first 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 second quarter of 2021,~~2022, nonaccrual loan and leases held for investment ~~decreased~~ increased by ~~$10.8~~$5.4 million to ~~$56.8~~$66.5 million at ~~June 30, 2021~~March 31, 2022 due mainly to additions of $30.4 million, offset partially by charge-offs of ~~$0.5~~$2.0 million, returns to accrual status of $3.0 million, and principal ~~payments~~ and other reductions of ~~$26.7 million, offset partially by additions of $16.3~~$20.1 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 ~~June 30, 2021,~~March 31, 2022, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of ~~$12.9~~$21.6 million and represented ~~23%~~32% 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:


		June 30,		March 31,		December 31,		June 30,			March 31,		December 31,
Property Type	Property Type	2021		2021		2020		2020		Property Type	2022		2021
		(In thousands)									(In thousands)
Commercial real estate	Commercial real estate	$	12,594	$	13,612	$	12,979	$	28	Commercial real estate	$	—	$	12,594
Single-family residence		—		—		—		—
Construction and land development		219		219		219		219

Multi-family										Multi-family	304		—
Total OREO, net	Total OREO, net	12,813		13,831		13,198		247		Total OREO, net	304		12,594
Other foreclosed assets	Other foreclosed assets	414		467		829		1,202		Other foreclosed assets	—		249
Total foreclosed assets, net	Total foreclosed assets, net	$	13,227	$	14,298	$	14,027	$	1,449	Total foreclosed assets, net	$	304	$	12,843

During the ~~second~~first quarter of ~~2021,~~2022, foreclosed assets decreased by ~~$1.1~~$12.5 million to ~~$13.2~~$0.3 million at ~~June 30, 2021~~March 31, 2022 due mainly to sales of ~~$1.1~~$12.8 million, offset partially by additions of $0.3 million. In the first quarter of 2022, we sold our largest foreclosed asset with a book value of $12.6 million, which resulted in a gain on sale of $3.2 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:


		June 30, 2021			March 31, 2021			December 31, 2020				March 31, 2022			December 31, 2021
				Number			Number			Number				Number			Number
				of			of			of				of			of
Performing TDRs	Performing TDRs	Balance		Loans	Balance		Loans	Balance		Loans	Performing TDRs	Balance		Loans	Balance		Loans
		(Dollars in thousands)										(Dollars in thousands)
Real estate mortgage	Real estate mortgage	$	6,415	19	$	6,584	20	$	6,631	20	Real estate mortgage	$	6,154	18	$	6,204	18
Real estate construction and land	Real estate construction and land	1,439		1	1,445		1	1,451		1	Real estate construction and land	1,422		1	1,428		1
Commercial	Commercial	32,250		20	19,944		23	6,146		21	Commercial	9,181		22	16,773		24
Consumer	Consumer	25		1	26		1	26		1	Consumer	24		1	25		1
Total performing TDRs held for investment	Total performing TDRs held for investment	$	40,129	41	$	27,999	45	$	14,254	43	Total performing TDRs held for investment	$	16,781	42	$	24,430	44

During the ~~second~~first quarter of ~~2021,~~2022, performing TDRs held for investment ~~increased~~decreased by $~~12.1~~7.6 million to $~~40.1~~16.8 million at ~~June 30, 2021~~March 31, 2022 attributable primarily to ~~the addition of a $13.2 million security monitoring loan, offset by principal~~ payments and other reductions of ~~$1.1~~$7.6 million.

7971

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:


		June 30,		March 31,		December 31,		June 30,			March 31,		December 31,
Loan and Lease Credit Risk Ratings	Loan and Lease Credit Risk Ratings	2021		2021		2020		2020		Loan and Lease Credit Risk Ratings	2022		2021
		(Dollars in thousands)									(In thousands)
Pass	Pass	$	18,822,938	$	18,183,114	$	18,096,830	$	18,635,004	Pass	$	23,892,689	$	22,433,833
Special mention	Special mention	536,052		632,997		721,285		766,397		Special mention	377,315		391,611
Classified	Classified	147,267		163,117		265,262		293,230		Classified	82,068		116,104
Total loans and leases held for investment, net of deferred fees	Total loans and leases held for investment, net of deferred fees	$	19,506,257	$	18,979,228	$	19,083,377	$	19,694,631	Total loans and leases held for investment, net of deferred fees	$	24,352,072	$	22,941,548

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 ~~second~~first quarter of ~~2021,~~2022, classified loans and leases decreased by ~~$15.9~~$34.0 million to ~~$147.3~~$82.1 million at ~~June 30, 2021~~March 31, 2022 due mostly to ~~a decrease~~decreases of $26.7 million in commercial real estate mortgage loans and $12.7 million in other commercial loans, offset partially by an increase of ~~$14.6~~$5.1 million in ~~commercial~~residential real estate mortgage loans. Classified loans and leases peaked in the second quarter of 2020 at $293.2 million.

During the ~~second~~first quarter of ~~2021,~~2022, special mention loans and leases decreased by ~~$96.9~~$14.3 million to ~~$536.1~~$377.3 million at ~~June 30, 2021~~March 31, 2022 due mainly to decreases of ~~$55.5~~$23.6 million in commercial real estate mortgage loans, $17.9 million in asset-based loans and $6.4 million in residential real estate mortgage loans, offset partially by increases of $22.3 million in venture capital loans and ~~$39.4~~$14.1 million in ~~asset-based~~commercial real estate construction and land loans. Special mention loans and leases peaked in the first quarter of 2020 at $898.7 million, as we proactively downgraded certain loans at the onset of 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:


		June 30, 2021				March 31, 2021				Increase (Decrease)					March 31, 2022				December 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	$	62,827	$	242,159	$	77,444	$	254,463	$	(14,617)	$	(12,304)	Commercial	$	35,463	$	168,240	$	62,206	$	191,809	$	(26,743)	$	(23,569)
Income producing and other residential		12,681		60,843		9,064		63,231		3,617		(2,388)
Residential														Residential	22,844		13,450		17,700		19,848		5,144		(6,398)
Total real estate mortgage	Total real estate mortgage	75,508		303,002		86,508		317,694		(11,000)		(14,692)		Total real estate mortgage	58,307		181,690		79,906		211,657		(21,599)		(29,967)
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	284		67,292		302		66,790		(18)		502		Commercial	—		68,864		—		67,727		—		1,137
Residential	Residential	1,934		8,234		416		602		1,518		7,632		Residential	6,215		15,780		4,715		1,720		1,500		14,060
Total real estate construction and land	Total real estate construction and land	2,218		75,526		718		67,392		1,500		8,134		Total real estate construction and land	6,215		84,644		4,715		69,447		1,500		15,197
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	24,351		102,734		24,941		142,122		(590)		(39,388)		Asset-based	4,449		60,367		4,591		78,305		(142)		(17,938)
Venture capital	Venture capital	5,708		33,910		8,727		89,423		(3,019)		(55,513)		Venture capital	3,722		37,083		4,794		14,833		(1,072)		22,250
Other commercial	Other commercial	39,005		18,340		41,597		13,535		(2,592)		4,805		Other commercial	8,911		10,914		21,659		15,528		(12,748)		(4,614)
Total commercial	Total commercial	69,064		154,984		75,265		245,080		(6,201)		(90,096)		Total commercial	17,082		108,364		31,044		108,666		(13,962)		(302)
Consumer	Consumer	477		2,540		626		2,831		(149)		(291)		Consumer	464		2,617		439		1,841		25		776
Total	Total	$	147,267	$	536,052	$	163,117	$	632,997	$	(15,850)	$	(96,945)	Total	$	82,068	$	377,315	$	116,104	$	391,611	$	(34,036)	$	(14,296)

8072

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 ~~June 30, 2021,~~March 31, 2022, 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%.

Regulatory capital requirements limit the amount of deferred tax assets that may be included when determining the amount of regulatory capital. Deferred tax asset amounts in excess of the calculated limit are disallowed from regulatory capital. At March 31, 2022, such disallowed amounts were $8,000 for the Company and $37.9 million for the Bank. No assurance can be given that the regulatory capital deferred tax asset limitation will not increase in the future or that the Company or Bank will not have increased deferred tax assets that are disallowed.

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 ~~June 30, 2021,~~March 31, 2022, 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 ~~June 30, 2021~~March 31, 2022 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 ~~June 30, 2021~~March 31, 2022 ranged from 0 basis points to 147 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					Minimum Required
			For Capital	For Capital	For Well			For Capital	For Capital	For Well
			Adequacy	Conservation	Capitalized			Adequacy	Conservation	Capitalized
		Actual	Purposes	Buffer	Classification		Actual	Purposes	Buffer	Classification
June 30, 2021
March 31, 2022						March 31, 2022
PacWest Bancorp Consolidated	PacWest Bancorp Consolidated					PacWest Bancorp Consolidated
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	7.67%	4.00%	4.00%	N/A	Tier 1 leverage capital ratio	7.11%	4.00%	N/A	N/A
CET1 capital ratio	CET1 capital ratio	10.41%	4.50%	7.00%	N/A	CET1 capital ratio	8.64%	4.50%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	10.41%	6.00%	8.50%	N/A	Tier 1 capital ratio	9.07%	6.00%	8.50%	N/A
Total capital ratio	Total capital ratio	14.99%	8.00%	10.50%	N/A	Total capital ratio	12.27%	8.00%	10.50%	N/A

Pacific Western Bank	Pacific Western Bank					Pacific Western Bank
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	8.47%	4.00%	4.00%	5.00%	Tier 1 leverage capital ratio	7.31%	4.00%	N/A	5.00%
CET1 capital ratio	CET1 capital ratio	11.51%	4.50%	7.00%	6.50%	CET1 capital ratio	9.32%	4.50%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	11.51%	6.00%	8.50%	8.00%	Tier 1 capital ratio	9.32%	6.00%	8.50%	8.00%
Total capital ratio	Total capital ratio	14.22%	8.00%	10.50%	10.00%	Total capital ratio	11.45%	8.00%	10.50%	10.00%

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			Minimum Required					Minimum Required
			For Capital	For Capital	For Well			For Capital	For Capital	For Well
			Adequacy	Conservation	Capitalized			Adequacy	Conservation	Capitalized
		Actual	Purposes	Buffer	Classification		Actual	Purposes	Buffer	Classification
December 31, 2020
December 31, 2021						December 31, 2021
PacWest Bancorp Consolidated	PacWest Bancorp Consolidated					PacWest Bancorp Consolidated
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	8.55%	4.00%	4.00%	N/A	Tier 1 leverage capital ratio	6.84%	4.00%	N/A	N/A
CET1 capital ratio	CET1 capital ratio	10.53%	4.50%	7.00%	N/A	CET1 capital ratio	8.86%	4.50%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	10.53%	6.00%	8.50%	N/A	Tier 1 capital ratio	9.32%	6.00%	8.50%	N/A
Total capital ratio	Total capital ratio	13.76%	8.00%	10.50%	N/A	Total capital ratio	12.69%	8.00%	10.50%	N/A

Pacific Western Bank	Pacific Western Bank					Pacific Western Bank
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	9.53%	4.00%	4.00%	5.00%	Tier 1 leverage capital ratio	7.00%	4.00%	N/A	5.00%
CET1 capital ratio	CET1 capital ratio	11.73%	4.50%	7.00%	6.50%	CET1 capital ratio	9.56%	4.50%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	11.73%	6.00%	8.50%	8.00%	Tier 1 capital ratio	9.56%	6.00%	8.50%	8.00%
Total capital ratio	Total capital ratio	12.99%	8.00%	10.50%	10.00%	Total capital ratio	11.80%	8.00%	10.50%	10.00%

Subordinated Debt

We issued or assumed through mergers subordinated debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. ~~On April 30, 2021,~~As of March 31, 2022, 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 debt totaled ~~$861.8~~$863.9 million. At March 31, 2022, $131.0 million ~~at June 30, 2021. At June 30, 2021, none~~ of the trust preferred securities ~~was~~were included in the Company's Tier I capital ~~under the phase-out limitations of Basel III,~~ and ~~$847.8~~$718.8 million were included in Tier II capital.

Dividends on Common Stock and Interest on Subordinated 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 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. Given the impact of the goodwill impairment charge on net earnings in the first quarter of 2020, we were required to receive approval from the FRB prior to declaring a dividend from March 31, 2020 through March 31, 2021, but are 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 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 ~~$3.3~~$3.6 billion at ~~June 30, 2021,~~March 31, 2022, of which all but $629.0 million was available on that date. The FHLB secured credit line was collateralized by a blanket lien on ~~$5.5~~$5.6 billion of certain qualifying loans. The Bank also had secured borrowing capacity with the FRBSF of ~~$1.4~~$2.4 billion at ~~June 30, 2021,~~March 31, 2022, all of which was available on that date. The FRBSF secured credit line was collateralized by liens on ~~$1.9~~$2.9 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 ~~June 30, 2021,~~March 31, 2022, there was noa $112.0 million 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 ~~June 30, 2021,~~March 31, 2022, the Bank had borrowed ~~nothing~~$250.0 million through the AFX.

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


		June 30,			March 31,			December 31,				March 31,			December 31,
Primary Liquidity - On-Balance Sheet	Primary Liquidity - On-Balance Sheet	2021			2021			2020			Primary Liquidity - On-Balance Sheet	2022			2021
		(Dollars in thousands)										(Dollars in thousands)
Cash and due from banks	Cash and due from banks	$	179,505		$	177,199		$	150,464		Cash and due from banks	$	205,446		$	112,548
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	5,678,587			5,517,667			3,010,197			Interest-earning deposits in financial institutions	1,865,235			3,944,686
Securities available-for-sale	Securities available-for-sale	7,198,608			5,941,690			5,235,591			Securities available-for-sale	9,975,109			10,694,458
Less: pledged securities	Less: pledged securities	(489,976)			(488,047)			(449,330)			Less: pledged securities	(558,004)			(532,418)
Total primary liquidity	Total primary liquidity	$	12,566,724		$	11,148,509		$	7,946,922		Total primary liquidity	$	11,487,786		$	14,219,274

Ratio of primary liquidity to total deposits	Ratio of primary liquidity to total deposits	42.4		%	39.5		%	31.9		%	Ratio of primary liquidity to total deposits	34.6		%	40.6		%


Secondary Liquidity - Off-Balance Sheet	Secondary Liquidity - Off-Balance Sheet	June 30,		March 31,		December 31,		Secondary Liquidity - Off-Balance Sheet	March 31,		December 31,
Available Secured Borrowing Capacity	Available Secured Borrowing Capacity	2021		2021		2020		Available Secured Borrowing Capacity	2022		2021
		(In thousands)							(In thousands)
Secured borrowing capacity with the FHLB	Secured borrowing capacity with the FHLB	$	3,307,329	$	3,459,294	$	3,330,715	Secured borrowing capacity with the FHLB	$	3,573,555	$	3,976,465
Less: secured advances outstanding	Less: secured advances outstanding	—		(5,000)		(5,000)		Less: secured advances outstanding	(629,000)		—
Available secured borrowing capacity with the FHLB	Available secured borrowing capacity with the FHLB	3,307,329		3,454,294		3,325,715		Available secured borrowing capacity with the FHLB	2,944,555		3,976,465
Available secured borrowing capacity with the FRBSF	Available secured borrowing capacity with the FRBSF	1,436,648		1,413,182		1,409,452		Available secured borrowing capacity with the FRBSF	2,410,630		1,380,191
Total secondary liquidity	Total secondary liquidity	$	4,743,977	$	4,867,476	$	4,735,167	Total secondary liquidity	$	5,355,185	$	5,356,656

During the three months ended ~~June 30, 2021,~~March 31, 2022, the Company's primary liquidity ~~increased~~decreased by ~~$1.4~~$2.7 billion to ~~$12.6~~$11.5 billion at ~~June 30, 2021~~March 31, 2022 due mainly to a ~~$1.3~~$2.1 billion ~~increase in securities available-for-sale and a $160.9 million increase~~decrease in interest-earning deposits in financial ~~institutions. During the second quarter of 2021, the~~institutions and a $719.3 million decrease in securities available-for-sale. The Company's secondary liquidity ~~decreased by $123.5 million to $4.7~~was $5.4 billion at ~~June 30, 2021 due primarily to a $147.0 million decrease in secured borrowing capacity with the FHLB, offset partially by a $23.5 million increase in secured borrowing capacity with the FRBSF.~~both March 31, 2022 and December 31, 2021.

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 ~~June 30, 2021,~~March 31, 2022, core deposits totaled ~~$27.0~~$31.7 billion and represented ~~91%~~95% 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.

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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 ~~June 30, 2021,~~March 31, 2022, brokered deposits totaled ~~$1.3 billion,~~$518.4 million, consisting primarily of ~~$1.1 billion~~$322.7 million of non-maturity brokered accounts and ~~$195.7~~$195.6 million of brokered time deposits. At December 31, ~~2020,~~2021, brokered deposits totaled ~~$1.3~~$1.1 billion, consisting mainly of ~~$1.1 billion~~$890.0 million of non-maturity brokered accounts and $195.7 million of brokered time 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 ~~June 30, 2021,~~March 31, 2022, 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. 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 debt. Approval by the FRB is 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 were required to receive approval from the FRB, as described above, prior to declaring a 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 had a net loss of ~~$256.7~~$155.3 million during the three fiscal years of 2021, 2020, ~~2019,~~ and ~~2018,~~2019, compared to dividends of ~~$1.3 billion~~$776.0 million paid by the Bank during that same period. During the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, PacWest received $33.0 ~~million and $66.0~~ million in dividends from the Bank. Since the Bank had an accumulated deficit of ~~$1.7~~$1.4 billion at ~~June 30, 2021,~~March 31, 2022, 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 of 2007-2008.

At ~~June 30, 2021,~~March 31, 2022, PacWest had ~~$133.4~~$173.7 million in cash and cash equivalents, of which substantially all iswas 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.

Stock Repurchase Program

On February 15, 2022, PacWest's Board of Directors authorized a new Stock Repurchase Program, effective March 1, 2022, to repurchase shares of its common stock for an aggregate purchase price not to exceed $100 million with a program maturity date of February 28, 2023.

~~Contractual Obligations~~

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

Due After Due After
Due One Year Three Years Due
Within Through Through After
June 30, 2021 One Year Three Years Five Years Five Years Total
(In thousands)
Time deposits $ 1,238,447 $ 168,107 $ 79,348 $ — $ 1,485,902
Short-term borrowings 6,625 — — — 6,625
Long-term debt obligations (1)
— — — 942,352 942,352
Contractual interest (2)
14,891 28,153 25,558 — 68,602
Operating lease obligations 35,231 59,113 31,109 28,309 153,762
Other contractual obligations 76,958 113,426 11,150 25,822 227,356
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 debt instruments.~~

~~Long-term debt obligations include subordinated debt. Debt obligations are also discussed in Note 10.~~ ~~Borrowings and Subordinated 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 Form 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 ~~June 30, 2021,~~March 31, 2022, our loan commitments and standby letters of credit were ~~$7.9~~$9.9 billion and ~~$343.7~~$321.7 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 ~~12.~~11. 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 and Qualitative Disclosures About Market Risk" in our Form 10-K, 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 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 to hedge exposures to 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 ~~June 30, 2021,~~March 31, 2022, the U.S. Dollar notional amounts of subordinated debt payable denominated in foreign currencies was ~~$30.6~~$28.5 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures was $28.5 million. We recognized a foreign currency translation net gain of ~~$218,000~~$1.2 million for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and a foreign currency translation net ~~loss~~gain of ~~$614,000~~$358,000 for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

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 ~~June 30, 2021,~~March 31, 2022, 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 ~~June 30, 2021.~~March 31, 2022. 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 ~~June 30, 2021.~~March 31, 2022. In order to arrive at the base case, we extend our balance sheet at ~~June 30, 2021~~March 31, 2022 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of ~~June 30, 2021.~~March 31, 2022. 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~~almost half of our loans are variable rate ~~that~~(excluding hybrid loans), which 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 ~~June 30, 2021~~March 31, 2022 assumes interest-bearing deposits reprice at ~~28%~~ ofat 30% 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
June 30, 2021		(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
March 31, 2022							March 31, 2022	(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	$	1,296.5	25.1%	4.08%	0.82%	Up 300 basis points	$	1,465.4	10.4%	3.98%	0.37%
Up 200 basis points	Up 200 basis points	$	1,192.6	15.1%	3.75%	0.49%	Up 200 basis points	$	1,418.4	6.8%	3.86%	0.25%
Up 100 basis points	Up 100 basis points	$	1,101.1	6.3%	3.47%	0.21%	Up 100 basis points	$	1,375.3	3.6%	3.74%	0.13%
BASE CASE	BASE CASE	$	1,036.1	—	3.26%	—	BASE CASE	$	1,327.5	—	3.61%
Down 25 basis points	Down 25 basis points	$	1,033.3	(0.3)%	3.25%	(0.01)%	Down 25 basis points	$	1,321.9	(0.4)%	3.59%	(0.02)%
Down 50 basis points	Down 50 basis points	$	1,026.4	(0.9)%	3.23%	(0.03)%	Down 50 basis points	$	1,315.6	(0.9)%	3.58%	(0.03)%
Down 100 basis points	Down 100 basis points	$	1,022.0	(1.4)%	3.22%	(0.04)%	Down 100 basis points	$	1,293.8	(2.5)%	3.52%	(0.09)%

During the ~~second~~first quarter of ~~2021,~~2022, total base case year 1 tax equivalent NII increased by ~~$1.7~~$144.1 million to ~~$1.0~~$1.3 billion at ~~June 30, 2021,~~March 31, 2022, and the base case tax equivalent NIM ~~decreased~~increased to ~~3.26%~~3.61% at March 31, 2022 from ~~3.48%.~~3.17% at December 31, 2021. The increase in year 1 NII and tax equivalent NIM compared to ~~March~~the December 31, 2021 forecasted NII and NIM was attributable to ~~balance sheet growth (interest-earning deposits~~the shift in ~~financial institutions, investment securities, and loans and leases), offset partially by lower loan yields. The tax equivalent NIM decreased due to~~ the ~~lower loan yields and the earning~~mix of interest-earning assets ~~mix shift~~resulting from the increase in loans and leases and the ~~balance of low yielding~~decrease in interest-earning deposits in financial institutions, ~~during~~and the ~~second quarter~~impact of ~~2021.~~the increase in the implied forward yield curve. The implied forward yield curve for December 31, 2021 included three 25 basis points rate hikes, while the implied forward yield curve for March 31, 2022 included nine 25 basis points rate hikes.

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 Severe” scenario, when short-term rates increase faster than long-term rates. In the “Bear Flattener Severe” scenario, Year 1 tax equivalent NII increases by~~4.79%~~ 4.5%. Be~~cause~~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.

8779

At ~~June 30, 2021,~~March 31, 2022, we had ~~$19.6~~$24.4 billion of total loans that included ~~$10.9~~$11.1 billion with variable interest rate terms (excluding hybrid loans discussed below). Of the variable interest rate loans, ~~$9.1~~$9.8 billion, or ~~83%~~88%, contained interest rate floor provisions, which included ~~$9.0~~$6.5 billion of loans at or below their floors and $3.3 billion of loans that are above their floors and will reprice with ~~"in-the-money" floors, meaning the loan coupon will not adjust down if there are~~ future ~~decreases to the index interest rate.~~rate increases. The following table summarizes the ~~estimated balance~~amount of loans ~~with "in-the-money"~~at or below their floors ~~for~~that will reprice based on the indicated increases in interest rates:


~~June 30, 2021~~March 31, 2022
	~~Total Amount of~~Variable Rate
	Loans ~~With~~At or Below
	Their Floors That
Basis Points of	~~"In-the-Money"~~Will Reprice As
Rate Increases	~~Loan Floors~~Rates Increase
	(~~Dollars in~~In millions)
50 bps	$~~5,932~~	2,598
100 bps	~~$3,728~~1,972
150 bps	~~$2,518~~910
200 bps	~~$1,044~~872
250 bps	177
300 bps	4
400 bps	2
Total	$76	6,535

At ~~June 30, 2021,~~March 31, 2022, we also had ~~$2.9~~$4.5 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 ~~$144.5~~$146.6 million, ~~$486.2~~$508.2 million, and ~~$925.1~~$945.6 million in the next one, two, and three years.

LIBOR is expected to be phased out ~~after 2021,~~in 2023, as such the Company ~~is assessing the impacts~~stopped originations of ~~this transition and exploring alternatives to use in place of LIBOR.~~LIBOR-indexed loans effective December 31, 2021. The business processes impacted relate primarily to our variable-rate loans and our subordinated debt, both of which are indexed to LIBOR. For further information, see Item ~~1A.~~7A. "Risk Factors" of our Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2021.

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 ~~June 30, 2021.~~

March 31, 2022.

8880

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
June 30, 2021		of Equity		From Base		From Base		Assets		to Book Value
March 31, 2022												March 31, 2022	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	$	6,927.4	$	882.7	14.6	%	19.9	%	180.1	%	Up 300 basis points	$	9,968.7	$	1,034.8	11.6	%	25.4	%	273.1	%
Up 200 basis points	Up 200 basis points	$	6,661.4	$	616.7	10.2	%	19.1	%	173.2	%	Up 200 basis points	$	9,715.8	$	781.9	8.8	%	24.8	%	266.1	%
Up 100 basis points	Up 100 basis points	$	6,361.2	$	316.5	5.2	%	18.2	%	165.4	%	Up 100 basis points	$	9,372.1	$	438.2	4.9	%	23.9	%	256.7	%
BASE CASE	BASE CASE	$	6,044.7	$	—	—	%	17.3	%	157.1	%	BASE CASE	$	8,933.9	$	—	—	%	22.8	%	244.7	%
Down 50 basis points	Down 50 basis points	$	5,885.1	$	(159.6)	(2.6)	%	16.9	%	153.0	%	Down 50 basis points	$	8,670.3	$	(263.6)	(3.0)	%	22.1	%	237.5	%
Down 100 basis points	Down 100 basis points	$	5,771.4	$	(273.3)	(4.5)	%	16.6	%	150.0	%	Down 100 basis points	$	8,329.7	$	(604.2)	(6.8)	%	21.2	%	228.2	%

During the ~~second~~first quarter of ~~2021,~~2022, total base case projected market value of equity increased from December 31, 2021 by ~~$45.3~~$262.1 million to ~~$6.0 billion.~~$8.9 billion at March 31, 2022. This increase in base case projected MVE was due mostly to: (1) a ~~$192.5~~$1.6 billion decrease in the mark-to-market adjustment for total deposits, borrowings, and subordinated debt; offset partially by (2) a $952.4 million ~~increase~~decrease in the mark-to-market adjustment for loans and leases; and (3) a $349.0 million decrease in the book value of stockholders' equity due mainly to ~~$180.5~~a $442.4 million ~~of net earnings and a $39.1 million increase~~decline in accumulated other comprehensive income and $29.8 million of cash dividends paid, offset partially by ~~$29.9~~$120.1 million of cash dividends 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.net earnings.

8981

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 ~~12.~~11. 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" section of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. See also "Forward-Looking Information" disclosed in Part I, Item 2 of this quarterly report on Form 10-Q.

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

The following table presents stock purchases made during the ~~second~~first quarter of ~~2021:~~2022:

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 —


				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)
	(Dollars in thousands, except per share amounts)
January 1 - January 31, 2022	31,081	$	46.43	—	$	—
February 1 - February 28, 2022	61,473	$	49.42	—	$	—
March 1 - March 31, 2022	—	$	—	—	$	100,000
Total	92,554	$	48.42	—

__________________________

(1) Shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.

(2) On February ~~12, 2020~~,15, 2022, PacWest's Board authorized a new Stock Repurchase Program, effective March 1, 2022, to ~~purchase~~repurchase shares of its common stock for an aggregate purchase price not to exceed ~~$200~~$100 million ~~effective~~ with a program maturity date of February ~~29, 2020~~.28, 2023. No shares ~~were~~have been repurchased under the new Stock Repurchase Program ~~prior to expiration on~~ ~~February 28, 2021~~.since its March 1, 2022 start date.

9082

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 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).~~
~~10.2~~			~~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).~~
~~10.3~~			~~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).~~
~~10.4~~			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).
~~10.5~~			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).
~~10.6~~			~~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).~~
~~10.7~~			~~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).~~
~~10.8~~			~~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 formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021, (ii) the Condensed Consolidated Statements of Earnings ~~(Loss)~~ for the three months ended ~~June 30, 2021,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020 and six months ended June 30, 2021 and 2020~~, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended ~~June 30, 2021,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020 and six months ended June 30, 2021 and 2020~~, (iv) the Condensed Consolidated Statement of Changes in Stockholders’ Equity for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~, (v) the Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 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.

9283

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:	~~August~~May 6, ~~2021~~2022	/s/ Bart R. Olson
		Bart R. Olson
		Chief Financial Officer and Principal Financial Officer

9384


	Three Months Ended June 30, 2021
			Real Estate
	Real Estate		Construction
	Mortgage		and Land		Commercial		Consumer		Total
	(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period	$	141,122	$	66,775	$	78,716	$	5,832	$	292,445
Charge-offs	(266)		(75)		(277)		(198)		(816)
Recoveries	4,882		0		1,029		60		5,971
Net (charge-offs) recoveries	4,616		(75)		752		(138)		5,155
Provision	(38,725)		(12,118)		(21,771)		614		(72,000)
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:
Balance, beginning of period	$	138,342	$	78,356	$	126,403	$	5,080	$	348,181



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

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

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


		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


			Due After		Due After
	Due		One Year		Three Years		Due
	Within		Through		Through		After
June 30, 2021	One Year		Three Years		Five Years		Five Years		Total
	(In thousands)
Time deposits	$	1,238,447	$	168,107	$	79,348	$	—	$	1,485,902
Short-term borrowings	6,625		—		—		—		6,625
Long-term debt obligations (1)	—		—		—		942,352		942,352
Contractual interest (2)	14,891		28,153		25,558		—		68,602
Operating lease obligations	35,231		59,113		31,109		28,309		153,762
Other contractual obligations	76,958		113,426		11,150		25,822		227,356
Total	$	1,372,152	$	368,799	$	147,165	$	996,483	$	2,884,599