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 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20192021
Commission File No. 001-36408
PACWEST BANCORP
(Exact name of registrant as specified in its charter)
Delaware33-0885320
(State or other jurisdiction of Incorporation)incorporation or organization)(I.R.S. Employer Identification No.)
9701 Wilshire Blvd., Suite 700
Beverly Hills,, CA90212
(Address of Principal Executive Offices, Including Zip Code)
(310) (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 sharePACWThe Nasdaq Stock Market, LLC
(Title of Each Class) (Trading Symbol) (Name of Exchange on Which Registered) 
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    þ  Yes     o  No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    o  Yes    þ  No
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.    þ  Yes     o  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).    þ  Yes     o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
☑Large accelerated filer☐Accelerated filer☐Non-accelerated filer
☐Smaller reporting company☐Emerging growth company
☐If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    ☐  Yes    þ  No
As of June 30, 2019,2021, the aggregate market value of the voting common stock held by non-affiliates of the registrant, computed by reference to the average high and low sales prices on The Nasdaq Global Select Market as of the close of business on June 28, 2019,30, 2021, was approximately $4.5$4.8 billion. Registrant does not have any nonvoting common equities.
As of February 14, 2020,16, 2022, there were 116,859,317were 117,319,693 shares of registrant's common stock outstanding, excluding 1,574,7932,313,065 shares of unvested restricted stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K will be found in the Company's definitive proxy statement for its 20202022 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, and such information is incorporated herein by this reference.

1

PACWEST BANCORP
20192021 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
PART I
PART I
Forward‑Looking Information
3
Available Information
45
Glossary of Acronyms, Abbreviations, and Terms
5
Item 1.Business
67
Item 1A.Risk Factors
2629
Item 1B.Unresolved Staff Comments
3844
Item 2.Properties
3844
Item 3.Legal Proceedings
3844
Item 4.Mine Safety Disclosure
3844
PART II
ITEM 5.Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
3945
ITEM 6.Selected Financial DataReserved
4247
ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
4448
ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk
8691
ITEM 8.Financial Statements and Supplementary Data
9095
ITEM 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
167178
ITEM 9A.Controls and Procedures
167178
ITEM 9B.Other Information
167178
ITEM 9C.Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
178
PART III
PART III
ITEM 10.Directors, Executive Officers and Corporate Governance
168179
ITEM 11.Executive Compensation
168179
ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
168179
ITEM 13.Certain Relationships and Related Transactions, and Director Independence
168179
ITEM 14.Principal Accountant Fees and Services
168179
PART IV
ITEM 15.Exhibits and Financial Statement Schedules
169180
ITEM 16.Form 10-K Summary
170181
SIGNATURES
171182





2

PART I
Forward-Looking Information
This Form 10-K 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 leasecredit 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-K 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. You should not place undue reliance on these statements as they involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those expressed in them. Actual results could differ materially from those anticipated in such forward-looking statements as a result of risks and uncertainties more fully described under "Item 1A. Risk Factors." Factors that might cause such differences include, but are not limited to:
•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 new variants of COVID-19;
•weaker than expected general business and economic conditions could adversely affect the Company’s revenues, the values of its assets and liabilities and negatively impact loan growth;
•our ability to compete effectively against other financial service providers in our markets including attracting and retaining qualified employees;markets;
•the effect of the current interest rate environment or impact of changes in interest rates or levels of market activity, especially on the fair value of our loan and investment portfolios;
economic •deterioration, weaker than expected improvement, or a recession thatother changes in the state of the economy or the markets in which we conduct business (including the levels of initial public offerings and mergers and acquisitions), which may affect the ability of borrowers to make contractual payments onrepay their loans and may affect 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 new CECLcurrent expected credit loss accounting standard on our provision for credit losses and allowance for loan and leasecredit losses;
•our ability to attract and retain 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, and/or changes in our asset or liability mix;mix, and/or changes to the cost of deposits and borrowings;
failure to adequately manage•impact of the benchmark interest rate reform in the U.S. including the transition away from LIBOR as athe U.S. dollar London Inter-bank Offering Rate ("LIBOR") to alternative reference rate;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;
our ability to complete 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;
•legislative or regulatory requirements or changes, including an increase toof capital requirements, and increased political and regulatory uncertainty;
Severe weather, natural disasters, acts of war or terrorism, public health issues, or other adverse external events could harm our business;
•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;
3

•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 failure, interruption or breach of security of our systems or the systems of our contracted vendors;
•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-K and other documents filed or furnished by PacWest with the SEC.
All forward-looking statements included in this Form 10-K 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.
4

Available Information
We maintain a website for the BankCompany at http://www.pacwest.com. Via the “Investor Relations” link at the Bank’sCompany's website, our Annual Report on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available, free of charge, as soon as reasonably practicable after such forms are electronically filed with, or furnished to, the SEC. The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You may obtain copies of the Company’s filings on the SEC website. These documents may also be obtained in print upon request by our stockholders to our Investor Relations Department.
We have adopted a written Code of Business Conduct and Ethics that applies to all directors, officers and employees, including our principal executive officer and senior financial officers, in accordance with Section 406 of the Sarbanes‑Oxley Act of 2002 and the rules of the SEC promulgated thereunder and it is available via the "Investor Relations" link at the Bank's website in the section titled “Corporate Governance.” Any changes in, or waivers from, the provisions of this code of ethics that the SEC requires us to disclose are posted on our website in such section. In the Corporate Governance section of our website, we have also posted the charters for our Audit Committee, Compensation, Nominating and Governance Committee, Asset/Liability Management Committee, and Risk Committee, as well as our Corporate Governance Guidelines. In addition, information concerning purchases and sales of our equity securities by our executive officers and directors is posted on our website.
Documents available on the website are available in print to any stockholder who requests them in writing to our Investor Relations Department at PacWest Bancorp, 9701 Wilshire Blvd., Suite 700, Beverly Hills, CA 90212, Attention: Investor Relations, or via e‑mail to investor‑relations@pacwestbancorp.com.relations@pacwest.com.
All website addresses given in this document are for information only and are not intended to be an active link or to incorporate any website information into this document.
















5

Glossary of Acronyms, Abbreviations, and Terms
The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-K, including "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data."
AFXACLAllowance for Credit LossesFRBSFFederal Reserve Bank of San Francisco
AFXAmerican Financial ExchangeFSOCFinancial Stability Oversight Council
ALLLAllowance for Loan and Lease LossesIPOGDPInitial Public OfferingGross Domestic Product
ALMAsset Liability ManagementIRRHOA BusinessHomeowners Association Services Division of MUFG Union Bank, N.A. (a business acquired on October 8, 2021)
ASCAccounting Standards CodificationIRRInterest Rate Risk
ASCASUAccounting Standards CodificationUpdateLIBORLondon Inter-bank Offering Rate
ASUATMAccounting Standards UpdateAutomated Teller MachineLIHTCLow Income Housing Tax Credit
ATMAutomated Teller MachineMBSMortgage-Backed Securities
Basel IIIA comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013MVEMBSMarket Value of EquityMortgage-Backed Securities
BHCABank Holding Company Act of 1956, as amendedNIIMVENet Interest IncomeMarket Value of Equity
BOLIBank Owned Life InsuranceNIMNAVNet Asset Value
CARES ActCoronavirus Aid, Relief, and Economic Security ActNIINet Interest MarginIncome
BrexitCDIBritain Exit (from the European Union)NSFNon-Sufficient Funds
CDICore Deposit Intangible AssetsNon-PCINIMNon-Purchased Credit ImpairedNet Interest Margin
CECLCurrent Expected Credit LossOCCNSFNon-Sufficient Funds
CET1Common Equity Tier 1OCCOffice of the Comptroller of the Currency
CET1CFPBCommon Equity Tier 1Consumer Financial Protection BureauOFACU.S Treasury Department of Office of Foreign Assets Control
CFPBCivicConsumerCivic Financial Protection BureauOREOOther Real Estate Owned
CMOsCollateralized Mortgage ObligationsPATRIOT ActUniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
CPIConsumer Price IndexPCIPurchased Credit Impaired
CRACommunity Reinvestment ActPD/LGDProbability of Default/Loss Given Default
CRICustomer Relationship Intangible AssetsPRSUsPerformance-Based Restricted Stock Units
CUBCU BancorpServices, LLC (a company acquired on October 20, 2017)February 1, 2021)PWAMOREOOther Real Estate Owned
CMOsCollateralized Mortgage ObligationsPPPPaycheck Protection Program
Core DepositsIncludes noninterest-bearing checking accounts, interest checking accounts, money market accounts, and savings accountsPRSUsPerformance-Based Restricted Stock Units
COVID-19Coronavirus DiseasePWAMPacific Western Asset Management Inc.
CU BankCPICalifornia United Bank (a wholly-owned subsidiary of CUB)Consumer Price IndexROURight-of-use
DBOCRACommunity Reinvestment ActSBASmall Business Administration
CRICustomer Relationship Intangible AssetsSBICSmall Business Investment Company
DFPICalifornia Department of Business OversightFinancial Protection and InnovationSBASECSmall Business AdministrationSecurities and Exchange Commission
DGCLDelaware General Corporation LawSECSNCsSecurities and Exchange CommissionShared National Credits
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection ActSNCsSOFRShared National Credits
DTAsDeferred Tax AssetsSOFRSecured Overnight Financing Rate
DTAsDeferred Tax AssetsTax Equivalent Net Interest IncomeNet interest income reflecting adjustments related to tax-exempt interest on certain loans and investment securities
Efficiency RatioNoninterest expense (less intangible asset amortization, net foreclosed assets income/expense (income), goodwill impairment, and acquisition, integration and reorganization costs) divided by net revenues (the sum of tax equivalent net interest income plus noninterest income, less gain/loss on sale of securities and gain/loss on sales of assets other than loans and leases)Tax Equivalent Net Interest IncomeNet interest income reflecting adjustments related to tax-exempt interest on certain loans and investment securities
FASBFinancial Accounting Standards BoardTax Equivalent NIMNIM reflecting adjustments related to tax-exempt interest on certain loans and investment securities
FDIAFASBFinancial Accounting Standards BoardTDRsTroubled Debt Restructurings
FDIAFederal Deposit Insurance ActTCJATRSAsTax Cuts and Jobs ActTime-Based Restricted Stock Awards
FDICFederal Deposit Insurance CorporationTDRsTruPSTroubled Debt RestructuringsTrust Preferred Securities
FDICIAFederal Deposit Insurance Corporation Improvement ActTRSAsU.S. GAAPTime-Based Restricted Stock AwardsU.S. Generally Accepted Accounting Principles
FHLBFederal Home Loan Bank of San FranciscoTruPSVIETrust Preferred SecuritiesVariable Interest Entity
FRBBoard of Governors of the Federal Reserve SystemU.S. GAAPU.S. Generally Accepted Accounting Principles
FRBSFFederal Reserve Bank of San FranciscoVIEVariable Interest Entity


6

ITEM 1. BUSINESS
General
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.
The Bank is focused on relationship-based business banking to small, middle-market, and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 7469 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 through its Community Banking, National Lending and Venture Banking groups. Community Bankingcountry. The Bank provides real estate loans, commercial loans,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. National Lending providesThe 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. Venture Banking offers loans andThe Bank also 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 innovationinnovative 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 aan SEC-registered investment adviser.
PacWest Bancorp was established in October 1999 and has achieved strong market positions by developing and maintaining extensive local relationships in the communities we serve. By leveraging our business model, service-driven focus, and presence in attractive markets, as well as maintaining a highly efficient operating model and robust approach to risk management, we have achieved significant and profitable growth, both organically and through disciplined acquisitions. We have successfully completed 2931 acquisitions since 2000, including the Civic acquisition on February 1, 2021 and the HOA Business acquisition on October 8, 2021, which have contributed to our growth and expanded our market presence throughout the United States. For more information regarding the Civic and HOA Business acquisitions, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Events.”
As of December 31, 2019,2021, the Company had total assets of $26.8$40.4 billion, total loans and leases, net of deferred fees, of $18.8$22.9 billion, total deposits of $19.2$35.0 billion, and stockholders’ equity of $5.0$4.0 billion.
Our Business Strategy
Our business strategy is to operate a client-focused, well-capitalized and profitable nationwide bank dedicated to providing personal service to our business and individual customers. We believe that stable, long-term growth and profitability are the result of building strong customer relationships while maintaining disciplined credit underwriting standards. We continue to focus on originating high-quality loans and leases and growing our low-cost deposit base through our relationship-based business lending. These principles enable us to maintain operational efficiency, increase profitability, increase core deposits, and grow loans and leases in a sound manner.
Our loan and lease portfolio consists primarily of real estate mortgage loans, real estate construction and land loans, and commercial loans and leases. We pursue attractive growth opportunities to expand and enter new markets aligned with our business model and strategic plans. Additionally, we focus on cultivating strong relationships with venture capital and private equity and venture capital firms nationwide, many of which are also our clients and/or may invest in our clients.
Our reputation, expertise, and relationship-based business banking model enable us to deepen our relationships with our customers. We leverage our relationships with existing customers by providing access to an array of our products and services, including attracting deposits from and offering cash management solutions to our loan and lease customers. We competitively price our deposit products to meet the needs of our customers with a view to maximizing our share of each customer's financial services business and prudently managing our cost of funds.

7



Focusing on operational efficiency is critical to our profitability and future growth. We carefully manage our cost structure and continuously refine and implement internal processes and systems to create further efficiencies to enhance our earnings.
Our management team has extensive expertise and a successful track record in evaluating, executing and integrating attractive, franchise-enhancing acquisitions. We have successfully completed 2931 acquisitions since 2000, including the CUBCivic acquisition on February 1, 2021 and the HOA Business acquisition on October 20, 2017.8, 2021. We will continue to consider acquisitions that are consistent with our business strategy and financial model as opportunities arise.
Depository Products and Services
Deposits are our primary source of funds to support our interest-earning assets and provide a source of stable low-cost funds and deposit-related fee income. We offer traditional deposit products to businesses and other customers with a variety of rates and terms, including demand, money market, and time deposits. We also provide international banking services, multi-state deposit services, and asset management services. The Bank’s deposits are insured by the FDIC up to statutory limits.
Our branch network allows us to gather deposits, expand our brand presence and service our customers’ banking and cash management needs. In addition, as banking customers now expect on-line and mobile banking tools for conducting basic banking functions, we are able toWe also serve our customers through a wide range of non-branch channels, including on-line,online, mobile, remote deposit, and telephone banking platforms, all of which allows us to expand our service area to attract new depositors without a commensurate increase in branch locations or branch traffic.
At December 31, 2019,2021, we had ATMs at 5953 of our branches located in California andand one ATM atat our branch in Denver, Colorado. We are a member of the MoneyPass network that enables our customers to withdraw cash surcharge-free and service charge-free at over 25,00037,000 ATM locations across the country. We provide access to customer accounts via a 24 hour seven-day-a-week, toll-free, automated telephone customer service and secure on-lineonline banking services.
At December 31, 2019,2021, our total deposits consisted of $16.2$32.7 billion in core deposits, $2.5$1.4 billion in time deposits, and $496.4$890.0 million in non-core non-maturity deposits. Core deposits represented 84%93% of total deposits at December 31, 2019,2021, and were comprised of $7.2$14.5 billion in noninterest-bearing deposits, $4.7$10.2 billion in money market accounts, $3.8$7.3 billion in interest-bearing checking accounts, and $499.6$630.7 million in savings accounts. Our deposit base is also diversified by client type. As of December 31, 2019,2021, no individual depositor represented more than 1.2%1.7% of our total deposits, and our top ten depositors represented 7.5%11.2% of our total deposits.
We face strong competition in gathering deposits from nationwide, regional, and community banks, credit unions, money market funds, brokerage firms and other non-bank financial services companies that target the same customers as we do. We actively compete for deposits and emphasize solicitation of noninterest-bearing deposits. We seek to provide a higher level of personal service than our larger competitors, many of whom have more assets, capital and resources than we do and who may be able to conduct more intensive and broader based promotional efforts to reach potential customers. Our cost of funds fluctuates with market interest rates and may be affected by higher rates being offered by other financial institutions. In certain interest rate environments, additional significant competition for deposits may be expected to arise from corporate and government debt securities and money market mutual funds. Competition for deposits is also affected by the ease with which customers can transfer deposits from one institution to another.
Client Investment Funds
In addition to deposit products, we also offer select clients non-depository cash investment options through PWAM, our SEC registered investment adviser subsidiary, and third-party money market sweep products. PWAM provides customized investment advisory and asset management solutions. At December 31, 2019,2021, total off-balance sheet client investment funds were $1.5$1.4 billion, of which $1.2$0.9 billion was managed by PWAM. At December 31, 2018,2020, total off-balance sheet client investment funds were $1.9$1.3 billion, of which $1.5$1.0 billion was managed by PWAM.

8

Lending Activities
At December 31, 20192021 and 2018,2020, total loans and leases held for investment, net of deferred fees, were $18.8$22.9 billion and $18.0$19.1 billion. Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, purchased single-family residential mortgage loans, and a small amount of consumer loans. Our commercial real estate loans and real estate construction loans are secured by a variety of property types. Our commercial loans and leases portfolio is diverse and 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, securedloans to finance life insurance premiums, and business loans originated through our Community Banking group, and loans to security alarm monitoring companies. group. The Bank also offers financing of business-purpose non-owner-occupied investor properties through Civic, a wholly-owned subsidiary.
In October 2019, we decided to ceaseceased originating new security monitoring loans and healthcare real estate loans in our National Lending group. New technology is disrupting the security alarm business, causing increased customer acquisition costs and customer attrition, and thereby adversely impacting business models and valuations. We discontinued originations of healthcare real estate loans in our National Lending group upon the departure of the manager of this lending team. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Events - Ceased Originating Certain Loans” for additional information regarding ceased originations of our security monitoring and healthcare real estate loans.
We price loans to preserve our interest spread and maintain our net interest margin. Loan interest rates may be floating, fixed, or a combination thereof (“hybrid”) throughout the loan term. The rates on hybrid loans typically are fixed until a “reset” date when the rates then become floating. While we do not actively solicit direct consumer loans, we hold consumer loans, consisting primarily of purchased single-family residential mortgage loans and purchased private student loans originated and serviced by third-party lenders.for which the servicing is outsourced. We also have an additional exposure to consumer loans asthat are collateral for many of our lender finance & timeshare loans are secured by the receivables owed to our borrowers by individual consumers.loans.
Some of our loans are participations in larger loans, and these participations may be considered a SNC.shared national credits. A SNC is any loan or commitment to extend credit aggregating $100 million or more at origination, ($20 million or more prior to January 1, 2018), committed under a formal lending arrangement, and shared by three or more unaffiliated supervised institutions. The SNC program is governed by an inter-agency agreement among the FRB, the FDIC, and the OCC. These agencies review a selection of SNCs periodically, with such review conducted at the lead or agent bank, and deliver a credit risk rating to the participants holding the loans. At December 31, 20192021 and 2018,2020, we had SNC loans held for investment to 28to 21 borrowers that totaled $755$531 million and to 30to 25 borrowers that totaled $840$579 million. At December 31, 20192021 and 2018,2020, SNC loans held for investment comprised 4.0%2.3% and 4.7%3.0% of total loans and leases held for investment, net of deferred fees.
Real Estate Mortgage Loans and Real Estate Construction and Land Loans
Our real estate lending activities focus primarily on loans to professional developers and real estate investors for the acquisition, construction, refinancing, renovation, and on-going operation of commercial real estate. We also provide commercial real estate loans to borrowers operating businesses at these sites (owner occupied commercial real estate loans), including loans to municipalities, schools and school districts, and non-profit borrowers as part of our tax-exempt lending business line.
Our real estate secured loans include the following specific lending products:
•
•Commercial real estate mortgage. Our commercial real estate mortgage loans generally are collateralized by first deeds of trust on specific commercial properties. The most prevalent types of properties securing our commercial real estate loans are office properties, hotels, industrial properties, and retail properties. The properties are typically located in central business districts across the United States with a significant concentration of collateral properties located in California within our branch footprint. Our commercial real estate loans typically either have interest and principal payments due on an amortization schedule ranging from 25 to 30 years with a lump sum balloon payment due in one to ten years or may have an initial interest-only period followed by an amortization schedule with a lump sum balloon payment due in one to ten years. We also provide commercial real estate secured loans under the SBA's 7(a) Program and 504 Program. Compliant SBA 7(a) loans have an SBA guaranty for 75% of the principal balance. SBA 504 loans are first deed of trust mortgage loans on owner occupied commercial real estate which are 50% loan-to-value at origination where a second deed of trust is also provided by a non-profit certified development company. The SBA 7(a) and 504 mortgage loans repay on a twenty-five year amortization schedule.
9

•Income producing and other residential real estate mortgage. Our income producing and other residential real estate mortgage loans generally are collateralized by first deeds of trust on multi-family and other residential properties. Multi-family properties comprise the majority of our income producing and other residential real estate loans. Other types of properties securing these loans include for-rent and owner-occupied single-family properties and mobile home parks. We directly originate and purchase from other banks multi-family secured real estate mortgage loans. When we purchase multi-family loans from other banks, we re-underwrite the loans at time of purchase. Multi-family loans either repay on a 30-year amortization schedule or may have an initial interest-only period (up to two years) and then repay on a 30-year amortization schedule. We purchase single-family residential mortgage loans that meet our established lending criteria from multiple third-party lenders. Civic, a lending subsidiary, originates business-purpose loans to real estate investors for short-term bridge loans, longer-term loans secured by for-rent residential properties and, to a lesser extent, loans on multi-family properties.
•Real estate construction and land. Our real estate construction and land loans generally are collateralized by first deeds of trust on specific residential and commercial properties. The most prevalent types of properties securing our construction and land loans are multi-family, residential properties undergoing a substantial renovation, and hotel properties. Construction loans typically finance from 60% to 65% of the cost to construct residential and commercial properties. The terms are generally one to three years with short-term, performance-based extension options. Civic, a lending subsidiary, originates business-purpose loans secured by non-owner-occupied residential properties undergoing renovation.


•
Income producing and other residential real estate mortgage. Our income producing and other residential real estate mortgage loans generally are collateralized by first deeds of trust on multi-family and other for-rent, non-owner occupied residential properties. The most prevalent types of properties securing our income producing and other residential real estate loans are multi-family, condominium, pooled single-family rental properties, and individual single-family properties. We also purchase multi-family secured real estate mortgage loans from other banks due primarily to the favorable credit risk profile of multi-family loans. When we purchase multi-family loans from other banks, we re-underwrite the loans at time of purchase. Multi-family loans either repay on a 30-year amortization schedule or may have an initial interest-only period (up to two years) and then repay on a 30-year amortization schedule. We do not typically originate owner-occupied single-family mortgage loans but we do have a small portfolio of owner-occupied single-family mortgage loans stemming primarily from banks that we acquired.
•
Real estate construction and land. Our real estate construction and land loans generally are collateralized by first deeds of trust on specific residential and commercial properties. The most prevalent types of properties securing our construction and land loans are multi-family, hotel properties, and residential condominium properties. Construction loans typically finance from 40% to 70% of the cost to construct residential and commercial properties. The terms are generally one to three years with short-term, performance-based extension options. A very small component of this portfolio are single-family construction loans to qualifying home builders within our branch footprint.
Our real estate portfolio is subject to certain risks including, but not limited to, the following:
•increased competition in pricing and loan structure;
•the economic conditions of the United States and in the markets where we lend;
•decreased demand or decreased values as a result of legislative changes such as new rent control laws;laws, and permanent shifts in corporate work environment such as remote working and consumer behavior such as online retail;
•interest rate increases;
•decreased commercial and residential real estate values in the markets where we lend;
•the borrower's inability to repay our loan due to decreased cash flow or operating losses;
•the borrower’s inability to refinance or payoff our loan upon maturity;
•loss of our loan principal stemming from a collateral foreclosure; and
•various environmental risks, including natural disasters.
In addition to the points above, real estate construction loans are also subject to project-specific risks including, but not limited to, the following:
•construction costs being more than anticipated;
•construction taking longer than anticipated;
•failure by developers and contractors to meet project specifications or timelines;
•disagreement between contractors, subcontractors and developers;
•demand for completed projects being less than anticipated; and
•buyers of the completed projects not being able to secure permanent financing.




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Real estate mortgage loans include loans secured by healthcare properties, primarily skilled nursing facilities. In addition to the points above, for a healthcare real estate loan, we evaluate facility clinical compliance and quality of care, assess the loan-to-value using per bed limitations based on market information, and analyze the payor mix and state and federal revenue sources. In October 2019, we ceased the origination of healthcare real estate loans in our National Lending group and expect real estate mortgage loans secured by healthcare properties to be a smaller portion of our real estate mortgage loans in the future.
Many of the risks outlined above result from market conditions and are not controllable by us. When considering the markets in which to pursue real estate loans, we consider the market conditions, our current loan portfolio concentrations by property type and by market, and our past experiences with the borrower, within the specific market, and with the property type.
When underwriting real estate loans, we seek to mitigate risk by using the following framework:
•requiring borrowers to invest and maintain a meaningful cash equity interest in the properties securing our loans;
•reviewing each loan request and renewal individually;
•using a credit committee approval process for the approval of each loan requestrequests (or aggregated credit exposures) over a certain dollar amount;
•adhering to written loan acceptance standards, including among other factors, maximum loan to acquisition or construction cost ratios, maximum loan to as-is or stabilized value ratios, and minimum operating cash flow requirements;
•considering market rental and occupancy rates relative to our underwritten or projected rental and occupancy rates;
•considering the experience of our borrowers and our borrowers’ abilities to operate and manage the properties securing our loans;
•evaluating the supply of comparable real estate and new supply under construction in the collateral's market area;
•obtaining independent third-party appraisals that are reviewed by our appraisal department;
•obtaining environmental risk assessments; and
•obtaining seismic studies where appropriate.
With respect to real estate construction loans, in addition to the foregoing,points above, we attempt to mitigate project-specific risks by:
•considering the experience of our borrowers and our borrowers’ abilities to manage the properties during construction and into the stabilization periods;
•obtaining project completion guaranties from our borrowers;
•including covenants in our construction loan agreements that require the borrowers to fund costs that exceed the initial construction budgets;
•implementing a controlled disbursement process for loan proceeds in accordance with an agreed upon schedule, which usually results in the borrowers' equity being invested before loan advances commence and which ensures the costs to complete the projects are in balance with our remaining unfunded loan commitments;
•conducting project site visits and using construction consultants who review the progress of the project; and
•monitoring the construction costs compared to the budgeted costs and the remaining costs to complete.
SBA 7(a) and 504 program loans are subject to the risks outlined above and the risk that an SBA 7(a) guaranty may be invalid if specific SBA procedures are not followed. We seek to mitigate this risk by maintaining and adhering to additional policies specific to SBA loans which align with SBA requirements.

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Commercial Loans and Leases
Our commercial loans and leases portfolio is diverse and 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, securedloans to finance life insurance premiums, and business loans originated through our Community Banking group, and loans to security alarm monitoring companies.group.
Our commercial loans and leases include the following specific lending products:
•
•Lender finance & timeshare. These are loans to companies used to purchase finance receivables or extend finance receivables to the underlying obligors and are secured primarily by the finance receivables owed to our borrowers. The borrowers include lenders to small businesses, commercial real estate lenders, consumer lenders, and timeshare operators. The primary sources of repayment are the operating incomes of the borrowers and the collection of the finance receivables securing the loans. The loans are typically revolving lines of credit with terms of one to three years with contractual borrowing availability as a percentage of eligible collateral.
•Equipment finance. These are loans and leases used to purchase equipment essential to the operations of our borrowers or lessees. Equipment finance loans are secured by the equipment financed, and we own and lease the equipment to the lessees. The primary source of repayment is the operating income of the borrower or lessee. The loan and lease terms are two to ten years and generally amortize to either a full repayment or residual balance or investment that is expected to be collected through a sale of the equipment to the lessee or a third party.
•Other asset-based. These are loans used for working capital and are secured by trade accounts receivable and/or inventories. The primary sources of repayment are the operating incomes of the borrowers, the collection of the receivables securing the loans, and/or the sale of the inventories securing the loans. The loans are typically revolving lines of credit with terms of one to three years with contractual borrowing availability as a percentage of eligible collateral.
•Premium finance. These are loans used to finance annual life insurance premiums and are fully secured by the corresponding cash surrender values of the life insurance contracts and other collateral. The loans have one year terms and generally renew annually. The primary sources of repayment are the cash flow of the borrowers and guarantors, repayment from our loans being refinanced by other lenders, or the application of cash surrender value proceeds to the loans.
•Venture capital. These are loans directly to venture capital firms or loans to venture-backed companies. Equity fund loans are the loans made directly to venture capital firms, private equity funds, venture capital funds, and venture capital management companies to provide a bridge to the receipt of capital calls and to support the borrowers’ working capital needs, such as the cost of raising a new venture fund or leasehold improvements for new office space. The primary sources of repayment are receipt of capital calls, proceeds from sales of portfolio company investments, and management fees. The loan terms are generally one to four years, and the loans are typically secured by a first position lien on the assets of the business, an assignment of capital call rights and/or an assignment of management fees. Loans to venture-backed companies support the borrowers’ operations, including operating losses, working capital requirements, and fixed asset acquisitions. The borrowers are at various stages in their development (early, expansion, or late), and are, generally, reporting operating losses. The primary sources of repayment are future additional venture capital equity investments or the sale of the company or its assets. The loan terms are generally one to four years, and the loans are typically secured by a first priority, secured blanket lien on all corporate assets and/or a lien on intellectual property.
•Secured business. These are secured business loans originated through the Community Banking group. The primary source of repayment is the cash flow of the borrowers. The loans can be up to five years and are secured by a specific asset or assets of the borrower.
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•Security monitoring. In October 2019, we decided to no longer originate new security monitoring loans. The loans to security monitoring companies are loans to borrowers that provide business and residential security systems and the accompanying alarm monitoring services. Loans to security monitoring companies are secured primarily by the monitoring contracts between the borrowers and their customers. New technology is disrupting the security alarm business, causing increased customer acquisition costs and customer attrition and thereby adversely impacting business models and valuations. At December 31, 2021, loans to security monitoring companies totaled $89.6 million compared to $329.3 million at December 31, 2020.
•Other lending. Loans aggregated into the category of “Other lending” are various commercial loan types including Community Banking group business loans, loans to homeowner associations, loans to municipalities and non-profit borrowers, and SBA 7(a) loans for small business expansion. The primary sources of repayments for the Community Banking group business loans, non-profit borrowers, and SBA 7(a) business expansion loans are the operations of the borrowers. The primary sources of repayment for loans to municipalities are tax collections from their tax jurisdictions.
•Paycheck Protection Program. Loans made under provisions of the CARES Act to assist eligible businesses fund their operating costs during the COVID-19 pandemic. Under this program, the SBA guaranties 100% of the amounts loaned. Originations under this program occurred from March 2020 until May 2021 and totaled $1.65 billion. At December 31, 2021, the outstanding balance of these loans was $156.7 million. The loans have two or five year terms with a 1% loan coupon rate and origination fees that varied generally from 1% to 5% depending on the size of the loan. If the borrower meets certain requirements of the program, the loan can be forgiven by the SBA and the Bank would be paid off by the SBA prior to maturity.
•
Equipment finance. These are loans and leases used to purchase equipment essential to the operations of our borrower or lessee and are secured by the specific equipment financed. The primary source of repayment is the operating income of the borrower or lessee. The loan and lease terms are two to ten years and generally amortize to either a full repayment or residual balance or investment that is expected to be collected through a sale of the equipment to the lessee or a third party.
•
Other asset-based. These are loans used for working capital and are secured by trade accounts receivable and/or inventories. The primary sources of repayment are the operating incomes of the borrowers, the collection of the receivables securing the loans, and/or the sale of the inventories securing the loans. The loans are typically revolving lines of credit with terms of one to three years with contractual borrowing availability as a percentage of eligible collateral.
•
Premium finance. These are loans used to finance annual life insurance premiums and are fully secured by the corresponding cash surrender value of life insurance contracts and other liquid collateral with one year terms that, generally, renew annually. The primary sources of repayment are the cash flow of the borrowers and guarantors, repayment from our loans being refinanced by other lenders, or the application of cash surrender value proceeds to the loans.
•
Venture capital. These are loans directly to venture capital firms or loans to venture-backed companies. Equity fund loans are the loans made directly to venture capital firms, private equity funds, venture capital funds, and venture capital management companies to provide a bridge to the receipt of capital calls and to support the borrowers’ working capital needs, such as the cost of raising a new venture fund or leasehold improvements for new office space. The primary sources of repayment are receipt of capital calls, proceeds from sales of portfolio company investments, and management fees. The loan terms are generally one to four years, and the loans are typically secured by a first position lien on the assets of the business, an assignment of capital call rights and/or an assignment of management fees. Loans to venture-backed companies support the borrowers’ operations, including operating losses, working capital requirements, and fixed asset acquisitions. The borrowers are at various stages in their development (early, expansion, or late), and are, generally, reporting operating losses. The primary sources of repayment are future additional venture capital equity investments or the sale of the company or its assets. The loan terms are generally one to four years, and the loans are typically secured by a first priority, secured blanket lien on all corporate assets and/or a lien on intellectual property.
•
Secured business. These are secured business loans originated through the Community Banking group. The primary source of repayment is the cash flow of the borrowers. The loans can be up to five years and are secured by a specific asset or assets of the borrower.


•
Security monitoring. These are loans to security monitoring companies used to support the operations of companies that provide business and residential security systems and the accompanying alarm monitoring services. Loans to security monitoring companies are secured primarily by the monitoring contracts between the borrowers and their customers. The primary sources of repayment are the operating incomes of the borrowers, proceeds from the sales of security monitoring contracts to other monitoring companies, and proceeds from the sale of the borrowers themselves. The loans are typically revolving lines of credit with terms of one to three years with contractual borrowing availability as a ratio of the total recurring monthly billing amount from eligible monitoring contracts (collateral). Loans to security monitoring borrowers are usually considered leveraged loans. According to regulatory guidance, leveraged loans are typically loans where the proceeds are used for buyouts or acquisitions and where the resulting total debt levels are four or more times the annual adjusted earnings of the borrower. In October 2019, we decided to no longer originate new security monitoring loans. New technology is disrupting the security alarm business, causing increased customer acquisition costs and customer attrition and, thereby, adversely impacting business models and valuations.
•
Other lending. Loans aggregated into the category of “Other lending” are various commercial loan types including Community Banking group business loans secured by a blanket lien on the borrowers’ businesses, loans to homeowner associations, loans to municipalities and non-profit borrowers, and SBA 7(a) loans for small business expansion. The primary sources of repayments for the Community Banking group business loans, non-profit borrowers, and SBA 7(a) business expansion loans are the operations of the borrowers. The primary sources of repayment for loans to municipalities are tax collections from their tax jurisdictions.
•
Cash flow. Until December 2017, we actively originated cash flow loans to finance business acquisitions and recapitalizations to various types of borrowers, with greater emphasis on borrowers operating in the healthcare and technology industries. In December 2017, we exited most cash flow lending business lines, and agreed to sell $1.5 billion of cash flow loans (of which $481.1 million were held for sale at December 31, 2017 and were subsequently sold in the first quarter of 2018). At December 31, 2019, our remaining cash flow loans totaled $38.1 million.
Our portfolio of commercial loans and leases is subject to certain risks including, but not limited to, the following:
•the economic conditions of the United States;
•interest rate increases;
•deterioration of the value of the underlying collateral;
•increased competition in pricing and loan structure;
•denial of the SBA guaranty under the PPP loan program due to a deficiency in the manner a loan was originated or serviced, such as an issue with the eligibility of a borrower under the program;
•the deterioration of a borrower’s or guarantor’s financial capabilities; and
•various environmental risks, including natural disasters, which can negatively affect a borrower’s business.
When underwriting commercial loans and leases, we seek to mitigate risk by using the following framework:
•considering the prospects for the borrower's industry and competition;
•considering our past experience with the borrower and with the collateral type;
•considering our current loan and lease portfolio concentration by loan type and collateral type;
•reviewing each loan request and renewal individually;
•maintaining and adhering to additional policies specific to the PPP loan program;
•using our credit committee approval process for the approval of each loan request (or aggregate credit exposure) over a certain dollar amount; and
•adhering to written loan underwriting policies and procedures including, among other factors, loan structures and covenants.

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We actively manage real estate and commercial loans and seek to mitigate credit risk on most loans by using the following framework.
•monitoring the economic conditions in the regions or areas in which our borrowers are operating;
•measuring operating performance of our borrower or collateral and comparing it to our underwriting expectations;
•assessing compliance with financial and operating covenants as set forth in our loan agreements and considering the effects of incidences of noncompliance and taking corrective actions;
•assigning a credit risk rating to each loan and ensuring the accuracy of our credit risk ratings by using an independent credit review function to assess the appropriateness of the credit risk ratings assigned to loans;
•conducting loan portfolio review meetings where senior management and members of credit administration discuss the credit status and related action plans on loans with unfavorable credit risk ratings; and
•subjecting loan modifications and loan renewal requests to underwriting and assessment standards similar to the underwriting and assessment standards applied before closing the loans.
Consumer Loans
Consumer loans are primarily purchased private student loans originated and serviced by third-parties and not guaranteed by any program of the U.S. Government. These loans refinanced the outstanding student loan debt of borrowers who met certain underwriting criteria, with terms that fully amortize the debt over terms ranging from five to twenty years. Consumer loans internally originated may also include personal loans, auto loans, home equity lines of credit, revolving lines of credit, and other loans typically made by banks to individual borrowers.
Our consumer loan portfolio is subject to certain risks, including, but not limited to, the following:
•the economic conditions of the United States and the levels of unemployment;
•the amount of credit offered to consumers in the market;
•interest rate increases;
•consumer bankruptcy laws which allow consumers to discharge certain debts (excluding student loans);
•compliance with consumer lending regulations;
•additional regulations and oversight by the CFPB; and
•the ability of the sub-servicers of the Bank’s student loans to service the loans in accordance with the terms of the loan purchase agreements.
We seek to mitigate the exposure to such risks through the direct approval of all internally originated consumer loans by reviewing each new loan request and each renewal individually and adhering to written credit policies. Each purchased pool of loans must meet thresholds we have established for weighted average credit scores, weighted average borrower annual income, and weighted average borrower monthly free cash flow. For all purchased student loans, we monitor the performance of the originator and the enforcement of our rights under the loan purchase agreement.

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Loan Concentrations
The following table presents the composition of our loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:
December 31,
202120202019
% of% of% of
BalanceTotalBalanceTotalBalanceTotal
(Dollars in thousands)
Real estate mortgage:
Commercial$3,762,299 17 %$4,096,671 21 %$4,202,687 22 %
Income producing and other residential7,416,421 32 %3,803,265 20 %3,770,060 20 %
Total real estate mortgage11,178,720 49 %7,899,936 41 %7,972,747 42 %
Real estate construction and land:
Commercial832,591 4 %1,117,121 6 %1,082,368 6 %
Residential2,604,536 11 %2,243,160 12 %1,655,434 9 %
Total real estate construction and land (1)
3,437,127 15 %3,360,281 18 %2,737,802 15 %
Total real estate14,615,847 64 %11,260,217 59 %10,710,549 57 %
Commercial:
Asset-based4,075,477 18 %3,429,283 18 %3,748,407 20 %
Venture capital2,320,593 10 %1,698,508 9 %2,179,422 12 %
Other commercial (2)
1,471,981 6 %2,375,114 12 %1,767,667 9 %
Total commercial7,868,051 34 %7,502,905 39 %7,695,496 41 %
Consumer457,650 2 %320,255 2 %440,827 2 %
Total loans and leases held for
investment, net of deferred fees$22,941,548 100 %$19,083,377 100 %$18,846,872 100 %
 December 31,
 2019 2018 2017
   % of   % of   % of
 Balance Total Balance Total Balance Total
 (Dollars in thousands)
Real estate mortgage:           
Commercial$4,202,687
 22% $4,824,298
 27% $5,385,740
 32%
Income producing and other residential3,770,060
 20% 3,093,843
 17% 2,466,894
 14%
Total real estate mortgage7,972,747
 42% 7,918,141
 44% 7,852,634
 46%
Real estate construction and land:           
Commercial1,082,368
 6% 912,583
 5% 769,075
 5%
Residential1,655,434
 9% 1,321,073
 8% 822,154
 5%
Total real estate construction and land2,737,802
 15% 2,233,656
 13% 1,591,229
 10%
Total real estate10,710,549
 57% 10,151,797
 57% 9,443,863
 56%
Commercial:           
Asset-based3,748,407
 20% 3,305,421
 18% 2,924,950
 17%
Venture capital2,179,422
 12% 2,038,748
 11% 2,122,735
 13%
Other commercial (1)
1,767,667
 9% 2,060,426
 12% 2,071,394
 12%
Total commercial7,695,496
 41% 7,404,595
 41% 7,119,079
 42%
Consumer440,827
 2% 401,321
 2% 409,801
 2%
Total loans and leases held for           
investment, net of deferred fees$18,846,872
 100% $17,957,713
 100% $16,972,743
 100%
_______________________________________ 
(1)At December 31, 2019, the remaining balances of cash flow loans held for investment totaled $38.1 million. At December 31, 2018 and 2017, the balances of these loans totaled $114.1 million and $278.9 million. Such cash flow loans are included in the "Other commercial" loan portfolio class in the table.
(1)    Includes land and acquisition and development loans of $151.8 million at December 31, 2021, $167.1 million at December 31, 2020, and $173.4 million at December 31, 2019.
(2)    Includes PPP loans of $156.7 million at December 31, 2021 and $1.1 billion at December 31, 2020.
The real estate mortgage loan portfolio is diversified among various property types. At December 31, 2019,2021, the three largest property types securing real estate mortgage loans were multi-family properties, single-family residential properties, and office properties, which comprised 35%, 29%, and 10% of our real estate mortgage loans, respectively. At December 31, 2020, the three largest property types securing real estate mortgage loans were multi-family properties, office properties, and industrial properties, which comprised 45%, 16%17%, and 11% of our real estate mortgage loans, respectively. At December 31, 2018, the three largest property types securing real estate mortgage loans were multi-family properties, office properties, and industrial properties, which comprised 36%, 16%, and 13%9% of our real estate mortgage loans, respectively.
At December 31, 20192021 and 2018, 12%2020, 9%, and 13% of the total real estate mortgage loans were owner occupied (where our borrowers were operating businesses on the premises that collateralize our loans).
The real estate construction and land loan portfolio is diversified among various property types. At December 31, 2019,2021, the three largest property types for real estate construction and land loans were multi-family properties, single-family residential construction and renovation properties, and hotel properties, which comprised 50%, 15%, and 9% of our real estate construction and land loans, respectively. At December 31, 2020, the three largest property types for real estate construction and land loans were multi-family properties, hotel properties, and residential condominium properties, which comprised 43%48%, 14%16%, and 9% of our real estate construction and land loans, respectively. At December 31, 2018, the three largest property types for real estate construction and land loans were multi-family properties, hotel properties, and residential condominium properties, which comprised 32%, 14%, and 13%8% of our real estate construction and land loans, respectively.

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At December 31, 2019,2021, commitments secured by real estate construction and land projects totaled $6.0$7.7 billion with related outstanding loan balances of $2.7$3.4 billion. At December 31, 2018,2020, commitments secured by real estate constructionconstruction and land projects totaled $4.9$6.3 billion with related outstanding loanloan balances of $2.2$3.4 billion. At December 31, 2019,2021, commitments related to construction and land projects in California totaled $3.4$3.6 billion or 57%47% of total real estate construction and land commitments, and commitments related to construction and land projects in New York City totaled $664$910 million or 11%12% of total real estate construction and land commitments.
At December 31, 2019,2021, there were ten13 individual real estate construction and land commitments greater than or equal to $100 million with the largest commitment being $150$181 million. At December 31, 2019,2021, these ten13 individual commitments totaled $1.2$1.6 billion and had an aggregate outstanding balance of $451$587 million. The projects financed by these commitments are nine multi-family projects, one condominium project, one mixed use property, one life science office property, and one industrial project. For these 13 commitments, the average commitment to budgeted project cost ratio was 56.4%.
At December 31, 2020, there were eight individual real estate construction and land commitments greater than or equal to $100 million with the largest commitment being $135 million. At December 31, 2020, these eight individual commitments totaled $954 million and had an aggregate outstanding balance of $526 million. The projects financed by these commitments were a hotel, three mixed use properties, and six multi-family projects.projects, one mixed used property, and a hotel. For these teneight commitments, the average commitment to budgeted projectedproject cost ratio was 52.4%51.7%.
At December 31, 2019,2021, we had 11thirteen individual loan commitments greater than or equal to $150 million that ranged in size from $150 million to $300$500 million and totaled $2.1$3.3 billion and had an aggregate outstanding balance of $720 million. Seven$1.5 billion. Six of these commitments totaling $1.4$1.9 billion werewere equity fund loans three, four of these commitments totaling $500$854 million were lender finance & timeshare loans, one of these commitments totaling $181 million was a residential construction loan, one of these commitments totaling $175 million was a loan secured by a multi-family property, and one of these commitments totaling $150 million was a commercial construction loan.loan secured by a studio office complex.
At December 31, 2018,2020, we had sevennine individual loan commitments equal to or greater than $150 million that ranged in size from $150 million to $155$400 million and totaled $1.1$1.9 billion and had an aggregate outstanding balance of $463$760 million. TwoSix of these commitments totaling $305 million$1.4 billion were equity fund loans, three of these commitments totaling $450 million were lender finance & timeshare loans, and two of these commitments totaling $300$350 million were lender finance loans, and one of these commitments totaling $150 million was a commercial construction loans.loan.
Financing
We depend on deposits and external financing sources to fund our operations. We employ a variety of financing arrangements, including term debt, subordinated debt, and equity. As a member of the FHLB, the Bank had secured financing capacity with the FHLB as of December 31, 20192021 of $4.2$4.0 billion, collateralized by a blanket lien on $5.9$6.2 billion of qualifying loans. The Bank also had secured financing capacity with the FRBSF of $2.0$1.4 billion as of December 31, 20192021 collateralized by liens on $2.7$1.8 billion of qualifying loans.
Information Technology Systems
We devote significant financial and management resources to maintain stable, reliable, efficient, secure and scalable information technology systems. Where possible, we utilize third-party software systems that are hosted and supported by nationally recognized vendors.  We work with our third-party vendors to monitor and maximize the efficiency of our use of their applications. We use integrated systems to originate and process loans and deposit accounts, which reduces processing time, automates numerous internal controls, improves customer experiences and reduces costs. Most customer records are maintained digitally. We also provide on-line,online, mobile, and telephone banking services to further improve the overall client experience.
We use an enterprise data warehouse system in order to aggregate, analyze, and report key metrics associated with our customers and products. Data is collected across multiple systems so that standard and ad hoc reports are available to assist with managing our business.
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We maintain an information technology strategic plan. This plan outlines how specific solutions support ourdefines the overall goals, analyzes infrastructure for capacity planning, details migration plans to replace aging hardwareinnovation and software, provides baseline projections for allocatingtechnology agenda and vision, tracks information technology staff, discussesand information security trends and measures, considers future technologies,priorities, and provides details on information technology initiatives over the next several years.







 Through our annual information technology budgeting process, we analyze our infrastructure for capacity planning, detail migration plans to replace aging hardware and software, and resource plan for internal and external information technology staffing needs against planned initiatives.
Protecting our systems to ensure the safety of customer information is critical to our business. We use multiple layers of protection to control access, detect unusual activity and reduce risk. We regularly conduct a variety of audits and vulnerability and penetration tests on our platforms, systems and applications and maintain comprehensive incident response plans to minimize potential risks, including cyber-attacks. To protect our business operations against disasters, we have a backup off-site core processing system and comprehensive recovery plans.
Risk Oversight and Management
We believe risk management is another core competency of our business. We have a comprehensive risk management process that measures, monitors, evaluates, and manages the risks we assume in conducting our activities. Our oversight of this risk management process is conducted by the Company’s Board of Directors (the “Board”) and its standing committees. The committees each report to the Board and the Board has overall oversight responsibility for risk management.
Our risk framework is structured to guide decisions regarding the appropriate balance between risk and return considerations in our business. Our risk framework is based upon our business strategy, risk appetite, and financial plans approved by our Board. Our risk framework is supported by an enterprise risk management program. Our enterprise risk management program integrates all risk efforts under one common framework. This framework includes risk policies, procedures, measured and reported limits and targets, and reporting. Our Board approves our risk appetite statement, which sets forth the amount and type of risks we are willing to accept in pursuit of achieving our strategic, business, and financial objectives. Our risk appetite statement provides the context for our risk management tools, including, among others, risk policies, delegated authorities, limits, portfolio composition, underwriting standards, and operational processes.
Competition
The banking business is highly competitive. We compete nationwide with other commercial banks and financial services institutions for loans and leases, deposits, and employees. Some of these competitors are larger in total assets and capitalization, with more offices over a wider geographic area and offer a broader range of financial services than our operations. Our most direct competition for loans comes from larger regional and national banks, diversified finance companies, venture debt funds, and community banks that target the same customers as we do. In recent years, competition has increased from institutions not subject to the same regulatory restrictions as domestic banks and bank holding companies. Those competitors include non-bank specialty lenders, insurance companies, private investment funds, investment banks, financial technology companies, and other financial and non-financial institutions.
Competition is based on a number of factors, including interest rates charged on loans and leases and paid on deposits, underwriting standards, loan covenants, required guarantees, the scope and type of banking and financial services offered, convenience of our branch locations, customer service, technological changes, and regulatory constraints. Many of our competitors are large companies that have substantial capital, technological, and marketing resources. Some of our competitors have substantial market positions and have access to a lower cost of capital or a less expensive source of funds. Because of economies of scale, our larger, nationwide competitors may offer loan pricing that is more attractive than what we are willing to offer.
Economic factors, along with legislative and technological changes, will have an ongoing impact on the competitive environment within the financial services industry. We work to anticipate and adapt to dynamic competitive conditions whether it is by developing and marketing innovative products and services, adopting or developing new technologies that differentiate our products and services, cross marketing, or providing highly personalized banking services. We strive to distinguish ourselves from other banks and financial services providers in our marketplace by providing an extremely high level of service to enhance customer loyalty and to attract and retain business.



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We differentiate ourselves in the marketplace through the quality of service we provide to borrowers while maintaining competitive interest rates, loan fees and other loan terms. We emphasize personalized relationship banking services and the efficient decision-making of our lending business units. We compete effectively based on our in-depth knowledge of our borrowers' industries and their business needs based upon information received from our borrowers' key decision-makers, analysis by our experienced professionals, and interaction between these two groups; our breadth of loan product offerings and flexible and creative approach to structuring products that meet our borrowers' business and timing needs; and our dedication to superior client service. However, we can provide no assurance as to the effectiveness of these efforts on our future business or results of operations, as to our continued ability to anticipate and adapt to changing conditions, and as to sufficiently improving our services and banking products in order to successfully compete in the marketplace.
EmployeesHuman Capital Management
Our business strategy is to operate a client-focused, well-capitalized and profitable nationwide bank dedicated to providing personal service to our business and individual customers. Our employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives. We believe that we have a competitive advantage in the markets we serve because of our long-standing reputation for providing superior, relationship-based customer service. In order to continue to provide the expertise and customer service for which we are known, it is crucial that we continue to attract, retain, and develop top talent. To facilitate talent attraction and retention, we strive to make the Bank a diverse, inclusive, and safe workplace, with opportunities for our employees to grow and advance in their careers, supported by strong compensation, benefits, and health and wellness programs.
Oversight and Management
We strive to attract, develop, and retain highly qualified employees for each role in the organization. Working under this principle, our Human Resources Department is tasked with managing employment-related matters, including recruiting and hiring, onboarding and training, compensation planning, performance management, and professional development. Our Board of Directors and Board committees provide oversight on certain human capital matters, including our compensation and benefit programs. As of Januarynoted in its charter, our Compensation, Nominating and Governance Committee is responsible for periodically reviewing employee compensation programs and initiatives to ensure they are competitive and aligned with our stockholders’ long-term interests, including incentives and benefits, as well as our succession planning and strategies. Our Compensation, Nominating and Governance Committee also works closely with the Risk Committee to monitor current and emerging human capital management risks and to mitigate exposure to those risks.
Demographics
At December 31, 2020,2021, we had 1,835 full time equivalentapproximately 2,200 full-time, part-time, and temporary employees, the overwhelming majority of which were full-time employees. None of the Company'sCompany’s employees are represented by a labor union or by collective bargaining agreements. During 2021, the number of employees increased by approximately 30% due primarily to the Civic and HOA Business acquisitions. During 2021, our employee turnover rate was approximately 15.1%. The average tenure of our full-time employees is 6.9 years.
At December 31, 2021, the composition of our workforce was as follows:
Gender% of Total
Women57%
Men43%
Ethnicity% of Total
Asian12%
Black or African American8%
Hispanic or Latino28%
Native Hawaiian or other Pacific Islander1%
Two or more races2%
White49%


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Human Capital Management Objectives
Our key human capital management objectives are to attract, retain, and develop the highest quality talent. To support these objectives, our human resources programs are designed to develop talent to prepare them for critical roles and leadership positions for the future, reward and support employees through competitive pay, benefit, and perquisite programs, enhance the Company’s culture through efforts aimed at making the workplace more engaging and inclusive, acquire talent, and facilitate internal talent mobility to create a high-performing, diverse workforce, and evolve and invest in technology, tools and resources to enable employees to effectively and efficiently perform their responsibilities and achieve their full potential.
Some examples of key programs and initiatives that are focused to attract, develop and retain our workforce include:
Compensation and benefits. The philosophy and objectives underlying our compensation programs are to employ and retain talented employees to ensure we execute on our business goals, drive short- and long-term profitable growth of the Company, and create long-term stockholder value. In allocating total compensation, we seek to provide competitive levels of fixed compensation (base salary) and, through annual and long-term incentives, provide for increased total compensation when performance objectives are exceeded and appropriately lower total compensation if performance objectives are not met. Specifically:
•We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. In 2021, we conducted a review of our starting salaries for our employees and raised our minimum starting wage from $15 per hour to $18 per hour.
•We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our compensation and benefit programs and to provide benchmarking against our peers within the industry. This review resulted in our reducing the employee cost of our health insurance for our plans and increasing our 401(k) match to be more in-line with our peers.
•We align our executives’ long-term equity compensation with our stockholders’ interests by linking realizable pay with Company performance.
•Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion.
•All full-time employees are eligible for health insurance (medical, dental, and vision), paid and unpaid leaves, a 401(k) plan with Company matching and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow employees to select the options that meet their personal and family needs, including health savings and flexible spending accounts, paid parental leave, public transportation reimbursement, employee assistance programs, personalized wellness programs and a tuition reimbursement program.
Health, Safety and Wellness. The health, safety, and wellness of our employees is fundamentally connected to the success of our business. We provide our employees and their families with access to a variety of flexible, convenient and innovative health and wellness programs to help them improve or maintain their physical and mental well-being. The safety of our employees and customers is paramount. We strive to ensure that all employees feel safe in their respective work environment. In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, as well as the communities in which we operate, and which comply with government regulations. This includes having the vast majority of our non-branch employees work from home, while implementing additional safety measures and paying special bonuses for employees continuing critical on-site work. In 2021, we introduced an employer-paid mental wellness support benefit provided by a leading external service provider.



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Talent Development. We believe that creating an environment which encourages continual learning and development is essential for us to maintain a high level of service and to achieve our goal to have every employee feel that they are a valued member of a successful company. This is why we have implemented a variety of learning and development resources for all levels of employees across the bank. Our first focus area has been on building our leadership talent pipeline. Based on our company-wide succession planning discussions, we implemented a new leadership program called LEAD for our most senior leaders. Facilitated by members of our executive team, this program prepares our future leaders for leadership roles within the bank. In addition to our new LEAD program, managers also have the opportunity to refine their skills through our Leadership Essentials program. This program teaches managers how to effectively manage, engage, and develop their teams. Employees have access to ongoing education that is relevant to the banking industry and their job function within the Company leveraging our new Linkedin Learning Platform and other key educational partnerships. We have a strong partnership with Pacific Coast Banking School and send a cohort of leaders for their graduate certificate in banking each year. Though our talent management processes of goal setting, performance reviews, succession planning and career development we strive to continually develop our people and meet the dynamic needs of our customers.
Diversity and Inclusion. We are committed to creating a culture of inclusion – where differences are both appreciated and respected. We take pride in providing equal employment opportunities and building a workplace culture where all employees feel supported and respected, and have equal access to career and development opportunities without regard to race, religion/creed, color, national origin, age, marital status, ancestry, sex, gender, gender identity/expression, sexual orientation, veteran status, physical or mental disability, medical condition, military status, or any other characteristic protected by federal, state or local laws. To help accomplish this, we have a SVP, Diversity, Equity & Inclusion, who is supported by an Executive/LeadershipDiversity Committee and a Diversity, Equity and Inclusion Advisory Council made up of 21 employee representatives from throughout the Company to advance our diversity and inclusion initiatives. We strive to build teams and grow talent that reflects the diversity of the clients and communities we serve and foster an inclusive and equitable culture/workplace.
Financial and Statistical Disclosure
Certain of our statistical information is presented within “Item 6. Selected Financial Data,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,”Operations” and “Item 7A. Quantitative and Qualitative Disclosure About Market Risk.” This information should be read in conjunction with the consolidated financial statements contained in “Item 8. Financial Statements and Supplementary Data.”

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Supervision and Regulation
General
The Company and Bank are subject to extensive regulation under federal and state banking laws that establish a comprehensive framework for our operations. Such regulation is intended to, among other things, protect the interests of customers, including depositors, and the federal deposit insurance fund, as well as to minimize risk to the banking system as a whole. These regulations are not, however, generally charged with protecting the interests of our stockholders or other creditors. Described below are elements of selected laws and regulations applicable to our Company or the Bank. The descriptions are not intended to be complete and are qualified in their entirety by reference to the full text of the statutes and regulations described. Changes in applicable law or regulations, particularly in the current U.S. political environment, and in their application by regulatory agencies, cannot be predicted, and they may have a material effect on the business, operations, and results of the Company or the Bank.
Bank Holding Company Regulation
As a bank holding company, PacWest is registered with and subject to supervision, regulation, and examination by the FRB under the BHCA, and we are required to file with the FRB periodic reports of our operations and additional information regarding the Company and its subsidiaries as the FRB may require.
The Dodd-Frank Act, which codified the FRB's long-standing "source-of-strength" doctrine, requires the Company to act as a source of financial strength to the Bank including committing resources to support the Bank even at times when the Company may not be in a financial position to do so. Similarly, under the cross‑guarantee provisions of the FDIA, the FDIC can hold any FDIC‑insured depository institution liable for any loss suffered or anticipated by the FDIC in connection with (i) the default of a commonly controlled FDIC‑insured depository institution or (ii) any assistance provided by the FDIC to such a commonly controlled institution.
Pursuant to the BHCA, we are required to obtain the prior approval of the FRB before we acquire all or substantially all of the assets of any bank or the ownership or control of voting shares of any bank if, after giving effect to such acquisition, we would own or control, directly or indirectly, more than 5 percent of the voting shares of such bank. Pursuant to the Bank Merger Act, the prior approval of the FDIC is required for the Bank to merge with another bank or purchase all or substantially all of the assets or assume any of the deposits of another FDIC-insured depository institution. In reviewing certain merger or acquisition transactions, the federal regulators will consider the assessment of the competitive effect and public benefits of the transactions, the capital position and managerial resources of the combined organization, the risks to the stability of the U.S. banking or financial system, our performance record under the CRA, our compliance with fair housing and other consumer protection laws, and the effectiveness of all organizations involved in combating money laundering activities. The ability of any bank holding company to acquire another bank holding company or bank is also significantly impacted by subjective decisions of federal regulators, including political appointees, as to whether any proposed merger would be consistent with national financial institutions policies. These subjective views may have an impact on the ability of any bank holding company to engage in a merger transaction.
Under the BHCA, we may not engage in any business other than managing or controlling banks or furnishing services to our subsidiaries and such other activities that the FRB deems to be so closely related to banking as “to be a proper incident thereto.” We are also prohibited, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5 percent of the voting shares of any company unless the company is engaged in banking activities or the FRB determines that the activity is so closely related to banking as to be a proper incident to banking. TheGenerally, the FRB’s approval must be obtained before the shares of any such company can be acquired.
The federal regulatory agencies also have general authority to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice. Further, as discussed below under “-Capital Requirements,” we are required to maintain minimum ratios of Common Equity Tier 1 capital, Tier 1 capital, and total capital to total risk‑weighted assets, and a minimum ratio of Tier 1 capital to total adjusted quarterly average assets as defined in such regulations. The level of our capital ratios may affect our ability to pay dividends or repurchase our shares. See “Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters - Dividends” and Note 21.22. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”

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The Dodd-Frank Act
The Dodd‑Frank Act, which was enacted in July 2010, significantly restructured the financial regulatory landscape in the United States, including the creation of a new systemic risk oversight body, the FSOC. The FSOC oversees and coordinates the efforts of the primary U.S. financial regulatory agencies (including the FRB, SEC, the Commodity Futures Trading Commission and the FDIC) in establishing regulations to address financial stability concerns. The Dodd-Frank Act and the FRB’s implementing regulations impose increasingly stringent regulatory requirements on financial institutions as their size and scope of activities increases.
In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act (“EGRRCPA”) was enacted. While the EGRRCPA reduced the impact of the Dodd-Frank Act on bank holding companies of our size, including in respect to stress testing, the Dodd-Frank Act nonetheless subjected us to additional significant regulatory requirements. In addition, as a result of the Dodd-Frank Act and our having in excess of $10 billion in total consolidated assets, the Company and the Bank are subject to the examination and supervision of the CFPB.CFPB with respect to compliance with certain consumer financial laws.
Transactions with Affiliates
Transactions between the Bank and its affiliates are regulated under federal banking law. Subject to certain exceptions set forth in the Federal Reserve Act, a bank may enter into “covered transactions” with its affiliates if the aggregate amount of the covered transactions to any single affiliate does not exceed 10 percent of the Bank’s capital stock and surplus or 20 percent of the Bank’s capital stock and surplus for covered transaction with all affiliates. Covered transactions include, among other things, extension of credit, the investment in securities, the purchase of assets, the acceptance of collateral or the issuance of a guaranty. The Dodd-Frank Act significantly expanded the coverage and scope of the limitations on affiliate transactions within a banking organization. Additionally, most transactions that the Bank engages in with an affiliate, including where an affiliate performs a service for the Bank, must be on similar terms and conditions as the Bank would get from a non-affiliate.
Dividends and Share Repurchases
The ability of the Company to pay dividends on or to repurchase its common stock, and the ability of the Bank to pay dividends to the Company, may be restricted due to several factors including: (a) the DGCL (in the case of the Company) and applicable California law (in the case of the Bank), (b) covenants contained in our subordinated debenturesdebt and borrowing agreements, and (c) the regulatory authority of the FRB, the DBODFPI and the FDIC.
Our ability to pay dividends to our stockholders or to repurchase shares of our common stock is subject to the restrictions set forth in the DGCL. The DGCL provides that a corporation, unless otherwise restricted by its certificate of incorporation, may declare and pay dividends (or repurchase shares) out of its surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year, as long as the amount of capital of the corporation is not less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets. Surplus is defined as the excess of a corporation’s net assets (i.e., its total assets minus its total liabilities) over the capital associated with issuances of its common stock. Moreover, the DGCL permits a board of directors to reduce its capital and transfer such amount to its surplus. In determining the amount of surplus of a Delaware corporation, the assets of the corporation, including stock of subsidiaries owned by the corporation, must be valued at their fair market value as determined by the board of directors, regardless of their historical book value.
Our ability to pay cash dividends to our stockholders or to repurchase shares of our common stock may be limited by certain covenants contained in the indentures governing trust preferred securities issued by us or entities that we have acquired, and the debentures underlying the trust preferred securities. Generally the indentures provide that if an Event of Default (as defined in the indentures) has occurred and is continuing, or if we are in default with respect to any obligations under our guarantee agreement which covers payments of the obligations on the trust preferred securities, or if we give notice of any intention to defer payments of interest on the debentures underlying the trust preferred securities, then we may not, among other restrictions, declare or pay any dividends with respect to our common stock or repurchase shares of our common stock.

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In addition, notificationNotification to the FRB is required prior to our declaring and paying a cash dividend to our stockholders during any period in which our quarterly and/or cumulative twelve‑month net earnings are insufficient to fund the dividend amount, among other requirements. Under such circumstances, we may not pay a dividend should the FRB object until such time as we receive approval from the FRB or no longer need to provide notice under applicable regulations. In addition, prior approval of the FRB may be required in certain circumstances prior to our repurchasing shares of our common stock.
In connection with the decision regarding dividends and share repurchase programs, our Board will take into account general business conditions, our financial results, projected cash flows, capital requirements, contractual, legal and regulatory restrictions on the payment of dividends by the Bank to the Company and such other factors as deemed relevant. We can provide no assurance that we will continue to declare dividends on a quarterly basis or otherwise or to repurchase shares of our common stock. The declaration of dividends by the Company is subject to the discretion of our Board.
PacWest’s primary source of liquidity is the receipt of cash dividends from the Bank. Various statutes and regulations limit the availability of cash dividends from the Bank. Dividends paid by the Bank are regulated by the DBODFPI and FDIC under their general supervisory authority as it relates to a bank’s capital requirements. The Bank may declare a dividend without the approval of the DBODFPI 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 three previous fiscal years less any dividend paid during such period. The Bank'sBank had a cumulative net earningsloss of $155.3 million during the previous three fiscal years exceededof 2021, 2020, and 2019 due to the $1.47 billion goodwill impairment in the first quarter of 2020, compared to dividends of $776.0 million paid by the Bank during that same period by $34.8 million.period. Since the Bank had a retained deficit of $490.6 million$1.5 billion at December 31, 2019,2021, for the foreseeable future, any further cash dividends from the Bank to the Company will continue to require DBODFPI and FDIC approval.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity - Holding Company Liquidity” and Note 21.22. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data” for a discussion of other factors affecting the availability of dividends and limitations on the ability to declare dividends.
Capital Requirements
We are subject to the comprehensive capital framework for U.S. banking organizations known as Basel III. Basel III, among other things, (i) implemented increased capital levels for the Company and the Bank, (ii) introduced a new capital measure called CET1 and related regulatory capital ratio of CET1 to risk‑weighted assets, (iii) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iv) mandated that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (v) expanded the scope of the deductions from and adjustments to capital as compared to existing regulations. Under Basel III, for most banking organizations the most common form of Additional Tier 1 capital is non‑cumulative perpetual preferred stock and the most common form of Tier 2 capital is subordinated notes and a portion of the allowance for loan and leasecredit losses, in each case, subject to Basel III specific requirements.
Pursuant to Basel III, the minimum capital ratios are as follows:
•4.5% CET1 to risk‑weighted assets;
•
•6.0% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk‑weighted assets;
•8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk‑weighted assets; and
•plus Additional Tier 1 capital) to risk‑weighted assets;
•
8.0% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk‑weighted assets; and
4% Tier 1 capital to average consolidated assets as reported on regulatory financial statements (known as the “leverage ratio”).

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Basel III also introduced a new “capital conservation buffer”, composed entirely of CET1, on top of the minimum risk‑weighted asset ratios. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with a ratio of CET1 to risk‑weighted assets, Tier 1 to risk‑weighted assets or total capital to risk‑weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall and the institution’s “eligible retained income” (that is, four quarter trailing net income, net of distributions and tax effects not reflected in net income). As of January 1, 2019, the capital conservation buffer is fully phased-in and the Company and the Bank are required to maintain an additional capital conservation buffer of 2.5% of CET1, effectively resulting in minimum ratios of (i) CET1 to risk‑weighted assets of at least 7%, (ii) Tier 1 capital to risk‑weighted assets of at least 8.5%, and (iii) total capital to risk‑weighted assets of at least 10.5%.
Basel III provides for a number of deductions from and adjustments to CET1. These include, for example, the requirement that deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non‑consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1.
Basel III provides a standardized approach for risk weightings that, depending on the nature of the assets, generally range from 0% for U.S. government and agency securities, to 1,250% for certain trading securitization exposures, resulting in higher risk weights for a variety of asset classes than previous regulations.
The Company has outstanding subordinated debenturesdebt issued to trusts, which, in turn, issued trust preferred securities. The carrying amount of subordinated debenturesdebt totaled $458.2$863.3 million at December 31, 2019.2021. Under Basel III, none$131.0 million of the Company’s trust preferred securities were included in Tier 1 capital however $444.5 millionfollowing a reclassification of such trust preferred securities werefrom Tier 2 capital during the third quarter of 2021, and the remaining $718.2 million of the Company's trust preferred securities continued to be included in Tier 2 capital at December 31, 2019.2021. We believe that, as of December 31, 2019,2021, the Company and the Bank met all capital adequacy requirements under Basel III. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Regulatory Matters - Capital” for further information on regulatory capital requirements, capital ratios, and deferred tax asset limits as of December 31, 20192021 for the Company and the Bank.
Stress Testing
Though the Company and Bank are no longer required to prepare annual stress tests pursuant to the Dodd-Frank Act, we continue to prepare an annual stress test of our capital, consolidated earnings and losses under adverse economic and market conditions. Our stress test results are considered by the FRB and FDIC in evaluating our capital adequacy and could have a
negative impact on our ability to make capital distributions in the form of dividends or share repurchases.
Safety and Soundness Standards
As required by the FDIA, guidelines adopted by the federal bank regulatory agencies establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and quality, and compensation, fees and benefits. The agencies have adopted regulations and interagency guidelines which set forth the safety and soundness standards used to identify and address problems at insured depository institutions before capital becomes impaired. If an agency determines that a bank fails to satisfy any standard, it may require the bank to submit an acceptable plan to achieve compliance, consistent with deadlines for the submission and review of such safety and soundness compliance plans. If an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the agency must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution is subject under the FDIA.



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Deposit Insurance
The Bank is a state‑chartered, “non‑member” bank regulated by the DBODFPI and the FDIC. The Bank accepts deposits, and those deposits have the benefit of FDIC insurance up to the applicable limits.limits established by law. The applicable statutory limit for FDIC insurance for most types of accounts is $250,000.
Under the FDIC's risk-based deposit premium assessment system, the assessment rates for an insured depository institution are determined by an assessment rate calculator, which is based on a number of elements that measure the risk each institution poses to the Deposit Insurance Fund. The calculated assessment rate is applied to average consolidated assets less the average tangible equity of the insured depository institution during the assessment period to determine the dollar amount of the quarterly assessment. Under the current system, premiums are assessed quarterly and could increase if, for example, criticized loans and leases and/or other higher risk assets increase or balance sheet liquidity decreases.
During the first quarter of 2016, the FDIC issued a final rule implementing a 4.5 basis points surcharge on the quarterly FDIC insurance assessments of insured depository institutions with more than $10 billion in total consolidated assets. The Bank became subject to the FDIC surcharge on July 1, 2016. The surcharge continued through September 30, 2018, when the Deposit Insurance Fund reserve ratio reached 1.36% of insured deposits, exceeding the statutorily required minimum reserve ratio of 1.35%. For the year ended December 31, 2019,2021, we incurred $11.5$12.0 million of FDIC assessment expense.
Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Incentive Compensation
In 2010, federal banking regulators issued final joint agency guidance on Sound Incentive Compensation Policies. This guidance applies to executive and non-executive incentive plans administered by the Bank. The guidance notes that incentive compensation programs must (i) provide employees incentives that appropriately balance risk and reward, (ii) be compatible with effective controls and risk management and (iii) be supported by strong corporate governance, including oversight by the Board. The FDIC reviews, as part of its regular examination process, the Bank’s incentive compensation programs.
In addition, the Dodd-Frank Act requires the federal bank regulatory agencies and the SEC to establish joint regulations or guidelines prohibiting incentive based payment arrangements at specified regulated entities having at least $1 billion in total assets, such as the Company and the Bank, that encourage inappropriate risks by providing an executive officer, employee, director or principal stockholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity. In addition, these regulators must establish regulations or guidelines requiring enhanced disclosure of incentive based compensation arrangements to regulators.
The agencies proposed initial regulations in April 2011 and proposed revised regulations during the second quarter of 2016 that would establish general qualitative requirements applicable to all covered entities. The proposed general qualitative requirements include (i) prohibiting incentive arrangements that encourage inappropriate risks by providing excessive compensation; (ii) prohibiting incentive arrangements that encourage inappropriate risks that could lead to a material financial loss; (iii) establishing requirements for performance measures to appropriately balance risk and reward; (iv) requiring board of director oversight of incentive arrangements; and (v) mandating appropriate record-keeping. As of this filing, the agencies have not finalized these proposed regulations.
In August 2015, the SEC adopted final rules implementing the pay ratio provisions of the Dodd-Frank Act by requiring companies to disclose the ratio of the compensation of its chief executive officer to the median compensation of its employees. Under SEC guidance issued in September 2017, companies such as the Company are able to use widely-recognized tests to determine who counts as an employee under the rule, use existing internal records such as payroll and tax information and describe the ratio as an estimate. For a registrant with a fiscal year ending on December 31, such as the Company, the pay ratio was first required as part of its executive compensation disclosure in proxy statements or Form 10-Ks filed in 2018.

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Consumer Regulation
We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices. Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual and statutory damages, restitution and attorneys’ fees. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state attorneys general and local attorneys generalprosecutors in each jurisdiction in which we operate, and civil money penalties. Failure to comply with consumer protection regulations may also result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even if approval is not required.
The CFPB has broad rulemaking, supervisory, and enforcement powers under various federal consumer financial protection laws. The CFPB is also authorized to engage in consumer financial education, track consumer complaints, request data, and promote the availability of financial services to underserved consumers and communities. The Bank is subject to direct oversight and examination by the CFPB.CFPB with respect to compliance with certain consumer financial laws. The CFPB has broad supervisory, examination, and enforcement authority over various consumer financial products and services, including the ability to require reimbursements and other payments to customers for alleged legal violations and to impose significant penalties, as well as injunctive relief that prohibits lenders from engaging in allegedly unlawful practices. The CFPB also has the authority to obtain cease and desist orders providing for affirmative relief or monetary penalties. State regulation of financial products and potential enforcement actions could also adversely affect our business, financial condition, or results of operations.
USA PATRIOT Act and Anti-Money Laundering
The USA PATRIOT Act, designed to deny terrorists and others the ability to obtain access to the United States financial system, has significant implications for depository institutions, brokers, dealers and other businesses involved in the transfer of money. The USA PATRIOT Act, as implemented by various federal regulatory agencies, requires the Company and the Bank to establish and implement policies and procedures with respect to, among other matters, anti‑money laundering, compliance, suspicious activity and currency transaction reporting and due diligence on customers and prospective customers. The USA PATRIOT Act and its underlying regulations permit information sharing for counter‑terroristterrorism purposes between federal law enforcement agencies and financial institutions, as well as among financial institutions, subject to certain conditions, and require the FRB, the FDIC and other federal banking agencies to evaluate the effectiveness of an applicant in combating money laundering activities when considering a bank holding company acquisition and/or a bank merger act application.
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) drafts regulations implementing the USA PATRIOT ACTAct and other anti-money laundering and Bank Secrecy Act legislation. In May 2017, a FinCEN rule became effective which requires financial institutions to obtain beneficial ownership information with respect to legal entities with which such institutions conduct business, subject to certain exclusions and exemptions.
We regularly evaluate and continue to enhance our systems and procedures to continue to comply with the USA PATRIOT Act and other anti‑money laundering initiatives. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing, or to comply with all of the relevant laws or regulations, could have serious legal, strategic, and reputational consequences for the institution and result in material fines and sanctions.

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Office of Foreign Assets Control Regulation
The United States has imposed economic sanctions that affect transactions with designated foreign countries, designated nationals and others. These rules are based on their administrationpromulgated and administered by OFAC. The OFAC‑administered sanctions targeting designated countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on “U.S. persons” engaging in financial transactions relating to making investments in, or providing investment‑related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of the sanctioned country have an interest, by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). These sanctions that are applicable to countries and individuals are also imposed against some non-governmental organizations, associations, or other criminal networks. Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal, strategic, and reputational consequences, and result in civil money penalties onagainst the Company and the Bank.
Community Reinvestment Act ("CRA")
The CRA generally requires the Bank to identify the communities it serves and to make loans and investments, offer products, make donations in, and provide services designed to meet the credit needs of these communities. The CRA also requires the Bank to maintain comprehensive records of its CRA activities to demonstrate how we are meeting the credit needs of our communities. These documents are subject to periodic examination by the FDIC. During these examinations, the FDIC rates such institutions’ compliance with CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” The CRA requires the FDIC to take into account the record of a bank in meeting the credit needs of all of the communities served, including low‑and moderate‑income neighborhoods, in determining such rating. Failure of an institution to receive at least a “Satisfactory” rating could inhibit such institution or its holding company from undertaking certain activities, including acquisitions. The Bank received a CRA rating of “Outstanding” as of its most recent examination. In the case of a bank holding company, such as the Company, when applying to acquire a bank, savings association, or a bank holding company, the FRB will assess the CRA record of each depository institution of the applicant bank holding company in considering the application.
In April 2018, the U.S. Department of Treasury issued a memorandum to the federal banking regulators recommending changes to the CRA’s regulations to reduce their complexity and associated burden on banks,banks. In 2019 and in December 2019,2020, the federal banking regulators proposed for public comment rules to modernize the agencies’ regulations under the CRA. In July 2021, the FRB, FDIC, and the Office of the Comptroller of the Currency proposed for public commentissued an interagency statement committing to joint agency action on CRA. In December 2021, the Office of the Comptroller of the Currency adopted final CRA rules that were based largely on CRA rules issued jointly by the federal banking regulators in 1995 and subsequently revised, which the Office of the Comptroller of the Currency believed was an important step to modernize the agencies' regulations under the CRA.interagency process because it reestablished generally uniform rules that apply to all insured depository institutions. These recent actions may signal that additional joint regulatory action on this issue could be forthcoming in 2022. We will continue to evaluate the impact of any changes to the CRA regulations.
Customer Information Privacy and Cybersecurity
The FRB and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal, non‑public customer information. These guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazard to the security or integrity of such information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. We have adopted a customer information security program to comply with these requirements.
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The Gramm‑Leach‑Bliley Act of 1999 (the “GLBA”) requires financial institutions to implement policies and procedures regarding the disclosure of non-public personal information about consumers to non‑affiliated third parties. The GLBA requires disclosures to consumers on policies and procedures regarding the disclosure of such non-public personal information and, except as otherwise required by law, prohibit disclosing such information except as provided in the Bank’s policies and procedures. We have implemented privacy policies addressing these restrictions that are distributed regularly to all existing and new customers of the Bank.



In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
In November 2021, the federal bank regulatory agencies issued a joint rule establishing computer-security incident notification requirements for banking organizations and their service providers. This rule requires new notification requirements where a banking organization experiences a computer-security incident. This rule has an effective date of April 1, 2022, and a compliance date of May 1, 2022.
State regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, severalSeveral states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.requirements, and California and Colorado, which are two states in which we have branch offices, have enacted comprehensive data privacy legislation. In June 2018, the California legislature passed the California Consumer Privacy Act of 2018 (the “California Privacy Act”“CCPA”), which took effect on January 1, 2020. TheIn November 2020, California voters approved the California Privacy Rights Act of 2020, which coverstakes effect on January 1, 2023. Together, these California acts, which cover businesses that obtain or access personal information on California resident consumers, grantsgrant consumers enhanced privacy rights and control over their personal information and imposes significant requirements on covered companies with respect to consumer data privacy rights. In July 2021, Colorado became the third state – behind California and Virginia – to enact comprehensive data privacy legislation, commonly referred to as the Colorado Privacy Act, which is set to take effect on July 1, 2023. The Colorado Privacy Act is modeled in part off of the CCPA. We expect this trend of state-level activity to continue, and are continually monitoring developments in the states in which we operate. For a further discussion of risks related to privacy and cybersecurity, see "Item 1A. Risk Factors" included in this Form 10-K.
Regulation of Certain Subsidiaries
PWAM is registered with the SEC under the Investment Advisers Act of 1940, as amended, and is subject to its rules and regulations. Following the completion of various studies on investment advisers and broker-dealers required by the Dodd-Frank Act, the SEC has, among other things, recommended to Congress that it consider various means to enhance the SEC’s examination authority over investment advisers, which may have an impact on PWAM that we cannot currently assess.

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ITEM 1A. RISK FACTORS
In the course of conducting our business operations, we are exposed to a variety of risks, some of which are inherent in the financial services industry and others of which are more specific to our own businesses. The COVID-19 pandemic has heightened, and in some cases manifested, certain of the risks we normally face in operating our business. The discussion below addresses the most significant factors, of which we are currently aware, that could affect our businesses, results of operations and financial condition. Additional factors that could affect our businesses, results of operations and financial condition are discussed in "Item 1. Business - Forward-Looking Information." However, other factors not discussed below or elsewhere in this Annual Report on Form 10-K could adversely affect our businesses, results of operations and financial condition. Therefore, the risk factorsRisk Factors below should not be considered a complete list of potential risks we may face.
Any risk factorRisk Factor described in this Annual Report on Form 10-K or in any of our other SEC filings could by itself, or together with other factors, materially adversely affect our liquidity, cash flows, competitive position, business, reputation, results of operations, capital position or financial condition, including materially increasing our expenses or decreasing our revenues, which could result in material losses.
General Economic and Market Conditions Risk
The ongoing COVID-19 pandemic and resulting substantial disruption to global and domestic economies could adversely impact our business operations, asset valuations, and financial results.
The ongoing COVID-19 pandemic has created global and domestic economic and financial disruptions that adversely affected our business operations, asset valuations and financial results in 2020 and could adversely affect our business operations, asset valuations, and financial results in the future. The pandemic has negatively impacted the global and domestic economies, disrupted supply chains, lowered some equity market valuations, and created significant volatility and disruption in financial markets. Certain industries have been particularly hard hit by the pandemic, including the travel and hospitality industry, the restaurant industry and the retail industry.
As the pandemic unfolded in March 2020, the credit status of some of our borrowers was adversely affected. 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 pandemic, such as the hotel, retail, commercial aviation, restaurant, and oil services loan and lease portfolios. We responded by constructively working with affected borrowers, allowing for the deferral of loan payments and the extension of maturity dates, and amending our agreements with them when appropriate and warranted. 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. During 2021, we heightened our monitoring of real estate loans secured by office properties because of the risk tenants’ may reduce the office space they lease as some portion of the workforce continues to work remotely. Even with our actions to assist our borrowers coping with the pandemic, we may not collect all amounts contractually owed to us as noted under “Credit Risk” below.
In addition, the pandemic has resulted in remote working environments, travel restrictions, business entry requirements, and proposed return-to-office vaccination and testing requirements. Should economic impacts of COVID-19 persist or further deteriorate, this macroeconomic environment could have an adverse impact on our business, financial condition, and results of operations.
The pandemic could also influence the recognition of the provision for credit losses in our loan portfolios and could increase our allowance for credit losses, depending on the duration of the pandemic, the ongoing impact of government stimulus and the ongoing impact on the overall economy. The provision for credit losses reflects estimates of future credit losses, however the actual credit losses that our loan portfolio may experience remains uncertain since the economic cycle is not complete, particularly as businesses remain closed and as more customers may draw on their lines of credit or seek additional loans to help finance their businesses.
Similarly, because of changing economic and market conditions affecting issuers, the securities we hold may lose value. The volatility in the equity markets, particularly early in the pandemic, has impacted our asset valuations, as evidenced by our goodwill impairment charge in the first quarter of 2020, and asset valuations of goodwill or other assets could be further impacted depending on future developments caused by COVID-19.
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As an essential service, our business operations have continued during the pandemic, however they may be disrupted if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, or other restrictions in connection with the pandemic. To protect the health and safety of our employees and communities, most of our employees in non-client facing roles continue to work remotely. Employees who enter Company branches and offices comply with indoor mask mandates as applicable under state and local guidance. Our branch locations are also prepared to respond to evolving pandemic risks through various actions depending on the circumstances, such as closing lobbies if a drive thru is available, temporarily closing if located within close proximity to another branch or at certain times reducing hours of operation. We may also experience operational difficulties, including increased cybersecurity risk, due to the remote working environments of our employees. We may also experience additional operational risk due to difficulties experienced by our third-party service providers.
Because there have been no comparable recent global pandemics that resulted in a similar global impact, the full extent to which the COVID-19 pandemic will impact our business operations, asset valuations and financial results will depend on future developments which remain uncertain and cannot be predicted. These include the scope and duration of the pandemic, including new strains of the virus, the efficacy and distribution of, and participation in, vaccination programs, the continued effectiveness of our business continuity plan, the direct and indirect impact of the pandemic on our employees, customers and third-party service providers, as well as other market participants, and the effectiveness of actions taken by governmental authorities and other third parties in response to the pandemic. If the pandemic continues to spread, morph or otherwise results in a continuation or worsening of the current economic and commercial environments, our business, financial condition, results of operations, cash flows, and ability to pay dividends, as well as our regulatory capital and liquidity ratios could be materially adversely affected.
Our business is adversely affected by unfavorable economic, market, and political conditions.
The United States economy has been in a ten-year expansion since the Great Recession ended in 2009. This current expansion has been longer than most U.S. expansionary periods in recent history. Going into 2020, while global economic growth has continued and the underlying macroeconomic environment remains largely positive, there continue to be various economic, market and political risks and uncertainties that could materially and adversely affect our financial condition and results of operation.
In the event of an economic recession, our operating results could be adversely affected because we could experience higher loan and lease charge-offs and higher operating costs. Global economic conditions also affect our operating results because global economic conditions directly influence the U.S. economic conditions. Brexit hasSources of global economic and market instability include, but are not limited to, the potential toeconomic slowdown in United Kingdom, Europe and the United States, the impact of trade negotiations, economic conditions in China, including the global economic conditions which mayimpacts of the Chinese economy, China’s regulation of commerce, escalating military tensions in turn impact U.S. economic conditions, but we would not expect any direct impactEurope as we do not operate ina result of Russia's invasion of Ukraine, and the United Kingdom.effects of the pandemic or other health crises. Various market conditions also affect our operating results. Certain changes in interest rates, inflation, or the financial markets could affect demand for our products. Real estate market conditions directly affect performance of our loans secured by real estate. Debt markets affect the availability of credit which impacts the rates and terms at which we offer loans and leases. Stock market downturns often signal broader economic deterioration and/or a downward trend in business earnings which may adversely affect businesses’ ability to raise capital and/or service their debts. Political and electoral changes, developments, conflicts, and conditions have in the past introduced, and may in the future introduce, additional uncertainty which may also affect our operating results.
An economic recession or a downturn in various markets could have one or more of the following adverse effects on our business:
•a decrease in the demand for our loans and leases and other products and services offered by us;
•a decrease in our deposit balances due to overall reductions in the accounts of customers;
•a decrease in the value of collateral securing our loans and leases;
•an increase in the level of nonperforming and classified loans and leases:leases;
•an increase in provisions for credit losses and loan and lease charge-offs;
•a decrease in net interest income derived from our lending and deposit gathering activities;
•a decrease in the Company's stock price;
•a decrease in our ability to access the capital markets; or
•an increase in our operating expenses associated with attending to the effects of certain circumstances listed above.

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Our ability to attract and retain qualified employees is critical to our success.
Our employees are our most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense. We endeavor to attract talented and diverse new employees and retain and motivate our existing employees to assist in executing our growth, acquisition, and business strategies. We also seek to retain proven, experienced senior employees with superior talent, augmented from time to time by external hires, to provide continuity of succession of our executive management team. In addition, the Company’s Board oversees succession planning, including review of the succession plans for the Chief Executive Officer and other members of executive management. Losses of or changes in our current executive officers or other key personnel, or the inability to recruit and retain qualified personnel in the future could materially and adversely affect our financial condition and results of operations.
Credit Risk
Credit Risk is the Risk of Loss Arising from the Inability or Failure of a Borrower or Counterparty Toto Meet Its Obligation.
We may not recovercollect all amounts that are contractually owed to us by our borrowers.
We are dependent on the collection of loan and lease principal, interest, and fees to partially fund our operations. A shortfall in collections and proceeds may impair our ability to fund our operations or to repay our existing debt.
When we loan money, commit to loan money or enter into a letter of credit or other contract with a counterparty, we incur credit risk. The credit quality of our portfolio can have a significant impact on our earnings. We expect to experience charge-offs and delinquencies on our loans and leases in the future. Many borrowers have been negatively impacted by the COVID-19 pandemic and related economic consequences, and may continue to be similarly or more severely affected in the future. Our clients'borrowers' actual operating results may be worse than our underwriting indicated when we originated the loans and leases, and in these circumstances, if timely corrective actions are not taken, we could incur substantial impairment or loss of the value on these loans and leases. We may fail to identify problems because our clientborrower did not report them in a timely manner or, even if the clientborrower did report the problem, we may fail to address it quickly enough or at all. Even if clientsborrowers provide us with full and accurate disclosure of all material information concerning their businesses, we may misinterpret or incorrectly analyze this information. Mistakes may cause us to make loans and leases that we otherwise would not have made or to fund advances that we otherwise would not have funded, either of which could result in losses on loans and leases, or necessitate that we significantly increase our allowance for loan and lease losses. As a result, we could suffer loan losses and have nonperforming loans and leases, which could have a material adverse effect on our net earnings and results of operations and financial condition, to the extent the losses exceed our allowance for loan and lease losses.
Some of our loans and leases are secured by a lien on specified collateral of the borrower and we may not obtain or properly perfect our liens or the value of the collateral securing any particular loan may not protect us from suffering a partial or complete loss if the loan becomes nonperforming and we proceed to foreclose on or repossess the collateral. In such event, we could suffer loan losses, which could have a material adverse effect on our net earnings, allowance for loan and lease losses, financial condition, and results of operations.
Additionally, loans to venture-backed companies support the borrowers’ operations, including operating losses, working capital requirements and fixed asset acquisitions. Venture-backed borrowers are at various stages in their development and are, generally, reporting operating losses. The primary sources of repayment are future additional venture capital equity investments or the sale of the company or its assets. Our venture-backed borrowers’ business plans may fail, increasing the likelihood for credit losses related to loans to venture-backed companies.
At December 31, 2019 and 2018, loans to venture-backed companies totaled $980.2 million, or 5% of total loans and leases, and $1.2 billion, or 7% of total loans and leases. For the years ended December 31, 2019 and 2018, net charge-offs related to venture-backed borrowers totaled $1.2 million and $24.2 million. For these years, net charge-offs related to venture-back borrowers comprised 7% and 55% of total net charge-offs. In accordance with U.S. GAAP, we maintain an allowance for loan and lease losses to provide for loan defaults and non-performance. Our allowance for loan and lease losses allocable to loans to venture-backed borrowers may not be adequate to absorb actual credit losses arising from these loans, and future provisions for credit losses could materially and adversely affect our operating results.


Our allowance for credit losses may not be adequate to cover actual losses.
In accordance with U.S. GAAP,Effective January 1, 2020, we maintain an allowance for loan and lease losses to provide for loan and lease defaults and non-performance and a reserve for unfunded loan commitments, which, when combined, we refer to asadopted the allowance for credit losses. Our allowance for credit losses may not be adequate to absorb actual credit losses, and future provisions for credit losses could materially and adversely affect our operating results. Our allowance for credit losses is based on prior experience and an evaluation of the risks inherent in the current portfolio. The amount of future losses is influenced by changes in economic, operating and other conditions, including changes in interest rates that may be beyond our control, and these losses may exceed current estimates.
Further impacting the sufficiency of our current allowance for credit losses is the implementation of a new accounting standard, “MeasurementFinancial Accounting Standards Board (“FASB”) Accounting Standards Update 2016-13, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” commonly referred to as the “Current Expected Credit Losses” standard, or “CECL,“CECL.” which is effective on January 1, 2020. CECL changeschanged the allowance for credit losses methodology from an incurred loss concept to an expected loss concept, which is even more dependent on future economic forecasts, assumptions, and models than existing U.S. GAAPthe previous accounting standards and could result in increases and add volatility to our allowance for credit losses and future provisions for loan losses. These forecasts, assumptions, and models are inherently uncertain and are based upon management’s reasonable judgment in light of information currently available. Our allowance for credit losses may not be adequate to absorb actual credit losses, and future provisions for credit losses could materially and adversely affect our operating results.
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Our federal and state regulators, as an integral part of their examination process, review our loans and leases and allowance for credit losses. While we believe our allowance for credit losses is appropriate for the risk identified in our loan and lease portfolio, we cannot provide assurance that we will not further increase the allowance for credit losses, that it will be sufficient to address losses, or that regulators will not require us to increase this allowance. We also cannot be certain that actual results will be consistent with forecasts and assumptions used in our CECL modeling. Any of these occurrences could materially and adversely affect our financial condition and results of operations. SeeFor more information, see Note 1(i). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans and Leases Held for Investment of the Notes to Consolidated Financial Statements contained in "Item 7. Management's Discussion8. Financial Statements and Analysis of Financial Condition and Results of Operations" for more information.Supplementary Data."
Our loans and leases are concentrated by location, collateral value, and borrower type which could exacerbate credit losses if certain markets or industries were to experience economic difficulties or operating issues.
Real estate mortgage loans and real estate construction and land loans comprised 57%64% of our total loans and leases at December 31, 2019.2021. Of total loans and leases, 35%39% are secured by real estate collateral located in California, 25% are secured by multi-family properties, and 6%4% are secured by commercial real estate construction projects.
For real estate mortgage loans, the respective primary and secondary sources of loan repayments are the net operating incomes of the properties and the proceeds from the sales or refinancing of the properties. For real estate construction and land loans, the primary source of loan repayments is the proceeds from the sales or refinancing of the properties following the completion of construction and the stabilization/attainment of sufficient debt service coverage. As such, our commercial real estate borrowers generally are required to refinance the loans with us or another lender or sell the properties to repay our loans. A portion of our real estate loans are secured by residential properties. Decreases in residential property values could lead to increased credit losses for these loans.
We have a number of large credit relationships and individual commitments.
At December 31, 2019,2021, there were ten13 individual real estate construction and land commitments greater than or equal to $100 million with the largest commitment being $150$181 million. At December 31, 2019,2021, these ten13 individual commitments totaled $1.2$1.6 billion and had an aggregate outstanding balance of $451$587 million. The projects financed by these commitments were a hotel, threeare nine multi-family projects, one condominium project, one mixed use properties,property, one life science office property, and six multi-family projects.one industrial project. For these ten13 commitments, the average commitment to budgeted projectedproject cost ratio was 52.4%56.4%.
At December 31, 2019,2021, we had 1113 individual loan commitments greater than or equal to $150 million that ranged in size from $150 million to $300$500 million and totaled $2.1$3.3 billion and had an aggregate outstanding balance of $720 million. Seven$1.5 billion. Six of these commitments totaling $1.4$1.9 billion were equity fund loans, threefour of these commitments totaling $500$854 million were lender finance & timeshare loans, one of these commitments totaling $181 million was a residential construction loan, one of these commitments totaling $175 million was a loan secured by a multi-family property, and one of these commitments totaling $150 million was a commercial construction loan.loan secured by a studio office complex.
A significant loss related to one of our large lending relationships or individual commitments could have a material adverse effect on our financial condition and results of operations.

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A slowdown in venture capital investment levels may reduce the market for venture capital investment for our Venture Bankingventure banking clients, which could adversely affect our business, results of operations, or financial condition.
Part of our strategy is focused on providing banking products and credit to entrepreneurial and venture-backed businesses, including in particular early- and expansion-stage companies that receive financial support from sophisticated investors, including venture capital or private equity firms, and corporate investors. We derive a significant portion of deposits, including large deposits, from these companies and provide them with loans as well as other banking products and services. In many cases, our credit decisions are based on our analysis of the likelihood that our venture capital-backed clients will receive additional rounds of equity capital from investors. If the amount of capital available to such companies decreases, we could suffer loan losses, which could have a material adverse effect on our deposit balances, net earnings, allowance for loan and lease losses, financial condition, and results of operations.
Market Risk
Market Risk Is the Risk That Market Conditions May Adversely Impact the Value of Assets or Liabilities or Otherwise Negatively Impact Earnings. Market Risk Is Inherent To the Financial Instruments Associated with Our Operations, Including Loans, Deposits, Securities, Short-term Borrowings, Long-term Debt, and Derivatives.
Our business is subject to interest rate risk, and variations in interest rates may materially and adversely affect our financial performance.
Changes in the interest rate environment may reduce our profits. It is expected that we will continue to realize income from the differential or "spread" between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. Net interest spreads are affected by the difference between the maturities and repricing characteristics of interest-earning assets and interest-bearing liabilities. Changes in market interest rates generally affect loan volume, loan yields, funding sources and funding costs. Our net interest spread depends on many factors that are partly or completely out of our control, including competition, general economic conditions, and federal economic monetary and fiscal policies, and generalin particular, the Federal Reserve Board. After steadily increasing the target federal funds rate in 2017 and 2018, the Federal Reserve Board in 2019 decreased the target federal funds rate by 75 basis points, and in response to the COVID-19 pandemic in March 2020, an additional 150 basis point decrease to a range of 0.00% to 0.25% as of March 31, 2020 where it has remained. A prolonged low interest rate environment could negatively impact our net interest margin as assets reprice that are not subject to interest rate floors. The Federal Reserve Board has signaled that an increase in rates is coming but the exact timing and extent remain unknown and are largely subject to economic conditions.
While an increase in interest rates may increase our loan yield, it may adversely affect the ability of certain borrowers with variable ratevariable-rate loans to pay the contractual interest and principal due to us. Following an increase in interest rates, our ability to maintain a positive net interest spread is dependent on our ability to increase our loan offering rates, replace loans that mature and repay or that prepay before maturity with new originations, minimize increases on our deposit rates, and maintain an acceptable level and composition of funding. We cannot provide assurances that we will be able to increase our loan offering rates and continue to originate loans due to the competitive landscape in which we operate. Additionally, we cannot provide assurances that we can minimize the increases in our deposit rates while maintaining an acceptable level of deposits. Finally, we cannot provide any assurances that we can maintain our current levels of noninterest-bearing deposits as customers may seek higher-yielding products when interest rates increase.
Accordingly, changes in levels of interest rates could materially and adversely affect our net interest spread, net interest margin, cost of deposits, asset quality, loan origination volume, average loan portfolio balance, deposit balances, liquidity, and overall profitability.
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We Maymay be Adversely Impactedadversely impacted by the Transitiontransition from LIBOR as a Reference Rate.reference rate.
TheIn 2017, the Financial Conduct Authority has announced that the London Interbank Offered Rate (“LIBOR”)after 2021 it will no longer be publishedcompel banks to submit the rates required to calculate LIBOR. In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after 2021. With LIBOR’s expected discontinuanceDecember 31, 2021; but, the publication of the remaining LIBOR offered rates will continue until June 30, 2023.Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021 there is uncertaintywould create safety and soundness risks and that they will examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR as to whata reference rate or rates may become accepted alternatives to as soon as practicable and in any event by December 31, 2021.
To identify a successor rate for LIBOR or whatin the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. In response,United States, the Alternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was convenedformed. The ARRC has identified SOFR as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. On July 29, 2021, the ARCC formally recommended SOFR as its preferred alternative replacement rate for LIBOR.
Starting in August 2019, we began including fallback language in our new loan agreements that would allow us to substitute an alternative reference rate in the U.S. to exploreevent LIBOR became unavailable as a published reference rate. As of December 31, 2021, we permanently ceased originating any new loans or entering into any transaction that would increase our LIBOR based exposure. For all variable-rate loans, the Company primarily offers Prime and SOFR as the variable rate index, but may consider alternative reference rates and supporting processes. The ARRC identified a potential successor rate to LIBOR insuch as the Secured Overnight FinancingAmerican Interbank Offered Rate (“SOFR”Ameribor”) and craftedothers based on market condition and/or the Paced Transition Plan to facilitate the transition. However, there are conceptual and technical differences between LIBOR and SOFR that remain unresolved at this time.
Wetype of loan or financial instrument. Nonetheless, we have a significant numberlegacy portfolios of loans, some securities, and borrowings, such as our TruPS and one deposit product with attributesborrowings that are either directly or indirectly dependent on LIBOR. We have not yet determinedAs of December 31, 2021, we had $7.6 billion of outstanding loans for which the optimal reference rate(s) that we will ultimately use for our financial instruments going forward; however, it appears likely that it will be SOFR. We have organized a multidisciplinary project teamrepricing index rate was tied to identify operational and contractual best practices, assess our risks, identify the detailed listLIBOR, of all financial instruments impacted, manage the transition, facilitate communication with our customers and counterparties, and monitor the impacts. We have already drafted and begun including fallback language in our loan agreements beginning in August of 2019. which $5.6 billion had maturity dates after June 30, 2023.
The transition from LIBOR could create considerable costs and additional risk. Although the administrator of LIBOR has announced its intention to extend the publication of most tenors of LIBOR for U.S. dollars through June 30, 2023, we cannot predict whether or when LIBOR will actually cease to be available, whether SOFR will become the widely-accepted market benchmark in its place or what impact such a transition may have on our business, financial condition and results of operations. The uncertainty as to the nature and effect of the discontinuance of LIBOR may adversely affect the value of, the return on or the expenses associated with our financial assets and liabilities that are based on or are linked to LIBOR, may require extensive changes to the contracts that govern these LIBOR-based products as well as our systems and processes, and could impact our pricing and interest rate risk models, our loan product structures, our funding costs, our valuation tools and result in increased compliance and operational costs. In addition, the market transition away from LIBOR to an alternative reference rate could prompt inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with an alternative reference rate, and result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based financial instruments. Furthermore, failure to adequately manage this transition process with our customers could adversely impact our reputation.
Although we are currently unable to assess the ultimate impact of the transition from LIBOR, the failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.








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The value of our securities in our investment portfolio may decline in the future.
The fair market value of our investment securities may be adversely affected by general economic and market conditions, including changes in interest rates, credit spreads, and the occurrence of any events adversely affecting the issuer of particular securities in our investments portfolio or any given market segment or industry in which we are invested. We analyze our securities, all of which are classified as available-for-sale, on a quarterly basis to determine if an impairment has occurred.measure currently expected credit losses. The process for determining whether any portion of the impairment is credit-relatedcurrently expected credit losses usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving principal and interest payments sufficient to recover our amortized cost of the security. Because of changing economic and market conditions affecting issuers, we may be required to recognize impairmentscredit losses in future periods, which could have a material adverse effect on our business, financial condition, or results of operations.


Capital and Liquidity Risk
Capital and Liquidity Risk Is the Potential InabilityRisk of Loss Resulting from Insufficient Capital Levels or Inadequate Liquid Assets That Could Impair Our Ability to Operate Free of Regulatory Enforcement Actions and to Meet Our Contractual and Contingent Financial Obligations, On- or Off-Balance Sheet, as They Become Due.
We are subject to capital adequacy standards and liquidity rules, and a failure to meet these standards could adversely affect our financial condition.
The Company and the Bank are each subject to capital adequacy and liquidity rules and other regulatory requirements specifying minimum amounts and types of capital that must be maintained. From time to time, the regulators implement changes to these regulatory capital adequacy and liquidity guidelines. If we fail to meet these minimum capital and liquidity guidelines and other regulatory requirements, we may be restricted in the types of activities we may conduct and may be prohibited from taking certain capital actions, such as making TruPS payments or paying executive bonuses or dividends, and repurchasing or redeeming capital securities.
We may need to raise additional capital in the future and such capital may not be available when needed or at all.
We are required by federal and state regulators to maintain adequate levels of capital. We may need to raise additional capital in the future to meet regulatory or other internal requirements. As a publicly traded company, a likely source of additional funds is the capital markets, accomplished generally through the issuance of equity, both common and preferred stock, and the issuance of subordinated debt. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.
We cannot provide any assurance that access to such capital will be available to us on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers or counter-parties participating in the capital markets, may materially and adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. The inability to raise additional capital on acceptable terms when needed could have a materially adverse effect on our business, financial condition, or results of operations.









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We are subject to liquidity risk, which could adversely affect our financial condition and results of operations.
Effective liquidity management is essential for the operation of our business. Although we have implemented strategies to maintain sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes in assets, liabilities, and off-balance sheet commitments under various economic conditions, an inability to raise funds through deposits, borrowings, the sale of investment securities and other sources could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market disruption, a decrease in the borrowing capacity assigned to our pledged assets by our secured creditors, or adverse regulatory action against us. Deterioration in economic conditions and the loss of confidence in financial institutions may increase our cost of funding and limit our access to some of our customary sources of liquidity, including, but not limited to, inter-bank borrowings and borrowings from the FRBSF and FHLB. Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry generally as a result of conditions faced by banking organizations in the domestic and international credit markets.
We may be adversely affected by changesRegulatory, Compliance and Legal Risk
Regulatory, Compliance and Legal Risk Is the Risk of Loss Related to Violations of Laws, Rules, or Regulations, or from Non-Conformance with Prescribed Practices, Internal Policies and Procedures, Contractual Obligations and Other Legal and Ethical Standards.
Our participation in the actual or perceived soundness or conditionSBA PPP loan program exposes us to risks related to noncompliance with the PPP, as well as litigation risk related to our administration of other financial institutions.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial and financial soundness of other financial institutions. Financial institutions are closely related as a result of credit, trading, investment, liquidity management, clearing, counterparty and other relationships. Loss of public confidence in any one institution, including through default, could lead to liquidity and credit problems, losses, or defaults for other institutions. Even the perceived lack of creditworthiness of, or questions about, a counterparty may lead to market-wide liquidity and credit problems, losses, or defaults by various institutions. This systemic risk may adversely affect financial intermediaries, such as clearing agencies, banks and exchanges we interact with on a daily basis or key funding providers such as the Federal Home Loan Banks, any ofPPP loan program, which could have a material adverse effect on our access to liquidity or otherwise have a material adverse effectimpact on our business, financial condition, orand results of operations.
The primary sourceCompany is a participating lender in the PPP, a loan program administered through the SBA, that was created to help eligible businesses, organizations and self-employed persons fund their operational costs during the COVID-19 pandemic. Under this program, the SBA guarantees 100% of the holding company's liquidity from which we pay dividends, among other things, isamounts loaned under the receipt of dividends from the Bank.PPP.
The holding company, PacWest,PPP opened on April 3, 2020; however, because of the short window between the passing of the CARES Act and the opening of the PPP, there was some ambiguity in the laws, rules and guidance regarding the operation of the PPP. Subsequent rounds of legislation and associated agency guidance have not provided necessary clarity and have created potential additional inconsistencies and ambiguities. Accordingly, the Company is a legal entity separateexposed to risks relating to noncompliance with the PPP.
Additionally, since the launch of the PPP, several larger banks have been subject to litigation regarding the process and distinctprocedures that such banks used in processing applications for the PPP, as well as litigation regarding the alleged nonpayment of fees that may be due to certain agents who facilitated PPP loan applications. The Company may be exposed to the risk of litigation, from both customers and non-customers that approached the Bank regarding PPP loans, regarding its process and our other subsidiaries. The availability of dividends fromprocedures used in processing applications for the BankPPP. If any such litigation is limited by various statutesfiled against the Company and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that the FRB, the FDIC and/or the DBO could assert that payment of dividends or other payments is an unsafe or unsound practice. In the event the Bank is unable to pay dividendsnot resolved in a manner favorable to the holding company,Company, it is likely that we,may result in turn, would have to discontinue capital distributions insignificant financial liability or adversely affect the formCompany’s reputation. Regardless of dividendsoutcome, litigation can be costly and distracting.Any financial liability, litigation costs or share repurchases and may have difficulty meeting our other financial obligations, including payments in respect of any outstanding indebtedness or subordinated debentures. The Bank may declare a dividend without the approval of the DBO 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 dividend paid during such period. The Bank's net earnings during the previous three fiscal years exceeded dividends paidreputational damage caused by the Bank during that same period by $34.8 million. Since the Bank had an accumulated deficit of $490.6 million at December 31, 2019, for the foreseeable future, any cash dividends from the Bank to the holding company will continue to require DBO and FDIC approval. The inability of the Bank to pay dividends to the holding companyPPP-related litigation could have a material adverse effect on our business, including the market price of our common stock.






We may reduce or discontinue the payment of dividends on common stock.
Our stockholders are only entitled to receive such dividends as our Board may declare out of funds legally available for such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. Our ability to pay dividends is subject to the restrictions set forth in Delaware law, by the FRB, and by certain covenants contained in our subordinated debentures. Notification to the FRB is also required prior to our declaring and paying a cash dividend during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. 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. 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 to our stockholders. We cannot provide assurance that we will continue paying dividends on our common stock at current levels or at all.
Capital Risk
We are subject to capital adequacy standards, and a failure to meet these standards could adversely affect our financial condition.
The Company and the Bank are each subject to capital adequacy and liquidity rules and other regulatory requirements specifying minimum amounts and types of capital that must be maintained. From time to time, the regulators implement changes to these regulatory capital adequacy and liquidity guidelines. If we fail to meet these minimum capital and liquidity guidelines and other regulatory requirements, we may be restricted in the types of activities we may conduct and may be prohibited from taking certain capital actions, such as making TruPS payments or paying executive bonuses or dividends, and repurchasing or redeeming capital securities.
We may need to raise additional capital in the future and such capital may not be available when needed or at all.
We are required by federal and state regulators to maintain adequate levels of capital. We may need to raise additional capital in the future to meet regulatory or other internal requirements. As a publicly traded company, a likely source of additional funds is the capital markets, accomplished generally through the issuance of equity, both common and preferred stock, and the issuance of subordinated debentures. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance.
We cannot provide any assurance that access to such capital will be available to us on acceptable terms or at all. Any occurrence that may limit our access to the capital markets, such as a decline in the confidence of debt purchasers or counter-parties participating in the capital markets, may materially and adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. The inability to raise additional capital on acceptable terms when needed could have a materially adverse effectimpact on our business, financial condition orand results of operations.

PPP loans are fixed, low interest rate loans that are guaranteed by the SBA and subject to numerous other regulatory requirements, and a borrower may apply to have all or a portion of the loan forgiven.If PPP borrowers fail to qualify for loan forgiveness, we face a heightened risk of holding these loans at unfavorable interest rates for an extended period of time. While the PPP loans are guaranteed by the SBA, various regulatory requirements will apply to our ability to seek recourse under the guarantees, and related procedures are currently subject to uncertainty.

Regulatory, Compliance
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In addition, the Company may be exposed to credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced, such as an issue with the eligibility of borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and Legal Riskguidance regarding the operations of the PPP. If a deficiency is identified, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.
We are subject to extensive regulation, which could materially and adversely affect our business.
The banking industry is extensively regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, federal deposit insurance funds and the banking system as a whole, not for the protection of our stockholders and creditors. The Company is subject to regulation and supervision by the FRB, and the Bank is subject to regulation and supervision by the FDIC, DBODFPI and CFPB. The laws and regulations applicable to us govern a variety of matters, including, but not limited to, permissible types, amounts and terms of loans and investments we make, the maximum interest rate that may be charged, consumer disclosures on the products and services we offer, the amount of reserves we must hold against our customers' deposits, the types of deposits we may accept and the rates we may pay on such deposits, the establishment of new branch offices by the Bank, maintenance of adequate capital and liquidity, restrictions on dividends, and stock repurchases. We must obtain approval from our regulators before engaging in certain activities, including certain acquisitions, and there can be no assurance that any regulatory approvals we may require will be obtained, or obtained without conditions, either in a timely manner or at all. Our regulators have the ability to compel us to, or restrict us from, taking certain actions entirely, such as actions that our regulators deem to constitute unsafe or unsound banking practice. While we have policies and procedures designed to prevent violations of the extensive federal and state regulations, any failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in regulatory enforcement actions, civil monetary penalties, or damage to our reputation, all of which could have a material adverse effect on our business, financial condition, or results of operation.
Regulations affecting banks and other financial institutions are undergoing continuous review and frequentfrequently change. The ultimate effect of such changes cannot be predicted. Because our business is highly regulated, compliance with such regulations and laws may increase our costs and limit our ability to pursue business opportunities. There can be no assurance that laws, rules, and regulations, including any future government stabilization program, will not be proposed or adopted in the future, which could (i) subject us to additional restrictions, (ii) make compliance much more difficult or expensive, (iii) restrict our ability to originate, broker, or sell loans or accept certain deposits, (iv) further limit or restrict the amount of commissions, interest, or other charges earned on loans originated or sold, or (v) otherwise materially and adversely affect our business or prospects for business. While new legislation in 2018 scaled back portions of the Dodd-Frank Act, and the currentnew administration in the United States may ultimately roll backadopt, enhance or modify certain of the regulations adopted since the financial crisis, any future changes in bank regulation, are uncertain and any such new, enhanced or modified regulations could negatively impactadversely affect our business.financial condition or results of operations.
Though the Company and Bank are no longer required to prepare annual stress tests pursuant to the Dodd-Frank Act, we continue to prepare an annual internal capital stress test under adverse economic and market conditions. Our stress test results are considered by the FRB and FDIC in evaluating our capital adequacy and could have a negative impact on our ability to make capital distributions in the form of dividends or share repurchases.
The Company and its subsidiaries are subject to changes in federal and state tax laws, interpretation of existing laws, and examinations and challenges by taxing authorities.
Our financial performance is impacted by federal and state tax laws. Given the current economic and political environment, and ongoing budgetary pressures, the enactment of new federal or state tax legislation or new interpretations of existing tax laws could occur. The enactment of such legislation, or changes in the interpretation of existing law, including provisions impacting income tax rates, apportionment, consolidation or combination, income, expenses, and credits, may have a material adverse effect on our financial condition, results of operations, and liquidity.


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In the normal course of business, we are routinely subjected to examinations and audits from federal, state, and local taxing authorities regarding tax positions taken by us and the determination of the amount of taxtaxes due. These examinations may relate to income, franchise, gross receipts, payroll, property, sales and use, or other tax returns. The challenges made by taxing authorities may result in adjustments to the amount of taxes due, and may result in the imposition of penalties and interest. If any such challenges are not resolved in our favor, they could have a material adverse effect on our financial condition, results of operations, and liquidity.


We are subject to claims and litigation which could adversely affect our cash flows, financial condition, and results of operations, or cause us significant reputational harm.
We and certain of our directors, officers, and subsidiaries may be involved, from time to time, in reviews, investigations, litigation, and other proceedings pertaining to our business activities. If claims or legal actions, whether founded or unfounded, are not resolved in a favorable manner to us, they may result in significant financial liability. Although we establish accruals for legal matters when and as required by U.S. GAAP and certain expenses and liabilities in connection with such matters may be covered by insurance, the amount of loss ultimately incurred in relation to those matters may be substantially higher than the amounts accrued and/or insured. Substantial legal liability could adversely affect our business, financial condition, results of operations, and reputation.
Regulations relating to privacy, information security, and data protection could increase our costs, affect or limit how we collect and use personal information, and adversely affect our business opportunities.
We are subject to various privacy, information security and data protection laws, such as the Gramm-Leach-Bliley Act, which among other things requires privacy disclosures, and maintenance of a robust security program that are increasingly subject to change which could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of consumer or employee information, and some of our current or planned business activities.
Additionally, many states have implemented or modified their data breach notification and data privacy requirements, and California and Colorado, which are two states in which we have branch offices, have enacted comprehensive data privacy legislation. The California legislature passed the California Consumer Privacy Act of 2018 (“CCPA”), which came into effect on January 1, 2020, and the California Privacy Rights Act of 2020, which takes effect on January 1, 2023. Together, these California acts, which cover businesses that obtain or access personal information on California resident consumers, grant consumers enhanced privacy rights and control over their personal information and imposes significant requirements on covered companies with respect to consumer data privacy rights. Additionally, Colorado became the third state – behind California and Virginia – to enact comprehensive data privacy legislation, commonly referred to as the Colorado Privacy Act, which is set to take effect on July 1, 2023. The Colorado Privacy Act is modeled in part off of the CCPA. Our regulators also hold us responsible for privacy and data protection obligations performed by our third-party service providers while providing services to us.
New or changes to existing laws could increase our costs of compliance and business operations and could reduce income from certain business initiatives, including increased privacy-related enforcement activity, higher compliance and technology costs and could restrict our ability to provide certain products and services. Our failure to comply with privacy, data protection and information security laws could result in potentially significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which could have a material adverse effect on our business, financial condition or results of operations.




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Risk of the Competitive Environment in which We Operate
Our ability to attract and retain qualified employees is critical to our success.
Our employees are our most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense. We endeavor to attract talented and diverse new employees and retain and motivate our existing employees to assist in executing our growth, acquisition, and business strategies. We also seek to retain proven, experienced senior employees with superior talent, augmented from time to time by external hires, to provide continuity of succession of our executive management team. In addition, the Company’s Board oversees succession planning, including review of the succession plans for the Chief Executive Officer and other members of executive management. Losses of or changes in our current executive officers or other key personnel, or the inability to recruit and retain qualified personnel in the future could materially and adversely affect our financial condition and results of operations.
We face strong competition from financial services companies and other companies that offer banking services, which could materially and adversely affect our business.
The financial services industry has become even more competitive as a result of legislative, regulatory and technological changes and continued banking consolidation, which may increase in connection with current economic, market and political conditions. We face substantial competition in all phases of our operations from a variety of competitors, including national banks, regional banks, community banks and, more recently, financial technology (or "fintech") companies.Many of our competitors offer the same banking services that we offer and our success depends on our ability to adapt our products and services to evolving industry standards. Increased competition in our market may result in reduced new loan and lease production and/or decreased deposit balances or less favorable terms on loans and leases and/or deposit accounts. We also face competition from many other types of financial institutions, including without limitation, non-bank specialty lenders, insurance companies, private investment funds, investment banks, and other financial intermediaries. While there are a limited number of direct competitors in the venture banking market, some of our competitors have long-standing relationships with venture firms and the companies that are funded by such firms. Many of our competitors have significantly greater resources, established customer bases, more locations, and longer operating histories.
Should competition in the financial services industry intensify, our ability to market our products and services may be adversely affected. If we are unable to attract and retain banking customers, we may be unable to grow or maintain the levels of our loans and deposits and our results of operations and financial condition may be adversely affected as a result. Ultimately, we may not be able to compete successfully against current and future competitors.
Failure to keep pace with technological change could adversely affect our business.
The financial services industry experiences continuous technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors, however, have substantially greater resources to invest in technological improvements or are technology focused start-ups with internally developed cloud-native systems that offer improved user interfaces and experiences. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. In addition, we depend on internal and outsourced technology to support all aspects of our business operations. Interruption or failure of these systems creates a risk of business loss as a result of adverse customer experiences and possible diminishing of our reputation, damage claims or civil fines. Failure to successfully keep pace with technological change affecting the financial services industry or to successfully implement core processing strategies could have a material adverse impact on our business and, in turn, our financial condition and results of operations.





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Our ability to maintain, attract and retain customer relationships and investors is highly dependent on our reputation.
Damage to our reputation could undermine the confidence of our current and potential customers and investors in our ability to provide high-quality financial services. Such damage could also impair the confidence of our counterparties and vendors and ultimately affect our ability to effect transactions. Maintenance of our reputation depends not only on our success in maintaining our service-focused culture and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, customer and other third-party fraud, record-keeping, technology-related issues including but not limited to cyber fraud, regulatory investigations and any litigation that may arise from the failure or perceived failure to comply with legal and regulatory requirements. Defense of our reputation, trademarks, and other intellectual property, including through litigation, also could result in costs that could have a material adverse effect on our business, financial condition, or results of operations.


Risks Related to Risk Management
Risks Related to Risk Management Is the Risk of Loss Resulting from Unknown Risks and Our Inability to Timely and Adequately Identify, Monitor and Manage Key Risks That May Affect Our Business.
Our acquisitions may subject us to unknown risks.
As an active acquirer having successfully completed 2931 acquisitions since 2000, including two acquisitions in 2021, certain events may arise after the date of an acquisition, or we may learn of certain facts, events or circumstances after the closing of an acquisition, that may affect our financial condition or performance or subject us to risk of loss. These events include, but are not limited to: litigation resulting from circumstances occurring at the acquired entity prior to the date of acquisition; loan downgrades and credit loss provisions resulting from deterioration in the credit quality of the acquired loans; personnel changes that cause instability within a department; delays in implementing new policies or procedures or the failure to apply new policies or procedures; and other events relating to the performance of our business. Acquisitions involve inherent uncertainty and we cannot determine all potential events, facts and circumstances that could result in loss or increased costs or give assurances that our due diligence or mitigation efforts will be sufficient to protect against any such loss or increased costs.
Our ability to execute our strategic initiatives successfully will depend on a variety of factors. These factors likely will vary based on the nature of the initiative but may include our success in integrating the operations, services, products, personnel and systems of an acquired company into our business, operating effectively with any partner with whom we elect to do business, retaining key employees, achieving anticipated synergies, meeting expectations and otherwise realizing the undertaking's anticipated benefits. Our ability to address these matters successfully cannot be assured. In addition, our strategic initiatives may divert resources or management's attention from ongoing business operations and may subject us to additional regulatory scrutiny. If we do not successfully execute a strategic undertaking, it could adversely affect our business, financial condition, results of operations, reputation, regulatory relationships and growth prospects. To the extent we issue capital stock in connection with future acquisitions, these transactions may be dilutive to tangible book value and will dilute share ownership.
Failure to keep pace with technological change could adversely affect our business.
The financial services industry experiences continuous technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors, however, have substantially greater resources to invest in technological improvements or are technology focused start-ups with internally developed cloud-native systems that offer improved user interfaces and experiences. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. In addition, we depend on internal and outsourced technology to support all aspects of our business operations. Interruption or failure of these systems creates a risk of business loss as a result of adverse customer experiences and possible diminishing of our reputation, damage claims or civil fines. Failure to successfully keep pace with technological change affecting the financial services industry or to successfully implement core processing strategies could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
A failure, interruption, or breach in the security of our systems, or those of contracted vendors, could disrupt our business, result in the disclosure of confidential information, damage our reputation, and create significant financial and legal exposure.
Although we devote significant resources to maintain and regularly update our systems and processes that are designed to protect the security of our computer systems, software, networks and other technology assets, as well as the confidentiality, integrity and availability of information belonging to us and our customers, there is no assurance that all of our security measures will provide absolute security.

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Many financial institutions, including the Company, have been subjected to attempts to infiltrate the security of their websites or other systems, some involving sophisticated and targeted attacks intended to obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems or cause other damage, including through the introduction of computer viruses or malware, cyber-attacks and other means. We have been targeted by individuals and groups using phishing campaigns, pretext calling, malicious code and viruses, and have experienced distributed denial-of-service attacks with the objective of disrupting on-line banking services and expect to be subject to such attacks in the future.
Despite efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate, detect or recognize threats to our systems or to implement effective preventive measures against all security breaches of these types inside or outside our business, especially because the techniques used change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including individuals or groups who are associated with external service providers or who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments. Those parties may also attempt to fraudulently induce employees, customers, third-party service providers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. TheseSimilar to other companies, risks mayand exposures related to cybersecurity attacks have increased as a result of the COVID-19 pandemic, the related increased reliance on remote working and increase in digital operations in efforts to comply with state and local mandates. Such risks and exposures are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats and the expanding use of technology, as our web-based product offerings grow or we expand internal usage of web-based applications.
A successful penetration or circumvention of the security of our systems, including those of our third-party vendors, could cause serious negative consequences, including significant disruption of our operations, misappropriation of confidential information, or damage to computers or systems, and may result in violations of applicable privacy and other laws, financial loss, loss of confidence in our security measures, customer dissatisfaction, increased insurance premiums, significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on our business, financial condition, results of operations, and future prospects.
We rely on other companies to provide key components of our business infrastructure.
We rely on certain third parties to provide products and services necessary to maintain day-to-day operations, such as data processing and storage, recording and monitoring transactions, on-line banking interfaces and services, Internet connections, telecommunications, and network access. Even though we have a vendor management program to help us carefully select and monitor the performance of third parties, we do not control their actions. The failure of a third-party to perform in accordance with the contracted arrangements under service level agreements as a result of changes in the third party’s organizational structure, financial condition, support for existing products and services, strategic focus, system interruption or breaches, or for any other reason, could be disruptive to our operations, which could have a material adverse effect on our business, financial condition and results of operations. Replacing these third parties could also create significant delays and expense. Accordingly, use of such third parties creates an inherent risk to our business operations.
Our controls and procedures may fail or be circumvented.
We regularly review and update our internal controls, disclosure controls and procedures, compliance monitoring activities and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, reputation and financial condition. In addition, if we identify material weaknesses or significant deficiencies in our internal control over financial reporting or are required to restate our financial statements, we could be required to implement expensive and time-consuming remedial measures. We could lose investor confidence in the accuracy and completeness of our financial reports and potentially subject us to litigation. Any material weaknesses or significant deficiencies in our internal control over financial reporting or restatement of our financial statements could have a material adverse effect on our business, results of operations, reputation, and financial condition.


Severe weather, natural disasters, acts of war or terrorism, new public health issues, or other adverse external events could harm the Company's business. Further, global concerns regarding climate risk may lead to new or heightened governmental regulations to mitigate those risks which could adversely affect our business
Severe weather, natural disasters, acts of war or terrorism, new public health issues, and other adverse external events could have a significant impact on our ability to conduct business. The nature and level of severe weather and/or natural disasters cannot be predicted and may be exacerbated by global climate change. Severe weather and natural disasters could harm our operations through interference with communications, including the interruption or loss of our computer systems, which could prevent or impede us from gathering deposits, originating loans and processing and controlling the flow of business, as well as through the destruction of facilities and our operational, financial and management information systems. California, in which a substantial portion of our business and a substantial portion of our loan collateral is located, is susceptible to severe weather and natural disasters such as earthquakes, floods, droughts, and wildfires. Additionally, the United States remains a target for potential acts of war or terrorism. Moreover, a new public health issue, such as a major epidemic or another pandemic, could adversely affect economic conditions.
41

Severe weather, natural disasters, acts of war or terrorism, public health issues, or other adverse external events could each negatively impact our business operations or the stability of our deposit base, cause significant property damage, adversely impact the values of collateral securing our loans and/or interrupt our borrowers' abilities to conduct their business in a manner to support their debt obligations, which could result in losses and increased provisions for credit losses. There is no assurance that our business continuity and disaster recovery program can adequately mitigate the risks of such business disruptions and interruptions.
Concerns regarding climate risk may lead to further governmental efforts to mitigate those risks, as well as changes in behavior and preferences by consumers and businesses. Future governmental regulations or guidance relating to climate risk, as well as the perspectives of regulators, shareholders, employees and other stakeholders, may at some point in the future affect our product and service offerings. Federal and state banking regulators and supervisory authorities, shareholders and other stakeholders have increasingly viewed financial institutions such as us as playing an important role in helping to address risks related to climate change, both directly and with respect to our clients, which may result in increased pressure regarding the disclosure and management of climate risks and related lending and advisory activities. In the future, we may also become subject to new or heightened regulatory requirements related to climate change, such as requirements relating to operational resiliency or stress testing for various climate stress scenarios. Any new or heightened requirements could result in increased regulatory compliance or other costs or higher capital requirements. The risks associated with, and the perspective of regulators, shareholders, employees and other stakeholders regarding climate change are continuing to evolve rapidly, which can make it difficult to assess the ultimate impact on us of climate change-related risks and uncertainties, and we expect that climate change-related risks will increase over time. Currently, there are no existing regulations applicable to us related to climate risk as such we have not performed a climate risk impact assessment.
Risk from Accounting and Other Estimates
Risk from Accounting and Other Estimates Is the Risk That the Estimates and Assumptions That We Use in Preparing Our Consolidated Financial Statements and In Models We Utilize to Make Business Decisions May Be Subject to Adjustment for Reasons Within or Beyond Our Control, Which Could Result in Unexpected Losses and Adverse Effects on Our Financial Condition.
The Company's consolidated financial statements are based in part on assumptions and estimates which, if incorrect, could cause unexpected losses in the future.
We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from these estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses, particularly in light of adopting the new CECL standard on January 1, 2020; the carrying value of goodwill or other intangible assets; the fair value estimates of certain assets and liabilities; and the realization of deferred tax assets and liabilities. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
42

There are risks resulting from the extensive use of models in our business.
We rely on quantitative models to measure risks and to estimate certain financial values. Models may be used in such processes as determining the pricing of various products, grading loans and extending credit, measuring interest rate and other market risks, predicting or estimating losses, assessing capital adequacy and calculating regulatory capital levels, as well as to estimate the value of financial instruments and balance sheet items. Poorly designed or implemented models present the risk that our business decisions based on information incorporating model output could be adversely affected due to the inaccuracy of that information. Models are often based on historical experience to predict future outcomes, as a result new experiences or events which are not part of historical experience can significantly increase model imprecision and impact model reliability. Model inputs can also include information provided by third parties, such as economic forecasts or macroeconomic variables (unemployment, Real GDP, CRE Price Index, BBB Spreads, CPI, etc.) upon which we rely. Some of the decisions that our regulators make, including those related to capital distributions, could be affected due to the perception that the quality of the models used to generate the relevant information is insufficient, which could have a negative impact on our ability to make capital distributions in the form of dividends or share repurchases. Our reliance on models continues to increase as rules, guidance and expectations change.
Risks Related to Investments in Our Securities
The most recent exampleprimary source of thisthe holding company's liquidity from which we pay dividends, among other things, is the additional modelsreceipt of dividends from the Bank.
The holding company, PacWest, is a legal entity separate and distinct from the Bank and our other subsidiaries. The availability of dividends from the Bank is limited by various statutes and regulations. It is possible, depending upon the financial condition of the Bank and other factors, that will be usedthe FRB, the FDIC and/or the DFPI could assert that payment of dividends or other payments is an unsafe or unsound practice. In the event the Bank is unable to pay dividends to the holding company, it is likely that we, in turn, would have to discontinue capital distributions in the determinationform of dividends or share repurchases and may have difficulty meeting our other financial obligations, including payments in respect of any outstanding indebtedness or subordinated debt. 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 dividend paid during such period. The Bank had a cumulative net loss of $155.3 million during the three fiscal years of 2021, 2020, and 2019 due to the $1.47 billion goodwill impairment in the first quarter of 2020, compared to dividends of $776.0 million paid by the Bank during that same period. During 2021, PacWest received $182.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $1.5 billion at December 31, 2021, for the foreseeable future, any cash dividends from the Bank to the holding company will continue to require DFPI and FDIC approval. The inability of the Bank to pay dividends to the holding company could have a material adverse effect on our business, including the market price of our allowancecommon stock.
We may reduce or discontinue the payment of dividends on common stock.
Our stockholders are only entitled to receive such dividends as our Board may declare out of funds legally available for credit losses under CECL effective January 1, 2020.such payments. Although we have historically declared cash dividends on our common stock, we are not required to do so and may reduce or eliminate our common stock dividend in the future. Our ability to pay dividends is subject to the restrictions set forth in Delaware law, by the FRB, and by certain covenants contained in our subordinated debt. Notification to the FRB is also required prior to our declaring and paying a cash dividend during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. 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. 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 to our stockholders. We cannot provide assurance that we will continue paying dividends on our common stock at current levels or at all.







43

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of January 31, 2020,2022, we had a total of 152150 properties consisting of 7671 full-service branch offices and 7679 other offices. We own four locations and the remaining properties are leased. Our properties are located throughout the United States, however, approximately 74%71% are located in California. We lease our principal office, which is located at 9701 Wilshire Blvd., Suite 700, Beverly Hills, CA 90212.
For additional information regarding properties of the Company and Pacific Western, see Note 7. Premises and Equipment, Net of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”
ITEM 3. LEGAL PROCEEDINGS
See Note 13.14. Commitments and Contingencies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data." That information is incorporated into this item by reference.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
44

PART II
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Marketplace Designation and Holders
Our common stock is listed on The Nasdaq Global Select Market and is traded under the symbol “PACW.” As of February 14, 2020,16, 2022, and based on the records of our transfer agent, there were approximately 1,724approximately 1,590 record holders of our common stock.
Dividends
For a discussion of dividend restrictions on the Company's common stock, or of dividends from the Company's subsidiaries to the Company, see “Item 1. Business - Supervision and Regulation - Dividends and Share Repurchases” and Note 21. 22. Dividend Availability and Regulatory Matters of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides information as of December 31, 20192021 regarding securities issued and to be issued under our equity compensation plans in effect during fiscal year 2019:2021:
    Number of Securities  Weighted Number of Securities 
    to be Issued Upon  Average Exercise Remaining Available 
    Exercise of  Price of for Future Issuance 
    Outstanding  Outstanding Under Equity 
    Options,  Options, Compensation Plans 
    Warrants, and  Warrants, and (Excluding Securities 
    Rights  Rights Reflected in Column (a)) 
Plan Category Plan Name (a)  (b) (c) 
Equity compensation plans PacWest Bancorp        
approved by security 2017 Stock Incentive        
holders 
Plan (1)
 195,293
(2) 
 $—
 2,257,923
(3) 
  PacWest Bancorp        
  2003 Stock Incentive        
  
Plan (1)
 86,349
(4) 
 —
 —
 
Equity compensation plans          
not approved by security          
holders None —
  —
 —
 
Total   281,642
  $—
 2,257,923
 
Number of SecuritiesWeightedNumber of Securities
to be Issued UponAverage ExerciseRemaining Available
Exercise ofPrice offor Future Issuance
OutstandingOutstandingUnder Equity
Options,Options,Compensation Plans
Warrants, andWarrants, and(Excluding Securities
RightsRightsReflected in Column (a))
Plan CategoryPlan Name(a)(b)(c)
Amended and Restated
Equity compensationPacWest Bancorp
plans approved by2017 Stock Incentive
security holders
Plan (1)
512,863 (2)$— 2,502,132 (3)
Equity compensation
plans not approved by
security holdersNone— — — 
Total512,863 $— 2,502,132 
__________________________________     
(1)The PacWest Bancorp 2017 Stock Incentive Plan (the “2017 Incentive Plan”) was approved by our stockholders at our May 15, 2017 Annual Meeting of Stockholders, authorizing for issuance 4,000,000 shares. Upon approval of the 2017 Incentive Plan by our stockholders, the PacWest 2003 Stock Incentive Plan (the "2003 Incentive Plan") was frozen and no new awards can be granted under the 2003 Incentive Plan.
(2)
(1)    The Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (the “Amended and Restated 2017 Plan”) was approved by our stockholders at our May 11, 2021 Annual Meeting of Stockholders, authorizing 6,650,000 shares for issuance, representing 4,000,000 shares originally approved for grant under the Original 2017 Stock Incentive Plan plus 2,650,000 shares added as a result of the approval of the Amended and Restated 2017 Plan.
(2)     Amount includes PRSUs granted in 2021, 2020, and 2019 and 2018 that may be issued at the end of their three-year performance period if certain financial metrics are met. The number of units shown represents a target amount and the number of units that will ultimately vest is unknown. Amount does not include 1,307,085 shares of unvested time-based restricted stock outstanding under the 2017 Incentive Plan with a zero exercise price as of December 31, 2019.
(3)The 2017 Incentive Plan permits these remaining shares to be issued in the form of options, restricted stock, or stock appreciation rights.
(4) Amount represents 86,349 shares that vested and were issued in February 2020 related to PRSUs granted in 2017. Amount does not include 206,1122,312,080 shares of unvested time-based restricted stock outstanding under the 2003 IncentiveAmended and Restated 2017 Plan with a zero exercise price as of December 31, 2019.2021.

(3)    The Amended and Restated 2017 Plan permits these remaining shares to be issued in the form of options, restricted stock, or stock appreciation rights.



45

Recent Sales of Unregistered Securities and Use of Proceeds
None.
Repurchases of Common Stock
The following table presents stock repurchases we made during the fourth quarter of 2019:2021:
     Total Number of Maximum Dollar
     Shares Purchased Value of Shares
 Total   as Part of That May Yet
 Number of Average Publicly Be Purchased
 Shares Price Paid Announced Under the
Purchase Dates
Purchased (1)
  Per Share 
Program (2)
 
Program (2)
       (In thousands)
October 1 – October 31, 2019—
 $—
 —
 $124,707
November 1 – November 30, 201927,606
 $37.57
 —
 $124,707
December 1 – December 31, 2019—
 $—
 —
 $124,707
Total27,606
 $37.57
 —
  
Total Number ofMaximum Dollar
Shares PurchasedValue of Shares
Totalas Part ofThat May Yet
Number ofAveragePubliclyBe Purchased
SharesPrice PaidAnnouncedUnder the
Purchase Dates
Purchased (1)
 Per Share
Program (2)
Program (2)
(In thousands)
October 1 – October 31, 2021— $— — $— 
November 1 – November 30, 20216,810 $44.74 — $— 
December 1 – December 31, 2021— $— — $— 
Total6,810 $— — 
___________________________________ 
(1)Includes shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.
(1)    Includes shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.
(2) The Stock Repurchase Program was initially authorized byOn February 12, 2020, PacWest's Board of Directors on October 17, 2016. On February 28, 2019, PacWest's Board of Directors authorized a new Stock Repurchase Program to purchase shares of its common stock for an aggregate purchase price not to exceed $225$200 million, until effective February 29, 2020. All2020. No shares were repurchased under the variousnew Stock Repurchase Programs were retired upon settlement.Program prior to expiration on February 28, 2021.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.


Five‑YearFive-Year Stock Performance Graph
The following chart compares the yearly percentage change in the cumulative stockholder return on our common stock based on the closing price during the five years ended December 31, 2019,2021, with (1) the Total Return Index for U.S. companies traded on The Nasdaq Stock Market (the “NASDAQ“Nasdaq Composite Index”), and (2) the Total Return Index for KBW NASDAQNasdaq Regional Bank Stocks (the “KBW Regional Banking Index”). This comparison assumes $100 was invested on December 31, 2014,2016, in our common stock and the comparison groups and assumes the reinvestment of all cash dividends prior to any tax effect and retention of all stock dividends. The Company's total cumulative gainreturn was 7.95%4.39% over the five year period ending December 31, 20192021 compared to gainsreturns of 100.49%204.85% and 53.03%29.65% for the NASDAQNasdaq Composite Index and KBW Regional Banking Index.
46

chart-a1c82c2ea8295c6fa9b.jpgpacw-20211231_g1.jpg

* $100 invested on December 31, 20142016 in stock or index, including reinvestment of dividends.
Year Ended December 31,
Index201620172018201920202021
PacWest Bancorp$100.00 $96.54 $66.82 $81.90 $57.34 $104.39 
Nasdaq Composite Index100.00 129.64 125.96 172.18 249.51 304.85 
KBW Regional Banking Index100.00 101.75 83.95 103.94 94.89 129.65 
 Year Ended December 31,
Index2014 2015 2016 2017 2018 2019
PacWest Bancorp$100.00
 $99.05
 $131.84
 $127.26
 $88.07
 $107.95
NASDAQ Composite Index100.00
 106.96
 116.45
 150.96
 146.67
 200.49
KBW Regional Banking Index100.00
 105.91
 147.24
 149.82
 123.60
 153.03


ITEM 6. SELECTED FINANCIAL DATA
Reserved.
The following table sets forth certain of our financial and statistical information for each of the years in the five‑year period ended December 31, 2019. The selected financial data should be read in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations," our audited consolidated financial statements as of December 31, 2019 and 2018, and for each of the years in the three‑year period ended December 31, 2019 and the related Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.” Our acquisitions may materially affect the comparability of the information reflected in the selected financial data presented in Item 6. Operating results of acquired companies are included from the respective acquisition dates. Further information regarding our acquisitions can be found in Note 3. Acquisitions to our consolidated financial statements.
47
 At or For the Year Ended December 31,
 2019 2018 2017 2016 2015
 (In thousands, except per share amounts and percentages)
Results of Operations:         
Interest income$1,219,893
 $1,161,670
 $1,052,516
 $1,015,912
 $883,938
Interest expense(205,264) (120,756) (72,945) (54,621) (60,592)
Net interest income1,014,629
 1,040,914
 979,571
 961,291
 823,346
Provision for credit losses(22,000) (45,000) (57,752) (65,729) (45,481)
Net interest income after provision for credit losses992,629
 995,914
 921,819
 895,562
 777,865
Gain (loss) on sale of securities25,445
 8,176
 (541) 9,485
 3,744
FDIC loss sharing expense, net—
 —
 —
 (8,917) (18,246)
Other noninterest income117,117
 140,459
 129,114
 111,907
 98,812
Total noninterest income142,562
 148,635
 128,573
 112,475
 84,310
Foreclosed assets income (expense), net3,555
 751
 (1,702) (1,881) 668
Acquisition, integration and reorganization costs(349) (1,770) (19,735) (200) (21,247)
Other noninterest expense(505,457) (510,213) (474,224) (448,020) (361,460)
Total noninterest expense(502,251) (511,232) (495,661) (450,101) (382,039)
Earnings before income taxes632,940
 633,317
 554,731
 557,936
 480,136
Income tax expense(164,304) (167,978) (196,913) (205,770) (180,517)
Net earnings$468,636
 $465,339
 $357,818
 $352,166
 $299,619
          
Per Common Share Data:         
Basic and diluted earnings per share (EPS)$3.90
 $3.72
 $2.91
 $2.90
 $2.79
Cash dividends declared per share$2.40
 $2.30
 $2.00
 $2.00
 $2.00
Book value per share (1)(2)
$41.36
 $39.17
 $38.65
 $36.93
 $36.22
Tangible book value per share (1)(2)
$19.77
 $18.02
 $18.24
 $18.71
 $17.86
Shares outstanding at year-end (2)
119,782
 123,190
 128,783
 121,284
 121,414
Average shares outstanding for basic and diluted EPS118,966
 123,640
 121,613
 120,239
 106,327

(1)
For information regarding this calculation, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations -Non‑GAAP Measurements.”

(2)Includes 1,513,197 shares, 1,344,656 shares, 1,436,120 shares, 1,476,132 shares, and 1,211,951 shares of unvested restricted stock outstanding at December 31, 2019, 2018, 2017, 2016, and 2015.




 At or For the Year Ended December 31,
 2019 2018 2017 2016 2015
 (In thousands, except per share amounts and percentages)
Balance Sheet Data:         
Total assets$26,770,806
 $25,731,354
 $24,994,876
 $21,869,767
 $21,288,490
Cash and cash equivalents637,624
 385,767
 398,437
 419,670
 396,486
Investment securities3,838,111
 4,041,534
 3,795,221
 3,245,700
 3,579,147
Loans and leases held for investment (3)
18,846,872
 17,957,713
 16,914,707
 15,347,530
 14,289,209
Goodwill2,548,670
 2,548,670
 2,548,670
 2,173,949
 2,176,291
Core deposit and customer relationship intangibles38,394
 57,120
 79,626
 36,366
 53,220
Deposits19,233,036
 18,870,501
 18,865,536
 15,870,611
 15,666,182
Borrowings1,759,008
 1,371,114
 467,342
 905,812
 621,914
Subordinated debentures458,209
 453,846
 462,437
 440,744
 436,000
Stockholders’ equity4,954,697
 4,825,588
 4,977,598
 4,479,055
 4,397,691
          
Performance Ratios:         
Return on average assets1.80% 1.91% 1.58% 1.66% 1.70%
Return on average equity9.63% 9.68% 7.71% 7.85% 7.99%
Return on average tangible equity (1)
20.66% 21.22% 15.15% 15.52% 15.76%
Net interest margin4.54% 5.05% 5.10% 5.40% 5.60%
Yield on average loans and leases6.00% 6.22% 5.97% 6.32% 6.51%
Cost of average total deposits0.77% 0.44% 0.27% 0.20% 0.32%
Efficiency ratio42.7% 41.0% 40.8% 39.8% 38.5%
Equity to assets ratio (1)
18.5% 18.8% 19.9% 20.5% 20.7%
Tangible common equity ratio (1)
9.8% 9.6% 10.5% 11.5% 11.4%
Average equity to average assets ratio18.6% 19.8% 20.5% 21.2% 21.3%
Dividend payout ratio61.7% 61.9% 69.1% 69.1% 71.8%
          
Capital Ratios (consolidated):         
Tier 1 leverage ratio9.74% 10.13% 10.66% 11.91% 11.67%
Tier 1 capital ratio9.78% 10.01% 10.91% 12.31% 12.60%
Total capital ratio12.41% 12.72% 13.75% 15.56% 15.65%
          
Allowance for Credit Losses Data (3):
         
Allowance for credit losses$174,646
 $169,333
 $161,647
 $161,278
 $122,268
Allowance for credit losses to loans and leases0.93% 0.94% 0.96% 1.05% 0.86%
Allowance for credit losses to nonaccrual loans and leases189.1% 213.5% 103.8% 94.5% 94.8%
Net charge-offs to average loans and leases0.09% 0.26% 0.40% 0.15% 0.06%
          
Nonperforming Assets Data (4):
         
Nonaccrual loans and leases$92,353
 $79,333
 $157,545
 $173,527
 $133,615
Accruing loan past due 90 days or more—
 —
 —
 —
 700
Foreclosed assets, net440
 5,299
 1,329
 12,976
 22,120
Total nonperforming assets$92,793
 $84,632
 $158,874
 $186,503
 $156,435
          
Nonaccrual loans and leases to loans and leases0.49% 0.44% 0.93% 1.12% 0.92%
Nonperforming assets to loans and leases and         
foreclosed assets0.49% 0.47% 0.94% 1.21% 1.08%

(3)Amounts and ratios related to 2019 and 2018 are for total loans and leases held for investment, net of deferred fees. Amounts and ratios related to 2017 and prior years are for Non-PCI loans and leases held for investment, net of deferred fees.
(4)Amounts and ratios are for total loans and leases held for investment, net of deferred fees.





ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
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.
The Bank is focused on relationship-based business banking to small, middle-market, and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 7469 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 through its Community Banking, National Lending and Venture Banking groups. Community Bankingcountry. The Bank provides real estate loans, commercial loans,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. National Lending providesThe 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. Venture Banking offers loans andThe Bank also 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.
Beginning in 2017, we focused on our credit de-risking strategy and reduced our exposures in certain lending portfolios while emphasizing growth in loan portfolios with favorable credit performance. These efforts included:
Exiting the healthcare, technology, and general cash flow lending businesses by selling $1.5 billion of cash flow loans at year-end 2017 and reducing the cash flow loan portfolio from approximately $2.4 billion at the end of 2016 to approximately $38 million as of December 31, 2019.
Reducing our exposure to healthcare real estate from approximately $955 million at the end of 2016 to approximately $334 million as of December 31, 2019.
Shifting our Venture Banking strategy to emphasize growth in equity fund loans which, as a percentage of our Venture Banking loan portfolio, increased from 16%The following table presents balance sheet data as of the end of 2016 to 55% as of December 31, 2019.dates indicated:
Ceasing the origination of security monitoring loans and healthcare real estate loans in our National Lending group effective October 2019.
December 31,
202120202019
(In thousands)
Balance Sheet Data:
Total assets$40,443,344 $29,498,442 $26,770,806 
Interest-earning deposits in financial institutions3,944,686 3,010,197 465,039 
Securities available-for-sale10,694,458 5,235,591 3,797,187 
Loans and leases held for investment, net of deferred fees22,941,548 19,083,377 18,846,872 
Goodwill1,405,736 1,078,670 2,548,670 
Core deposit and customer relationship intangibles44,957 23,641 38,394 
Noninterest-bearing deposits14,543,133 9,193,827 7,243,298 
Core deposits32,734,949 22,264,480 16,187,287 
Total deposits34,997,757 24,940,717 19,233,036 
Borrowings— 5,000 1,759,008 
Subordinated debt863,283 465,812 458,209 
Total liabilities36,443,714 25,903,491 21,816,109 
Stockholders’ equity3,999,630 3,594,951 4,954,697 
Execution of our de-risking strategy resulted in lower loan yields as reductions in certain loan portfolios were replaced with loans with lower credit risk, such as multi-family and equity fund loans, thereby placing pressure on our net interest margin. However, these efforts have resulted in an improved credit risk profile as evidenced by the following:
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Classified loans and leases were reduced to 0.93% of loans and leases as of December 31, 2019 from 2.67% at December 31, 2016.

Nonaccrual loans and leases were reduced to 0.49% of loans and leases as of December 31, 2019 from 1.11% at December 31, 2016.
The provision for credit losses as a percentage of average loans and leases was reduced to 0.12% for the year ended December 31, 2019 from 0.42% in 2016 (excluding PCI provision and average loans).


At December 31, 2019, we2021, the Company had total assets of $26.8 $40.4 billion, including $18.8$22.9 billion of total loans and leases, net of deferred fees, and $3.8$10.7 billion of securities available-for-sale, compared to $25.7$29.5 billion of total assets, including $18.0$19.1 billion of total loans and leases, net of deferred fees, and $4.0$5.2 billion of securities available-for-sale at December 31, 2018.2020. The $1.0$10.9 billion increase in total assets during 2019since year-end was due primarily to increases of $889.2 milliona $5.5 billion increase in securities available-for-sale, a $3.9 billion increase in loans and leases, $251.9net of deferred fees, a $934.5 million in cash and cash equivalents, and $96.4 million in other assets, offset partially by a $212.2 million decrease in securities available-for-sale. The net loan growth by loan portfolio class was primarily from income producing and other residential real estate loans, commercial asset-based loans, and residential real estate construction loans, offset partially by a net decrease in commercial real estate mortgage loans. The increase in other assets wasinterest-earning deposits in financial institutions, and a $327.1 million increase in goodwill due mainly to an operating lease ROU asset recorded in connection with the adoption of ASU 2016-02, "Leases (Topic 842)," on January 1, 2019.Civic and HOA Business acquisitions.
At December 31, 2019, we2021, the Company had total liabilities of $21.8$36.4 billion, including total deposits of $19.2$35.0 billion and borrowingssubordinated debt of $1.8 billion,$863.3 million, compared to $20.9$25.9 billion of total liabilities, including $18.9$24.9 billion of total deposits and $1.4 billion$465.8 million of borrowingssubordinated debt at December 31, 2018.2020. The $910.3 million$10.5 billion increase inin total liabilities during 2019since year-end 2020 was due mainly to increases of $543.7$10.1 billion in total deposits and $397.5 million in time deposits, $387.9 million in borrowings, primarily short-term FHLB advances, and $155.6 million in accrued interest payable and other liabilities, offset partially by decreases of $159.4 million in core deposits and $21.8 million in non-core non-maturity deposits.subordinated debt. The increase in accrued interest payable and other liabilities was due mainly to operating lease liabilities recorded in connection with the adoption of ASU 2016-02. The decrease in coretotal deposits was due primarily to a shift incontinued strong deposit growth from our deposit mix as customers moved funds from noninterest-bearing accounts into other interest-bearing alternatives as market rates increased inventure banking and community banking clients and the first halfacquisition of 2019 and were replaced with non-core wholesalethe HOA Business, which added $4.1 billion of deposits. At December 31, 2019,2021, core deposits totaled $16.2$32.7 billion, or 84%93% of total deposits, including $7.2$14.5 billion of noninterest-bearing demand deposits, or 38%41% 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 December 31, 2019, we2021, the Company had total stockholders' equity of $4.95of $4.0 billion compared to $4.83$3.6 billion at December 31, 2018. 2020. The $129.1$404.7 million increase in stockholders' equity during 2019since year-end was due mainly to $468.6$607.0 million in net earnings, offset partially by $119.4 million of cash dividends paid and an $84.7a $106.6 million increasedecrease in accumulated other comprehensive income, offset partially by $154.5 million of common stock repurchased under the Stock Repurchase Program and $289.0 million of cash dividends paid.income. Consolidated capital ratios remained strong with Tier 1 capital and total capital ratios of 9.78%were 9.32% and 12.41% 12.69% at December 31, 2019.2021, compared to 10.53% and 13.76% at December 31, 2020.
Recent Events
Stock Repurchase Programs
On February 12, 2020,15, 2022, PacWest's Board of Directors authorized a new Stock Repurchase Program, effective March 1, 2022, to purchaserepurchase shares of its common stock for an aggregate purchase price not to exceed $200$100 million untilwith a program maturity date of February 28, 2023.
Acquisition of HOA Business
On October 8, 2021, effective upon the maturityBank completed the acquisition of the current Stock Repurchase Program on February 29, 2020. AfterHOA Business. The Bank paid cash consideration of $237.8 million, which represented the authorizationaggregate of a 5.9% deposit premium and the net book value of certain acquired assets and assumed liabilities. At closing, there were $4.1 billion of deposits, primarily core deposits, related to the HOA Business.
The HOA Business acquisition has been accounted for under the acquisition method of accounting, which resulted in the recognition of goodwill of $201.6 million. All of the new Stock Repurchase Program,recognized goodwill is expected to be deductible for tax purposes. For further information, see Note 2. Acquisitions of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."
Subordinated Notes Offering
On April 30, 2021, the Bank issued $400 million aggregate principal amount that couldof 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 usedthe Three-Month Term SOFR) plus 252 basis points. For further information, see Note 12. Borrowings and Subordinated Debt in the Notes to repurchase shares will be $200 millionConsolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."
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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 business-purpose 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 March 1, 2020.
Ceased Originating Certain Loans
In October 2019, we decided to no longer originate new security monitoringthe Bank and at December 31, 2021 had $1.4 billion of loans outstanding. The loans are categorized as either income producing and healthcareother 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, 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 of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."
COVID-19 Pandemic - Impact to Our Business
From a business perspective, the impact in 2021 from the ongoing COVID-19 pandemic has decreased, however, new variants may continue to impact key macroeconomic 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 in our National Lending group. New technology is disrupting the security alarm business, causing increased customer acquisition costs and customer attrition, and thereby adversely impacting business models and valuations.were subsequently modified with deferrals of three to twelve months. As of December 31, 2019, the security monitoring loan portfolio was comprised of 372021, there were 23 loans with a $619balance of $42.5 million outstanding balance, $145 millionon 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 unfunded commitments, a weighted average maturitythe CARES Act.
We actively participated in both rounds of 26 months,the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act, originating $1.65 billion of PPP loans in 2020 and a weighted average coupon of 5.90%.2021 before the program ended on May 31, 2021. As of December 31, 2019,2021,PPP loans totaled $156.7 million, net of deferred fees. In the fourth quarter of 2021, forgiven loans under the National Lending healthcare real estate portfolio was comprisedPPP program totaled approximately $110.6 million. The loans have origination fees that are recognized over the life of 25 loansthe loan with a $263 million outstanding balance, $9 millionthe fee recognition accelerated upon forgiveness or repayment of the loan. Fees recognized in unfunded commitments, a weighted average maturity of 34 months, and a weighted average coupon of 5.52%.
Colorado Market Expansion
We have established executive offices and expanded our loan production capabilities to include Community Banking in the Denver, Colorado area. In the fourth quarter of 2019,2021 were $3.6 million. As of December 31, 2021, the remaining unamortized fees, net of deferred costs, totaled $4.2 million. The PPP loans are fully guaranteed by the SBA and do not carry an allowance.
As the COVID-19 pandemic unfolded in March 2020, we openedimmediately 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, and with our relatively low loan and lease balances with oil services borrowers ($76.7 million at December 31, 2021), the credit risk in the oil services portfolio has diminished. The hotel portfolio as of December 31, 2021 is comprised of hotel CRE loans of $593.2 million, hotel construction loans of $301.1 million, and hotel SBA loans of $28.0 million. These portfolios - hotel, retail, commercial aviation, and restaurant - have weathered the pandemic well thus far with net charge-offs of $4.6 million since the pandemic started.
The tables below shows our exposure to these loan and lease portfolios, which includes equipment leased to others under operating leases, as of the dates indicated:
December 31, 2021
% of
SpecialTotal Loans
Loan and Lease PortfolioClassifiedMentionPassTotaland Leases
(Dollars in thousands)
Hotel$14,867 $198,685 $708,727 $922,279 4.0 %
Retail CRE215 1,415 400,504 402,134 1.8 %
Commercial aviation— 57,795 174,105 231,900 1.0 %
Restaurant7,093 22,427 115,979 145,499 0.6 %
Total$22,175 $280,322 $1,399,315 $1,701,812 7.4 %
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December 31, 2020
% of
SpecialTotal Loans
Loan and Lease PortfolioClassifiedMentionPassTotaland Leases
(Dollars in thousands)
Hotel$82,509 $269,970 $798,049 $1,150,528 6.0 %
Retail CRE24,478 — 444,670 469,148 2.5 %
Commercial aviation19,417 109,473 110,113 239,003 1.3 %
Restaurant6,781 19,636 124,598 151,015 0.8 %
Oil services$4,274 $5,124 $70,223 $79,621 0.4 %
Total$137,459 $404,203 $1,547,653 $2,089,315 10.9 %

From a full-service branchcredit perspective, most of our credit metrics improved during 2021 as economic conditions and economic forecasts continued to improve. This improvement led to a provision for credit losses benefit of $162.0 million for 2021, compared to a provision for credit losses of $339.0 million for 2020. For further details on CECL and the impacts to our process, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.
On a Company-wide basis, our operations continue to run normally despite the ongoing pandemic. Our branches and offices are open to serve our customers, although most non-client facing roles continue to work remotely or under a hybrid model. We expect most employees will return to the office sometime in Denver, Colorado.2022, but remain pleased how employees have embraced new technologies to assist in performing their responsibilities to ensure our operations continue to run smoothly.


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‑earninginterest-earning assets over the interest paid on our interest‑bearinginterest-bearing liabilities. Net interest margin is net interest income (annualized if related to a quarterly period) expressed as a percentage of average interest‑earninginterest-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 for 2019 and 2018, and a 35% federal statutory tax rate for prior periods.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‑earninginterest-earning assets and interest‑bearinginterest-bearing liabilities. Our primary interest‑earninginterest-earning assets are loans and investment securities, and our primary interest‑bearinginterest-bearing liabilities are deposits.deposits and borrowings. Contributing to our highstrong net interest margin is our highstrong 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‑bearingnoninterest-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.
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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.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‑balanceoff-balance sheet credit exposures. Loans and leases whichthat 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 variousthe 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 performance measures suchrisks known as historical and current net charge‑offs,of the levels and trends of classified loans and leases, the likelihood of loans defaulting based on the historical degree that similar loans defaulted and the resulting loss severity for these defaulted loans, and the overall level of outstanding loans and leases.balance sheet date. For originated and acquired non‑impairedcredit-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 our 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), net,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).











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The following table presents the calculation of our efficiency ratio for the years indicated:
Year Ended December 31,
Efficiency Ratio202120202019
(Dollars in thousands)
Noninterest expense$637,417 $1,984,019 $502,251 
Less:Intangible asset amortization12,734 14,753 18,726 
Foreclosed assets (income) expense, net(213)(17)(3,555)
Goodwill impairment— 1,470,000 — 
Acquisition, integration and reorganization costs9,415 1,060 349 
Noninterest expense used for efficiency ratio$615,481 $498,223 $486,731 
Net interest income (tax equivalent)$1,119,028 $1,023,466 $1,022,090 
Noninterest income193,927 146,060 142,562 
Net revenues1,312,955 1,169,526 1,164,652 
Less:Gain on sale of securities1,615 13,171 25,445 
Net revenues used for efficiency ratio$1,311,340 $1,156,355 $1,139,207 
Efficiency ratio46.9 %43.1 %42.7 %
  Year Ended December 31,
Efficiency Ratio2019 2018 2017
  (Dollars in thousands)
Noninterest expense$502,251
 $511,232
 $495,661
Less:Intangible asset amortization18,726
 22,506
 14,240
 Foreclosed assets (income) expense, net(3,555) (751) 1,702
 Acquisition, integration and reorganization costs349
 1,770
 19,735
Noninterest expense used for efficiency ratio$486,731
 $487,707
 $459,984
       
Net interest income (tax equivalent)$1,022,090
 $1,048,915
 $999,362
Noninterest income142,562
 148,635
 128,573
Net revenues1,164,652
 1,197,550
 1,127,935
Less:Gain (loss) on sale of securities25,445
 8,176
 (541)
Net revenues used for efficiency ratio$1,139,207
 $1,189,374
 $1,128,476
       
Efficiency ratio42.7% 41.0% 40.8%


The increase in noninterest expense used for the efficiency ratio in 2021, and the resulting increase in the efficiency ratio in 2021, were due in part to eleven months of operating expenses for Civic and three months of operating expenses for the HOA Business in 2021.
Critical Accounting Policies and Estimates
The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements and the notes thereto, which have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements requires us to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. On an ongoing basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. We believe that our estimates and assumptions are reasonable; however, actual results may ultimately differ significantly from these estimates and assumptions, which could have a material adverse effect on the carrying value of assets and liabilities at the balance sheet dates and on our results of operations for the reporting periods.
Our significant accounting policies and practices are described in 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." We have identified twothree policies and estimates as being critical because they 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 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.
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Allowance for Credit Losses on Loans and Leases Held for Investment
For information regarding the calculation and policies of the allowance for credit losses on loans and leases held for investment, see " - Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment
The allowance" and Note 1(i). Nature of Operations and Summary of Significant Accounting Policies - Allowance for credit lossesCredit 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 outstanding loan and lease balances and the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the consolidated balance sheets. For loans and leases acquired and measured at fair value and deemed non-impaired on the acquisition date, our allowance methodology measures deterioration in credit quality or other inherent risks related to these acquired assets that may occur after the acquisition date.
The allowance for credit losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan and lease portfolio and other extensions of credit at the balance sheet date. The allowance is based upon our review of the credit quality of the loan and lease portfolio, which includes loan and lease payment trends, borrowers' compliance with loan agreements, borrowers' current and budgeted financial performance, collateral valuation trends, and current economic factors and external conditions that may affect our borrowers' ability to make payments to us in accordance with contractual terms. Loans and leases that are deemed to be uncollectable are charged off and deducted from the allowance. The provisionLeases Held for loan and lease losses and recoveries on loans and leases previously charged off are added to the allowance.
The allowance for loan and lease losses has a general reserve component for unimpaired loans and leases and a specific reserve component for impaired loans and leases.
A loan or lease is considered impaired when it is probable that we will be unable to collect all amounts due according to the original contractual terms of the agreement. We assess our loans and leases for impairment on an ongoing basis using certain criteria such as payment performance, borrower reported financial results and budgets, and other external factors when appropriate. We measure impairment of a loan or lease based upon the fair value of the underlying collateral if the loan or lease is collateral-dependent or the present value of cash flows, discounted at the effective interest rate, if the loan or lease is not collateral-dependent. To the extent a loan or lease balance exceeds the estimated collectable value, a specific reserve or charge-off is recorded depending upon either the certainty of the estimate of loss or the fair value of the loan’s collateral if the loan is collateral-dependent. Impaired loans and leases with outstanding balances less than or equal to $250,000 may not be individually assessed for impairment but would be assessed with reserves based on the average loss severity on historical impaired loans with similar risk characteristics.


Our allowance methodology for the general reserve component includes both quantitative and qualitative loss factors which are applied to our population of unimpaired loans and leases to estimate our general reserves. The quantitative loss factors determination is based on a probability of default/loss given default ("PD/LGD") methodology which considers the likelihood of loans defaulting based on the historical degree that similar loans defaulted and the degree of credit losses based on the historical average degree of loss experienced for these similar loans and leases pooled both by loan or lease type and credit risk rating; loans with more adverse credit risk ratings have higher quantitative loss factors. The qualitative loss factors consider, among other things, current economic trends and forecasts, current collateral values and performance trends, credit performance trends, and the loan portfolio's current composition.
The qualitative criteria we consider when establishing the loss factors include the following:
current economic trends and forecasts;
current collateral values, performance trends, and overall outlook in the markets where we lend;
legal and regulatory matters that could impact our borrowers’ ability to repay loans and leases;
loan and lease portfolio composition and any loan concentrations;
current lending policies and the effects of any new policies or policy amendments;
loan and lease production volume and mix;
loan and lease portfolio credit performance trends;
results of independent credit reviews; and
changes in management related to credit administration functions.
We estimate the reserve for unfunded loan commitments using the same loss factors as used for the allowance for loan and lease losses. The reserve for unfunded loan commitments is computed using expected future usage of the unfunded commitments based on historical usage of unfunded commitments for the various loan types.
The allowance for credit losses is directly correlated to the credit risk ratings of our loans. To ensure the accuracy of our credit risk ratings, an independent credit review function assesses the appropriateness of the credit risk ratings assigned to loans on a regular basis. The credit risk ratings assigned to every loan and lease are either “pass,” “special mention,” “substandard,” or “doubtful” and defined as follows:
•
PassInvestment, : Loans and leases rated as "pass" are not adversely classified and collection and repayment in full are expected.
•
Special Mention: Loans and leases rated as "special mention" have a potential weakness that requires management's attention. If not addressed, these potential weaknesses may result in further deterioration in the borrower's ability to repay the loan or lease.
•
Substandard: Loans and leases rated as "substandard" have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the possibility that we will sustain some loss if the weaknesses are not corrected.
•
Doubtful: Loans and leases rated as "doubtful" have all the weaknesses of those rated as "substandard," with the additional trait that the weaknesses make collection or repayment in full highly questionable and improbable.
In addition, we may refer to the loans and leases with assigned credit risk ratings of "substandard" and "doubtful" together as "classified" loans and leases. For further information on classified loans and leases, see Note 5. Loans and Leasesof the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."
In additionGoodwill and Other Intangible Assets
Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. For acquisitions, we are required to our internal risk rating process, our federalrecord the assets acquired, including identified intangible assets such as goodwill, and state banking regulators, as an integral part ofthe liabilities assumed at their examination process, periodically review the Company’s loan risk rating classifications. Our regulators may require the Company to recognize rating downgradesestimated fair value. These fair values often involve estimates based on their judgments relatedthird party valuations, such as appraisals, based on discounted cash flow analyses or other valuation techniques that may include estimates of attrition, discount rates, future growth rates, multiples of earnings or other relevant factors. Goodwill and other intangible assets generated from business combinations and deemed to information availablehave indefinite lives are not subject to them at the time of their examinations. Risk rating downgrades generally result in increasesamortization 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 provisions for credit losses andfourth quarter. Impairment exists when the allowance for credit losses.



Management believescarrying value of the allowance for credit losses is appropriate forgoodwill 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 known and inherent risks in our loan and lease portfolio and the credit risk ratings and inherent loss rates currently assigned are appropriate. 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. In addition, current credit risk ratings are subject to change as we continue to monitor our loans and leases. To the extent we experience, for example, increased levelsconsolidated statements of borrower loan defaults, borrowers’ noncompliance with our loan agreements, adverse changes in collateral values, or changes in economic and business conditions that adversely affect our borrowers, our classified loans and leases may increase. Higher levels of classified loans and leases generally result in increased provisions for credit losses and an increased allowance for credit losses. Although we have established an allowance for credit losses that we consider appropriate, there can be no assurance that the established allowance will be sufficient to absorb future losses.earnings (loss).
Our federal and state banking regulators, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. Our regulators may require the Company to recognize additions to the allowance based on their judgments related to information available to them at the time of their examinations.
Deferred Tax Assets and Liabilities
We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governing taxing authorities. We review income tax expense and the carrying value of deferred tax assets and liabilities quarterly, and as new information becomes available, the balances are adjusted as appropriate. In establishing a provision for income tax expense, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain tax items will affect taxable income in the various tax jurisdictions. Our deferred tax assets and liabilities arise from differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We determine whether a deferred tax asset is realizable based on facts and circumstances, including our current and projected future tax position, the historical level of our taxable income, and estimates of our future taxable income. In most cases, the realization of deferred tax assets is based on our future profitability. If we were to experience either reduced profitability or operating losses in a future period, the realization of our deferred tax assets may no longer be considered more likely than not and, accordingly, we could be required to record a valuation allowance on our deferred tax assets by charging earnings.

54

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 use the following non-GAAP measures in this Form 10-K:
•
•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. In 2020, we changed the calculation of return on average tangible equity to add back intangible asset amortization to net earnings to arrive at adjusted net earnings. Prior periods have been conformed to the current period presentation. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.
  Year Ended December 31,
Return on Average Tangible Equity2019 2018 2017
  (Dollars in thousands)
Net earnings$468,636
 $465,339
 $357,818
       
Average stockholders' equity$4,864,332
 $4,809,667
 $4,641,495
Less:Average intangible assets2,596,389
 2,616,820
 2,279,010
Average tangible common equity$2,267,943
 $2,192,847
 $2,362,485
       
Return on average equity (1)
9.63% 9.68% 7.71%
Return on average tangible equity (2)
20.66% 21.22% 15.15%
____________________________________________________
(1)
Year Ended December 31,
Return on Average Tangible Equity202120202019
(Dollars in thousands)
Net earnings (loss)$606,959 $(1,237,574)$468,636 
Add:Intangible asset amortization12,734 14,753 18,726 
Goodwill impairment— 1,470,000 — 
Adjusted net earnings used for return on average tangible equity$619,693 $247,179 $487,362 
Average stockholders' equity$3,808,019 $3,857,610 $4,864,332 
Less:Average intangible assets1,269,546 1,470,989 2,596,389 
Average tangible common equity$2,538,473 $2,386,621 $2,267,943 
Return on average equity (1)
15.94 %(32.08)%9.63 %
Return on average tangible equity (2)
24.41 %10.36 %21.49 %

(1)     Net earnings (loss) divided by average stockholders' equity.
(2)Net earnings divided by average tangible common equity.

(2)     Adjusted net earnings divided by average tangible common equity.
Tangible Common Equity Ratio/December 31,Tangible Common Equity Ratio/December 31,
Tangible Book Value Per Share2019 2018 2017Tangible Book Value Per Share202120202019
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)
Stockholders’ equity$4,954,697
 $4,825,588
 $4,977,598
Stockholders’ equity$3,999,630 $3,594,951 $4,954,697 
Less: Intangible assets2,587,064
 2,605,790
 2,628,296
Less: Intangible assets1,450,693 1,102,311 2,587,064 
Tangible common equity$2,367,633
 $2,219,798
 $2,349,302
Tangible common equity$2,548,937 $2,492,640 $2,367,633 
     
Total assets$26,770,806
 $25,731,354
 $24,994,876
Total assets$40,443,344 $29,498,442 $26,770,806 
Less: Intangible assets2,587,064
 2,605,790
 2,628,296
Less: Intangible assets1,450,693 1,102,311 2,587,064 
Tangible assets$24,183,742
 $23,125,564
 $22,366,580
Tangible assets$38,992,651 $28,396,131 $24,183,742 
     
Equity to assets ratio18.51% 18.75% 19.91%Equity to assets ratio9.89 %12.19 %18.51 %
Tangible common equity ratio (1)
9.79% 9.60% 10.50%
Tangible common equity ratio (1)
6.54 %8.78 %9.79 %
Book value per share$41.36
 $39.17
 $38.65
Book value per share$33.45 $30.36 $41.36 
Tangible book value per share (2)
$19.77
 $18.02
 $18.24
Tangible book value per share (2)
$21.31 $21.05 $19.77 
Shares outstanding119,781,605
 123,189,833
 128,782,878
Shares outstanding119,584,854 118,414,853 119,781,605 
_________________________________________________________________ 
(1)
(1)    Tangible common equity divided by tangible assets.
(2)Tangible common equity divided by shares outstanding.


(2)    Tangible common equity divided by shares outstanding.


55

•Adjusted net earnings and adjusted earnings per share: These non-GAAP measurements are presented in the following tables for the periods presented. For the GAAP calculation of earnings per share, see Note 17. Earnings (Loss) Per Share of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."
Adjusted Net Earnings andYear Ended December 31,
Adjusted Earnings Per Share (1)
202120202019
(Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss)$606,959 $(1,237,574)$468,636 
Add:Goodwill impairment— 1,470,000 — 
Adjusted net earnings$606,959 $232,426 $468,636 
Adjusted Basic Earnings Per Share:
Adjusted net earnings$606,959 $232,426 $468,636 
Less:Earnings allocated to unvested restricted stock(10,248)(2,769)(5,182)
Adjusted net earnings allocated to common shares$596,711 $229,657 $463,454 
Weighted-average basic shares and unvested restricted stock outstanding119,349 118,463 120,468 
Less:Weighted-average unvested restricted stock outstanding(2,255)(1,610)(1,502)
Weighted-average basic shares outstanding117,094 116,853 118,966 
Adjusted basic earnings per share$5.10 $1.97 $3.90 
Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares$596,711 $229,657 $463,454 
Weighted-average diluted shares outstanding117,094 116,853 118,966 
Adjusted diluted earnings per share$5.10 $1.97 $3.90 





56

Results of Operations
Acquisitions Impact Earnings Performance
The comparability of financial information is affected by our acquisitions. We completed the acquisition of CUB on October 20, 2017, thereby impacting the comparability of the three years presented. This acquisition was accounted for using the acquisition method of accounting and, accordingly, CUB's operating results have been included in the consolidated financial statements from its acquisition date.
Earnings Performance
2019The following table presents performance metrics for the years indicated:
Year Ended December 31,
202120202019
(Dollars in thousands, except per share data)
Earnings Summary:
Interest income$1,158,729 $1,103,491 $1,219,893 
Interest expense(54,905)(88,933)(205,264)
Net interest income1,103,824 1,014,558 1,014,629 
Provision for credit losses162,000 (339,000)(22,000)
Noninterest income193,927 146,060 142,562 
Operating expense(637,417)(514,019)(502,251)
Goodwill impairment— (1,470,000)— 
Earnings (loss) before income taxes822,334 (1,162,401)632,940 
Income tax expense(215,375)(75,173)(164,304)
Net earnings (loss)$606,959 $(1,237,574)$468,636 
Per Common Share Data:
Diluted earnings (loss) per share$5.10 $(10.61)$3.90 
Book value per share$33.45 $30.36 $41.36 
Tangible book value per share (1)
$21.31 $21.05 $19.77 
Performance Ratios:
Return on average assets1.71 %(4.46)%1.80 %
Return on average tangible equity (1)
24.41 %10.36 %21.49 %
Net interest margin (tax equivalent)3.40 %4.05 %4.54 %
Yield on average loans and leases (tax equivalent)5.08 %5.18 %6.00 %
Cost of average total deposits0.09 %0.27 %0.77 %
Efficiency ratio46.9 %43.1 %42.7 %
Capital Ratios (consolidated):
Common equity tier 1 capital ratio8.86 %10.53 %9.78 %
Tier 1 capital ratio9.32 %10.53 %9.78 %
Total capital ratio12.69 %13.76 %12.41 %
_____________________________
(1)    See "- Non-GAAP Measurements."
57

2021 Compared to 20182020
Net earnings for the year ended December 31, 2019 were $468.62021 was $607.0 million, or $3.90$5.10 per diluted share, compared to net loss for the year ended December 31, 2020 of $1.24 billion, or $10.61 per diluted share. The $1.84 billion increase in net earnings was due primarily to a $1.47 billion goodwill impairment charge in the first quarter of 2020 combined with a decrease in the provision for credit losses of $501.0 million due to improvement in both the macroeconomic forecast variables used in the process to determine the allowance for credit losses and the loan portfolio credit quality metrics, offset partially by net loan growth for the year.
2020 Compared to 2019
Net loss for the year ended December 31, 2020 was $1.24 billion, or $10.61 per diluted share, compared to net earnings for the year ended December 31, 20182019 of $465.3$468.6 million, or $3.72$3.90 per diluted share. The $3.3 million increase$1.71 billion decrease in net earnings was due primarily to a lower$1.47 billion goodwill impairment charge in the first quarter of 2020, a higher provision for credit losses of $23.0$317.0 million, lower noninterestand higher operating expense of $9.0$11.8 million, offset partially by higher noninterest income of $3.5 million and lower income tax expense of $3.7$$89.1 million offset partially by lower net interest income of $26.3 million and lower noninterest income of $6.1 million.
. The increase in the provision for credit losses decreasedfor 2020 was the result of the impact of the current economic forecast used in our ACL estimation, which reflected a significant deterioration in key macroeconomic forecast variables such as unemployment and GDP growth as a result of the COVID-19 pandemic. The increase in operating expense was due mainly to lower specific provisions for impaired loans during 2019 and lower provisions related to the reserve for unfunded loan commitments during 2019 due to updates on utilization factors which estimate the percentageincreases of available credit that will be utilized by our borrowers.
Noninterest expense declined due principally to lower$9.1 million in other expense, of $8.8 million. Other expense decreased due mostly to $2.1 million of lower amortization of non-competition agreements, $2.0$6.2 million in lower franchise tax expense, a $1.7 million reversal of previously accrued merger costs, $1.3insurance and assessments, $4.8 million in lower employee related expenses, and $1.1leased equipment depreciation, $3.7 million in lower operatingcustomer related expense, and other losses.
Net interest$3.5 million in foreclosed assets expense, offset partially by decreases of $14.4 million in compensation expense and $4.0 million in intangible asset amortization. The increase in noninterest income decreased due to interest expense growth of $84.5 million exceeding interest income growth of $58.2 million. Interest expense increased due to the cost of deposits increasing to 0.77% in 2019 compared to 0.44% in 2018 due mainly to higher rates paid on deposits in conjunction with increased market rates. Interest income increasedfor 2020 was due primarily to a higher average balance of loans and leases, partially offset by a lower yield on loans and leases due to lower discount accretion and from de-risking initiatives which have resulted$15.6 million increase in lower yields on newly originated loans compared to the yields on loans that have matured and paid off.
Noninterest income declined due mostly to lower other income of $13.7 million, lower dividends and gainsgain on equity investments, of $4.4offset partially by a $12.3 million a lowerdecrease in gain on sale of loans of $3.6 million, and lower other commissions and fees of $1.9 million, offset partially by a higher gain on sale of securities of $17.3 million. Other income declined due primarily to lower gains on early lease terminations, lower legal settlements with former borrowers, and lower BOLI income. Dividends and gains on equity investments declined due primarily to lower gains on the sale of equity investments and lower dividends received in 2019 as compared to 2018 as a significant portion of our equity investments were sold in the second quarter of 2018. Gain on sale of loans declined due to a net gain of $1.1 million on sales of $101.5 million of loans in 2019 compared to a net gain of $4.7 million on sales of $641.9 million of loans during 2018. Other commissions and fees decreased due primarily to lower loan prepayment penalty fees offset partially by higher foreign exchange fees, unused commitment fees and customer success fees. Gain on sale of securities increased due mainly to a net gain of $25.4 million on sales of $1.6 billion of securities in 2019 compared to a net gain of $8.2 million on sales of $563.6 million in 2018.securities.










2018 Compared to 2017
Net earnings for the year ended December 31, 2018 were $465.3 million, or $3.72 per diluted share, compared to net earnings for the year ended December 31, 2017 of $357.8 million, or $2.91 per diluted share. The $107.5 million increase in net earnings was due to higher net interest income of $61.3 million, lower income tax expense of $28.9 million, a lower provision for credit losses of $12.8 million, and higher noninterest income of $20.1 million, offset partially by higher noninterest expense of $15.6 million. Net interest income increased due mainly to higher balances of average loans and leases and average investment securities and a higher yield on average loans and leases, offset partially by a lower yield on average investment securities and higher interest expense. Income tax expense decreased due primarily to the TCJA which reduced our effective tax rate to 26.5% for the year ended December 31, 2018 from 35.5% for 2017. The provision for credit losses declined due mainly to lower specific provisions for impaired loans during 2018, higher recoveries of charged-off loans during 2018, and lower amounts of loans rated special mention and classified at December 31, 2018 compared to December 31, 2017. Noninterest income increased due mostly to a higher gain on sale of securities of $8.7 million, higher warrant income of $4.9 million, higher other commissions and fees of $4.1 million, and higher other income of $3.7 million. Noninterest expense increased due mainly to higher compensation expense of $16.0 million, higher intangible asset amortization of $8.3 million, higher other professional services expense of $4.6 million, and higher occupancy expense of $4.4 million, offset partially by lower acquisition, integration and reorganization costs of $18.0 million. The increases in these expense categories were due primarily to twelve months of CUB incremental operating expenses in 2018 compared to only 72 days of expense in 2017.

58

Net Interest Income
The following table summarizes 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 years indicated:
Year Ended December 31,
202120202019
InterestYieldsInterestYieldsInterestYields
AverageIncome/andAverageIncome/andAverageIncome/and
BalanceExpenseRatesBalanceExpenseRatesBalanceExpenseRates
(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)
$19,762,220 $1,003,027 5.08 %$19,243,961 $995,973 5.18 %$18,330,137 $1,099,118 6.00 %
Investment securities (2)(4)
7,486,009 162,102 2.17 %4,175,918 112,843 2.70 %3,844,328 121,757 3.17 %
Deposits in financial institutions5,692,338 8,804 0.15 %1,856,942 3,583 0.19 %322,366 6,479 2.01 %
Total interest‑earning assets (2)
32,940,567 1,173,933 3.56 %25,276,821 1,112,399 4.40 %22,496,831 1,227,354 5.46 %
Other assets2,577,921 2,475,591 3,608,777 
Total assets$35,518,488 $27,752,412 $26,105,608 
LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking$7,198,646 8,709 0.12 %$4,394,742 12,791 0.29 %$3,406,218 41,938 1.23 %
Money market8,843,122 12,993 0.15 %6,547,027 19,178 0.29 %5,139,623 56,382 1.10 %
Savings606,741 148 0.02 %538,985 263 0.05 %525,809 891 0.17 %
Time1,471,963 5,958 0.40 %2,169,324 27,431 1.26 %2,641,135 49,249 1.86 %
Total interest-bearing deposits18,120,472 27,808 0.15 %13,650,078 59,663 0.44 %11,712,785 148,460 1.27 %
Borrowings231,099 623 0.27 %825,681 8,161 0.99 %1,180,164 26,961 2.28 %
Subordinated debt733,163 26,474 3.61 %461,059 21,109 4.58 %455,537 29,843 6.55 %
Total interest‑bearing liabilities19,084,734 54,905 0.29 %14,936,818 88,933 0.60 %13,348,486 205,264 1.54 %
Noninterest‑bearing demand
deposits12,110,193 8,517,281 7,537,172 
Other liabilities515,542 440,703 355,618 
Total liabilities31,710,469 23,894,802 21,241,276 
Stockholders’ equity3,808,019 3,857,610 4,864,332 
Total liabilities and
stockholders' equity$35,518,488 $27,752,412 $26,105,608 
Net interest income (2)
$1,119,028 $1,023,466 $1,022,090 
Net interest rate spread (2)
3.27 %3.80 %3.92 %
Net interest margin (2)
3.40 %4.05 %4.54 %
Total deposits (5)
$30,230,665 $27,808 0.09 %$22,167,359 $59,663 0.27 %$19,249,957 $148,460 0.77 %
 Year Ended December 31,
 2019 2018 2017
   Interest Yields   Interest Yields   Interest Yields
 Average Income/ and Average Income/ and Average Income/ and
 Balance Expense Rates Balance Expense Rates Balance Expense Rates
 (Dollars in thousands)
ASSETS:                 
Loans and leases (1)(2)(3)
$18,330,137
 $1,099,118
 6.00% $16,863,673
 $1,048,984
 6.22% $15,954,026
 $953,200
 5.97%
Investment securities (2)(4)
3,844,328
 121,757
 3.17% 3,809,383
 118,605
 3.11% 3,504,808
 117,564
 3.35%
Deposits in financial institutions322,366
 6,479
 2.01% 116,282
 2,082
 1.79% 137,228
 1,543
 1.12%
Total interest‑earning assets (2)
22,496,831
 1,227,354
 5.46% 20,789,338
 1,169,671
 5.63% 19,596,062
 1,072,307
 5.47%
Other assets3,608,777
     3,516,020
     3,038,673
    
Total assets$26,105,608
     $24,305,358
     $22,634,735
    
                  
LIABILITIES AND                 
STOCKHOLDERS’ EQUITY:    ��            
Interest checking$3,406,218
 41,938
 1.23% $2,445,094
 20,049
 0.82% $1,928,249
 8,715
 0.45%
Money market5,139,623
 56,382
 1.10% 5,107,888
 39,194
 0.77% 5,027,453
 22,924
 0.46%
Savings525,809
 891
 0.17% 641,720
 1,009
 0.16% 707,301
 1,162
 0.16%
Time2,641,135
 49,249
 1.86% 1,856,126
 19,888
 1.07% 2,247,168
 12,893
 0.57%
Total interest-bearing deposits11,712,785
 148,460
 1.27% 10,050,828
 80,140
 0.80% 9,910,171
 45,694
 0.46%
Borrowings1,180,164
 26,961
 2.28% 570,216
 11,985
 2.10% 388,896
 3,638
 0.94%
Subordinated debentures455,537
 29,843
 6.55% 454,702
 28,631
 6.30% 447,684
 23,613
 5.27%
Total interest‑bearing liabilities13,348,486
 205,264
 1.54% 11,075,746
 120,756
 1.09% 10,746,751
 72,945
 0.68%
Noninterest‑bearing demand                 
deposits7,537,172
     8,211,475
     7,076,445
    
Other liabilities355,618
     208,470
     170,044
    
Total liabilities21,241,276
     19,495,691
     17,993,240
    
Stockholders’ equity4,864,332
     4,809,667
     4,641,495
    
Total liabilities and                 
stockholders' equity$26,105,608
     $24,305,358
     $22,634,735
    
Net interest income (2)
  $1,022,090
     $1,048,915
     $999,362
  
Net interest rate spread (2)
    3.92%     4.54%     4.79%
Net interest margin (2)
    4.54%     5.05%     5.10%
                  
Total deposits (5)
$19,249,957
 $148,460
 0.77% $18,262,303
 $80,140
 0.44% $16,986,616
 $45,694
 0.27%
_____________________
(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 $11.4 million for 2021 and net loan discount accretion of $5.6 million and $8.4 million for 2020 and 2019, respectively.
(1)Includes nonaccrual loans and leases and loan fees. Starting with the third quarter of 2017, includes tax-equivalent adjustments related to tax-exempt interest on loans.
(2)Tax equivalent.
(3)Includes discount accretion on acquired loans of $12.1 million, $29.3 million, and $26.1 million for 2019, 2018, and 2017, respectively.
(4)Includes tax-equivalent adjustments of $6.2 million, $7.0 million, and $19.4 million for 2019, 2018, and 2017, respectively, related to tax-exempt interest on investment securities. The federal statutory rate utilized was 21% for 2019 and 2018 and 35% for 2017.
(5)Total deposits is the sum of 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.

(4)    Includes tax-equivalent adjustments of $8.6 million, $6.1 million, and $6.2 million for 2021, 2020, and 2019, respectively, related to tax-exempt interest on investment securities. The federal statutory rate utilized was 21%.

(5)    Total deposits is the sum of 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.



59

Net interest income is affected by changes in both interest rates and the amounts of average interest‑earning assets and interest‑bearing liabilities. The changes in the yields earned on average interest‑earning assets and rates paid on average interest‑bearing liabilities are referred to as changes in “rate.” The changes in the amounts of average interest‑earning assets and interest‑bearing liabilities are referred to as changes in “volume.” The change in interest income/expense attributable to rate reflects the change in rate multiplied by the prior year’s volume. The change in interest income/expense attributable to volume reflects the change in volume multiplied by the prior year’s rate. The change in interest income/expense not attributable specifically to either rate or volume is allocated ratably between the two categories.
The following table presents changes in interest income (tax equivalent) and interest expense and related changes in rate and volume for the years indicated:
2019 Compared to 2018 2018 Compared to 2017
2021 Compared to 2020
2020 Compared to 2019
Total Increase (Decrease) Total Increase (Decrease)TotalIncrease (Decrease)TotalIncrease (Decrease)
Increase Due to Increase Due toIncreaseDue toIncreaseDue to
(Decrease) Rate Volume (Decrease) Rate Volume(Decrease)RateVolume(Decrease)RateVolume
(In thousands)(In thousands)
Interest Income:           Interest Income:
Loans and leases (1)
$50,134
 $(38,762) $88,896
 $95,784
 $55,647
 $40,137
Loans and leases (1)
$7,054 $(19,473)$26,527 $(103,145)$(155,925)$52,780 
Investment securities (2)
3,152
 2,058
 1,094
 1,041
 9,815
 (8,774)
Investment securities (1)
Investment securities (1)
49,259 (25,701)74,960 (8,914)(18,926)10,012 
Deposits in financial institutions4,397
 284
 4,113
 539
 (264) 803
Deposits in financial institutions5,221 (865)6,086 (2,896)(10,322)7,426 
Total interest income (2)
57,683
 (36,420) 94,103
 97,364
 65,198
 32,166
Total interest income (1)
Total interest income (1)
61,534 (46,039)107,573 (114,955)(185,173)70,218 
           
Interest Expense:           Interest Expense:
Interest checking deposits21,889
 12,272
 9,617
 11,334
 2,807
 8,527
Interest checking deposits(4,082)(9,742)5,660 (29,147)(38,750)9,603 
Money market deposits17,188
 16,943
 245
 16,270
 373
 15,897
Money market deposits(6,185)(11,296)5,111 (37,204)(49,689)12,485 
Savings deposits(118) 74
 (192) (153) (105) (48)Savings deposits(115)(151)36 (628)(650)22 
Time deposits29,361
 18,686
 10,675
 6,995
 (2,569) 9,564
Time deposits(21,473)(14,598)(6,875)(21,818)(14,042)(7,776)
Total interest-bearing deposits68,320
 47,975
 20,345
 34,446
 506
 33,940
Total interest-bearing deposits(31,855)(35,787)3,932 (88,797)(103,131)14,334 
Borrowings14,976
 1,125
 13,851
 8,347
 2,272
 6,075
Borrowings(7,538)(3,788)(3,750)(18,800)(12,280)(6,520)
Subordinated debentures1,212
 1,159
 53
 5,018
 375
 4,643
Subordinated debtSubordinated debt5,365 (5,166)10,531 (8,734)(9,091)357 
Total interest expense84,508
 50,259
 34,249
 47,811
 3,153
 44,658
Total interest expense(34,028)(44,741)10,713 (116,331)(124,502)8,171 
           
Net interest income (2)
$(26,825) $(86,679) $59,854
 $49,553
 $62,045
 $(12,492)
Net interest income (1)
Net interest income (1)
$95,562 $(1,298)$96,860 $1,376 $(60,671)$62,047 
_____________________
(1)Starting with the third quarter of 2017, includes tax-equivalent adjustments related to tax-exempt interest on loans.
(2)Tax equivalent.
2019(1)    Tax equivalent.
2021 Compared to 20182020
Net interest income decreasedincreased by $26.3$89.3 million to $1.01$1.1 billion for the year ended December 31, 2021 compared to $1.0 billion for the year ended December 31, 20192020 due mainly to higher income on investment securities attributable to a higher average balance, offset partially by a lower yield combined with lower interest expense due to lower rates paid on deposits, borrowings, and subordinated debt in conjunction with decreased market rates, offset partially by higher average balances for interest-bearing deposits and subordinated debt. The tax equivalent yield on average loans and leases was 5.08% for the year ended December 31, 2021 compared to $1.045.18% for 2020 attributable mainly to decreased market rates and the purchases of lower yielding single-family residential mortgage loans primarily in the second half of 2021.
60

The tax equivalent NIM for the year ended December 31, 2021 was 3.40% compared to 4.05% for the year ended December 31, 2020. The decrease in the tax equivalent NIM was due mostly to the change in the mix of average interest-earning assets and the lower yields on average investment securities and loans and leases, offset partially by lower costs of deposits, borrowings, and subordinated debt. The change in the mix of average interest-earning assets was due to a $3.8 billion increase in average deposits in financial institutions, a $3.3 billion increase in average investment securities, and a $518.3 million increase in average loans and leases. Average loans and leases as a percentage of average interest-earning assets was 60% for the year ended December 31, 2021 compared to 76% for the year ended December 31, 2020. Average investment securities as a percentage of average interest-earning assets was 23% for the year ended December 31, 2021 compared to 17% for the year ended December 31, 2020. Average deposits in financial institutions as a percentage of average interest-earning assets was 17% for the year ended December 31, 2021 compared to 7% for the year ended December 31, 2020.
The cost of average total deposits decreased to 0.09% for the year ended December 31, 2018 2021 from 0.27% for 2020 due to interest expense growth exceedinglower rates paid on deposits in conjunction with decreased market rates.
2020 Compared to 2019
Net interest income growth. Interest expense increased by $84.5 millionheld steady at $1.01 billion for both the year ended December 31, 2020 and the year ended December 31, 2019 due mainlymainly to a higher cost and balance of average interest-bearing deposits, a lower balance of average noninterest-bearing deposits, and a higher balance and cost of average borrowings. Interest income increased by $58.2 million due primarily to a higher balance ofyield on average loans and leases, offset partially by a lower rate oncost of average interest-bearing deposits and a higher balance of average loans and leases. The tax equivalent yield on average loans and leases was 6.00%was 5.18% for thethe year ended December 31, 20192020 compared to 6.22%6.00% for 2018. 2019. The decrease in the yield on average loans and leases was due in partmainly to lower discount accretion on acquired loans (seven basis points for 2019 compared to 17 basis points for 2018). The decrease inloan coupon interest from the average loan and lease yield was also influenced by the credit de-risking initiatives taken over the last couple of years which has seen the replacement of higher yielding loans, such as cash flow, with lower yielding multi-family and equity fund loans. These factors were partially offset by upward repricing of variable-rate loans attributable to four quarter-point increases in conjunction with decreased market rates and a lower rate on loan production from the fed funds targetimpact of the PPP loans. Excluding the PPP loans, which have a coupon rate during 2018of 1%, the tax equivalent yield on average loans and leases was 5.27% in effect through the first half of 2019, only recently mitigated by three quarter-point cuts to the fed funds target rate during the second half of 2019.2020.


The tax equivalent NIM for the year ended December 31, 2019 was 4.54%2020 was 4.05% compared to 5.05%4.54% for the year ended December 31, 2018.2019. The decrease in the tax equivalent NIM was due mostly to higher deposit and borrowing costs, as well as the decrease in the yield on average loans and leases as described above. Total discount accretion on acquiredabove, offset partially by the lower cost of average interest-bearing deposits. Excluding the PPP loans, contributed six basis points to the tax equivalent NIM was 4.08% for 2019 compared to 14 basis points for 2018.the year ended December 31, 2020.
The cost of average total deposits increased to 0.77%decreased to 0.27% for the year ended December 31, 2019 from 0.44% for 2018 due mainly to higher rates paid on deposits in conjunction with increased market rates, along with a shift in our deposit mix resulting from increases in average interest-bearing deposits and a decrease in average noninterest-bearing demand deposits.
2018 Compared to 2017
Net interest income increased by $61.3 million to $1.04 billion for the year ended December 31, 2018 compared to $979.6 million for the year ended December 31, 2017 2020 from 0.77% for 2019 due mainly to higher balances of average loans and leases and average investment securities and a higher yield on average loans and leases, offset partially by a lower yield on average investment securities and higher interest expense. The yield on average loans and leases was 6.22% for the year ended December 31, 2018 compared to 5.97% for 2017. The increase in the yield on average loans and leases was due mainly to repricing of variable-rate loans attributable to higher short-term market interest rates.
The tax equivalent NIM for the year ended December 31, 2018 was 5.05% compared to 5.10% forthe year ended December 31, 2017. The decrease in the tax equivalent NIM was due mostly to a higher cost of average interest-bearing liabilities, a lower yield on average investment securities, and a decrease of six basis points resulting from a smaller tax equivalent adjustment due to the lower statutory federal tax rate, offset partially by the increase in the yield on average loans and leases as described above. The taxable equivalent adjustment for tax-exempt interest income on investment securities contributed three basis points to the tax equivalent NIM for the year ended December 31, 2018 and 10 basis points for 2017.
The cost of average total deposits increased to 0.44% for the year ended December 31, 2018 from 0.27% for 2017 due mainly to higher rates paid on deposits in conjunction with increasedresulting from decreased market interest rates.


61

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 years indicated:
Year Ended December 31,Year Ended December 31,
  Increase   Increase  IncreaseIncrease
2019 (Decrease) 2018 (Decrease) 20172021(Decrease)2020(Decrease)
2019 (2)
(Dollars in thousands)(Dollars in thousands)
Provision For Credit Losses:         Provision For Credit Losses:
Addition to allowance for loan and lease losses$23,000
 $(13,774) $36,774
 $(14,192) $50,966
(Reduction in) addition to reserve for unfunded         
loan commitments(1,000) (9,226) 8,226
 1,440
 6,786
(Reduction in) addition to allowance for(Reduction in) addition to allowance for
loan and lease lossesloan and lease losses$(149,500)$(442,500)$293,000 $270,000 $23,000 
Addition to (reduction in) reserve forAddition to (reduction in) reserve for
unfunded loan commitmentsunfunded loan commitments(12,500)(58,500)46,000 47,000 (1,000)
Total provision for credit losses$22,000
 $(23,000) $45,000
 $(12,752) $57,752
Total provision for credit losses$(162,000)$(501,000)$339,000 $317,000 $22,000 
         
Credit Quality Metrics (1):
         
Net charge‑offs on loans and leases held for         
investment (2)
$16,687
 $(27,071) $43,758
 $(19,199) $62,957
Net charge‑offs to average loans and leases0.09%   0.26%   0.40%
Credit Quality Metrics:Credit Quality Metrics:
Net (recoveries) charge‑offs on loans and leasesNet (recoveries) charge‑offs on loans and leases
held for investment (1)
held for investment (1)
$(1,883)$(89,104)$87,221 $70,534 $16,687 
Net (recoveries) charge‑offs to averageNet (recoveries) charge‑offs to average
loans and leasesloans and leases(0.01)%0.45 %0.09 %
At year-end:         At year-end:
Allowance for credit losses$174,646
 $5,313
 $169,333
 $7,686
 $161,647
Allowance for credit losses$273,635 $(160,117)$433,752 $259,106 $174,646 
Allowance for credit losses to loans and leases         Allowance for credit losses to loans and leases
held for investment0.93%   0.94%   0.96%held for investment1.19 %2.27 %0.93 %
Allowance for credit losses to nonaccrual loans         Allowance for credit losses to nonaccrual loans
and leases held for investment189.1%   213.5%   103.8%and leases held for investment447.3 %475.8 %189.1 %
         
Nonaccrual loans and leases held for investment$92,353
 $13,020
 $79,333
 $(76,451) $155,784
Nonaccrual loans and leases held for investment$61,174 $(29,989)$91,163 $(1,190)$92,353 
Performing TDRs held for investment12,257
 (5,444) 17,701
 (39,137) 56,838
Performing TDRs held for investment$24,430 $10,176 $14,254 $1,997 $12,257 
Total impaired loans and leases$104,610
 $7,576
 $97,034
 $(115,588) $212,622
         
Classified loans and leases held for investment$175,912
 $(61,198) $237,110
 $(41,295) $278,405
Classified loans and leases held for investment$116,104 $(149,158)$265,262 $89,350 $175,912 
______________________
(1)Amounts and ratios related to 2019 and 2018 are for total loans and leases held for investment, net of deferred fees. Amounts and ratios related to 2017 are for Non-PCI loans and leases held for investment, net of deferred fees.
(2)
(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.
(2)    2019 is pre-CECL adoption on January 1, 2020; the ACL ratio under CECL at adoption was 0.97%.
Provisions for credit losses are charged to earnings for both on and off‑balance sheet credit exposures. 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.
The allowance for loan and lease losses has a general reserve component for loans and leases with no credit impairment and a specific reserve component for impaired loans and leases. Our allowance methodology for the general reserve component includes both quantitative and qualitative loss factors that are applied against the population of unimpaired loans and leases. The quantitative loss factors consider the likelihood of loans defaulting based on the historical degree that similar loans defaulted and the degree of credit losses based on the historical average degree of loss experienced for these similar loans and leases pooled both by loan or lease type and credit risk rating; loans with more adverse credit risk ratings have higher quantitative loss factors. The qualitative loss factors consider, among other things, current economic trends and forecasts, current collateral values and performance trends, credit performance trends, and the loan portfolio's current composition.


The provision for credit losses decreased by $23.0$501.0 million to a provision for credit losses benefit of $162.0 million for the year ended December 31, 2021 compared to a provision of $339.0 million for the year ended December 31, 2020 as a result of improvement in both the macroeconomic forecast variables used in the process to determine the allowance for credit losses and the loan portfolio credit quality metrics, offset partially by net loan growth for the year.
The provision for credit losses increased by $317.0 million to $339.0 million for the year ended December 31, 2020 compared to $22.0 million for the year ended December 31, 2019 compared to $45.0 million forprimarily as a result of the impact of the year ended December 31, 2018 due mainly to lower specific provisions for impaired loans during 2019current economic forecast used in our ACL estimation, which reflected a significant deterioration in key macroeconomic forecast variables such as unemployment and lower provisions related toGDP growth as a result of the reserve for unfunded loan commitments during 2019 due to updates on utilization factors which estimate the percentage of available credit that will be utilized by our borrowers.COVID-19 pandemic.
The provision for credit losses declined by $12.8 million to $45.0 million for the year ended December 31, 2018 compared to $57.8 million for the year ended December 31, 2017 due mostly to lower specific provisions for impaired loans during 2018, higher recoveries of charged off loans during 2018, and lower amounts of loans rated special mention and classified at December 31, 2018 compared to December 31, 2017. Loans rated special mention and classified have a higher general reserve amount than loans rated pass.



62

Certain circumstances may lead to increased provisions for credit losses in the future including the adoption of CECL on January 1, 2020.future. Examples of such circumstances are an increased amount of classified and/or impairednonperforming loans and leases, net loan and lease and unfunded commitment growth, and changes in economic conditions and forecasts. Changes 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. For information regarding the allowance for credit losses on loans and leases held for investment, see "- Critical Accounting Policies and Estimates - Allowance for Credit Losses on Loans and Leases Held for Investment," "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment," Note 1(i). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans and Leases Held for Investment, and Note 5. Loans and Leases of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”
Noninterest Income
The following table summarizes noninterest income by category for the years indicated:
Year Ended December 31,
IncreaseIncrease
Noninterest Income2021(Decrease)2020(Decrease)2019
(In thousands)
Leased equipment income$45,746 $2,118 $43,628 $4,901 $38,727 
Other commissions and fees42,287 1,940 40,347 (3,276)43,623 
Service charges on deposit accounts13,269 2,918 10,351 (4,286)14,637 
Gain on sale of loans and leases1,733 (406)2,139 1,025 1,114 
Gain on sale of securities1,615 (11,556)13,171 (12,274)25,445 
Dividends and gains (losses) on equity investments23,115 8,131 14,984 15,551 (567)
Warrant income49,341 38,732 10,609 1,940 8,669 
Other income16,821 5,990 10,831 (83)10,914 
Total noninterest income$193,927 $47,867 $146,060 $3,498 $142,562 
 Year Ended December 31,
   Increase   Increase  
Noninterest Income2019 (Decrease) 2018 (Decrease) 2017
 (In thousands)
Other commissions and fees$43,623
 $(1,920) $45,543
 $4,121
 $41,422
Leased equipment income38,727
 846
 37,881
 181
 37,700
Service charges on deposit accounts14,637
 (1,872) 16,509
 1,202
 15,307
Gain on sale of loans and leases1,114
 (3,561) 4,675
 (1,522) 6,197
Gain (loss) on sale of securities25,445
 17,269
 8,176
 8,717
 (541)
Other income:         
Dividends and (losses) gains on equity investments(567) (4,374) 3,807
 (1,312) 5,119
Warrant income8,669
 1,191
 7,478
 4,946
 2,532
Other10,914
 (13,652) 24,566
 3,729
 20,837
Total noninterest income$142,562
 $(6,073) $148,635
 $20,062
 $128,573


20192021 Compared to 20182020
Noninterest income declinedincreased by $6.1$47.9 million to $142.6$193.9 million for the year ended December 31, 2021 compared to $146.1 million for the year ended December 31, 2020 due mainly to increases of $38.7 million in warrant income, $8.1 million in dividends and gains on equity investments, and $6.0 million in other income, offset partially by a decrease of $11.6 million in gain on sale of securities. Warrant income increased due principally to higher gains from exercised warrants, driven by the active capital markets. Dividends and gains on equity investments increased due primarily to higher gains on sales of equity investments and higher income distributions on SBIC investments, offset partially by lower fair value gains on equity investments still held and lower fair value marks on SBIC investments. Other income increased due principally to higher gains from early lease terminations. The decrease in gain on sale of securities resulted from the sale of $365.7 million of securities for a gain of $1.6 million for the year ended December 31, 2021 compared to sales of $160.3 million of securities for a gain of $13.2 million for the year ended December 31, 2020.
63

2020 Compared to 2019
Noninterest income increased by $3.5 million to $146.1 million for the year ended December 31, 2020 compared to $148.6$142.6 million for the year ended December 31, 2019 due mainly to increases of $15.6 million in dividends and gains on equity investments and $4.9 million in leased equipment income, offset partially by decreases of $12.3 million in gain on sale of securities, $4.3 million in service charges on deposit accounts, and $3.3 million in other commissions and fees. Dividends and gains on equity investments increased due primarily to increases in the fair value of equity investments still held and higher gains on sale of equity investments sold. Leased equipment income increased due to early lease terminations resulting in higher termination gains in the year ended December 31, 2020 as compared to the year ended December 31, 2019 and a higher average balance of leases in 2020 resulting in higher lease income as compared to 2019, offset partially by lower rental income attributable to two operating leases placed on nonaccrual status in 2020. The decrease in gain on sale of securities resulted from the sale of $160.3 million of securities for a gain of $13.2 million for the year ended December 31, 2020 compared to sales of $1.6 billion of securities for a gain of $25.4 million for the year ended December 31, 2018 due mostly to decreases in other income of $13.7 million, dividends and gains2019. Service charges on equity investments of $4.4 million, gain on sale of loans and leases of $3.6 million, and other commissions and fees of $1.9 million, offset partially by an increase in gain on sale of securities of $17.3 million. Other income declined due primarily to lower gains on early lease terminations, lower legal settlements with former borrowers, and lower BOLI income. Dividends and gains on equity investmentsdeposit accounts decreased due primarily to lower gains on the sale of equity investmentsanalysis fees and lower dividends received in 2019 as compared to 2018 as a significant portion of our equity investments were sold in the second quarter of 2018. Gain on sale of loans and leases declined due to a net gain of $1.1 million on sales of $101.5 million of loans and leases during 2019 compared to a net gain of $4.7 million on sales of $641.9 million of loans and leases during 2018. The loans and leases sold during 2018 included the sale of a large nonaccrual loan for a $2.4 million gain and the settlement of our December 31, 2017 loans held for sale of $481.1 million for a $1.3 million gain. Other commissions andNSF fees decreased due primarily to lower loan prepayment penalty fees of $4.2 million, offset partially by higher foreign exchange fees of $0.8 million, higher unused commitment fees of $0.8 million, and higher customer success fees of $0.5 million. Gain on sale of securities increased due mainly to a net gain of $25.4 million on sales of $1.6 billion of securities during the year ended December 31, 2019 compared to a net gain of $8.2 million on sales of $563.6 million of securities during 2018. The higher gain on sale of securities in 2019 is due primarily to the repositioning of a portion of our securities portfolio in the second quarter of 2019 to shorten the duration of the portfolio, to enhance liquidity, and to take advantage of municipal security price appreciation due to market dynamics from tax law changes. The securities sold in 2018 included $299.9 million that were sold for a gain of $6.3 million in the first quarter of 2018 primarily for reinvestment in higher quality liquid assets, yield, and credit risk purposes.
2018 Compared to 2017
Noninterest income increased by $20.1 million to $148.6 million for the year ended December 31, 20182020 as compared to $128.6 million for thelast year ended December 31, 2017 due primarily to increases in gain on sale of securities of $8.7 million, warrant income of $4.9 million, other commissions andas we waived certain fees of $4.1 million, and other income of $3.7 million. Gain on sale of securities increased due to a net gain of $8.2 million on sales of $563.6 million of securities during the year ended December 31, 2018 compared to a net loss of $0.5 million on sale of $759.8 million of securities during 2017. The securities sold in 2018 included $299.9 million that were sold for a gainperiod of $6.3 million intime as part of our response to the first quarter of 2018 principally for reinvestment in higher quality liquid assets, yield, and credit risk purposes. Warrant income increased due mainly to a $3.1 million gain on a warrant in a company that completed an IPO.COVID-19 pandemic. Other commissions and fees increaseddecreased primarily due mostly to higher foreign exchange fees of $3.1 million and higherlower credit card fee income of $1.5 million. Other income increased due primarily to higher gains on early lease terminations and higher BOLI income,lower foreign exchange fees, offset partially by lower legal settlements with former borrowers.higher customer success fees.





Noninterest Expense
The following table summarizes noninterest expense by category for the years indicated:
Year Ended December 31,
IncreaseIncrease
Noninterest Expense2021(Decrease)2020(Decrease)2019
(In thousands)
Compensation$368,450 $96,956 $271,494 $(14,368)$285,862 
Occupancy58,422 867 57,555 148 57,407 
Leased equipment depreciation35,755 6,890 28,865 4,849 24,016 
Data processing30,277 3,498 26,779 (777)27,556 
Other professional services21,492 1,575 19,917 2,114 17,803 
Customer related expense20,504 2,972 17,532 3,693 13,839 
Insurance and assessments17,365 (5,260)22,625 6,221 16,404 
Loan expense17,031 3,577 13,454 523 12,931 
Intangible asset amortization12,734 (2,019)14,753 (3,973)18,726 
Acquisition, integration and reorganization costs9,415 8,355 1,060 711 349 
Foreclosed assets income, net(213)(196)(17)3,538 (3,555)
Other46,185 6,183 40,002 9,089 30,913 
Total operating expense637,417 123,398 514,019 11,768 502,251 
Goodwill impairment— (1,470,000)1,470,000 1,470,000 — 
Total noninterest expense$637,417 $(1,346,602)$1,984,019 $1,481,768 $502,251 
64

 Year Ended December 31,
   Increase   Increase  
Noninterest Expense2019 (Decrease) 2018 (Decrease) 2017
 (In thousands)
Compensation$285,862
 $3,294
 $282,568
 $16,001
 $266,567
Occupancy57,407
 4,184
 53,223
 4,360
 48,863
Data processing27,556
 331
 27,225
 650
 26,575
Leased equipment depreciation24,016
 2,645
 21,371
 604
 20,767
Intangible asset amortization18,726
 (3,780) 22,506
 8,266
 14,240
Other professional services17,803
 (4,149) 21,952
 4,599
 17,353
Insurance and assessments16,404
 (4,301) 20,705
 972
 19,733
Customer related expense13,839
 3,486
 10,353
 2,056
 8,297
Loan expense12,931
 2,362
 10,569
 (3,263) 13,832
Acquisition, integration and reorganization costs349
 (1,421) 1,770
 (17,965) 19,735
Foreclosed assets (income) expense, net(3,555) (2,804) (751) (2,453) 1,702
Other30,913
 (8,828) 39,741
 1,744
 37,997
Total noninterest expense$502,251
 $(8,981) $511,232
 $15,571
 $495,661
20192021 Compared to 20182020
Noninterest expense decreased by $1.35 billion to $637.4 million for the year ended December 31, 2021 compared to $2.0 billion for the year ended December 31, 2020 due mainly to a $1.47 billion goodwill impairment charge incurred in the first quarter of 2020. Excluding the goodwill impairment charge, noninterest expense increased by $9.0$123.4 million in 2021 compared to 2020. This increase was due primarily to increases of $97.0 million in compensation expense, $8.4 million in acquisition, integration and reorganization costs, $6.9 million in leased equipment depreciation, and $6.2 million in other expense, offset partially by a $5.3 million decrease in insurance and assessment expense. The increase in compensation expense was due to the incremental compensation expense from 11 months of Civic operations and three months of HOA Business operations 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 of the higher provisions for credit losses in 2020. The increase in acquisition, integration, and reorganization costs was due to the costs related to the Civic and HOA Business acquisitions. Leased equipment depreciation increased due to a higher average balance of leased equipment. Other expense increased due mainly to higher legal settlement costs. Insurance and assessment expense decreased due mostly to a decrease in the FDIC assessment rate in 2021 partially offset by a higher assessment base. The assessment rate was higher in 2020 due to the goodwill impairment recorded in the first quarter of 2020 resulting in a higher assessment rate for the next four quarters.
2020 Compared to 2019
Noninterest expense increased by $1.48 billion to $1.98 billion for the year ended December 31, 2020 compared to $502.3 million for the year ended December 31, 2019 compared to $511.2 million for the year ended December 31, 2018 due primarilymainly to a decline$1.47 billion goodwill impairment charge incurred in the first quarter of 2020. Excluding the goodwill impairment charge, noninterest expense increased by $11.8 million to $514.0 million in 2020. This increase was due mainly to increases of $9.1 million in other expense, of $8.8 million. Other expense decreased due mostly to $2.1$6.2 million of lower amortization of non-competition agreements, $2.0 million in lower franchise tax expense, a $1.7 million reversal of previously accrued merger costs, $1.3 million in lower employee related expenses, and $1.1 million in lower operating and other losses. There were also noteworthy year-over-year fluctuations in compensation expense, occupancy expense, other professional services expense, insurance and assessments, expense,$4.8 million in leased equipment depreciation, $3.7 million in customer related expense, and $3.5 million in foreclosed assets (income) expense, net. Compensationoffset partially by decreases of $14.4 million in compensation expense and $4.0 million in intangible asset amortization. Other expense increased primarily due mainly to $6.6 million in prepayment penalties incurred in the second quarter of 2020 from the early payoff of $750 million of FHLB term advances and higher bonus expense due to achievement of performance metrics in excess of targets. Occupancy expense increased mainly due to an increased number of office locations. Other professional services expense decreased mainlylitigation accruals, offset partially by lower business development expenses and employee related expenses as a result of lower legal and consulting expense.COVID-19. Insurance and assessments expense decreased primarily due to the 4.5 basis point FDIC surcharge ending in the third quarter of 2018. Customer related expense increased due primarily to an increase in our FDIC assessment rate as a result of the number of deposit customers on analysis andfirst quarter 2020 loss from the goodwill impairment charge. Leased equipment depreciation increased due principally to a higher utilizationaverage balance of leased equipment. Customer related expenses increased due mostly to higher customer analysis credits by customers to pay third-party expenses.expenses and reciprocal deposit referral fees. Foreclosed assets (income) expense net, increased mainly due principally to higherlower gains on the sale of foreclosed assets.
2018 Compared to 2017
Noninterest expense increased by $15.6 million to $511.2 million for the year ended December 31, 2018 compared to $495.7 million for the year ended December 31, 2017 due primarily to increases in compensation expense of $16.0 million, intangible asset amortization of $8.3 million, other professional services expense of $4.6 million, and occupancy expense of $4.4 million, offset partially by a decrease in acquisition, integration and reorganization costs of $18.0 million. Compensation expense increaseddecreased due mainly to higher salary expense of $11.9 million, higher stock compensation expense of $4.2 million, and higherlower bonus expense of $3.6 million, offset partially by lower severance and retention expense of $4.1 million.in the 2020 period compared to the prior year based on Company financial performance in 2020. Intangible asset amortization increaseddecreased due mostly to the intangible assets added from the CUB acquisition in October 2017. Other professional services expense increased due primarily to higher consulting and legal expense. Occupancy expense increased due primarily to inclusion of the CUB operations for a full year in 2018. The acquisition, integration and reorganization costs for the year ended December 31, 2018lower CDI amortization related to the terminated El Dorado Savings Bank merger agreement, while the costs for 2017 related to the CUB acquisition.financial institutions acquired in 2015 and 2017.




Income Taxes
The effective tax rates were 26.0%26.2%, 26.5%(6.5)%, and 35.5%26.0% for the years ended December 31, 2019, 2018,2021, 2020, and 2017.2019. Excluding non-deductible goodwill impairment, the effective income tax rate was 24.4% for the year ended December 31, 2020. The decreaseincrease in the effective tax rate for 2021 compared to the year ended December 31, 201924.4% rate for 2020 was due primarily to $9.1 million of benefits related to changesan increase in the state apportionment net of the federalrates for 2021 and a tax effect.benefit recorded in 2020 for amended state returns. The Company's 20192021 blended statutory tax rate for federal and state was 27.9% 27.8%.
The decrease in the effective tax rate for the year ended December 31, 2018 was due to the enactment of the TCJA, which reduced the federal statutory corporate tax rate to 21% effective January 1, 2018 from 35% in prior periods. The Company remeasured its federal deferred tax assets and liabilities as a result of the TCJA in its financial statements as of December 31, 2017.
For further information on income taxes, see Note 15.16. Income Taxes of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”


65

Fourth Quarter Results
The following table sets forth our unaudited quarterly results and certain performance metrics for the periods indicated:

 Three Months Ended
 December 31, September 30,
 2019 2019
 (Dollars in thousands, except per share data)
Earnings Summary:   
Interest income$293,593
 $307,208
Interest expense(46,974) (54,972)
Net interest income246,619
 252,236
Provision for credit losses(3,000) (7,000)
Net interest income after provision for credit losses243,619
 245,236
Gain on sale of securities184
 908
Other noninterest income26,992
 32,521
Total noninterest income27,176
 33,429
Foreclosed assets income (expense), net3,446
 (8)
Acquisition, integration and reorganization costs269
 —
Other noninterest expense(127,443) (126,801)
Total noninterest expense(123,728) (126,809)
Earnings before income taxes147,067
 151,856
Income tax expense29,186
 41,830
Net earnings$117,881
 $110,026
    
Performance Measures:   
Diluted earnings per share$0.98
 $0.92
Annualized return on:   
Average assets1.77% 1.65%
Average tangible equity (1)(2)
19.98% 19.01%
Net interest margin (tax equivalent)4.33% 4.46%
Yield on average loans and leases (tax equivalent)5.67% 5.91%
Cost of average total deposits0.71% 0.83%
Efficiency ratio44.8% 42.3%
____________________
(1)Calculation reduces average equity by average intangible assets.
(2)See "Non-GAAP Measurements."
Fourth Quarter of 2019 Compared to Third Quarter of 2019
Net earnings were $117.9 million, or $0.98 per diluted share, for the fourth quarter of 2019 compared to $110.0 million, or $0.92 per diluted share, for the third quarter of 2019. The quarter‑over‑quarter increase in net earnings of $7.9 million was due to decreases in income tax expense of $12.6 million, provision for credit losses of $4.0 million, and noninterest expense of $3.1 million, offset partially by declines in noninterest income of $6.3 million and net interest income of $5.6 million.
Income tax expense decreased due primarily to $9.1 million of benefits related to changes in state apportionment, net of the federal tax effect.


Noninterest expense declined by $3.1 million to $123.7 million for the fourth quarter of 2019 compared to $126.8 million for the third quarter of 2019 attributable primarily to a $3.5 million increase in foreclosed assets income and $2.7 million decrease in other expense, offset partially by a $3.2 million increase in compensation expense. Foreclosed assets income increased due to a $3.3 million gain on the sale of a repossessed asset. Other expense decreased due primarily to a $1.7 million reversal of previously accrued merger costs and a $1.1 million credit adjustment to franchise tax expense for refunds related to state apportionment changes. Compensation expense increased due mainly to higher bonus expense of $2.9 million.
Noninterest income decreased by $6.3 million to $27.2 million for the fourth quarter of 2019 compared to $33.4 million for the third quarter of 2019 due mainly to a $2.7 million decrease in warrant income, a $1.7 million decrease in other income, a $0.8 million decrease in dividends and gain on equity investments, a $0.7 million decrease in gain on sale of loans and leases, and a $0.7 million decrease in gain on sale of securities, offset partially by a $1.0 million increase in leased equipment income. The decrease in warrant income was due to lower gains resulting from exercised warrants. The decrease in other income was due mainly to lower gains from lease terminations. The decreases in gain on sale of loans and leases and gain on sale of securities were attributable to a lower level of sales activity in the fourth quarter of 2019 as compared to the third quarter of 2019. The increase in leased equipment income was due primarily to a higher average balance of leased equipment in the fourth quarter compared to the third quarter.
Net interest income declined by $5.6 million to $246.6 million for the fourth quarter of 2019 compared to $252.2 million for the third quarter of 2019 due primarily to a lower yield on average loans and leases and a lower balance of average loans and leases. The tax equivalent yield on average loans and leases was 5.67% for the fourth quarter of 2019 compared to 5.91% for the third quarter of 2019. The decrease in the yield on average loans and leases was due principally to the repricing of variable-rate loans causing lower coupon interest in addition to lower loan fee income in the fourth quarter compared to the third quarter, offset partially by higher loan prepayment fees. The prepayment fees added seven basis points to the fourth quarter yield on average loans and leases and five basis points to the third quarter yield on average loans and leases.
The tax equivalent NIM was 4.33% for the fourth quarter of 2019 compared to 4.46% for the third quarter of 2019. The decrease in the NIM was due mainly to the repricing of variable-rate loans causing lower coupon interest and lower loan fee income, offset partially by the lower cost of average interest-bearing liabilities.
The cost of average total deposits decreased to 0.71% for the fourth quarter of 2019 from 0.83% for the third quarter of 2019 due mainly to a lower cost of average interest-bearing deposits, offset partially by a lower average balance of noninterest-bearing deposits. Our cost of average total deposits has declined from a 2019 peak of 86 basis points in the month of July to a 2019 low of 66 basis points in the month of December. The lower cost of average interest-bearing deposits reflected actions taken to reduce deposit rates in light of the fed funds target rate cuts during the second half of 2019.




Balance Sheet Analysis
Securities Available-for-Sale
Our securities available-for sale portfolio consists primarily of U.S. government agency and government‑sponsored enterprise (“agency") obligations and obligations of states and political subdivisions (“municipal securities”).
The following table presents the composition and durations of our securities available-for-sale as of the dates indicated:
December 31,
 202120202019
Fair% ofDurationFair% ofDurationFair% ofDuration
Security TypeValueTotal(in years)ValueTotal(in years)ValueTotal(in years)
 (Dollars in thousands)
Agency residential MBS$2,898,210 27 %2.9 $341,074 7 %1.9 $305,198 8 %3.3 
Municipal securities2,315,968 22 %7.7 1,531,617 29 %8.2 735,159 19 %7.6 
Agency commercial MBS1,688,967 16 %5.2 1,281,877 24 %3.2 1,108,224 29 %4.4 
Agency residential CMOs1,038,134 10 %3.2 1,219,880 23 %2.7 1,136,397 30 %3.7 
U.S. Treasury securities966,898 9 %6.6 5,302 — %1.3 5,181 — %3.2 
Corporate debt securities527,094 5 %4.2 311,889 6 %3.7 20,748 1 %11.3 
Private label commercial MBS450,217 4 %7.5 82,957 2 %1.8 72,304 2 %2.7 
Collateralized loan obligations385,362 4 %0.1 135,876 3 %— 123,756 3 %0.2 
Private label residential CMOs264,417 2 %3.9 116,946 2 %2.1 99,483 3 %3.2 
Asset-backed securities129,547 1 %0.1 166,546 3 %0.1 142,479 4 %0.3 
SBA securities29,644 — %3.7 41,627 1 %3.2 48,258 1 %4.0 
Total securities available-
for-sale$10,694,458 100 %4.8 $5,235,591 100 %4.3 $3,797,187 100 %4.4 
 December 31,
 2019 2018 2017
 Fair % of Duration Fair % of Duration Fair % of Duration
Security TypeValue Total (in years) Value Total (in years) Value Total (in years)
 (Dollars in thousands)
Agency residential CMOs$1,136,397
 30% 3.7
 $632,850
 16% 4.3
 $275,709
 7% 6.8
Agency commercial MBS1,108,224
 29% 4.4
 1,112,704
 28% 4.9
 1,163,969
 31% 5.4
Municipal securities735,159
 19% 7.6
 1,312,194
 33% 7.3
 1,680,068
 45% 7.3
Agency residential MBS305,198
 8% 3.3
 281,088
 7% 3.7
 246,274
 7% 3.0
Asset-backed securities214,783
 6% 1.1
 81,385
 2% 2.4
 88,710
 2% 3.0
Collateralized loan obligations123,756
 3% 0.2
 —
 —% —
 7,015
 —% 0.3
Private label residential CMOs99,483
 3% 3.2
 101,205
 2% 4.2
 125,987
 3% 5.1
SBA securities48,258
 1% 4.0
 67,047
 2% 3.5
 160,334
 4% 2.0
Corporate debt securities20,748
 1% 11.3
 17,553
 —% 11.0
 19,295
 1% 11.8
U.S. Treasury securities5,181
 —% 3.2
 403,405
 10% 3.0
 —
 —% —
Equity investments (1)
—
 —% —
 —
 —% —
 7,070
 —% —
Total securities available-                 
for-sale$3,797,187
 100% 4.4
 $4,009,431
 100% 5.2
 $3,774,431
 100% 6.0
____________________________
(1)In connection with our adoption of ASU 2016-01 and ASU 2018-03 on January 1, 2018, we reclassified $7.1 million of equity investments from securities available-for-sale to other assets in the first quarter of 2018. The reclassification was applied prospectively without prior period amounts being restated.
The following table presents the geographic composition of the majority of our municipal securities portfolio as of the date indicated:
December 31, 2021
Fair% of
Municipal Securities by StateValueTotal
(Dollars in thousands)
 California$569,288 25 %
 Texas477,499 21 %
 Washington357,536 15 %
 Oregon143,838 6 %
 Maryland74,334 3 %
 Georgia68,662 3 %
 New York65,831 3 %
 Colorado58,503 3 %
 Minnesota55,911 2 %
 Florida41,629 2 %
Total of ten largest states1,913,031 83 %
All other states402,937 17 %
Total municipal securities$2,315,968 100 %

66
 December 31, 2019
 Fair % of
Municipal Securities by StateValue Total
 (Dollars in thousands)
 California$231,386
 32%
 Washington114,809
 16%
 New York52,228
 7%
 Texas40,672
 6%
 Utah37,717
 5%
 Oregon30,585
 4%
 Florida29,806
 4%
 Illinois24,943
 3%
 District of Columbia17,669
 2%
 Ohio17,476
 2%
Total of ten largest states597,291
 81%
All other states137,868
 19%
Total municipal securities$735,159
 100%




The following table presents a summary of contractual rates and contractual maturities of our securities available‑for‑sale as of the date indicated:
Due AfterDue After
DueOne YearFive Years
WithinThroughThroughDue After
One YearFive YearsTen YearsTen YearsTotal
FairFairFairFairFair
December 31, 2021Value
Rate(1)
Value
Rate(1)
Value
Rate(1)
Value
Rate(1)
Value
Rate(1)
(Dollars in thousands)
Agency residential MBS$31 4.85 %$8,335 3.77 %$6,909 3.93 %$2,882,935 2.70 %$2,898,210 2.71 %
Municipal securities28,542 4.23 %120,882 3.80 %720,580 2.29 %1,445,964 3.15 %2,315,968 2.93 %
Agency commercial MBS8,823 3.66 %463,242 2.66 %1,052,581 1.97 %164,321 2.38 %1,688,967 2.21 %
Agency residential CMOs— 0.00 %1,906 3.18 %220,885 2.54 %815,343 2.30 %1,038,134 2.35 %
U.S. Treasury securities— 0.00 %5,146 2.67 %961,751 1.17 %— 0.00 %966,897 1.18 %
Corporate debt securities— 0.00 %28,513 4.60 %410,030 4.29 %88,551 4.49 %527,094 4.34 %
Private label Commercial MBS4,961 4.05 %8,676 3.43 %41,510 2.63 %395,070 2.48 %450,217 2.53 %
Collateralized loan obligations— 0.00 %— 0.00 %121,093 2.00 %264,269 1.85 %385,362 1.89 %
Private label residential CMOs— 0.00 %— 0.00 %— 0.00 %264,417 2.68 %264,417 2.68 %
Asset-backed securities10,464 0.79 %25,248 1.52 %1,736 0.79 %92,099 1.11 %129,547 1.16 %
SBA securities1,864 4.07 %429 3.24 %7,612 2.76 %19,740 2.87 %29,645 2.93 %
Total securities
available-for-sale$54,685 3.46 %$662,377 2.93 %$3,544,687 2.14 %$6,432,709 2.69 %$10,694,458 2.53 %

     Due After Due After        
 Due One Year Five Years        
 Within Through Through Due After    
 One Year Five Years Ten Years Ten Years Total
                    
 Fair   Fair   Fair   Fair   Fair  
December 31, 2019Value 
Rate(1)
 Value 
Rate(1)
 Value 
Rate(1)
 Value 
Rate(1)
 Value 
Rate(1)
 (Dollars in thousands)
Agency residential CMOs$—
 —% $—
 —% $116,479
 3.40% $1,019,918
 2.96% $1,136,397
 3.00%
Agency commercial MBS1,693
 2.96% 202,084
 2.88% 780,510
 2.78% 123,937
 3.22% 1,108,224
 2.85%
Municipal securities6,191
 4.52% 14,068
 4.36% 56,935
 2.05% 657,965
 3.58% 735,159
 3.49%
Agency residential MBS11
 4.65% 6,010
 4.01% 20,502
 3.78% 278,675
 3.95% 305,198
 3.94%
Asset-backed securities—
 —% 50,798
 3.44% 14,651
 2.62% 149,334
 3.02% 214,783
 3.09%
Collateralized loan obligations—
 —%
 —
 —%
 10,890
 3.71% 112,866
 3.23% 123,756
 3.28%
Private label residential CMOs2
 5.07% 353
 3.59% —
 —% 99,128
 3.59% 99,483
 3.59%
SBA securities—
 —% 4,565
 3.66% 13,087
 2.80% 30,606
 2.91% 48,258
 2.95%
Corporate debt securities—
 —%
 —
 —%
 —
 —%
 20,748
 4.88% 20,748
 4.88%
U.S. Treasury securities—
 —
 5,181
 2.65% —
 —%
 —
 —%
 5,181
 2.65%
Total securities                   
available-for-sale$7,897
 4.18% $283,059
 3.09% $1,013,054
 2.84% $2,493,177
 3.30% $3,797,187
 3.17%
(1)    Rates presented are weighted average rates. Rates on tax-exempt securities are contractual rates and are not presented on a tax-equivalent basis.
67
_______________________________________
(1)Rates presented are weighted average rates. Rates on tax-exempt securities are contractual rates and are not presented on a tax-equivalent basis.

Loans and Leases Held for Investment
The following table presents the composition of our total loans and leases held for investment, net of deferred fees, by loan portfolio segment, class, and subclass as of the dates indicated:
December 31,
202120202019
December 31,% of% of% of
2019 2018 2017 2016 2015BalanceTotalBalanceTotalBalanceTotal
(In thousands)(Dollars in thousands)
Real estate mortgage:         Real estate mortgage:
Other commercial real estateOther commercial real estate$2,429,791 11 %$2,747,526 14 %$2,685,930 14 %
SBA programSBA program623,579 3 %599,788 3 %556,889 3 %
HotelHotel593,203 3 %571,917 3 %625,798 3 %
Healthcare real estate$334,070
 $451,776
 $843,653
 $955,477
 $1,230,787
Healthcare real estate115,726 — %177,440 1 %334,070 2 %
Hospitality625,798
 575,516
 695,043
 689,158
 656,750
SBA program556,889
 559,113
 551,606
 454,196
 473,960
Other commercial real estate2,685,930
 3,237,893
 3,295,438
 2,297,865
 2,284,036
Total commercial real estate mortgage4,202,687
 4,824,298
 5,385,740
 4,396,696
 4,645,533
Total commercial real estate mortgage3,762,299 17 %4,096,671 21 %4,202,687 22 %
Income producing residential
3,665,790
 2,971,213
 2,245,058
 1,169,267
 1,035,164
Income producing residential
4,647,503 20 %3,718,457 20 %3,665,790 19 %
Other residential real estate104,270
 122,630
 221,836
 144,769
 176,045
Other residential real estate2,768,918 12 %84,808 — %104,270 1 %
Total income producing and other residential         Total income producing and other residential
real estate mortgage3,770,060
 3,093,843
 2,466,894
 1,314,036
 1,211,209
real estate mortgage7,416,421 32 %3,803,265 20 %3,770,060 20 %
Total real estate mortgage7,972,747
 7,918,141
 7,852,634
 5,710,732
 5,856,742
Total real estate mortgage11,178,720 49 %7,899,936 41 %7,972,747 42 %
Real estate construction and land:         Real estate construction and land:
Commercial1,082,368
 912,583
 769,075
 581,246
 345,991
Commercial832,591 4 %1,117,121 6 %1,082,368 6 %
Residential1,655,434
 1,321,073
 822,154
 384,001
 184,382
Residential2,604,536 11 %2,243,160 12 %1,655,434 9 %
Total real estate construction and land (1)
2,737,802
 2,233,656
 1,591,229
 965,247
 530,373
Total real estate construction and land (1)
3,437,127 15 %3,360,281 18 %2,737,802 15 %
Total real estate10,710,549
 10,151,797
 9,443,863
 6,675,979
 6,387,115
Total real estate14,615,847 64 %11,260,217 59 %10,710,549 57 %
Commercial:         Commercial:
Lender finance & timeshare2,118,767
 1,780,731
 1,609,937
 1,666,855
 1,587,577
Lender financeLender finance2,617,712 11 %2,095,963 11 %2,118,767 11 %
Equipment finance852,278
 734,331
 656,995
 691,967
 890,349
Equipment finance681,266 3 %700,042 4 %852,278 5 %
Premium finance467,469
 356,354
 232,664
 161,835
 108,738
Premium finance586,267 3 %438,761 2 %467,469 2 %
Other asset-based309,893
 434,005
 425,354
 428,284
 498,671
Other asset-based190,232 1 %194,517 1 %309,893 2 %
Total asset-based3,748,407
 3,305,421
 2,924,950
 2,948,941
 3,085,335
Total asset-based4,075,477 18 %3,429,283 18 %3,748,407 20 %
Equity fund loans1,199,268
 797,500
 471,163
 325,047
 228,863
Equity fund loans1,707,143 7 %1,032,718 5 %1,199,268 6 %
Early stage212,509
 225,566
 443,370
 448,458
 347,298
Expansion stage693,459
 908,047
 953,199
 920,006
 600,541
Late stage74,186
 107,635
 255,003
 294,389
 281,311
Venture lendingVenture lending613,450 3 %665,790 4 %980,154 6 %
Total venture capital2,179,422
 2,038,748
 2,122,735
 1,987,900
 1,458,013
Total venture capital2,320,593 10 %1,698,508 9 %2,179,422 12 %
Secured business loansSecured business loans486,088 2 %430,263 2 %583,300 3 %
Paycheck Protection ProgramPaycheck Protection Program156,699 1 %1,057,422 5 %— — %
Security monitoring619,260
 643,369
 573,066
 428,759
 438,113
Security monitoring89,597 — %329,312 2 %619,260 3 %
Secured business loans583,300
 788,012
 743,824
 354,822
 352,679
Other lending527,049
 514,947
 475,584
 310,896
 300,383
Other lending739,597 3 %558,117 3 %565,107 3 %
Cash flow38,058
 114,098
 278,920
 2,373,235
 2,335,469
Total other commercial1,767,667
 2,060,426
 2,071,394
 3,467,712
 3,426,644
Total other commercial1,471,981 6 %2,375,114 12 %1,767,667 9 %
Total commercial7,695,496
 7,404,595
 7,119,079
 8,404,553
 7,969,992
Total commercial7,868,051 34 %7,502,905 39 %7,695,496 41 %
Consumer440,827
 401,321
 409,801
 375,422
 121,147
Consumer457,650 2 %320,255 2 %440,827 2 %
Total loans and leases held for investment,         Total loans and leases held for investment,
net of deferred fees$18,846,872
 $17,957,713
 $16,972,743
 $15,455,954
 $14,478,254
net of deferred fees$22,941,548 100 %$19,083,377 100 %$18,846,872 100 %

(1)
(1)    Includes $151.8 million, $167.1 million, and $173.4 million, $168.9 million, $180.1 million, $152.9 million, and $75.2 million, at December 31, 2021, 2020, and 2019 2018, 2017, 2016, and 2015 of land acquisition and development loans.

68


Our loan portfolio segments of real estate mortgage loans, real estate construction and land loans, and commercial loans comprised 42%49%, 15%, and 41%34% of our total loans and leases held for investment at December 31, 2019, respectively,2021, compared to 44%41%, 13%18%, and 41%39% at December 31, 2018,2020, respectively.
The changes during 20192021 in the portfolio classes comprising these portfolio segments reflected the following:
•Commercial real estate mortgage loans decreased by 13%8% to $4.2$3.8 billion or 22%17% of total loans and leases held for investment at December 31, 20192021 from $4.8$4.1 billion or 27%21% at December 31, 2018.2020. The lower balance and composition ratio was attributable primarily to the balance of other commercial real estate loans declining by 12% to $2.4 billion at December 31, 2021 from $2.7 billion at December 31, 2019 from $3.2 billion at December 31, 2018. This decline occurred because loan prepayments exceeded the amount of newly originated loans. Also contributing to the lower balance and composition ratio was the balance of healthcare real estate loans declining to $334.1 million at December 31, 2019 from $451.8 million at December 31, 2018. This decline in new healthcare real estate lending resulted from having fewer loan opportunities meeting our credit standards and then ceasing the origination of healthcare real estate loans in our National Lending group in October 2019.2020.
•Income producing and other residential real estate mortgage loans increased by 22%95% to $3.8$7.4 billion or 20%32% of total loans and leases held for investment at December 31, 20192021 from $3.1$3.8 billion or 17%20% at December 31, 2018.2020. The higher balance and composition ratioincrease was attributable primarily to our continued emphasis on originating and purchasing multi-family secured real estate$2.4 billion of single-family residential mortgage loans purchased during 2019 due primarily to the favorable credit risk profile of those2021 and loans originated by Civic since its February 1, 2021 acquisition date. Such Civic-originated loans totaled $956.2 million at December 31, 2021 and included business-purpose loans secured by for-rent residential properties, short-term bridge loans, and multi-family loans. We purchased $549 million of multi-family loans in 2019 compared to $473 million in 2018.
•Commercial real estate construction and land loans increaseddecreased by 19%25% to $1.1 billion$832.6 million or 6%4% of total loans and leases held for investment at December 31, 20192021 from $912.6 million$1.1 billion or 5%6% at December 31, 2018. The higher balance and comparable composition ratio was attributable to our continued origination of these types of loans and increases in balances on existing loans as disbursements occur during construction.2020.
•Residential real estate construction and land loans increased by 25%16% to $1.7$2.6 billion or 9%11% of total loans and leases held for investment at December 31, 20192021 from $1.3$2.2 billion or 8%12% at December 31, 2018.2020. The higher balance and composition ratioincrease was attributabledue primarily to our continued emphasis on originating multi-familythe business-purpose loans secured real estate construction loans in markets with strong demand for new multi-family housing and increases in balances on existing loans as disbursements occur during construction.by non-owner-occupied residential properties undergoing renovation that were originated by Civic since its February 1, 2021 acquisition date which totaled $422.4 million at December 31, 2021.
•Asset-based loans and leases increased by 13%19% to $3.7$4.1 billion or 20%18% of total loans and leases held for investment at December 31, 20192021 from $3.3$3.4 billion or 18% at December 31, 2018.2020. The higher balance and composition ratio was dueattributable primarily to net loan growth inthe balance of lender finance & timeshare loans and premium finance loans attributableincreasing by 25% to continued emphasis on originations for these loan types because of their favorable historical credit performance. Lender finance & timeshare loans increased to$2.6 billion at December 31, 2021 from $2.1 billion at December 31, 2019 from $1.8 billion at December 31, 2018, and premium finance loans increased to $467.5 million at December 31, 2019 from $356.4 million at December 31, 2018.2020.
•Venture capital loans increased by 7%37% to $2.2$2.3 billion or 12%10% of total loans and leases held for investment at December 31, 20192021 from $2.0$1.7 billion or 11%9% at December 31, 2018.2020. The higher balance and composition ratio was attributable primarily to higher equity fund loans, offset partially by lower expansion stage, early stage, and late stageventure lending loans to venture-backed companies. Equity fund loans increased to $1.2$1.7 billion at December 31, 20192021 from $797.5$1.0 billion at December 31, 2020. Venture lending loans decreased to $613.5 million at December 31, 2018. The increase in equity fund loans was due to continued emphasis on originations because of favorable historical credit performance. Expansion stage loans, early stage loans, and late stage loans decreased collectively to $980.22021 from $665.8 million at December 31, 2019 from $1.2 billion at December 31, 2018.2020.
•Other commercial loans decreased by 14%38% to $1.8$1.5 billion or 9%6% of total loans and leases held for investment at December 31, 20192021 from $2.1$2.4 billion or 12% at December 31, 2018.2020. The lower balance and composition ratio was attributable primarily to lower secured businessthe balance of Paycheck Protection Program ("PPP") loans which decreaseddecreasing by 85% to $583.3$156.7 million at December 31, 20192021 from $788.0 million$1.1 billion at December 31, 2018, and to the declining balance of the cash flow loans, which decreased to $38.1 million at December 31, 2019 from $114.1 million at December 31, 2018.2020.



69

The following table presents the geographic composition of our real estate loans held for investment, net of deferred fees, by the top ten states and all other states combined (in the order presented for the current year-end) as of the dates indicated:
December 31,December 31,
2019 201820212020
  % of   % of% of% of
Real Estate Loans by StateBalance Total Balance TotalReal Estate Loans by StateBalanceTotalBalanceTotal
(Dollars in thousands)(Dollars in thousands)
California$6,510,094
 61% $5,798,045
 57%California$8,916,633 61 %$6,942,768 62 %
ColoradoColorado721,343 5 %386,480 3 %
New York711,301
 7% 855,644
 8%New York675,948 5 %716,329 6 %
Florida598,561
 6% 547,054
 5%Florida556,057 4 %598,167 5 %
Washington324,588
 3% 253,545
 3%Washington500,836 3 %413,014 4 %
TexasTexas392,836 3 %263,731 2 %
Oregon288,764
 3% 227,067
 2%Oregon375,223 3 %269,600 2 %
Texas260,513
 2% 378,834
 4%
District of Columbia166,641
 2% 81,174
 1%
NevadaNevada346,838 2 %195,663 2 %
Arizona162,317
 1% 235,425
 2%Arizona253,289 2 %171,533 2 %
New Jersey159,791
 1% 179,045
 2%New Jersey214,087 1 %108,247 1 %
Virginia150,646
 1% 206,920
 2%
Total of 10 largest states9,333,216
 87% 8,762,753
 86%Total of 10 largest states12,953,090 89 %10,065,532 89 %
All other states1,377,333
 13% 1,389,044
 14%All other states1,662,757 11 %1,194,685 11 %
Total real estate loans held for investment, net of deferred fees$10,710,549
 100% $10,151,797
 100%Total real estate loans held for investment, net of deferred fees$14,615,847 100 %$11,260,217 100 %
At December 31, 20192021 and 2018,2020, 61% and 57%62% of our real estate loans were collateralized by property located in California because our full-service branches and our community banking activities are primarily located in California. The increase in real estate loans in Colorado reflects the growth from opening our Denver branch in November 2019.

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The following table presents a roll forward of loans and leases held for investment, net of deferred fees, for the years indicated:
Roll Forward of Loans and Leases Held for Investment,Year Ended December 31,
Net of Deferred Fees (1)
202120202019
(Dollars in thousands)
Balance, beginning of year$19,083,377 $18,846,872 $17,957,713 
Additions:
Production9,054,767 4,243,538 4,863,288 
Disbursements5,952,158 5,159,912 5,092,219 
Total production and disbursements15,006,925 9,403,450 9,955,507 
Reductions:
Payoffs(7,337,296)(3,738,754)(4,669,530)
Paydowns(3,728,950)(5,193,848)(4,262,977)
Total payoffs and paydowns(11,066,246)(8,932,602)(8,932,507)
Sales
(117,263)(125,999)(76,335)
Transfers to foreclosed assets(1,062)(14,755)(120)
Charge-offs(10,715)(93,589)(32,262)
Transfers to loans held for sale(25,554)— (25,124)
Total reductions(11,220,840)(9,166,945)(9,066,348)
Loans acquired through acquisition72,086 — — 
Net increase3,858,171 236,505 889,159 
Balance, end of year$22,941,548 $19,083,377 $18,846,872 
Weighted average rate on production (2)
4.19 %3.57 %5.06 %
Roll Forward of Loans and Leases Held for Investment,Year Ended December 31,
Net of Deferred Fees (1)
2019 2018 2017
 (Dollars in thousands)
Balance, beginning of year$17,957,713
 $16,972,743
 $15,455,954
Additions:     
Production4,863,288
 4,888,614
 4,685,763
Disbursements5,092,219
 4,104,335
 3,204,272
Total production and disbursements9,955,507
 8,992,949
 7,890,035
Reductions:     
Payoffs(4,669,530) (4,289,297) (3,801,592)
Paydowns(4,262,977) (3,480,997) (2,769,309)
Total payoffs and paydowns(8,932,507) (7,770,294) (6,570,901)
Sales 
(76,335) (161,729) (1,316,259)
Transfers to foreclosed assets(120) (16,914) (580)
Charge-offs(32,262) (59,042) (80,296)
Transfers to loans held for sale(25,124) —
 (481,100)
Total reductions(9,066,348) (8,007,979) (8,449,136)
Loans acquired through CUB acquisition—
 —
 2,075,890
Net increase889,159
 984,970
 1,516,789
Balance, end of year$18,846,872
 $17,957,713
 $16,972,743
      
Weighted average rate on production (2)
5.06% 5.23% 4.98%
_______________________________________ 
(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 22 basis points to loan yields in 2019, 31 basis points to loan yields in 2018, and 30 basis points to loan yields in 2017.
(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 38 basis points to loan yields in 2021, 25 basis points to loan yields in 2020, and 22 basis points to loan yields in 2019.

Loan and Lease Interest Rate Sensitivity
The following table presents contractual maturity information for loans and leases held for investment, net of deferred fees, as of the date indicated:
Due After
DueOne YearDue After
WithinThroughFive toDue After
December 31, 2021One YearFive Years15 Years15 YearsTotal
(In thousands)
Real estate mortgage$1,210,137 $1,738,404 $1,702,726 $6,527,453 $11,178,720 
Real estate construction and land1,793,440 1,209,954 30,140 403,593 3,437,127 
Commercial2,549,356 4,209,232 921,124 188,339 7,868,051 
Consumer7,969 60,707 218,573 170,401 457,650 
Total loans and leases held for
investment, net of deferred fees$5,560,902 $7,218,297 $2,872,563 $7,289,786 $22,941,548 
71
   Due After    
 Due One Year Due  
 Within Through After  
December 31, 2019One Year Five Years Five Years Total
 (In thousands)
Real estate mortgage$1,009,147
 $2,139,286
 $4,824,314
 $7,972,747
Real estate construction and land1,159,167
 1,416,937
 161,698
 2,737,802
Commercial2,639,470
 4,057,286
 998,740
 7,695,496
Consumer16,344
 75,783
 348,700
 440,827
Total loans and leases held for investment, net of deferred fees$4,824,128
 $7,689,292
 $6,333,452
 $18,846,872



At December 31, 2019,2021, we had $4.8$5.6 billion of loans and leases held for investment due to mature over the next twelve months. For any of these loans and leases held for investment, in the event that we provide a concession through a refinance or modification that we would not ordinarily consider in order to protect as much of our investment as possible, such loans may be considered TDRs even though the loans have performed in accordance with their contractual terms. The circumstances regarding any modifications and a borrower's specific situation, such as its ability to obtain financing from another source at similar market terms, are evaluated on an individual basis to determine if a contractual loan renewal or loan extension constitutes a TDR. Higher levels of TDRs may result in increases in classified loans and credit loss provisions.
The following table presents the interest rate profile of loans and leases held for investment, net of deferred fees, due after one year as of the date indicated:
Due After One Year
Due After One YearFixedVariable
Fixed Variable  
December 31, 2019Rate Rate Total
December 31, 2021December 31, 2021RateRateTotal
(In thousands)(In thousands)
Real estate mortgage$875,856
 $6,087,744
 $6,963,600
Real estate mortgage$3,730,256 $6,238,327 $9,968,583 
Real estate construction and land274,608
 1,304,027
 1,578,635
Real estate construction and land596,917 1,046,770 1,643,687 
Commercial1,574,448
 3,481,578
 5,056,026
Commercial1,794,426 3,524,269 5,318,695 
Consumer382,467
 42,016
 424,483
Consumer429,258 20,423 449,681 
Total loans and leases held for investment, net of deferred fees$3,107,379
 $10,915,365
 $14,022,744
Total loans and leases held for investment, net of deferred fees$6,550,857 $10,829,789 $17,380,646 
For information regarding our variable-rate loans subject to interest rate floors, see "Item 7A. Quantitative and Qualitative Disclosures About Market Risk."
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 consolidated balance sheets. The amortized cost basis of loans and leases does not include accrued interest receivable, which is included in "Other assets" on the consolidated balance sheets. The "Provision for credit losses" on the 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 a discussionfurther information regarding the calculation of our policy and methodology on the allowance for credit losses on loans and leases held for investment using the CECL methodology, see "- CriticalNote 1(i). Nature of Operations and Summary of Significant Accounting Policies and Estimates - Allowance for Credit Losses on Loans and Leases Held for Investment." For further information on the allowance for loan and lease losses on loans and leases held for investment, see Note 1(i). Nature of Operations and Summary of Significant Accounting Policies, and Note 5. Loans and Leases of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."
In calculating our allowance for credit losses, we continued to consider the impacts of the ongoing COVID-19 pandemic on our estimation of expected credit losses given the changes in economic forecasts and assumptions along with the uncertainty related to the severity and duration of the economic consequences of the COVID-19 pandemic. Our methodology and framework along with the 4-quarter reasonable and supportable forecast period and 2-quarter reversion period have remained consistent since the implementation of CECL on January 1, 2020. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.
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In the fourth quarter of 2021, we used the Moody’s Consensus Forecast dated December 9, 2021 for the calculation of our quantitative component, which is consistent with each of the quarters in 2021. The key macroeconomic variables used improved from the prior quarter as a result of updating and advancing the forecast by a quarter which, when combined with improvements in other credit quality metrics such as a decline in classified and special mention loans, drove the decrease in the allowance for credit losses in the fourth quarter. This decrease was offset partially by 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 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 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. Throughout 2021, these qualitative adjustments were updated based on evolving forecasts of property values and the pace of recovery for small businesses.
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 December 31, 2021 ACL using two different forecast scenarios (Moody's Baseline and Moody's S5) and the calculated amounts for the quantitative component differed from the Consensus Forecast ranging from lower by 1.31% to higher by 2.60%. 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 consolidated financial statements.
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The following table presents information regarding the allowance for credit losses on loans and leases held for investment as of the dates indicated:
 December 31,
 Allowance for Credit Losses Data (1)
2019 2018 2017 2016 2015
 (Dollars in thousands)
Allowance for loan and lease losses$138,785
 $132,472
 $133,012
 $143,755
 $105,534
Reserve for unfunded loan commitments35,861
 36,861
 28,635
 17,523
 16,734
Total allowance for credit losses$174,646
 $169,333
 $161,647
 $161,278
 $122,268
          
Allowance for credit losses to loans and leases         
held for investment0.93% 0.94% 0.96% 1.05% 0.86%
Allowance for credit losses to nonaccrual loans and leases         
held for investment189.1% 213.5% 103.8% 94.5% 94.8%
December 31,
 Allowance for Credit Losses Data20212020
2019 (2)
(Dollars in thousands)
Allowance for loan and lease losses$200,564 $348,181 $138,785 
Reserve for unfunded loan commitments73,071 85,571 35,861 
Total allowance for credit losses$273,635 $433,752 $174,646 
Allowance for credit losses to loans and leases held for investment (1)
1.19 %2.27 %0.93 %
Allowance for credit losses to nonaccrual loans and leases held for investment447.3 %475.8 %189.1 %
Nonaccrual loans and leases held for investment to loans and leases held for investment0.27 %0.48 %0.49 %
_______________________________________ 
(1)Amounts and ratios related to 2019 and 2018 are for total loans and leases. Amounts and ratios related to 2017 and prior years are for Non-PCI loans and leases.

(1)    Excluding PPP loans, the ACL ratio as of December 31, 2021 and 2020 was 1.20% and 2.41%.


(2)    2019 is pre-CECL adoption on January 1, 2020; the ACL ratio under CECL at adoption was 0.97%.
The following table presents the changes in our allowance for credit losses on loans and leases held for investment for the years indicated:
Year Ended December 31,
Allowance for Credit Losses Roll Forward202120202019
(Dollars in thousands)
Balance, beginning of year (2)
$433,752 $174,646 $169,333 
Cumulative effect of change in accounting
principle - CECL, as of January 1, 2020:
Allowance for loan and lease losses— 3,617 — 
Reserve for unfunded loan commitments— 3,710 — 
Total cumulative effect— 7,327 — 
Provision for credit losses:
(Reduction in) addition to allowance for loan and lease losses(149,500)293,000 23,000 
(Reduction in) addition to reserve for unfunded loan commitments(12,500)46,000 (1,000)
Total provision for credit losses(162,000)339,000 22,000 
Loans and leases charged off:
Real estate mortgage(1,128)(10,686)(997)
Real estate construction and land(782)— — 
Commercial(7,298)(82,105)(30,426)
Consumer(1,507)(798)(839)
Total loans and leases charged off(10,715)(93,589)(32,262)
Recoveries on loans charged off:
Real estate mortgage6,767 617 983 
Real estate construction and land— 21 — 
Commercial5,711 5,529 14,397 
Consumer120 201 195 
Total recoveries on loans charged off12,598 6,368 15,575 
Net recoveries (charge-offs)1,883 (87,221)(16,687)
Balance, end of year$273,635 $433,752 $174,646 
Net (recoveries) charge-offs to average loans and leases(0.01)%0.45 %0.09 %



74

 Year Ended December 31,
Allowance for Credit Losses Roll Forward (1)
2019 2018 2017 2016 2015
 (Dollars in thousands)
Balance, beginning of year (2)
$169,333
 $168,091
 $161,278
 $122,268
 $76,767
Provision for credit losses:         
Addition to allowance for loan and lease losses23,000
 36,774
 52,214
 60,211
 42,604
(Reduction in) addition to reserve for unfunded loan         
commitments(1,000) 8,226
 6,786
 789
 5,677
Total provision for credit losses22,000
 45,000
 59,000
 61,000
 48,281
Loans and leases charged off:         
Real estate mortgage(997) (8,190) (2,410) (2,059) (2,489)
Real estate construction and land—
 —
 —
 —
 —
Commercial(30,426) (50,481) (70,709) (32,210) (13,354)
Consumer(839) (371) (1,023) (823) (156)
Total loans and leases charged off(32,262) (59,042) (74,142) (35,092) (15,999)
Recoveries on loans charged off:         
Real estate mortgage983
 2,350
 1,209
 4,519
 3,582
Real estate construction and land—
 195
 429
 673
 1,082
Commercial14,397
 12,566
 9,415
 7,794
 3,399
Consumer195
 173
 132
 116
 410
Total recoveries on loans charged off15,575
 15,284
 11,185
 13,102
 8,473
Net charge-offs(16,687) (43,758) (62,957) (21,990) (7,526)
Fair value of acquired reserve for unfunded loan         
commitments—
 —
 4,326
 —
 4,746
Balance, end of year$174,646
 $169,333
 $161,647
 $161,278
 $122,268
          
Net charge-offs to average loans and leases0.09% 0.26% 0.40% 0.15% 0.06%
The following table presents net charge-offs, average loan balance, and ratio of net charge-offs to average loans by loan portfolio segment for the years indicated:
Year Ended December 31,
Ratio of Net Charge-offs to Average Loans202120202019
(Dollars in thousands)
Real Estate Mortgage:
Net (recoveries) charge-offs$(5,639)$10,069 $14 
Average loan balance$9,119,963 $7,942,883 $8,004,659 
Ratio of net (recoveries) charge-offs to average loans(0.06)%0.13 %— %
Real Estate Construction and Land:
Net charge-offs (recoveries)$782 $(21)$— 
Average loan balance$3,396,145 $3,148,522 $2,450,157 
Ratio of net charge-offs to average loans0.02 %— %— %
Commercial:
Net charge-offs$1,587 $76,576 $16,029 
Average loan balance$7,310,253 $7,794,969 $7,595,463 
Ratio of net charge-offs to average loans0.02 %0.98 %0.21 %
Consumer:
Net charge-offs$1,387 $597 $644 
Average loan balance$377,927 $392,904 $413,856 
Ratio of net charge-offs to average loans0.37 %0.15 %0.16 %
Net recoveries in 2021 were $1.9 million compared to net charge-offs of $87.2 million in 2020. This improvement was due primarily to the real estate mortgage portfolio segment going from net charge-offs of $10.1 million in 2020 to net recoveries of $5.6 million in 2021 and the commercial portfolio segment going from net charge-offs of $76.6 million in 2020 to net charge-offs of $1.6 million in 2021. Real estate mortgage net charge-offs in 2020 included $8.2 million of gross charge-offs related to two retail properties that were adversely affected by pandemic-related business closures. Commercial net charge-offs in 2020 included $59.6 million related to five security monitoring loans and an $11.8 million gross charge-off on a single equipment finance loan. Net charge-offs in 2019 totaled $16.7 million and included $16.0 million of net charge-offs in the commercial portfolio segment which included an $11.8 million gross charge-off on a single asset-based loan.
75
_______________________________________
(1)Amounts and ratios related to 2019 and 2018 are for total loans and leases. Amounts and ratios related to 2017 and prior years are for Non-PCI loans and leases.
(2)The allowance for loan losses related to PCI loans of $6.4 million as of December 31, 2017 is reflected in the beginning balance for 2018.



The following table presents charge-offs by loan portfolio segment, class, and subclass for the periods indicated:
 Year Ended December 31,
Allowance for Credit Losses Charge-offs (1)
2019 2018 2017 2016 2015
 (In thousands)
Real estate mortgage:         
Healthcare real estate$—
 $—
 $—
 $—
 $—
Hospitality—
 —
 692
 163
 615
SBA program897
 2,679
 1,237
 227
 1,436
Other commercial real estate9
 5,305
 65
 885
 281
Total commercial real estate mortgage906
 7,984
 1,994
 1,275
 2,332
Income producing residential—
 145
 —
 231
 30
Other residential real estate91
 61
 416
 553
 127
Total income producing and other residential         
real estate mortgage91
 206
 416
 784
 157
Total real estate mortgage997
 8,190
 2,410
 2,059
 2,489
Real estate construction and land:         
Commercial—
 —
 —
 —
 —
Residential—
 —
 —
 —
 —
Total real estate construction and land—
 —
 —
 —
 —
Commercial:         
Lender finance & timeshare—
 8
 202
 904
 —
Equipment finance—
 2,934
 19
 24,911
 8,088
Other asset-based11,950
 1,033
 400
 —
 —
Premium finance31
 —
 —
 —
 —
Total asset-based11,981
 3,975
 621
 25,815
 8,088
Equity fund loans—
 —
 —
 —
 —
Early stage2,161
 15,070
 20,317
 927
 —
Expansion stage7,208
 17,907
 17,014
 2,262
 —
Late stage—
 —
 2,970
 —
 —
Total venture capital9,369
 32,977
 40,301
 3,189
 —
Security monitoring1,707
 —
 —
 —
 —
Secured business loans1,426
 1,984
 948
 684
 2,260
Other lending2,784
 1,606
 1,301
 1,674
 339
Cash flow3,159
 9,939
 27,538
 848
 2,667
Total other commercial9,076
 13,529
 29,787
 3,206
 5,266
Total commercial30,426
 50,481
 70,709
 32,210
 13,354
Consumer839
 371
 1,023
 823
 156
Total charge-offs$32,262
 $59,042
 $74,142
 $35,092
 $15,999
_______________________________________________
Year Ended December 31,
Allowance for Credit Losses Charge-offs202120202019
(In thousands)
Real estate mortgage:
SBA program$622 $769 $897 
Hotel343 422 — 
Healthcare real estate— — — 
Other commercial real estate— 8,987 9 
Total commercial real estate mortgage965 10,178 906 
Income producing residential163 — — 
Other residential real estate— 508 91 
Total income producing and other residential real estate mortgage163 508 91 
Total real estate mortgage1,128 10,686 997 
Real estate construction and land:
Commercial775 — — 
Residential7 — — 
Total real estate construction and land782 — — 
Commercial:
Lender finance232 — — 
Equipment finance— 11,817 — 
Other asset-based— — 11,950 
Premium finance— — 31 
Total asset-based232 11,817 11,981 
Equity fund loans— — — 
Venture lending620 6,819 9,369 
Total venture capital620 6,819 9,369 
Security monitoring2,892 59,605 1,707 
Secured business loans210 — 1,426 
Other lending3,344 3,864 5,943 
Total other commercial6,446 63,469 9,076 
Total commercial7,298 82,105 30,426 
Consumer1,507 798 839 
Total charge-offs$10,715 $93,589 $32,262 
(1) Charge-offs related to 2019 and 2018 are for total loans and leases. Charge-offs related to 2017 and prior years are for Non-PCI loans and leases.
RealCommercial real estate mortgage gross charge-offs declineddecreased to $1.0 million for the year ended December 31, 20192021 from $8.2$10.2 million for the year ended December 31, 2018.2020. The 20182020 amount included a $4.3$8.2 million gross charge-offcharge-offs related to a single loan securedtwo retail properties that were adversely affected by a traditional mall that was foreclosed upon and sold during 2018.pandemic-related business closures.
Asset-based gross charge-offs increaseddecreased to $12.0$0.2 million for the year ended December 31, 20192021 from $4.0$11.8 million for the year ended December 31, 2018. 2020. The 20192020 amount included an $11.8 million gross charge-off in the equipment finance subclass related to a single loan.


Venture capital gross charge-offs declineddecreased to $9.4$0.6 million for the year ended December 31, 20192021 from $33.0$6.8 million for the year ended December 31, 2018.2020. The 2019 lower venture capital gross charge-off experience is attributable to improvements made in venture capital2020 amount included one loan underwriting and credit administration and our de-risking strategy, which emphasizes originations of equity fund loans (which had no gross charge-offs in 2019 and 2018).for $6.5 million.
Other commercial gross charge-offs declineddecreased to $9.1$6.4 million for the year ended December 31, 20192021 from $13.5$63.5 million for the year ended December 31, 2018.2020. The 2019 lower other commercial gross charge-off experience is attributable to our de-risking strategy under which we discontinued cash flow lending. Cash flow2020 amount includes $59.6 million for five security monitoring loans, representing 64% of total gross charge-offs declined to $3.2 million for the year ended December 31, 2019 from $9.9 million for the year ended December 31, 2018.2020.
76

The following table presents recoveries by loan portfolio segment, class, and subclass for the periods indicated:
Year Ended December 31,
Allowance for Credit Losses Recoveries202120202019
(In thousands)
Real estate mortgage:
SBA program$697 $168 $382 
Hotel— — — 
Healthcare real estate— — — 
Other commercial real estate5,384 121 162 
Total commercial real estate mortgage6,081 289 544 
Income producing residential28 — 276 
Other residential real estate658 328 163 
Total income producing and other residential real estate mortgage686 328 439 
Total real estate mortgage6,767 617 983 
Real estate construction and land:
Commercial— — — 
Residential— 21 — 
Total real estate construction and land— 21 — 
Commercial:
Lender finance3 — 6 
Equipment finance263 286 11 
Other asset-based453 422 1,416 
Premium finance— — — 
Total asset-based719 708 1,433 
Equity fund loans— — — 
Venture lending404 1,261 8,151 
Total venture capital404 1,261 8,151 
Security monitoring— 123 181 
Secured business loans2,402 374 2,877 
Other lending2,186 3,063 1,755 
Total other commercial4,588 3,560 4,813 
Total commercial5,711 5,529 14,397 
Consumer120 201 195 
Total recoveries$12,598 $6,368 $15,575 
 Year Ended December 31,
Allowance for Credit Losses Recoveries (1)
2019 2018 2017 2016 2015
 (In thousands)
Real estate mortgage:         
Healthcare real estate$—
 $—
 $—
 $—
 $—
Hospitality—
 —
 —
 12
 269
SBA program382
 452
 413
 181
 198
Other commercial real estate162
 477
 567
 3,836
 2,712
Total commercial real estate mortgage544
 929
 980
 4,029
 3,179
Income producing residential276
 1,208
 —
 115
 103
Other residential real estate163
 213
 229
 375
 300
Total income producing and other residential         
real estate mortgage439
 1,421
 229
 490
 403
Total real estate mortgage983
 2,350
 1,209
 4,519
 3,582
Real estate construction and land:         
Commercial—
 61
 90
 381
 29
Residential—
 134
 339
 292
 1,053
Total real estate construction and land—
 195
 429
 673
 1,082
Commercial:         
Lender finance & timeshare6
 23
 —
 —
 —
Equipment finance11
 90
 3,377
 1,854
 77
Other asset-based1,416
 255
 —
 —
 1
Premium finance—
 —
 —
 —
 —
Total asset-based1,433
 368
 3,377
 1,854
 78
Equity fund loans—
 —
 —
 —
 —
Early stage5,811
 2,664
 3,827
 —
 —
Expansion stage2,340
 6,131
 503
 91
 —
Late stage—
 —
 —
 —
 —
Total venture capital8,151
 8,795
 4,330
 91
 —
Security monitoring181
 —
 —
 —
 —
Secured business loans2,877
 895
 934
 801
 2,946
Other lending760
 1,620
 774
 2,522
 375
Cash flow995
 888
 —
 2,526
 —
Total other commercial4,813
 3,403
 1,708
 5,849
 3,321
Total commercial14,397
 12,566
 9,415
 7,794
 3,399
Consumer195
 173
 132
 116
 410
Total recoveries$15,575
 $15,284
 $11,185
 $13,102
 $8,473
___________________________________________
(1) Recoveries related to 2019 and 2018 are for total loans and leases. Recoveries related to 2017 and prior years are for Non-PCI loans and leases.





77

The following table presents the allowance for loan and lease losses on loans and leases held for investment by loan portfolio segment as of the dates indicated:
Allowance for Loan and Lease Losses by Portfolio Segment
Allowance for Loan and Lease Losses by Portfolio Segment (1)
Real Estate
  Real Estate      Real EstateConstruction
Real Estate Construction      Mortgageand LandCommercialConsumerTotal
Mortgage and Land Commercial Consumer Total(Dollars in thousands)
(Dollars in thousands)
December 31, 2021December 31, 2021
Allowance for loan and lease lossesAllowance for loan and lease losses$98,053 $45,079 $48,718 $8,714 $200,564 
% of loans to total loans% of loans to total loans49 %15 %34 %2 %100 %
December 31, 2020December 31, 2020
Allowance for loan and lease lossesAllowance for loan and lease losses$138,342 $78,356 $126,403 $5,080 $348,181 
% of loans to total loans% of loans to total loans41 %18 %39 %2 %100 %
December 31, 2019         December 31, 2019
Allowance for loan and lease losses$44,575
 $30,544
 $61,528
 $2,138
 $138,785
Allowance for loan and lease losses$44,575 $30,544 $61,528 $2,138 $138,785 
% of loans to total loans42% 15% 41% 2% 100%% of loans to total loans42 %15 %41 %2 %100 %
December 31, 2018         
Allowance for loan and lease losses$46,021
 $28,209
 $56,360
 $1,882
 $132,472
% of loans to total loans44% 13% 41% 2% 100%
December 31, 2017         
Allowance for loan and lease losses$34,981
 $13,055
 $82,726
 $2,250
 $133,012
% of loans to total loans46% 10% 42% 2% 100%
December 31, 2016         
Allowance for loan and lease losses$37,765
 $10,045
 $93,853
 $2,092
 $143,755
% of loans to total loans37% 6% 55% 2% 100%
December 31, 2015         
Allowance for loan losses$36,654
 $7,137
 $61,082
 $661
 $105,534
% of loans to total loans40% 4% 55% 1% 100%
_______________________________________
(1) Amounts and ratios related to 2019 and 2018 are for total loans and leases. Amounts and ratios related to 2017 and prior years are for Non-PCI loans and leases.
The allowance for loan and lease losses attributable to real estate mortgage loans was $44.6$98.1 million and $46.0$138.3 million at December 31, 20192021 and 2018.2020. As ratios to real estate mortgage loans at those dates, these percentages were 0.56%0.88% and 0.58%,1.75%. The decrease was due to a lower allowance for loan losses as a result of improvement in both the macroeconomic forecast variables used in the process to determine the allowance for credit losses and were comparable.the loan portfolio credit quality metrics, and to a higher loan balance.
The allowance for loan and lease losses attributable to real estate construction and land loans was $30.5$45.1 million and $28.2$78.4 million at December 31, 20192021 and 2018.2020. As ratios to real estate construction and land loans at those dates, these percentages were 1.12%1.31% and 1.26%2.33%. AlthoughThe decrease was due to a lower allowance for loan losses as a result of improvement in both the amount ofmacroeconomic forecast variables used in the process to determine the allowance increased year over year as well asfor credit losses and the loan balance, the ratio of the allowance to loans decreased, which was attributableportfolio credit quality metrics, and to a lower probability of default given the favorable credit performance of the loans during 2019.higher loan balance.
The allowance for loan and lease losses attributable to commercial loans and leases was $61.5$48.7 million and $56.4$126.4 million at December 31, 20192021 and 2018.2020. As ratios to commercial loans and leases at those dates, these percentages were 0.80%0.62% and 0.76%1.68%. The increasedecrease was due to a lower allowance for loan losses as a result of improvement in both the macroeconomic forecast variables used in the ratio at December 31, 2019 was due primarilyprocess to determine the allowance for credit losses and the loan portfolio credit quality metrics, and to a greater degree of impaired commercial loans and leases with specific reserves at December 31, 2019 than at December 31, 2018.
higher loan balance.

78

Deposits
The following table presents a summary of our average deposit amounts and average rates paid during the years indicated:
Year Ended December 31,Year Ended December 31,
2019 2018 2017202120202019
  Weighted   Weighted   WeightedWeightedWeightedWeighted
Average Average Average Average Average AverageAverageAverageAverageAverageAverageAverage
Deposit CompositionBalance Rate Balance Rate Balance RateDeposit CompositionBalanceRateBalanceRateBalanceRate
(Dollars in thousands)(Dollars in thousands)
Interest checking$3,406,218
 1.23% $2,445,094
 0.82% $1,928,249
 0.45%Interest checking$7,198,646 0.12 %$4,394,742 0.29 %$3,406,218 1.23 %
Money market5,139,623
 1.10% 5,107,888
 0.77% 5,027,453
 0.46%Money market8,843,122 0.15 %6,547,027 0.29 %5,139,623 1.10 %
Savings525,809
 0.17% 641,720
 0.16% 707,301
 0.16%Savings606,741 0.02 %538,985 0.05 %525,809 0.17 %
Time2,641,135
 1.86% 1,856,126
 1.07% 2,247,168
 0.57%Time1,471,963 0.40 %2,169,324 1.26 %2,641,135 1.86 %
Total interest-bearing deposits11,712,785
 1.27% 10,050,828
 0.80% 9,910,171
 0.46%Total interest-bearing deposits18,120,472 0.15 %13,650,078 0.44 %11,712,785 1.27 %
Noninterest-bearing demand7,537,172
 —
 8,211,475
 —
 7,076,445
 —
Noninterest-bearing demand12,110,193 — 8,517,281 — 7,537,172 — 
Total deposits$19,249,957
 0.77% $18,262,303
 0.44% $16,986,616
 0.27%Total deposits$30,230,665 0.09 %$22,167,359 0.27 %$19,249,957 0.77 %
The following table presents the balance of each major category of deposits as of the dates indicated:
December 31,
202120202019
% of% of% of
Deposit CompositionBalanceTotalBalanceTotalBalanceTotal
(Dollars in thousands)
Noninterest-bearing demand$14,543,133 41 %$9,193,827 37 %$7,243,298 38 %
Interest checking7,319,898 21 %5,974,910 24 %3,753,978 19 %
Money market10,241,265 29 %6,532,917 26 %4,690,420 24 %
Savings630,653 2 %562,826 2 %499,591 3 %
Total core deposits32,734,949 93 %22,264,480 89 %16,187,287 84 %
Non-core non-maturity deposits889,976 3 %1,149,467 5 %496,407 3 %
Total non-maturity deposits33,624,925 96 %23,413,947 94 %16,683,694 87 %
Time deposits $250,000 and under885,938 3 %994,197 4 %2,065,733 11 %
Time deposits over $250,000486,894 1 %532,573 2 %483,609 2 %
Total time deposits1,372,832 4 %1,526,770 6 %2,549,342 13 %
Total deposits$34,997,757 100 %$24,940,717 100 %$19,233,036 100 %
Estimated uninsured deposits$22,479,674 $15,241,530 $11,436,515 
 December 31,
 2019 2018 2017
   % of   % of   % of
Deposit CompositionBalance Total Balance Total Balance Total
 (Dollars in thousands)
Noninterest-bearing demand$7,243,298
 38% $7,888,915
 42% $8,508,044
 45%
Interest checking3,753,978
 19% 2,842,463
 15% 2,226,885
 12%
Money market4,690,420
 24% 5,043,871
 27% 4,511,730
 24%
Savings499,591
 3% 571,422
 3% 690,353
 4%
Total core deposits16,187,287
 84% 16,346,671
 87% 15,937,012
 85%
Non-core non-maturity deposits496,407
 3% 518,192
 3% 863,202
 4%
Total non-maturity deposits16,683,694
 87% 16,864,863
 90% 16,800,214
 89%
Time deposits $250,000 and under2,065,733
 11% 1,593,453
 8% 1,709,980
 9%
Time deposits over $250,000483,609
 2% 412,185
 2% 355,342
 2%
Total time deposits2,549,342
 13% 2,005,638
 10% 2,065,322
 11%
Total deposits$19,233,036
 100% $18,870,501
 100% $18,865,536
 100%
During 2019,2021, total deposits increased by $362.5 million$10.1 billion, or 40%, to $19.2$35.0 billion at December 31, 2019,2021, due primarily to an increase of $10.5 billion in timecore deposits, of $543.7 million, offset partially by decreases of $159.4 million in core deposits and $21.8$259.5 million in non-core non-maturity deposits and $153.9 million in time deposits. The decreaseincrease in core deposits was due primarily to customers shifting deposits into interest-bearing accounts as market rates increased duringcontinued strong deposit growth from our venture banking and community banking clients and the first halfacquisition of the year resultingHOA Business, which added $4.1 billion of core deposits. The increase in decreasescore deposits by component was due to increases of $645.6 million$5.3 billion in noninterest-bearing demand deposits, $353.5 million$1.3 billion in interest checking deposits, $3.7 billion in money market deposits, and $71.8$67.8 million in savings deposits, offset partially by an increase of $911.5 million in interest checking deposits. At December 31, 2019,2021, core deposits totaled $16.2$32.7 billion, or 84%93% of total deposits, including $7.2$14.5 billion of noninterest-bearing demand deposits, or 38%41% of total deposits. Our deposit base is also diversified by client type. As of December 31, 2019,2021, no individual depositor represented more than 1.2%1.7% of our total deposits, and our top ten depositors represented 7.5%11.2% of our total deposits.

79


The following table summarizes the maturities of time deposits as of the date indicated:
Time Deposits
Time Deposits$250,000Over
$250,000 Over  
December 31, 2019and Under $250,000 Total
December 31, 2021December 31, 2021and Under$250,000Total
(In thousands)(In thousands)
Maturities:     Maturities:
Due in three months or less$991,908
 $151,858
 $1,143,766
Due in three months or less$274,030 $222,816 $496,846 
Due in over three months through six months608,857
 150,093
 758,950
Due in over three months through six months183,369 164,468 347,837 
Due in over six months through twelve months368,597
 159,343
 527,940
Total due within twelve months1,969,362
 461,294
 2,430,656
Due in over six months through 12 monthsDue in over six months through 12 months205,770 86,416 292,186 
Total due within 12 monthsTotal due within 12 months663,169 473,700 1,136,869 
Due in over 12 months through 24 months81,070
 20,610
 101,680
Due in over 12 months through 24 months110,917 10,824 121,741 
Due in over 24 months15,301
 1,705
 17,006
Due in over 24 months111,852 2,370 114,222 
Total due over 12 monthsTotal due over 12 months222,769 13,194 235,963 
Total$2,065,733
 $483,609
 $2,549,342
Total$885,938 $486,894 $1,372,832 
The following table summarizes the maturities of estimated uninsured time deposits as of the date indicated:
Uninsured
Time
December 31, 2021Deposits
(In thousands)
Maturities:
Due in three months or less$183,939 
Due in over three months through six months145,718 
Due in over six months through 12 months50,862 
Total due within 12 months380,519 
Total due over 12 months999 
Total$381,518 
Client Investment Funds
In addition to deposit products, we also offer select clients non-depository cash investment options through PWAM, our SEC registered investment adviser subsidiary, and third-party money market sweep products. PWAM provides customized investment advisory and asset management solutions. At December 31, 2019,2021, total off-balance sheet client investment funds were $1.4 billion of which $0.9 billion was managed by PWAM. At December 31, 2020, total off-balance sheet client investment funds were $1.5$1.3 billion, of which $1.2 billion was managed by PWAM. At December 31, 2018, total off-balance sheet client investment funds were $1.9 billion, of which $1.5$1.0 billion was managed by PWAM.
Borrowings and Subordinated DebenturesDebt
The Bank has various available lines of credit. These include the ability to borrow funds from time to time on a long‑term, short‑term, or overnight basis from the FHLB, the FRBSF, or other financial institutions. The maximum amount that the Bank could borrow under its secured credit line with the FHLB at December 31, 20192021 was $4.2$4.0 billion, of which $2.9 billionall was available on that date. The maximum amount that the Bank could borrow under its secured credit line with the FRBSF at December 31, 2019 2021 was $2.0$1.4 billion, all of which was available on that date. The FHLB andsecured credit line was collateralized by a blanket lien on $6.2 billion of certain qualifying loans. The FRBSF secured credit lines areline was collateralized by liens on $5.9 billion and $2.7$1.8 billion of qualifying loans, respectively.loans. In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the borrowing of overnight funds, subject to availability, of $141.0$112.0 million with the FHLB and $180.0 million in the aggregate with several correspondent banks. As of December 31, 2019,2021, there was a $141.0 millionno balance outstanding related to the FHLBthese unsecured linelines 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 December 31, 2019,2021, the Bank had borrowed $300.0 millionno outstanding borrowings through the AFX.

80

The following table presents information on our borrowings as of the dates indicated:
December 31,
202120202019
WeightedWeightedWeighted
AverageAverageAverage
BorrowingsBalanceRateBalanceRateBalanceRate
(Dollars in thousands)
FHLB secured short-term advances$— — %$5,000 — %$1,318,000 1.66 %
FHLB unsecured overnight advance— — %— — %141,000 1.56 %
AFX short-term borrowings— — %— — %300,000 1.61 %
Non‑recourse debt— — %— — %8 7.50 %
Total borrowings$— — %$5,000 — %$1,759,008 1.64 %
Averages for the year:
Total borrowings$231,099 0.27 %$825,681 0.99 %$1,180,164 2.28 %
 December 31,
 2019 2018 2017
   Weighted   Weighted   Weighted
   Average   Average   Average
BorrowingsBalance Rate Balance Rate Balance Rate
 (Dollars in thousands)
FHLB secured short-term advances$1,318,000
 1.66% $1,040,000
 2.56% $332,000
 1.41%
FHLB unsecured overnight advance141,000
 1.56% 141,000
 2.53% 135,000
 1.34%
AFX short-term borrowings300,000
 1.61% 190,000
 2.56% —
 —%
Non‑recourse debt8
 7.50% 114
 7.50% 342
 6.87%
Total borrowings$1,759,008
 1.64% $1,371,114
 2.56% $467,342
 1.39%
Averages for the year:           
Total borrowings$1,180,164
 2.28% $570,216
 2.10% $388,896
 0.94%
The following table presents summary information on our subordinated debt as of the dates indicated:
December 31,
202120202019
WeightedWeightedWeighted
AverageAverageAverage
Subordinated DebtBalanceRateBalanceRateBalanceRate
(Dollars in thousands)
Gross subordinated debt:
With no unamortized acquisition discount
or unamortized issuance costs$135,055 2.58 %$135,055 2.63 %$135,055 4.33 %
With unamortized acquisition discount
or unamortized issuance costs806,039 2.65 %408,220 2.11 %405,635 3.72 %
Total gross subordinated debt941,094 2.64 %543,275 2.24 %540,690 3.87 %
Unamortized issuance costs(5,366)— — 
Unamortized acquisition discount(72,445)(77,463)(82,481)
Net subordinated debt$863,283 $465,812 $458,209 
Averages for the year:
Net subordinated debt$733,163 3.61 %$461,059 4.58 %$455,537 6.55 %
The subordinated debentures are variable-ratedebt is variable rate and based on 3-month LIBOR plus a margin, except for one which is based on 3-month EURIBOR plus a margin.margin and $400 million of subordinated notes issued on April 30, 2021 that is fixed rate at 3.25% until May 1, 2026 when it changes to floating rate and resets quarterly at a benchmark rate plus 252 basis points. The margins on the 3-month LIBOR debentures range from 1.55% to 3.10%, while the margin on the 3-month EURIBOR debenture is 2.05%. The interest rate on the LIBOR-based subordinated debentures aredebt 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. The subordinated debt is all long-term, with maturities ranging from September 2033May 2031 to July 2037.
The following table presents summary information on our subordinated debentures as of the dates indicated:
81
 December 31,
 2019 2018 2017
   Weighted   Weighted   Weighted
   Average   Average   Average
Subordinated DebenturesBalance Rate Balance Rate Balance Rate
 (Dollars in thousands)
Gross subordinated debentures:           
With no unamortized discount$135,055
 4.33% $135,055
 5.08% $120,622
 4.03%
With unamortized discount405,635
 3.72% 406,289
 4.33% 434,524
 3.25%
Total gross subordinated debentures540,690
 3.87% 541,344
 4.51% 555,146
 3.42%
Unamortized discount(82,481)   (87,498)   (92,709)  
Net subordinated debentures$458,209
   $453,846
   $462,437
  
Averages for the year:           
Net subordinated debentures$455,537
 6.55% $454,702
 6.30% $447,684
 5.27%


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:
December 31,
202120202019
(Dollars in thousands)
Nonaccrual loans and leases held for investment$61,174 $91,163 $92,353 
Accruing loan contractually past due 90 days or more— — — 
Foreclosed assets, net12,843 14,027 440 
Total nonperforming assets$74,017 $105,190 $92,793 
Performing TDRs held for investment$24,430 $14,254 $12,257 
Classified loans and leases held for investment$116,104 $265,262 $175,912 
Nonaccrual loans and leases held for investment to
loans and leases held for investment0.27 %0.48 %0.49 %
Nonperforming assets to loans and leases held for investment
and foreclosed assets, net0.32 %0.55 %0.49 %
Allowance for credit losses to nonaccrual loans and leases
held for investment447.31 %475.80 %189.11 %
Classified loans and leases held for investment to
loans and leases held for investment0.51 %1.39 %0.93 %
 December 31,
 2019 2018 2017 2016 2015
 (Dollars in thousands)
Nonaccrual loans and leases held for investment (1)
$92,353
 $79,333
 $157,545
 $173,527
 $133,615
Accruing loan contractually past due 90 days or more—
 —
 —
 —
 700
Foreclosed assets, net440
 5,299
 1,329
 12,976
 22,120
Total nonperforming assets$92,793
 $84,632
 $158,874
 $186,503
 $156,435
          
Performing TDRs held for investment (2)
$12,257
 $17,701
 $56,838
 $64,952
 $40,182
Classified loans and leases held for investment (2)
$175,912
 $237,110
 $278,405
 $409,645
 $391,754
Nonaccrual loans and leases held for investment to         
loans and leases held for investment (1)
0.49% 0.44% 0.93% 1.12% 0.92%
Nonperforming assets to loans and leases         
held for investment and foreclosed assets, net (1)
0.49% 0.47% 0.94% 1.21% 1.08%
Classified loans and leases held for investment to         
loans and leases held for investment (2)
0.93% 1.32% 1.65% 2.67% 2.74%
_______________________________________
(1)Amounts and ratios are for total loans and leases held for investment, net of deferred fees.
(2)Amounts and ratio related to 2019 and 2018 are for total loans and leases held for investment, net of deferred fees. Amounts related to 2017 and prior years are for Non-PCI loans and leases held for investment, net of deferred fees.
Nonaccrual Loans and Leases Held for Investment
During 2019,2021, nonaccrual loans and leases held for investment increaseddecreased by $13.0$30.0 million to $92.4$61.2 million at December 31, 20192021 due mainly to $79.9the sale of one security monitoring loan for $25.6 million, in nonaccrual additions, offset partially by $26.9charge-offs of $7.9 million, in charge-offstransfers to accrual status of $7.0 million, and $39.9 million in principal payments and other reductions.reductions of $59.0 million, offset partially by $69.4 million in additions. As of December 31, 2019,2021, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of $50.3$14.2 million and represented 54%23% of total nonaccrual loans and leases.leases.

82

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:
December 31, 2021December 31, 2020Increase (Decrease)
AccruingAccruingAccruing
and 30-89and 30-89and 30-89
Days PastDays PastDays Past
NonaccrualDueNonaccrualDueNonaccrualDue
(Dollars in thousands)
Real estate mortgage:
Commercial$27,540 $2,165 $43,731 $3,636 $(16,191)$(1,471)
Income producing and other residential12,292 39,929 1,826 600 10,466 39,329 
Total real estate mortgage39,832 42,094 45,557 4,236 (5,725)37,858 
Real estate construction and land:
Commercial— — 315 — (315)— 
Residential4,715 5,031 — 759 4,715 4,272 
Total real estate construction and land4,715 5,031 315 759 4,400 4,272 
Commercial:
Asset-based1,464 — 2,679 — (1,215)— 
Venture capital2,799 — 1,980 540 819 (540)
Other commercial11,950 630 40,243 2,078 (28,293)(1,448)
Total commercial16,213 630 44,902 2,618 (28,689)(1,988)
Consumer414 1,004 389 1,260 25 (256)
Total held for investment$61,174 $48,759 $91,163 $8,873 $(29,989)$39,886 
 Nonaccrual Loans and Leases Accruing and
 December 31, 2019 December 31, 2018 30 - 89 Days Past Due
   % of   % of December 31, December 31,
   Loan   Loan 2019 2018
 Balance Category Balance Category Balance Balance
 (Dollars in thousands)
Real estate mortgage:           
Commercial$18,346
 0.4% $15,321
 0.3% $1,735
 $3,276
Income producing and other residential2,478
 0.1% 2,524
 0.1% 2,094
 1,557
Total real estate mortgage20,824
 0.3% 17,845
 0.2% 3,829
 4,833
Real estate construction and land:           
Commercial364
 —% 442
 —% —
 —
Residential—
 —% —
 —% 1,429
 1,527
Total real estate construction and land364
 —% 442
 —% 1,429
 1,527
Commercial:           
Asset-based30,162
 0.8% 32,324
 1.0% 19
 47
Venture capital12,916
 0.6% 20,299
 1.0% —
 1,028
Other commercial27,594
 1.6% 7,380
 0.4% 2,258
 2,467
Total commercial70,672
 0.9% 60,003
 0.8% 2,277
 3,542
Consumer493
 0.1% 1,043
 0.3% 1,006
 581
Total held for investment$92,353
 0.5% $79,333
 0.4% $8,541
 $10,483
During 2021, loans accruing and 30-89 days past due increased by $39.9 million to $48.8 million at December 31, 2021 due primarily to a $39.3 million increase in past due loans in the income producing and other residential loan portfolio class, which was attributable mostly to increases of $20.0 million in past due purchased single-family residential mortgage loans and $16.1 million in past due business-purpose loans secured by for-rent residential properties and short-term bridge loans originated by Civic. The delinquency related to the purchased single-family residential mortgage loans was attributable to delayed payment applications stemming from servicing being transferred following our purchase of these loans.
Foreclosed Assets
The following table presents foreclosed assets (primarily OREO) by property type as of the dates indicated:
December 31,
Property Type202120202019
(In thousands)
Commercial real estate$12,594 $12,979 $221 
Construction and land development— 219 219 
Total OREO, net12,594 13,198 440 
Other foreclosed assets249 829 — 
Total foreclosed assets$12,843 $14,027 $440 
 December 31,
Property Type2019 2018 2017
 (In thousands)
Commercial real estate$221
 $2,004
 $64
Construction and land development219
 219
 219
Multi-family—
 1,059
 —
Single-family residence—
 953
 1,019
Total OREO, net440
 4,235
 1,302
Other foreclosed assets—
 1,064
 27
Total foreclosed assets$440
 $5,299
 $1,329
During 2019, foreclosed2021, foreclosed assets decreased by $4.9$1.2 million to $0.4$12.8 million at December 31, 20192021 due mainly to sales of $4.9$2.2 million, offset partially by additions of $1.1 million.

83

Performing TDRs Held for Investment
The following table presents our performing TDRs held for investment by loan portfolio segment as of the dates indicated:
December 31,
202120202019
NumberNumberNumber
ofofof
Performing TDRs
BalanceLoansBalanceLoansBalanceLoans
(Dollars in thousands)
Real estate mortgage$6,204 18 $6,631 20 $10,165 22 
Real estate construction and land1,428 1 1,451 1 1,470 1 
Commercial16,773 24 6,146 21 550 12 
Consumer25 1 26 1 72 2 
Total performing TDRs held for investment$24,430 44 $14,254 43 $12,257 37 
 December 31,
 2019 2018 2017
   Number   Number   Number
   of   of   of
Performing TDRs (1)
Balance Loans Balance Loans Balance Loans
 (Dollars in thousands)
Real estate mortgage$10,165
 22
 $11,484
 27
 $47,560
 23
Real estate construction and land1,470
 1
 5,420
 2
 5,690
 2
Commercial550
 12
 692
 6
 3,488
 11
Consumer72
 2
 105
 3
 100
 2
Total performing TDRs held for investment$12,257
 37
 $17,701
 38
 $56,838
 38

(1)Amounts related to 2019 and 2018 are for total loans and leases held for investment, net of deferred fees. Amounts related to 2017 are for Non-PCI loans and leases held for investment, net of deferred fees.
During 2019,2021, performing TDRs held for investment decreasedincreased by $5.4$10.2 million to $12.3$24.4 million at December 31, 20192021 due primarily to transfers from nonaccrual status to performing TDRs of $18.2 million and additions of $13.2 million, offset partially by transfers of performing TDRs to nonaccrual status of $0.5$8.0 million and principal payments and other reductions of $5.7 million, offset partially by additions of $0.5 million and transfers from nonaccrual status to performing TDRs of $0.3$13.2 million. The majority of the number of performing TDRs were on accrual status prior to the restructurings and have remained on accrual status after the restructurings due to the borrowers making payments before and after the restructurings.
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:
December 31,
Loan and Lease Credit Risk Ratings
202120202019
(Dollars in thousands)
Pass$22,433,833 $18,096,830 $18,348,004 
Special mention391,611 721,285 322,956 
Classified116,104 265,262 175,912 
Total loans and leases held for investment, net of deferred fees$22,941,548 $19,083,377 $18,846,872 
 December 31,
Loan and Lease Credit Risk Ratings (1)
2019 2018 2017
 (Dollars in thousands)
Pass$18,348,004
 $17,459,205
 $16,334,134
Special mention322,956
 261,398
 302,168
Classified175,912
 237,110
 278,405
Total loans and leases held for investment, net of deferred fees$18,846,872
 $17,957,713
 $16,914,707

(1)Amounts related to 2019 and 2018 are for total loans and leases held for investment, net of deferred fees. Amounts related to 2017 are for Non-PCI loans and leases held for investment, net of deferred fees.
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 2019, Both special mention and classified loans had significant increases in 2020 primarily as a result of proactively downgrading loans and leases increasedin the first quarter of 2020 due to the uncertainty surrounding the long-term economic effects of the COVID-19 pandemic. A high percentage of these downgrades were in industries more acutely impacted by $61.6 million to $323.0 million at December 31, 2019. This increase was due primarily to security monitoring special mention loans increasing to $163.1 million from $28.9 million, offset partially by otherthe COVID-19 pandemic such as hotels, commercial real estate special mention loans decreasing to $7.2 million from $32.8 million.aviation, and retail.
During 2019,2021, as economic conditions improved, classified loans and leases decreased by $61.2$149.2 million to $175.9$116.1 million at December 31, 2019. This decline was2021 due mainly to decreases of $65.9 million in other commercial classified loans, $42.6 million in commercial real estate construction and land classified loans, decreasing to $15.5$29.3 million from $44.5 million and security monitoringin commercial real estate mortgage classified loans, decreasingand $23.3 million in asset-based classified loans and leases, offset partially by an increase of $8.9 million in income producing and other residential real estate mortgage classified loans. Classified loans and leases peaked in the second quarter of 2020 at $293.2 million.




84

During 2021, as economic conditions improved, special mention loans and leases decreased by $329.7 million to $34.7$391.6 million from $54.6 million.at December 31, 2021 due primarily to decreases of $103.3 million in venture capital special mention loans, $75.0 million in asset-based special mention loans and leases, $70.7 million in commercial real estate mortgage special mention loans, $41.5 million in income producing and other residential special mention loans, and $39.9 million in commercial real estate construction and land special mention loans. Special mention loans and leases peaked in the first quarter of 2020 at $898.7 million in conjunction with our initial downgrades at the onset of the 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:
December 31, 2021December 31, 2020Increase (Decrease)
SpecialSpecialSpecial
ClassifiedMentionClassifiedMentionClassifiedMention
(In thousands)
Real estate mortgage:
Commercial$62,206 $191,809 $91,543 $262,462 $(29,337)$(70,653)
Income producing and other residential17,700 19,848 8,767 61,384 8,933 (41,536)
Total real estate mortgage79,906 211,657 100,310 323,846 (20,404)(112,189)
Real estate construction and land:
Commercial— 67,727 42,558 107,592 (42,558)(39,865)
Residential4,715 1,720 — 759 4,715 961 
Total real estate construction and land4,715 69,447 42,558 108,351 (37,843)(38,904)
Commercial:
Asset-based4,591 78,305 27,867 153,301 (23,276)(74,996)
Venture capital4,794 14,833 6,508 118,125 (1,714)(103,292)
Other commercial21,659 15,528 87,557 14,930 (65,898)598 
Total commercial31,044 108,666 121,932 286,356 (90,888)(177,690)
Consumer439 1,841 462 2,732 (23)(891)
Total$116,104 $391,611 $265,262 $721,285 $(149,158)$(329,674)



85

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 December 31, 2019,2021, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%. 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 December 31, 2019, such disallowed amounts were $195,000 for the Company and none 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 tierTier 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 tierTier 1, tierTier 1, and total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At December 31, 2019,2021, the Company and Bank were in compliance with the capital conservation buffer requirement.requirements.
The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the December 31, 2021 ratios include this election. This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2022. This cumulative amount will then be phased out of regulatory capital over the next three years from 2023 to 2025. The add-back as of December 31, 2021 ranged from 0 basis points to 10 basis points for the capital ratios below.
In the third quarter of 2021, approximately $131.0 million of trust preferred securities were reclassified from Tier II capital to Tier I capital due to a reassessment of the Basel III implementation rule that permitted the grandfathering of certain trust preferred securities as Tier I capital. Prior periods were not required to be revised for this change.
The following tables present a comparison of our actual capital ratios to the minimum required ratios and well capitalized ratios as of the dates indicated:
Minimum Required
For CapitalFor WellFor Capital
AdequacyCapitalizedConservation
ActualPurposesClassificationBuffer
December 31, 2021
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio6.84%4.00%N/AN/A
CET1 capital ratio8.86%4.50%N/A7.00%
Tier 1 capital ratio9.32%6.00%N/A8.50%
Total capital ratio12.69%8.00%N/A10.50%
Pacific Western Bank
Tier 1 leverage capital ratio7.00%4.00%5.00%N/A
CET1 capital ratio9.56%4.50%6.50%7.00%
Tier 1 capital ratio9.56%6.00%8.00%8.50%
Total capital ratio11.80%8.00%10.00%10.50%
86

   Minimum Required
     Plus Capital  
   For Capital Conservation For Well
   Adequacy Buffer Capitalized
 Actual Purposes Phase-In (1) Requirement
December 31, 2019       
PacWest Bancorp Consolidated       
Tier 1 capital (to average assets)9.74% 4.00% 4.00% N/A
CET1 capital (to risk weighted assets)9.78% 4.50% 7.00% N/A
Tier 1 capital (to risk weighted assets)9.78% 6.00% 8.50% N/A
Total capital (to risk weighted assets)12.41% 8.00% 10.50% N/A
        
Pacific Western Bank       
Tier 1 capital (to average assets)10.95% 4.00% 4.00% 5.00%
CET1 capital (to risk weighted assets)11.00% 4.50% 7.00% 6.50%
Tier 1 capital (to risk weighted assets)11.00% 6.00% 8.50% 8.00%
Total capital (to risk weighted assets)11.74% 8.00% 10.50% 10.00%
Minimum Required
For CapitalFor WellFor Capital
AdequacyCapitalizedConservation
ActualPurposesClassificationBuffer
December 31, 2020
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio8.55%4.00%N/AN/A
CET1 capital ratio10.53%4.50%N/A7.00%
Tier 1 capital ratio10.53%6.00%N/A8.50%
Total capital ratio13.76%8.00%N/A10.50%
Pacific Western Bank
Tier 1 leverage capital ratio9.53%4.00%5.00%N/A
CET1 capital ratio11.73%4.50%6.50%7.00%
Tier 1 capital ratio11.73%6.00%8.00%8.50%
Total capital ratio12.99%8.00%10.00%10.50%


   Minimum Required
     Plus Capital   Plus Capital
   For Capital Conservation For Well Conservation
   Adequacy Buffer Capitalized Buffer Fully
 Actual Purposes Phase-In (1) Requirement Phased-In
December 31, 2018         
PacWest Bancorp Consolidated         
Tier 1 capital (to average assets)10.13% 4.00% 4.000% N/A 4.00%
CET1 capital (to risk weighted assets)10.01% 4.50% 6.375% N/A 7.00%
Tier 1 capital (to risk weighted assets)10.01% 6.00% 7.875% N/A 8.50%
Total capital (to risk weighted assets)12.72% 8.00% 9.875% N/A 10.50%
          
Pacific Western Bank         
Tier 1 capital (to average assets)10.80% 4.00% 4.000% 5.00% 4.00%
CET1 capital (to risk weighted assets)10.68% 4.50% 6.375% 6.50% 7.00%
Tier 1 capital (to risk weighted assets)10.68% 6.00% 7.875% 8.00% 8.50%
Total capital (to risk weighted assets)11.44% 8.00% 9.875% 10.00% 10.50%
_______________________________________
(1)Ratios for December 31, 2019 reflect the minimum required plus the fully phased-in capital conservation buffer of 2.50%; ratios for December 31, 2018 reflect the minimum required plus capital conservation buffer phase-in for 2018 of 1.875%.
Subordinated DebenturesDebt
We issued or assumed through mergers subordinated debenturesdebt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. On April 30, 2021, the Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due May 1, 2031. For further information, see Note 12. Borrowings and Subordinated Debt in the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data."
The carrying value of subordinated debenturesdebt totaled $458.2$863.3 million at December 31, 2019.2021. At December 31, 2019, none2021, $131.0 million of the trust preferred securities were included in the Company's Tier I capital under the phase-out limitations of Basel III, and $444.5$718.2 million were included in Tier II capital. For a more detailed discussion of our subordinated debentures,debt, see "Item 1: Business - Supervision and Regulation - Capital Requirements."
Dividends on Common Stock and Interest on Subordinated DebenturesDebt
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 by us on subordinated debenturesdebt 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.

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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 $4.2$4.0 billion at December 31, 2019,2021, of which $2.9 billionall was available on that date. The FHLB secured credit line was collateralized by a blanket lien on $5.9$6.2 billion of certain qualifying loans. The Bank also had secured borrowing capacity with the FRBSF of $2.0$1.4 billion at December 31, 2019,2021, all of which was available on that date. The FRBSF secured credit line was collateralized by liens on $2.7$1.8 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 $141.0$112.0 million with the FHLB and $180.0 million in the aggregate with several correspondent banks. As of December 31, 2019,2021, there was a $141.0 millionno balance outstanding related to the FHLBthese unsecured linelines 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 December 31, 2019,2021, the Bank had borrowed $300.0 millionnothing through the AFX.
The following tables provide a summary of the Bank’s primary and secondary liquidity levels as of the dates indicated:
December 31,
Primary Liquidity - On-Balance Sheet202120202019
(Dollars in thousands)
Cash and due from banks$112,548 $150,464 $172,585 
Interest-earning deposits in financial institutions3,944,686 3,010,197 465,039 
Securities available-for-sale10,694,458 5,235,591 3,797,187 
Less: pledged securities(532,418)(449,330)(486,200)
Total primary liquidity$14,219,274 $7,946,922 $3,948,611 
Ratio of primary liquidity to total deposits40.6 %31.9 %20.5 %
 December 31,
Primary Liquidity - On-Balance Sheet2019 2018 2017
 (Dollars in thousands)
Cash and due from banks$172,585
 $175,830
 $233,215
Interest-earning deposits in financial institutions465,039
 209,937
 165,222
Securities available-for-sale3,797,187
 4,009,431
 3,774,431
Less: pledged securities(486,200) (458,143) (449,187)
Total primary liquidity$3,948,611
 $3,937,055
 $3,723,681
      
Ratio of primary liquidity to total deposits20.5% 20.9% 19.7%
Secondary Liquidity - Off-Balance SheetDecember 31,Secondary Liquidity - Off-Balance SheetDecember 31,
Available Secured Borrowing Capacity2019 2018 2017Available Secured Borrowing Capacity202120202019
(In thousands)(In thousands)
Total secured borrowing capacity with the FHLB$4,229,788
 $3,746,970
 $3,789,949
Total secured borrowing capacity with the FHLB$3,976,465 $3,330,715 $4,229,788 
Less: secured advances outstanding(1,318,000) (1,040,000) (332,000)Less: secured advances outstanding— (5,000)(1,318,000)
Available secured borrowing capacity with the FHLB2,911,788
 2,706,970
 3,457,949
Available secured borrowing capacity with the FHLB3,976,465 3,325,715 2,911,788 
Available secured borrowing capacity with the FRBSF1,988,028
 2,003,269
 1,766,188
Available secured borrowing capacity with the FRBSF1,380,191 1,409,452 1,988,028 
Total secondary liquidity$4,899,816
 $4,710,239
 $5,224,137
Total secondary liquidity$5,356,656 $4,735,167 $4,899,816 
During 2019,2021, the Company's primary liquidity increased by $11.6 million$6.3 billion to $3.9$14.2 billion at December 31, 20192021 due primarilymainly to a $255.1$5.5 billion increase in securities available-for-sale and a $934.5 million increase in interest-earning deposits in financial institutions, offset partially by a $212.2 million decrease in securities available-for-sale and a $28.1an $83.1 million increase in pledged securities. During 2019,2021, the Company's secondary liquidity increased by $189.6$621.5 million to $4.9$5.4 billion at December 31, 20192021 due mainlymostly to a $482.8$650.8 million increase in theavailable secured borrowing capacity on the secured credit line with the FHLB, offset partially by a $278.0 million increase in advances outstanding on that secured credit line and a $15.2$29.3 million decrease in theavailable borrowing capacity on the secured credit line with the FRBSF. The $650.8 million increase in available secured borrowing capacity with the FHLB resulted primarily from a $645.8 million increase in the borrowing capacity related to pledged loans and a $5.0 million decrease in the amount borrowed from the secured borrowing line with the FHLB was due primarily to an increase in loan collateral pledged for the facility.FHLB.

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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 customer deposits, defined as noninterest-bearing demand, interest checking, savings, and non-brokered money market accounts. At December 31, 2019,2021, core deposits totaled $16.2$32.7 billion and represented 84%93% 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.
Our deposit balances may decrease if interest rates increase significantly or if customers withdraw funds from the Bank. In order to address the Bank’s liquidity risk asfrom fluctuating deposit balances, may fluctuate, 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 December 31, 2019,2021, brokered deposits totaled $1.7$1.1 billion, consisting primarily of $1.2 billion of brokered time deposits and $496.4$890.0 million of non-maturity brokered accounts.accounts and $195.7 million of brokered time deposits. At December 31, 2018,2020, brokered deposits totaled $1.3 billion, consisting mainly of $729.4$1.1 billion of non-maturity brokered accounts and $195.7 million of brokered time deposits and $518.2 million of non-maturity brokered accounts.deposits.
Our liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Liquidity Buffer Coverage Ratio (the ratio of cash and unpledged securities to the estimated 30 day cash outflow in a defined stress scenario), Liquidity Stress Test Survival Horizon (the number of days that the Bank’s liquidity buffer plus available secured borrowing capacity is sufficient to offset cumulative cash outflow in a defined stress scenario), Loan to Funding Ratio (measurement of gross loans net of fees divided by deposits plus borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. As ofAt December 31, 2019, we were2021, the Bank was in compliance with all of our 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. OurPacWest'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 DBODFPI under their general supervisory authority as it relates to a bank’s capital requirements.authority. The Bank may declare a dividend without the approval of the DBODFPI 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'sBank had a cumulative net earningsloss of $155.3 million during the previous three fiscal years exceededof 2021, 2020, and 2019, compared to dividends of $776.0 million paid by the Bank during that same period by $34.8 million.period. During the year ended December 31, 2019,2021, PacWest received $336.0$182.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $490.6 million$1.5 billion at December 31, 2019,2021, for the foreseeable future any dividends from the Bank to the holding companyPacWest will continue to require DBODFPI and FDIC approval.approval consistent with what has been required since 2008 when the Bank first had an accumulated deficit triggered by goodwill impairment write-downs during the financial crisis of 2007-2008.
At December 31, 2019,2021, PacWest had $114.0$176.9 million in cash and cash equivalents, of which substantially all is on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months, including any stock repurchases pursuant to the Company'smonths.
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Stock Repurchase Programs
On February 12, 2020, PacWest's Board of Directors authorized a new Stock Repurchase Program which terminates onto purchase shares of its common stock for an aggregate purchase price not to exceed $200 million, effective February 28, 2021. See "- Recent Events -29, 2020. No shares were repurchased under the new Stock Repurchase Program prior to its expiration on " for additional information.February 28, 2021.
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.


Material Cash Requirements
Contractual Obligations
The following table summarizes the knownOur material contractual obligations of the Company as of the date indicated:
   Due After Due After    
 Due One Year Three Years Due  
 Within Through Through After  
December 31, 2019One Year Three Years Five Years Five Years Total
 (In thousands)
Time deposits (1)
$2,430,656
 $114,947
 $3,341
 $398
 $2,549,342
Short-term borrowings1,759,000
 —
 —
 —
 1,759,000
Long-term debt obligations (1)
8
 —
 —
 540,690
 540,698
Contractual interest (2)
14,530
 2,070
 117
 17
 16,734
Operating lease obligations33,221
 56,123
 37,278
 33,575
 160,197
Other contractual obligations83,320
 55,586
 9,937
 24,020
 172,863
Total$4,320,735
 $228,726
 $50,673
 $598,700
 $5,198,834
_______________________________________
(1)Excludes purchase accounting fair value adjustments.
(2)Excludes interest on subordinated debentures as these instruments are floating rate.

Operating lease obligations,are primarily for time deposits, subordinated debt, commitments to contribute capital to investments in LIHTC partnerships, SBICs and CRA-related loan pools, and operating lease obligations. At December 31, 2021, time deposits totaled $1.4 billion, of which $1.1 billion was due within one year. Gross subordinated debt obligations are discussed in Note 7. Premisestotaled $941.1 million, all of which was due after five years. Our liability to contribute capital to LIHTC partnerships was $170.7 million and Equipment, Net,our commitment to contribute capital to SBICs and CRA-related loan pools was $85.9 million for a combined total of $256.7 million, of which $94.2 million was due within one year. Our operating lease obligation for leased facilities totaled $153.5 million, of which $35.8 million was due within one year. For further information regarding these items, see Note 11. Deposits, and Note 12. Borrowings and Subordinated DebenturesDebt, Note 9. Other Assets, Note 14. Commitments and Contingencies, and Note 10. Leases of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.” 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 December 31, 2019,2021, our loan commitments and standby letters of credit were $8.2$9.0 billion and $355.5 million.$345.8 million, respectively. 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 13.14. Commitments and Contingencies of the Notes to Consolidated Financial Statements contained in “Item 8. Financial Statements and Supplementary Data.”
Recent Accounting Pronouncements
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” for information on recent accounting pronouncements and their expected impact, if any, on our consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk - Foreign Currency Exchange
We enter into foreign exchange contracts with our clients and counter-partycounterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps and foreign exchange forward contracts to hedge exposures to loans and debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar, and the derivative instrumentsderivatives that hedge those exposures. As of December 31, 2019,2021, the U.S. Dollar notional amounts of loans receivable and subordinated debenturesdebt payable denominated in foreign currencies were $60.6 million and $28.9was $29.3 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures were $62.0 million and $29.2was $28.5 million. We recognized foreign currency translation net gains of $0.2 million, $0.3 million,$296,000, $3,000, and $0.3 million$150,000 for the years ended December 31, 2019, 2018,2021, 2020, and 2017,2019, respectively.
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‑establishedpre-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 December 31, 2019,2021, the results of which are presented below. Our NII simulation and MVE model indicate that our balance sheet is asset-sensitive. An asset-sensitive profile would suggest that a sudden sustained increase in rates would result in an increase in our estimated NII and MVE, while a liability-sensitive profile would suggest that these amounts would decrease.
Net Interest Income Simulation
We used a NII simulation model to measure the estimated changes in NII that would result over the next 12 months from immediate and sustained changes in interest rates as of December 31, 2019.2021. This model is an interest rate risk management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth or changes in the product mix of either our total interest‑sensitiveinterest-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 December 31, 2019.2021. In order to arrive at the base case, we extend our balance sheet at December 31, 20192021 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of December 31, 2019.2021. Based on such repricing, we calculate an estimated tax equivalent NII and NIM for each rate scenario.


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The NII simulation model is dependent upon numerous assumptions. For example, the majority of our loans are variable rate whichthat are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (imbedded(embedded options) and the simulation model uses prepayment assumptions to estimate these prepaymentsaccelerated 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 December 31, 20192021 assumes interest-bearing deposits reprice at 34%31% 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‑bearingnoninterest-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our NII simulation model. ChangesAdditionally, 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 depositdeposit pricing, changes in the mix of our 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 as of December 31, 2021 and forward yield curve as of December 31, 2021 (which presumes three interest rate hikes in 2022) 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:
ForecastedForecastedForecasted
Forecasted Forecasted ForecastedNet InterestPercentageNet InterestNet Interest
Net Interest Percentage Net Interest Net InterestIncomeChangeMarginMargin Change
Income Change Margin Margin Change
December 31, 2019(Tax Equivalent) From Base (Tax Equivalent) From Base
December 31, 2021December 31, 2021(Tax Equivalent)From Base(Tax Equivalent)From Base
(Dollars in millions)(Dollars in millions)
Interest Rate Scenario:  Interest Rate Scenario:
Up 300 basis points$1,119.6
 16.4% 4.83% 0.68%Up 300 basis points$1,404.6 18.7%3.76%0.59%
Up 200 basis points$1,063.6
 10.6% 4.58% 0.43%Up 200 basis points$1,328.9 12.3%3.56%0.39%
Up 100 basis points$1,007.3
 4.7% 4.34% 0.19%Up 100 basis points$1,251.3 5.7%3.35%0.18%
BASE CASE$961.8
 — 4.15% —BASE CASE$1,183.4 —3.17%
Down 25 basis points$955.1
 (0.7)% 4.12% (0.03)%Down 25 basis points$1,180.6 (0.2)%3.16%(0.01)%
Down 50 basis points$948.5
 (1.4)% 4.09% (0.06)%Down 50 basis points$1,156.3 (2.3)%3.10%(0.07)%
Down 100 basis points$931.3
 (3.2)% 4.01% (0.14)%Down 100 basis points$1,136.4 (4.0)%3.04%(0.13)%
During 2019,2021, total base case year 1 tax equivalent NII decreasedincreased by $86.9$159.2 million to $961.8 million at December 31, 2019 compared to $1.05$1.2 billion at December 31, 2018. This decrease2021 and the base case tax equivalent NIM decreased to 3.17% from 3.87%. The increase in year 1 NII compared to December 31, 2020 was due mainly to a $184.8 million increase in interest income attributable to higher average balances of loans and leases and investment securities, offset partially by a lower loan portfolio yield$25.6 million increase in interest expense due to a higher average balance of deposits and an increasea higher average balance of subordinated debt attributable to the $400 million of subordinated notes issued by the Bank on April 30, 2021. The decrease in the NIM was due mostly to the change in the mix of interest-bearinginterest-earning assets to lower yielding interest-earnings deposits in financial institutions and investment securities from higher yielding loans and leases, as well as to noninterest-bearing deposits, offset partially by higher loan volumelower yields on investment securities and a decrease in the cost of funds.loans and leases.
In addition to parallel interest rate shock scenarios, we also model various alternative rate vectors that are viewed as more likely to occur in a typical monetary policy tightening cycle.vectors. The most favorable alternate rate vector that we model is the “Bear Flattener”Flattener Severe” scenario, when short-term rates increase faster than long-term rates, and the least favorable alternate rate vector that we model is the “Ramped Sharp Decrease,” a 200 basis point decrease over a 24 month period with semiannual rate adjustments.rates. In the “Bear Flattener”Flattener Severe” scenario, Year 1 tax equivalent NII increases increases by 7.0%,2.3%. Because of the low level of market interest rates and in the “Ramped Sharp Decrease” scenario, Year 1 tax equivalent NII decreases by 1.3%.assumption that market rates contain a 0% floor, the ad hoc scenarios that assume decreasing interest rates do not differ materially from the base case scenario.



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At December 31, 2019,2021, we had $18.9$23.0 billion of total gross loans that included $11.3$10.9 billion with variable interest rate terms (excluding hybrid loans discussed below). Of the variable interest rate loans, $7.6$9.2 billion, or 68%84%, contained interest rate floor provisions, which included $3.0$8.5 billion of loans with "in-the-money" loans,floors, meaning the loan coupon will not adjust down if there are future decreases to the index interest rate. The cumulative amountfollowing table summarizes the estimated balance of loans with "in-the-money" floors for assumed additional market rate decreases are as follows:
the indicated increases in interest rates:
December 31, 20192021
Total Amount of
Loans With
Basis Points of"In-the-Money"
Rate DecreasesIncreasesLoan Floors
(Dollars in millions)
50 bps$4,4724,746
100 bps$6,2063,166
150 bps$7,3982,376
200 bps$7,6071,466
250 bps$7,610815
At December 31, 2019,2021, we also had $4.0$4.2 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-ratefixed rate to variable-ratevariable rate because the initial fixed-rate term would expire were approximately $647 million, $1.0$0.6 billion, $0.9 billion, and $1.5$1.2 billion in the next one, two, and three years.
LIBOR is expected to be phased out after 2021, and,in 2023, as such the Company is assessing the impactsstopped 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 debentures,debt, both of which are indexed to LIBOR. For further information see Item 1A. Risk Factors.
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‑balanceoff-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‑sensitiveinterest-sensitive financial instruments that would occur in response to an instantaneous and sustained increase or decrease in market interest rates of 100, 200, and 300 basis points and sustained decrease in market interest rates of 25, 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‑lookingforward-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‑balanceoff-balance sheet items existing at December 31, 2019.2021.

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The following table shows the projected change in the market value of equity for the rate scenarios presented as of the date indicated:
Ratio of
    Ratio ofProjectedDollarPercentagePercentageProjected
Projected Dollar Percentage Percentage ProjectedMarket ValueChangeChangeof TotalMarket Value
Market Value Change Change of Total Market Value
December 31, 2019of Equity From Base From Base Assets to Book Value
December 31, 2021December 31, 2021of EquityFrom BaseFrom BaseAssetsto Book Value
(Dollars in millions)(Dollars in millions)
Interest Rate Scenario:    Interest Rate Scenario:
Up 300 basis points$7,964.5
 $600.6
 8.2% 29.8% 160.7%Up 300 basis points$10,121.7 $1,449.8 16.7%25.0%253.1%
Up 200 basis points$7,799.0
 $435.0
 5.9% 29.1% 157.4%Up 200 basis points$9,788.9 $1,117.0 12.9%24.2%244.7%
Up 100 basis points$7,615.3
 $251.4
 3.4% 28.4% 153.7%Up 100 basis points$9,325.1 $653.2 7.5%23.1%233.1%
BASE CASE$7,363.9
 $—
 — 27.5% 148.6%BASE CASE$8,671.8 $— —21.4%216.8%
Down 25 basis pointsDown 25 basis points$8,474.3 $(197.6)(2.3)%21.0%211.9%
Down 50 basis pointsDown 50 basis points$8,278.9 $(392.9)(4.5)%20.5%207.0%
Down 100 basis points$7,063.6
 $(300.4) (4.1)% 26.4% 142.6%Down 100 basis points$7,898.6 $(773.2)(8.9)%19.5%197.5%
Down 200 basis points$6,590.1
 $(773.9) (10.5)% 24.6% 133.0%
Down 300 basis points$6,120.8
 $(1,243.2) (16.9)% 22.9% 123.5%
During 2019,2021, total base case projected market value of equity increased by $1.9$2.9 billion to $7.4$8.7 billion at December 31, 2019 compared to $5.5 billion at December 31, 2018. The overall MVE sensitivity reflects a more asset-sensitive profile. The increase in asset sensitivity of MVE is due to revised deposit attrition and pricing models implemented during 2019, which reflect longer deposit account average life and lower deposit pricing betas than the models used previously. The $1.9 billion2021. This increase in base case projected MVE was due primarily to: (1) a $1.2$2.4 billion increase in the mark-to-market adjustment for loans and leases due to decreased credit spreads used for loan valuation and price appreciation from the decreases in market interest rates, (2) a $580 million decrease in the mark-to-market adjustment for total deposits, due to the longer average lifeborrowings, and lower pricing beta assumed in the new deposit models,subordinated debt; and (3)(2) a $129$404.7 million increase in the book value of stockholders' equity due mainly to $469$607.0 million in net earnings, offset partially by $119.4 million of cash dividends paid and an $85a $106.6 million increasedecrease in accumulated other comprehensive income,income; offset partially by $155(3) a $149.4 million of common stock repurchased underincrease in the Stock Repurchase Programmark-to-market adjustment for loans and $289 million of cash dividends paid.leases.




94

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Contents
Management’s Report on Internal Control Over Financial Reporting
9196
Report of Independent Registered Public Accounting Firm
9297
Consolidated Balance Sheets as of December 31, 20192021 and 20182020
95101
Consolidated Statements of Earnings (Loss) for the Years Ended December 31, 2019, 2018,2021, 2020, and 20172019
96102
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2018,2021, 2020, and 20172019
97103
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2018,2021, 2020, and 20172019
98104
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018,2021, 2020, and 20172019
99105
Notes to Consolidated Financial Statements
101107

95

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of PacWest Bancorp, including its consolidated subsidiaries, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements in accordance with U.S. generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management maintains a comprehensive system of controls intended to ensure that transactions are executed in accordance with management’s authorization, assets are safeguarded, and financial records are reliable. Management also takes steps to see that information and communication flows are effective and to monitor performance, including performance of internal control procedures.
As of December 31, 2019,2021, PacWest Bancorp management assessed the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2019,2021, is effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements should they occur. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the control procedures may deteriorate.
On February 1, 2021, the Company acquired Civic Financial Services, LLC. As a result, $1.4 billion of loans, $6.8 million of allowance for credit losses, $74.1 million of loan servicing accounts receivable and $4.9 million of accrued interest receivable included in other assets, and $59.3 million of loan interest income in the Company’s consolidated financial statements as of and for the period ended December 31, 2021 have been excluded from management’s assessment of internal control over financial reporting of the Company as of December 31, 2021.
KPMG LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements included in this Annual Report on Form 10‑K, has issued a report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019.2021. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019,2021, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm.”


96

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
PacWest Bancorp:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of PacWest Bancorp and subsidiaries (the Company) as of December 31, 20192021 and 2018,2020, the related consolidated statements of earnings (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2019,2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2019,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019,2021, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired Civic Financial Services, LLC during 2021, and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2021, Civic Financial Services, LLC's internal control over financial reporting associated with $1.4 billion of loans, $6.8 million of allowance for credit losses, $74.1 million of loan servicing accounts receivable and $4.9 million of accrued interest receivable included in other assets, and $59.3 million of loan interest income included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Civic Financial Services, LLC.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of Accounting Standards Update 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Overover Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
97

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of the allowance for loancredit losses for loans and lease losses related to loansleases collectively evaluated for impairment
As discussed in Note 1 to the consolidated financial statements, the Company’s allowance for credit losses for loans and leases collectively evaluated is the combination of an allowance for loan and lease losses collectively evaluated (reserve on pooled loans and leases) and the reserve for unfunded loan commitments (collective ACL). As discussed in Note 5 to the consolidated financial statements, the Company’s total allowance for loancredit losses as of December 31, 2021 was $273.6 million, of which $271.0 million related to the collective ACL (the collective ACL). The collective ACL is measured with the current expected credit loss (CECL) approach for financial instruments measured at amortized cost and leaseother commitments to extend credit which share similar risk characteristics and reflects losses related toover 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 loss experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. The Company’s CECL methodology for the reserve on pooled loans and leases collectively evaluated for impairment (general reserve) is calculated and updated on a quarterly basis. The Company’s general reservecomponent includes both quantitative and qualitative loss factors. At December 31, 2019,factors which are applied to the Company’s general reserve was $132.6 million.population of loans and leases and assessed at a pool level. The Company’s methodology for estimatingCompany estimates the quantitative loss factors includes a probability of default (PD) during the reasonable and supportable period using econometric regression models developed to correlate macroeconomic variables to historical credit performance. The loans and unfunded commitments are grouped into loss given default (LGD) which are appliedpools based on portfolio classes that share similar collateral risk characteristics. LGD rates are computed based on the net charge-offs recognized divided by the exposure at default (EAD) of defaulted loans. The Company estimates the reserve for unfunded loan typecommitments using the same PD, LGD, and credit-risk ratingsprepayment rates as used for the reserve on pooled loans collectively evaluatedand leases. The reserve for impairment.unfunded loan commitments is computed using expected future utilization rates of the unfunded commitments during the contractual life of the commitments based on historical usage of unfunded commitments by loan pool. For the reasonable and supportable forecast period, future macroeconomic events and
98

circumstances are estimated using a single scenario economic forecast that is consistent with the Company’s current expectations for the loan pools. The EAD is multiplied by the PD and LGD rates to calculate expected losses through the end of the forecast period. The Company then reverts on a straight-line basis from the PD, LGD and prepayment rates used during the reasonable and supportable period to the Company’s generalhistorical PD, LGD and prepayment experience. The qualitative portion of the reserve methodology also includes a qualitative component.on pooled loans and leases represents the Company’s judgment of additional considerations to account for internal and external risk factors that are not adequately measured in the quantitative reserve, including consideration of idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other relevant factors to ensure the collective ACL reflects the Company’s best estimate of current expected credit losses.
We identified the assessment of the general reservecollective ACL as a critical audit matter because the significant measurement uncertainty requiredmatter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment. Specifically, the assessment encompassed the evaluation of the collective ACL methodology, including the methods and industry knowledgemodels used to estimate the PD, LGD, prepayments and experience.their significant assumptions, including the pooling of loans and leases which share similar risk characteristics, the economic forecast and macroeconomic events and circumstances, the reasonable and supportable forecast period, the reversion to the Company’s historical PD, LGD and prepayment experience for the remaining contractual life of the loans and leases, internal risk ratings for commercial loans, and the qualitative loss factors and their significant assumptions, including the idiosyncratic risk factors. The assessment included an evaluation of the conceptual soundness of the PD, LGD, and prepayment models. The assessment also encompassed the determination of expected future utilization rates on unfunded loan commitments utilized in the reserve for unfunded loan commitments. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained. The assessment of the general reserve encompassed the evaluation of the methodologies, inputs, and assumptions used to estimate the general reserve. This included assessing the PD/LGD methodology; the key inputs and assumptions, including segmentation, look-back period, loss emergence period, the credit risk ratings (non-consumer loan portfolio segments); and the qualitative loss factors.

The following are the primary procedures we performed to address this critical audit matter includedmatter. We evaluated the following. Wedesign and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimate, including controls over the the:
•development and approval of the general reservecollective ACL methodology
•development of the PD, LGD and prepayment models
•identification and determination of key inputsthe significant assumptions used in the PD, LGD and assumptionsprepayment models used to calculate the general reserve, andcollective ACL
•development of the qualitative loss factors, including the significant assumptions used in the measurement of the qualitative factors
•development of the expected future utilization rates of unfunded loan commitments
•analysis of the Company’s allowance for loan and lease lossescollective ACL results, trends and ratios.
We testedevaluated the Company’s process to develop the general reserve. Specifically, we tested thecollective ACL estimate by testing certain sources of data, factors, and assumptions that the Company used, by considering whether they are relevant and reliable,considered the relevance and whether additionalreliability of such data, factors and alternative assumptions should be used. We tested, with the assistance ofassumptions. In addition, we involved credit risk professionals with specialized skills and industry knowledge, and experience,who assisted in the following:
–the general reserve methodology’s ability to produce an estimate in compliance with U.S. generally accepted accounting principles,
–the determination of the loan segmentation, look-back period, and loss emergence period, by comparing these inputs and assumptions to the Company’s historical loss information, internal policies and procedures, external metrics, and portfolio risk characteristics,
–the credit risk ratings across the non-consumer loan portfolio segments for a selection of loans based on knowledge of the Company’s credit policies and industry expertise, and
–the evaluation of the methodology used to develop the resulting qualitative loss factors and the effect of those factors on the ALLL compared with both internal and external credit factors and consistency with credit trends.
We evaluated•evaluating the collective resultsACL methodology for compliance with U.S. generally accepted accounting principles
•evaluating judgments made by the Company relative to the development and performance of the procedures performedPD, LGD, and prepayment models by comparing them to assessrelevant Company-specific metrics and trends and the applicable industry and regulatory practices
•assessing the conceptual soundness and performance of the PD, LGD and prepayment models by inspecting the model documentation to determine whether the models are suitable for their intended use
•evaluating the selection of the economic forecast and underlying assumptions by comparing them to relevant Company-specific metrics and trends and the applicable industry and regulatory practices
99

•evaluating the economic forecast and macroeconomic events and circumstances through comparison to publicly available forecasts
•evaluating the length of the historical observation period, reasonable and supportable forecast period, and reversion period by comparing them to specific portfolio risk characteristics and trends
•determining whether the loan and lease portfolio is pooled by similar risk characteristics by comparing to the Company’s business environment and relevant industry practices
•evaluating individual internal risk ratings for a selection of commercial loans by evaluating the financial performance of the borrower, sources of repayment, and any relevant guarantees or underlying collateral
•evaluating the methodology used to develop the qualitative loss factors and their significant assumptions, and the effect of those factors on the collective ACL compared with relevant credit risk factors and consistency with credit trends and identified limitations of the underlying quantitative models
•evaluating the methodology of the expected future utilization rates of unfunded loan commitments by comparing them to relevant Company-specific metrics and trends.
We also assessed the sufficiency of the audit evidence obtained related to the Company’s allowance for loan and lease losses.collective ACL by evaluating the:

•cumulative results of the audit procedures

•qualitative aspects of the Company’s accounting practices
•potential bias in the accounting estimate.

/s/ KPMG LLP
We have served as the Company's auditor for the Company or its predecessors since 1982.
Irvine, California
February 27, 202028, 2022




100

PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 December 31,
20212020
 (Dollars in thousands, except par value amounts)
ASSETS:
Cash and due from banks$112,548 $150,464 
Interest-earning deposits in financial institutions3,944,686 3,010,197 
Total cash and cash equivalents4,057,234 3,160,661 
Securities available-for-sale, at fair value10,694,458 5,235,591 
Federal Home Loan Bank stock, at cost17,250 17,250 
Total investment securities10,711,708 5,252,841 
Gross loans and leases held for investment23,026,308 19,153,357 
Deferred fees, net(84,760)(69,980)
Allowance for loan and lease losses(200,564)(348,181)
Total loans and leases held for investment, net22,740,984 18,735,196 
Equipment leased to others under operating leases339,150 333,846 
Premises and equipment, net46,740 39,234 
Foreclosed assets, net12,843 14,027 
Goodwill1,405,736 1,078,670 
Core deposit and customer relationship intangibles, net44,957 23,641 
Other assets1,083,992 860,326 
Total assets$40,443,344 $29,498,442 
LIABILITIES:  
Noninterest-bearing deposits$14,543,133 $9,193,827 
Interest-bearing deposits20,454,624 15,746,890 
Total deposits34,997,757 24,940,717 
Borrowings— 5,000 
Subordinated debt863,283 465,812 
Accrued interest payable and other liabilities582,674 491,962 
Total liabilities36,443,714 25,903,491 
Commitments and contingencies00
STOCKHOLDERS' EQUITY:
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 December 31, 2021 and 2020,
122,105,853 and 120,736,834 shares issued, respectively, includes 2,312,080 and 1,608,126
shares of unvested restricted stock, respectively)1,221 1,207 
Additional paid-in capital3,013,399 3,100,633 
Retained earnings1,016,350 409,391 
Treasury stock, at cost (2,520,999 and 2,321,981 shares at December 31, 2021 and 2020)(97,308)(88,803)
Accumulated other comprehensive income, net65,968 172,523 
Total stockholders' equity3,999,630 3,594,951 
Total liabilities and stockholders' equity$40,443,344 $29,498,442 
 December 31,
 2019 2018
 (Dollars in thousands, except par value amounts)
ASSETS:   
Cash and due from banks$172,585
 $175,830
Interest-earning deposits in financial institutions465,039
 209,937
Total cash and cash equivalents637,624
 385,767
Securities available-for-sale, at fair value3,797,187
 4,009,431
Federal Home Loan Bank stock, at cost40,924
 32,103
Total investment securities3,838,111
 4,041,534
Gross loans and leases held for investment18,910,740
 18,026,365
Deferred fees, net(63,868) (68,652)
Allowance for loan and lease losses(138,785) (132,472)
Total loans and leases held for investment, net18,708,087
 17,825,241
Equipment leased to others under operating leases324,084
 292,677
Premises and equipment, net38,585
 34,661
Foreclosed assets, net440
 5,299
Goodwill2,548,670
 2,548,670
Core deposit and customer relationship intangibles, net38,394
 57,120
Other assets636,811
 540,385
Total assets$26,770,806
 $25,731,354
    
LIABILITIES:   
Noninterest-bearing deposits$7,243,298
 $7,888,915
Interest-bearing deposits11,989,738
 10,981,586
Total deposits19,233,036
 18,870,501
Borrowings1,759,008
 1,371,114
Subordinated debentures458,209
 453,846
Accrued interest payable and other liabilities365,856
 210,305
Total liabilities21,816,109
 20,905,766
    
Commitments and contingencies


 


    
STOCKHOLDERS' EQUITY:   
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 December 31, 2019 and 2018;   
121,890,008 and 125,079,705 shares issued, respectively, includes 1,513,197 and 1,344,656   
shares of unvested restricted stock, respectively)1,219
 1,251
Additional paid-in capital3,306,006
 3,722,723
Retained earnings1,652,248
 1,182,674
Treasury stock, at cost (2,108,403 and 1,889,872 shares at December 31, 2019 and 2018)(83,434) (74,985)
Accumulated other comprehensive income (loss), net78,658
 (6,075)
Total stockholders' equity4,954,697
 4,825,588
Total liabilities and stockholders' equity$26,770,806
 $25,731,354

See accompanying Notes to Consolidated Financial Statements.

101

PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(LOSS)
Year Ended December 31, Year Ended December 31,
2019 2018 2017 202120202019
(Dollars in thousands, except per share amounts) (Dollars in thousands, except per share amounts)
Interest income:     Interest income:
Loans and leases$1,097,845
 $1,047,969
 $952,771
Loans and leases$996,457 $993,138 $1,097,845 
Investment securities115,569
 111,619
 98,202
Investment securities153,468 106,770 115,569 
Deposits in financial institutions6,479
 2,082
 1,543
Deposits in financial institutions8,804 3,583 6,479 
Total interest income1,219,893
 1,161,670
 1,052,516
Total interest income1,158,729 1,103,491 1,219,893 
Interest expense:     Interest expense:
Deposits148,460
 80,140
 45,694
Deposits27,808 59,663 148,460 
Borrowings26,961
 11,985
 3,638
Borrowings623 8,161 26,961 
Subordinated debentures29,843
 28,631
 23,613
Subordinated debtSubordinated debt26,474 21,109 29,843 
Total interest expense205,264
 120,756
 72,945
Total interest expense54,905 88,933 205,264 
Net interest income1,014,629
 1,040,914
 979,571
Net interest income1,103,824 1,014,558 1,014,629 
Provision for credit losses22,000
 45,000
 57,752
Provision for credit losses(162,000)339,000 22,000 
Net interest income after provision for credit losses992,629
 995,914
 921,819
Net interest income after provision for credit losses1,265,824 675,558 992,629 
Noninterest income:     Noninterest income:
Other commissions and fees43,623
 45,543
 41,422
Other commissions and fees42,287 40,347 43,623 
Leased equipment income38,727
 37,881
 37,700
Leased equipment income45,746 43,628 38,727 
Service charges on deposit accounts14,637
 16,509
 15,307
Service charges on deposit accounts13,269 10,351 14,637 
Gain on sale of loans and leases1,114
 4,675
 6,197
Gain on sale of loans and leases1,733 2,139 1,114 
Gain (loss) on sale of securities25,445
 8,176
 (541)
Gain on sale of securitiesGain on sale of securities1,615 13,171 25,445 
Dividends and gains (losses) on equity investmentsDividends and gains (losses) on equity investments23,115 14,984 (567)
Warrant incomeWarrant income49,341 10,609 8,669 
Other income19,016
 35,851
 28,488
Other income16,821 10,831 10,914 
Total noninterest income142,562
 148,635
 128,573
Total noninterest income193,927 146,060 142,562 
Noninterest expense:     Noninterest expense:
Compensation285,862
 282,568
 266,567
Compensation368,450 271,494 285,862 
Occupancy57,407
 53,223
 48,863
Occupancy58,422 57,555 57,407 
Leased equipment depreciationLeased equipment depreciation35,755 28,865 24,016 
Data processing27,556
 27,225
 26,575
Data processing30,277 26,779 27,556 
Leased equipment depreciation24,016
 21,371
 20,767
Insurance and assessmentsInsurance and assessments17,365 22,625 16,404 
Other professional servicesOther professional services21,492 19,917 17,803 
Customer related expenseCustomer related expense20,504 17,532 13,839 
Intangible asset amortization18,726
 22,506
 14,240
Intangible asset amortization12,734 14,753 18,726 
Other professional services17,803
 21,952
 17,353
Insurance and assessments16,404
 20,705
 19,733
Customer related expense13,839
 10,353
 8,297
Loan expense12,931
 10,569
 13,832
Loan expense17,031 13,454 12,931 
Acquisition, integration and reorganization costs349
 1,770
 19,735
Acquisition, integration and reorganization costs9,415 1,060 349 
Foreclosed assets (income) expense, net(3,555) (751) 1,702
Foreclosed assets income, netForeclosed assets income, net(213)(17)(3,555)
Goodwill impairmentGoodwill impairment— 1,470,000 — 
Other expense30,913
 39,741
 37,997
Other expense46,185 40,002 30,913 
Total noninterest expense502,251
 511,232
 495,661
Total noninterest expense637,417 1,984,019 502,251 
Earnings before income taxes632,940
 633,317
 554,731
Earnings (loss) before income taxesEarnings (loss) before income taxes822,334 (1,162,401)632,940 
Income tax expense164,304
 167,978
 196,913
Income tax expense215,375 75,173 164,304 
Net earnings$468,636
 $465,339
 $357,818
Net earnings (loss)Net earnings (loss)$606,959 $(1,237,574)$468,636 
     
Earnings per share:     
Earnings (loss) per share:Earnings (loss) per share:
Basic$3.90
 $3.72
 $2.91
Basic$5.10 $(10.61)$3.90 
Diluted$3.90
 $3.72
 $2.91
Diluted$5.10 $(10.61)$3.90 
See accompanying Notes to Consolidated Financial Statements.

102

PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Net earnings$468,636
 $465,339
 $357,818
Other comprehensive income (loss), net of tax:     
Unrealized net holding gains (losses) on securities available-for-sale     
arising during the year143,019
 (52,559) 42,190
Income tax (expense) benefit related to net unrealized holding gains     
(losses) arising during the year(40,058) 15,015
 (17,481)
Unrealized net holding gains (losses) on securities available-for-sale,     
net of tax102,961
 (37,544) 24,709
Reclassification adjustment for net (gains) losses included in net earnings (1)
(25,445) (8,176) 541
Income tax expense (benefit) related to reclassification adjustment7,217
 2,338
 (61)
Reclassification adjustment for net (gains) losses included in     
net earnings, net of tax(18,228) (5,838) 480
Other comprehensive income (loss), net of tax84,733
 (43,382) 25,189
Comprehensive income$553,369
 $421,957
 $383,007
Year Ended December 31,
202120202019
(In thousands)
Net earnings (loss)$606,959 $(1,237,574)$468,636 
Other comprehensive income (loss), net of tax:
Unrealized net holding (losses) gains on securities available-for-sale
arising during the year(146,066)142,696 143,019 
Income tax benefit (expense) related to net unrealized holding gains
(losses) arising during the year40,677 (39,335)(40,058)
Unrealized net holding (losses) gains on securities available-for-sale,
net of tax(105,389)103,361 102,961 
Reclassification adjustment for net gains included in net earnings (1)
(1,615)(13,171)(25,445)
Income tax expense related to reclassification adjustment449 3,675 7,217 
Reclassification adjustment for net gains included in
net earnings, net of tax(1,166)(9,496)(18,228)
Other comprehensive income (loss), net of tax(106,555)93,865 84,733 
Comprehensive income (loss)$500,404 $(1,143,709)$553,369 

(1)
(1)Entire amount recognized in "Gain on sale of securities" on the Consolidated Statements of Earnings (Loss).Gain (loss) on sale of securities" on the Consolidated Statements of Earnings.



See accompanying Notes to Consolidated Financial Statements.

103

PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common StockAccumulated
Common Stock     Accumulated  AdditionalOther
    Additional     Other  ParPaid-inRetainedTreasuryComprehensive
  Par Paid-in Retained Treasury Comprehensive   SharesValueCapitalEarningsStockIncome (Loss)Total
Shares Value Capital Earnings Stock Income (Loss) Total (Dollars in thousands)
(Dollars in thousands)
Balance, December 31, 2016121,283,669
 $1,228
 $4,162,132
 $366,073
 $(56,360) $5,982
 $4,479,055
Cumulative effect of change in             
accounting principle (1)
—
 —
 711
 (420) —
 —
 291
Net earnings—
 —
 —
 357,818
 —
 —
 357,818
Other comprehensive income—
 —
 —
 —
 —
 25,189
 25,189
Issuance of common stock for             
acquisition of CU Bancorp9,298,451
 93
 446,140
 —
 —
 —
 446,233
Restricted stock awarded and             
earned stock compensation,             
net of shares forfeited470,855
 5
 25,563
 —
 —
 —
 25,568
Restricted stock surrendered(188,870)       (9,476)   (9,476)
Common stock repurchased under             
Stock Repurchase Program(2,081,227) (21) (99,656) —
 —
 —
 (99,677)
Cash dividends paid:             
Common stock, $2.00/share—
 —
 (247,403) —
 —
 —
 (247,403)
Balance, December 31, 2017128,782,878
 1,305
 4,287,487
 723,471
 (65,836) 31,171
 4,977,598
Cumulative effect of changes in             
accounting principles (2)
—
 —
 —
 (6,136) —
 6,136
 —
Net earnings—
 —
 —
 465,339
 —
 —
 465,339
Other comprehensive loss—
 —
 —
 —
 —
 (43,382) (43,382)
Restricted stock awarded and             
earned stock compensation,             
net of shares forfeited437,831
 4
 29,764
 —
 —
 —
 29,768
Restricted stock surrendered(181,642) —
 —
 —
 (9,149) —
 (9,149)
Common stock repurchased under             
Stock Repurchase Program(5,849,234) (58) (306,335) —
 —
 —
 (306,393)
Cash dividends paid:             
Common stock, $2.30/share—
 —
 (288,193) —
 —
 —
 (288,193)
Balance, December 31, 2018123,189,833
 1,251
 3,722,723
 1,182,674
 (74,985) (6,075) 4,825,588
Balance, December 31, 2018123,189,833 $1,251 $3,722,723 $1,182,674 $(74,985)$(6,075)$4,825,588 
Cumulative effect of change in             Cumulative effect of change in
accounting principle (3)
—
 —
 —
 938
 —
 —
 938
accounting principles (1)
accounting principles (1)
— — — 938 — — 938 
Net earnings—
 —
 —
 468,636
 —
 —
 468,636
Net earnings— — — 468,636 — — 468,636 
Other comprehensive income
—
 —
 —
 —
 —
 84,733
 84,733
Other comprehensive income— — — — — 84,733 84,733 
Restricted stock awarded and             Restricted stock awarded and
earned stock compensation,             earned stock compensation,
net of shares forfeited798,248
 8
 26,807
 —
 —
 —
 26,815
net of shares forfeited798,248 8 26,807 — — — 26,815 
Restricted stock surrendered(218,531) —
 —
 —
 (8,449) —
 (8,449)Restricted stock surrendered(218,531)(8,449)(8,449)
Common stock repurchased under             Common stock repurchased under
Stock Repurchase Program(3,987,945) (40) (154,476) —
 —
 —
 (154,516)Stock Repurchase Program(3,987,945)(40)(154,476)— — — (154,516)
Cash dividends paid:             Cash dividends paid:
Common stock, $2.40/share—
 —
 (289,048) —
 —
 —
 (289,048)Common stock, $2.40/share— — (289,048)— — — (289,048)
Balance, December 31, 2019119,781,605
 $1,219
 $3,306,006
 $1,652,248
 $(83,434) $78,658
 $4,954,697
Balance, December 31, 2019119,781,605 1,219 3,306,006 1,652,248 (83,434)78,658 4,954,697 
Cumulative effect of change inCumulative effect of change in
accounting principle (2)
accounting principle (2)
— — — (5,283)— — (5,283)
Net lossNet loss— — — (1,237,574)— — (1,237,574)
Other comprehensive incomeOther comprehensive income— — — — — 93,865 93,865 
Restricted stock awarded andRestricted stock awarded and
earned stock compensation,earned stock compensation,
net of shares forfeitednet of shares forfeited800,537 8 24,355 — — — 24,363 
Restricted stock surrenderedRestricted stock surrendered(213,578)— — — (5,369)— (5,369)
Common stock repurchased underCommon stock repurchased under
Stock Repurchase ProgramStock Repurchase Program(1,953,711)(20)(69,980)— — — (70,000)
Cash dividends paid:Cash dividends paid:
Common stock, $1.35/shareCommon stock, $1.35/share— — (159,748)— — — (159,748)
Balance, December 31, 2020Balance, December 31, 2020118,414,853 1,207 3,100,633 409,391 (88,803)172,523 3,594,951 
Net earningsNet earnings— — — 606,959 — — 606,959 
Other comprehensive lossOther comprehensive loss— — — — — (106,555)(106,555)
Restricted stock awarded andRestricted stock awarded and
earned stock compensation,earned stock compensation,
net of shares forfeitednet of shares forfeited1,369,019 14 32,209 — — — 32,223 
Restricted stock surrenderedRestricted stock surrendered(199,018)— — — (8,505)— (8,505)
Cash dividends paid:Cash dividends paid:
Common stock, $1.00/shareCommon stock, $1.00/share— — (119,443)— — — (119,443)
Balance, December 31, 2021Balance, December 31, 2021119,584,854 $1,221 $3,013,399 $1,016,350 $(97,308)$65,968 $3,999,630 
________________________
(1)
Impact due to adoption on January 1, 2017 of ASU 2016-09,
(1)    Impact due to adoption on January 1, 2019 of ASU 2016-02, "Leases(Topic 842)," and the related amendments.
(2)    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.


Improvements to Employee Share-Based Payment Accounting."
(2)
Impact due to adoption on January 1, 2018 of ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" and ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
(3)
Impact due to adoption on January 1, 2019 of ASU 2016-02, "Leases(Topic 842)," and the related amendments.

See accompanying Notes to Consolidated Financial Statements.

104

PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Cash flows from operating activities:     
Net earnings$468,636
 $465,339
 $357,818
Adjustments to reconcile net earnings to net cash provided by operating activities:     
Depreciation and amortization39,115
 35,168
 32,029
Amortization of net premiums on securities available-for-sale13,962
 23,938
 41,450
Amortization of intangible assets18,726
 22,506
 14,240
Amortization of operating lease ROU assets29,393
 —
 —
Provision for credit losses22,000
 45,000
 57,752
Gain on sale of foreclosed assets, net(3,689) (609) (871)
Provision for losses on foreclosed assets78
 74
 2,138
Gain on sale of loans and leases, net(1,114) (4,675) (6,197)
Loss (gain) on sale of premises and equipment599
 (20) (386)
(Gain) loss on sale of securities, net(25,445) (8,176) 541
Gain on BOLI death benefits—
 (1,338) (1,050)
Unrealized gain on derivatives and foreign currencies, net(228) (325) (429)
Earned stock compensation26,815
 29,768
 25,568
Decrease (increase) in deferred income taxes, net14,714
 (136) 76,860
Decrease (increase) in other assets15,547
 25,117
 (118,477)
(Decrease) increase in accrued interest payable and other liabilities(36,449) (23,604) 2,982
Net cash provided by operating activities582,660
 608,027
 483,968
      
Cash flows from investing activities:     
Cash acquired in acquisitions, net of cash consideration paid—
 —
 160,318
Net increase in loans and leases(1,005,478) (1,209,986) (1,303,752)
Proceeds from sales of loans and leases102,573
 646,587
 1,322,456
Proceeds from maturities and paydowns of securities available-for-sale325,863
 290,177
 435,925
Proceeds from sales of securities available-for-sale1,584,860
 571,800
 759,300
Purchases of securities available-for-sale(1,569,421) (1,180,545) (1,298,105)
Net (purchases) redemptions of Federal Home Loan Bank stock(8,821) (11,313) 12,982
Proceeds from sales of foreclosed assets8,590
 13,479
 12,345
Purchases of premises and equipment, net(15,104) (12,385) (7,919)
Proceeds from sales of premises and equipment73
 57
 10,309
Proceeds from BOLI death benefits555
 3,546
 2,478
Net increase in equipment leased to others under operating leases(54,996) (28,610) (73,596)
Net cash (used in) provided by investing activities(631,306) (917,193) 32,741
      
Cash flows from financing activities:     
   Net (decrease) increase in noninterest-bearing deposits(643,530) (615,263) 343,663
   Net increase (decrease) in interest-bearing deposits1,008,152
 624,094
 (63,700)
Net increase (decrease) in borrowings387,894
 903,772
 (461,349)
Net decrease in subordinated debentures—
 (12,372) —
Common stock repurchased and restricted stock surrendered(162,965) (315,542) (109,153)
Cash dividends paid, net(289,048) (288,193) (247,403)
Net cash provided by (used in) financing activities300,503
 296,496
 (537,942)
Net increase (decrease) in cash and cash equivalents251,857
 (12,670) (21,233)
Cash and cash equivalents, beginning of year385,767
 398,437
 419,670
Cash and cash equivalents, end of year$637,624
 $385,767
 $398,437

See accompanying Notes to Consolidated Financial Statements.



PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,
 202120202019
 (In thousands)
Cash flows from operating activities:  
Net earnings (loss)$606,959 $(1,237,574)$468,636 
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Goodwill impairment— 1,470,000 — 
Depreciation and amortization52,195 44,839 39,115 
Amortization of net premiums on securities available-for-sale44,197 16,311 13,962 
Amortization of intangible assets12,734 14,753 18,726 
Amortization of operating lease ROU assets30,406 29,432 29,393 
Provision for credit losses(162,000)339,000 22,000 
Gain on sale of foreclosed assets, net(406)(495)(3,689)
Provision for losses on foreclosed assets14 267 78 
Gain on sale of loans and leases, net(1,733)(2,139)(1,114)
Loss on sale of premises and equipment74 346 599 
Gain on sale of securities, net(1,615)(13,171)(25,445)
Gain on BOLI death benefits(491)— — 
Unrealized (gain) loss on derivatives and foreign currencies, net(1,134)66 (228)
Earned stock compensation32,223 24,363 26,815 
(Increase) decrease in other assets(97,181)(105,749)30,261 
Decrease in accrued interest payable and other liabilities(11,286)(96,376)(36,449)
Net cash provided by operating activities502,956 483,873 582,660 
Cash flows from investing activities:
Cash acquired in acquisitions, net of cash consideration paid3,757,122 — — 
Net increase in loans and leases(3,925,829)(463,643)(1,005,478)
Proceeds from sales of loans and leases144,550 128,138 102,573 
Proceeds from maturities and paydowns of securities available-for-sale847,472 439,473 325,863 
Proceeds from sales of securities available-for-sale367,348 173,425 1,584,860 
Purchases of securities available-for-sale(6,863,950)(1,924,917)(1,569,421)
Net redemptions (purchases) of Federal Home Loan Bank stock— 23,674 (8,821)
Proceeds from sales of foreclosed assets2,638 1,396 8,590 
Purchases of premises and equipment, net(17,262)(12,529)(15,104)
Proceeds from sales of premises and equipment95 8 73 
Proceeds from BOLI death benefits4,143 761 555 
Net increase in equipment leased to others under operating leases(30,786)(46,765)(54,996)
Net cash used in investing activities(5,714,459)(1,680,979)(631,306)
Cash flows from financing activities:
   Net increase (decrease) in noninterest-bearing deposits3,726,157 1,952,116 (643,530)
   Net increase in interest-bearing deposits2,170,769 3,757,152 1,008,152 
Net (decrease) increase in borrowings(55,210)(1,754,008)387,894 
Proceeds from subordinated notes offering, net394,308 — — 
Common stock repurchased and restricted stock surrendered(8,505)(75,369)(162,965)
Cash dividends paid, net(119,443)(159,748)(289,048)
Net cash provided by financing activities6,108,076 3,720,143 300,503 
Net increase in cash and cash equivalents896,573 2,523,037 251,857 
Cash and cash equivalents, beginning of year3,160,661 637,624 385,767 
Cash and cash equivalents, end of year$4,057,234 $3,160,661 $637,624 
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Supplemental disclosures of cash flow information:     
Cash paid for interest$200,463
 $119,042
 $69,477
Cash paid for income taxes123,533
 98,575
 208,066
Loans transferred to foreclosed assets120
 16,914
 580
Transfers from loans held for investment to loans held for sale25,124
 —
 481,100
Common stock issued in acquisitions—
 —
 446,233

See accompanying Notes to Consolidated Financial Statements.
105

PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
202120202019
(In thousands)
Supplemental disclosures of cash flow information:
Cash paid for interest$53,446 $99,605 $200,463 
Cash paid for income taxes136,015 114,235 123,533 
Loans transferred to foreclosed assets1,062 14,755 120 
Transfers from loans held for investment to loans held for sale25,554 — 25,124 
Effective February 1, 2021, the Company acquired Civic
in a transaction summarized as follows:
Fair value of assets acquired$307,997 
Cash paid(160,420)
Liabilities assumed$147,577 
Effective October 8, 2021, the Company acquired the HOA Business
in a transaction summarized as follows:
Fair value of assets acquired$4,362,893 
Cash paid(237,798)
Liabilities assumed$4,125,095 

See accompanying Notes to Consolidated Financial Statements.




106


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements


NOTE 1.  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES    
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.
The Bank is focused on relationship-based business banking to small, middle-market, and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 74 full-service69 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 through its Community Banking, National Lending and Venture Banking groups. Community Bankingcountry. The Bank provides real estate loans, commercial loans,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. National Lending providesThe 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. Venture BankingThe Bank also offers loans andventure 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 innovationinnovative 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 treasury management and investment management services. Our major operating expenses are the interest paid by the Bank on deposits and borrowings, compensation, occupancy, and general operating expenses.
(a) Accounting Standards Adopted in 20192021
Effective January 1, 2019,2021, the Company adopted ASU 2016-02, "Leases (Topic 842)," and the related amendments to this new standard issued in 2018. ASU 2016-02 supersedes ASC Topic 840,2019-12, “Leases,”Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” which simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Company adopted the new standard using the optional transition method under ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” and recognized a cumulative effect adjustment to increase retained earnings by $938,000, net of taxes, without restating prior periods and applying the requirements of the new standard prospectively. The Company has elected the following practical expedients: (1) to not separate lease and non-lease components for facilities leases; (2) to not reassess whether any expired or existing contracts are or contain leases and to maintain existing lease classifications; (3) to not record short-term leases (initial term less than 12 months) on the balance sheet; and (4) to present salesdeferred tax on a net basis for those transactions in which the Company is the lessor.
The standard had a more significant impact on our consolidated balance sheet than our consolidated statement of earnings. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, whileoutside basis differences. The amendment also simplifies aspects of the accounting for leasesfranchise 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 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)” 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 securities that are not deemed to be in-substance common stock under ASC 323 or accounted for as derivatives under ASC 815 are in the scope of ASC 321. The adoption of this standard did not have a lessor remained substantially unchanged. The ROU asset is included within "Other assets," whilematerial impact on the ROU liability is included within "Accrued interest payable and other liabilities." See Note 9. Company’s consolidated financial statements.
Other Assets andNote 10. Leases for further details.
107


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Effective January 1, 2019,2021, the Company early-adoptedadopted ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and removed or modified disclosures as permittedOther Costs” which clarifies the Company should reevaluate whether a callable debt security that has multiple call dates is within the scope of ASC 310-20-35-33 at each reporting period. ASC 310-20-35-33 requires that, to the extent the amortized cost basis 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 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurements,” but deferred adoption of the additional disclosures until the effective date of January 1, 2020 as permitted in the transition guidance in ASU 2018-13.
Effective January 1, 2019, the Company early-adopted ASU 2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (a consensus of the FASB Emerging Issues Task Force)," which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The Company opted to apply ASU 2018-15 prospectively. The primary effect of the provisions is to capitalize eligible implementation costs during the application development phase and to amortize those costs over the life of the agreement. There was no impact to our consolidated financial statements from2020-08, the adoption of this new standard.standard had no impact on the Company’s consolidated financial statements.
In August 2021, the FASB issued ASU 2021-06, "Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants (SEC Update)," to amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The Company adopted Rule 33-10786 on January 1, 2021 on its effective date and it did not have a material impact on the Company’s consolidated financial statements. The Company also adopted Rule 33-10835 in conjunction with the completion of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The adoption of this disclosure guidance did not have a material impact on our consolidated financial statements.
(b) Basis of Presentation
The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles, which we may refer to as U.S. GAAP. 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 have been included.
(c) Use of Estimates
We haveThe Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these 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, and the fair value estimates of assets acquired and liabilities assumed in acquisitions.assets. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
As described in Note 3. Acquisitions below, we completed the CUB acquisition on October 20, 2017. The acquired assets and liabilities in this acquisition were measured at their estimated fair values. Management made significant estimates and exercised significant judgment in estimating such fair values and accounting for the acquired assets and assumed liabilities in this transaction.
(d) Reclassifications
Certain prior period amounts have been reclassified to conform to the current period'speriod’s presentation format. On the consolidated balance sheets, the "Other assets" category includes "Deferred tax assets," which was previously reported as a separate category. On the consolidated statements of earnings a(loss), new line islines are presented for "Customer related expense,"Dividends and gains (losses) on equity investments" and "Warrant income," as that categorythose categories exceeded the disclosure materiality threshold in 2019,2021, which previously had been included as part of "Other expense.income." Prior to January 1, 2018,We realigned our credit quality disclosures were only for Non-PCI loans and leases. Asother commercial subclasses by moving our gross PCI loan portfolio reduced to less than 0.4% of total loans and leases ascash flow subclass into the other lending subclass. All of the end of 2017, beginning in 2018 the credit quality disclosures reflect our entire loan and lease portfolio. Accordingly,allowance tables, both current period and prior periods, reflect these realignments. In our securities available-for-sale tables, we presented a new line for private label commercial MBS, which had previously been included with the credit qualityasset-backed securities line. All of the securities available-for-sale tables, in Note 5. Loansboth current period and Leases,prior periods, reflect this new presentation.
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amounts related to 2019 and 2018 are for total loans and leases, while amounts related to 2017 are for Non-PCI loans and leases.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(e) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash equivalents consist of: (1) cash and due from banks, and (2) interest‑earning deposits in financial institutions.institutions, and (3) securities purchased under resale agreements. Interest‑earning deposits in financial institutions represent mostly cash held at the FRBSF, the majority of which is immediately available.
(f) Investment in Debt Securities
We determine the classification of securities at the time of purchase. If we have the intent and the ability at the time of purchase to hold securities until maturity, they are classified as held‑to‑maturity and stated at amortized cost. We do not classify any securities as held-to-maturity. Securities to be held for indefinite periods of time, but not necessarily to be held‑to‑maturity or on a long‑term basis, are classified as available‑for‑sale and carried at estimated fair value, with unrealized gains or losses reported as a separate component of stockholders’ equity in accumulated other comprehensive income (loss), net of applicable income taxes. Securities available‑for‑sale include securities that management intends to use as part of its asset/liability management strategy and that may be sold in response to changes in interest rates, prepayment risk, and other related factors. Securities are individually evaluated for appropriate classification when acquired. As a result, similar types of securities may be classified differently depending on factors existing at the time of purchase.
The carrying values of all securities are adjusted for amortization of premiums and accretion of discounts using the interest method. Premiums on callable securities are amortized to the earliest call date. Realized gains or losses on the sale of securities, if any, are determined using the amortized cost of the specific securities sold. Such gains or losses are included in "Gain (loss) on sale of securities" on the consolidated statements of earnings. Declinesearnings (loss).
Prior to January 1, 2020, debt securities available-for-sale were measured at fair value and declines in the fair value of debt securities classified as available-for-sale arewere reviewed to determine whether the impairment iswas other-than-temporary. This review considers a number of factors, including the severity ofIf the decline in fair value current market conditions, historical performancewas considered temporary, the decline in fair value below the amortized cost basis of thea security risk ratings, and the length of time the security has beenwas recognized in an unrealized loss position.other comprehensive income (loss). If we dodid not expect to recover the entire amortized cost basis of the security, then an other-than-temporary impairment iswas considered to have occurred. The cost basis of the security iswas written down to its estimated fair value and the amount of the write‑down iswrite-down was recognized through a charge to earnings.
Investments in FHLB stock are carried at If the amount of the amortized cost and evaluated regularly for impairment. FHLB stock isbasis expected to be redeemed at par and isrecovered increased in a required investment based on measurementsfuture period, the cost basis of the Bank’s assets and/or borrowing levels.security was not increased but rather recognized prospectively through interest income.
Our accounting policy for investment securities applied to both debt and equity securities in prior periods. Effective January 1, 2018,2020, upon the adoption of ASU 2016-01,2016-13, "Financial Instruments - Overall (Subtopic 825-10)Credit Losses (ASC 326): Recognition and Measurement of Financial Assets and Financial Liabilities, and ASU 2018-03, "Technical Corrections and Improvements toCredit Losses on Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," our accounting policydebt securities available-for-sale are measured at fair value and are subject to impairment testing. A security is impaired if the fair value of the security is less than its amortized cost basis. When an available-for-sale debt security is considered impaired, the Company must determine if the decline in fair value has resulted from a credit-related loss or other factors and then, (1) recognize an allowance for investment securities applies onlycredit losses by a charge to debt securities. Our accounting policyearnings for equity investments is described below.the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components (if any) of the fair value decline. If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation allowance would be reduced, but not more than the amount of the current existing allowance for that security.
(g) Equity and Other Investments
Investments in equity securities are classified into one of the following two categories and accounted as follows:
•Securities with a readily determinable fair value are reported at fair value, with changes in fair value recorded in earnings.
•Securities without a readily determinable fair value for which we have elected the "measurement alternative" are reported at cost less impairment (if any) plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.
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Notes to Consolidated Financial Statements
Investments in common or preferred stock that are not publicly traded and certain investments in limited partnerships are considered equity investments that do not have a readily determinable fair value. If we have the ability to significantly influence the operating and financial policies of the investee, the investment is accounted for pursuant to the equity method of accounting. This is generally presumed to exist when we own between 20% and 50% of a corporation, or when we own greater than 5% of a limited partnership or similarly structured entity. Our equity investment carrying values are included in other assets and our share of earnings and losses in equity method investees is included in "Noninterest income - other" on the consolidated statements of earnings. Prior to January 1, 2018 and the adoption of ASU 2016-01, if we did not have significant influence over the investee, the cost method was used to accountfor the equity interest.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Effective January 1, 2018 with the adoption of ASU 2016-01, our accounting treatment for equity investments differs for those with and without readily determinable fair values. Equity investments with readily determinable fair values are recorded at fair value with changes in fair value recorded in “Noninterest income - other.” For equity investments without readily determinable fair values we have elected the “measurement alternative,” and therefore carry these investments at cost, less impairment (if any), plus or minus changes in observable prices. On a quarterly basis, we review our equity investments without readily determinable fair values for impairment. We consider a number of qualitative factors such as whether there is a significant deterioration in earnings performance, credit rating, asset quality, or business prospects of the investee in determining if impairment exists. If the investment is considered impaired, an impairment loss equal to the amount by which the carrying value exceeds its fair value is recorded through a charge to earnings. The impairment loss may be reversed in a subsequent period if there are observable transactions for the identical or similar investment of the same issuer at a higher amount than the carrying amount that was established when the impairment was recognized. Impairment as well as upward or downward adjustments resulting from observable price changes in orderly transactions for identical or similar investments are included in “Noninterest income - other.”
Included in our equity investments that do not have a readily determinable fair value are our investments in non-public Small Business Investment Companies ("SBICs"). All of our SBIC investments meet the definition of investment companies, as defined in ASC 946, Financial Services - Investment Companies. We elected the practical expedient available in Topic 820, Fair Value Measurements, which permits the use of net asset value ("NAV") per share or equivalent to value investments in entities that are or are similar to investment companies. SBICs are required to value and report their investments at estimated fair value. We record the unrealized gains and losses resulting from changes in the fair value of our SBIC investments as gains or losses on equity investments in our consolidated statements of earnings (loss). The carrying value of our SBIC investments is equal to the capital account balance per each SBIC entities' quarterly financial statements.
Realized gains or losses resulting from the sale of equity investments are calculated using the specific identification method and are included in "Noninterest income - other."
If we have the ability to significantly influence the operating and financial policies of the investee, the investment is accounted for pursuant to the equity method of accounting. This is generally presumed to exist when we own between 20% and 50% of a corporation, or when we own greater than 5% of a limited partnership or similarly structured entity. Our equity investment carrying values are included in other assets and our share of earnings and losses in equity method investees is included in "Noninterest income - other" on the consolidated statements of earnings (loss).
Investments in FHLB stock are carried at cost and evaluated regularly for impairment. FHLB stock is expected to be redeemed at par and is a required investment based on measurements of the Bank’s assets and/or borrowing levels.
(h) Loans and Leases
Originated loans. Loans are originated by the Company with the intent to hold them for investment and are stated at the principal amount outstanding, net of unearned income. Unearned income includes deferred unamortized nonrefundable loan fees and direct loan origination costs. Net deferred fees or costs 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 sold. The amortization of loan fees or costs is discontinued when a loan is placed on nonaccrual status. Interest income is recorded on an accrual basis in accordance with the terms of the respective loan.
Purchased loans. Purchased loans are stated at the principal amount outstanding, net of unearned discounts or unamortized premiums. All loans acquired in our acquisitions are initially measured and recorded at their fair value on the acquisition date. A component of the initial fair value measurement is an estimate of the credit losses over the life of the purchased loans. Purchased loans are also evaluated for impairmentto determine if they have experienced a more-than-insignificant deterioration in credit quality since origination or issuance as of the acquisition date and are accounted forclassified as “acquired non‑impaired”either (i) loans purchased without evidence of deteriorated credit quality (“non-PCD loans”), or “purchased(ii) loans purchased that have experienced a more-than-insignificant deterioration in credit impaired” loans.quality, referred to as purchased credit deteriorated loans ("PCD loans”).
Acquired non‑impairedPCD loans. Acquired non‑impairedPCD loans are those loans for which there was no evidence of a more-than-insignificant credit deterioration at their acquisition date and it was probable that we would be able to collect all contractually required payments. Acquired non‑impairedPCD loans, together with originated loans, are referred to as Non‑PCIPCD loans. Purchase discounts or premiums on acquired non‑impairedPCD loans are recognized as an adjustment to interest income over the contractual life of such loans using the effective interest method or taken into income when the related loans are paid off or sold.
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Purchased credit impaired loans. Purchased credit impaired loans are referred to as PCI loans and are accounted for in accordance with ASC Subtopic 310‑30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” A purchased loan is deemed to be credit impaired when there is evidence of credit deterioration since its origination and it is probable at the acquisition date that collection of all contractually required payments is unlikely. We apply PCI loan accounting when we acquire loans deemed to be impaired, and as a general policy election when we acquire a portfolio of loans in a distressed bank acquisition. As our gross PCI loan portfolio represented less than 0.4% of total loans as of the end of 2017, beginning in 2018 the PCI loans were accounted for as Non-PCI loans as the balance continued to decline and no purchases of credit impaired loans have occurred.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Purchased loans with credit deterioration. Prior to January 1, 2020, purchased credit impaired loans were accounted for in accordance with ASC Subtopic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality.” At the time of acquisition, these loans were recorded at estimated fair value based upon estimated future cash flows with no related allowance for credit losses.
Effective January 1, 2020, upon the adoption of ASU 2016-13, an entity records purchased financial assets with credit deterioration ("PCD assets") at the purchase price plus the allowance for credit losses expected at the time of acquisition. This allowance is recognized through a gross-up that increases the amortized cost basis of the asset with no effect on net income. Subsequent changes (favorable and unfavorable) in expected cash flows are recognized immediately in net income by adjusting the related allowance.
Leases to customers. We provide equipment financing to our customers primarily with direct financing and operating leases. For direct financing leases, lease receivables are recorded on the balance sheet but the leased property is not, although we generally retain legal title to the leased property 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. Leases acquired in an acquisition are initially measured and recorded at their fair value on the acquisition date. Purchase discount or premium on acquired leases is recognized as an adjustment to interest income over the contractual life of the leases using the effective interest method or taken into income when the related leases are paid off. Direct financing leases are subject to our accounting for allowance for loans and leases.
We provide equipment financing through operating leases where we facilitate the purchase of equipment leased to customers. The equipment is shown on our 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 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 consolidated statements of earnings.
Loans and leases held for sale. As part of our management of the loans and leases held in our portfolio, on occasion we will transfer loans from held for investment to held for sale. Upon transfer, any associated allowance for loan and lease loss is charged off and the carrying value of the loan is adjusted to the lower of cost or estimated fair value. The unamortized balance of net deferred fees and costs associated with loans held for sale is not accreted or amortized to interest income until the related loans are sold. Gains or losses on the sale of these loans are recorded as "Noninterest income" in the consolidated statements of earnings.earnings (loss).
Delinquent or past due loans and leases. Loans and leases are considered delinquent when principal or interest payments are past due 30 days or more. Delinquent loans may remain on accrual status between 30 days and 89 days past due.
Nonaccrual loans and leases. When we discontinue the accrual of interest on a loan or lease it is designated as nonaccrual. We discontinue the accrual of interest on a loan or lease generally when a borrower's principal or interest payments or a lessee's payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of business. Loans with interest or principal payments past due 90 days or leases with payments past due 90 days may be accruing if the loans or leases are concluded to be well-secured and in the process of collection; however, these loans or leases are still reported as nonperforming. When loans or leases are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest on nonaccrual loans or leases is subsequently recognized only to the extent that cash is received and the loan principal balance or lease balance is deemed collectable. Loans or leases are restored to accrual status when the loans or leases become both well‑secured and are in the process of collection.
ImpairedIndividually Evaluated Loans and Leases. Loans and leases that do not share similar risk characteristics with other financial assets are individually evaluated for impairment and excluded from loan pools used within the collective evaluation of estimated credit losses. We defined the following criteria for what constitutes a “default,” which results in a loan no longer sharing similar risk characteristics with other loans, and leases. therefore requires an individual evaluation for expected credit losses.A loan or lease is considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual termsThe criteria for default may include any one of the loanfollowing:
•On nonaccrual status,
•Modified under a TDR,
•Payment delinquency of 90 days or lease agreement. Impairedmore,
•Partial charge-off recognized,
•Risk rated doubtful or loss, or
•Reasonably expected to be modified under a TDR.
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Defaulted loans and leases includewith outstanding balances over $250,000 are reviewed individually for expected credit loss. Individually evaluated loans and leases on nonaccrual status and performing troubled debt restructured loans. Income from impaired loans is recognized on an accrual basis unless the loan is on nonaccrual status. Income from loans on nonaccrual status is recognized to the extent cash is received and when the loan’s principal balance is deemed collectable. We measure impairment of a loan or lease by using the estimated fair value of the collateral, less estimated costs to sell and other applicable costs, if the loan or lease is collateral‑dependent andare measured at the present value of the expected future cash flows discounted at the loan’s or lease’sloan's initial effective interest rate, ifunless the loans are collateral dependent, in which case loan impairment is based on the estimated fair value of the underlying collateral. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or lease is not collateral‑dependent.sale of the collateral. The impairment amount on a collateral‑dependent loan or lease is charged‑off, and the impairment amount on a loan that is not collateral‑dependentfair value of each loan’s collateral is generally recorded asbased on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral.An individually evaluated reserve and/or charge off would be recognized when the present value of expected future cash flows or the fair value of the underlying collateral is below the amortized cost of the loan. If the measured amount of any individually reviewed loan exceeds its amortized cost, further review is required to determine whether a specific reserve within ourpositive allowance for loan and lease losses.


PACWEST BANCORP AND SUBSIDIARIES
Notesshould be added (but only up to Consolidated Financial Statements

amounts previously written off) to its amortized cost basis in order to reflect the net amount expected to be collected.
Troubled debt restructurings. A loan is classified as a troubled debt restructuring when we grant a concession to a borrower experiencing financial difficulties that we otherwise would not consider under our normal lending policies. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. All modifications of criticized loans are evaluated to determine whether such modifications are troubled debt restructurings as outlined under ASC Subtopic 310‑40, “Troubled Debt Restructurings by Creditors.” Loans restructured with an interest rate equal to or greater than that of a new loan with comparable market risk at the time the loan is modified may be excluded from certain restructured loan disclosures in years subsequent to the restructuring if the loans are in compliance with their modified terms.
Between March 2020 and December 2021, the Company 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 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.
A loan that has been placed on nonaccrual status that is subsequently restructured will usually remain on nonaccrual status until the borrower is able to demonstrate repayment performance in compliance with the restructured terms for a sustained period of time, typically for six months. A restructured loan may return to accrual status sooner based on other significant events or circumstances. A loan that has not been placed on nonaccrual status may be restructured and such loan may remain on accrual status after such restructuring. In these circumstances, the borrower has made payments before and after the restructuring. Generally, this restructuring involves maturity extensions, a reduction in the loan interest rate and/or a change to interest‑only payments for a period of time. The restructured loan is considered impaired despite the accrual status and a specific reserve is calculatedLoan modifications that qualify as troubled debt restructurings are individually evaluated for expected credit losses based on the present value of expected cash flows discounted at the loan’s original effective interest rate or based on the fair value of the collateral if the loan is collateral-dependent.
Impaired loans and leases. Prior to January 1, 2020, a loan or lease was considered impaired when it was probable that we would be unable to collect all amounts due according to the contractual terms of the loan or lease agreement. Impaired loans and leases included loans and leases on nonaccrual status and performing troubled debt restructured loans. Income from impaired loans was recognized on an accrual basis unless the loan was on nonaccrual status. Income from loans on nonaccrual status was recognized to the extent cash was received and when the loan’s principal balance was deemed collectable. We measured impairment of a loan or lease by using the estimated fair value of the collateral, less estimated costs to sell and other applicable costs, if the loan or lease was collateral‑dependent and the present value of the expected future cash flows discounted at the loan’s or lease’s effective interest rate if the loan or lease was not collateral‑dependent. The impairment amount on a collateral‑dependent loan or lease was charged‑off, and the impairment amount on a loan that was not collateral‑dependent was generally recorded as a specific reserve within our allowance for loan and lease losses.







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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) Allowance for Credit Losses on Loans and Leases Held for Investment
Effective January 1, 2020, upon the adoption of ASU 2016-13, the Company replaced the incurred loss accounting approach with the current expected credit loss ("CECL") approach for financial instruments measured at amortized cost and other commitments to extend credit. CECL requires the immediate recognition of estimated credit losses expected to occur over the estimated remaining life of the asset. The forward-looking concept of CECL requires loss estimates to consider historical experience, current conditions and reasonable and supportable forecasts.
The allowance for credit losses on loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The allowance for loan and lease losses is reported as a reduction of outstanding loanthe amortized cost basis of loans and lease balances andleases, while the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the consolidated balance sheets. ForThe amortized cost basis of loans and leases acquireddoes not include accrued interest receivable, which is included in "Other assets" on the consolidated balance sheets. The "Provision for credit losses" on the consolidated statements of earnings (loss) is a combination of the provision for loan and measured atlease losses and the provision for unfunded loan commitments.
Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates. The resulting allowance for loan and lease losses is deducted from the associated amortized cost basis to reflect the net amount expected to be collected. Subsequent changes in this estimate are recorded through the provision for credit losses and the allowance. The CECL methodology could result in significant changes to both the timing and amounts of provision for credit losses and the allowance as compared to historical periods. Loans and leases that are deemed to be uncollectable are charged off and deducted from the allowance. The provision for credit losses and recoveries on loans and leases previously charged off are added to the allowance.
The allowance for loan and lease losses is comprised of an individually evaluated component for loans and leases that no longer share similar risk characteristics with other loans and leases and a pooled loans component for loans and leases that share similar risk characteristics.
A loan or lease with an outstanding balance greater than $250,000 is individually evaluated for expected credit loss when it is probable that we will be unable to collect all amounts due according to the original contractual terms of the agreement. We select loans and leases for individual assessment on an ongoing basis using certain criteria such as payment performance, borrower reported and forecasted financial results, and other external factors when appropriate. We measure the current expected credit loss of an individually evaluated loan or lease based upon the fair value of the underlying collateral if the loan or lease is collateral-dependent or the present value of cash flows, discounted at the effective interest rate, if the loan or lease is not collateral-dependent. To the extent a loan or lease balance exceeds the estimated collectable value, a reserve or charge-off is recorded depending upon either the certainty of the estimate of loss or the fair value of the loan’s collateral if the loan is collateral-dependent.
Our CECL methodology for the pooled loans component includes both quantitative and deemed non-impairedqualitative loss factors which are applied to our population of loans and leases and assessed at a pool level. The quantitative CECL model estimates credit losses by applying pool-specific probability of default ("PD") and loss given default ("LGD") rates to the expected exposure at default ("EAD") over the contractual life of loans and leases. The qualitative component considers internal and external risk factors that may not be adequately assessed in the quantitative model.
The loan portfolio is segmented into four loan segments, eight loan classes, and 18 loan pools (excluding Paycheck Protection Program loans, which are fully government guaranteed) based upon loan type that share similar default risk characteristics to calculate quantitative loss factors for each pool. Two of these loan pools have insignificant current balances and/or insignificant historical losses, thus, estimated losses are calculated using historical loss rates from the first quarter of 2009 to the current period rather than econometric regression modeling. For the remaining 16 loan pools, we estimate the PD during the reasonable and supportable forecast period using seven econometric regression models developed to correlate macroeconomic variables to historical credit performance (based on quarterly transition matrices for the economic cycle from 2009 to 2019, which include risk rating upgrades/downgrades and defaults).
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The loans and unfunded commitments are grouped into eight LGD pools based on portfolio classes that share similar collateral risk characteristics. LGD rates are computed based on the acquisitionnet charge-offs recognized divided by the EAD of defaulted loans starting with the first quarter of 2009 to the current period. The PD and LGD rates are applied to the EAD at the loan or lease level based on contractual scheduled payments and estimated prepayments. We use our actual historical loan prepayment experience from 2009 to 2019, consistent with the economic cycle used for our PD regression models, to estimate future prepayments by loan pool. Loans and leases with outstanding balances less than or equal to $250,000, where it is probable that we will be unable to collect all amounts due according to the contractual terms of the agreement, remain in their respective pools and are assigned a 100% probability of default.
For the reasonable and supportable forecast period, future macroeconomic events and circumstances are estimated over a 4-quarter time horizon using a single scenario economic forecast that is consistent with management's current expectations for the 16 loan pools. We use economic forecasts from Moody's Analytics in this process. The economic forecast is updated monthly; therefore, the forecast used for each quarter-end calculation is generally released a few weeks prior to quarter-end. If economic conditions as of the balance sheet date change materially, management would consider a qualitative adjustment. The key macroeconomic assumptions used in each of the seven PD regression models include two or three of the following economic indicators: Real GDP, unemployment rates, CRE Price Index, the BBB corporate spread, nominal disposable income, and CPI.
The quantitative CECL model applies the projected rates based on the economic forecasts for the 4-quarter reasonable and supportable forecast horizon to EAD to estimate defaulted loans. During this forecast horizon, prepayment rates during a historical period that exhibits economic conditions most similar to the economic forecast are used to estimate EAD. If no historical period from the 2009 to 2019 economic cycle exhibits economic conditions that are similar to the economic forecast, management uses its best estimate of prepayments expected over the reasonable and supportable forecast period which may, in some circumstances, be the average of all historical prepayment experience. Historical LGD rates are applied to estimated defaulted loans to determine estimated credit losses. We then use a 2-quarter reversion period to revert on a straight-line basis from the PD, LGD, and prepayment rates used during the reasonable and supportable forecast period to the Company’s historical PD, LGD, and prepayment experience. Subsequent to the reversion period for the remaining contractual life of loans and leases, the PD, LGD, and prepayment rates are based on historical experience during the economic cycle from 2009 to 2019. PD regression models and prepayment rates are updated on an annual basis. During the annual model performance assessment for 2021, we considered updating the prepayment rates and PD models with 2020 data, however, we elected not to include historical data from 2020 to assess the quantitative expected credit losses because we believe 2020 did not represent normal economic behavior considering the changes in macroeconomic variables and the significant levels of government relief programs. As such, we continued to use the most recent and complete economic cycle from 2009 to 2019 to assess quantitative expected credit losses. LGD rates are updated every quarter to reflect current charge-off activity.
The PDs calculated by the quantitative models are highly correlated to our allowance methodology measuresinternal risk ratings assigned to each loan and lease. To ensure the accuracy of our credit risk ratings, an independent credit review function assesses the appropriateness of the credit risk ratings assigned to loans and leases on a regular basis. The credit risk ratings assigned to every loan and lease are as follows:
•High Pass: (Risk ratings 1-2) Loans and leases rated as "high pass" exhibit a favorable credit profile and have minimal risk characteristics. Repayment in full is expected, even in adverse economic conditions.
•Pass: (Risk ratings 3-4) Loans and leases rated as "pass" are not adversely classified and collection and repayment in full are expected.
•Special Mention: (Risk rating 5) Loans and leases rated as "special mention" have a potential weakness that requires management's attention. If not addressed, these potential weaknesses may result in further deterioration in the borrower's ability to repay the loan or lease.
•Substandard: (Risk rating 6) Loans and leases rated as "substandard" have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the possibility that we will sustain some loss if the weaknesses are not corrected.
•Doubtful: (Risk rating 7) Loans and leases rated as "doubtful" have all the weaknesses of those rated as "substandard," with the additional trait that the weaknesses make collection or repayment in full highly questionable and improbable.

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Notes to Consolidated Financial Statements
We may refer to the loans and leases with assigned credit qualityrisk ratings of "substandard" and "doubtful" together as "classified" loans and leases. For further information on classified loans and leases, see Note 5. Loans and Leases.
In addition to our internal risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company’s loan and lease risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on information available to them at the time of their examinations. Risk rating downgrades generally result in increases in the provisions for credit losses and the allowance for credit losses.
The qualitative portion of the reserve on pooled loans and leases represents management’s judgment of additional considerations to account for internal and external risk factors that are not adequately measured in the quantitative reserve. The qualitative loss factors consider idiosyncratic risk factors, conditions that may not be reflected in quantitatively derived results, or other inherent risksrelevant factors to ensure the allowance for credit losses reflects our best estimate of current expected credit losses. Current and forecasted economic trends and underlying market values for collateral dependent loans are generally considered to be encompassed within the CECL quantitative reserve. An incremental qualitative adjustment may be considered when economic forecasts exhibit higher levels of volatility or uncertainty.
In addition to economic conditions and collateral dependency, the other qualitative criteria we consider when establishing the loss factors include the following:
•Legal and Regulatory - matters that could impact our borrowers’ ability to repay our loans and leases;
•Concentrations - loan and lease portfolio composition and any loan concentrations;
•Lending Policy - current lending policies and the effects of any new policies or policy amendments;
•Nature and Volume - loan and lease production volume and mix;
•Problem Loan Trends - loan and lease portfolio credit performance trends, including a borrower's financial condition, credit rating, and ability to meet loan payment requirements;
•Loan Review - results of independent credit review; and
•Management - changes in management related to these acquired assetscredit administration functions.
We estimate the reserve for unfunded loan commitments using the same PD, LGD, and prepayment rates for the quantitative credit losses and qualitative loss factors as used for the allowance for loan and lease losses. The EAD for the reserve for unfunded loan commitments is computed using expected future utilization rates of the unfunded commitments during the contractual life of the commitments based on historical usage by loan pool from 2015 to 2020. The utilization rates are updated on an annual basis.
The CECL methodology requires a significant amount of management judgment in determining the appropriate allowance for credit losses. Most of the steps in the methodology involve judgment and are subjective in nature including, among other things: segmenting the loan and lease portfolio; determining the amount of loss history to consider; selecting predictive econometric regression models that use appropriate macroeconomic variables; determining the methodology to forecast prepayments; selecting the most appropriate economic forecast scenario; determining the length of the reasonable and supportable forecast and reversion periods; estimating expected utilization rates on unfunded loan commitments; and assessing relevant and appropriate qualitative factors. In addition, the CECL methodology is dependent on economic forecasts which are inherently imprecise and will change from period to period. Although the allowance for credit losses is considered appropriate, there can be no assurance that it will be sufficient to absorb future losses.
Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan and lease portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may occur afterat any point in time reach different conclusions that could result in a significant impact to the acquisition date.Company's consolidated financial statements.
Prior to January 1, 2020, the allowance for loan losses was measured using the incurred loss accounting approach. The allowance for credit losses iswas maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan and lease portfolio and other extensions of credit at the balance sheet date. The allowance iswas based upon our review of the credit quality of the loan and lease portfolio, which includes payment trends, borrowers' compliance with loan agreements, borrowers' current and budgeted financial performance, collateral valuation trends, and current economic factors and external conditions that may affect our borrowers' ability to make payments to us in accordance with contractual terms. Loans and leases that are deemed
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PACWEST BANCORP AND SUBSIDIARIES
Notes to be uncollectable are charged off and deducted from the allowance. The provision for loan and lease losses and recoveries on loans and leases previously charged off are added to the allowance.Consolidated Financial Statements
The allowance for loan and lease losses hashad a general reserve component for unimpaired loans and leases and a specific reserve component for impaired loans and leases.
A loan or lease iswas considered impaired when it iswas probable that we willwould be unable to collect all amounts due according to the original contractual terms of the agreement. We assessassessed our loans and leases for impairment on an ongoing basis using certain criteria such as payment performance, borrower reported financial results and budgets, and other external factors when appropriate. We measuremeasured impairment of a loan or lease based upon the fair value of the underlying collateral if the loan or lease iswas collateral-dependent or the present value of cash flows, discounted at the effective interest rate, if the loan or lease iswas not collateral-dependent. To the extent a loan or lease balance exceedsexceeded the estimated collectable value, a specific reserve or charge-off iswas recorded depending upon either the certainty of the estimate of loss or the fair value of the loan’s collateral if the loan iswas collateral-dependent. Impaired loans and leases with outstanding balances less than or equal to $250,000 maymight not be individually assessed for impairment but would be assessed with reserves based on the average loss severity on historical impaired loans with similar risk characteristics.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Our allowance methodology for the general reserve component includesincluded both quantitative and qualitative loss factors which arewere applied to our population of unimpaired loans and leases to estimate our general reserves.The quantitative loss factors determination iswas based on a probability of default/loss given default ("PD/LGD") methodology which considersconsidered the likelihood of loans defaulting based on the historical degree that similar loans defaulted and the degree of credit losses based on the historical average degree of loss experienced for these similar loans and leases pooled both by loan or lease type and credit risk rating; loans with more adverse credit risk ratings havehad higher quantitative loss factors. The qualitative loss factors consider,considered, among other things, current economic trends and forecasts, current collateral values and performance trends, credit performance trends, and the loan portfolio's current composition.
The quantitative estimation of the allowance for credit losses at December 31, 2019 considered actual historical loan and lease charge-off experience over a 44-quarter look-back period starting with the first quarter of 2009. This look-back period iswas inclusive of the average timeframe over which charge-offs typically occuroccurred following loan or lease origination and allowsallowed for the capture of sufficient loss observations that arewere relevant to the current portfolio. When estimating the general reserve component for the various pools of similar loan types, the loss factors applied to the loan pools considerconsidered the current credit risk ratings, giving greater weight to loans with more adverse credit risk ratings. We recognizerecognized that the determination of the allowance for credit losses iswas sensitive to the assigned credit risk ratings and inherent loss rates at any given point in time.
The qualitative criteria we consider when establishing the loss factors include the following:
current economic trends and forecasts;
current collateral values, performance trends, and overall outlook in the markets where we lend;
legal and regulatory matters that could impact our borrowers’ ability to repay loans and leases;
loan and lease portfolio composition and any loan concentrations;
current lending policies and the effects of any new policies or policy amendments;
loan and lease production volume and mix;
loan and lease portfolio credit performance trends;
results of independent credit reviews; and
changes in management related to credit administration functions.
We estimate the reserve for unfunded loan commitments using the same loss factors as used for the allowance for loan and lease losses. The reserve for unfunded loan commitments is computed using expected future usage of the unfunded commitments based on historical usage of unfunded commitments for the various loan types.
The allowance for credit losses is directly correlated to the credit risk ratings of our loans. To ensure the accuracy of our credit risk ratings, an independent credit review function assesses the appropriateness of the credit risk ratings assigned to loans on a regular basis. The credit risk ratings assigned to every loan and lease are either “pass,” “special mention,” “substandard,” or “doubtful” and defined as follows:
•
Pass: Loans and leases rated as "pass" are not adversely classified and collection and repayment in full are expected.
•
Special Mention: Loans and leases rated as "special mention" have a potential weakness that requires management's attention. If not addressed, these potential weaknesses may result in further deterioration in the borrower's ability to repay the loan or lease.
•
Substandard: Loans and leases rated as "substandard" have a well-defined weakness or weaknesses that jeopardize the collection of the debt. They are characterized by the possibility that we will sustain some loss if the weaknesses are not corrected.
•
Doubtful: Loans and leases rated as "doubtful" have all the weaknesses of those rated as "substandard," with the additional trait that the weaknesses make collection or repayment in full highly questionable and improbable.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

In addition, we may refer to the loans and leases with assigned credit risk ratings of "substandard" and "doubtful" together as "classified" loans and leases. For further information on classified loans and leases, see Note 5. Loans and Leases.
Management believes the allowance for credit losses is appropriate for the known and inherent risks in our loan and lease portfolio and the credit risk ratings and inherent loss rates currently assigned are appropriate. 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. In addition, current credit risk ratings are subject to change as we continue to monitor our loans and leases. To the extent we experience, for example, increased levels of borrower loan defaults, borrowers' noncompliance with our loan agreements, adverse changes in collateral values, or negative changes in economic and business conditions that adversely affect our borrowers, our classified loans and leases may increase. Higher levels of classified loans and leases generally result in increased provisions for credit losses and an increased allowance for credit losses. Although we have established an allowance for credit losses that we consider appropriate, there can be no assurance that the established allowance will be sufficient to absorb future losses.
(j) Land, Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Land is not depreciated. Depreciation and amortization is charged to "Noninterest expense" in the consolidated statements of earnings (loss) using the straight‑line method over the estimated useful lives of the assets. The estimated useful lives of furniture, fixtures and equipment range from 3 to 7 years and for buildings up to 30 years. Leasehold improvements are amortized over their estimated useful lives, or the life of the lease, whichever is shorter.
(k) Foreclosed Assets
Foreclosed assets include OREO and repossessed non-real estate assets. Foreclosed assets are initially recorded at the estimated fair value of the property, based on current independent appraisals obtained at the time of acquisition, less estimated costs to sell, including senior obligations such as delinquent property taxes. The excess of the recorded loan balance over the estimated fair value of the property at the time of acquisition less estimated costs to sell is charged to the allowance for loan and lease losses. Any subsequent write‑downs are charged to "Noninterest expense" in the consolidated statements of earnings (loss) and recognized through a foreclosed assets valuation allowance. Subsequent increases in the fair value of the asset less selling costs reduce the foreclosed assets valuation allowance, but not below zero, and are credited to "Noninterest expense." Gains and losses on the sale of foreclosed assets and operating expenses of such assets are included in "Noninterest expense."





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Notes to Consolidated Financial Statements
(l) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period that includes the enactment date. Any interest or penalties assessed by the taxing authorities is classified in the financial statements as income tax expense. Deferred tax assets and liabilities of the same jurisdiction, net of valuation allowances, are grouped together and reported net on the consolidated balance sheets.
On a periodic basis, the Company evaluates its deferred tax assets to assess whether they are expected to be realized in the future. This determination is based on currently available facts and circumstances, including our current and projected future tax positions, the historical level of our taxable income, and estimates of our future taxable income. In most cases, the realization of deferred tax assets is based on our future profitability. To the extent our deferred tax assets are not considered more likely than not to be realized, we are required to record a valuation allowance on our deferred tax assets by charging earnings. The Company also evaluates existing valuation allowances periodically to determine if sufficient evidence exists to support an increase or reduction in the allowance.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(m) Goodwill and Other Intangible Assets
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 at least annually unless certain events occur or circumstances change.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. We test for goodwill impairment annually or earlier if events or changes in circumstances indicate goodwill might possibly be impaired. Impairment exists when the carrying value of the goodwill exceeds its implied fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the consolidated statements of earnings.earnings (loss).
Intangible assets with estimable useful lives are amortized over such useful lives to their estimated residual values. CDI and CRI are recognized apart from goodwill at the time of acquisition based on market valuations. In preparing such valuations, variables considered included deposit servicing costs, attrition rates, and market discount rates. CDI assets are amortized to expense over their useful lives, which we have estimated to range from 7 to 10 years. CRI assets are amortized to expense over their useful lives, which we have estimated to range from 4 to 7 years. The amortization expense represents the estimated decline in the value of the underlying deposits or customer relationships acquired.
Both CDI and CRI are reviewed for impairment quarterly or earlier if events or changes in circumstances indicate that their carrying values may not be recoverable. If the recoverable amount of either CDI or CRI is determined to be less than its carrying value, we would then measure the amount of impairment based on an estimate of the intangible asset’s fair value at that time. If the fair value is below the carrying value, then the intangible asset is reduced to such fair value; an impairment loss for such amount would be recognized as a charge to "Noninterest expense" in the consolidated statements of earnings.earnings (loss).
(n) Operating Leases
As of December 31, 2019,2021, the Company only had operating leases related to our leased facilities. The Company determines if an arrangement is a lease at inception by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. Operating leases with a term of more than one year are included in operating lease right-of-use ("ROU")ROU assets and operating lease liabilities, which are reported in "Other assets" and "Accrued interest payable and other liabilities" on the Company's consolidated balance sheets.The Company made a policy election to apply the short-term lease exemption to any operating leases with an original term of less than 12 months, therefore no ROU asset or lease liability is recorded for these operating leases. The Company has agreements with lease and non-lease components, which are accounted for as a single lease component.
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The Company uses the incremental borrowing rate commensurate with the lease term based on the information available at the lease commencement date in determining the present value of lease payments. ROU assets initially equal the lease liability, adjusted for any prepaid lease payments and initial direct costs incurred less any lease incentives received.
Certain of the Company's lease agreements include rental payments that adjust periodically based on changes in the CPI. We initially measure the present value of the lease payments using the index at the lease commencement date. Subsequent increases in the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. The ROU assets and lease liabilities are not re-measured as a result of changes in the CPI. The Company's lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain that an option will be exercised. Rent expense for lease payments is recognized on a straight-line basis over the lease term and is included in "Occupancy expense" on the Company's consolidated statements of earnings.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

earnings (loss).
The Company uses the long-lived assets impairment guidance under ASC Topic 360-10-35, "Property, Plant and Equipment," to determine whether an ROU asset is impaired, and if impaired, the amount of loss to recognize. Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. These could include vacating the leased space, obsolescence, or physical damage to a facility. Under ASC Topic 842, "Leases," if an impairment loss is recognized for a ROU asset, the adjusted carrying amount of the ROU asset would be its new accounting basis. The remaining ROU asset (after the impairment write-down) is amortized on a straight-line basis over the remaining lease term.
(o) Stock-Based Compensation
The Company issues stock-based compensation instruments consisting of TRSAs and PRSUs. Compensation expense related to TRSAs is based on the fair value of the underlying stock on the award date and is recognized over the vesting period using the straight‑line method. Forfeitures of stock-based awards are recognized when they occur. Compensation expense related to PRSUs is based on the fair value of the underlying stock on the award 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 of the amortization is suspended, or (2) attainment of the financial metrics is improbable, in which case a portion 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 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’s 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.
Unvested TRSAs participate with common stock in any dividends declared and paid. Dividends are paid on unvested TRSAs and are charged to equity and the related tax impact is recorded to income tax expense. Dividends paid on forfeited TRSAs are charged to compensation expense. Unvested PRSUs participate with common stock in any dividends declared, but are only paid on the shares which ultimately vest, if any, at the end of the three-year performance period. At the time of vesting, the vested shares are entitled to receive cumulative dividends declared and paid during the three-year performance period. Such dividends are accrued during the three-year performance period at the estimated level of shares to be received by the award holder.






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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(p) Derivative Instruments
Our derivativeThe Company uses derivatives to manage exposure to market risk, primarily foreign currency risk and interest rate risk, and to assist customers with their risk management objectives. The Company uses foreign exchange contracts primarilyto manage the foreign currencyexchange rate risk associated with certain foreign currency-denominated assets and liabilities. As of December 31, 2019,2021, all of our derivatives were held for risk management purposes and NaNnone were designated as accounting hedges. The objective is to manage the uncertainty of future foreign exchange rate fluctuations. These derivatives provide for a fixed exchange rate which has the effect of reducing or eliminating changes to anticipated cash flows to be received on assets and liabilities denominated in foreign currencies as the result of changes to exchange rates. Our foreign currency derivatives are carried at fair value and recorded in other assets or other liabilities, as appropriate. The changes in fair value of our derivatives and the related interest are recognized in "Noninterest income - other" in the consolidated statements of earnings. At December 31, 2019, our derivative contracts hadearnings (loss).
The Bank offers interest rate swap products to certain loan customers to allow them to hedge the risk of rising interest rates on their variable-rate loans. When such products are issued, we also enter into an offsetting swap with institutional counterparties to eliminate the interest rate risk to us. These back-to-back swap agreements, which generate fee income for us, are intended to offset each other. We retain the credit risk of the original loan. The net cash flow for us is equal to the interest income received from a notionalvariable rate loan originated with the client plus a fee. These swaps are not designated as accounting hedges and are recorded at fair value in "Other assets" and "Accrued interest payable and other liabilities" in the consolidated balance sheets. The changes in fair value are recorded in "Noninterest income - other" in the consolidated statements of $91.1 million.earnings (loss).
In connection with negotiated credit facilities and certain other services, we may obtain equity warrant assets giving us the right to acquire stock in primarily private, venture-backed companies. We account for equity warrant assets as derivatives when they contain net settlement terms and other qualifying criteria under ASC 815. These equity warrant assets are measured at estimated fair value on a monthly basis and are classified as "Other assets" in the consolidated balance sheets at the time they are obtained.
Derivative instruments expose us to credit risk in the event of nonperformance by counterparties. This risk exposure consists primarily of the termination value of agreements where we are in a favorable position. We manage the credit risk associated with various derivative agreements through counterparty credit review and monitoring procedures.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

(q) Comprehensive Income (Loss)
Comprehensive income (loss) consists of net earnings and net unrealized gains (losses) on debt securities available‑for‑sale, net, and is presented in the consolidated statements of comprehensive income.income (loss).
(r) Earnings (Loss) Per Share
In accordance with ASC Topic 260, “Earnings Per Share,” all outstanding unvested share‑based payment awards that contain rights to nonforfeitable dividends are considered participating securities and are included in the two‑class method of determining basic and diluted earnings (loss) per share. All of our unvested restricted stock participates with our common stockholders in dividends. Accordingly, earnings allocated to unvested restricted stock are deducted from net earnings (loss) to determine that amount of earnings (loss) available to common stockholders. In the two‑class method, the amount of our earnings (loss) available to common stockholders is divided by the weighted average shares outstanding, excluding any unvested restricted stock, for both the basic and diluted earnings (loss) per share.
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(s) Business Combinations
Business combinations are accounted for under the acquisition method of accounting in accordance with ASC Topic 805, “Business Combinations.” Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including other identifiable assets, exceeds the purchase price, a bargain purchase gain is recognized. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statementconsolidated statements of earnings (loss) from the date of acquisition. Acquisition‑related costs, including conversion and restructuring charges, are expensed as incurred.
(t) Business Segments
We regularly assess our strategic plans, operations and reporting structures to identify our reportable segments. Changes to our reportable segments are expected to be infrequent. As of December 31, 20192021 and since December 31, 2015, we have operated as 1 reportable segment. Civic, which we acquired on February 1, 2021, is an operating segment, however, it does not meet the quantitative thresholds for disclosure as a reportable segment. The factors considered in making this determination include the nature of products and offered services, geographic regions in which we operate, the applicable regulatory environment, and the discrete financial information reviewed by our key decision makers. Through our network of banking offices nationwide, our entire operations provide relationship-based banking products, services and solutions for small to mid-sized companies, entrepreneurial and venture-backed businesses, venture capital and private equity investors, real estate investors, professionals and other individuals. Our products and services include commercial real estate, multi-family, commercial business, construction and land, consumer and government-guaranteed small business loans, business and personal deposit products, HOA services, and treasury cash management services.




















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Notes to Consolidated Financial Statements

(u) Recently Issued Accounting Standards
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2016-13,2020-04, "Measurement of Credit Losses on Financial Instruments,"
ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses,”
ASU 2019-05, "Financial Instruments - Credit LossesReference Rate Reform (Topic 326): Targeted Transition Relief,848)" and ASU 2019-11, "2021-01, “Codification Improvements to Topic 326, Financial Instruments - Credit LossesReference Rate Reform (Topic 848): Scope)"
This Update changesstandard provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other agreements affected by the accountinganticipated transition away from LIBOR toward new interest reference rates. For agreements that are modified because of reference rate reform and recognitionthat meet certain scope guidance: (i) modifications of credit lossesloan agreements should be accounted for by prospectively adjusting the effective interest rate and impairmentthe 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 financial assets recorded at amortized cost. Under the CECL model, the standard requires immediate recognition of estimated credit losses expected to occur over the remaining lifelease agreements should be accounted for as a continuation of the asset. The forward-looking concept of CECL requires loss estimates for the remaining estimated lifeexisting agreement with no reassessments of the financial assets using historical experience, current conditionslease classification and reasonablethe 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 supportable forecasts. The Update modifiesexceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the other-than-temporary impairment (OTTI) modeldiscounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for AFS debt securities to require an allowance for credit impairment insteadmargining, discounting, or contract price alignment that is modified as a result of a direct write-down, which allows for reversalreference rate reform. ASU 2020-04 is effective immediately, as of credit improvements in future periods.
In addition, the Update eliminates the existing guidance for PCI loans, but requires an allowance for purchased financial assets with credit deterioration.
Receivables arising from operating leases are not within the scope of CECL. The Update mustMarch 12, 2020, and may be applied usingprospectively 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 modifiedamendments on a full retrospective method with a cumulative-effect adjustment to retained earningsbasis 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 yearissuance date of adoption. A prospective transition approach is required for available-for-sale debt securities for which an OTTI had been recognizedMarch 12, 2020, and once adopted, will apply to contract modifications made and hedging relationships entered into on or before the adoption date. Early adoption is permitted.December 31, 2022.January 1, 2020
The Company has established a multidisciplinarycross-functional project team in 2016 to work on the implementation of CECL. During this implementation project, we developed a detailedand implementation plan selected ato facilitate the LIBOR transition.
As of December 31, 2021, the Company permanently ceased originating any new software solution, reached accounting decisions on various matters, developed econometric models for our reasonableloans or entering into any transaction that would increase its LIBOR-based exposure. For all new variable-rate and supportable ("R&S"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”) forecast period, selected key assumptions used in the economic regression models of Real GDP, unemployment rates, CRE Price Index and BBB spreads, developed a prepayment model and frameworkothers based on our historical prepayment experience,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 validationdiscontinuance of newLIBOR. The Company has also completed its review for fallback language contained in contracts for LIBOR-based loans and other financial instruments and 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 by adding fallback language or to convert the base rate of the contract to a SOFR-based rate or another rate or index offered by the Company.
The Company will also continue to assess impacts to its operations, financial models, redesigned our qualitative framework,data and conducted five preliminary calculations during 2019. Key decisions made in our planned approach under CECL include the use of a probability of default/loss given default methodology, the use of a single scenario based on the Moody's consensus forecast for our economic forecast over the R&S period, an R&S forecast period of four quarters, a post R&S reversion period of two quarters using a straight-line approach, and a historical loss period of at least 40 quarters among other decisions. Astechnology as part of performing our preliminary calculations, we performed sensitivity analyses and other stepstransition plan. The Company is currently evaluating the impact of this Update on its consolidated financial statements but does not expect it to assess modeling assumptions and results, while also updating our disclosures, internal controls, policies, and procedures. We adopted this new standard on January 1, 2020 and, using our December 31, 2019 loan and lease balances and other information, calculated the day one impact and transition adjustment to be an increase in our allowance for credit losses of approximately $7.3 million, or 4.2%. The day one impact ishave a decrease to retained earnings of $5.3 million, net of tax, or a decrease of approximately two basis points to our capital ratios. The impact reflects our loan composition, which is primarily a short-duration commercial portfolio. The calculation of the allowance for credit losses under CECL is sensitive and highly dependent on loan composition, model methodologies, the macroeconomic conditions, economic forecasts, model assumptions, and other decisions and judgments made by management. We expect the provisions for credit losses to be susceptible to more volatility post-adoption due to these same factors and influenced by the volume of new loan originations, loan payoffs, and the seasoning of the loan portfolio.material impact.


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Notes to Consolidated Financial Statements


EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2019-04, "2021-08, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, DerivativesBusiness Combinations (Topic 805): Accounting for Contract Assets and Hedging, and Topic 825, Financial InstrumentsContract Liabilities from Contracts with Customers"


This Update made clarificationsstandard 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 to five topics: (i) Topic A: Codification Improvements Resulting from the Juneimprove comparability by providing consistent recognition and November 2018 Credit Losses Transition Resource Group ("TRG") Meetings, (ii) Topic B: Codification Improvements to ASU 2016-13, (iii) Topic C: Codification Improvements to ASU 2017-12, "Derivatives and Hedging (Topic 815)" and Other Hedging Items, (iv) Topic D: Codification Improvements to ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10)," and (v) Topic E: Codification Improvements Resulting from the November 2018 Credit Losses TRG Meeting. In addition to conforming amendments that correct for errors and oversights, the Update in Topics A, B, and E, which impacts CECL implementation, amends or clarifiesmeasurement guidance for accrued interest; transfers between classificationsrevenue 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 categories of loans and debt securities; recoveries; effect of prepayments in determiningafter the effective interest rate; estimated costs to sell when foreclosure is probable; vintage disclosure presentation related to line-of-credit arrangements converted to term loans; contractual extensions or renewals; and others. Transition requirements for the amendments are the same as ASU 2016-13 for the Update in Topics A, B, and E. The Update in Topic C may be applied retrospectively as of the date of initial adoption of ASU 2017-12 or prospectively. The Update in Topic D must be applied on a modified retrospective method with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption anddate. Additionally, early adoption is permitted.

January 1, 2020; except for Topic C - January 1, 20192023Impacts from
The Company has not yet determined the adoptioneffect of Topics A, B, and E within this Update have been considered in the Company's overall CECL implementation and we adopted concurrent with the adoption of ASU 2016-13. The adoption of Topic D within this Update did not have a material impact2021-08 on the Company'sCompany’s consolidated financial position or results of operations upon adoption on January 1, 2020. Topic C within this Update is not applicable to us and therefore had no impact on the Company's consolidated financial position or results of operations.statements.





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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 2. ACQUISITIONS
The following assets acquired and liabilities assumed, both tangible and intangible, of the acquired entity are presented at estimated fair value as of the acquisition date:
Acquisition andAcquisition and
Date AcquiredDate Acquired
HomeownersCivic
 AssociationFinancial
Services Division ofServices,
MUFG Union BankLLC
October 8, 2021February 1, 2021
(In thousands)
Assets Acquired:
Cash and due from banks$4,118,009 $37,331 
Loans and leases6,486 67,294 
Premises and equipment331 1,197 
Goodwill201,618 125,448 
Core deposit and customer relationship intangibles33,300 750 
Other assets3,149 75,977 
Total assets acquired$4,362,893 $307,997 
Liabilities Assumed:
Noninterest-bearing demand deposits$1,585,810 $37,339 
Interest-bearing deposits2,536,965 — 
Total deposits4,122,775 37,339 
Borrowings— 50,210 
Accrued interest payable and other liabilities2,320 60,028 
Total liabilities assumed$4,125,095 $147,577 
Total consideration - paid in cash$237,798 $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 business-purpose 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.
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.
123
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2017-04, "

Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment"
This Update simplifies goodwill impairment testing by eliminating the second step of the analysis under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for any amount by which the carrying amount exceeds the reporting unit's fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. The Update must be applied prospectively and early adoption is permitted.January 1, 2020The Company adopted this standard on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial position or results of operations.
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2018-13, “
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurements”
This Update modified the disclosure requirements in ASC Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. Certain disclosure requirements in ASC Topic 820 are also removed or modified. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis and early adoption is permitted.January 1, 2020The Company has early adopted those provisions of the standard that permitted the removal or modification of certain disclosures effective January 1, 2019 but deferred adoption of the additional new disclosures until January 1, 2020. The adoption of this guidance will modify disclosures in 2020 but will not have an impact on the Company’s consolidated financial position or results of operations.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Acquisition of HOA Business
On October 8, 2021, the Bank completed the acquisition of the HOA Business in an all-cash transaction. The HOA Business is a long-time provider of specialized HOA banking services to a national base of community HOA management companies and their homeowners associations. This acquisition significantly expanded the Bank’s existing HOA banking practice, which provides lockbox, electronic receivables processing and other financial services to HOA management companies. This acquisition advanced the Bank’s strategy to expand its product offerings to its customers and to diversify its revenue and funding sources.
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
This Update does the following, among other things: (1) requires that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date; (2) specifies that an entity is not required to allocate the consolidated amount of current and deferred income tax expense to a legal entity that is not subject to income tax in its separate financial statements; and (3) requires that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction.January 1, 2021The Company has not yet determined the impact of this standard on its consolidated financial position and results of operations.
The Bank paid cash consideration of $237.8 million, which represented the aggregate of a 5.9% deposit premium and the net book value of certain acquired assets and assumed liabilities. The HOA Business acquisition has been accounted for under the acquisition method of accounting. We acquired $4.4 billion of assets and assumed $4.1 billion 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 $201.6 million. All of the recognized goodwill is expected to be deductible for tax purposes.
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2020-1 “Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): "Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815”
This Update clarifies, among other things, that a company should consider observable transactions that require it to either apply or discontinue the equity method of accounting for purposes of the measurement alternative under ASC Topic 321 immediately before applying, or on discontinuing, the equity method of accounting under ASC Topic 323. Under the ASC Topic 321 measurement alternative, equity investments without readily determinable fair values are measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer.January 1, 2021The Company has not yet determined the impact of this standard on its consolidated financial position and results of operations.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2020-02 “Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842): "Amendments to SEC Paragraphs Pursuant to Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)"
This Update adds an SEC paragraph to ASC Subtopic 326-20, "Financial Instruments - Credit Losses - Measured at Amortized Cost," pursuant to the issuance of SEC Staff Accounting Bulletin ("SAB") No. 119. The topic of SAB 119 is "Accounting for Loan Losses by Registrants Engaged in Lending Activities Subject to FASB ASC Topic 326." This Update also adds a note to an SEC paragraph in ASC Subtopic 842-10, "Leases - Overall." The note relates to effective date information related to certain public business entities for ASU 2016-02, "Leases (Topic 842)."
January 1, 2020The Company adopted this standard on January 1, 2020 and it did not have a material impact on the Company's consolidated financial position or results of operations.

NOTE 2.3. RESTRICTED CASH BALANCES
The Company is required to maintain reserve balances with the FRBSF. Such reserve requirements are based on a percentage of deposit liabilities and may be satisfied by cash on hand. The average reserves required to be held at the FRBSF for the yearsyear ended December 31, 20192021 and 20182020 were $131.0 million$0 and $77.0$41.3 million. As of December 31, 20192021 and 2018,2020, we pledged cash collateral for our derivative contracts of $3.2$2.0 million and $2.6$2.9 million.
124


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 3.  ACQUISITIONS    
The following assets acquired and liabilities assumed of CUB are presented at estimated fair value as of the acquisition date:
 October 20, 2017
 (In thousands)
Assets Acquired: 
Cash and due from banks$51,857
Interest‑earning deposits in financial institutions332,799
Total cash and cash equivalents384,656
Securities available‑for‑sale446,980
FHLB stock11,902
Loans and leases2,075,890
Premises and equipment2,981
Goodwill374,721
Core deposit and customer relationship intangibles57,500
Other assets103,498
Total assets acquired$3,458,128
  
Liabilities Assumed: 
Noninterest‑bearing deposits$1,510,285
Interest‑bearing deposits1,209,597
Total deposits2,719,882
Borrowings22,879
Subordinated debentures12,372
Accrued interest payable and other liabilities32,424
Total liabilities assumed$2,787,557
Total consideration paid$670,571
  
Summary of consideration: 
Cash paid$224,338
PacWest common stock issued446,233
Total$670,571

CUB Acquisition
We acquired CUB on October 20, 2017. As part of the acquisition, CU Bank, a wholly-owned subsidiary of CUB, was merged with and into PacWest's wholly-owned banking subsidiary, Pacific Western Bank.
We completed the acquisition to, among other things, enhance our Southern California community bank franchise by adding a $2.1 billion loan portfolio and $2.7 billion of core deposits. The CUB acquisition has been accounted for under the acquisition method of accounting. We acquired $3.5 billion of assets and assumed $2.8 billion of liabilities upon closing of the acquisition. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and liabilities. The application of the acquisition method of accounting resulted in goodwill of $374.7 million. All of the recognized goodwill is non-deductible for tax purposes.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 4.  INVESTMENT SECURITIES
Securities Available-for-Sale
The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:
 December 31,
 2019 2018
   Gross Gross     Gross Gross  
 Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Security TypeCost Gains Losses Value Cost Gains Losses Value
 (In thousands)
Agency residential CMOs$1,112,573
 $24,403
 $(579) $1,136,397
 $634,774
 $3,448
 $(5,372) $632,850
Agency commercial MBS1,083,182
 25,579
 (537) 1,108,224
 1,133,846
 383
 (21,525) 1,112,704
Municipal securities691,647
 43,851
 (339) 735,159
 1,298,514
 21,000
 (7,320) 1,312,194
Agency residential MBS294,606
 10,593
 (1) 305,198
 281,486
 1,902
 (2,300) 281,088
Asset-backed securities216,133
 320
 (1,670) 214,783
 81,762
 104
 (481) 81,385
Collateralized loan obligations124,134
 25
 (403) 123,756
 —
 —
 —
 —
Private label residential CMOs96,066
 3,430
 (13) 99,483
 101,313
 1,985
 (2,093) 101,205
SBA securities47,765
 506
 (13) 48,258
 68,158
 —
 (1,111) 67,047
Corporate debt securities17,000
 3,748
 —
 20,748
 17,000
 553
 —
 17,553
U.S. Treasury securities4,985
 196
 —
 5,181
 401,056
 2,437
 (88) 403,405
Total$3,688,091
 $112,651
 $(3,555) $3,797,187
 $4,017,909
 $31,812
 $(40,290) $4,009,431

December 31,
 20212020
GrossGrossGrossGross
AmortizedUnrealizedUnrealizedFairAmortizedUnrealizedUnrealizedFair
Security TypeCostGainsLossesValueCostGainsLossesValue
 (In thousands)
Agency residential MBS$2,921,993 $8,866 $(32,649)$2,898,210 $329,488 $12,483 $(897)$341,074 
Municipal securities2,248,749 75,192 (7,973)2,315,968 1,438,004 93,631 (18)1,531,617 
Agency commercial MBS1,660,516 37,664 (9,213)1,688,967 1,207,676 74,238 (37)1,281,877 
Agency residential CMOs1,021,716 22,288 (5,870)1,038,134 1,172,166 47,994 (280)1,219,880 
U.S. Treasury securities973,555 1,641 (8,298)966,898 4,989 313 — 5,302 
Corporate debt securities514,077 13,774 (757)527,094 308,803 3,490 (404)311,889 
Private label commercial MBS453,314 147 (3,244)450,217 81,878 1,089 (10)82,957 
Collateralized loan obligations385,410 396 (444)385,362 136,777 23 (924)135,876 
Private label residential CMOs265,851 1,857 (3,291)264,417 110,891 6,076 (21)116,946 
Asset-backed securities129,387 484 (324)129,547 166,861 445 (760)166,546 
SBA securities28,950 726 (32)29,644 39,437 2,217 (27)41,627 
Total$10,603,518 $163,035 $(72,095)$10,694,458 $4,996,970 $241,999 $(3,378)$5,235,591 
See Note 14.15. Fair Value Measurements for information on fair value measurements and methodology.
As of December 31, 2019,2021, securities available‑for‑sale with a fair value of $486.2$532.4 million were pledged as collateral for borrowings, 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 (losses) for the years indicated:
Year Ended December 31,Year Ended December 31,
Sales of Securities Available-for-Sale2019 2018 2017Sales of Securities Available-for-Sale202120202019
(In thousands)(In thousands)
Amortized cost of securities sold (1)
$1,559,415
 $563,625
 $759,841
Amortized cost of securities soldAmortized cost of securities sold$365,733 $160,254 $1,559,415 
     
Gross realized gains$29,584
 $9,225
 $3,295
Gross realized gains$1,680 $13,222 $29,584 
Gross realized losses(4,139) (1,049) (3,836)Gross realized losses(65)(51)(4,139)
Net realized gains (losses)$25,445
 $8,176
 $(541)
Net realized gainsNet realized gains$1,615 $13,171 $25,445 

_______________________________-
125
(1)The securities sold in 2017 included $404.5 million of the $447.0 million of securities obtained in the CUB acquisition that were sold for 0 gain or loss as they were marked to fair value at the time of acquisition.



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

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 for which other-than-temporary impairments have not been recognized in earnings, as of the dates indicated:
December 31, 2021
 Less Than 12 Months12 Months or MoreTotal
GrossGrossGross
FairUnrealizedFairUnrealizedFairUnrealized
Security TypeValueLossesValueLossesValueLosses
 (In thousands)
Agency residential MBS$2,502,536 $(31,670)$57,329 $(979)$2,559,865 $(32,649)
Municipal securities505,080 (6,965)29,726 (1,008)534,806 (7,973)
Agency commercial MBS440,938 (5,066)106,745 (4,147)547,683 (9,213)
Agency residential CMOs216,445 (3,757)67,340 (2,113)283,785 (5,870)
U.S. Treasury securities628,767 (8,298)— — 628,767 (8,298)
Corporate debt securities32,761 (757)— — 32,761 (757)
Private label commercial MBS397,619 (3,244)— — 397,619 (3,244)
Collateralized loan obligations137,619 (374)43,730 (70)181,349 (444)
Private label residential CMOs201,988 (3,291)— — 201,988 (3,291)
Asset-backed securities38,742 (137)15,762 (187)54,504 (324)
SBA securities— — 1,864 (31)1,864 (32)
Total$5,102,495 $(63,559)$322,496 $(8,535)$5,424,991 $(72,095)
 December 31, 2019
 Less Than 12 Months 12 Months or More Total
   Gross   Gross   Gross
 Fair Unrealized Fair Unrealized Fair Unrealized
Security TypeValue Losses Value Losses Value Losses
 (In thousands)
Agency residential CMOs$180,071
 $(572) $1,456
 $(7) $181,527
 $(579)
Agency commercial MBS214,862
 (537) —
 —
 214,862
 (537)
Municipal securities38,667
 (339) —
 —
 38,667
 (339)
Agency residential MBS—
 —
 186
 (1) 186
 (1)
Asset-backed securities165,575
 (1,670) —
 —
 165,575
 (1,670)
Collateralized loan obligations102,469
 (403) —
 —
 102,469
 (403)
Private label residential CMOs9,872
 (11) 114
 (2) 9,986
 (13)
SBA securities4,565
 (13) —
 —
 4,565
 (13)
Total$716,081
 $(3,545) $1,756
 $(10) $717,837
 $(3,555)
 December 31, 2018
 Less Than 12 Months 12 Months or More Total
   Gross   Gross   Gross
 Fair Unrealized Fair Unrealized Fair Unrealized
Security TypeValue Losses Value Losses Value Losses
 (In thousands)
Agency residential CMOs$69,859
 $(326) $164,097
 $(5,046) $233,956
 $(5,372)
Agency commercial MBS40,641
 (341) 1,020,684
 (21,184) 1,061,325
 (21,525)
Municipal securities52,386
 (238) 284,915
 (7,082) 337,301
 (7,320)
Agency residential MBS60,164
 (169) 85,245
 (2,131) 145,409
 (2,300)
Asset-backed securities11,548
 (38) 35,859
 (443) 47,407
 (481)
Private label residential CMOs32,170
 (831) 49,237
 (1,262) 81,407
 (2,093)
SBA securities249
 (1) 66,798
 (1,110) 67,047
 (1,111)
U.S. Treasury securities49,729
 (88) —
 —
 49,729
 (88)
Total$316,746
 $(2,032) $1,706,835
 $(38,258) $2,023,581
 $(40,290)

We reviewed the
December 31, 2020
 Less Than 12 Months12 Months or MoreTotal
GrossGrossGross
FairUnrealizedFairUnrealizedFairUnrealized
Security TypeValueLossesValueLossesValueLosses
 (In thousands)
Agency residential MBS$90,722 $(897)$— $— $90,722 $(897)
Municipal securities5,919 (18)— — 5,919 (18)
Agency commercial MBS58,408 (37)— — 58,408 (37)
Agency residential CMOs97,863 (280)— — 97,863 (280)
Corporate debt securities87,596 (404)— — 87,596 (404)
Private label commercial MBS3,058 (10)— — 3,058 (10)
Collateralized loan obligations96,442 (729)28,972 (195)125,414 (924)
Private label residential CMOs788 (19)74 (2)862 (21)
Asset-backed securities14,636 (53)61,031 (707)75,667 (760)
SBA securities2,127 (27)— — 2,127 (27)
Total$457,559 $(2,474)$90,077 $(904)$547,636 $(3,378)
The securities that were in an unrealized loss position at December 31, 20192021, were considered impaired and 2018, andrequired further review to determine if the unrealized losses were credit-related. We concluded their 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 securitiesunrealized losses were temporarily impairednot credit-related and we did not recognize such impairmentrecognized the unrealized losses in the consolidated statements of earnings."other comprehensive income" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any temporarily impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any temporarily impaired securities before recovery of their amortized cost.
126


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Contractual Maturities of Securities Available-for-Sale
The following table presents the contractual maturities of our available-for-sale securities portfolio based on amortized cost and carrying value as of the date indicated.
 December 31, 2019
 Amortized Fair
MaturityCost Value
 (In thousands)
Due in one year or less$7,870
 $7,897
Due after one year through five years278,393
 283,059
Due after five years through ten years988,421
 1,013,054
Due after ten years2,413,407
 2,493,177
Total securities available-for-sale$3,688,091
 $3,797,187

December 31, 2021
AmortizedFair
MaturityCostValue
 (In thousands)
Due in one year or less$54,301 $54,685 
Due after one year through five years635,456 662,377 
Due after five years through ten years3,526,824 3,544,687 
Due after ten years6,386,937 6,432,709 
Total securities available-for-sale$10,603,518 $10,694,458 
Mortgage-backed securitiesMBS and CMOs have contractual maturity dates, that reflect thebut require periodic payments based upon scheduled amortization terms of underlying loan collateral.terms. Actual principal collections on mortgage-backedthese securities usually occur more rapidly than the scheduled amortization terms because of prepayments made by obligors of the underlying loan collateral.
FHLB Stock
In connection with outstanding FHLB advances, the Bank owned FHLB stock carried at cost of $40.9 million and $32.1$17.3 million at December 31, 20192021 and 2018.2020. At December 31, 20192021 and 2018,2020, the Bank was required to own FHLB stock equal to a percentage of outstanding FHLB advances. During the year ended December 31, 2019, FHLB stock increased by $8.8 million due to $159.0 million in purchases, offset partially by $150.1 million in redemptions. We evaluated the carrying value of our FHLB stock investment at December 31, 20192021 and determined that it was not impaired. Our evaluation considered the long-term nature of the investment, the current financial and liquidity position of the FHLB, repurchase activity of excess stock by the FHLB at its carrying value, the return on the investment from recurring dividends, and our intent and ability to hold this investment for a period of time sufficient to recover our recorded investment.
Interest Income on Investment Securities
The following table presents the composition of our interest income on investment securities for the years indicated:
Year Ended December 31,
202120202019
(In thousands)
Taxable interest$118,561 $80,426 $85,968 
Non-taxable interest33,916 24,771 27,955 
Dividend income991 1,573 1,646 
Total interest income on investment securities$153,468 $106,770 $115,569 
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Taxable interest$85,968
 $68,504
 $52,981
Non-taxable interest27,955
 41,376
 43,355
Dividend income1,646
 1,739
 1,866
Total interest income on investment securities$115,569
 $111,619
 $98,202
127



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 5.  LOANS AND LEASES
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:
December 31,
20212020
(In thousands)
Real estate mortgage$11,189,278 $7,905,193 
Real estate construction and land3,491,340 3,393,145 
Commercial7,888,068 7,534,801 
Consumer457,622 320,218 
Total gross loans and leases held for investment23,026,308 19,153,357 
Deferred fees, net(84,760)(69,980)
Total loans and leases held for investment, net of deferred fees22,941,548 19,083,377 
Allowance for loan and lease losses(200,564)(348,181)
Total loans and leases held for investment, net (1)$22,740,984 $18,735,196 
 December 31,
 2019 2018
 (In thousands)
Real estate mortgage$7,982,383
 $7,933,859
Real estate construction and land2,773,209
 2,262,710
Commercial7,714,358
 7,428,500
Consumer440,790
 401,296
Total gross loans and leases held for investment18,910,740
 18,026,365
Deferred fees, net(63,868) (68,652)
Total loans and leases held for investment, net of deferred fees18,846,872
 17,957,713
Allowance for loan and lease losses(138,785) (132,472)
Total loans and leases held for investment, net$18,708,087
 $17,825,241
____________________

(1)    Excludes accrued interest receivable of $80.3 million and $79.7 million at December 31, 2021 and December 31, 2019, respectively, which is recorded in "Other assets" on the 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:
December 31, 2019December 31, 2021
30 - 89 90 or More      30 - 8990 or More
Days Days Total    DaysDaysTotal
Past Due Past Due Past Due Current TotalPast DuePast DuePast DueCurrentTotal
(In thousands) (In thousands)
Real estate mortgage:         Real estate mortgage:
Commercial$2,448
 $5,919
 $8,367
 $4,194,320
 $4,202,687
Commercial$5,307 $2,236 $7,543 $3,754,756 $3,762,299 
Income producing and other residential2,105
 802
 2,907
 3,767,153
 3,770,060
Income producing and other residential40,505 9,666 50,171 7,366,250 7,416,421 
Total real estate mortgage4,553
 6,721
 11,274
 7,961,473
 7,972,747
Total real estate mortgage45,812 11,902 57,714 11,121,006 11,178,720 
Real estate construction and land:         Real estate construction and land:
Commercial—
 —
 —
 1,082,368
 1,082,368
Commercial— — — 832,591 832,591 
Residential1,429
 —
 1,429
 1,654,005
 1,655,434
Residential7,271 2,223 9,494 2,595,042 2,604,536 
Total real estate construction and land1,429
 —
 1,429
 2,736,373
 2,737,802
Total real estate construction and land7,271 2,223 9,494 3,427,633 3,437,127 
Commercial:         Commercial:
Asset-based19
 —
 19
 3,748,388
 3,748,407
Asset-based— 464 464 4,075,013 4,075,477 
Venture capital—
 —
 —
 2,179,422
 2,179,422
Venture capital— — — 2,320,593 2,320,593 
Other commercial2,781
 4,164
 6,945
 1,760,722
 1,767,667
Other commercial955 3,601 4,556 1,467,425 1,471,981 
Total commercial2,800
 4,164
 6,964
 7,688,532
 7,695,496
Total commercial955 4,065 5,020 7,863,031 7,868,051 
Consumer1,006
 200
 1,206
 439,621
 440,827
Consumer1,004 276 1,280 456,370 457,650 
Total$9,788
 $11,085
 $20,873
 $18,825,999
 $18,846,872
Total$55,042 $18,466 $73,508 $22,868,040 $22,941,548 
128


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

 December 31, 2018
 30 - 89 90 or More      
 Days Days Total    
 Past Due Past Due Past Due Current Total
 (In thousands)
Real estate mortgage:         
Commercial$3,487
 $7,541
 $11,028
 $4,813,270
 $4,824,298
Income producing and other residential1,557
 476
 2,033
 3,091,810
 3,093,843
Total real estate mortgage5,044
 8,017
 13,061
 7,905,080
 7,918,141
Real estate construction and land:         
Commercial—
 442
 442
 912,141
 912,583
Residential1,527
 —
 1,527
 1,319,546
 1,321,073
Total real estate construction and land1,527
 442
 1,969
 2,231,687
 2,233,656
Commercial:         
Asset-based47
 646
 693
 3,304,728
 3,305,421
Venture capital4,705
 —
 4,705
 2,034,043
 2,038,748
Other commercial5,181
 1,285
 6,466
 2,053,960
 2,060,426
Total commercial9,933
 1,931
 11,864
 7,392,731
 7,404,595
Consumer581
 333
 914
 400,407
 401,321
Total$17,085
 $10,723
 $27,808
 $17,929,905
 $17,957,713

December 31, 2020
30 - 8990 or More
DaysDaysTotal
Past DuePast DuePast DueCurrentTotal
 (In thousands)
Real estate mortgage:
Commercial$6,750 $29,145 $35,895 $4,060,776 $4,096,671 
Income producing and other residential600 373 973 3,802,292 3,803,265 
Total real estate mortgage7,350 29,518 36,868 7,863,068 7,899,936 
Real estate construction and land:
Commercial— — — 1,117,121 1,117,121 
Residential759 — 759 2,242,401 2,243,160 
Total real estate construction and land759 — 759 3,359,522 3,360,281 
Commercial:
Asset-based— 2,128 2,128 3,427,155 3,429,283 
Venture capital540 — 540 1,697,968 1,698,508 
Other commercial2,323 4,766 7,089 2,368,025 2,375,114 
Total commercial2,863 6,894 9,757 7,493,148 7,502,905 
Consumer1,260 111 1,371 318,884 320,255 
Total$12,232 $36,523 $48,755 $19,034,622 $19,083,377 
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:  
 December 31,
 2019 2018
 Nonaccrual Performing Total Nonaccrual Performing Total
 (In thousands)
Real estate mortgage:           
Commercial$18,346
 $4,184,341
 $4,202,687
 $15,321
 $4,808,977
 $4,824,298
Income producing and other residential2,478
 3,767,582
 3,770,060
 2,524
 3,091,319
 3,093,843
Total real estate mortgage20,824
 7,951,923
 7,972,747
 17,845
 7,900,296
 7,918,141
Real estate construction and land:           
Commercial364
 1,082,004
 1,082,368
 442
 912,141
 912,583
Residential—
 1,655,434
 1,655,434
 —
 1,321,073
 1,321,073
Total real estate construction and land364
 2,737,438
 2,737,802
 442
 2,233,214
 2,233,656
Commercial:           
Asset-based30,162
 3,718,245
 3,748,407
 32,324
 3,273,097
 3,305,421
Venture capital12,916
 2,166,506
 2,179,422
 20,299
 2,018,449
 2,038,748
Other commercial27,594
 1,740,073
 1,767,667
 7,380
 2,053,046
 2,060,426
Total commercial70,672
 7,624,824
 7,695,496
 60,003
 7,344,592
 7,404,595
Consumer493
 440,334
 440,827
 1,043
 400,278
 401,321
Total$92,353
 $18,754,519
 $18,846,872
 $79,333
 $17,878,380
 $17,957,713

December 31,
 20212020
NonaccrualPerformingTotalNonaccrualPerformingTotal
 (In thousands)
Real estate mortgage:
Commercial$27,540 $3,734,759 $3,762,299 $43,731 $4,052,940 $4,096,671 
Income producing and other residential12,292 7,404,129 7,416,421 1,826 3,801,439 3,803,265 
Total real estate mortgage39,832 11,138,888 11,178,720 45,557 7,854,379 7,899,936 
Real estate construction and land:
Commercial— 832,591 832,591 315 1,116,806 1,117,121 
Residential4,715 2,599,821 2,604,536 — 2,243,160 2,243,160 
Total real estate construction and land4,715 3,432,412 3,437,127 315 3,359,966 3,360,281 
Commercial:
Asset-based1,464 4,074,013 4,075,477 2,679 3,426,604 3,429,283 
Venture capital2,799 2,317,794 2,320,593 1,980 1,696,528 1,698,508 
Other commercial11,950 1,460,031 1,471,981 40,243 2,334,871 2,375,114 
Total commercial16,213 7,851,838 7,868,051 44,902 7,458,003 7,502,905 
Consumer414 457,236 457,650 389 319,866 320,255 
Total$61,174 $22,880,374 $22,941,548 $91,163 $18,992,214 $19,083,377 


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

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 amount of interest income that would have been recorded on nonaccrual loans and leases at December 31, 20192021 and 20182020 had such loans and leases been current in accordance with their original terms was $8.1$4.9 million and $9.3$7.5 million for 20192021 and 2018.2020.
129


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 2019,2021, nonaccrual loans and leases included $11.1$18.5 million of loans and leases 90 or more days past due, $1.2$6.3 million of loans 30 to 89 days past due and $80.0$36.4 million of current loans that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, 2018,2020, nonaccrual loans and leases included $10.7$36.5 million of loans and leases 90 or more days past due, $6.6$3.4 million of loans 30 to 89 days past due and $62.0$51.3 million of current loans that were placed on nonaccrual status based on management’s judgment regarding their collectability.
As of December 31, 2019,2021, our three largest loan relationships on nonaccrual status had an aggregate carrying value of $50.3$14.2 million and represented 54%23% of total nonaccrual loans and leases.
The following tables present the credit risk rating categories for loans and leases held for investment 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.
December 31, 2021
ClassifiedSpecial MentionPassTotal
(In thousands)
Real estate mortgage:
Commercial$62,206 $191,809 $3,508,284 $3,762,299 
Income producing and other residential17,700 19,848 7,378,873 7,416,421 
Total real estate mortgage79,906 211,657 10,887,157 11,178,720 
Real estate construction and land:
Commercial— 67,727 764,864 832,591 
Residential4,715 1,720 2,598,101 2,604,536 
Total real estate construction and land4,715 69,447 3,362,965 3,437,127 
Commercial:
Asset-based4,591 78,305 3,992,581 4,075,477 
Venture capital4,794 14,833 2,300,966 2,320,593 
Other commercial21,659 15,528 1,434,794 1,471,981 
Total commercial31,044 108,666 7,728,341 7,868,051 
Consumer439 1,841 455,370 457,650 
Total$116,104 $391,611 $22,433,833 $22,941,548 
 December 31, 2019
 Classified Special Mention Pass Total
 (In thousands)
Real estate mortgage:       
Commercial$33,535
 $30,070
 $4,139,082
 $4,202,687
Income producing and other residential8,600
 1,711
 3,759,749
 3,770,060
Total real estate mortgage42,135
 31,781
 7,898,831
 7,972,747
Real estate construction and land:       
Commercial364
 —
 1,082,004
 1,082,368
Residential—
 1,429
 1,654,005
 1,655,434
Total real estate construction and land364
 1,429
 2,736,009
 2,737,802
Commercial:       
Asset-based32,223
 38,936
 3,677,248
 3,748,407
Venture capital35,316
 74,813
 2,069,293
 2,179,422
Other commercial65,261
 174,785
 1,527,621
 1,767,667
Total commercial132,800
 288,534
 7,274,162
 7,695,496
Consumer613
 1,212
 439,002
 440,827
Total$175,912
 $322,956
 $18,348,004
 $18,846,872

December 31, 2020
ClassifiedSpecial MentionPassTotal
(In thousands)
Real estate mortgage:
Commercial$91,543 $262,462 $3,742,666 $4,096,671 
Income producing and other residential8,767 61,384 3,733,114 3,803,265 
Total real estate mortgage100,310 323,846 7,475,780 7,899,936 
Real estate construction and land:
Commercial42,558 107,592 966,971 1,117,121 
Residential— 759 2,242,401 2,243,160 
Total real estate construction and land42,558 108,351 3,209,372 3,360,281 
Commercial:
Asset-based27,867 153,301 3,248,115 3,429,283 
Venture capital6,508 118,125 1,573,875 1,698,508 
Other commercial87,557 14,930 2,272,627 2,375,114 
Total commercial121,932 286,356 7,094,617 7,502,905 
Consumer462 2,732 317,061 320,255 
Total$265,262 $721,285 $18,096,830 $19,083,377 

130


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

 December 31, 2018
 Classified Special Mention Pass Total
 (In thousands)
Real estate mortgage:       
Commercial$57,734
 $74,785
 $4,691,779
 $4,824,298
Income producing and other residential10,521
 968
 3,082,354
 3,093,843
Total real estate mortgage68,255
 75,753
 7,774,133
 7,918,141
Real estate construction and land:       
Commercial442
 7,041
 905,100
 912,583
Residential—
 1,527
 1,319,546
 1,321,073
Total real estate construction and land442
 8,568
 2,224,646
 2,233,656
Commercial:       
Asset-based45,957
 48,338
 3,211,126
 3,305,421
Venture capital28,731
 77,588
 1,932,429
 2,038,748
Other commercial92,526
 50,136
 1,917,764
 2,060,426
Total commercial167,214
 176,062
 7,061,319
 7,404,595
Consumer1,199
 1,015
 399,107
 401,321
Total$237,110
 $261,398
 $17,459,205
 $17,957,713

Nonaccrual loans and leases and performing TDRs are considered impaired for reporting purposes. TDRs are a result of rate reductions, term extensions, fee concessions and debt forgiveness or a combination thereof. At December 31, 2019 and 2018, we had unfunded commitments related to TDRs of $1.2 million and $1.3 million.
The following table presents the composition of our impairednonaccrual loans and leases held for investment, net of deferred fees, by loan portfolio segment and class and by with and without an allowance recorded as of the datesdate indicated and interest income recognized on nonaccrual loans and leases for the year indicated:
At and For the Year EndedAt and For the Year Ended
 December 31, 2021December 31, 2020
NonaccrualInterestNonaccrualInterest
RecordedIncomeRecordedIncome
InvestmentRecognizedInvestmentRecognized
 (In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial$70 $— $78 $— 
Income producing and other residential3,555 — 1,260 — 
Real estate construction and land:
Commercial— — — — 
Residential616 — — — 
Commercial:
Asset based1,000 — 2,128 — 
Venture capital2,799 — 1,980 — 
Other commercial1,081 — 2,438 — 
Consumer19 — 389 — 
With No Related Allowance Recorded:
Real estate mortgage:
Commercial$27,470 $596 $43,653 $524 
Income producing and other residential8,737 — 566 — 
Real estate construction and land:
Commercial— — 315 — 
Residential4,099 — — — 
Commercial:
Asset based464 — 551 — 
Venture capital— — — — 
Other commercial10,869 169 37,805 5,052 
Consumer395 — — — 
Total Loans and Leases With and
Without an Allowance Recorded:
Real estate mortgage$39,832 $596 $45,557 $524 
Real estate construction and land4,715 — 315 — 
Commercial16,213 169 44,902 5,052 
Consumer414 — 389 — 
Total$61,174 $765 $91,163 $5,576 
 December 31, 2019 December 31, 2018
     Total     Total
 Nonaccrual   Impaired Nonaccrual   Impaired
 Loans   Loans Loans   Loans
 and Performing and and Performing and
 Leases TDRs Leases Leases TDRs Leases
 (In thousands)
Real estate mortgage$20,824
 $10,165
 $30,989
 $17,845
 $11,484
 $29,329
Real estate construction and land364
 1,470
 1,834
 442
 5,420
 5,862
Commercial70,672
 550
 71,222
 60,003
 692
 60,695
Consumer493
 72
 565
 1,043
 105
 1,148
Total$92,353
 $12,257
 $104,610
 $79,333
 $17,701
 $97,034











131


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following tables present information regarding our impaired loans and leases held for investment net of deferred fees, by loan portfolio segment and class, by credit quality indicator (internal risk ratings), and by year of origination (vintage year) as of and for the yearsdate indicated:
Revolving
Converted
Amortized Cost BasisTerm Loans by Origination YearRevolvingto Term
December 31, 202120212020201920182017PriorLoansLoansTotal
(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 Pass499,626 531,989 321,728 578,436 489,727 932,950 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:
Income Producing and
Other 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 Pass4,405,055 623,207 573,718 616,515 547,531 234,525 91,655 156 7,092,362 
5 Special mention2,871 3,810 13,007 — — — 160 — 19,848 
6-8 Classified5,161 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 Pass96,108 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 
 December 31,
 2019 2018
   Unpaid     Unpaid  
 Recorded Principal Related Recorded Principal Related
Impaired Loans and LeasesInvestment Balance Allowance Investment Balance Allowance
 (In thousands)
With An Allowance Recorded: 
  
  
  
  
  
Real estate mortgage:           
Commercial$479
 $479
 $71
 $1,736
 $1,648
 $170
Income producing and other residential2,002
 2,005
 160
 2,569
 2,563
 247
Commercial:           
Venture capital7,811
 9,106
 2,581
 11,621
 13,255
 3,141
Other commercial14,805
 15,191
 3,385
 473
 482
 473
With No Related Allowance Recorded:           
Real estate mortgage:           
Commercial$21,264
 $36,247
 $—
 $17,783
 $32,035
 $—
Income producing and other residential7,244
 9,442
 —
 7,241
 9,425
 —
Real estate construction and land:           
Commercial1,834
 1,887
 —
 5,862
 5,870
 —
Commercial:           
Asset-based30,162
 52,139
 —
 32,324
 38,100
 —
Venture capital5,270
 44,468
 —
 8,678
 41,335
 —
Other commercial13,174
 32,242
 —
 7,599
 25,740
 —
Consumer565
 728
 —
 1,148
 1,470
 —
Total Loans and Leases With and           
Without an Allowance Recorded:           
Real estate mortgage$30,989
 $48,173
 $231
 $29,329
 $45,671
 $417
Real estate construction and land1,834
 1,887
 —
 5,862
 5,870
 —
Commercial71,222
 153,146
 5,966
 60,695
 118,912
 3,614
Consumer565
 728
 —
 1,148
 1,470
 —
Total$104,610
 $203,934
 $6,197
 $97,034
 $171,923
 $4,031
132




PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Revolving
Converted
Amortized Cost BasisTerm Loans by Origination YearRevolvingto Term
December 31, 202120212020201920182017PriorLoansLoansTotal
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass849,188 672,864 851,127 163,950 17,526 3,970 28,804 10,672 2,598,101 
5 Special mention276 1,185 — — 259 — — — 1,720 
6-8 Classified849 3,278 588 — — — — — 4,715 
Total$850,313 $677,327 $851,715 $163,950 $17,785 $3,970 $28,804 $10,672 $2,604,536 
Current YTD period:
Gross charge-offs$7 $— $— $— $— $— $— $— $7 
Gross recoveries— — — — — — — — — 
Net$7 $— $— $— $— $— $— $— $7 
Commercial: Asset-Based
Internal risk rating:
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 Pass242,209 71,930 59,748 45,375 8,350 34,833 1,992,677 6,158 2,461,280 
5 Special mention— — 48,796 13,138 — — 12,393 3,978 78,305 
6-8 Classified— — — — — 464 4,027 100 4,591 
Total$381,045 $144,655 $286,835 $182,460 $80,290 $223,708 $2,715,753 $60,731 $4,075,477 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $232 $232 
Gross recoveries— — — — — (691)(28)— (719)
Net$— $— $— $— $— $(691)$(28)$232 $(487)
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass (1)
$— $1,999 $— $— $(4)$14 $228,820 $— $230,829 
3-4 Pass229,567 58,283 46,007 7,241 1,614 4,166 1,715,057 8,202 2,070,137 
5 Special mention8,980 2,778 499 — — 2,593 (17)— 14,833 
6-8 Classified500 — — 2,000 — — (6)2,300 4,794 
Total$239,047 $63,060 $46,506 $9,241 $1,610 $6,773 $1,943,854 $10,502 $2,320,593 
Current YTD period:
Gross charge-offs$— $— $— $— $— $620 $— $— $620 
Gross recoveries— — (127)(37)(158)(82)— — (404)
Net$— $— $(127)$(37)$(158)$538 $— $— $216 
____________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
133
 Year Ended December 31,
 2019 2018 
2017 (2)
 Weighted Interest Weighted Interest Weighted Interest
 Average Income Average Income Average Income
Impaired Loans and Leases
Balance (1)
 Recognized 
Balance (1)
 Recognized 
Balance (1)
 Recognized
 (In thousands)
With An Allowance Recorded: 
  
  
  
    
Real estate mortgage:           
Commercial$479
 $31
 $1,736
 $72
 $15,538
 $881
Income producing and other residential2,001
 58
 2,199
 75
 2,787
 55
Commercial:           
Venture capital7,008
 —
 9,449
 —
 10,228
 —
Other commercial3,710
 —
 35
 —
 20,329
 60
Consumer—
 —
 —
 —
 100
 8
With No Related Allowance Recorded:           
Real estate mortgage:           
Commercial$16,252
 $230
 $15,714
 $236
 $89,554
 $2,648
Income producing and other residential6,898
 217
 7,191
 181
 3,842
 59
Real estate construction and land:           
Commercial1,834
 118
 5,460
 383
 5,690
 306
Commercial:           
Asset-based28,829
 —
 32,324
 —
 31,388
 —
Venture capital4,735
 —
 689
 —
 2,860
 —
Other commercial7,303
 75
 6,286
 98
 3,404
 84
Consumer413
 5
 844
 7
 20
 —
Total Loans and Leases With and           
Without an Allowance Recorded:           
Real estate mortgage$25,630
 $536
 $26,840
 $564
 $111,721
 $3,643
Real estate construction and land1,834
 118
 5,460
 383
 5,690
 306
Commercial51,585
 75
 48,783
 98
 68,209
 144
Consumer413
 5
 844
 7
 120
 8
Total$79,462
 $734
 $81,927
 $1,052
 $185,740
 $4,101

_________________________
(1)For loans and leases reported as impaired at December 31, 2019, 2018, and 2017, amounts were calculated based on the period of time such loans and leases were impaired during the reported period.
(2)
Excludes PCI loans. See Note 1(h).
Nature of Operations and Summary of Significant Accounting Policies.





PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Revolving
Converted
Amortized Cost BasisTerm Loans by Origination YearRevolvingto Term
December 31, 202120212020201920182017PriorLoansLoansTotal
(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass (1)
$134,825 $22,556 $261 $4 $246 $(50)$18,206 $693 $176,741 
3-4 Pass286,281 73,328 77,487 67,591 46,939 89,408 607,197 9,822 1,258,053 
5 Special mention— 291 1 2,088 115 11,911 1,061 61 15,528 
6-8 Classified53 1 395 (3)223 4,212 15,731 1,047 21,659 
Total$421,159 $96,176 $78,144 $69,680 $47,523 $105,481 $642,195 $11,623 $1,471,981 
Current YTD period:
Gross charge-offs$1,992 $— $122 $47 $139 $797 $985 $2,364 $6,446 
Gross recoveries— — (42)— (268)(4,076)(57)(145)(4,588)
Net$1,992 $— $80 $47 $(129)$(3,279)$928 $2,219 $1,858 
Consumer
Internal risk rating:
1-2 High pass$36 $11 $— $5 $4 $— $646 $— $702 
3-4 Pass261,678 24,195 73,860 35,623 21,707 31,916 5,689 — 454,668 
5 Special mention797 363 496 — 50 135 — — 1,841 
6-8 Classified— 22 123 111 21 143 — 19 439 
Total$262,511 $24,591 $74,479 $35,739 $21,782 $32,194 $6,335 $19 $457,650 
Current YTD period:
Gross charge-offs$— $185 $654 $156 $270 $188 $— $54 $1,507 
Gross recoveries— — — (27)(13)(79)(1)— (120)
Net$— $185 $654 $129 $257 $109 $(1)$54 $1,387 
Total Loans and Leases
Internal risk rating:
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 Pass6,869,712 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 mention12,924 13,238 126,180 91,598 74,684 55,351 13,597 4,039 391,611 
6-8 Classified6,563 9,006 18,143 10,771 6,826 41,306 19,752 3,737 116,104 
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:
Gross charge-offs$2,027 $265 $965 $1,146 $753 $1,924 $985 $2,650 $10,715 
Gross recoveries(28)— (169)(64)(447)(11,358)(86)(446)(12,598)
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.
134


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202020202019201820172016PriorLoansLoansTotal
(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass$— $28,304 $4,848 $13,184 $12,241 $41,222 $— $— $99,799 
3-4 Pass554,143 413,785 574,497 725,503 405,367 893,008 62,586 13,978 3,642,867 
5 Special mention2,622 78,484 99,397 14,625 9,967 57,367 — — 262,462 
6-8 Classified504 1,255 7,489 7,869 16,797 57,629 — — 91,543 
Total$557,269 $521,828 $686,231 $761,181 $444,372 $1,049,226 $62,586 $13,978 $4,096,671 
Current YTD period:
Gross charge-offs$— $— $154 $3,330 $— $6,694 $— $— $10,178 
Gross recoveries— — — (9)— (280)— — (289)
Net$— $— $154 $3,321 $— $6,414 $— $— $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 $— $— $204,644 
3-4 Pass491,504 850,978 1,067,109 577,906 238,499 187,959 113,987 528 3,528,470 
5 Special mention12,307 4,207 42,455 1,554 — — 861 — 61,384 
6-8 Classified— — 2,862 — — 4,950 118 837 8,767 
Total$562,525 $911,011 $1,141,257 $612,477 $257,490 $202,174 $114,966 $1,365 $3,803,265 
Current YTD period:
Gross charge-offs$— $— $— $— $— $51 $— $457 $508 
Gross recoveries— — — — — (327)(1)— (328)
Net$— $— $— $— $— $(276)$(1)$457 $180 
Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass66,114 369,588 357,295 118,586 36,027 11,778 7,583 — 966,971 
5 Special mention— — 40,396 67,196 — — — — 107,592 
6-8 Classified— — — — 42,243 315 — — 42,558 
Total$66,114 $369,588 $397,691 $185,782 $78,270 $12,093 $7,583 $— $1,117,121 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $— $— 
Gross recoveries— — — — — — — — — 
Net$— $— $— $— $— $— $— $— $— 
135


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202020202019201820172016PriorLoansLoansTotal
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass345,134 670,894 849,819 285,072 28,725 688 9,034 53,035 2,242,401 
5 Special mention759 — — — — — — — 759 
6-8 Classified— — — — — — — — — 
Total$345,893 $670,894 $849,819 $285,072 $28,725 $688 $9,034 $53,035 $2,243,160 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $— $— 
Gross recoveries— — — — — (21)— — (21)
Net$— $— $— $— $— $(21)$— $— $(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 Pass155,221 84,798 85,539 42,928 8,227 46,663 1,750,934 46,078 2,220,388 
5 Special mention— 59,822 41,789 9,022 14,274 482 23,257 4,655 153,301 
6-8 Classified— — — — 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 $3,429,283 
Current YTD period:
Gross charge-offs$— $— $— $— $— $11,817 $— $— $11,817 
Gross recoveries(52)— — — — (420)(236)— (708)
Net$(52)$— $— $— $— $11,397 $(236)$— $11,109 
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$1,999 $4,797 $— $(4)$(4)$52 $167,296 $— $174,136 
3-4 Pass48,132 103,437 37,818 7,789 29,738 5,494 1,161,606 5,725 1,399,739 
5 Special mention21,645 42,499 2,202 — — — 46,765 5,014 118,125 
6-8 Classified— (1,710)4,000 — — 3,690 528 — 6,508 
Total$71,776 $149,023 $44,020 $7,785 $29,734 $9,236 $1,376,195 $10,739 $1,698,508 
Current YTD period:
Gross charge-offs$— $— $6,533 $— $(8)$150 $144 $— $6,819 
Gross recoveries— — (478)(176)(154)(3)(450)— (1,261)
Net$— $— $6,055 $(176)$(162)$147 $(306)$— $5,558 

136


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202020202019201820172016PriorLoansLoansTotal
(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 Pass88,875 95,110 99,434 77,557 23,305 89,865 657,088 7,533 1,138,767 
5 Special mention— 40 2,145 564 484 10,440 335 922 14,930 
6-8 Classified2 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 $2,375,114 
Current YTD period:
Gross charge-offs$— $— $— $506 $239 $33,521 $27,332 $1,871 $63,469 
Gross recoveries— (18)(8)(34)(226)(3,155)(100)(19)(3,560)
Net$— $(18)$(8)$472 $13 $30,366 $27,232 $1,852 $59,909 
Consumer
Internal risk rating:
1-2 High pass$15 $— $8 $14 $— $— $509 $— $546 
3-4 Pass40,585 110,993 62,833 39,036 41,623 12,831 8,536 78 316,515 
5 Special mention45 137 1,628 261 422 239 — — 2,732 
6-8 Classified— 35 — 36 56 306 2 27 462 
Total$40,645 $111,165 $64,469 $39,347 $42,101 $13,376 $9,047 $105 $320,255 
Current YTD period:
Gross charge-offs$— $97 $86 $177 $363 $44 $22 $9 $798 
Gross recoveries— — (1)(10)(16)(174)— — (201)
Net$— $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 Pass1,789,708 2,699,583 3,134,344 1,874,377 811,511 1,248,286 3,771,354 126,955 15,456,118 
5 Special mention37,378 185,189 230,012 93,222 25,147 68,528 71,218 10,591 721,285 
6-8 Classified506 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 $19,083,377 
Current YTD period:
Gross charge-offs$— $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.







137


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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. Between March 2020 and December 2021, the Company granted various commercial and consumer loan modifications to provide borrowers relief from the economic impacts of COVID-19. In accordance with the CARES Act, the Company elected to not apply TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act. The following table presents our troubled debt restructurings of loans held for investment and defaulted troubled debt restructurings of loans held for investment by loan portfolio segment and class for the years indicated:
Troubled Debt Restructurings
 Troubled Debt Restructurings
That Subsequently Defaulted(1)
Pre-ModificationPost-Modification
NumberOutstandingOutstandingNumber
ofRecordedRecordedofRecorded
LoansInvestmentInvestmentLoans
Investment(1)
 (Dollars In thousands)
Year Ended December 31, 2021
Real estate mortgage:
Commercial2 $647 $— — $— 
Income producing and other residential6 802 802 — — 
Real estate construction and land:
Residential1 208 208 — — 
Commercial:
Asset-based2 1,987 1,987 1 464 
Venture capital5 4,502 2,529 — — 
Other commercial40 48,760 30,786 3 2,066 
Consumer1 20 20 — — 
Total57 $56,926 $36,332 4 $2,530 
Year Ended December 31, 2020
Real estate mortgage:
Commercial12 $17,201 $4,222 1 $412 
Income producing and other residential9 1,816 1,816 — — 
Commercial:
Asset-based8 17,008 1,741 — — 
Venture capital2 2,047 2,047 — — 
Other commercial37 41,906 27,403 1 92 
Consumer3 212 212 — — 
Total71 $80,190 $37,441 2 $504 
Year Ended December 31, 2019
Real estate mortgage:
Commercial3 $121 $— — $— 
Income producing and other residential9 1,591 1,591 1 254 
Commercial:
Asset-based5 3,082 3,082 — — 
Venture capital14 19,017 19,155 — — 
Other commercial20 3,835 3,835 4 154 
Total51 $27,646 $27,663 5 $408 
       Troubled Debt Restructurings
 Troubled Debt Restructurings 
That Subsequently Defaulted(1)
   Pre-Modification Post-Modification    
 Number Outstanding Outstanding Number  
 of Recorded Recorded of Recorded
 Loans Investment Investment Loans 
Investment(1)
 (Dollars In thousands)
Year Ended December 31, 2019         
Real estate mortgage:         
Commercial3
 $121
 $—
 —
 $—
Income producing and other residential9
 1,591
 1,591
 1
 254
Commercial:         
Asset-based5
 3,082
 3,082
 —
 —
Venture capital14
 19,017
 19,155
 —
 —
Other commercial20
 3,835
 3,835
 4
 154
Total51
 $27,646
 $27,663
 5
 $408
Year Ended December 31, 2018         
Real estate mortgage:         
Commercial10
 $17,181
 $2,604
 —
 $—
Income producing and other residential10
 3,262
 2,203
 —
 —
Commercial:         
Asset-based (2)
4
 28,947
 33,947
 —
 —
Venture capital14
 37,416
 36,919
 —
 —
Other commercial19
 14,399
 14,027
 —
 —
Consumer3
 673
 673
 —
 —
Total60
 $101,878
 $90,373
 —
 $—
Year Ended December 31, 2017         
Real estate mortgage:         
Commercial5
 $2,527
 $2,463
 —
 $—
Income producing and other residential8
 1,328
 489
 —
 —
Real estate construction and land:         
Residential1
 362
 —
 —
 —
Commercial:         
Asset-based5
 4,219
 4,219
 —
 —
Venture capital11
 29,733
 29,733
 —
 —
Other commercial19
 31,471
 22,236
 1
 1
Consumer1
 97
 97
 —
 —
Total50
 $69,737
 $59,237
 1
 $1
_________________________
(1)     The population of defaulted TDRs for the period indicated includes only those loans restructured during the preceding 12-month period. For example, for the year ended December 31, 2021, the population of defaulted TDRs includes only those loans restructured after December 31, 2020. The table excludes defaulted TDRs in those classes for which the recorded investment was zero at the end of the period.
At December 31, 2021 and 2020, we had unfunded commitments related to TDRs of $2.0 million and $0.9 million.
138

_________________________
(1)The population of defaulted TDRs for the period indicated includes only those loans restructured during the preceding 12-month period. For example, for the year ended December 31, 2019, the population of defaulted TDRs includes only those loans restructured after December 31, 2018. The table excludes defaulted TDRs in those classes for which the recorded investment was zero at the end of the period.
(2)One commercial asset-based loan with a pre-modification balance of $27.3 million and a post-modification balance of $32.3 million was previously restructured in December 2017.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

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 10. Leases for information regarding operating leases where we are the lessor.
The following table provides the components of leases receivable income for the period indicated:
 Year Ended
 December 31, 2019
 (In thousands)
Component of leases receivable income: 
Interest income on net investments in leases$11,061

Year Ended December 31,
202120202019
(In thousands)
Component of leases receivable income:
Interest income on net investments in leases$8,976 $8,049 $11,061 
The following table presents the components of leases receivable as of the date indicated:
 December 31, 2019
 (In thousands)
Net investment in sales type and direct financing leases: 
Lease payments receivable$147,729
Unguaranteed residual assets20,806
Deferred fees and other655
Aggregate net investment in leases$169,190

December 31,
20212020
(In thousands)
Net investment in direct financing leases:
Lease payments receivable$190,025 $158,740 
Unguaranteed residual assets21,487 19,303 
Deferred costs and other1,373 996 
Aggregate net investment in leases$212,885 $179,039 
The following table presents maturities of leases receivable as of the date indicated:
December 31, 2019December 31, 2021
(In thousands)(In thousands)
Year Ending December 31, Year Ending December 31,
2020$66,113
202151,735
202220,562
2022$54,831 
202312,491
202346,499 
20248,856
202442,154 
2025 and thereafter1,015
2025202525,653 
2026202617,829 
ThereafterThereafter26,423 
Total undiscounted cash flows160,772
Total undiscounted cash flows213,389 
Less: Unearned income(13,043)Less: Unearned income(23,364)
Present value of lease payments$147,729
Present value of lease payments$190,025 
139



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

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 years indicated:
 Year Ended December 31, 2019
   Real Estate      
 Real Estate Construction      
 Mortgage and Land Commercial Consumer Total
 (In thousands)
Allowance for Loan and lease losses:         
Balance, beginning of year$46,021
 $28,209
 $56,360
 $1,882
 $132,472
Charge-offs(997) —
 (30,426) (839) (32,262)
Recoveries983
 —
 14,397
 195
 15,575
Net charge-offs(14) —
 (16,029) (644) (16,687)
(Negative provision) provision(1,432) 2,335
 21,197
 900
 23,000
Balance, end of year$44,575
 $30,544
 $61,528
 $2,138
 $138,785
          
Ending Allowance by         
Impairment Methodology:         
Individually evaluated for impairment$231
 $—
 $5,966
 $—
 $6,197
Collectively evaluated for impairment$44,344
 $30,544
 $55,562
 $2,138
 $132,588
          
Ending Loans and Leases by         
Impairment Methodology:         
Individually evaluated for impairment$28,038
 $1,834
 $69,674
 $—
 $99,546
Collectively evaluated for impairment7,944,709
 2,735,968
 7,625,822
 440,827
 18,747,326
Ending balance$7,972,747
 $2,737,802
 $7,695,496
 $440,827
 $18,846,872

Year Ended December 31, 2021
Real Estate
Real EstateConstruction
Mortgageand LandCommercialConsumerTotal
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of year$138,342 $78,356 $126,403 $5,080 $348,181 
Charge-offs(1,128)(782)(7,298)(1,507)(10,715)
Recoveries6,767 — 5,711 120 12,598 
Net recoveries (charge-offs)5,639 (782)(1,587)(1,387)1,883 
Provision(45,928)(32,495)(76,098)5,021 (149,500)
Balance, end of year$98,053 $45,079 $48,718 $8,714 $200,564 
Ending Allowance by
Evaluation Methodology:
Individually evaluated$161 $— $2,433 $— $2,594 
Collectively evaluated$97,892 $45,079 $46,285 $8,714 $197,970 
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated$37,030 $10,043 $31,317 $— $78,390 
Collectively evaluated11,141,690 3,427,084 7,836,734 457,650 22,863,158 
Ending balance$11,178,720 $3,437,127 $7,868,051 $457,650 $22,941,548 
140


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Year Ended December 31, 2020
Real Estate
Real EstateConstruction
Mortgageand LandCommercialConsumerTotal
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of year$44,575 $30,544 $61,528 $2,138 $138,785 
Cumulative effect of change in accounting
principle - CECL5,308 (8,592)6,860 41 3,617 
Balance, January 1, 202049,883 21,952 68,388 2,179 142,402 
Charge-offs(10,686)— (82,105)(798)(93,589)
Recoveries617 21 5,529 201 6,368 
Net (charge-offs) recoveries(10,069)21 (76,576)(597)(87,221)
Provision98,528 56,383 134,591 3,498 293,000 
Balance, end of year$138,342 $78,356 $126,403 $5,080 $348,181 
Ending Allowance by
Evaluation Methodology:
Individually evaluated$237 $— $3,422 $— $3,659 
Collectively evaluated$138,105 $78,356 $122,981 $5,080 $344,522 
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated$50,139 $1,766 $81,171 $— $133,076 
Collectively evaluated7,849,797 3,358,515 7,421,734 320,255 18,950,301 
Ending balance$7,899,936 $3,360,281 $7,502,905 $320,255 $19,083,377 
The allowance for loan and lease losses decreased by $147.6 million in 2021 due primarily to a provision benefit for loan and lease losses of $149.5 million. The lower provision for loan and lease losses in 2021 was primarily a result of improvement in both macroeconomic forecast variables and loan portfolio credit quality metrics.
We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act during 2020 and 2021, originating $1.65 billion of such loans. As of December 31, 2021, PPP loans totaled $156.7 million, net of deferred fees.The loans have two or five year terms, are fully guaranteed by the SBA, and do not carry an allowance.
A loan is considered collateral-dependent, and is individually evaluated for reserve purposes, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent loans held for investment by collateral type as of the following date:
December 31,
20212020
RealBusinessRealBusiness
PropertyAssetsTotalPropertyAssetsTotal
(In thousands)(In thousands)
Real estate mortgage$30,817 $— $30,817 $43,656 $— $43,656 
Real estate construction and land10,421 — 10,421 1,766 — 1,766 
Commercial— 7,586 7,586 — 31,100 31,100 
     Total$41,238 $7,586 $48,824 $45,422 $31,100 $76,522 
 Year Ended December 31, 2018
   Real Estate      
 Real Estate Construction      
 Mortgage and Land Commercial Consumer Total
 (In thousands)
Allowance for Loan and lease losses:         
Balance, beginning of year (1)
$40,051
 $13,055
 $84,022
 $2,328
 $139,456
Charge-offs(8,190) —
 (50,481) (371) (59,042)
Recoveries2,350
 195
 12,566
 173
 15,284
Net (charge-offs) recoveries(5,840) 195
 (37,915) (198) (43,758)
Provision (negative provision)11,810
 14,959
 10,253
 (248) 36,774
Balance, end of year$46,021
 $28,209
 $56,360
 $1,882
 $132,472
          
Ending Allowance by         
Impairment Methodology:         
Individually evaluated for impairment$417
 $—
 $3,614
 $—
 $4,031
Collectively evaluated for impairment$45,604
 $28,209
 $52,746
 $1,882
 $128,441
          
Ending Loans and Leases by         
Impairment Methodology:         
Individually evaluated for impairment$26,473
 $5,862
 $59,288
 $444
 $92,067
Collectively evaluated for impairment7,891,668
 2,227,794
 7,345,307
 400,877
 17,865,646
Ending balance$7,918,141
 $2,233,656
 $7,404,595
 $401,321
 $17,957,713
141

______________________________________
(1)The allowance for loan losses related to PCI loans of $6.4 million as of December 31, 2017 is reflected in the beginning balance of the allowance for loan and lease losses for the year ended December 31, 2018.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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 years indicated:
Year Ended December 31, 2021
Allowance forReserve forTotal
Loan andUnfunded LoanAllowance for
Lease LossesCommitmentsCredit Losses
(In thousands)
Balance, beginning of year$348,181 $85,571 $433,752 
Charge-offs(10,715)— (10,715)
Recoveries12,598 — 12,598 
Net recoveries1,883 — 1,883 
Provision(149,500)(12,500)(162,000)
Balance, end of year$200,564 $73,071 $273,635 
 Year Ended December 31, 2019
 Allowance for Reserve for Total
 Loan and Unfunded Loan Allowance for
 Lease Losses Commitments Credit Losses
 (In thousands)
Balance, beginning of year$132,472
 $36,861
 $169,333
Charge-offs(32,262) —
 (32,262)
Recoveries15,575
 —
 15,575
Net charge-offs(16,687) —
 (16,687)
Provision (negative provision)23,000
 (1,000) 22,000
Balance, end of year$138,785
 $35,861
 $174,646


Year Ended December 31, 2020
Allowance forReserve forTotal
Loan andUnfunded LoanAllowance for
Lease LossesCommitmentsCredit Losses
(In thousands)
Balance, beginning of year$138,785 $35,861 $174,646 
Cumulative effect of change in accounting
principle - CECL3,617 3,710 7,327 
Balance, January 1, 2020142,402 39,571 181,973 
Charge-offs(93,589)— (93,589)
Recoveries6,368 — 6,368 
Net charge-offs(87,221)— (87,221)
Provision293,000 46,000 339,000 
Balance, end of year$348,181 $85,571 $433,752 

142


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

 Year Ended December 31, 2018
 Allowance for Reserve for Total
 Loan and Unfunded Loan Allowance for
 Lease Losses Commitments Credit Losses
 (In thousands)
Balance, beginning of year (1)
$139,456
 $28,635
 $168,091
Charge-offs(59,042) —
 (59,042)
Recoveries15,284
 —
 15,284
Net charge-offs(43,758) —
 (43,758)
Provision36,774
 8,226
 45,000
Balance, end of year$132,472
 $36,861
 $169,333

_______________________________________
(1)The allowance for loan losses related to PCI loans of $6.4 million as of December 31, 2017 is reflected in the beginning balance of the allowance for loan and lease losses for the year ended December 31, 2018.
NOTE 6.  FORECLOSED ASSETS, NET
The following table summarizes foreclosed assets as of the dates indicated:
 December 31,
Property Type2019 2018
 (In thousands)
Commercial real estate$221
 $2,004
Construction and land development219
 219
Multi‑family—
 1,059
Single-family residence—
 953
Total other real estate owned, net440
 4,235
Other foreclosed assets—
 1,064
Total foreclosed assets, net$440
 $5,299

December 31,
Property Type20212020
(In thousands)
Commercial real estate$12,594 $12,979 
Construction and land development— 219 
Total other real estate owned, net12,594 13,198 
Other foreclosed assets249 829 
Total foreclosed assets, net$12,843 $14,027 
The following table presents the changes in foreclosed assets, net of the valuation allowance, for the years indicated:
 Year Ended December 31,
Foreclosed Assets2019 2018 2017

(In thousands)
Balance, beginning of year$5,299
 $1,329
 $12,976
Transfers to foreclosed assets from loans120
 16,914
 580
Other additions—
 —
 1,385
Provision for losses(78) (74) (2,138)
Reductions related to sales(4,901) (12,870) (11,474)
Balance, end of year$440
 $5,299
 $1,329





PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Year Ended December 31,
Foreclosed Assets202120202019
(In thousands)
Balance, beginning of year$14,027 $440 $5,299 
Transfers to foreclosed assets from loans1,062 14,755 120 
Provision for losses(14)(267)(78)
Reductions related to sales(2,232)(901)(4,901)
Balance, end of year$12,843 $14,027 $440 
The following table presents the changes in the foreclosed assets valuation allowance for the years indicated:
Year Ended December 31,
Foreclosed Assets Valuation Allowance202120202019
(In thousands)
Balance, beginning of year$354 $87 $88 
Provision for losses14 267 78 
Reductions related to sales(176)— (79)
Balance, end of year$192 $354 $87 
 Year Ended December 31,
Foreclosed Assets Valuation Allowance2019 2018 2017
 (In thousands)
Balance, beginning of year$88
 $14
 $12,696
Provision for losses78
 74
 2,138
Reductions related to sales(79) —
 (14,820)
Balance, end of year$87
 $88
 $14
143


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7.  PREMISES AND EQUIPMENT, NET
The following table presents the components of premises and equipment as of the dates indicated:
 December 31,
 2019 2018
 (In thousands)
Land$1,243
 $1,243
Buildings8,399
 8,309
Furniture, fixtures and equipment47,581
 45,204
Leasehold improvements55,335
 50,214
Premises and equipment, gross112,558
 104,970
Less: accumulated depreciation and amortization(73,973) (70,309)
Premises and equipment, net$38,585
 $34,661

December 31,
20212020
(In thousands)
Land$1,243 $1,243 
Buildings9,488 8,459 
Furniture, fixtures and equipment50,509 50,892 
Leasehold improvements66,143 60,622 
Other assets6,882 — 
Premises and equipment, gross134,265 121,216 
Less: accumulated depreciation and amortization(87,525)(81,982)
Premises and equipment, net$46,740 $39,234 
Depreciation and amortization expense was $10.5$11.1 million $9.4, $11.5 million, and $7.6$10.5 million for the years ended December 31, 2019, 2018,2021, 2020, and 2017.2019.
NOTE 8.  GOODWILL AND OTHER INTANGIBLE ASSETS, NET
The unprecedented decline in economic conditions triggered by the COVID-19 pandemic caused a significant decline in stock market valuations in March 2020, including our stock price. These triggering events indicated that goodwill related to our single reporting unit may be impaired and resulted in us performing a goodwill impairment assessment in the first quarter of 2020. We applied the market approach using an average share price of the Company's stock and a control premium to determine the fair value of the reporting unit. The control premium was based upon management judgment using historical information of control premiums for completed bank acquisitions. As a result, we recorded a goodwill impairment charge of $1.47 billion in the first quarter of 2020 as the estimated fair value of equity was less than book value. This was a non-cash charge to earnings and had no impact on our regulatory capital ratios, cash flows, or liquidity position.
In performing our annual goodwill assessment in the fourth quarter of 2020, we considered relevant events and circumstances that may affect the fair value or carrying amount of our goodwillreporting unit. The events and circumstances we considered included macroeconomic conditions, industry conditions, and our financial performance. Based on our qualitative assessment, we concluded that there were no conditions, changes in operations, or results that indicated a triggering event had occurred in the fourth quarter of $2.5 billion2020. Thus, a quantitative assessment was unchanged fornot required and we determined that it was more likely than not that the last three years. fair value of the reporting unit was greater than its carrying value and there was no evidence of impairment.
We performperformed our annual goodwill impairment testing in the fourth quarter.quarter of 2021. We evaluated the carrying value of our goodwill and determined that it was not impaired. The following table presents the changes in the carrying amount of goodwill for the years indicated:
Goodwill
(In thousands)
Balance, December 31, 2019$2,548,670 
Impairment(1,470,000)
Balance, December 31, 20201,078,670 
Addition from the Civic acquisition125,448 
Addition from the HOA Business acquisition201,618 
Balance, December 31, 2021$1,405,736 



144


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 estimated aggregate amortization expense related to our current intangible assets for each of the next five years is $14.7 million for 2020, $10.8 million for 2021, $7.4 million for 2022, $3.8 million for 2023 and $1.7 million for 2024.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following table presents the changes in CDI and CRI and the related accumulated amortization for the years indicated:
Year Ended December 31, Year Ended December 31,
2019 2018 2017202120202019
(In thousands) (In thousands)
Gross Amount of CDI and CRI:     Gross Amount of CDI and CRI:   
Balance, beginning of year$119,497
 $119,497
 $64,187
Balance, beginning of year$109,646 $117,573 $119,497 
Addition from the CUB acquisition—
 —
 57,500
Addition from the Civic acquisitionAddition from the Civic acquisition750 — — 
Addition from the HOA Business acquisitionAddition from the HOA Business acquisition33,300 — — 
Fully amortized portion(1,924) —
 (2,190)Fully amortized portion(9,846)(7,927)(1,924)
Balance, end of year117,573
 119,497
 119,497
Balance, end of year133,850 109,646 117,573 
Accumulated Amortization:     Accumulated Amortization:
Balance, beginning of year(62,377) (39,871) (27,821)Balance, beginning of year(86,005)(79,179)(62,377)
Amortization(18,726) (22,506) (14,240)
Amortization expenseAmortization expense(12,734)(14,753)(18,726)
Fully amortized portion1,924
 —
 2,190
Fully amortized portion9,846 7,927 1,924 
Balance, end of year(79,179) (62,377) (39,871)Balance, end of year(88,893)(86,005)(79,179)
Net CDI and CRI, end of year$38,394
 $57,120
 $79,626
Net CDI and CRI, end of year$44,957 $23,641 $38,394 
The following table presents the estimated aggregate future amortization expense for our current intangible assets as of the date indicated:
December 31, 2021
(In thousands)
Year Ending December 31,
2022$13,575 
20239,085 
20246,404 
20254,087 
20263,482 
Thereafter8,324 
Net CDI and CRI$44,957 
145


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 9.  OTHER ASSETS
The following table presents the detail of our other assets as of the dates indicated:
 December 31,
Other Assets2019 2018
 (In thousands)
Cash surrender value of BOLI$199,029
 $194,897
Operating lease ROU assets, net129,301
 —
Interest receivable81,479
 88,754
LIHTC investments75,149
 59,507
CRA investments (1)
65,152
 59,062
Taxes receivable31,591
 39,096
Prepaid expenses17,099
 18,006
Equity investments without readily determinable fair values14,890
 14,758
Equity warrants3,434
 4,793
Equity investments with readily determinable fair values2,998
 4,891
Deferred tax asset, net—
 17,489
Other receivables/assets16,689
 39,132
Total other assets$636,811
 $540,385

December 31,
Other Assets20212020
(In thousands)
LIHTC investments$297,746 $213,034 
Cash surrender value of BOLI203,836 203,031 
Operating lease ROU assets, net (1)
123,225 119,787 
Interest receivable120,329 101,596 
Equity investments without readily determinable fair values62,975 34,304 
SBIC investments46,861 32,327 
Taxes receivable36,011 59,565 
Equity investments with readily determinable fair values28,578 6,147 
Prepaid expenses27,632 22,999 
Equity warrants (2)
3,555 4,520 
Other receivables/assets133,244 63,016 
Total other assets$1,083,992 $860,326 
________________________
(1)
Includes equity investments without readily determinable fair values of $17.8 million and $12.5 million at December 31, 2019 and 2018.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

____________________
The Company has purchased life insurance policies on certain employees and has also acquired life insurance policies through acquisitions. BOLI is recorded at the amount that can be realized under the insurance contract, which is the cash surrender value. The increase in the cash surrender value each period and the receipt of death benefit proceeds in excess of the cash surrender value are recorded to "Noninterest income - other."
The increase in the ROU assets, net in 2019 was due to the adoption of ASU 2016-02 effective January 1, 2019.(1)    See Note 10.Leases for further details.details regarding the operating lease ROU assets.
The Company makes various investments(2)    See Note 13. Derivatives for CRA investment purposes including, but not limited to, CRA-related loan pool investments, CRA-relatedinformation regarding equity investments, and investments in LIHTC partnerships. The loan pool and other CRA equity investments primarily consist of investments in partnerships which provide affordable housing and participations in loan pools which provide low-cost loans to low and moderate income applicants.warrants.
The Company invests as a limited partner in LIHTC partnerships that operate qualified affordable housing projects and generate tax benefits for investors, including federal low income housing tax credits. The partnerships are deemed to be VIEs because they do not have sufficient equity investment at risk and are structured with non-substantive voting rights; however, we are not the primary beneficiary of the VIEs and do not consolidate them. We amortize the investment in proportion to the allocated tax benefits using the proportional amortization method of accounting and record such benefits net of investment amortization in income tax expense.
The Company has purchased life insurance policies on certain employees and has also acquired life insurance policies through acquisitions. BOLI is recorded at the amount that can be realized under the insurance contract, which is the cash surrender value. The increase in the cash surrender value each period and the receipt of death benefit proceeds in excess of the cash surrender value are recorded to "Noninterest income - other."
The Company's equity investments without readily determinable fair values include investments in privately held companies, and limited partnerships, as well as investments in entities from which we issued trust preferred securities. On January 1, 2018, we adopted ASU 2016-01securities, CRA-related loan pool investments, and ASU 2018-03 which changed the way we account forCRA-related equity investments. The CRA-related loan pool and equity investments without readily determinable fair values previously accounted for using the cost method. Upon adoption, we electedprimarily consist of investments in partnerships which provide affordable housing and participations in loan pools which provide low-cost loans to low and moderate income applicants. We measure our equity investments without readily determinable fair values using the measurement alternative. Carrying values of these investments are adjusted to fair value upon observable transactions for identical or similar investments of the same issuer. Beginning January 1, 2018, unrealizedUnrealized and realized gains and losses on equity investments without readily determinable fair values are recorded in "Noninterest income - other."
Duringother" on the year ended December 31, 2019, we recorded impairmentconsolidated statements of $764,000 in the aggregate on 8 of our CRA equity investments without readily determinable fair values. On a cumulative basis since January 1, 2018 and through December 31, 2019, we recorded impairments of $1.0 million and upward adjustments of $286,000 to our equity investments without readily determinable fair values.earnings (loss).
The Company's equity investments with readily determinable fair values include investments in public companies, often from the exercise of warrants, and publicly-traded mutual funds. Beginning January 1, 2018, unrealizedUnrealized and realized gains and losses on equity investments with readily determinable fair values are recorded in "Noninterest income - other."
other" on the consolidated statements of earnings (loss).

146


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 10. LEASES
The Company adopted ASU 2016-02, "Leases (Topic 842)," effective January 1, 2019, and applied the guidance to all leases within the scope of ASC Topic 842, "Leases," as of that date. We have adopted the guidance using the optional transition method under ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” and recognized a cumulative effect adjustment to increase retained earnings by $938,000, net of taxes, without restating prior periods and applying the requirements of the new standard prospectively.
We determine if an arrangement is a lease at inception by assessing whether there is an identified asset, and whether the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. ASC Topic 842 also requires a lessee to classify a lease as either finance or operating. As of December 31, 2019, we only had operating leases related to our leased facilities, which consisted of 72 full-service branch offices and 75 other offices.
ROU assets represent a lessee's right to use an underlying asset for the lease term and lease liabilities represent a lessee's obligation to make lease payments arising from the lease. On January 1, 2019, ROU assets and operating lease liabilities were initially recognized based on the present value of future minimum lease payments over the remaining lease terms. We used our incremental borrowing rates on January 1, 2019 to determine the present value of future payments. The ROU assets also include any prepaid lease payments and initial direct costs incurred less any lease incentives received. We amortize the operating lease ROU assets and record interest expense on the operating lease liabilities over the lease terms.
OurOperating leases have remaining terms ranging fromwith a term of more than one to 27 years. Short-termyear are included in operating lease ROU assets and operating lease liabilities, which are reported in "Other assets" and "Accrued interest payable and other liabilities" on the Company's consolidated balance sheets. Short-term leases (initial term of less than 12 months) are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. Most leases include one or more options to renew, with renewal terms that can extend the lease from one to ten years. The exercise of lease renewal options is at our sole discretion. Some of our leases also include termination options. We have determined that we do not meet the reasonably certain threshold to exercise any renewal or termination options, therefore our lease terms do not reflect any optional periods. We rent or sublease certain office space to third parties. Our subleases consist of operating leases for offices that we have fully or partially vacated.
Certain of our lease agreements also include rental payments that adjust periodically based on changes in the CPI. We initially measured our lease payments using the index at the lease commencement date. Subsequent increases in the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. The ROU assets and lease liabilities are not re-measured as a result of changes in the CPI. Our lease agreements do not contain any purchase options, residual value guarantees, or restrictive covenants.
Operating Leases as a Lessee
Our lease expense is a component of "Occupancy expense" on our consolidated statements of earnings.earnings (loss). The following table presents the components of lease expense for the period indicated:
 Year Ended
 December 31, 2019
 (In thousands)
Operating lease expense: 
Fixed costs$33,891
Variable costs100
Short-term lease costs926
Sublease income(4,202)
Net lease expense$30,715



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Year Ended December 31,
20212020
(In thousands)
Operating lease expense:
Fixed costs$34,541 $34,393 
Variable costs59 51 
Short-term lease costs1,347 385 
Sublease income(4,474)(4,171)
Net lease expense$31,473 $30,658 
The following table presents supplemental cash flow information related to leases for the period indicated:
Year Ended December 31,
20212020
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$36,212 $33,889 
ROU assets obtained in exchange for lease obligations:
Operating leases$35,820 $24,309 
 Year Ended
 December 31, 2019
 (In thousands)
Cash paid for amounts included in the measurement of lease liabilities: 
Operating cash flows from operating leases$32,991
ROU assets obtained in exchange for lease obligations: 
Operating leases$175,569


147


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents supplemental balance sheet and other information related to operating leases as of the date indicated:
 December 31, 2019
 (Dollars in thousands)
Operating leases: 
Operating lease right-of-use assets, net$129,301
Operating lease liabilities$145,354
  
Weighted average remaining lease term (in years)6.1
Weighted average discount rate2.82%

December 31, 2021December 31, 2020
(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net$123,225 $119,787 
Operating lease liabilities$142,117 $139,501 
Weighted average remaining lease term (in years)5.65.8
Weighted average discount rate2.23 %2.54 %
The following table presents the maturities of operating lease liabilities as of the date indicated:
 December 31, 2019
 (In thousands)
Year Ending December 31, 
2020$32,898
202130,657
202224,849
202322,068
202414,885
2025 and thereafter34,119
Total operating lease liabilities159,476
Less: Imputed interest(14,122)
Present value of operating lease liabilities$145,354



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Prior to the adoption of ASC Topic 842, the Company's operating leases were not recognized on the balance sheet. The following table presents the undiscounted future minimum lease payments under the Company's operating leases as of December 31, 2018:
 December 31, 2018
 (In thousands)
Year Ending December 31, 
2019$32,845
202030,267
202126,852
202220,862
202317,745
2024 and thereafter29,923
Total$158,494

December 31, 2021
(In thousands)
Year Ending December 31,
2022$35,102 
202332,945 
202425,816 
202518,900 
202613,706 
Thereafter25,715 
Total operating lease liabilities152,184 
Less: Imputed interest(10,067)
Present value of operating lease liabilities$142,117 
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 our 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 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""Leased equipment income" in the consolidated statements of earnings.earnings (loss). The equipment is tested periodically for impairment. No impairment was recorded on "Equipment leased to others under operating leases" for the years ended December 31, 2021 and 2020.
The following table presents the contractual rental payments to be received on operating leases as of the date indicated:
December 31, 2019December 31, 2021
(In thousands)(In thousands)
Year Ending December 31, Year Ending December 31,
2020$41,296
202139,292
202232,240
2022$49,300 
202325,522
202340,825 
202420,912
202435,186 
2025 and thereafter37,304
2025202525,008 
2026202619,245 
ThereafterThereafter35,172 
Total undiscounted cash flows$196,566
Total undiscounted cash flows$204,736 
148



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 11. DEPOSITS
The following table presents the components of interest‑bearing deposits as of the dates indicated:
 December 31,
Deposit Composition2019 2018
 (In thousands)
Interest checking$3,818,002
 $2,972,357
Money market5,122,803
 5,432,169
Savings499,591
 571,422
Time deposits $250,000 and under2,065,733
 1,593,453
Time deposits over $250,000483,609
 412,185
Total interest-bearing deposits$11,989,738
 $10,981,586

December 31,
Deposit Composition20212020
(In thousands)
Interest checking$7,386,269 $5,999,245 
Money market11,064,870 7,658,049 
Savings630,653 562,826 
Time deposits $250,000 and under885,938 994,197 
Time deposits over $250,000486,894 532,573 
Total interest-bearing deposits$20,454,624 $15,746,890 
Brokered time deposits totaled $1.2 billion and $729.4$195.7 million at both December 31, 20192021 and 2018.2020. Brokered non-maturity deposits totaled $496.4 million$0.9 billion and $518.2 million$1.1 billion at December 31, 20192021 and 2018.2020.
The following table summarizes the maturities of time deposits as of the date indicated:
Time Deposits
$250,000Over
December 31, 2021and Under$250,000Total
(In thousands)
Year of Maturity:
2022$663,169 $473,700 $1,136,869 
2023110,917 10,824 121,741 
202452,897 505 53,402 
202556,067 546 56,613 
20262,859 1,319 4,178 
Thereafter29 — 29 
Total$885,938 $486,894 $1,372,832 
 Time Deposits
 $250,000 Over  
December 31, 2019and Under $250,000 Total
 (In thousands)
Year of Maturity:     
2020$1,969,362
 $461,294
 $2,430,656
202181,070
 20,610
 101,680
202211,813
 1,454
 13,267
20231,682
 —
 1,682
20241,408
 251
 1,659
2025398
 —
 398
Total$2,065,733
 $483,609
 $2,549,342
149



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 12.  BORROWINGS AND SUBORDINATED DEBENTURESDEBT
Borrowings
The following table summarizes our borrowings as of the dates indicated:
 December 31,
 2019 2018
   Weighted   Weighted
   Average   Average
Borrowing TypeBalance Rate Balance Rate
 (Dollars in thousands)
Non‑recourse debt$8
 7.50% $114
 7.50%
FHLB secured advances1,318,000
 1.66% 1,040,000
 2.56%
FHLB unsecured overnight advance141,000
 1.56% 141,000
 2.53%
AFX borrowings300,000
 1.61% 190,000
 2.56%
Total borrowings$1,759,008
 1.64% $1,371,114
 2.56%

The non‑recourse debt represents the payment stream of certain equipment leases sold to third parties. The debt is secured by the equipment in the leases and all interest rates are fixed. As of December 31, 2019, this debt had a weighted average remaining maturity of 0.2 years.
December 31,
20212020
WeightedWeighted
AverageAverage
Borrowing TypeBalanceRateBalanceRate
(Dollars in thousands)
FHLB secured advances$— — %$5,000 — %
Total borrowings$— — %$5,000 — %
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 borrowing capacity with the FHLB of $4.2$4.0 billion as of December 31, 2019,2021, collateralized by a blanket lien on $5.9$6.2 billion of qualifying loans. As
The following table presents the interest rates and maturity dates of December 31, 2019,FHLB secured advances as of the balance outstanding was a $1.3 billion overnight advance. As of December 31, 2018, the balance outstanding was a $1.0 billion overnight advance.dates indicated:
December 31,
20212020
MaturityMaturity
BalanceRateDateBalanceRateDate
(Dollars in thousands)
Term advance— — %5,000 — %5/6/2021
Total FHLB secured advances$— — %$5,000 — %
FRBSF Secured Line of Credit. The Bank had secured borrowing capacity with the FRBSF of $2.0$1.4 billion as of December 31, 2019,2021, collateralized by liens on $2.7$1.8 billion of qualifying loans. As of December 31, 20192021 and 2018,2020, there were 0was no balances outstanding.
FHLB Unsecured Line of Credit. As of December 31, 2019,2021, the Bank had a $141.0$112.0 million unsecured line of credit with the FHLB for the borrowing of overnight funds, of which $141.0 million was outstanding.funds. As of December 31, 2018, the2021 and 2020, there was no balance outstanding was $141.0 million.outstanding.
Federal Funds Arrangements with Commercial Banks. As of December 31, 2019,2021, the Bank had unsecured lines of credit of $180.0 million in the aggregate with several correspondent banks for the borrowing of overnight funds, subject to availability of funds. These lines are renewable annually and have 0no unused commitment fees. As of December 31, 20192021 and 2018,2020, 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 December 31, 2019, the balance outstanding2021 and 2020, there was $300.0 million, which consisted of a $300.0 million overnightno borrowing. As of December 31, 2018, there were $190.0 million in overnight borrowings outstanding.
150


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Notes to Consolidated Financial Statements

Subordinated DebenturesDebt
The following table summarizes the terms of each issuance of subordinated debenturesdebt outstanding as of the dates indicated:
December 31,
20212020IssueMaturityRate Index
SeriesBalance
Rate (1)
Balance
Rate (1)
DateDate
(Quarterly Reset) (6)
(Dollars in thousands)
Subordinated notes, net (2)
$394,634 3.25 %$— — %4/30/20215/1/2031
Fixed rate (3)
Trust V10,310 3.32 %10,310 3.33 %8/15/20039/17/20333-month LIBOR + 3.10
Trust VI10,310 3.25 %10,310 3.27 %9/3/20039/15/20333-month LIBOR + 3.05
Trust CII5,155 3.17 %5,155 3.18 %9/17/20039/17/20333-month LIBOR + 2.95
Trust VII61,856 2.88 %61,856 2.96 %2/5/20044/23/20343-month LIBOR + 2.75
Trust CIII20,619 1.89 %20,619 1.91 %8/15/20059/15/20353-month LIBOR + 1.69
Trust FCCI16,495 1.80 %16,495 1.82 %1/25/20073/15/20373-month LIBOR + 1.60
Trust FCBI10,310 1.75 %10,310 1.77 %9/30/200512/15/20353-month LIBOR + 1.55
Trust CS 2005-182,475 2.15 %82,475 2.17 %11/21/200512/15/20353-month LIBOR + 1.95
Trust CS 2005-2128,866 2.08 %128,866 2.16 %12/14/20051/30/20363-month LIBOR + 1.95
Trust CS 2006-151,545 2.08 %51,545 2.16 %2/22/20064/30/20363-month LIBOR + 1.95
Trust CS 2006-251,550 2.08 %51,550 2.16 %9/27/200610/30/20363-month LIBOR + 1.95
Trust CS 2006-3 (4)
29,306 1.49 %31,487 1.54 %9/29/200610/30/20363-month EURIBOR + 2.05
Trust CS 2006-416,470 2.08 %16,470 2.16 %12/5/20061/30/20373-month LIBOR + 1.95
Trust CS 2006-56,650 2.08 %6,650 2.16 %12/19/20061/30/20373-month LIBOR + 1.95
Trust CS 2007-239,177 2.08 %39,177 2.16 %6/13/20077/30/20373-month LIBOR + 1.95
Total subordinated debt935,728 2.64 %543,275 2.24 %
Acquisition discount (5)
(72,445)(77,463)
Net subordinated debt$863,283 $465,812 
 December 31,      
 2019 2018 Issue Maturity Rate Index
SeriesBalance Rate Balance Rate Date Date (Quarterly Reset)
 (Dollars in thousands)      
Trust V$10,310
 5.00% $10,310
 5.89% 8/15/2003 9/17/2033 3-month LIBOR + 3.10
Trust VI10,310
 4.94% 10,310
 5.84% 9/3/2003 9/15/2033 3-month LIBOR + 3.05
Trust CII5,155
 4.85% 5,155
 5.74% 9/17/2003 9/17/2033 3-month LIBOR + 2.95
Trust VII61,856
 4.69% 61,856
 5.27% 2/5/2004 4/23/2034 3-month LIBOR + 2.75
Trust CIII20,619
 3.58% 20,619
 4.48% 8/15/2005 9/15/2035 3-month LIBOR + 1.69
Trust FCCI16,495
 3.49% 16,495
 4.39% 1/25/2007 3/15/2037 3-month LIBOR + 1.60
Trust FCBI10,310
 3.44% 10,310
 4.34% 9/30/2005 12/15/2035 3-month LIBOR + 1.55
Trust CS 2005-182,475
 3.85% 82,475
 4.74% 11/21/2005 12/15/2035 3-month LIBOR + 1.95
Trust CS 2005-2128,866
 3.89% 128,866
 4.47% 12/14/2005 1/30/2036 3-month LIBOR + 1.95
Trust CS 2006-151,545
 3.89% 51,545
 4.47% 2/22/2006 4/30/2036 3-month LIBOR + 1.95
Trust CS 2006-251,550
 3.89% 51,550
 4.47% 9/27/2006 10/30/2036 3-month LIBOR + 1.95
Trust CS 2006-3 (1)
28,902
 1.64% 29,556
 1.73% 9/29/2006 10/30/2036 3-month EURIBOR + 2.05
Trust CS 2006-416,470
 3.89% 16,470
 4.47% 12/5/2006 1/30/2037 3-month LIBOR + 1.95
Trust CS 2006-56,650
 3.89% 6,650
 4.47% 12/19/2006 1/30/2037 3-month LIBOR + 1.95
Trust CS 2007-239,177
 3.89% 39,177
 4.47% 6/13/2007 7/30/2037 3-month LIBOR + 1.95
Gross subordinated debentures540,690
 3.87% 541,344
 4.51%      
Unamortized discount (2)
(82,481)   (87,498)        
Net subordinated debentures$458,209
   $453,846
        
___________________
___________________
(1)    Rates do not include the effects of discounts and issuance costs.
(1)Denomination is in Euros with a value of €25.8 million.
(2)Amount represents the fair value adjustment on trust preferred securities assumed in acquisitions.

(2)    Net of unamortized issuance costs of $5.4 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 paymentson 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 byon November 1, 2021. The Bank may, at its option, beginning with the Companyinterest payment date of May 1, 2026, and on subordinated debentures are considered dividend payments under FRB regulations. Bank holding companies,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 PacWest, are required to notify 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.Tier 2 capital for regulatory capital purposes.



151


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 13.  DERIVATIVES
The Company uses derivatives to manage exposure to market risk, primarily foreign currency risk and interest rate risk, and to assist customers with their risk management objectives. Our derivatives are carried at fair value and recorded in "Other assets" or "Accrued interest payable and other liabilities," as appropriate, in the consolidated balance sheets. The changes in fair value of our derivatives and the related fees are recognized in "Noninterest income - other" in the consolidated statements of earnings (loss). For the year ended December 31, 2021, changes in fair value and fees recorded to noninterest income in the consolidated statements of earnings (loss) were immaterial. See Note 9. Other Assets for additional information regarding equity warrant assets.
The following table presents the U.S. dollar notional amounts and fair values of our derivative instruments included in the consolidated balance sheets as of the dates indicated:
December 31, 2021December 31, 2020
NotionalFairNotionalFair
Derivatives Not Designated As Hedging InstrumentsAmountValueAmountValue
(In thousands)
Derivative Assets:
Interest rate contracts$87,470 $992 $59,867 $1,028 
Foreign exchange contracts28,463 1,517 73,108 3,202 
Interest rate and economic contracts115,933 2,509 132,975 4,230 
Equity warrant assets18,539 3,555 24,081 4,520 
Total$134,472 $6,064 $157,056 $8,750 
Derivative Liabilities:
Interest rate contracts$87,470 $931 $59,867 $1,004 
Foreign exchange contracts28,463 — 73,108 146 
Total$115,933 $931 $132,975 $1,150 
NOTE 13.14.  COMMITMENTS AND CONTINGENCIES
The following table presents a summary of commitments described below as of the dates indicated:
 December 31,
 2019 2018
 (In thousands)
Loan commitments to extend credit$8,183,158
 $7,528,248
Standby letters of credit355,503
 364,210
Commitments to contribute capital to low income housing project partnerships,   
small business investment companies, and CRA-related loan pools129,213
 101,991
Commitments to contribute capital to private equity funds50
 50
Total$8,667,924
 $7,994,499

December 31,
20212020
(In thousands)
Loan commitments to extend credit$9,006,350 $7,601,390 
Standby letters of credit345,769 337,336 
Total$9,352,119 $7,938,726 
The Company is a party to financial instruments with off‑balanceoff-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 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.
152


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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 someseveral 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 with us under these arrangements.
In addition,Additionally, we have commitments to invest in low income housing project partnerships, which provide income tax credits, in small business investment companiesSBICs that call for capital contributions up to an amount specified in the partnership agreements, and in CRA-related loan pools. As of December 31, 20192021 and 2018, we had2020, such commitments to contribute capital to these entities totaling $129.2totaled $85.9 million and $102.0$55.5 million. We also had commitments to contribute up to an additional $50,000 to private equity funds at December 31, 2019 and 2018.


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following table presents the years in which commitments are expected to be paid for our commitments to contribute capital to low income housing project partnerships, small business investment companies,SBICs and CRA-related loan pools as of the date indicated:
 December 31, 2019
 (In thousands)
Year Ending December 31, 
2020$78,106
202139,997
20224,812
2023852
2024503
2025 and thereafter4,943
Total$129,213

December 31, 2021
(In thousands)
Year Ending December 31,
2022$38,950 
202341,417 
20245,557 
Total$85,924 
Legal Matters
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. The range of any reasonably possible liabilities is also not significant.
153


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14.15.  FAIR VALUE MEASUREMENTS
ASC Topic 820, “Fair Value Measurement,” defines fair value, establishes a framework for measuring fair value including a three‑level valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as follows:
•Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of the financial instrument. This category generally includes agency residential CMOs, agency commercial and residential MBS, municipal securities, collateralized loan obligations, registered publicly rated private label CMOs, corporate debt securities, SBA securities, and asset-backed securitizations.
•Level 3: Inputs to a valuation methodology that are unobservable, supported by little or no market activity, and significant to the fair value measurement. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant management judgment or estimation. This category also includes observable inputs from a pricing service not corroborated by observable market data, and includes our non-rated private label residential CMOs, non-rated private label asset-backed securities,commercial MBS, and equity warrants.
We use 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 impairedindividually evaluated loans and leases and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long‑livedlong-lived assets.

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 December 31, 2021, the fair value of these investments was $46.9 million.
154


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

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
December 31, 2021
Measured on a Recurring BasisTotalLevel 1Level 2Level 3
(In thousands)
Securities available‑for‑sale:
Agency residential MBS$2,898,210 $— $2,898,210 $— 
Municipal securities2,315,968 — 2,315,968 — 
Agency commercial MBS1,688,967 — 1,688,967 — 
Agency residential CMOs1,038,134 — 1,038,134 — 
U.S. Treasury securities966,898 966,898 — — 
Corporate debt securities527,094 — 527,094 — 
Private label commercial MBS450,217 — 435,216 15,001 
Collateralized loan obligations385,362 — 385,362 — 
Private label residential CMOs264,417 — 264,417 — 
Asset-backed securities129,547 — 129,547 — 
SBA securities29,644 — 29,644 — 
Total securities available-for-sale$10,694,458 $966,898 $9,712,559 $15,001 
Equity investments with readily determinable fair values$28,578 $28,578 $— $— 
Derivatives (1):
Equity warrants3,555 — — 3,555 
Interest rate and economic contracts2,509 — 2,509 — 
Derivative liabilities931 — 931 — 
 Fair Value Measurements as of
 December 31, 2019
Measured on a Recurring BasisTotal Level 1 Level 2 Level 3
 (In thousands)
Securities available‑for‑sale:       
Agency residential CMOs$1,136,397
 $—
 $1,136,397
 $—
Agency commercial MBS1,108,224
 —
 1,108,224
 —
Municipal securities735,159
 —
 735,159
 —
Agency residential MBS305,198
 —
 305,198
 —
Asset-backed securities214,783
 —
 198,348
 16,435
Private label residential CMOs99,483
 —
 93,219
 6,264
Collateralized loan obligations123,756
 —
 123,756
 —
SBA securities48,258
 —
 48,258
 —
Corporate debt securities20,748
 —
 20,748
 —
U.S. Treasury securities5,181
 5,181
 —
 —
Total securities available-for-sale3,797,187
 5,181
 3,769,307
 22,699
Equity warrants3,434
 —
 —
 3,434
Other derivative assets1,234
 —
 1,234
 —
Equity investments with readily determinable fair values2,998
 2,998
 —
 —
Total recurring assets$3,804,853
 $8,179
 $3,770,541
 $26,133
Derivative liabilities$755
 $—
 $755
 $—
 Fair Value Measurements as of
 December 31, 2018
Measured on a Recurring BasisTotal Level 1 Level 2 Level 3
 (In thousands)
Securities available‑for‑sale:       
Municipal securities$1,312,194
 $—
 $1,312,194
 $—
Agency commercial MBS1,112,704
 —
 1,112,704
 —
Agency residential CMOs632,850
 —
 632,850
 —
U.S. Treasury securities403,405
 403,405
 —
 —
Agency residential MBS281,088
 —
 281,088
 —
Private label residential CMOs101,205
 —
 93,917
 7,288
Asset-backed securities81,385
 —
 41,440
 39,945
SBA securities67,047
 —
 67,047
 —
Corporate debt securities17,553
 —
 17,553
 —
Total securities available-for-sale4,009,431
 403,405
 3,558,793
 47,233
Equity warrants4,793
 —
 —
 4,793
Other derivative assets3,292
 —
 3,292
 —
Equity investments with readily determinable fair values4,891
 4,891
 —
 —
Total recurring assets$4,022,407
 $408,296
 $3,562,085
 $52,026
Derivative liabilities$142
 $—
 $142
 $—


Fair Value Measurements as of
December 31, 2020
Measured on a Recurring BasisTotalLevel 1Level 2Level 3
(In thousands)
Securities available‑for‑sale:
Municipal securities$1,531,617 $— $1,531,617 $— 
Agency commercial MBS1,281,877 — 1,281,877 — 
Agency residential CMOs1,219,880 — 1,219,880 — 
Agency residential MBS341,074 — 341,074 — 
Corporate debt securities311,889 — 311,889 — 
Asset-backed securities166,546 — 166,546 — 
Collateralized loan obligations135,876 — 135,876 — 
Private label residential CMOs116,946 — 112,299 4,647 
Private label commercial MBS82,957 — 57,232 25,725 
SBA securities41,627 — 41,627 — 
U.S. Treasury securities5,302 5,302 — — 
Total securities available-for-sale$5,235,591 $5,302 $5,199,917 $30,372 
Equity investments with readily determinable fair values$6,147 $6,147 $— $— 
Derivatives (1):
Equity warrants4,520 — — 4,520 
Interest rate and economic contracts4,230 — 4,230 — 
Derivative liabilities1,150 — 1,150 — 
____________________
(1)    For information regarding derivative instruments, see Note 13.Derivatives.
155


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

During the year ended December 31, 2019,2021, there was a $113,000 transfer$646,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis. During the year ended December 31, 2018,2020, there was a $78,000$119,000 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 the quantitative inputs and assumptions used to determine the fair values provided by our third party pricing service for our Level 3 private label residential CMOs and asset-backed securitiescommercial MBS available-for-sale measured at fair value on a recurring basis as of the date indicated:
 December 31, 2019
 Private Label Residential CMOs Asset-Backed Securities
   Weighted Input or Weighted
 Range of Average Range of Average
Unobservable InputsInputs Input Inputs Input
Voluntary annual prepayment speeds0.0% - 19.1% 11.3% 15.0% 15.0%
Annual default rates (1)
0.8% - 35.7% 1.7% 2.0% 2.0%
Loss severity rates (1)
1.6% - 132.6% 56.1% 60.0% 60.0%
Discount rates2.5% - 11.4% 6.6% 3.2% - 3.8% 3.6%

December 31, 2021
Private Label Commercial MBS
Input orWeighted
Range ofAverage
Unobservable InputsInputs
Input (1)
Voluntary annual prepayment speeds10.0% - 15.0%12.1%
Annual default rates (2)
2.0%2.0%
Loss severity rates (2)
60.0%60.0%
Discount rates3.0% - 3.4%3.3%
____________________
(1)The voluntary annual prepayment speeds, annual default rates, and loss severity rates were the same for all of the asset-backed securities.
(1)    Voluntary annual prepayment speeds and discount rates for private label commercial MBS were weighted by the relative fair values of the instruments.
(2)    Annual default rates and loss severity rates were the same for all of the private label commercial MBS.
The following table presents information about the 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:
December 31, 2021
December 31, 2019Equity Warrants
Equity WarrantsWeighted
WeightedRangeAverage
Unobservable InputsAverageof InputsInput
Unobservable InputsVolatilityInput21.0% - 139.9%28.6%
Volatility16.6%
Risk-free interest rate1.6%0.1% - 1.3%0.9%
Remaining life assumption (in years)3.20.08 - 4.993.00

The following table summarizes activity for our Level 3 private label residential CMOs measured at fair value on a recurring basis for the years indicated:
Year Ended December 31,
Level 3 Private Label Residential CMOs202120202019
(In thousands)
Balance, beginning of year$4,647 $6,264 $7,288 
Total included in earnings2,287 485 432 
Total unrealized loss in comprehensive income(1,094)(592)(265)
Sales(2,903)— — 
Net settlements(2,937)(1,510)(1,191)
Balance, end of year$— $4,647 $6,264 
Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at year-end$— 
 Year Ended December 31,
Level 3 Private Label Residential CMOs2019 2018 2017
 (In thousands)
Balance, beginning of year$7,288
 $22,874
 $56,902
Total included in earnings432
 1,737
 2,256
Total unrealized loss in comprehensive income(265) (1,146) (742)
Sales—
 (4,880) (4,732)
Transfer from Level 2—
 —
 574
Transfers to Level 2—
 —
 (21,165)
Net settlements(1,191) (11,297) (10,219)
Balance, end of year$6,264
 $7,288
 $22,874
156



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following table summarizes activity for our Level 3 asset-backed securitiesprivate label commercial MBS measured at fair value on a recurring basis for the years indicated:
 Year Ended December 31,
Level 3 Asset-Backed Securities2019 2018 2017
 (In thousands)
Balance, beginning of year$39,945
 $42,109
 $8,373
Total included in earnings(77) (32) 367
Total unrealized gain (loss) in comprehensive income463
 495
 (937)
Purchases—
 15,158
 42,910
Net settlements(23,896) (17,785) (8,604)
Balance, end of year$16,435
 $39,945
 $42,109

Year Ended December 31,
Level 3 Private Label Commercial MBS202120202019
(In thousands)
Balance, beginning of year$25,725 $16,435 $39,945 
Total included in earnings(77)5 (77)
Total unrealized gain (loss) in comprehensive income(115)(41)463 
Purchases— 20,100 — 
Net settlements(10,532)(10,774)(23,896)
Balance, end of year$15,001 $25,725 $16,435 
Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at year-end$41 
The following table summarizes activity for our Level 3 equity warrants measured at fair value on a recurring basis for the years indicated:
 Year Ended December 31,
Level 3 Equity Warrants2019 2018 2017
 (In thousands)
Balance, beginning of year$4,793
 $5,161
 $5,497
Total included in earnings8,669
 7,478
 2,532
Exercises and settlements (1)
(10,239) (8,589) (3,093)
Issuances324
 821
 1,407
Transfers to Level 1 (equity investments with readily     
determinable fair values)(113) (78) (1,182)
Balance, end of year$3,434
 $4,793
 $5,161

Year Ended December 31,
Level 3 Equity Warrants202120202019
(In thousands)
Balance, beginning of year$4,520 $3,434 $4,793 
Total included in earnings49,341 10,609 8,669 
Exercises and settlements (1)
(50,092)(9,828)(10,239)
Issuances432 424 324 
Transfers to Level 1 (equity investments with readily
determinable fair values)(646)(119)(113)
Balance, end of year$3,555 $4,520 $3,434 
______________________
(1)Includes the exercise of warrants that upon exercise become equity securities in public companies. These are often subject to lock-up restrictions that must be met before the equity security can be sold, during which time they are reported as equity investments with readily determinable fair values.
(1)    Includes the exercise of warrants that upon exercise become equity securities in public companies. These are often subject to lock-up restrictions that must be met before the equity security can be sold, during which time they are reported as equity investments with readily determinable fair values.
The following tables present assets measured at fair value on a non‑recurring basis as of the dates indicated:
Fair Value Measurement as of
December 31, 2021
Measured on a Non‑Recurring BasisTotalLevel 1Level 2Level 3
(In thousands)
Individually evaluated loans and leases$30,882 $— $2,915 $27,967 
Total non-recurring$30,882 $— $2,915 $27,967 
Fair Value Measurement as of
December 31, 2020
Measured on a Non‑Recurring BasisTotalLevel 1Level 2Level 3
(In thousands)
Individually evaluated loans and leases$102,274 $— $4,160 $98,114 
Total non-recurring$102,274 $— $4,160 $98,114 
 Fair Value Measurement as of
 December 31, 2019
Measured on a Non‑Recurring BasisTotal Level 1 Level 2 Level 3
 (In thousands)
Impaired loans$28,706
 $—
 $1,083
 $27,623
OREO105
 —
 —
 105
Total non-recurring$28,811
 $—
 $1,083
 $27,728


 Fair Value Measurement as of
 December 31, 2018
Measured on a Non‑Recurring BasisTotal Level 1 Level 2 Level 3
 (In thousands)
Impaired loans$24,432
 $—
 $1,800
 $22,632
OREO1,136
 —
 1,136
 —
Total non-recurring$25,568
 $—
 $2,936
 $22,632



157


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following table presents losses recognized on assets measured on a nonrecurring basis for the years indicated:
Year Ended December 31,Year Ended December 31,
Loss on Assets Measured on a Non‑Recurring Basis2019 2018 2017Loss on Assets Measured on a Non‑Recurring Basis202120202019
(In thousands)(In thousands)
Impaired loans$6,797
 $9,198
 $20,422
Loans held for sale—
 —
 957
Individually evaluated loans and leases (1)
Individually evaluated loans and leases (1)
$5,772 $24,607 $6,797 
OREO78
 74
 14
OREO14 267 78 
Total net loss$6,875
 $9,272
 $21,393
Total net loss$5,786 $24,874 $6,875 

_____________________
(1)    For 2021 and 2020, losses were based on individually evaluated loans and leases. For 2019, losses were based on impaired loans and leases.
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:
 December 31, 2019
   Valuation Unobservable Input or Weighted
AssetFair Value Technique Inputs Range Average
 (In thousands)        
Impaired loans$18,899
 Discounted cash flows Discount rates 3.75% - 8.77% 7.62%
Impaired loans8,724
 Third party appraisals No discounts    
OREO105
 Third party appraisals Discount (1) 43.00% 43.00%
Total non-recurring Level 3$27,728
        

____________________
(1)    Relates to one OREO property at December 31, 2019.
December 31, 2021
ValuationUnobservableInput orWeighted
AssetFair ValueTechniqueInputsRangeAverage
(In thousands)
Individually evaluated
loans and leases$15,426Discounted cash flowsDiscount rates0.00% - 9.25%6.46%
Individually evaluated
loans and leases12,541Third party appraisalsNo discounts
Total non-recurring Level 3$27,967
ASC Topic 825, “Financial Instruments,” requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.
On January 1, 2018, we adopted ASU 2016-01 and ASU 2018-03 which requires the use of the exit price notion when measuring the fair values of financial instruments for disclosure purposes. Starting in the first quarter of 2018, we updated our methodology used to estimate the fair value for our loan portfolio to conform to the new requirements.
158


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:
December 31, 2021
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(In thousands)
Financial Assets:
Cash and due from banks$112,548 $112,548 $112,548 $— $— 
Interest‑earning deposits in financial institutions3,944,686 3,944,686 3,944,686 — — 
Securities available‑for‑sale10,694,458 10,694,458 966,898 9,712,559 15,001 
Investment in FHLB stock17,250 17,250 — 17,250 — 
Loans and leases held for investment, net22,740,984 23,461,156 — 2,915 23,458,241 
Equity investments with readily determinable fair values28,578 28,578 28,578 — — 
Equity warrants3,555 3,555 — — 3,555 
Interest rate and economic contracts2,509 2,509 — 2,509 — 
Servicing rights1,228 1,228 — — 1,228 
Financial Liabilities:
Core deposits32,734,949 32,734,949 — 32,734,949 — 
Non-core non-maturity deposits889,976 889,976 — 889,976 — 
Time deposits1,372,832 1,371,527 — 1,371,527 — 
Borrowings— — — — — 
Subordinated debt863,283 917,342 — 917,342 — 
Derivative liabilities931 931 — 931 — 
 December 31, 2019
 Carrying Estimated Fair Value
 Amount Total Level 1 Level 2 Level 3
 
(In thousands)
Financial Assets:         
Cash and due from banks$172,585
 $172,585
 $172,585
 $—
 $—
Interest‑earning deposits in financial institutions465,039
 465,039
 465,039
 —
 —
Securities available‑for‑sale3,797,187
 3,797,187
 5,181
 3,769,307
 22,699
Investment in FHLB stock40,924
 40,924
 —
 40,924
 —
Loans and leases held for investment, net18,708,087
 19,055,004
 —
 1,083
 19,053,921
Equity warrants3,434
 3,434
 —
 —
 3,434
Other derivative assets1,234
 1,234
 —
 1,234
 —
Equity investments with readily determinable fair values2,998
 2,998
 2,998
 —
 —
          
Financial Liabilities:         
Core deposits16,187,287
 16,187,287
 —
 16,187,287
 —
Non-core non-maturity deposits496,407
 496,407
 —
 496,407
 —
Time deposits2,549,342
 2,549,260
 —
 2,549,260
 —
Borrowings1,759,008
 1,759,008
 1,759,000
 8
 —
Subordinated debentures458,209
 441,617
 —
 441,617
 —
Derivative liabilities755
 755
 —
 755
 —

December 31, 2020
CarryingEstimated Fair Value
AmountTotalLevel 1Level 2Level 3
(In thousands)
Financial Assets:
Cash and due from banks$150,464 $150,464 $150,464 $— $— 
Interest‑earning deposits in financial institutions3,010,197 3,010,197 3,010,197 — — 
Securities available‑for‑sale5,235,591 5,235,591 5,302 5,199,917 30,372 
Investment in FHLB stock17,250 17,250 — 17,250 — 
Loans and leases held for investment, net18,735,196 19,305,998 — 4,160 19,301,838 
Equity investments with readily determinable fair values6,147 6,147 6,147 — — 
Equity warrants4,520 4,520 — — 4,520 
Interest rate and economic contracts4,230 4,230 — 4,230 — 
Financial Liabilities:
Core deposits22,264,480 22,264,480 — 22,264,480 — 
Non-core non-maturity deposits1,149,467 1,149,467 — 1,149,467 — 
Time deposits1,526,770 1,527,639 — 1,527,639 — 
Borrowings5,000 4,995 — 4,995 — 
Subordinated debt465,812 448,036 — 448,036 — 
Derivative liabilities1,150 1,150 — 1,150 — 
159
 December 31, 2018
 Carrying Estimated Fair Value
 Amount Total Level 1 Level 2 Level 3
 
(In thousands)
Financial Assets:         
Cash and due from banks$175,830
 $175,830
 $175,830
 $—
 $—
Interest‑earning deposits in financial institutions209,937
 209,937
 209,937
 —
 —
Securities available‑for‑sale4,009,431
 4,009,431
 403,405
 3,558,793
 47,233
Investment in FHLB stock32,103
 32,103
 —
 32,103
 —
Loans and leases held for investment, net17,825,241
 17,013,860
 —
 1,800
 17,012,060
Equity warrants4,793
 4,793
 —
 —
 4,793
Other derivative assets3,292
 3,292
 —
 3,292
 —
Equity investments with readily determinable fair values4,891
 4,891
 4,891
 —
 —
          
Financial Liabilities:         
Core deposits16,346,671
 16,346,671
 —
 16,346,671
 —
Non-core non-maturity deposits518,192
 518,192
 —
 518,192
 —
Time deposits2,005,638
 2,017,137
 —
 2,017,137
 —
Borrowings1,371,114
 1,371,114
 1,371,000
 114
 —
Subordinated debentures453,846
 435,251
 —
 435,251
 —
Derivative liabilities142
 142
 —
 142
 —



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following is a description of the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820, “Fair Value Measurement”) and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825).
Cash and due from banks. The carrying amount is assumed to be the fair value because of the liquidity of these instruments.
Interest‑earning deposits in financial institutions. The carrying amount is assumed to be the fair value given the short‑term nature of these deposits.
Securities available‑for‑sale. Securities available‑for‑sale are measured and carried at fair value on a recurring basis. Unrealized gains and losses on available‑for‑sale securities are reported as a component of “Accumulated other comprehensive income” in the consolidated balance sheets. See Note 4. Investment Securities for further information on unrealized gains and losses on securities available‑for‑sale.
Fair value for securities categorized as Level 1, which are publicly traded securities, are based on readily available quoted prices. In determining the fair value of the securities categorized as Level 2, we obtain a report from a nationally recognized broker‑dealer detailing the fair value of each investment security we hold as of each reporting date. The broker‑dealer uses observable market information to value our securities, with the primary source being a nationally recognized pricing service. We review the market prices provided by the broker‑dealer for our securities for reasonableness based on our understanding of the marketplace and we consider any credit issues related to the securities. As we have not made any adjustments to the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy.
Our non-rated private label residential CMOs and non-rated private label asset-backed securitiescommercial MBS (collectively, “the Level 3 AFS Securities”) were categorized as Level 3 due in part to the inactive market for such securities. There is a wide range of prices quoted for our Level 3 AFS Securities among independent third party pricing services, and this range reflects the significant judgment being exercised over the assumptions and variables that determine the pricing of such securities. We consider this subjectivity relating to our Level 3 AFS Securities to be a significant unobservable input. Had significant changes in default expectations, loss severity factors, or discount rates occurred all together or in isolation, it would have resulted in different fair value measurements at December 31, 2019.2021.
FHLB stock. Investments in FHLB stock are recorded at cost and measured for impairment quarterly. Ownership of FHLB stock is restricted to member banks and the securities do not have a readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB stock is equal to the carrying amount.
Loans and leases. As loans and leases are not measured at fair value, the following discussion relates to estimating the fair value disclosures under ASC Topic 825. Fair values are measured using the exit price and are estimated for portfolios of loans and leases with similar characteristics. Loans are segregated by type and further segmented into fixed and adjustable rate interest buckets by credit risk categories and by maturity dates. To determine the exit price of a loan or lease, the cash flows are estimated using a model which utilizes credit spreads and illiquidity premiums. The credit spread for a loan is determined by mapping loans' credit risk ratings to an equivalent corporate bond rating. Once the corporate bond rating is assigned, the credit spread is determined using corporate credit curves for corporate bonds that have a similar corporate bond rating and remaining term as the loan being valued. Illiquidity premiums are assigned to individual loans in a similar manner as an illiquidity premium amount is determined for each corporate bond rating. The credit spread above the appropriate rate curve and the illiquidity premium are considered to arrive at the discount rate curve applied to loan cash flows. The Community Bank group originates and purchases a number of similar, homogeneous loans. For this portfolio, management may make adjustments to the discount rate arrived at using the previously described methodology based upon the pricing for recent loan pool purchases and/or rates on recent originations.
160


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

ImpairedIndividually evaluated loans and leases. Nonaccrual loans and leases and performing troubled debt restructured loans are considered impaired for reporting purposes and are measured and recorded at fair value on a non‑recurring basis. ImpairedDefaulted loans and leases with outstanding balances over $250,000 are reviewed individually for the amount of impairment,expected credit loss, if any. Impairedany, and are recorded at fair value on a non-recurring basis. These defaulted loans and leases with outstanding balances less thanare excluded from the loan pools used within the collective evaluation of estimated credit losses.The criteria for default may include any one of the following: (1) on nonaccrual status, (2) modified under a TDR, (3) payment delinquency of 90 days or equalmore, (4) partial charge-off recognized, (5) risk rated doubtful or loss, or (6) reasonably expected to $250,000 may not be individually assessed for impairment but are assessed with reserves based on the average loss severity on historical impaired loans with similar risk characteristics.modified under a TDR.
To the extent a defaulted loan or lease is collateral dependent, we measure such impaired loanexpected credit loss based on the estimated fair value of the underlying collateral. The fair value of each loan’s collateral is generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral; such valuation inputs result in a nonrecurring fair value measurement that is categorized as a Level 2 measurement. The Level 2 measurement is based on appraisals obtained within the last 12 months and for which a charge‑off was recognized or a change in the specific valuation allowance was made during the year ended December 31, 2019.2021.
When adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are considered unobservable and the fair value measurement is categorized as a Level 3 measurement. The impairedindividually evaluated loans and leases categorized as Level 3 also include unsecured loans and other secured loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, including an SBA government guarantee, cash flows discounted at the effective loan rate, and management’s judgment.
The impairedindividually evaluated loan and lease balances shown above as measured on a non-recurring basis represent those nonaccrualdefaulted loans and restructured loansleases for which impairmentexpected credit loss was recognized during the year ended December 31, 2019.2021. The amounts shown as net losses include the impairmentexpected credit loss recognized during the year ended December 31, 2019,2021, for the loan and lease balances shown.
OREO. The fair value of OREO is generally based on the lower of estimated market prices from independently prepared current appraisals or negotiated sales prices with potential buyers, less estimated costs to sell; such valuation inputs result in a fair value measurement that is categorized as a Level 2 measurement on a nonrecurring basis. As a matter of policy, appraisals are required annually and may be updated more frequently as circumstances require in the opinion of management. The Level 2 measurement for OREO is based on appraisals obtained within the last 12 months and for which a write‑down was recognized during the year ended December 31, 2019.2021.
When a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value as a result of known changes in the market or the collateral and there is no observable market price, such valuation inputs result in a fair value measurement that is categorized as a Level 3 measurement. To the extent a negotiated sales price or reduced listing price represents a significant discount to an observable market price, such valuation input would result in a fair value measurement that is also considered a Level 3 measurement. The OREO losses disclosed are write‑downs based on either a recent appraisal obtained after foreclosure or an accepted purchase offer by an independent third party received after foreclosure.
Equity warrants. Equity warrants with net settlement terms are received in connection with extending loan commitments to certain of our customers. We estimate the fair value of equity warrants using a Black-Scholes option pricing model to approximate fair market value. We typically classify our equity warrant derivatives in Level 3 of the fair value hierarchy.
Equity investments with readily determinable fair values. Our equity investments with readily determinable fair values include investments in public companies and publicly-traded mutual funds. Equity investments with readily determinable fair values are recorded at fair value with changes in fair value recorded in “Noninterest income - other.” Fair value measurements related to these investments are typically classified within Level 1 of the fair value hierarchy.
Deposits. Deposits are carried at historical cost. The fair values of deposits with no stated maturity, such as core deposits (defined as noninterest‑bearing demand, interest checking, money market, and savings accounts) and non-core non-maturity deposits, are equal to the amount payable on demand as of the balance sheet date and considered Level 2. The fair value of time deposits is based on the discounted value of contractual cash flows and considered Level 2. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. No value has been separately assigned to the Company’s long‑term relationships with its deposit customers, such as a core deposit intangible.
161


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Borrowings. Borrowings include overnight FHLB advances and other fixed‑rate term borrowings. Borrowings are carried at amortized cost. The fair value of overnight FHLB advances is equal to the carrying value and considered Level 1. The fair value of fixed‑rate borrowings is calculated by discounting scheduled cash flows through the maturity dates or call dates, if applicable, using estimated market discount rates that reflect current rates offered for borrowings with similar remaining maturities and characteristics and are considered Level 2.
Subordinated debentures.debt. Subordinated debentures aredebt is carried at amortized cost. The fair value of subordinated debentures with variable ratesdebt is determined using a market discount rate on the expected cash flows and areis considered Level 2.
Derivative assets and liabilities. Derivatives are carried at fair value on a recurring basis and primarily relate to forward exchange contracts which we enter into to manage foreign exchange risk. Our derivatives are principally traded in over-the-counter markets where quoted market prices are not readily available. Instead, the fair value of derivatives is estimated using market observable inputs such as foreign exchange forward rates, interest rate yield curves, volatilities and basis spreads. We also consider counter-party credit risk in valuing our derivatives. We typically classify our foreign exchange derivatives in Level 2 of the fair value hierarchy.
Commitments to extend credit. The majority of our commitments to extend credit carry current market interest rates if converted to loans. Because these commitments are generally not assignable by either the borrower or us, they only have value to the borrower and us. The estimated fair value approximates the recorded deferred fee amounts and is excluded from the table above because it is not material.
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 conservativereasonable 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 December 31, 2019,2021, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.
NOTE 15.16. INCOME TAXES
The following table presents the components of income tax expense for the years indicated:
Year Ended December 31,
202120202019
(In thousands)
Current Income Tax Expense:
Federal$131,559 $78,161 $113,807 
State54,744 27,530 34,575 
Total current income tax expense186,303 105,691 148,382 
Deferred Income Tax Expense (Benefit):
Federal15,799 (28,740)5,062 
State13,273 (1,778)10,860 
Total deferred income tax expense (benefit)29,072 (30,518)15,922 
Total income tax expense$215,375 $75,173 $164,304 
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Current Income Tax Expense:     
Federal$113,807
 $100,466
 $74,769
State34,575
 69,909
 38,933
Total current income tax expense148,382
 170,375
 113,702
Deferred Income Tax Expense (Benefit):     
Federal5,062
 4,746
 63,463
State10,860
 (7,143) 19,748
Total deferred income tax expense (benefit)15,922
 (2,397) 83,211
Total income tax expense$164,304
 $167,978
 $196,913
162



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The following table presents a reconciliation of the recorded income tax expense to the amount of taxes computed by applying the applicable federal statutory income tax rates of 21% for 20192021, 2020, and 2018 and 35% for 20172019 to earnings before income taxes:
 Year Ended December 31,
 2019 2018 2017
 (In thousands)
Computed expected income tax expense at federal statutory rate$132,917
 $132,997
 $194,156
State tax expense, net of federal tax benefit43,575
 45,945
 33,729
Tax‑exempt interest benefit(8,092) (9,810) (15,510)
Increase in cash surrender value of life insurance(1,298) (1,742) (1,853)
Low income housing tax credits, net of amortization(3,217) (2,025) (2,054)
Nondeductible employee compensation4,430
 2,552
 1,781
Nondeductible acquisition‑related expense—
 71
 1,608
Nondeductible FDIC premiums1,302
 1,664
 —
Change in unrecognized tax benefits941
 (169) 1,157
Valuation allowance change(32,036) (15,721) (13,071)
Expired capital loss carryforward3,136
 8,097
 —
Federal rate change—
 1,859
 (1,156)
State rate and apportionment changes19,138
 3,736
 (3,735)
Other, net3,508
 524
 1,861
Recorded income tax expense$164,304
 $167,978
 $196,913

Year Ended December 31,
202120202019
(In thousands)
Computed expected income tax (benefit) expense at federal statutory rate$172,690 $(244,104)$132,917 
State tax (benefit) expense, net of federal tax benefit55,682 (77,934)43,575 
Goodwill impairment— 407,232 — 
Tax‑exempt interest benefit(12,312)(5,202)(8,092)
Increase in cash surrender value of life insurance(1,367)(1,309)(1,298)
Low income housing tax credits, net of amortization(6,430)(4,605)(3,217)
Nondeductible employee compensation4,660 2,830 4,430 
Nondeductible FDIC premiums2,535 2,383 1,302 
Change in unrecognized tax benefits(860)(187)941 
Valuation allowance change(16,201)(5,288)(32,036)
Expired capital loss carryforward— — 3,136 
State tax refunds— (2,554)— 
State rate and apportionment changes16,330 4,217 19,138 
Other, net648 (306)3,508 
Recorded income tax expense$215,375 $75,173 $164,304 
The Company recognized $20.0$33.6 million $14.0, $28.1 million, and $8.4$20.0 million of tax credits and other tax benefits associated with its investments in LIHTC partnerships for the years ended December 31, 2019, 2018,2021, 2020, and 2017.2019. The amount of amortization of such investments reported in income tax expense under the proportional amortization method of accounting was $27.1 million for 2021, $23.5 million for 2020, and $16.7 million for 2019, $11.9 million for 2018, and $6.3 million for 2017.2019.
At December 31, 2019, we2021, we had 0no federal net operating loss carryforwards and approximately $669.3$314.4 million of unused state net operating loss carryforwards available to be applied against future taxable income. A majority of the state net operating loss carryforwards will expire in varying amounts beginning in 2020from 2022 through 2039.2040. A portion of the state net operating loss carryforwards generated after December 31, 2017 will carry forward indefinitely due to the state conformity to the federal net operating loss carryforward provisions as modified by the TCJA.Tax Cuts and Jobs Act.
As of December 31, 2019,2021, for federal tax purposes, we had no foreign tax credit carryforwards of $3.4 million.carryforwards. The foreign tax credit carryforwards are available to offset federal taxes on future foreign source income. If not used, these carryforwards willcarryforward was fully expireutilized in 2021.
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Notes to Consolidated Financial Statements

The following table presents the tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of the dates indicated:
 December 31,
 2019 2018
 (In thousands)
Deferred Tax Assets:   
Book allowance for loan losses in excess of tax specific charge-offs$54,664
 $58,375
Interest on nonaccrual loans4,550
 4,389
Deferred compensation5,809
 6,015
Premises and equipment, principally due to differences in depreciation3,478
 4,506
Foreclosed assets valuation allowance263
 263
State tax benefit5,721
 6,570
Net operating losses39,517
 68,026
Capital loss carryforwards—
 4,212
Accrued liabilities28,158
 35,750
Unrealized loss from FDIC‑assisted acquisitions1,678
 3,559
Unrealized loss on securities available-for-sale—
 2,435
Tax mark-to-market5,052
 —
Equity investments5,953
 4,896
Goodwill5,434
 10,418
Tax credits3,426
 5,237
Lease liability40,533
 —
Other—
 4,887
Gross deferred tax assets204,236
 219,538
Valuation allowance(46,371) (78,407)
Deferred tax assets, net of valuation allowance157,865
 141,131
Deferred Tax Liabilities:   
Core deposit and customer relationship intangibles9,853
 15,159
Deferred loan fees and costs5,330
 7,275
Unrealized gain on securities available‑for‑sale30,438
 —
FHLB stock647
 658
Tax mark-to-market—
 1,636
Subordinated debentures20,183
 23,164
Operating leases83,878
 75,750
ROU assets36,359
 —
Other2,830
 —
Gross deferred tax liabilities189,518
 123,642
Total net deferred tax (liabilities) assets$(31,653) $17,489

December 31,
20212020
(In thousands)
Deferred Tax Assets:
Book allowance for loan losses in excess of tax specific charge-offs$76,384 $122,753 
Interest on nonaccrual loans3,150 3,335 
Deferred compensation5,209 5,298 
Foreclosed assets valuation allowance289 334 
State tax benefit6,768 3,108 
Net operating losses19,646 34,658 
Accrued liabilities29,057 20,477 
Unrealized loss from FDIC‑assisted acquisitions886 1,310 
Tax mark-to-market on loans6,543 2,155 
Equity investments— 2,115 
Goodwill— 451 
Tax credits— 2,232 
Lease liability39,095 38,521 
Gross deferred tax assets187,027 236,747 
Valuation allowance(24,882)(41,083)
Deferred tax assets, net of valuation allowance162,145 195,664 
Deferred Tax Liabilities:
Core deposit and customer relationship intangibles1,746 5,877 
Deferred loan fees and costs2,337 3,763 
Unrealized gain on securities available‑for‑sale24,972 66,098 
Premises and equipment, principally due to differences in depreciation1,466 3,120 
FHLB stock613 637 
Subordinated debt17,110 18,639 
Equity investments5,475 — 
Goodwill6,166 — 
Operating leases86,000 95,026 
ROU assets34,129 33,345 
Other1,712 794 
Gross deferred tax liabilities181,726 227,299 
Total net deferred tax liabilities$(19,581)$(31,635)
Based upon our taxpaying history and estimates of taxable income over the years in which the items giving rise to the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deferred tax assets.
164


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

The Company had net income taxes receivable of $30.8$36.3 million and $38.9$59.3 million at December 31, 20192021 and December 31, 2018.2020.
As of December 31, 20192021 and 2018,2020, the Company had a valuation allowance of $46.4$24.9 million and $78.4$41.1 million against DTAs. Periodic reviews of the carrying amount of DTAs are made to determine if a valuation allowance is necessary. A valuation allowance is required, based on available evidence, when it is more likely than not that all or a portion of a DTA will not be realized due to the inability to generate sufficient taxable income in the period and/or of the character necessary to utilize the benefit of the DTA. All available evidence, both positive and negative, that may affect the realizability of the DTA is identified and considered in determining the appropriate amount of the valuation allowance. It is more likely than not that these deferred tax assets subject to a valuation allowance will not be realized primarily due to their character and/or the expiration of the carryforward periods.
The net reduction in the total valuation allowance during the year ended December 31, 20192021 was $32.0$16.2 million. Of this amount, $27.3$14.3 million consistedconsisted principally of adjustments to state net operating loss DTAs. The adjustment to the state operating loss DTAs at December 31, 2019,2021, was a result of changes in state apportionments. The DTAs had been subjected to a full valuation allowance because the Company had previously determined that they were more likely than not to be expired unused. As a result, the change in the tax attributes supporting the $27.3the $14.3 million of deferred tax assets had no impact on the Company's effective tax rate for the year ended December 31, 2019.2021. The remaining $4.7$1.9 million reduction in the valuation allowance was primarily due to an increase in the amount of foreign tax credit expected to be utilized priorprior to expiration and adjustments to capital loss carryforwards.deferred tax assets.
The following table summarizes the activity related to the Company's unrecognized tax benefits for the years indicated:
 Year Ended December 31,
Unrecognized Tax Benefits2019 2018
 (In thousands)
Balance, beginning of year$9,572
 $10,209
Increase based on tax positions related to prior years1,733
 1,278
Reductions related to settlements(255) (684)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations(302) (1,231)
Balance, end of year$10,748
 $9,572
    
Unrecognized tax benefits that would have impacted the effective tax rate if recognized$6,981
 $5,806

Year Ended December 31,
Unrecognized Tax Benefits20212020
(In thousands)
Balance, beginning of year$3,376 $10,748 
Increase based on tax positions related to prior years— 879 
Reductions for tax positions related to prior years(698)(7,813)
Reductions for tax positions as a result of a lapse of the applicable statute of limitations(123)(438)
Balance, end of year$2,555 $3,376 
Unrecognized tax benefits that would affect the effective tax rate if recognized$2,555 $3,376 
Due to the potential for the resolution of federal and state examinations and the expiration of various statutes of limitations, it is reasonably possible that our gross unrecognized tax benefits may decrease within the next twelve months by as much as $4.5$2.1 million.
We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2021 and December 31, 2020, we reduced our accrual for interest expense and penalties and recognized tax benefits of $0.2 million for 2021 and $0.2 million for 2020. For the year ended December 31, 2019, we recognized $0.7 million in expense for interest expense and penalties. For the year ended December 31, 2018, we recognized $0.2 million in expense related to these items. For the year ended December 31, 2017, we recognized $0.2 million in expense for interest expense and penalties. We had $1.5$1.1 million and $0.8$1.3 million accrued for the payment of interest and penalties as of December 31, 20192021 and 2018.2020.
We file federal and state income tax returns with the Internal Revenue Service ("IRS") and various state and local jurisdictions and generally remain subject to examinations by these tax jurisdictions for tax years 20152017 through 2018.2020. We are currently under examination by certain state jurisdictions for tax years 20122015 through 2017.
2018.

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Notes to Consolidated Financial Statements

NOTE 16.17.  EARNINGS (LOSS) PER SHARE
The following table presents the computation of basic and diluted net earnings (loss) per share for the years indicated:
 Year Ended December 31,
202120202019
 (Dollars in thousands, except per share data)
Basic Earnings (Loss) Per Share:
Net earnings (loss)$606,959 $(1,237,574)$468,636 
Less: earnings allocated to unvested restricted stock(1)
(10,248)(1,782)(5,182)
Net earnings (loss) allocated to common shares$596,711 $(1,239,356)$463,454 
Weighted-average basic shares and unvested restricted stock outstanding119,349 118,463 120,468 
Less: weighted-average unvested restricted stock outstanding(2,255)(1,610)(1,502)
Weighted-average basic shares outstanding117,094 116,853 118,966 
Basic earnings (loss) per share$5.10 $(10.61)$3.90 
Diluted Earnings (Loss) Per Share:
Net earnings (loss) allocated to common shares$596,711 $(1,239,356)$463,454 
Weighted-average diluted shares outstanding117,094 116,853 118,966 
Diluted earnings (loss) per share$5.10 $(10.61)$3.90 
 Year Ended December 31,
 2019 2018 2017
 (Dollars in thousands, except per share data)
Basic Earnings Per Share:     
Net earnings$468,636
 $465,339
 $357,818
Less: earnings allocated to unvested restricted stock(1)
(5,182) (5,119) (4,184)
Net earnings allocated to common shares$463,454
 $460,220
 $353,634
      
Weighted-average basic shares and unvested restricted stock outstanding120,468
 125,100
 123,060
Less: weighted-average unvested restricted stock outstanding(1,502) (1,460) (1,447)
Weighted-average basic shares outstanding118,966
 123,640
 121,613
      
Basic earnings per share$3.90
 $3.72
 $2.91
      
Diluted Earnings Per Share:     
Net earnings allocated to common shares$463,454
 $460,220
 $353,634
      
Weighted-average diluted shares outstanding118,966
 123,640
 121,613
      
Diluted earnings per share$3.90
 $3.72
 $2.91
________________________
________________________
(1)
(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.

166


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 17.18. REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company adopted ASC Topic 606, "Revenue from Contracts with Customers," effective as of January 1, 2018, and has applied the guidance to all contracts within the scope of ASC Topic 606 as of that date. Revenue from contracts with customers in the scope of ASC Topic 606 is measured based on the consideration specified in the contract with a customer, and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations. The Company'sSuch performance obligations are typically satisfied as services are rendered and payment is generally collected at the time services are rendered, or on a monthly, quarterly, or annual basis. The Company had no material unsatisfied performance obligations as of December 31, 2019.2021.
In certain cases, other parties are involved with providing products and services to our customers. If the Company is a principal in the transaction (providing goods or services itself), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (arranging for another party to provide goods or services), the Company reports its net fee or commission retained as revenue. Rebates, waivers, and reversals are recorded as a reduction of revenue either when the revenue is recognized by the Company or at the time the rebate, waiver, or reversal is earned by the customer.
The Company has elected the following practical expedients: (1) we do not disclose information about remaining performance obligations that have original expected durations of one year or less; and (2) we do not adjust the consideration from customers for the effects of a significant financing component if at contract inception the period between when the Company transfers the goods or services and when the customer pays for that good or service will be one year or less.
Nature of Goods and Services
Substantially all of the Company's revenue, such as interest income on loans, investment securities, and interest-earning deposits in financial institutions, is specifically out-of-scope of ASC Topic 606. For the revenue that is in-scope, the following is a description of principal activities, separated by the timing of revenue recognition, from which the Company generates its revenue from contracts with customers:
•
•Revenue earned at a point in time.Examples of revenue earned at a point in time are ATM transaction fees, wire transfer fees, NSF fees, and credit and debit card interchange fees. Revenue is generally derived from transactional information accumulated by our systems and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer's transaction. The Company is the principal in each of these contracts with the exception of credit and debit card interchange fees, in which case the Company is acting as the agent and records revenue net of expenses paid to the principal.
•Examples of revenue earned at a point in time are ATM transaction fees, wire transfer fees, NSF fees, and credit and debit card interchange fees. Revenue is generally derived from transactional information accumulated by our systems and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer's transaction. The Company is the principal in each of these contracts with the exception of credit and debit card interchange fees, in which case the Company is acting as the agent and records revenue net of expenses paid to the principal.
•
Revenue earned over time. The Company earns certain revenue from contracts with customers monthly. Examples of this type of revenue are deposit account service fees, investment management fees, merchant referral services, MasterCard marketing incentives, and safe deposit box fees. Account service charges, management fees, and referral fees are recognized on a monthly basis while any transaction-based revenue is recorded as the activity occurs. Revenue is primarily based on the number and type of transactions and is generally derived from transactional information accumulated by our systems. Revenue is recorded in the same period as the related transactions occur or services are rendered to the customer.
167


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Disaggregation of Revenue
The following table presents interest income and noninterest income, the components of total revenue, as disclosed in the consolidated statements of earnings (loss) and the related amounts which are from contracts with customers within the scope of ASC Topic 606. As illustrated here, substantially all of our revenue is specifically excluded from the scope of ASC Topic 606.
 Year Ended December 31,
 2019 2018
 Total Revenue from Total Revenue from
 Recorded Contracts with Recorded Contracts with
 Revenue Customers Revenue Customers
 (In thousands)
Total interest income$1,219,893
 $—
 $1,161,670
 $—
Noninterest income:       
   Other commissions and fees43,623
 19,216
 45,543
 19,080
   Leased equipment income38,727
 —
 37,881
 —
   Service charges on deposit accounts14,637
 14,637
 16,509
 16,509
   Gain on sale of loans1,114
 —
 4,675
 —
   Gain on sale of securities25,445
 —
 8,176
 —
   Other income19,016
 1,617
 35,851
 1,791
      Total noninterest income142,562
 35,470
 148,635
 37,380
Total revenue$1,362,455
 $35,470
 $1,310,305
 $37,380

Year Ended December 31,
202120202019
TotalRevenue fromTotalRevenue fromTotalRevenue from
RecordedContracts withRecordedContracts withRecordedContracts with
RevenueCustomersRevenueCustomersRevenueCustomers
(In thousands)
Total interest income$1,158,729 $— $1,103,491 $— $1,219,893 $— 
Noninterest income:
   Other commissions and fees42,287 11,018 40,347 13,412 43,623 19,216 
   Leased equipment income45,746 — 43,628 — 38,727 — 
   Service charges on deposit accounts13,269 13,269 10,351 10,351 14,637 14,637 
   Gain on sale of loans1,733 — 2,139 — 1,114 — 
   Gain on sale of securities1,615 — 13,171 — 25,445 — 
Dividends and gains (losses) on
equity investments23,115 — 14,984 — (567)— 
Warrant income49,341 — 10,609 — 8,669 — 
   Other income16,821 556 10,831 2,000 10,914 1,617 
      Total noninterest income193,927 24,843 146,060 25,763 142,562 35,470 
Total revenue$1,352,656 $24,843 $1,249,551 $25,763 $1,362,455 $35,470 
The following table presents revenue from contracts with customers based on the timing of revenue recognition for the period indicated:
 Year Ended December 31,
 2019 2018
 (In thousands)
Products and services transferred at a point in time$19,253
 $18,681
Products and services transferred over time16,217
 18,699
Total revenue from contracts with customers$35,470
 $37,380

Year Ended December 31,
202120202019
(In thousands)
Products and services transferred at a point in time$11,713 $14,190 $19,253 
Products and services transferred over time13,130 11,573 16,217 
Total revenue from contracts with customers$24,843 $25,763 $35,470 
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:
 December 31,
 2019 2018
 (In thousands)
Receivables, which are included in "Other assets"$1,094
 $1,334
Contract assets, which are included in "Other assets"$—
 $—
Contract liabilities, which are included in "Accrued interest payable and other liabilities"$490
 $621

customers as of the dates indicated:
December 31,
20212020
(In thousands)
Receivables, which are included in "Other assets"$1,066 $1,046 
Contract assets, which are included in "Other assets"$— $— 
Contract liabilities, which are included in "Accrued interest payable and other liabilities"$229 $359 
Contract liabilities relate to advance consideration received from customers for which revenue is recognized over the life of the contract. The change in contract liabilities for the year ended December 31, 20192021 due to revenue recognized that was included in the contract liability balance at the beginning of the year was $131,000. $130,000.



168


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 18.19.  STOCK-BASED COMPENSATION         
The Company’sAt the annual meeting of stockholders held on May 11, 2021, the Company's stockholders approved the Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan or the(the “Amended and Restated 2017 Plan”). The Company’s Amended and Restated 2017 Plan permits stock-based compensation awards to officers, directors, key employees, and consultants. consultants and will remain in effect until December 31, 2026.
The Amended and Restated 2017 Plan authorizedauthorizes grants of stock‑basedstock-based compensation instruments to purchase or issue up to 6,650,000 shares, representing 4,000,000 shares originally approved for grant under the Original 2017 Stock Incentive Plan plus 2,650,000 shares added as result of Company common stock.the approval of the Amended and Restated 2017 Plan. As of December 31, 2019,2021, there were 2,453,216 shareswere 3,014,995 shares available for grant under the Amended and Restated 2017 Plan. Though frozen for new issuances, certain awards issued under the 2003 Stock Incentive Plan remain outstanding, but are due to vest no later than February 2021.
Restricted Stock
Restricted stock amortization totaled $26.2totaled $31.4 million $29.1, $23.7 million, and $24.9$26.2 million for the years ended December 31, 2019, 2018,2021, 2020, and 2017.2019. Such amounts are included in compensation expense on the accompanying consolidated statements of earnings.earnings (loss) and exclude $859,000, $627,000, and $598,000 of stock-based compensation expense for the years ended December 31, 2021, 2020, and 2019 related to our directors, which is included in other expense on the accompanying consolidated statement of earnings (loss). The income tax benefit recognized in the consolidated statements of earnings (loss) related to this expense was $6.8$6.0 million, $7.7$5.8 million, and $8.9$6.8 million for the years ended December 31, 2019, 2018,2021, 2020, and 2017.2019. The amount of unrecognized compensation expense related to all unvested TRSAs and PRSUs as of December 31, 2019 totaled $51.6 million.2021 totaled $69.0 million. Such expense is expected to be recognized over a weighted average period of 1.41.5 years.
The following table presents a summary of restricted stock transactions during the year ended December 31, 2019:2021:
TRSAsPRSUs
WeightedWeighted
AverageAverage
NumberGrant DateNumberGrant Date
ofFair ValueofFair Value
Year Ended December 31, 2021Shares(Per Share)Units(Per Unit)
Unvested restricted stock, beginning of year1,608,126 $32.83315,008 $42.77
Granted1,433,698 $37.65324,351 $32.19
Vested622,572 $37.9622,320 $54.07
Forfeited107,172 $37.80104,176 $49.00
Unvested restricted stock, end of year2,312,080 $34.21512,863 $34.32
 TRSAs PRSUs
   Weighted   Weighted
   Average   Average
 Number Grant Date Number Grant Date
 of Fair Value of Fair Value
Year Ended December 31, 2019Shares (Per Share) Units (Per Unit)
Unvested restricted stock, beginning of year1,344,656
 $47.43 325,741
 $43.34
Granted836,326
 $38.66 112,815
 $39.56
Vested(471,798) $44.12 (106,008) $32.01
Forfeited(195,987) $46.91 (56,162) $23.04
Unvested restricted stock, end of year1,513,197
 $43.68 276,386
 $50.27

The table above excludes 20,173 of immediately vested shares awarded to our directors at a weighted average price of $42.59.
Time-Based Restricted Stock Awards
At December 31, 2019,2021, there were 1,513,1972,312,080 shares of unvested TRSAs outstanding pursuant to the Company's 2003 and 2017 Stock Incentive Plans (the "Plans"). The TRSAs generally vest over a service period of three to 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 stock on the award date and is recognized over the vesting period using the straight‑line method.
TRSA grants are subject to "double-trigger" vesting in the event of a change in control of the Company, as defined in the Plans, and in the event an employee's employment is terminated within 24 months after the change in control by the Company without Cause or by the employee for Good Reason, as defined in the Plans, such awards will vest.
The weighted average grant date fair value per share of TRSAs granted during 2021, 2020, and 2019 2018,were $37.65, $20.84, and 2017 were $38.66, $53.69, and $50.08.$38.66. The vesting date fair value of TRSAs that vested during 2021, 2020, and 2019 2018, and 2017 were $18.1were $26.7 million, $25.9$13.1 million, and $24.9$18.1 million.
169


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Performance-Based Restricted Stock Units
At December 31, 2019,2021, there were 276,386were 512,863 units of unvested PRSUs that have been granted. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a three-year performance period. The 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 zero to a maximum of either 150% or 200% of target.
Compensation expense related to PRSUs is based on the fair value of the underlying stock on the award 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 of the amortization is suspended, or (2) attainment of the financial metrics is improbable, in which case a portion 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 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’s 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.
Upon a change in control, each PRSU will (i) be deemed earned at the target level with respect to all open performance periods if the change in control occurs within six months after the grant date, and (ii) be deemed earned at the actual performance level as of the date of the change in control if a change in control occurs more than six months after the grant date, and in both cases, the PRSU will cease to be subject to any further performance conditions, but will be subject to time-based service vesting following the change in control in accordance with the original performance period.
The weighted average grant date fair value per share of PRSUs granted during 2021, 2020, and 2019 2018,was $32.19, $36.20 and 2017 was $39.56, $57.52 and $57.80.$40.39. The vesting date fair value of PRSUs that vested during 20192021 and 2020 was $5.6$0.8 million, $2.7 million, and $5.6 million. There were no PRSUs that vested during 2018 and 2017.
NOTE 19.20. BENEFIT PLANS
401(K) Plans
The Company sponsors a defined contribution plan for the benefit of its employees. Participants are eligible to participate immediately as long as they are scheduled to work a minimum of 1,000 hours and are at least 18 years of age. Eligible participants may contribute up to 60% of their annual compensation, not to exceed the dollar limit imposed by the Internal Revenue Code. Employer contributions are determined annually by the Board of Directors in accordance with plan requirements and applicable tax code. Plan participants are immediately vested in matching contributions received from the Company. During 2021, the Company matched 50% of the first 6% contributed by plan participants. Effective January 1, 2022, the Company matches 50% of the first 8% contributed by plan participants. Expense related to 401(k) employer matching contributions was $4.1 $5.7 million $4.3, $4.6 million and $4.0$4.1 million for the years ended December 31, 2019, 2018,2021, 2020, and 2017.
2019.

170


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 20.21. STOCKHOLDERS' EQUITY
Common Stock Repurchased
The Company's common stock repurchased consisted of: (1) restricted stock surrendered as treasury shares and (2) stock purchased under the Company's Stock Repurchase Programs and retired.
Treasury Shares
As a Delaware corporation, the Company records treasury shares for shares surrendered to the Company resulting from statutory payroll tax obligations arising from the vesting of restricted stock. During
The following table shows the years ended December 31, 2019, 2018,dollar amount of shares surrendered, shares surrendered, and 2017, the Company purchased 218,531 treasury shares at a weighted average price of $38.66 per share 181,642for restricted stock surrendered as treasury shares at a weighted average price of $50.37 per share, and 188,870 treasury shares at a weighted average price of $50.17 per share.for the years indicated:
Year Ended December 31,
Restricted Stock Surrendered as Treasury Shares202120202019
Dollar amount of shares surrendered (in thousands)
$8,505 $5,369 $8,449 
Number of shares surrendered199,018 213,578 218,531 
Weighted average price per share$42.73 $25.14 $38.66 
Stock Repurchase Programs
The Stock Repurchase Program was initially authorized by PacWest's Board of Directors on October 17, 2016, pursuant2016. On February 12, 2020, PacWest's Board of Directors authorized a new Stock Repurchase Program to which the Company could, until December 31, 2017, purchase shares of its common stock for an aggregate purchase price not to exceed $400 million. On November 15, 2017, PacWest's Board of Directors amended$200 million, effective February 29, 2020. No shares were repurchased under the Stock Repurchase Program to reduce the authorized purchase amount to $150 million and extend the maturity date to December 31, 2018. On February 14, 2018, PacWest's Board of Directors amended the Stock Repurchase Program to increase the authorized purchase amount to $350 million and extend the maturity date to February 28, 2019. On February 24, 2019, PacWest's Board of Directors authorized a new Stock Repurchase Program for an aggregate purchase price notprior to exceed $225 million until expiration on February 29, 2020, effective upon the maturity of the previous Stock Repurchase Program.28, 2021.
The common stock repurchases may be effected through open market purchases or in privately negotiated transactions and may utilize any derivative or similar instrument to effect share repurchase transactions (including, without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, floor transactions or other similar transactions or any combination of the foregoing transactions).
The amount and exact timing of any repurchases will depend upon market conditions and other factors. The Stock Repurchase Program may be suspended or discontinued at any time. All shares repurchased under the various Stock Repurchase Programs were retired upon settlement. At December 31, 2019, the remaining amount that could be used to repurchase shares under the then current Stock Repurchase Program was $124.7 million.
The following table shows the repurchase amounts, shares repurchased, and weighted average price per share for stock repurchases under the various Stock Repurchase Programs for the years indicated:
Year Ended December 31,Year Ended December 31,
Stock Repurchases Under Stock Repurchase Programs2019 2018 2017Stock Repurchases Under Stock Repurchase Programs202120202019
Dollar amount of repurchases (in thousands)
$154,516
 $306,393
 $99,677
Dollar amount of repurchases (in thousands)
$— $70,000 $154,516 
Number of shares repurchased3,987,945
 5,849,234
 2,081,227
Number of shares repurchased— 1,953,711 3,987,945 
Weighted average price per share$38.75
 $52.38
 $47.89
Weighted average price per share$— $35.83 $38.75 



171


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 21.22. DIVIDEND AVAILABILITY AND REGULATORY MATTERS
Holders of Company common stock may receive dividends declared by the Board of Directors out of funds legally available under DGCL and certain federal laws and regulations governing the banking and financial services business. Our ability to pay dividends to our stockholders is subject to the restrictions set forth in DGCL and certain covenants contained in our subordinated debenturesdebt and borrowing agreements. Notification to the FRB is also required prior to our declaring and paying dividends during any period in which our quarterly and/or cumulative twelve‑month net earnings are insufficient to fund the dividend amount, among other requirements. Should the FRB object to payment of dividends, we would not be able to make the payment until approval is received or we no longer need to provide notice under applicable regulations.
It is possible, depending upon the financial condition of the Bank and other factors, that the FRB, the FDIC, or the DBO,DFPI, could assert that payment of dividends or other payments is an unsafe or unsound practice. The Bank is subject to restrictions under certain federal and state laws and regulations governing banks which limit its ability to transfer funds to the holding company through intercompany loans, advances or cash dividends. Dividends paid by California state-chartered banks such as Pacific Western are regulated by the DBODFPI and FDIC under their general supervisory authority as it relates to a bank’s capital requirements. The Bank may declare a dividend without the approval of the DBODFPI 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 dividend paid during such period. The Bank'sBank had a cumulative net earningsloss of $155.3 million during the previous three fiscal years exceededof 2021, 2020, and 2019, compared to dividends of $776.0 million paid by the Bank during that same period by $34.8 million.period. During 2019,2021, PacWest received $336.0$182.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $490.6 million$1.5 billion at December 31, 2019,2021, for the foreseeable future, dividends from the Bank to PacWest will continue to require DBODFPI and FDIC approval.
PacWest, as a bank holding company, is subject to regulation by the FRB under the BHCA. The FDICIA required that the federal regulatory agencies adopt regulations defining capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off‑balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of common equity Tier 1, Tier 1, and total capital to risk‑weighted assets ("total capital ratio"), and of Tier I capital to average assets, adjusted for goodwill and other non-qualifying intangible assets and other assets (“leverage ratio”). Common equity Tier 1 capital includes common stockholders’ equity less goodwill and certain other deductions (including a portion of servicing assets and the after‑tax unrealized net gains and losses on securities available‑for‑sale). Tier 1 capital includes common equity Tier 1 plus additional Tier 1 capital instruments meeting certain requirements. Total capital includes Tier 1 capital and other items such as subordinated debt and the allowance for credit losses. All three measures are stated as a percentage of risk‑weighted assets, which are measured based on their perceived credit risk and include certain off‑balance sheet exposures, such as unfunded loan commitments and letters of credit.
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 December 31, 2019,2021, such disallowed amounts were $195,000$10,000 for the Company and NaN$41.0 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.
172


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Banks considered to be “adequately capitalized” are required to maintain a minimum total capital ratio of 8.0%, a minimum Tier 1 capital ratio of 6.0%, a minimum common equity Tier 1 capital ratio of 4.5%, and a minimum leverage ratio of 4.0%. Banks considered to be “well capitalized” must maintain a minimum total capital ratio of 10.0%, a minimum Tier 1 capital ratio of 8.0%, a minimum common equity Tier 1 capital ratio of 6.5%, and a minimum leverage ratio of 5.0%. As of December 31, 2019,2021, the most recent notification date to the regulatory agencies, the Company and the Bank are each “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Company’s or any of the Bank’s categories.
Management believes, as of December 31, 2019,2021, that the Company and the Bank met all capital adequacy requirements to which we are subject.
Basel III, the comprehensive regulatory capital rules for U.S. banking organizations, requires all banking organizations to maintain a capital conservation buffer above the minimum risk-based capital requirements in order 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 tierTier 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 capital conservation buffer increased by 0.625% to itsis fully phased-in at 2.5%, such that the common equity tierTier 1, tierTier 1 and total capital ratio minimums inclusive of the capital conservation bufferbuffers were 7.0%7%, 8.5%, and 10.5%. At December 31, 2019,2021, the Company and Bank were in compliance with the capital conservation buffer requirement.requirements.
The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the December 31, 2021 ratios include this election. This 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.
The following tables present actual capital amounts and ratios for the Company and the Bank as of the dates indicated:
Well CapitalizedCapital
MinimumConservation
ActualRequirementBuffer
BalanceRatioBalanceRatioRequirement
(Dollars in thousands)
December 31, 2021
Tier I leverage capital (to average assets):
PacWest Bancorp Consolidated$2,657,575 6.84%$1,942,017 5.00%N/A
Pacific Western Bank$2,717,374 7.00%$1,940,510 5.00%N/A
CET1 capital (to risk-weighted assets):
PacWest Bancorp Consolidated$2,526,575 8.86%$1,853,073 6.50%7.00%
Pacific Western Bank$2,717,374 9.56%$1,847,853 6.50%7.00%
Tier I capital (to risk-weighted assets)
PacWest Bancorp Consolidated$2,657,575 9.32%$2,280,705 8.00%8.50%
Pacific Western Bank$2,717,374 9.56%$2,274,281 8.00%8.50%
Total capital (to risk-weighted assets):
PacWest Bancorp Consolidated$3,619,190 12.69%$2,850,881 10.00%10.50%
Pacific Western Bank$3,355,403 11.80%$2,842,851 10.00%10.50%
     Well Capitalized Capital
     Minimum Conservation
 Actual Requirement Buffer
 Balance Ratio Balance Ratio Phase-In (1)
 (Dollars in thousands)
December 31, 2019         
Tier I leverage:         
PacWest Bancorp Consolidated$2,306,966
 9.74% $1,184,347
 5.00% 4.00%
Pacific Western Bank$2,589,473
 10.95% $1,182,683
 5.00% 4.00%
Common equity Tier I capital:         
PacWest Bancorp Consolidated$2,306,966
 9.78% $1,532,971
 6.50% 7.00%
Pacific Western Bank$2,589,473
 11.00% $1,530,088
 6.50% 7.00%
Tier I capital:         
PacWest Bancorp Consolidated$2,306,966
 9.78% $1,886,734
 8.00% 8.50%
Pacific Western Bank$2,589,473
 11.00% $1,883,185
 8.00% 8.50%
Total capital:         
PacWest Bancorp Consolidated$2,926,075
 12.41% $2,358,417
 10.00% 10.50%
Pacific Western Bank$2,764,128
 11.74% $2,353,981
 10.00% 10.50%
173



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

     Well Capitalized Capital
     Minimum Conservation
 Actual Requirement Buffer
 Balance Ratio Balance Ratio Phase-In (1)
 (Dollars in thousands)
December 31, 2018         
Tier I leverage:         
PacWest Bancorp Consolidated$2,255,588
 10.13% $1,113,341
 5.00% 4.000%
Pacific Western Bank$2,403,244
 10.80% $1,112,356
 5.00% 4.000%
Common equity Tier I capital:         
PacWest Bancorp Consolidated$2,255,588
 10.01% $1,464,131
 6.50% 6.375%
Pacific Western Bank$2,403,244
 10.68% $1,462,083
 6.50% 6.375%
Tier I capital:         
PacWest Bancorp Consolidated$2,255,588
 10.01% $1,802,008
 8.00% 7.875%
Pacific Western Bank$2,403,244
 10.68% $1,799,487
 8.00% 7.875%
Total capital:         
PacWest Bancorp Consolidated$2,865,152
 12.72% $2,252,510
 10.00% 9.875%
Pacific Western Bank$2,572,586
 11.44% $2,249,359
 10.00% 9.875%

Well CapitalizedCapital
MinimumConservation
ActualRequirementBuffer
BalanceRatioBalanceRatioRequirement
(Dollars in thousands)
December 31, 2020
Tier I leverage capital (to average assets):
PacWest Bancorp Consolidated$2,403,721 8.55%$1,404,880 5.00%N/A
Pacific Western Bank$2,673,960 9.53%$1,403,208 5.00%N/A
CET1 capital (to risk-weighted assets):
PacWest Bancorp Consolidated$2,403,721 10.53%$1,484,450 6.50%7.00%
Pacific Western Bank$2,673,960 11.73%$1,481,599 6.50%7.00%
Tier I capital (to risk-weighted assets)
PacWest Bancorp Consolidated$2,403,721 10.53%$1,827,015 8.00%8.50%
Pacific Western Bank$2,673,960 11.73%$1,823,506 8.00%8.50%
Total capital (to risk-weighted assets):
PacWest Bancorp Consolidated$3,141,992 13.76%$2,283,769 10.00%10.50%
Pacific Western Bank$2,959,853 12.99%$2,279,383 10.00%10.50%
_______________________________________
(1)Ratios for December 31, 2019 reflect the minimum required plus the fully phased-in capital conservation buffer of 2.50%; ratios for December 31, 2018 reflect the minimum required plus capital conservation buffer phase-in for 2018 of 1.875%.
We issued or assumed through mergers subordinated debenturesdebt to trusts that were established by us or entities that we previously acquired, which, in turn, issued trust preferred securities. On April 30, 2021, the Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due May 1, 2031. For further information, see Note 12. Borrowings and Subordinated Debt.
The carrying value of subordinated debenturesdebt totaled $458.2$863.3 million at December 31, 2019.2021. At December 31, 2019, NaN2021, $131.0 million of the trust preferred securities were included in the Company's Tier I capital under the phase-out limitations of Basel III, and $444.5$718.2 million was included in Tier II capital.
Interest payments on subordinated debenturesdebt are considered dividend payments under the FRB regulations and subject to the same notification requirements for declaring and paying dividends on common stock.
174


PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 22.23. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
The following tables present the parent company only condensed balance sheets and the related condensed statements of earnings (loss) and condensed statements of cash flows as of and for the years indicated:
Parent Company OnlyDecember 31,
Condensed Balance Sheets20212020
(In thousands)
Assets:
Cash and cash equivalents$176,923 $127,849 
Investments in subsidiaries3,845,653 3,530,823 
Other assets122,324 75,835 
Total assets$4,144,900 $3,734,507 
Liabilities:
Subordinated debt$135,055 $135,055 
Other liabilities10,215 4,501 
Total liabilities145,270 139,556 
Stockholders’ equity3,999,630 3,594,951 
Total liabilities and stockholders’ equity$4,144,900 $3,734,507 
Parent Company OnlyDecember 31,
Condensed Balance Sheets2019 2018
 (In thousands)
Assets:   
Cash and cash equivalents$113,961
 $244,859
Investments in subsidiaries4,905,033
 4,641,649
Other assets74,479
 79,516
Total assets$5,093,473
 $4,966,024
Liabilities:   
Subordinated debentures$135,055
 $135,055
Other liabilities3,721
 5,381
Total liabilities138,776
 140,436
Stockholders’ equity4,954,697
 4,825,588
Total liabilities and stockholders’ equity$5,093,473
 $4,966,024

Parent Company OnlyYear Ended December 31,
Condensed Statements of Earnings (Loss)202120202019
(In thousands)
Miscellaneous income$52,955 $14,276 $9,739 
Dividends from Bank subsidiary182,000 258,000 336,000 
Total income234,955 272,276 345,739 
Interest expense3,527 4,394 6,637 
Operating expenses18,913 11,184 9,833 
Total expenses22,440 15,578 16,470 
Earnings before income taxes and equity in undistributed earnings of
subsidiaries212,515 256,698 329,269 
Income tax (expense) benefit(6,188)(3,268)2,202 
Earnings before equity in undistributed earnings of subsidiaries206,327 253,430 331,471 
Equity in (distributions in excess of) undistributed earnings or loss
of subsidiaries400,632 (1,491,004)137,165 
Net earnings (loss)$606,959 $(1,237,574)$468,636 




Parent Company OnlyYear Ended December 31,
Condensed Statements of Earnings2019 2018 2017
 (In thousands)
Miscellaneous income$9,739
 $8,358
 $3,393
Dividends from Bank subsidiary336,000
 684,000
 265,000
Total income345,739
 692,358
 268,393
Interest expense6,637
 6,550
 5,519
Operating expenses9,833
 10,068
 8,273
Total expenses16,470
 16,618
 13,792
Earnings before income taxes and equity in undistributed earnings of     
subsidiaries329,269
 675,740
 254,601
Income tax benefit2,202
 7,262
 19,957
Earnings before equity in undistributed earnings of subsidiaries331,471
 683,002
 274,558
Equity in (distributions in excess of) undistributed earnings of subsidiaries137,165
 (217,663) 83,260
Net earnings$468,636
 $465,339
 $357,818
175








PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Parent Company OnlyYear Ended December 31,
Condensed Statements of Cash Flows202120202019
(In thousands)
Cash flows from operating activities:
Net earnings (loss)$606,959 $(1,237,574)$468,636 
Adjustments to reconcile net earnings (loss) to net cash provided
by operating activities:
Change in other assets(67,242)(29,568)(35,510)
Change in liabilities5,714 780 (1,661)
Earned stock compensation32,223 24,363 26,815 
(Equity in) distributions in excess of undistributed earnings
or loss of subsidiaries(400,632)1,491,004 (137,165)
Net cash provided by operating activities177,022 249,005 321,115 
Cash flows from investing activities:
Net cash used in investing activities— — — 
Cash flows from financing activities:
Common stock repurchased and restricted stock surrendered(8,505)(75,369)(162,965)
Cash dividends paid, net(119,443)(159,748)(289,048)
Net cash used in financing activities(127,948)(235,117)(452,013)
Net increase (decrease) in cash and cash equivalents49,074 13,888 (130,898)
Cash and cash equivalents, beginning of year127,849 113,961 244,859 
Cash and cash equivalents, end of year$176,923 $127,849 $113,961 
NOTE 24. RELATED PARTY TRANSACTIONS
On December 30, 2021, the Company purchased in a private placement 1,000,000 depository shares each representing an ownership interest in a share of non-voting Fixed-Rate, Non-Cumulative Perpetual Preferred Stock of a privately owned non-affiliated bank holding company for the purchase price of $25 per depository share for a total of $25.0 million for investment purposes. The Company’s Chairman of the Board of Directors (the "Chairman") is also a director of the non-affiliated bank holding company.
In the normal course of business, the Bank purchases corporate securities for investment purposes. At December 31, 2021, one senior debt security with a par value of $25.0 million and three subordinated debt securities with par values totaling $24.5 million were in our securities portfolio. These four securities were issued by non-affiliated bank holding companies of which the Chairman is also a board member.
The transactions described above were approved by the Audit Committee of the Board of Directors in accordance with our related party transactions policy.
Parent Company OnlyYear Ended December 31,
Condensed Statements of Cash Flows2019 2018 2017
 (In thousands)
Cash flows from operating activities:     
Net earnings$468,636
 $465,339
 $357,818
Adjustments to reconcile net earnings to net cash provided by     
operating activities:     
Change in other assets(35,510) (36,362) (34,274)
Change in liabilities(1,661) (953) 4,857
Gain on sale of securities, net—
 —
 (15)
Earned stock compensation26,815
 29,768
 25,568
(Equity in) distributions in excess of undistributed earnings     
of subsidiaries(137,165) 217,663
 (83,260)
Net cash provided by operating activities321,115
 675,455
 270,694
      
Cash flows from investing activities:     
Proceeds from sales of securities available-for-sale—
 —
 426
Net cash and cash equivalents paid in acquisitions—
 —
 (223,818)
Net cash used in investing activities—
 —
 (223,392)
      
Cash flows from financing activities:     
Common stock repurchased and restricted stock surrendered(162,965) (315,542) (109,153)
Net decrease in subordinated debentures—
 (12,372) —
Cash dividends paid, net(289,048) (288,193) (247,403)
Net cash used in financing activities(452,013) (616,107) (356,556)
Net (decrease) increase in cash and cash equivalents(130,898) 59,348
 (309,254)
Cash and cash equivalents, beginning of year244,859
 185,511
 494,765
Cash and cash equivalents, end of year$113,961
 $244,859
 $185,511
      
Supplemental disclosure of noncash investing and financing activities:     
Common stock issued for acquisitions$—
 $—
 $446,233
176



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 23. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following tables set forth our unaudited quarterly results for the periods indicated:
 Three Months Ended
 December 31, September 30, June 30, March 31,
 2019 2019 2019 2019
 (Dollars in thousands, except per share data)
Interest income$293,593
 $307,208
 $314,533
 $304,559
Interest expense(46,974) (54,972) (53,635) (49,683)
Net interest income246,619
 252,236
 260,898
 254,876
Provision for credit losses(3,000) (7,000) (8,000) (4,000)
Net interest income after provision for credit losses243,619
 245,236
 252,898
 250,876
Gain on sale of securities184
 908
 22,192
 2,161
Other noninterest income26,992
 32,521
 28,701
 28,903
Total noninterest income27,176
 33,429
 50,893
 31,064
Foreclosed assets income (expense), net3,446
 (8) 146
 (29)
Acquisition, integration and reorganization costs269
 —
 —
 (618)
Other noninterest expense(127,443) (126,801) (125,573) (125,640)
Total noninterest expense(123,728) (126,809) (125,427) (126,287)
Earnings before income taxes147,067
 151,856
 178,364
 155,653
Income tax expense(29,186) (41,830) (50,239) (43,049)
Net earnings$117,881
 $110,026
 $128,125
 $112,604
        
Basic and diluted earnings per share$0.98
 $0.92
 $1.07
 $0.92
Cash dividends declared per share$0.60
 $0.60
 $0.60
 $0.60
 Three Months Ended
 December 31, September 30, June 30, March 31,
 2018 2018 2018 2018
 (Dollars in thousands, except per share data)
Interest income$302,739
 $292,642
 $288,514
 $277,775
Interest expense(40,974) (32,325) (26,182) (21,275)
Net interest income261,765
 260,317
 262,332
 256,500
Provision for credit losses(12,000) (11,500) (17,500) (4,000)
Net interest income after provision for credit losses249,765
 248,817
 244,832
 252,500
Gain on sale of securities786
 826
 253
 6,311
Other noninterest income32,740
 36,086
 39,385
 32,248
Total noninterest income33,526
 36,912
 39,638
 38,559
Foreclosed assets income, net311
 257
 61
 122
Acquisition, integration and reorganization costs(970) (800) —
 —
Other noninterest expense(128,576) (127,610) (126,510) (127,517)
Total noninterest expense(129,235) (128,153) (126,449) (127,395)
Earnings before income taxes154,056
 157,576
 158,021
 163,664
Income tax expense(39,015) (41,289) (42,286) (45,388)
Net earnings$115,041
 $116,287
 $115,735
 $118,276
        
Basic and diluted earnings per share$0.93
 $0.94
 $0.92
 $0.93
Cash dividends declared per share$0.60
 $0.60
 $0.60
 $0.50



PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements

NOTE 24.25. SUBSEQUENT EVENTS
Stock Repurchase ProgramsProgram
On February 12, 2020,15, 2022, PacWest's Board of Directors authorized a new Stock Repurchase Program, effective March 1, 2022, to purchaserepurchase shares of its common stock for an aggregate purchase price not to exceed $200$100 million untilwith a program maturity date of February 28, 2021, effective upon the maturity of the current Stock Repurchase Program on February 29, 2020. After the authorization of the new Stock Repurchase Program, the amount that could be used to repurchase shares will be $200 million as of March 1, 2020.2023.
Common Stock DividendsDividend
On February 3, 2020,1, 2022, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.60$0.25 per common share. The cash dividend is payable on February 28, 20202022 to stockholders of record at the close of business on February 20, 2020.15, 2022.
We have evaluated events that have occurred subsequent to December 31, 20192021 and have concluded there are no subsequent events that would require recognition in the accompanying consolidated financial statements.

177

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of December 31, 20192021 and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rules 13a‑15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control-Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2019.2021. See "Management's Report on Internal Control Over Financial Reporting" set forth in Part II, Item 8 for additional information regarding management's evaluation.
(c) Report of the Independent Registered Public Accounting Firm. KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10‑K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting.
(d) Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 20192021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
    Not applicable.

178

PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by this Item regarding the Company’s directors and executive officers, and corporate governance, including information with respect to beneficial ownership reporting compliance, will appear in the Proxy Statement we will deliver to our stockholders in connection with our 20202022 Annual Meeting of Stockholders. Such information is incorporated herein by reference. Information relating to the registrant’s Code of Business Conduct and Ethics that applies to its employees, including its senior financial officers, is included in Part I of this Annual Report on Form 10‑K under “Available Information.”
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will appear in the Proxy Statement we will deliver to our stockholders in connection with our 20202022 Annual Meeting of Stockholders. Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item regarding security ownership of certain beneficial owners and management will appear in the Proxy Statement we will deliver to our stockholders in connection with our 20202022 Annual Meeting of Stockholders. Such information is incorporated herein by reference. Information relating to securities authorized for issuance under the Company’s equity compensation plans is included in Part II of this Annual Report on Form 10‑K under “Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will appear in the Proxy Statement we will deliver to our stockholders in connection with our 20202022 Annual Meeting of Stockholders. Such information is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Irvine, CA, Auditor Firm ID: 185.
The information required by this Item will appear in the Proxy Statement we will deliver to our stockholders in connection with our 20202022 Annual Meeting of Stockholders. Such information is incorporated herein by reference.

179

PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)1. Financial Statements
(a)    1. Financial Statements
The consolidated financial statements of PacWest Bancorp and its subsidiaries and independent auditors’ report are included in Item 8 under Part II of this Form 10‑K.
2. Financial Statement Schedules
All financial statement schedules have been omitted, as they are either inapplicable or included in the Notes to Consolidated Financial Statements.
3. Exhibits
The following documents are included or incorporated by reference in this Annual Report on Form 10‑K:
3.1
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)as amended as of June 5, 2014 (Filed herewith).
3.3
3.2
4.1
Other long‑term borrowing instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S‑K. The Company undertakes to furnish copies of such instruments to the Commission upon request.
4.2
10.1*
PacWest Bancorp 2003 Stock Incentive Plan, as amended and restated, dated May 16, 2016 (Exhibit 10.14.2 to Form 8-K10-K filed on May 18, 2016February 28, 2020 and incorporated herein by this reference).
10.2*
10.1*

10.3*
Form of Stock Unit Award Agreement pursuant to the Company’s 2003 Stock Incentive Plan, as amended and restated (Exhibit 10.3 to Form 10-Q filed on November 7, 2016 and incorporated herein by this reference).

10.4*
PacWest Bancorp 2017 Stock Incentive Plan, dated May 15, 2017 (Exhibit 10.1 to Form S-8 filed on May 15, 2017 and incorporated herein by this reference).

10.5*
10.2*

10.6*
10.3*

10.7*
10.4*

10.8*
10.5*

10.9*
10.6*
10.7*
10.8*


10.10*
10.9*
180


10.11*
10.10*
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
Interactive data files pursuant to Rule 405 of Regulation S‑T: (i)the Consolidated Balance Sheets as of December 31, 20192021 and 20182020, (ii)the Consolidated Statements of Earnings (Loss) for the years ended December 31, 2019, 2018,2021, 2020, and 20172019, (iii) the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2019, 20182021, 2020 and 20172019, (iv) the Consolidated Statement of Changes in Stockholders’ Equity for the years ended December 31, 2019, 20182021, 2020 and 201720189, (v)the Consolidated Statements of Cash Flows for the years ended December 31, 2019, 20182021, 2020 and 20172019, and (vi)the Notes to 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
The cover
Cover page of PacWest Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2019, formatted in Inline XBRL (contained in Exhibit 101).

_________________________
*    Management contract or compensatory plan or arrangement.
(b)Exhibits
(b)Exhibits
The exhibits listed in Item 15(a)3 are incorporated by reference or attached hereto.
(c)Excluded Financial Statements
(c)Excluded Financial Statements
Not Applicable
ITEM 16. FORM 10-K SUMMARY
None

181

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
Dated:February 27, 202028, 2022By:
/s/ Matthew P. Wagner
Matthew P. Wagner
(Chief Executive Officer)
POWERS OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John M. Eggemeyer, Matthew P. Wagner, Patrick J. RusnakBart R. Olson, and Kori L. Ogrosky,Angela M. W. Kelley, and each of them severally, his or her true and lawful attorney‑in‑fact with power of substitution and resubstitution to sign in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with this Annual Report on Form 10‑K and any and all amendments hereto, as fully for all intents and purposes as he or she might or could do in person, and hereby ratifies and confirms all said attorneys‑in‑fact and agents, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

182

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SignatureTitleDate
/s/ JOHN M. EGGEMEYER
John M. Eggemeyer
Chairman of the Board of DirectorsFebruary 27, 202028, 2022
/s/ MATTHEW P. WAGNER
Matthew P. Wagner
Chief Executive Officer and Director (Principal Executive Officer)February 27, 202028, 2022
/s/ PATRICK J. RUSNAK
Patrick J. Rusnak
Executive Vice President and Chief Financial Officer (Principal Financial Officer)February 27, 2020
/s/ BART R. OLSON
Bart R. Olson
Executive Vice President and Chief Financial Officer (Principal Financial Officer)February 28, 2022
/s/ MONICA L. SPARKS
Monica L. Sparks
Executive Vice President and Chief Accounting Officer (Principal Accounting Officer)February 27, 202028, 2022
/s/ TANYA M. ACKER
Tanya M. Acker
DirectorFebruary 27, 202028, 2022
/s/ PAUL R. BURKE
Paul R. Burke
DirectorFebruary 27, 202028, 2022
/s/ CRAIG A. CARLSON
Craig A. Carlson
DirectorFebruary 27, 202028, 2022
/s/ C. WILLIAM HOSLER
C. William Hosler
DirectorFebruary 27, 202028, 2022
/s/ POLLY B. JENSEN
Polly B. Jensen
DirectorFebruary 28, 2022
/s/ SUSAN E. LESTER
Susan E. Lester
DirectorFebruary 27, 202028, 2022
/s/ ARNOLD W. MESSER
Arnold W. Messer
DirectorFebruary 27, 2020
/s/ ROGER H. MOLVAR
Roger H. Molvar
DirectorFebruary 27, 202028, 2022
/s/ JAMES J. PIECZYNSKI
James J. Pieczynski
DirectorFebruary 27, 2020
/s/ DANIEL B. PLATT
Daniel B. Platt
DirectorFebruary 27, 202028, 2022
/s/ ROBERT A. STINE
Robert A. Stine
DirectorFebruary 27, 202028, 2022
/s/ MARK T. YUNGPAUL W. TAYLOR
Mark T. YungPaul W. Taylor
DirectorFebruary 27, 202028, 2022



172
183