~~0001102112us-gaap:ConsumerPortfolioSegmentMemberpacw:TermLoansByOriginationDateMemberpacw:A5SpecialMentionMemberpacw:OriginationDate2019Member2020-06-30~~0001102112pacw:A68ClassifiedMemberpacw:OriginationDate2019Memberpacw:TermLoansByOriginationDateMember2020-09-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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


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

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

Commission File No. 001-36408

PACWEST BANCORP

(Exact name of registrant as specified in its charter)


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

9701 Wilshire Blvd., Suite 700

Beverly Hills, CA 90212

(Address of Principal Executive Offices, Including Zip Code)

(310) 887-8500

(Registrant's Telephone Number, Including Area Code)

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

Common Stock, par value $0.01 per share

PACW

The Nasdaq Stock Market, LLC

(Title of Each Class)

(Trading Symbol)

(Name of Exchange on Which Registered)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☑

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

�� Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

☑

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of ~~July 30,~~October 29, 2020, there were ~~116,749,981~~116,783,237 shares of the registrant's common stock outstanding, excluding ~~1,623,568~~1,701,004 shares of unvested restricted stock.

PACWEST BANCORP

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

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets (Unaudited)

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

Condensed Consolidated Statements of Cash Flows (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

5152

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

8987

Item 4.

Controls and Procedures

9391

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

9391

Item 1A.

Risk Factors

9391

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

9593

Item 6.

Index to Exhibits

9694

Signatures

9896

PART I

Glossary of Acronyms, Abbreviations, and Terms

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

AFX

American Financial Exchange

~~IPO~~GDP

~~Initial Public Offering~~Gross Domestic Product

ALLL

Allowance for Loan and Lease Losses

IPO

Initial Public Offering

ALM

Asset Liability Management

IRR

Interest Rate Risk

~~ALM~~ASC

~~Asset Liability Management~~Accounting Standards Codification

LIBOR

London Inter-bank Offered Rate

~~ASC~~ASU

Accounting Standards ~~Codification~~Update

LIHTC

Low Income Housing Tax Credit

~~ASU~~

~~Accounting Standards Update~~

~~MBS~~

~~Mortgage-Backed Securities~~

Basel III

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

~~MVE~~MBS

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

BHCA

Bank Holding Company Act of 1956, as amended

~~NII~~MVE

~~Net Interest Income~~Market Value of Equity

BOLI

Bank Owned Life Insurance

~~NIM~~NAV

Net ~~Interest Margin~~Asset Value

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

~~NSF~~NII

~~Non-Sufficient Funds~~Net Interest Income

CDI

Core Deposit Intangible Assets

NIM

Net Interest Margin

CECL

Current Expected Credit Loss

NSF

Non-Sufficient Funds

CET1

Common Equity Tier 1

OREO

Other Real Estate Owned

~~CECL~~CMBS

~~Current Expected Credit Loss~~Commercial Mortgage-Backed Securities

PD/LGD

Probability of Default/Loss Given Default

~~CET1~~CMOs

~~Common Equity Tier 1~~Collateralized Mortgage Obligations

PPNR

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

~~CMBS~~COVID-19

~~Commercial Mortgage-Backed Securities~~Coronavirus Disease

PPP

Paycheck Protection Program

~~CMOs~~CPI

~~Collateralized Mortgage Obligations~~Consumer Price Index

PRSUs

Performance-Based Restricted Stock Units

~~COVID-19~~CRA

~~Coronavirus Disease~~Community Reinvestment Act

PWAM

Pacific Western Asset Management Inc.

~~CPI~~CRE

~~Consumer Price Index~~Commercial Real Estate

ROU

Right-of-use

~~CRA~~

~~Community Reinvestment Act~~

~~SBA~~

~~Small Business Administration~~

CRI

Customer Relationship Intangible Assets

~~SEC~~SBA

~~Securities and Exchange Commission~~Small Business Administration

~~DBO~~DFPI

California Department of ~~Business Oversight~~Financial Protection and Innovation

~~SOFR~~SBIC

~~Secured Overnight Financing Rate~~Small Business Investment Company

DTAs

Deferred Tax Assets

~~Tax Equivalent Net Interest Income~~SEC

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

Dodd-Frank Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

SOFR

Secured Overnight Financing Rate

EAD

Exposure at Default

Tax Equivalent ~~NIM~~Net Interest Income

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

Efficiency Ratio

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

~~TCJA~~Tax Equivalent NIM

~~Tax Cuts~~NIM reflecting adjustments related to tax-exempt interest on certain loans and ~~Jobs Act~~investment securities

FASB

Financial Accounting Standards Board

~~TDRs~~TCJA

~~Troubled Debt Restructurings~~Tax Cuts and Jobs Act

FDIC

Federal Deposit Insurance Corporation

~~TRSAs~~TDRs

~~Time-Based Restricted Stock Awards~~Troubled Debt Restructurings

FHLB

Federal Home Loan Bank of San Francisco

~~U.S. GAAP~~TRSAs

~~U.S. Generally Accepted Accounting Principles~~Time-Based Restricted Stock Awards

FRB

Board of Governors of the Federal Reserve System

~~VIE~~U.S. GAAP

~~Variable Interest Entity~~U.S. Generally Accepted Accounting Principles

FRBSF

Federal Reserve Bank of San Francisco

VIE

Variable Interest Entity

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


		June 30,		December 31,			September 30,		December 31,
		2020		2019			2020		2019
		(Unaudited)							(Unaudited)
		(Dollars in thousands, except par value amounts)							(Dollars in thousands, except par value amounts)
ASSETS:	ASSETS:					ASSETS:
Cash and due from banks	Cash and due from banks	$	174,059	$	172,585	Cash and due from banks	$	187,176	$	172,585
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	1,747,077		465,039		Interest-earning deposits in financial institutions	2,766,020		465,039
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	1,921,136		637,624		Total cash, cash equivalents, and restricted cash	2,953,196		637,624
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value	3,851,141		3,797,187		Securities available-for-sale, at fair value	4,532,614		3,797,187
Federal Home Loan Bank stock, at cost	Federal Home Loan Bank stock, at cost	17,250		40,924		Federal Home Loan Bank stock, at cost	17,250		40,924
Total investment securities	Total investment securities	3,868,391		3,838,111		Total investment securities	4,549,864		3,838,111

Gross loans and leases held for investment	Gross loans and leases held for investment	19,780,476		18,910,740		Gross loans and leases held for investment	19,101,680		18,910,740
Deferred fees, net	Deferred fees, net	(85,845)		(63,868)		Deferred fees, net	(75,480)		(63,868)
Allowance for loan and lease losses	Allowance for loan and lease losses	(301,050)		(138,785)		Allowance for loan and lease losses	(345,966)		(138,785)
Total loans and leases held for investment, net	Total loans and leases held for investment, net	19,393,581		18,708,087		Total loans and leases held for investment, net	18,680,234		18,708,087
Equipment leased to others under operating leases	Equipment leased to others under operating leases	295,191		324,084		Equipment leased to others under operating leases	286,425		324,084
Premises and equipment, net	Premises and equipment, net	42,299		38,585		Premises and equipment, net	40,544		38,585
Foreclosed assets, net	Foreclosed assets, net	1,449		440		Foreclosed assets, net	13,747		440
Goodwill	Goodwill	1,078,670		2,548,670		Goodwill	1,078,670		2,548,670
Core deposit and customer relationship intangibles, net	Core deposit and customer relationship intangibles, net	30,564		38,394		Core deposit and customer relationship intangibles, net	26,813		38,394
Other assets	Other assets	734,457		636,811		Other assets	797,223		636,811
Total assets	Total assets	$	27,365,738	$	26,770,806	Total assets	$	28,426,716	$	26,770,806

LIABILITIES:	LIABILITIES:					LIABILITIES:
Noninterest-bearing deposits	Noninterest-bearing deposits	$	8,629,543	$	7,243,298	Noninterest-bearing deposits	$	9,346,744	$	7,243,298
Interest-bearing deposits	Interest-bearing deposits	14,299,036		11,989,738		Interest-bearing deposits	14,618,951		11,989,738
Total deposits	Total deposits	22,928,579		19,233,036		Total deposits	23,965,695		19,233,036
Borrowings	Borrowings	60,000		1,759,008		Borrowings	60,000		1,759,008
Subordinated debentures	Subordinated debentures	460,772		458,209		Subordinated debentures	463,282		458,209
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	463,489		365,856		Accrued interest payable and other liabilities	451,508		365,856
Total liabilities	Total liabilities	23,912,840		21,816,109		Total liabilities	24,940,485		21,816,109

Commitments and contingencies	Commitments and contingencies					Commitments and contingencies

STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)	Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)	—		—		Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)	0		0
Common stock ($0.01 par value, 200,000,000 shares authorized at June 30, 2020 and
December 31, 2019; 120,681,951 and 121,890,008 shares issued, respectively, includes
1,624,622 and 1,513,197 shares of unvested restricted stock, respectively)		1,207		1,219
Common stock ($0.01 par value, 200,000,000 shares authorized at September 30, 2020 and						Common stock ($0.01 par value, 200,000,000 shares authorized at September 30, 2020 and
December 31, 2019; 120,801,109 and 121,890,008 shares issued, respectively, includes						December 31, 2019; 120,801,109 and 121,890,008 shares issued, respectively, includes
1,706,690 and 1,513,197 shares of unvested restricted stock, respectively)						1,706,690 and 1,513,197 shares of unvested restricted stock, respectively)	1,208		1,219
Additional paid-in capital	Additional paid-in capital	3,148,090		3,306,006		Additional paid-in capital	3,125,554		3,306,006
Retained earnings	Retained earnings	247,058		1,652,248		Retained earnings	292,561		1,652,248
Treasury stock, at cost (2,307,348 and 2,108,403 shares at June 30, 2020 and
Treasury stock, at cost (2,311,182 and 2,108,403 shares at September 30, 2020 and						Treasury stock, at cost (2,311,182 and 2,108,403 shares at September 30, 2020 and
December 31, 2019)	December 31, 2019)	(88,495)		(83,434)		December 31, 2019)	(88,566)		(83,434)
Accumulated other comprehensive income, net	Accumulated other comprehensive income, net	145,038		78,658		Accumulated other comprehensive income, net	155,474		78,658
Total stockholders' equity	Total stockholders' equity	3,452,898		4,954,697		Total stockholders' equity	3,486,231		4,954,697
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	27,365,738	$	26,770,806	Total liabilities and stockholders' equity	$	28,426,716	$	26,770,806

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)


		Three Months Ended												Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,		March 31,		June 30,		June 30,							September 30,		June 30,		September 30,		September 30,
		2020		2020		2019		2020		2019			2020		2020		2019		2020		2019
		(Unaudited)																			(Unaudited)
		(Dollars in thousands, except per share amounts)																			(Dollars in thousands, except per share amounts)
Interest income:	Interest income:											Interest income:
Loans and leases	Loans and leases	$	247,851	$	262,278	$	284,236	$	510,129	$	558,465	Loans and leases	$	240,811	$	247,851	$	275,978	$	750,940	$	834,443
Investment securities	Investment securities	26,038		27,446		28,948		53,484		58,628		Investment securities	24,443		26,038		28,806		77,927		87,434
Deposits in financial institutions	Deposits in financial institutions	186		1,608		1,349		1,794		1,999		Deposits in financial institutions	654		186		2,424		2,448		4,423
Total interest income	Total interest income	274,075		291,332		314,533		565,407		619,092		Total interest income	265,908		274,075		307,208		831,315		926,300
Interest expense:	Interest expense:											Interest expense:
Deposits	Deposits	13,075		28,247		38,720		41,322		72,955		Deposits	9,887		13,075		40,703		51,209		113,658
Borrowings	Borrowings	1,319		6,778		7,210		8,097		14,920		Borrowings	27		1,319		6,852		8,124		21,772
Subordinated debentures	Subordinated debentures	5,402		6,560		7,705		11,962		15,443		Subordinated debentures	4,670		5,402		7,417		16,632		22,860
Total interest expense	Total interest expense	19,796		41,585		53,635		61,381		103,318		Total interest expense	14,584		19,796		54,972		75,965		158,290
Net interest income	Net interest income	254,279		249,747		260,898		504,026		515,774		Net interest income	251,324		254,279		252,236		755,350		768,010
Provision for credit losses	Provision for credit losses	120,000		112,000		8,000		232,000		12,000		Provision for credit losses	97,000		120,000		7,000		329,000		19,000
Net interest income after provision for credit losses	Net interest income after provision for credit losses	134,279		137,747		252,898		272,026		503,774		Net interest income after provision for credit losses	154,324		134,279		245,236		426,350		749,010
Noninterest income:	Noninterest income:											Noninterest income:
Other commissions and fees	Other commissions and fees	10,111		9,721		11,590		19,832		22,598		Other commissions and fees	10,541		10,111		10,855		30,373		33,453
Leased equipment income	Leased equipment income	12,037		12,251		9,182		24,288		18,464		Leased equipment income	9,900		12,037		9,615		34,188		28,079
Service charges on deposit accounts	Service charges on deposit accounts	2,004		2,658		3,771		4,662		7,501		Service charges on deposit accounts	2,570		2,004		3,525		7,232		11,026
Gain on sale of loans and leases	Gain on sale of loans and leases	346		87		326		433		326		Gain on sale of loans and leases	35		346		765		468		1,091
Gain on sale of securities	Gain on sale of securities	7,715		182		22,192		7,897		24,353		Gain on sale of securities	5,270		7,715		908		13,167		25,261
Other income	Other income	6,645		4,201		3,832		10,846		8,715		Other income	9,936		6,645		7,761		20,782		16,476
Total noninterest income	Total noninterest income	38,858		29,100		50,893		67,958		81,957		Total noninterest income	38,252		38,858		33,429		106,210		115,386
Noninterest expense:	Noninterest expense:											Noninterest expense:
Compensation	Compensation	61,910		61,282		68,956		123,192		139,801		Compensation	75,131		61,910		71,424		198,323		211,225
Occupancy	Occupancy	14,494		14,207		14,457		28,701		28,777		Occupancy	14,771		14,494		14,089		43,472		42,866
Data processing	Data processing	7,102		6,454		6,817		13,556		13,742		Data processing	6,505		7,102		7,044		20,061		20,786
Leased equipment depreciation	Leased equipment depreciation	7,102		7,205		5,558		14,307		11,209		Leased equipment depreciation	7,057		7,102		5,951		21,364		17,160
Intangible asset amortization	Intangible asset amortization	3,882		3,948		4,870		7,830		9,740		Intangible asset amortization	3,751		3,882		4,833		11,581		14,573
Other professional services	Other professional services	4,146		4,258		4,629		8,404		9,142		Other professional services	4,713		4,146		4,400		13,117		13,542
Insurance and assessments	Insurance and assessments	9,373		4,249		4,098		13,622		8,136		Insurance and assessments	3,939		9,373		4,100		17,561		12,236
Customer related expense	Customer related expense	4,408		3,932		3,405		8,340		6,348		Customer related expense	4,762		4,408		3,539		13,102		9,887
Loan expense	Loan expense	3,379		2,650		3,451		6,029		6,336		Loan expense	3,499		3,379		3,628		9,528		9,964
Acquisition, integration and reorganization costs	Acquisition, integration and reorganization costs	—		—		—		—		618		Acquisition, integration and reorganization costs	0		0		0		0		618
Foreclosed assets (income) expense, net		(146)		66		(146)		(80)		(117)
Foreclosed assets expense (income), net												Foreclosed assets expense (income), net	335		(146)		8		255		(109)
Goodwill impairment	Goodwill impairment	—		1,470,000		—		1,470,000		—		Goodwill impairment	0		0		0		1,470,000		0
Other expense	Other expense	11,315		9,719		9,332		21,034		17,982		Other expense	8,939		11,315		7,793		29,973		25,775
Total noninterest expense	Total noninterest expense	126,965		1,587,970		125,427		1,714,935		251,714		Total noninterest expense	133,402		126,965		126,809		1,848,337		378,523
Earnings (loss) before income taxes	Earnings (loss) before income taxes	46,172		(1,421,123)		178,364		(1,374,951)		334,017		Earnings (loss) before income taxes	59,174		46,172		151,856		(1,315,777)		485,873
Income tax expense	Income tax expense	12,968		11,988		50,239		24,956		93,288		Income tax expense	13,671		12,968		41,830		38,627		135,118
Net earnings (loss)	Net earnings (loss)	$	33,204	$	(1,433,111)	$	128,125	$	(1,399,907)	$	240,729	Net earnings (loss)	$	45,503	$	33,204	$	110,026	$	(1,354,404)	$	350,755

Earnings (loss) per share:	Earnings (loss) per share:											Earnings (loss) per share:
Basic	Basic	$	0.28	$	(12.23)	$	1.07	$	(11.98)	$	1.99	Basic	$	0.38	$	0.28	$	0.92	$	(11.60)	$	2.91
Diluted	Diluted	$	0.28	$	(12.23)	$	1.07	$	(11.98)	$	1.99	Diluted	$	0.38	$	0.28	$	0.92	$	(11.60)	$	2.91

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


		Three Months Ended												Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,		March 31,		June 30,		June 30,							September 30,		June 30,		September 30,		September 30,
		2020		2020		2019		2020		2019			2020		2020		2019		2020		2019
		(Unaudited)																			(Unaudited)
		(In thousands)																			(In thousands)
Net earnings (loss)	Net earnings (loss)	$	33,204	$	(1,433,111)	$	128,125	$	(1,399,907)	$	240,729	Net earnings (loss)	$	45,503	$	33,204	$	110,026	$	(1,354,404)	$	350,755
Other comprehensive income, net of tax:	Other comprehensive income, net of tax:											Other comprehensive income, net of tax:
Unrealized net holding gains on securities	Unrealized net holding gains on securities											Unrealized net holding gains on securities
available-for-sale arising during the period	available-for-sale arising during the period	82,780		17,183		72,168		99,963		134,807		available-for-sale arising during the period	19,745		82,780		32,759		119,708		167,566
Income tax expense related to net unrealized	Income tax expense related to net unrealized											Income tax expense related to net unrealized
holding gains arising during the period	holding gains arising during the period	(23,095)		(4,794)		(20,459)		(27,889)		(38,217)		holding gains arising during the period	(5,510)		(23,095)		(9,287)		(33,399)		(47,504)
Unrealized net holding gains on securities	Unrealized net holding gains on securities											Unrealized net holding gains on securities
available-for-sale, net of tax	available-for-sale, net of tax	59,685		12,389		51,709		72,074		96,590		available-for-sale, net of tax	14,235		59,685		23,472		86,309		120,062
Reclassification adjustment for net gains	Reclassification adjustment for net gains											Reclassification adjustment for net gains
included in net earnings ⁽¹⁾	included in net earnings ⁽¹⁾	(7,715)		(182)		(22,192)		(7,897)		(24,353)		included in net earnings (1)	(5,270)		(7,715)		(908)		(13,167)		(25,261)
Income tax expense related to reclassification	Income tax expense related to reclassification											Income tax expense related to reclassification
adjustment	adjustment	2,152		51		6,291		2,203		6,904		adjustment	1,471		2,152		257		3,674		7,161
Reclassification adjustment for net gains	Reclassification adjustment for net gains											Reclassification adjustment for net gains
included in net earnings, net of tax	included in net earnings, net of tax	(5,563)		(131)		(15,901)		(5,694)		(17,449)		included in net earnings, net of tax	(3,799)		(5,563)		(651)		(9,493)		(18,100)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	54,122		12,258		35,808		66,380		79,141		Other comprehensive income, net of tax	10,436		54,122		22,821		76,816		101,962
Comprehensive income (loss)	Comprehensive income (loss)	$	87,326	$	(1,420,853)	$	163,933	$	(1,333,527)	$	319,870	Comprehensive income (loss)	$	55,939	$	87,326	$	132,847	$	(1,277,588)	$	452,717

^{___________________________________}

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


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

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

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

________________________

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


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

Cash dividends paid:															Cash dividends paid:
Common stock, $0.60/share															Common stock, $0.60/share	—		—		(71,952)		—		—		—		(71,952)
Balance, September 30, 2019															Balance, September 30, 2019	119,831,192		$	1,219	$	3,371,032	$	1,534,367	$	(82,397)	$	95,887	$	4,920,108

________________________

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Six Months Ended							Nine Months Ended
		June 30,							September 30,
		2020		2019			2020		2019
		(Unaudited)							(Unaudited)
		(In thousands)							(In thousands)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net (loss) earnings	Net (loss) earnings	$	(1,399,907)	$	240,729	Net (loss) earnings	$	(1,354,404)	$	350,755
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:	Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:					Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:
Goodwill impairment	Goodwill impairment	1,470,000		—		Goodwill impairment	1,470,000		0
Depreciation and amortization	Depreciation and amortization	22,124		18,607		Depreciation and amortization	33,303		28,266
Amortization of net premiums on securities available-for-sale	Amortization of net premiums on securities available-for-sale	5,591		7,933		Amortization of net premiums on securities available-for-sale	9,994		11,078
Amortization of intangible assets	Amortization of intangible assets	7,830		9,740		Amortization of intangible assets	11,581		14,573
Amortization of operating lease ROU assets	Amortization of operating lease ROU assets	14,662		14,723		Amortization of operating lease ROU assets	22,080		22,028
Provision for credit losses	Provision for credit losses	232,000		12,000		Provision for credit losses	329,000		19,000
Gain on sale of foreclosed assets	Gain on sale of foreclosed assets	(112)		(320)		Gain on sale of foreclosed assets	(187)		(406)
Provision for losses on foreclosed assets	Provision for losses on foreclosed assets	110		—		Provision for losses on foreclosed assets	267		54
Gain on sale of loans and leases	Gain on sale of loans and leases	(433)		(326)		Gain on sale of loans and leases	(468)		(1,091)
Loss (gain) on sale of premises and equipment	Loss (gain) on sale of premises and equipment	187		(37)		Loss (gain) on sale of premises and equipment	309		(34)
Gain on sale of securities	Gain on sale of securities	(7,897)		(24,353)		Gain on sale of securities	(13,167)		(25,261)

Unrealized loss (gain) on derivatives and foreign currencies, net	Unrealized loss (gain) on derivatives and foreign currencies, net	564		(40)		Unrealized loss (gain) on derivatives and foreign currencies, net	494		(16)
Earned stock compensation	Earned stock compensation	12,783		12,529		Earned stock compensation	19,847		19,834

Decrease in other assets		8,393		44,349
(Increase) decrease in other assets						(Increase) decrease in other assets	(60,450)		50,345
Decrease in accrued interest payable and other liabilities	Decrease in accrued interest payable and other liabilities	(91,873)		(55,550)		Decrease in accrued interest payable and other liabilities	(125,262)		(41,530)
Net cash provided by operating activities	Net cash provided by operating activities	274,022		279,984		Net cash provided by operating activities	342,937		447,595

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Net increase in loans and leases	Net increase in loans and leases	(887,247)		(605,228)		Net increase in loans and leases	(269,253)		(894,624)
Proceeds from sales of loans and leases	Proceeds from sales of loans and leases	3,522		80,440		Proceeds from sales of loans and leases	6,536		102,507
Proceeds from maturities and paydowns of securities available-for-sale	Proceeds from maturities and paydowns of securities available-for-sale	170,245		150,766		Proceeds from maturities and paydowns of securities available-for-sale	292,769		238,487
Proceeds from sales of securities available-for-sale	Proceeds from sales of securities available-for-sale	144,997		1,410,510		Proceeds from sales of securities available-for-sale	167,267		1,554,805
Purchases of securities available-for-sale	Purchases of securities available-for-sale	(274,824)		(1,232,214)		Purchases of securities available-for-sale	(1,085,749)		(1,444,720)
Net redemptions (purchases) of Federal Home Loan Bank stock		23,674		(11,043)
Net redemptions of Federal Home Loan Bank stock						Net redemptions of Federal Home Loan Bank stock	23,674		5,238
Proceeds from sales of foreclosed assets	Proceeds from sales of foreclosed assets	769		4,184		Proceeds from sales of foreclosed assets	983		4,322
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(9,772)		(8,621)		Purchases of premises and equipment, net	(11,013)		(10,990)
Proceeds from sales of premises and equipment	Proceeds from sales of premises and equipment	2		54		Proceeds from sales of premises and equipment	4		60
Proceeds from BOLI death benefit	Proceeds from BOLI death benefit	761		555		Proceeds from BOLI death benefit	761		555
Net decrease (increase) in equipment leased to others under operating leases	Net decrease (increase) in equipment leased to others under operating leases	15,147		(18,986)		Net decrease (increase) in equipment leased to others under operating leases	16,860		(19,981)
Net cash used in investing activities	Net cash used in investing activities	(812,726)		(229,583)		Net cash used in investing activities	(857,161)		(464,341)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase (decrease) in noninterest-bearing deposits	Net increase (decrease) in noninterest-bearing deposits	1,387,698		(588,417)		Net increase (decrease) in noninterest-bearing deposits	2,105,033		(446,400)
Net increase in interest-bearing deposits	Net increase in interest-bearing deposits	2,309,298		524,957		Net increase in interest-bearing deposits	2,629,213		1,310,432
Net (decrease) increase in borrowings		(1,699,008)		541,945
Net decrease in borrowings						Net decrease in borrowings	(1,699,008)		(118,083)

Common stock repurchased and restricted stock surrendered	Common stock repurchased and restricted stock surrendered	(75,061)		(161,826)		Common stock repurchased and restricted stock surrendered	(75,132)		(161,928)
Cash dividends paid	Cash dividends paid	(100,711)		(145,089)		Cash dividends paid	(130,310)		(217,041)
Net cash provided by financing activities	Net cash provided by financing activities	1,822,216		171,570		Net cash provided by financing activities	2,829,796		366,980

Net increase in cash, cash equivalents, and restricted cash	Net increase in cash, cash equivalents, and restricted cash	1,283,512		221,971		Net increase in cash, cash equivalents, and restricted cash	2,315,572		350,234
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	637,624		385,767		Cash, cash equivalents, and restricted cash, beginning of period	637,624		385,767
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	1,921,136	$	607,738	Cash, cash equivalents, and restricted cash, end of period	$	2,953,196	$	736,001

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Six Months Ended							Nine Months Ended
		June 30,							September 30,
		2020		2019			2020		2019
		(Unaudited)							(Unaudited)
		(In thousands)							(In thousands)
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for interest	Cash paid for interest	$	68,390	$	97,238	Cash paid for interest	$	86,060	$	154,212
Cash paid for income taxes	Cash paid for income taxes	3,850		68,305		Cash paid for income taxes	92,953		89,505

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

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

We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 7471 full-service branches located in California, 1 branch located in Durham, North Carolina, 1 branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key ~~innovative~~innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.

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

Significant Accounting Policies

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

Investment Securities

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

Effective January 1, 2020, upon the adoption of ASU 2016-13, debt 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 credit losses by a charge to earnings for the credit-related component (if any) of the decline in fair value, and (2) recognize in other comprehensive income (loss) any non-credit related components of the fair value decline (if any). If the amount of the amortized cost basis expected to be recovered increases in a future period, the valuation ~~reserve~~allowance would be reduced, but not more than the amount of the current existing ~~reserve~~allowance for that security.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Purchased Loans with Credit Deterioration

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

Effective January 1, 2020, upon 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.

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

Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates. The resulting allowance for loan and lease losses is deducted from the associated amortized cost basis to reflect the net amount expected to be collected. Subsequent changes in this estimate are recorded through the provision for credit losses and the allowance. The CECL methodology could result in significant changes to both the timing and amounts of provision for credit losses and the allowance as compared to ~~recent~~ 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 aan individually evaluated loan or lease based upon the fair value of the underlying collateral if the loan or lease is collateral-dependent or the present value of cash flows, discounted at the effective interest rate, if the loan or lease is not collateral-dependent. To the extent a loan or lease balance exceeds the estimated collectable value, a reserve or charge-off is recorded depending upon either the certainty of the estimate of loss or the fair value of the loan’s collateral if the loan is collateral-dependent.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

The loan portfolio is segmented into 4 loan segments, 8 loan classes, and 2219 loan pools (excluding Paycheck Protection Program loans, which are fully government guaranteed) based upon loan type that share similar default risk characteristics to calculate quantitative loss factors for each pool. NaN of these loan pools have insignificant current balances and/or insignificant historical losses, thus, estimated losses are calculated using historical loss rates from the first quarter of 2009 to the current period rather than econometric regression modeling. For the remaining 16 loan pools, we estimate the ~~probability of default (“PD”)~~PD during the reasonable and supportable forecast period using 7 econometric regression models developed to correlate macroeconomic variables to historical credit performance ~~(including~~(based on quarterly transition matrices from 2009 to 2019, which include risk rating upgrades/downgrades and defaults). The loans and unfunded commitments are grouped into 9 ~~loss given default (“LGD”)~~LGD pools based on portfolio classes that share similar collateral risk characteristics. LGD rates are computed based on the net charge-offs recognized divided by the ~~exposure at default (“EAD”)~~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 ~~estimated prepayments,~~ and estimated ~~usage of unfunded commitments to compute the current expected credit loss.~~prepayments. We use our actual historical loan prepayment experience from 2009 -to 2019 to estimate future prepayments by loan pool. Given that no historical period exhibits economic conditions similar to the single scenario baseline forecast discussed below, prepayment rates based on all historical prepayment experience from 2009 - 2019 are consistently applied during the reasonable and supportable, reversion, and post-reversion periods.

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

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

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

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

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

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

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

~~In addition, we~~

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

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

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

~~The~~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;

•~~Collateral Dependency - considers changes in collateral values;~~

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

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

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

•Loan Review - results of independent credit review; and

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

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

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

Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan and lease portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements. In addition, current credit risk ratings are subject to change as we continue to monitor our loans and leases. To the extent we experience increased levels of borrower loan defaults, borrowers’ noncompliance with loan agreements, adverse changes in collateral values, or changes in economic and business conditions that adversely affect our borrowers, 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. In addition, economic forecasts utilized in the estimation process will change in future periods, which will result in changes to the estimates made for current expected credit losses as of a point in time. However, economic forecasts are just one of many assumptions and components that go into estimating the allowance for credit losses.

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, selection of the most reliable econometric regression models, segmentation of the loan and lease portfolio, determining the amount of loss history to consider, determining the relevant macroeconomic inputs to the quantitative models, determining the methodology to forecast prepayments, selection of the most appropriate economic forecast scenario, determining the length of the reasonable and supportable forecast and reversion periods, determining expected utilization rates on unfunded loan commitments and determining 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 we have established an allowance for credit losses that we consider appropriate, there can be no assurance that the allowance will be sufficient to absorb future losses.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Accounting Standards Adopted in 2020

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

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

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

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

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

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

ASU 2020-03, "Codification Improvements to Financial Instruments" ("ASU 2020-03"), revised a wide variety of topics in the Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. ASU 2020-03 was effective immediately upon its release in March 2020 and did not have a material impact to our condensed consolidated financial statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Basis of Presentation

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

Use of Estimates

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

Reclassifications

None.

NOTE 2. RESTRICTED CASH BALANCES

The FRBSF establishes cash reserve requirements that its member banks must maintain based on a percentage of deposit liabilities. On March 26, 2020, the FRBSF reduced the reserve requirement ratios to zero percent. The average reserves required to be held at the FRBSF for the ~~six~~nine months ended ~~June~~September 30, 2020 and the year ended December 31, 2019 were ~~$83.1~~$55.2 million and $131.0 million. As of ~~June~~September 30, 2020 and December 31, 2019, we pledged cash collateral for our derivative contracts of ~~$2.2~~$2.5 million and $3.2 million.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 3. INVESTMENT SECURITIES

Securities Available-for-Sale

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


		June 30, 2020														December 31, 2019															September 30, 2020				December 31, 2019
				Gross		Gross						Gross		Gross							Gross		Gross						Gross		Gross
		Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair			Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
Security Type	Security Type	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value		Security Type	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
		(In thousands)																															(In thousands)
Agency commercial MBS	Agency commercial MBS	$	1,060,551	$	72,587	$	(52)	$	1,133,086	$	1,083,182	$	25,579	$	(537)	$	1,108,224	Agency commercial MBS	$	1,129,060	$	75,309	$	(54)	$	1,204,315	$	1,083,182	$	25,579	$	(537)	$	1,108,224
Municipal securities																		Municipal securities	1,133,811		70,758		(1,539)		1,203,030		691,647		43,851		(339)		735,159
Agency residential CMOs	Agency residential CMOs	993,696		56,055		(9)		1,049,742		1,112,573		24,403		(579)		1,136,397		Agency residential CMOs	1,111,235		54,900		(263)		1,165,872		1,112,573		24,403		(579)		1,136,397
Municipal securities		825,446		62,976		(84)		888,338		691,647		43,851		(339)		735,159
Agency residential MBS	Agency residential MBS	236,134		12,847		(47)		248,934		294,606		10,593		(1)		305,198		Agency residential MBS	233,513		13,018		(33)		246,498		294,606		10,593		(1)		305,198
Asset-backed securities	Asset-backed securities	232,081		556		(5,431)		227,206		216,133		320		(1,670)		214,783		Asset-backed securities	236,081		554		(2,532)		234,103		216,133		320		(1,670)		214,783
Corporate debt securities																		Corporate debt securities	173,707		726		(151)		174,282		17,000		3,748		0		20,748
Collateralized loan obligations	Collateralized loan obligations	142,080		—		(5,417)		136,663		124,134		25		(403)		123,756		Collateralized loan obligations	138,966		0		(3,633)		135,333		124,134		25		(403)		123,756
Private label residential CMOs	Private label residential CMOs	95,629		2,245		(1,099)		96,775		96,066		3,430		(13)		99,483		Private label residential CMOs	115,101		6,089		(28)		121,162		96,066		3,430		(13)		99,483
SBA securities	SBA securities	42,375		2,236		(35)		44,576		47,765		506		(13)		48,258		SBA securities	40,515		2,194		(25)		42,684		47,765		506		(13)		48,258
Corporate debt securities		17,000		3,458		—		20,458		17,000		3,748		—		20,748
U.S. Treasury securities	U.S. Treasury securities	4,987		376		—		5,363		4,985		196		—		5,181		U.S. Treasury securities	4,988		347		0		5,335		4,985		196		0		5,181

Total	Total	$	3,649,979	$	213,336	$	(12,174)	$	3,851,141	$	3,688,091	$	112,651	$	(3,555)	$	3,797,187	Total	$	4,316,977	$	223,895	$	(8,258)	$	4,532,614	$	3,688,091	$	112,651	$	(3,555)	$	3,797,187

As of ~~June~~September 30, 2020, securities available-for-sale with a fair value of ~~$642.0~~$605.3 million were pledged as collateral for public deposits and other purposes as required by various statutes and agreements.

Realized Gains and Losses on Securities Available-for-Sale

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


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
Sales of Securities Available-for-Sale	Sales of Securities Available-for-Sale	2020		2019		2020		2019		Sales of Securities Available-for-Sale	2020		2019		2020		2019
		(In thousands)															(In thousands)
Amortized cost of securities sold	Amortized cost of securities sold	$	122,334	$	980,395	$	137,100	$	1,386,157	Amortized cost of securities sold	$	17,000	$	143,388	$	154,100	$	1,529,544

Gross realized gains	Gross realized gains	$	7,747	$	24,154	$	7,929	$	28,213	Gross realized gains	$	5,270	$	1,187	$	13,199	$	29,400
Gross realized losses	Gross realized losses	(32)		(1,962)		(32)		(3,860)		Gross realized losses	0		(279)		(32)		(4,139)
Net realized gains	Net realized gains	$	7,715	$	22,192	$	7,897	$	24,353	Net realized gains	$	5,270	$	908	$	13,167	$	25,261

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Unrealized Losses on Securities Available-for-Sale

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


		June 30, 2020																							September 30, 2020
		Less Than 12 Months						12 Months or More								Total					Less Than 12 Months				12 Months or More		Total
				Gross				Gross				Gross					Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Security Type	Security Type	Value		Losses		Value		Losses		Value		Losses		Security Type	Value		Losses		Value		Losses		Value		Losses
		(In thousands)																							(In thousands)
Agency commercial MBS	Agency commercial MBS	$	9,281	$	(52)	$	—	$	—	$	9,281	$	(52)	Agency commercial MBS	$	3,066	$	(4)	$	9,241	$	(50)	$	12,307	$	(54)
Municipal securities														Municipal securities	189,163		(1,539)		0		0		189,163		(1,539)
Agency residential CMOs	Agency residential CMOs	—		—		1,308		(9)		1,308		(9)		Agency residential CMOs	77,168		(263)		0		0		77,168		(263)
Municipal securities		20,448		(84)		—		—		20,448		(84)
Agency residential MBS	Agency residential MBS	2,403		(47)		—		—		2,403		(47)		Agency residential MBS	1,753		(33)		0		0		1,753		(33)
Asset-backed securities	Asset-backed securities	116,863		(3,400)		36,800		(2,031)		153,663		(5,431)		Asset-backed securities	44,658		(339)		122,729		(2,193)		167,387		(2,532)
Corporate debt securities														Corporate debt securities	60,056		(151)		0		0		60,056		(151)
Collateralized loan obligations	Collateralized loan obligations	104,062		(3,352)		32,601		(2,065)		136,663		(5,417)		Collateralized loan obligations	102,396		(1,938)		32,937		(1,695)		135,333		(3,633)
Private label residential CMOs	Private label residential CMOs	52,839		(1,096)		78		(3)		52,917		(1,099)		Private label residential CMOs	8,510		(26)		76		(2)		8,586		(28)
SBA securities	SBA securities	1,971		(35)		—		—		1,971		(35)		SBA securities	1,964		(25)		0		0		1,964		(25)

Total	Total	$	307,867	$	(8,066)	$	70,787	$	(4,108)	$	378,654	$	(12,174)	Total	$	488,734	$	(4,318)	$	164,983	$	(3,940)	$	653,717	$	(8,258)


		December 31, 2019																							December 31, 2019
		Less Than 12 Months						12 Months or More								Total					Less Than 12 Months				12 Months or More		Total
				Gross				Gross				Gross					Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Security Type	Security Type	Value		Losses		Value		Losses		Value		Losses		Security Type	Value		Losses		Value		Losses		Value		Losses
		(In thousands)																							(In thousands)
Agency commercial MBS	Agency commercial MBS	$	214,862	$	(537)	$	—	$	—	$	214,862	$	(537)	Agency commercial MBS	$	214,862	$	(537)	$	0	$	0	$	214,862	$	(537)
Municipal securities														Municipal securities	38,667		(339)		0		0		38,667		(339)
Agency residential CMOs	Agency residential CMOs	180,071		(572)		1,456		(7)		181,527		(579)		Agency residential CMOs	180,071		(572)		1,456		(7)		181,527		(579)
Municipal securities		38,667		(339)		—		—		38,667		(339)
Agency residential MBS	Agency residential MBS	—		—		186		(1)		186		(1)		Agency residential MBS	0		0		186		(1)		186		(1)
Asset-backed securities	Asset-backed securities	165,575		(1,670)		—		—		165,575		(1,670)		Asset-backed securities	165,575		(1,670)		0		0		165,575		(1,670)
Collateralized loan obligations	Collateralized loan obligations	102,469		(403)		—		—		102,469		(403)		Collateralized loan obligations	102,469		(403)		0		0		102,469		(403)
Private label residential CMOs	Private label residential CMOs	9,872		(11)		114		(2)		9,986		(13)		Private label residential CMOs	9,872		(11)		114		(2)		9,986		(13)
SBA securities	SBA securities	4,565		(13)		—		—		4,565		(13)		SBA securities	4,565		(13)		0		0		4,565		(13)
Total	Total	$	716,081	$	(3,545)	$	1,756	$	(10)	$	717,837	$	(3,555)	Total	$	716,081	$	(3,545)	$	1,756	$	(10)	$	717,837	$	(3,555)

The securities that were in an unrealized loss position at ~~June~~September 30, 2020, were considered impaired and required 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 unrealized losses were not credit-related and recognized ~~such impairment~~the unrealized losses in "other comprehensive income" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Contractual Maturities of Securities Available-for-Sale

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


		June 30, 2020							September 30, 2020
		Amortized		Fair			Amortized		Fair
Maturities	Maturities	Cost		Value		Maturities	Cost		Value
		(In thousands)							(In thousands)
Due in one year or less	Due in one year or less	$	8,979	$	9,110	Due in one year or less	$	8,226	$	8,310
Due after one year through five years	Due after one year through five years	328,227		344,634		Due after one year through five years	508,645		532,309
Due after five years through ten years	Due after five years through ten years	967,544		1,032,710		Due after five years through ten years	1,067,818		1,135,249
Due after ten years	Due after ten years	2,345,229		2,464,687		Due after ten years	2,732,288		2,856,746
Total securities available-for-sale	Total securities available-for-sale	$	3,649,979	$	3,851,141	Total securities available-for-sale	$	4,316,977	$	4,532,614

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

Interest Income on Investment Securities

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


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
		(In thousands)															(In thousands)
Taxable interest	Taxable interest	$	19,836	$	20,944	$	41,622	$	40,686	Taxable interest	$	17,835	$	22,829	$	59,457	$	63,515
Non-taxable interest	Non-taxable interest	5,612		7,547		10,841		17,140		Non-taxable interest	6,272		5,565		17,113		22,705
Dividend income	Dividend income	590		457		1,021		802		Dividend income	336		412		1,357		1,214
Total interest income on investment securities	Total interest income on investment securities	$	26,038	$	28,948	$	53,484	$	58,628	Total interest income on investment securities	$	24,443	$	28,806	$	77,927	$	87,434

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4. LOANS AND LEASES

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

Loans and Leases Held for Investment

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


		June 30,		December 31,			September 30,		December 31,
		2020		2019			2020		2019
		(In thousands)							(In thousands)
Real estate mortgage	Real estate mortgage	$	7,963,898	$	7,982,383	Real estate mortgage	$	7,883,473	$	7,982,383
Real estate construction and land	Real estate construction and land	3,371,672		2,773,209		Real estate construction and land	3,453,155		2,773,209
Commercial	Commercial	8,033,592		7,714,358		Commercial	7,402,854		7,714,358
Consumer	Consumer	411,314		440,790		Consumer	362,198		440,790
Total gross loans and leases held for investment	Total gross loans and leases held for investment	19,780,476		18,910,740		Total gross loans and leases held for investment	19,101,680		18,910,740
Deferred fees, net	Deferred fees, net	(85,845)		(63,868)		Deferred fees, net	(75,480)		(63,868)
Total loans and leases held for investment, net of deferred fees	Total loans and leases held for investment, net of deferred fees	19,694,631		18,846,872		Total loans and leases held for investment, net of deferred fees	19,026,200		18,846,872
Allowance for loan and lease losses	Allowance for loan and lease losses	(301,050)		(138,785)		Allowance for loan and lease losses	(345,966)		(138,785)
Total loans and leases held for investment, net ⁽¹⁾	Total loans and leases held for investment, net ⁽¹⁾	$	19,393,581	$	18,708,087	Total loans and leases held for investment, net (1)	$	18,680,234	$	18,708,087

____________________

(1) Excludes accrued interest receivable of ~~$63.0~~$71.5 million and $67.5 million at ~~June~~September 30, 2020 and December 31, 2019, respectively, which is recorded in "Other assets" on the condensed consolidated balance sheets.

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


		June 30, 2020																			September 30, 2020
		30 - 89		90 or More									30 - 89		90 or More
		Days		Days		Total							Days		Days		Total
		Past Due		Past Due		Past Due		Current		Total			Past Due		Past Due		Past Due		Current		Total
		(In thousands)																			(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	$	42,784	$	6,985	$	49,769	$	4,172,306	$	4,222,075	Commercial	$	412	$	32,662	$	33,074	$	4,159,392	$	4,192,466
Income producing and other residential	Income producing and other residential	50		654		704		3,732,955		3,733,659		Income producing and other residential	1,761		537		2,298		3,682,281		3,684,579
Total real estate mortgage	Total real estate mortgage	42,834		7,639		50,473		7,905,261		7,955,734		Total real estate mortgage	2,173		33,199		35,372		7,841,673		7,877,045
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	—		—		—		1,167,609		1,167,609		Commercial	0		0		0		1,241,647		1,241,647
Residential	Residential	1,022		—		1,022		2,171,897		2,172,919		Residential	3,108		0		3,108		2,178,992		2,182,100
Total real estate construction and land	Total real estate construction and land	1,022		—		1,022		3,339,506		3,340,528		Total real estate construction and land	3,108		0		3,108		3,420,639		3,423,747
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	3,697		17,725		21,422		3,391,009		3,412,431		Asset-based	0		2,248		2,248		3,150,800		3,153,048
Venture capital	Venture capital	3,939		—		3,939		1,810,402		1,814,341		Venture capital	2,319		0		2,319		1,634,813		1,637,132
Other commercial	Other commercial	7,991		1,877		9,868		2,750,410		2,760,278		Other commercial	185		10,751		10,936		2,562,058		2,572,994
Total commercial	Total commercial	15,627		19,602		35,229		7,951,821		7,987,050		Total commercial	2,504		12,999		15,503		7,347,671		7,363,174
Consumer	Consumer	1,067		215		1,282		410,037		411,319		Consumer	791		116		907		361,327		362,234
Total	Total	$	60,550	$	27,456	$	88,006	$	19,606,625	$	19,694,631	Total	$	8,576	$	46,314	$	54,890	$	18,971,310	$	19,026,200

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		December 31, 2019																			December 31, 2019
		30 - 89		90 or More									30 - 89		90 or More
		Days		Days		Total							Days		Days		Total
		Past Due		Past Due		Past Due		Current		Total			Past Due		Past Due		Past Due		Current		Total
		(In thousands)																			(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	$	2,448	$	5,919	$	8,367	$	4,194,320	$	4,202,687	Commercial	$	2,448	$	5,919	$	8,367	$	4,194,320	$	4,202,687
Income producing and other residential	Income producing and other residential	2,105		802		2,907		3,767,153		3,770,060		Income producing and other residential	2,105		802		2,907		3,767,153		3,770,060
Total real estate mortgage	Total real estate mortgage	4,553		6,721		11,274		7,961,473		7,972,747		Total real estate mortgage	4,553		6,721		11,274		7,961,473		7,972,747
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	—		—		—		1,082,368		1,082,368		Commercial	0		0		0		1,082,368		1,082,368
Residential	Residential	1,429		—		1,429		1,654,005		1,655,434		Residential	1,429		0		1,429		1,654,005		1,655,434
Total real estate construction and land	Total real estate construction and land	1,429		—		1,429		2,736,373		2,737,802		Total real estate construction and land	1,429		0		1,429		2,736,373		2,737,802
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	19		—		19		3,748,388		3,748,407		Asset-based	19		0		19		3,748,388		3,748,407
Venture capital	Venture capital	—		—		—		2,179,422		2,179,422		Venture capital	0		0		0		2,179,422		2,179,422
Other commercial	Other commercial	2,781		4,164		6,945		1,760,722		1,767,667		Other commercial	2,781		4,164		6,945		1,760,722		1,767,667
Total commercial	Total commercial	2,800		4,164		6,964		7,688,532		7,695,496		Total commercial	2,800		4,164		6,964		7,688,532		7,695,496
Consumer	Consumer	1,006		200		1,206		439,621		440,827		Consumer	1,006		200		1,206		439,621		440,827
Total	Total	$	9,788	$	11,085	$	20,873	$	18,825,999	$	18,846,872	Total	$	9,788	$	11,085	$	20,873	$	18,825,999	$	18,846,872

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

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


		June 30, 2020										December 31, 2019											September 30, 2020				December 31, 2019
		Nonaccrual		Performing		Total		Nonaccrual		Performing		Total			Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
		(In thousands)																							(In thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	61,771	$	4,160,304	$	4,222,075	$	18,346	$	4,184,341	$	4,202,687	Commercial	$	45,120	$	4,147,346	$	4,192,466	$	18,346	$	4,184,341	$	4,202,687
Income producing and other residential	Income producing and other residential	2,207		3,731,452		3,733,659		2,478		3,767,582		3,770,060		Income producing and other residential	2,008		3,682,571		3,684,579		2,478		3,767,582		3,770,060
Total real estate mortgage	Total real estate mortgage	63,978		7,891,756		7,955,734		20,824		7,951,923		7,972,747		Total real estate mortgage	47,128		7,829,917		7,877,045		20,824		7,951,923		7,972,747
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	337		1,167,272		1,167,609		364		1,082,004		1,082,368		Commercial	324		1,241,323		1,241,647		364		1,082,004		1,082,368
Residential	Residential	—		2,172,919		2,172,919		—		1,655,434		1,655,434		Residential	0		2,182,100		2,182,100		0		1,655,434		1,655,434
Total real estate construction and land	Total real estate construction and land	337		3,340,191		3,340,528		364		2,737,438		2,737,802		Total real estate construction and land	324		3,423,423		3,423,747		364		2,737,438		2,737,802
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	19,013		3,393,418		3,412,431		30,162		3,718,245		3,748,407		Asset-based	2,817		3,150,231		3,153,048		30,162		3,718,245		3,748,407
Venture capital	Venture capital	8,270		1,806,071		1,814,341		12,916		2,166,506		2,179,422		Venture capital	2,001		1,635,131		1,637,132		12,916		2,166,506		2,179,422
Other commercial	Other commercial	73,995		2,686,283		2,760,278		27,594		1,740,073		1,767,667		Other commercial	32,941		2,540,053		2,572,994		27,594		1,740,073		1,767,667
Total commercial	Total commercial	101,278		7,885,772		7,987,050		70,672		7,624,824		7,695,496		Total commercial	37,759		7,325,415		7,363,174		70,672		7,624,824		7,695,496
Consumer	Consumer	520		410,799		411,319		493		440,334		440,827		Consumer	404		361,830		362,234		493		440,334		440,827
Total	Total	$	166,113	$	19,528,518	$	19,694,631	$	92,353	$	18,754,519	$	18,846,872	Total	$	85,615	$	18,940,585	$	19,026,200	$	92,353	$	18,754,519	$	18,846,872

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

At ~~June~~September 30, 2020, nonaccrual loans and leases included ~~$27.5~~$46.3 million of loans and leases 90 or more days past due, ~~$52.6~~$0.4 million of loans and leases 30 to 89 days past due, and ~~$86.0~~$38.9 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, 2019, nonaccrual loans and leases included $11.1 million of loans and leases 90 or more days past due, $1.2 million of loans and leases 30 to 89 days past due, and $80.0 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.

As of ~~June~~September 30, 2020, our three largest loan relationships on nonaccrual status had an aggregate carrying value of ~~$86.5~~$49.3 million and represented ~~52%~~58% of total nonaccrual loans and leases.

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


		June 30, 2020															September 30, 2020
		Classified		Special Mention		Pass		Total			Classified		Special Mention		Pass		Total
		(In thousands)															(In thousands)
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Commercial	Commercial	$	71,446	$	322,312	$	3,828,317	$	4,222,075	Commercial	$	109,651	$	330,367	$	3,752,448	$	4,192,466
Income producing and other residential	Income producing and other residential	6,941		6,150		3,720,568		3,733,659		Income producing and other residential	9,558		63,378		3,611,643		3,684,579
Total real estate mortgage	Total real estate mortgage	78,387		328,462		7,548,885		7,955,734		Total real estate mortgage	119,209		393,745		7,364,091		7,877,045
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	337		12,354		1,154,918		1,167,609		Commercial	324		13,838		1,227,485		1,241,647
Residential	Residential	—		—		2,172,919		2,172,919		Residential	0		0		2,182,100		2,182,100
Total real estate construction and land	Total real estate construction and land	337		12,354		3,327,837		3,340,528		Total real estate construction and land	324		13,838		3,409,585		3,423,747
Commercial:	Commercial:									Commercial:
Asset-based	Asset-based	25,008		186,813		3,200,610		3,412,431		Asset-based	27,900		190,193		2,934,955		3,153,048
Venture capital	Venture capital	29,054		138,403		1,646,884		1,814,341		Venture capital	15,078		123,675		1,498,379		1,637,132
Other commercial	Other commercial	159,814		82,313		2,518,151		2,760,278		Other commercial	111,553		57,787		2,403,654		2,572,994
Total commercial	Total commercial	213,876		407,529		7,365,645		7,987,050		Total commercial	154,531		371,655		6,836,988		7,363,174
Consumer	Consumer	630		18,052		392,637		411,319		Consumer	508		4,518		357,208		362,234
Total	Total	$	293,230	$	766,397	$	18,635,004	$	19,694,631	Total	$	274,572	$	783,756	$	17,967,872	$	19,026,200


		December 31, 2019															December 31, 2019
		Classified		Special Mention		Pass		Total			Classified		Special Mention		Pass		Total
		(In thousands)															(In thousands)
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Commercial	Commercial	$	33,535	$	30,070	$	4,139,082	$	4,202,687	Commercial	$	33,535	$	30,070	$	4,139,082	$	4,202,687
Income producing and other residential	Income producing and other residential	8,600		1,711		3,759,749		3,770,060		Income producing and other residential	8,600		1,711		3,759,749		3,770,060
Total real estate mortgage	Total real estate mortgage	42,135		31,781		7,898,831		7,972,747		Total real estate mortgage	42,135		31,781		7,898,831		7,972,747
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	364		—		1,082,004		1,082,368		Commercial	364		0		1,082,004		1,082,368
Residential	Residential	—		1,429		1,654,005		1,655,434		Residential	0		1,429		1,654,005		1,655,434
Total real estate construction and land	Total real estate construction and land	364		1,429		2,736,009		2,737,802		Total real estate construction and land	364		1,429		2,736,009		2,737,802
Commercial:	Commercial:									Commercial:
Asset-based	Asset-based	32,223		38,936		3,677,248		3,748,407		Asset-based	32,223		38,936		3,677,248		3,748,407
Venture capital	Venture capital	35,316		74,813		2,069,293		2,179,422		Venture capital	35,316		74,813		2,069,293		2,179,422
Other commercial	Other commercial	65,261		174,785		1,527,621		1,767,667		Other commercial	65,261		174,785		1,527,621		1,767,667
Total commercial	Total commercial	132,800		288,534		7,274,162		7,695,496		Total commercial	132,800		288,534		7,274,162		7,695,496
Consumer	Consumer	613		1,212		439,002		440,827		Consumer	613		1,212		439,002		440,827
Total	Total	$	175,912	$	322,956	$	18,348,004	$	18,846,872	Total	$	175,912	$	322,956	$	18,348,004	$	18,846,872

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


		At and For the Three Months Ended						At and For the Six Months Ended							At and For the Three Months Ended				At and For the Nine Months Ended
		June 30, 2020						June 30, 2020							September 30, 2020				September 30, 2020
		Nonaccrual		Interest		Nonaccrual		Interest			Nonaccrual		Interest		Nonaccrual		Interest
		Recorded		Income		Recorded		Income			Recorded		Income		Recorded		Income
		Investment		Recognized		Investment		Recognized			Investment		Recognized		Investment		Recognized
		(In thousands)						(In thousands)							(In thousands)				(In thousands)
With An Allowance Recorded:	With An Allowance Recorded:									With An Allowance Recorded:
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Commercial	Commercial	$	304	$	—	$	304	$	—	Commercial	$	736	$	0	$	736	$	0
Income producing and other residential	Income producing and other residential	1,445		—		1,445		—		Income producing and other residential	1,163		0		1,163		0

Commercial:	Commercial:									Commercial:
Asset based	Asset based	2,458		—		2,458		—		Asset based	2,248		0		2,248		0
Venture capital	Venture capital	8,270		—		8,270		—		Venture capital	2,001		0		2,001		0
Other commercial	Other commercial	45,569		—		45,569		—		Other commercial	1,235		0		1,235		0
Consumer	Consumer	520		—		520		—		Consumer	404		0		404		0
With No Related Allowance Recorded:	With No Related Allowance Recorded:									With No Related Allowance Recorded:
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Commercial	Commercial	$	61,467	$	62	$	61,467	$	130	Commercial	$	44,384	$	155	$	44,384	$	285
Income producing and other residential	Income producing and other residential	762		—		762		—		Income producing and other residential	845		0		845		0
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	337		—		337		—		Commercial	324		0		324		0

Commercial:	Commercial:									Commercial:
Asset based	Asset based	16,555		—		16,555		—		Asset based	569		0		569		0

Other commercial	Other commercial	28,426		1,196		28,426		1,220		Other commercial	31,706		517		31,706		1,628

Total Loans and Leases With and	Total Loans and Leases With and									Total Loans and Leases With and
Without an Allowance Recorded:	Without an Allowance Recorded:									Without an Allowance Recorded:
Real estate mortgage	Real estate mortgage	$	63,978	$	62	$	63,978	$	130	Real estate mortgage	$	47,128	$	155	$	47,128	$	285
Real estate construction and land	Real estate construction and land	337		—		337		—		Real estate construction and land	324		0		324		0
Commercial	Commercial	101,278		1,196		101,278		1,220		Commercial	37,759		517		37,759		1,628
Consumer	Consumer	520		—		520		—		Consumer	404		0		404		0
Total	Total	$	166,113	$	1,258	$	166,113	$	1,350	Total	$	85,615	$	672	$	85,615	$	1,913

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


																Revolving																				Revolving
																Converted																				Converted
Amortized Cost Basis	Amortized Cost Basis	Term Loans by Origination Year																								Revolving		to Term			Amortized Cost Basis	Term Loans by Origination Year								Revolving	to Term
June 30, 2020		2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
September 30, 2020																				September 30, 2020	2020		2019		2018		2017		2016			Prior		Loans		Loans		Total
		(In thousands)																																				(In thousands)
Real Estate Mortgage:	Real Estate Mortgage:																			Real Estate Mortgage:
Commercial	Commercial																			Commercial
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	—	$	—	$	15,131	$	15,672	$	10,233	$	62,921	$	—	$	—	$	103,957	1-2 High pass	$	0	$	28,297	$	15,106	$	13,295	$	7,746		$	47,517	$	0	$	0	$	111,961
3-4 Pass	3-4 Pass	338,636		538,666		720,870		805,795		358,812		890,775		66,993		3,813		3,724,360		3-4 Pass	459,907		453,362		646,326		804,351		362,735			846,325		63,689		3,792		3,640,487
5 Special mention	5 Special mention	—		55,250		92,175		2,558		77,811		94,518		—		—		322,312		5 Special mention	0		70,371		79,083		3,034		75,221			102,658		0		0		330,367
6-8 Classified	6-8 Classified	—		1,367		183		21,747		2,909		45,240		—		—		71,446		6-8 Classified	0		1,301		55,863		5,187		3,444			43,856		0		0		109,651
Total	Total	$	338,636	$	595,283	$	828,359	$	845,772	$	449,765	$	1,093,454	$	66,993	$	3,813	$	4,222,075	Total	$	459,907	$	553,331	$	796,378	$	825,867	$	449,146		$	1,040,356	$	63,689	$	3,792	$	4,192,466
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	1,831	$	—	$	2,676	$	—	$	—	$	4,507	Gross charge-offs	$	0	$	0	$	0	$	3,330	$	0		$	2,677	$	0	$	0	$	6,007
Gross recoveries	Gross recoveries	—		—		—		—		—		(237)		—		—		(237)		Gross recoveries	0		0		0		(9)		0			(262)		0		0		(271)
Net	Net	$	—	$	—	$	—	$	1,831	$	—	$	2,439	$	—	$	—	$	4,270	Net	$	0	$	0	$	0	$	3,321	$	0		$	2,415	$	0	$	0	$	5,736

Real Estate Mortgage:	Real Estate Mortgage:																			Real Estate Mortgage:
Income Producing and	Income Producing and																			Income Producing and
Other Residential	Other Residential																			Other Residential
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	—	$	34,966	$	76,744	$	46,031	$	54,261	$	28,639	$	—	$	—	$	240,641	1-2 High pass	$	27,760	$	25,590	$	36,440	$	35,858	$	46,419		$	12,260	$	0	$	0	$	184,327
3-4 Pass	3-4 Pass	148,116		843,413		1,243,035		653,956		260,740		220,111		109,783		773		3,479,927		3-4 Pass	256,056		844,049		1,179,643		587,821		247,643			199,144		112,390		570		3,427,316
5 Special mention	5 Special mention	—		—		2,888		962		—		—		2,300		—		6,150		5 Special mention	12,308		4,207		42,660		1,863		0			0		2,340		0		63,378
6-8 Classified	6-8 Classified	—		—		—		—		—		5,452		106		1,383		6,941		6-8 Classified	0		0		2,874		0		0			5,608		83		993		9,558
Total	Total	$	148,116	$	878,379	$	1,322,667	$	700,949	$	315,001	$	254,202	$	112,189	$	2,156	$	3,733,659	Total	$	296,124	$	873,846	$	1,261,617	$	625,542	$	294,062		$	217,012	$	114,813	$	1,563	$	3,684,579
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	175	$	175	Gross charge-offs	$	0	$	0	$	0	$	0	$	0		$	51	$	0	$	175	$	226
Gross recoveries	Gross recoveries	—		—		—		—		—		(13)		(1)		—		(14)		Gross recoveries	0		0		0		0		0			(88)		(1)		0		(89)
Net	Net	$	—	$	—	$	—	$	—	$	—	$	(13)	$	(1)	$	175	$	161	Net	$	0	$	0	$	0	$	0	$	0		$	(37)	$	(1)	$	175	$	137

Real Estate Construction	Real Estate Construction																			Real Estate Construction
and Land: Commercial	and Land: Commercial																			and Land: Commercial
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	1-2 High pass	$	0	$	0	$	0	$	0	$	0		$	0	$	0	$	0	$	0
3-4 Pass	3-4 Pass	22,576		285,286		362,367		216,294		119,503		137,008		7,112		4,772		1,154,918		3-4 Pass	38,945		335,115		385,317		209,380		106,937			139,453		6,630		5,708		1,227,485
5 Special mention	5 Special mention	—		—		12,354		—		—		—		—		—		12,354		5 Special mention	0		0		13,838		0		0			0		0		0		13,838
6-8 Classified	6-8 Classified	—		—		—		—		—		337		—		—		337		6-8 Classified	0		0		0		0		0			324		0		0		324
Total	Total	$	22,576	$	285,286	$	374,721	$	216,294	$	119,503	$	137,345	$	7,112	$	4,772	$	1,167,609	Total	$	38,945	$	335,115	$	399,155	$	209,380	$	106,937		$	139,777	$	6,630	$	5,708	$	1,241,647
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Gross charge-offs	$	0	$	0	$	0	$	0	$	0		$	0	$	0	$	0	$	0
Gross recoveries	Gross recoveries	—		—		—		—		—		—		—		—		—		Gross recoveries	0		0		0		0		0			0		0		0		0
Net	Net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Net	$	0	$	0	$	0	$	0	$	0		$	0	$	0	$	0	$	0

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


																Revolving																				Revolving
																Converted																				Converted
Amortized Cost Basis	Amortized Cost Basis	Term Loans by Origination Year																								Revolving		to Term			Amortized Cost Basis	Term Loans by Origination Year								Revolving	to Term
June 30, 2020		2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
September 30, 2020																				September 30, 2020	2020		2019		2018		2017		2016			Prior		Loans		Loans		Total
		(In thousands)																																				(In thousands)
Real Estate Construction	Real Estate Construction																			Real Estate Construction
and Land: Residential	and Land: Residential																			and Land: Residential
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	1-2 High pass	$	0	$	0	$	0	$	0	$	0		$	0	$	0	$	0	$	0
3-4 Pass	3-4 Pass	177,247		366,209		783,534		671,665		110,532		2,051		18,714		42,967		2,172,919		3-4 Pass	236,355		501,855		835,914		512,565		35,286			315		9,034		50,776		2,182,100
5 Special mention	5 Special mention	—		—		—		—		—		—		—		—		—		5 Special mention	0		0		0		0		0			0		0		0		0
6-8 Classified	6-8 Classified	—		—		—		—		—		—		—		—		—		6-8 Classified	0		0		0		0		0			0		0		0		0
Total	Total	$	177,247	$	366,209	$	783,534	$	671,665	$	110,532	$	2,051	$	18,714	$	42,967	$	2,172,919	Total	$	236,355	$	501,855	$	835,914	$	512,565	$	35,286		$	315	$	9,034	$	50,776	$	2,182,100
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Gross charge-offs	$	0	$	0	$	0	$	0	$	0		$	0	$	0	$	0	$	0
Gross recoveries	Gross recoveries	—		—		—		—		—		—		—		—		—		Gross recoveries	0		0		0		0		0			(21)		0		0		(21)
Net	Net	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Net	$	0	$	0	$	0	$	0	$	0		$	(21)	$	0	$	0	$	(21)

Commercial: Asset-Based	Commercial: Asset-Based																			Commercial: Asset-Based
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	22,993	$	178,052	$	116,797	$	65,756	$	130,266	$	95,166	$	288,230	$	98,416	$	995,676	1-2 High pass	$	33,273	$	167,859	$	116,944	$	65,740	$	120,644		$	87,642	$	231,234	$	73,549	$	896,885
3-4 Pass	3-4 Pass	45,866		141,935		111,495		40,166		58,534		60,573		1,722,555		23,810		2,204,934		3-4 Pass	61,548		123,290		81,362		36,075		13,181			48,991		1,653,848		19,775		2,038,070
5 Special mention	5 Special mention	—		66,446		52,740		22,597		18,793		1,429		19,720		5,088		186,813		5 Special mention	0		64,586		61,726		21,043		14,913			958		22,150		4,817		190,193
6-8 Classified	6-8 Classified	—		—		—		—		—		15,854		8,836		318		25,008		6-8 Classified	0		0		0		0		19,398			569		8,791		(858)		27,900
Total	Total	$	68,859	$	386,433	$	281,032	$	128,519	$	207,593	$	173,022	$	2,039,341	$	127,632	$	3,412,431	Total	$	94,821	$	355,735	$	260,032	$	122,858	$	168,136		$	138,160	$	1,916,023	$	97,283	$	3,153,048
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	11,550	$	—	$	—	$	11,550	Gross charge-offs	$	0	$	0	$	0	$	0	$	0		$	11,817	$	0	$	0	$	11,817
Gross recoveries	Gross recoveries	(8)		—		—		—		—		(323)		(56)		—		(387)		Gross recoveries	(39)		0		0		0		0			(323)		(231)		0		(593)
Net	Net	$	(8)	$	—	$	—	$	—	$	—	$	11,227	$	(56)	$	—	$	11,163	Net	$	(39)	$	0	$	0	$	0	$	0		$	11,494	$	(231)	$	0	$	11,224

Commercial: Venture	Commercial: Venture																			Commercial: Venture
Capital	Capital																			Capital
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass⁽¹⁾	1-2 High pass⁽¹⁾	$	—	$	5,649	$	—	$	(6)	$	(6)	$	(2)	$	237,484	$	—	$	243,119	1-2 High pass (1)	$	2,003	$	5,644	$	0	$	(4)	$	(6)		$	(4)	$	234,321	$	0	$	241,954
3-4 Pass	3-4 Pass	50,908		172,879		82,954		11,696		34,275		9,055		1,036,748		5,250		1,403,765		3-4 Pass	59,229		133,479		44,599		9,733		32,079			6,550		965,206		5,550		1,256,425
5 Special mention	5 Special mention	9,499		28,162		27,430		4,000		610		—		66,685		2,017		138,403		5 Special mention	5,958		38,163		1,586		4,000		526			0		68,331		5,111		123,675
6-8 Classified	6-8 Classified	—		(866)		10,871		—		—		3,632		12,574		2,843		29,054		6-8 Classified	0		(1,663)		11,750		0		0			3,663		1,328		0		15,078
Total	Total	$	60,407	$	205,824	$	121,255	$	15,690	$	34,879	$	12,685	$	1,353,491	$	10,110	$	1,814,341	Total	$	67,190	$	175,623	$	57,935	$	13,729	$	32,599		$	10,209	$	1,269,186	$	10,661	$	1,637,132
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	6,532	$	—	$	(8)	$	149	$	140	$	—	$	6,813	Gross charge-offs	$	0	$	0	$	6,534	$	0	$	(8)		$	150	$	142	$	0	$	6,818
Gross recoveries	Gross recoveries	—		—		(41)		(104)		(136)		(3)		(15)		—		(299)		Gross recoveries	0		0		(177)		(128)		(145)			(3)		(450)		0		(903)
Net	Net	$	—	$	—	$	6,491	$	(104)	$	(144)	$	146	$	125	$	—	$	6,514	Net	$	0	$	0	$	6,357	$	(128)	$	(153)		$	147	$	(308)	$	0	$	5,915

____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


																Revolving																				Revolving
																Converted																				Converted
Amortized Cost Basis	Amortized Cost Basis	Term Loans by Origination Year																								Revolving		to Term			Amortized Cost Basis	Term Loans by Origination Year								Revolving	to Term
June 30, 2020		2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
September 30, 2020																				September 30, 2020	2020		2019		2018		2017		2016			Prior		Loans		Loans		Total
		(In thousands)																																				(In thousands)
Commercial: Other	Commercial: Other																			Commercial: Other
Commercial	Commercial																			Commercial
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	1,209,264	$	432	$	8	$	16,894	$	1	$	3,076	$	97,116	$	136	$	1,326,927	1-2 High pass	$	1,212,466	$	409	$	7	$	390	$	73		$	1,592	$	77,891	$	94	$	1,292,922
3-4 Pass	3-4 Pass	19,833		102,743		112,650		97,807		33,596		108,841		698,428		17,326		1,191,224		3-4 Pass	57,738		98,217		105,234		83,456		32,063			108,219		619,093		6,712		1,110,732
5 Special mention	5 Special mention	—		109		—		818		1,995		4,892		73,339		1,160		82,313		5 Special mention	0		1,011		0		316		1,735			5,398		48,252		1,075		57,787
6-8 Classified	6-8 Classified	1		3		35		70		4,126		46,522		105,085		3,972		159,814		6-8 Classified	0		2		84		48		2,969			7,723		97,357		3,370		111,553
Total	Total	$	1,229,098	$	103,287	$	112,693	$	115,589	$	39,718	$	163,331	$	973,968	$	22,594	$	2,760,278	Total	$	1,270,204	$	99,639	$	105,325	$	84,210	$	36,840		$	122,932	$	842,593	$	11,251	$	2,572,994
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	52	$	—	$	996	$	10,031	$	1,229	$	12,308	Gross charge-offs	$	0	$	0	$	0	$	506	$	214		$	33,492	$	11,662	$	1,828	$	47,702
Gross recoveries	Gross recoveries	—		—		(8)		(19)		(73)		(2,459)		(100)		(2)		(2,661)		Gross recoveries	0		(9)		(8)		(26)		(84)			(2,683)		(100)		(4)		(2,914)
Net	Net	$	—	$	—	$	(8)	$	33	$	(73)	$	(1,463)	$	9,931	$	1,227	$	9,647	Net	$	0	$	(9)	$	(8)	$	480	$	130		$	30,809	$	11,562	$	1,824	$	44,788

Consumer	Consumer																			Consumer
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	23	$	—	$	10	$	18	$	—	$	—	$	752	$	—	$	803	1-2 High pass	$	22	$	0	$	9	$	16	$	0		$	101	$	453	$	0	$	601
3-4 Pass	3-4 Pass	51,068		138,584		71,591		50,523		53,886		15,445		10,735		2		391,834		3-4 Pass	45,224		126,060		69,895		44,717		48,158			14,164		8,383		6		356,607
5 Special mention	5 Special mention	—		637		9,971		2,097		3,592		1,755		—		—		18,052		5 Special mention	0		0		2,332		534		1,172			480		0		0		4,518
6-8 Classified	6-8 Classified	—		57		116		—		62		355		1		39		630		6-8 Classified	0		74		0		0		57			342		2		33		508
Total	Total	$	51,091	$	139,278	$	81,688	$	52,638	$	57,540	$	17,555	$	11,488	$	41	$	411,319	Total	$	45,246	$	126,134	$	72,236	$	45,267	$	49,387		$	15,087	$	8,838	$	39	$	362,234
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	97	$	86	$	135	$	295	$	—	$	21	$	4	$	638	Gross charge-offs	$	0	$	97	$	86	$	152	$	295		$	44	$	22	$	9	$	705
Gross recoveries	Gross recoveries	—		—		(1)		(5)		(14)		(21)		—		—		(41)		Gross recoveries	0		0		(1)		(8)		(15)			(24)		0		0		(48)
Net	Net	$	—	$	97	$	85	$	130	$	281	$	(21)	$	21	$	4	$	597	Net	$	0	$	97	$	85	$	144	$	280		$	20	$	22	$	9	$	657

Total Loans and Leases	Total Loans and Leases																			Total Loans and Leases
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	1,232,280	$	219,099	$	208,690	$	144,365	$	194,755	$	189,800	$	623,582	$	98,552	$	2,911,123	1-2 High pass	$	1,275,524	$	227,799	$	168,506	$	115,295	$	174,876		$	149,108	$	543,899	$	73,643	$	2,728,650
3-4 Pass	3-4 Pass	854,250		2,589,715		3,488,496		2,547,902		1,029,878		1,443,859		3,671,068		98,713		15,723,881		3-4 Pass	1,215,002		2,615,427		3,348,290		2,288,098		878,082			1,363,161		3,438,273		92,889		15,239,222
5 Special mention	5 Special mention	9,499		150,604		197,558		33,032		102,801		102,594		162,044		8,265		766,397		5 Special mention	18,266		178,338		201,225		30,790		93,567			109,494		141,073		11,003		783,756
6-8 Classified	6-8 Classified	1		561		11,205		21,817		7,097		117,392		126,602		8,555		293,230		6-8 Classified	0		(286)		70,571		5,235		25,868			62,085		107,561		3,538		274,572
Total	Total	$	2,096,030	$	2,959,979	$	3,905,949	$	2,747,116	$	1,334,531	$	1,853,645	$	4,583,296	$	214,085	$	19,694,631	Total	$	2,508,792	$	3,021,278	$	3,788,592	$	2,439,418	$	1,172,393		$	1,683,848	$	4,230,806	$	181,073	$	19,026,200
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	97	$	6,618	$	2,018	$	287	$	15,371	$	10,192	$	1,408	$	35,991	Gross charge-offs	$	0	$	97	$	6,620	$	3,988	$	501		$	48,231	$	11,826	$	2,012	$	73,275
Gross recoveries	Gross recoveries	(8)		—		(50)		(128)		(223)		(3,056)		(172)		(2)		(3,639)		Gross recoveries	(39)		(9)		(186)		(171)		(244)			(3,404)		(782)		(4)		(4,839)
Net	Net	$	(8)	$	97	$	6,568	$	1,890	$	64	$	12,315	$	10,020	$	1,406	$	32,352	Net	$	(39)	$	88	$	6,434	$	3,817	$	257		$	44,827	$	11,044	$	2,008	$	68,436

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


		Three Months Ended June 30,																			Three Months Ended September 30,
		2020								2019									2020				2019
			Pre-		Post-			Pre-		Post-				Pre-		Post-			Pre-		Post-
			Modification		Modification			Modification		Modification				Modification		Modification			Modification		Modification
		Number	Outstanding		Outstanding		Number	Outstanding		Outstanding			Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
		of	Recorded		Recorded		of	Recorded		Recorded			of	Recorded		Recorded		of	Recorded		Recorded
Troubled Debt Restructurings	Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment		Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment
		(Dollars in thousands)																			(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	7	$	3,745	$	3,745	—	$	—	$	—	Commercial	1	$	12,594	$	0	0	$	0	$	0
Income producing and other residential	Income producing and other residential	5	787		787		3	456		456		Income producing and other residential	2	157		157		2	495		495

Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	6	1,234		1,234		1	620		620		Asset-based	1	15,267		0		0	0		0
Venture capital	Venture capital	—	—		—		4	13,971		14,972		Venture capital	1	2,015		2,015		1	0		0
Other commercial	Other commercial	19	18,840		15,726		3	107		107		Other commercial	5	7,105		100		3	99		99
Consumer		3	212		212		—	—		—

Total	Total	40	$	24,818	$	21,704	11	$	15,154	$	16,155	Total	10	$	37,138	$	2,272	6	$	594	$	594

Six Months Ended June 30,
2020 2019
Pre- Post- Pre- Post-
Modification Modification Modification Modification
Number Outstanding Outstanding Number Outstanding Outstanding
of Recorded Recorded of Recorded Recorded
Troubled Debt Restructurings Loans Investment Investment Loans Investment Investment
(Dollars in thousands)
Real estate mortgage:
Commercial 8 $ 3,745 $ 3,745 1 $ 37 $ —
Income producing and other residential 5 787 787 6 1,245 1,245
Commercial:
Asset-based 7 1,741 1,741 1 620 620
Venture capital 2 2,047 2,047 10 16,076 16,214
Other commercial 30 23,219 21,444 11 692 692
Consumer 3 212 212 — — —
Total 55 $ 31,751 $ 29,976 29 $ 18,670 $ 18,771

~~During the three and six months ended June 30, 2020, there was 1 $2.0 million venture capital loan restructured in the preceding 12-month period that subsequently defaulted.~~


	Nine Months Ended September 30,
	2020					2019
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
	of	Recorded		Recorded		of	Recorded		Recorded
Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment
	(Dollars in thousands)
Real estate mortgage:
Commercial	9	$	16,339	$	3,745	1	$	37	$	0
Income producing and other residential	6	911		911		7	1,280		1,280



Commercial:
Asset-based	8	17,008		1,741		1	620		620
Venture capital	2	2,047		2,047		11	16,076		16,214
Other commercial	33	30,324		21,544		14	792		792
Consumer	3	212		212		0	0		0
Total	61	$	66,841	$	30,200	34	$	18,805	$	18,906

During the three months ended ~~June~~September 30, ~~2019,~~2020, there ~~were~~ ~~2 venture capital loans totaling $447,000 and~~was 1 ~~other~~$412,000 real estate mortgage commercial loan ~~of $81,000,~~ restructured in the preceding 12-month period that subsequently defaulted. During the ~~six~~nine months ended ~~June~~ September 30, ~~2019,~~2020, there ~~were 2 venture capital loans totaling $447,000~~was 1 $412,000 real estate mortgage commercial loan and 3 1 $5,000 other commercial ~~loans totaling $140,000,~~ loan restructured in the preceding 12-month period that subsequently defaulted.

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Leases Receivable

We provide equipment financing to our customers primarily with operating and direct financing leases. For direct financing leases, lease receivables are recorded on the balance sheet but the leased equipment is not, although we generally retain legal title to the leased equipment until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Direct financing leases are subject to our accounting for allowance for loan and lease losses. See Note 8. Leases for information regarding operating leases where we are the lessor.

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


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
		(In thousands)															(In thousands)
Component of leases receivable income:	Component of leases receivable income:									Component of leases receivable income:
Interest income on net investments in leases	Interest income on net investments in leases	$	2,103	$	2,886	$	4,355	$	6,026	Interest income on net investments in leases	$	1,869	$	2,648	$	6,224	$	8,674

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


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
		(In thousands)							(In thousands)
Net investment in direct financing leases:	Net investment in direct financing leases:					Net investment in direct financing leases:
Lease payments receivable	Lease payments receivable	$	137,984	$	147,729	Lease payments receivable	$	124,550	$	147,729
Unguaranteed residual assets	Unguaranteed residual assets	18,653		20,806		Unguaranteed residual assets	18,404		20,806
Deferred costs and other	Deferred costs and other	577		655		Deferred costs and other	550		655
Aggregate net investment in leases	Aggregate net investment in leases	$	157,214	$	169,190	Aggregate net investment in leases	$	143,504	$	169,190

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


		June 30, 2020			September 30, 2020
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2020	2020	$	35,218	2020	$	16,794
2021	2021	61,182		2021	61,600
2022	2022	24,981		2022	25,977
2023	2023	14,366		2023	15,329
2024	2024	10,469		2024	11,416
2025 and thereafter	2025 and thereafter	2,766		2025 and thereafter	3,160
Total undiscounted cash flows	Total undiscounted cash flows	148,982		Total undiscounted cash flows	134,276
Less: Unearned income	Less: Unearned income	(10,998)		Less: Unearned income	(9,726)
Present value of lease payments	Present value of lease payments	$	137,984	Present value of lease payments	$	124,550

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Allowance for Loan and Lease Losses

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


		Three Months Ended June 30, 2020																			Three Months Ended September 30, 2020
				Real Estate											Real Estate
		Real Estate		Construction									Real Estate		Construction
		Mortgage		and Land		Commercial		Consumer		Total			Mortgage		and Land		Commercial		Consumer		Total
		(In thousands)																			(In thousands)
Allowance for Loan and Lease Losses:	Allowance for Loan and Lease Losses:											Allowance for Loan and Lease Losses:
Balance, beginning of period	Balance, beginning of period	$	91,372	$	40,173	$	87,570	$	2,177	$	221,292	Balance, beginning of period	$	130,724	$	70,113	$	97,947	$	2,266	$	301,050
Charge-offs	Charge-offs	(4,182)		—		(11,439)		(165)		(15,786)		Charge-offs	(1,551)		0		(35,666)		(67)		(37,284)
Recoveries	Recoveries	127		—		2,392		25		2,544		Recoveries	109		21		1,063		7		1,200
Net charge-offs	Net charge-offs	(4,055)		—		(9,047)		(140)		(13,242)		Net charge-offs	(1,442)		21		(34,603)		(60)		(36,084)
Provision		43,407		29,940		19,424		229		93,000
Provision (negative provision)												Provision (negative provision)	(7,588)		20,039		64,921		3,628		81,000
Balance, end of period	Balance, end of period	$	130,724	$	70,113	$	97,947	$	2,266	$	301,050	Balance, end of period	$	121,694	$	90,173	$	128,265	$	5,834	$	345,966


		Six Months Ended June 30, 2020																			Nine Months Ended September 30, 2020
				Real Estate											Real Estate
		Real Estate		Construction									Real Estate		Construction
		Mortgage		and Land		Commercial		Consumer		Total			Mortgage		and Land		Commercial		Consumer		Total
		(In thousands)																			(In thousands)
Allowance for Loan and Lease Losses:	Allowance for Loan and Lease Losses:											Allowance for Loan and Lease Losses:
Balance, beginning of period	Balance, beginning of period	$	44,575	$	30,544	$	61,528	$	2,138	$	138,785	Balance, beginning of period	$	44,575	$	30,544	$	61,528	$	2,138	$	138,785
Cumulative effect of change in accounting												Cumulative effect of change in accounting
principle - CECL												principle - CECL	5,308		(8,592)		6,860		41		3,617
Balance, January 1, 2020												Balance, January 1, 2020	49,883		21,952		68,388		2,179		142,402
Charge-offs	Charge-offs	(4,682)		—		(30,671)		(638)		(35,991)		Charge-offs	(6,233)		0		(66,337)		(705)		(73,275)
Recoveries	Recoveries	251		—		3,347		41		3,639		Recoveries	360		21		4,410		48		4,839
Net charge-offs	Net charge-offs	(4,431)		—		(27,324)		(597)		(32,352)		Net charge-offs	(5,873)		21		(61,927)		(657)		(68,436)
Provision	Provision	85,272		48,161		56,883		684		191,000		Provision	77,684		68,200		121,804		4,312		272,000
Cumulative effect of change in accounting
principle - CECL		5,308		(8,592)		6,860		41		3,617
Balance, end of period	Balance, end of period	$	130,724	$	70,113	$	97,947	$	2,266	$	301,050	Balance, end of period	$	121,694	$	90,173	$	128,265	$	5,834	$	345,966

Ending Allowance by	Ending Allowance by											Ending Allowance by
Evaluation Methodology:	Evaluation Methodology:											Evaluation Methodology:
Individually evaluated	Individually evaluated	$	211	$	—	$	8,282	$	—	$	8,493	Individually evaluated	$	340	$	0	$	2,584	$	0	$	2,924
Collectively evaluated	Collectively evaluated	$	130,513	$	70,113	$	89,665	$	2,266	$	292,557	Collectively evaluated	$	121,354	$	90,173	$	125,681	$	5,834	$	343,042

Ending Loans and Leases by	Ending Loans and Leases by											Ending Loans and Leases by
Evaluation Methodology:	Evaluation Methodology:											Evaluation Methodology:
Individually evaluated	Individually evaluated	$	68,240	$	1,799	$	105,661	$	—	$	175,700	Individually evaluated	$	51,852	$	1,782	$	41,501	$	0	$	95,135
Collectively evaluated	Collectively evaluated	7,887,494		3,338,729		7,881,389		411,319		19,518,931		Collectively evaluated	7,825,193		3,421,965		7,321,673		362,234		18,931,065
Ending balance	Ending balance	$	7,955,734	$	3,340,528	$	7,987,050	$	411,319	$	19,694,631	Ending balance	$	7,877,045	$	3,423,747	$	7,363,174	$	362,234	$	19,026,200

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Three Months Ended June 30, 2019																			Three Months Ended September 30, 2019
				Real Estate											Real Estate
		Real Estate		Construction									Real Estate		Construction
		Mortgage		and Land		Commercial		Consumer		Total			Mortgage		and Land		Commercial		Consumer		Total
		(In thousands)																			(In thousands)
Allowance for Loan and Lease Losses:	Allowance for Loan and Lease Losses:											Allowance for Loan and Lease Losses:
Balance, beginning of period	Balance, beginning of period	$	45,754	$	27,208	$	61,496	$	1,823	$	136,281	Balance, beginning of period	$	46,826	$	26,378	$	59,401	$	2,432	$	135,037
Charge-offs	Charge-offs	(534)		—		(16,927)		(176)		(17,637)		Charge-offs	(120)		0		(6,021)		(360)		(6,501)
Recoveries	Recoveries	240		—		6,080		73		6,393		Recoveries	95		0		1,898		23		2,016
Net charge-offs	Net charge-offs	(294)		—		(10,847)		(103)		(11,244)		Net charge-offs	(25)		0		(4,123)		(337)		(4,485)
Provision (negative provision)	Provision (negative provision)	1,366		(830)		8,752		712		10,000		Provision (negative provision)	(1,655)		683		8,907		65		8,000
Balance, end of period	Balance, end of period	$	46,826	$	26,378	$	59,401	$	2,432	$	135,037	Balance, end of period	$	45,146	$	27,061	$	64,185	$	2,160	$	138,552


		Six Months Ended June 30, 2019																			Nine Months Ended September 30, 2019
				Real Estate											Real Estate
		Real Estate		Construction									Real Estate		Construction
		Mortgage		and Land		Commercial		Consumer		Total			Mortgage		and Land		Commercial		Consumer		Total
		(In thousands)																			(In thousands)
Allowance for Loan and Lease Losses:	Allowance for Loan and Lease Losses:											Allowance for Loan and Lease Losses:
Balance, beginning of period	Balance, beginning of period	$	46,021	$	28,209	$	56,360	$	1,882	$	132,472	Balance, beginning of period	$	46,021	$	28,209	$	56,360	$	1,882	$	132,472
Charge-offs	Charge-offs	(730)		—		(19,930)		(442)		(21,102)		Charge-offs	(850)		0		(25,951)		(802)		(27,603)
Recoveries	Recoveries	383		—		9,186		98		9,667		Recoveries	478		0		11,084		121		11,683
Net charge-offs	Net charge-offs	(347)		—		(10,744)		(344)		(11,435)		Net charge-offs	(372)		0		(14,867)		(681)		(15,920)
Provision (negative provision)	Provision (negative provision)	1,152		(1,831)		13,785		894		14,000		Provision (negative provision)	(503)		(1,148)		22,692		959		22,000
Balance, end of period	Balance, end of period	$	46,826	$	26,378	$	59,401	$	2,432	$	135,037	Balance, end of period	$	45,146	$	27,061	$	64,185	$	2,160	$	138,552

Ending Allowance by	Ending Allowance by											Ending Allowance by
Evaluation Methodology:	Evaluation Methodology:											Evaluation Methodology:
Individually evaluated	Individually evaluated	$	260	$	—	$	4,482	$	—	$	4,742	Individually evaluated	$	248	$	0	$	9,082	$	0	$	9,330
Collectively evaluated	Collectively evaluated	$	46,566	$	26,378	$	54,919	$	2,432	$	130,295	Collectively evaluated	$	44,898	$	27,061	$	55,103	$	2,160	$	129,222

Ending Loans and Leases by	Ending Loans and Leases by											Ending Loans and Leases by
Evaluation Methodology:	Evaluation Methodology:											Evaluation Methodology:
Individually evaluated	Individually evaluated	$	27,594	$	5,376	$	60,380	$	—	$	93,350	Individually evaluated	$	29,808	$	5,357	$	75,455	$	0	$	110,620
Collectively evaluated	Collectively evaluated	8,048,432		2,370,754		7,513,934		446,382		18,379,502		Collectively evaluated	7,867,116		2,546,117		7,803,102		408,588		18,624,923
Ending balance	Ending balance	$	8,076,026	$	2,376,130	$	7,574,314	$	446,382	$	18,472,852	Ending balance	$	7,896,924	$	2,551,474	$	7,878,557	$	408,588	$	18,735,543

The allowance for loan and lease losses increased by ~~$79.8~~$44.9 million in the ~~second~~third quarter of 2020 to ~~$301.1~~$346.0 million due primarily to a provision for loan and lease losses of ~~$93.0~~$81.0 million driven by ~~the impact from the significant deterioration and continued uncertainty~~changes in the ~~key macro-economic~~economic forecast, ~~variables such as unemployment~~changes in modeling assumptions, and ~~GDP as a result of COVID-19.~~increased provisions for individually evaluated loans and leases.

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


		June 30, 2020											September 30, 2020
		Real		Business					Real		Business
		Property		Assets		Total			Property		Assets		Total
		(In thousands)											(In thousands)
Real estate mortgage	Real estate mortgage	$	62,021	$	—	$	62,021	Real estate mortgage	$	45,504	$	0	$	45,504
Real estate construction and land	Real estate construction and land	1,799		—		1,799		Real estate construction and land	1,782		0		1,782
Commercial	Commercial	—		32,135		32,135		Commercial	0		28,136		28,136
Total	Total	$	63,820	$	32,135	$	95,955	Total	$	47,286	$	28,136	$	75,422

Allowance for Credit Losses

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

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


		Three Months Ended											Three Months Ended
		June 30, 2020											September 30, 2020
		Allowance for		Reserve for		Total			Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for			Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses			Lease Losses		Commitments		Credit Losses
		(In thousands)											(In thousands)
Balance, beginning of period	Balance, beginning of period	$	221,292	$	53,571	$	274,863	Balance, beginning of period	$	301,050	$	80,571	$	381,621
Charge-offs	Charge-offs	(15,786)		—		(15,786)		Charge-offs	(37,284)		0		(37,284)
Recoveries	Recoveries	2,544		—		2,544		Recoveries	1,200		0		1,200
Net charge-offs	Net charge-offs	(13,242)		—		(13,242)		Net charge-offs	(36,084)		0		(36,084)
Provision	Provision	93,000		27,000		120,000		Provision	81,000		16,000		97,000
Balance, end of period	Balance, end of period	$	301,050	$	80,571	$	381,621	Balance, end of period	$	345,966	$	96,571	$	442,537


		Six Months Ended											Nine Months Ended
		June 30, 2020											September 30, 2020
		Allowance for		Reserve for		Total			Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for			Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses			Lease Losses		Commitments		Credit Losses
		(In thousands)											(In thousands)
Balance, beginning of period	Balance, beginning of period	$	138,785	$	35,861	$	174,646	Balance, beginning of period	$	138,785	$	35,861	$	174,646
Cumulative effect of change in accounting								Cumulative effect of change in accounting
principle - CECL								principle - CECL	3,617		3,710		7,327
Balance, January 1, 2020								Balance, January 1, 2020	142,402		39,571		181,973
Charge-offs	Charge-offs	(35,991)		—		(35,991)		Charge-offs	(73,275)		0		(73,275)
Recoveries	Recoveries	3,639		—		3,639		Recoveries	4,839		0		4,839
Net charge-offs	Net charge-offs	(32,352)		—		(32,352)		Net charge-offs	(68,436)		0		(68,436)
Provision	Provision	191,000		41,000		232,000		Provision	272,000		57,000		329,000
Cumulative effect of change in accounting
principle - CECL		3,617		3,710		7,327

Balance, end of period	Balance, end of period	$	301,050	$	80,571	$	381,621	Balance, end of period	$	345,966	$	96,571	$	442,537

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Three Months Ended											Three Months Ended
		June 30, 2019											September 30, 2019
		Allowance for		Reserve for		Total			Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for			Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses			Lease Losses		Commitments		Credit Losses
		(In thousands)											(In thousands)
Balance, beginning of period	Balance, beginning of period	$	136,281	$	36,861	$	173,142	Balance, beginning of period	$	135,037	$	34,861	$	169,898
Charge-offs	Charge-offs	(17,637)		—		(17,637)		Charge-offs	(6,501)		0		(6,501)
Recoveries	Recoveries	6,393		—		6,393		Recoveries	2,016		0		2,016
Net charge-offs	Net charge-offs	(11,244)		—		(11,244)		Net charge-offs	(4,485)		0		(4,485)
Provision (negative provision)	Provision (negative provision)	10,000		(2,000)		8,000		Provision (negative provision)	8,000		(1,000)		7,000
Balance, end of period	Balance, end of period	$	135,037	$	34,861	$	169,898	Balance, end of period	$	138,552	$	33,861	$	172,413


		Six Months Ended											Nine Months Ended
		June 30, 2019											September 30, 2019
		Allowance for		Reserve for		Total			Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for			Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses			Lease Losses		Commitments		Credit Losses
		(In thousands)											(In thousands)
Balance, beginning of period	Balance, beginning of period	$	132,472	$	36,861	$	169,333	Balance, beginning of period	$	132,472	$	36,861	$	169,333
Charge-offs	Charge-offs	(21,102)		—		(21,102)		Charge-offs	(27,603)		0		(27,603)
Recoveries	Recoveries	9,667		—		9,667		Recoveries	11,683		0		11,683
Net charge-offs	Net charge-offs	(11,435)		—		(11,435)		Net charge-offs	(15,920)		0		(15,920)
Provision (negative provision)	Provision (negative provision)	14,000		(2,000)		12,000		Provision (negative provision)	22,000		(3,000)		19,000
Balance, end of period	Balance, end of period	$	135,037	$	34,861	$	169,898	Balance, end of period	$	138,552	$	33,861	$	172,413

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5. FORECLOSED ASSETS

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


		June 30,		December 31,			September 30,		December 31,
Property Type	Property Type	2020		2019		Property Type	2020		2019
		(In thousands)							(In thousands)
Commercial real estate	Commercial real estate	$	28	$	221	Commercial real estate	$	12,594	$	221
Construction and land development	Construction and land development	219		219		Construction and land development	219		219

Total other real estate owned, net	Total other real estate owned, net	247		440		Total other real estate owned, net	12,813		440
Other foreclosed assets	Other foreclosed assets	1,202		—		Other foreclosed assets	934		0
Total foreclosed assets, net	Total foreclosed assets, net	$	1,449	$	440	Total foreclosed assets, net	$	13,747	$	440

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


	Foreclosed
	Assets
	(In thousands)
Balance, December 31, 2019	$	440

Transfers to foreclosed assets from loans	~~1,776~~14,370

Provision for losses	~~(110)~~(267)
Reductions related to sales	~~(657)~~(796)
Balance, ~~June~~September 30, 2020	$	~~1,449~~13,747

NOTE 6. 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 annually unless a triggering event occurs thereby requiring an updated assessment. Our regular annual impairment assessment occurs in the fourth quarter. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds its ~~implied~~ fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the condensed consolidated statements of earnings (loss).

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

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


	Goodwill
	(In thousands)
Balance, December 31, 2019	$	2,548,670
Impairment - March 2020	(1,470,000)
Balance, ~~June~~September 30, 2020	$	1,078,670

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Our other intangible assets with definite lives include 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 aggregate amortization expense is expected to be $14.8 million for 2020. The estimated aggregate amortization expense related to our current intangible assets for each of the next four years is $10.8 million for 2021, $7.4 million for 2022, $3.8 million for 2023, and $1.7 million for 2024. Our current intangible assets are estimated to be fully amortized by the end of 2024.

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


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
		(In thousands)															(In thousands)
Gross Amount of CDI and CRI:	Gross Amount of CDI and CRI:									Gross Amount of CDI and CRI:
Balance, beginning of period	Balance, beginning of period	$	117,573	$	119,497	$	117,573	$	119,497	Balance, beginning of period	$	109,646	$	119,497	$	117,573	$	119,497

Fully amortized portion	Fully amortized portion	(7,927)		—		(7,927)		—		Fully amortized portion	0		(1,924)		(7,927)		(1,924)

Balance, end of period	Balance, end of period	109,646		119,497		109,646		119,497		Balance, end of period	109,646		117,573		109,646		117,573
Accumulated Amortization:	Accumulated Amortization:									Accumulated Amortization:
Balance, beginning of period	Balance, beginning of period	(83,127)		(67,247)		(79,179)		(62,377)		Balance, beginning of period	(79,082)		(72,117)		(79,179)		(62,377)
Amortization	Amortization	(3,882)		(4,870)		(7,830)		(9,740)		Amortization	(3,751)		(4,833)		(11,581)		(14,573)
Fully amortized portion	Fully amortized portion	7,927		—		7,927		—		Fully amortized portion	0		1,924		7,927		1,924

Balance, end of period	Balance, end of period	(79,082)		(72,117)		(79,082)		(72,117)		Balance, end of period	(82,833)		(75,026)		(82,833)		(75,026)
Net CDI and CRI, end of period	Net CDI and CRI, end of period	$	30,564	$	47,380	$	30,564	$	47,380	Net CDI and CRI, end of period	$	26,813	$	42,547	$	26,813	$	42,547

NOTE 7. OTHER ASSETS

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


		June 30,		December 31,			September 30,		December 31,
Other Assets	Other Assets	2020		2019		Other Assets	2020		2019
		(In thousands)							(In thousands)
Cash surrender value of BOLI	Cash surrender value of BOLI	$	200,733	$	199,029	Cash surrender value of BOLI	$	201,884	$	199,029
LIHTC investments ⁽¹⁾	LIHTC investments ⁽¹⁾	192,963		75,149		LIHTC investments (1)	200,352		75,149
Operating lease ROU assets, net ⁽²⁾	Operating lease ROU assets, net ⁽²⁾	125,325		129,301		Operating lease ROU assets, net (2)	121,887		129,301
Interest receivable	Interest receivable	76,150		81,479		Interest receivable	86,540		81,479
CRA investments ⁽³⁾		74,644		65,152
Taxes receivable						Taxes receivable	42,243		31,591
Equity investments without readily determinable fair values						Equity investments without readily determinable fair values	33,783		27,738
SBIC investments (3)						SBIC investments (3)	27,357		16,505
Prepaid expenses	Prepaid expenses	24,971		17,099		Prepaid expenses	23,972		17,099
Equity investments without readily determinable fair values		14,967		14,890
Equity warrants ⁽⁴⁾	Equity warrants ⁽⁴⁾	4,781		3,434		Equity warrants (4)	4,742		3,434
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	2,688		2,998		Equity investments with readily determinable fair values	1,135		2,998
Taxes receivable		—		31,591
Deferred tax assets, net						Deferred tax assets, net	1,080		0
Other receivables/assets	Other receivables/assets	17,235		16,689		Other receivables/assets	52,248		52,488
Total other assets	Total other assets	$	734,457	$	636,811	Total other assets	$	797,223	$	636,811

____________________

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

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

(3) ~~Includes equity~~During the third quarter of 2020, the Company prospectively changed the accounting method for its SBIC investments ~~without readily determinable~~from modified cost to NAV fair ~~values of $21.0 million and $17.8 million at June 30, 2020 and December 31, 2019.~~value.

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 8. LEASES

Operating Leases as a Lessee

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


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
		(In thousands)															(In thousands)
Operating lease expense:	Operating lease expense:									Operating lease expense:
Fixed costs	Fixed costs	$	8,832	$	8,534	$	17,077	$	16,836	Fixed costs	$	8,950	$	8,347	$	26,027	$	25,183
Variable costs	Variable costs	12		46		25		70		Variable costs	15		7		40		77
Short-term lease costs	Short-term lease costs	102		203		194		723		Short-term lease costs	117		126		312		849
Sublease income	Sublease income	(1,003)		(1,054)		(2,019)		(2,180)		Sublease income	(1,081)		(1,010)		(3,100)		(3,190)
Net lease expense	Net lease expense	$	7,943	$	7,729	$	15,277	$	15,449	Net lease expense	$	8,001	$	7,470	$	23,279	$	22,919

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


		Six Months Ended							Nine Months Ended
		June 30,							September 30,
		2020		2019			2020		2019
		(In thousands)							(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	16,519	$	16,408	Operating cash flows from operating leases	$	25,198	$	24,674
ROU assets obtained in exchange for lease obligations:	ROU assets obtained in exchange for lease obligations:					ROU assets obtained in exchange for lease obligations:
Operating leases	Operating leases	$	14,542	$	149,621	Operating leases	$	19,027	$	172,189

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


		June 30,			December 31,				September 30,			December 31,
		2020			2019				2020			2019
		(Dollars in thousands)										(Dollars in thousands)
Operating leases:	Operating leases:							Operating leases:
Operating lease right-of-use assets, net	Operating lease right-of-use assets, net	$	125,325		$	129,301		Operating lease right-of-use assets, net	$	121,887		$	129,301
Operating lease liabilities	Operating lease liabilities	$	145,261		$	145,354		Operating lease liabilities	$	142,016		$	145,354

Weighted average remaining lease term (in years)	Weighted average remaining lease term (in years)	6.0			6.1			Weighted average remaining lease term (in years)	5.9			6.1
Weighted average discount rate	Weighted average discount rate	2.67		%	2.82		%	Weighted average discount rate	2.61		%	2.82		%

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


		June 30, 2020			September 30, 2020
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2020	2020	$	17,487	2020	$	8,729
2021	2021	33,171		2021	33,834
2022	2022	27,289		2022	28,190
2023	2023	24,265		2023	25,194
2024	2024	17,032		2024	17,989
2025 and thereafter	2025 and thereafter	38,940		2025 and thereafter	39,926
Total operating lease liabilities	Total operating lease liabilities	158,184		Total operating lease liabilities	153,862
Less: Imputed interest	Less: Imputed interest	(12,923)		Less: Imputed interest	(11,846)
Present value of operating lease liabilities	Present value of operating lease liabilities	$	145,261	Present value of operating lease liabilities	$	142,016

Operating Leases as a Lessor

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

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


		June 30, 2020			September 30, 2020
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2020	2020	$	20,056	2020	$	8,573
2021	2021	37,745		2021	33,629
2022	2022	31,705		2022	31,080
2023	2023	24,213		2023	23,931
2024	2024	19,562		2024	19,486
2025 and thereafter	2025 and thereafter	34,266		2025 and thereafter	34,284
Total undiscounted cash flows	Total undiscounted cash flows	$	167,547	Total undiscounted cash flows	$	150,983

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 9. BORROWINGS AND SUBORDINATED DEBENTURES

Borrowings

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


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
				Weighted				Weighted					Weighted				Weighted
				Average				Average					Average				Average
		Balance		Rate		Balance		Rate			Balance		Rate		Balance		Rate
		(Dollars in thousands)															(Dollars in thousands)
FHLB secured advances	FHLB secured advances	$	10,000	—	%	$	1,318,000	1.66	%	FHLB secured advances	$	10,000	0	%	$	1,318,000	1.66	%
FHLB unsecured overnight advance	FHLB unsecured overnight advance	—		—	%	141,000		1.56	%	FHLB unsecured overnight advance	0		0	%	141,000		1.56	%
AFX short-term borrowings	AFX short-term borrowings	50,000		0.05	%	300,000		1.61	%	AFX short-term borrowings	50,000		0.06	%	300,000		1.61	%
Non-recourse debt	Non-recourse debt	—		—	%	8		7.50	%	Non-recourse debt	0		0	%	8		7.50	%
Total borrowings	Total borrowings	$	60,000	0.04	%	$	1,759,008	1.64	%	Total borrowings	$	60,000	0.05	%	$	1,759,008	1.64	%

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

FHLB Secured Line of Credit. The Bank had secured financing capacity with the FHLB as of ~~June~~September 30, 2020 of ~~$4.2~~$3.6 billion, collateralized by a blanket lien on ~~$6.4~~$5.6 billion of qualifying loans. During the second quarter of 2020, the Company prepaid $750.0 million of FHLB term advances and incurred $6.6 million of prepayment penalties, which is included in "Other expense" on the condensed consolidated statements of earnings (loss). The FHLB term advances had a weighted average interest rate of 0.96% and the prepayment decision was made after the significant drop in market interest rates in March 2020 and the expectation of continued low interest rates for an extended time.

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


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

Total FHLB secured advances	Total FHLB secured advances	$	10,000	—	%		$	1,318,000	1.66	%		Total FHLB secured advances	$	10,000	0	%		$	1,318,000	1.66	%

FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of ~~June~~September 30, 2020, the Bank had secured borrowing capacity of $1.6 billion collateralized by liens covering ~~$2.2~~$2.1 billion of qualifying loans. As of ~~June~~September 30, 2020 and December 31, 2019, there were 0 balances outstanding.

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Subordinated Debentures

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


		June 30, 2020						December 31, 2019				Date			Maturity		Rate Index		September 30, 2020				December 31, 2019		Date	Maturity	Rate Index
Series	Series	Balance		Rate		Balance		Rate		Issued	Date	(Quarterly Reset)	Series	Balance		Rate			Balance		Rate		Issued	Date	(Quarterly Reset)
		(Dollars in thousands)																			(Dollars in thousands)
Trust V	Trust V	$	10,310	3.40	%	$	10,310	5.00	%	8/15/2003	9/17/2033	3-month LIBOR + 3.10	Trust V	$	10,310	3.35		%	$	10,310	5.00	%	8/15/2003	9/17/2033	3-month LIBOR + 3.10
Trust VI	Trust VI	10,310		3.36	%	10,310		4.94	%	9/3/2003	9/15/2033	3-month LIBOR + 3.05	Trust VI	10,310		3.30		%	10,310		4.94	%	9/3/2003	9/15/2033	3-month LIBOR + 3.05
Trust CII	Trust CII	5,155		3.25	%	5,155		4.85	%	9/17/2003	9/17/2033	3-month LIBOR + 2.95	Trust CII	5,155		3.20		%	5,155		4.85	%	9/17/2003	9/17/2033	3-month LIBOR + 2.95
Trust VII	Trust VII	61,856		3.51	%	61,856		4.69	%	2/5/2004	4/23/2034	3-month LIBOR + 2.75	Trust VII	61,856		3.02		%	61,856		4.69	%	2/5/2004	4/23/2034	3-month LIBOR + 2.75
Trust CIII	Trust CIII	20,619		2.00	%	20,619		3.58	%	8/15/2005	9/15/2035	3-month LIBOR + 1.69	Trust CIII	20,619		1.94		%	20,619		3.58	%	8/15/2005	9/15/2035	3-month LIBOR + 1.69
Trust FCCI	Trust FCCI	16,495		1.91	%	16,495		3.49	%	1/25/2007	3/15/2037	3-month LIBOR + 1.60	Trust FCCI	16,495		1.85		%	16,495		3.49	%	1/25/2007	3/15/2037	3-month LIBOR + 1.60
Trust FCBI	Trust FCBI	10,310		1.86	%	10,310		3.44	%	9/30/2005	12/15/2035	3-month LIBOR + 1.55	Trust FCBI	10,310		1.80		%	10,310		3.44	%	9/30/2005	12/15/2035	3-month LIBOR + 1.55
Trust CS 2005-1	Trust CS 2005-1	82,475		2.26	%	82,475		3.85	%	11/21/2005	12/15/2035	3-month LIBOR + 1.95	Trust CS 2005-1	82,475		2.20		%	82,475		3.85	%	11/21/2005	12/15/2035	3-month LIBOR + 1.95
Trust CS 2005-2	Trust CS 2005-2	128,866		2.71	%	128,866		3.89	%	12/14/2005	1/30/2036	3-month LIBOR + 1.95	Trust CS 2005-2	128,866		2.22		%	128,866		3.89	%	12/14/2005	1/30/2036	3-month LIBOR + 1.95
Trust CS 2006-1	Trust CS 2006-1	51,545		2.71	%	51,545		3.89	%	2/22/2006	4/30/2036	3-month LIBOR + 1.95	Trust CS 2006-1	51,545		2.22		%	51,545		3.89	%	2/22/2006	4/30/2036	3-month LIBOR + 1.95
Trust CS 2006-2	Trust CS 2006-2	51,550		2.71	%	51,550		3.89	%	9/27/2006	10/30/2036	3-month LIBOR + 1.95	Trust CS 2006-2	51,550		2.22		%	51,550		3.89	%	9/27/2006	10/30/2036	3-month LIBOR + 1.95
Trust CS 2006-3 ⁽¹⁾	Trust CS 2006-3 ⁽¹⁾	28,956		1.82	%	28,902		1.64	%	9/29/2006	10/30/2036	3-month EURIBOR + 2.05	Trust CS 2006-3 (1)	30,211		1.60		%	28,902		1.64	%	9/29/2006	10/30/2036	3-month EURIBOR + 2.05
Trust CS 2006-4	Trust CS 2006-4	16,470		2.71	%	16,470		3.89	%	12/5/2006	1/30/2037	3-month LIBOR + 1.95	Trust CS 2006-4	16,470		2.22		%	16,470		3.89	%	12/5/2006	1/30/2037	3-month LIBOR + 1.95
Trust CS 2006-5	Trust CS 2006-5	6,650		2.71	%	6,650		3.89	%	12/19/2006	1/30/2037	3-month LIBOR + 1.95	Trust CS 2006-5	6,650		2.22		%	6,650		3.89	%	12/19/2006	1/30/2037	3-month LIBOR + 1.95
Trust CS 2007-2	Trust CS 2007-2	39,177		2.71	%	39,177		3.89	%	6/13/2007	7/30/2037	3-month LIBOR + 1.95	Trust CS 2007-2	39,177		2.22		%	39,177		3.89	%	6/13/2007	7/30/2037	3-month LIBOR + 1.95
Gross subordinated debentures	Gross subordinated debentures	540,744		2.65	%	540,690		3.87	%				Gross subordinated debentures	541,999		2.30		%	540,690		3.87	%
Unamortized discount ⁽²⁾	Unamortized discount ⁽²⁾	(79,972)				(82,481)							Unamortized discount (2)	(78,717)					(82,481)
Net subordinated debentures	Net subordinated debentures	$	460,772			$	458,209						Net subordinated debentures	$	463,282				$	458,209

___________________

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

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

NOTE 10. DERIVATIVES

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Derivative instruments expose us to credit risk in 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 bilateral collateral posting requirements, counterparty credit review, and monitoring procedures.

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


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
		Notional		Fair		Notional		Fair			Notional		Fair		Notional		Fair
Derivatives Not Designated As Hedging Instruments	Derivatives Not Designated As Hedging Instruments	Amount		Value		Amount		Value		Derivatives Not Designated As Hedging Instruments	Amount		Value		Amount		Value
		(In thousands)															(In thousands)
Derivative Assets:	Derivative Assets:									Derivative Assets:
Interest rate contracts	Interest rate contracts	$	10,649	$	107	$	15,159	$	71	Interest rate contracts	$	10,364	$	81	$	15,159	$	71
Foreign exchange contracts	Foreign exchange contracts	80,240		3,078		91,144		1,163		Foreign exchange contracts	72,284		3,533		91,144		1,163
Other derivative assets		90,889		3,185		106,303		1,234
Interest rate and economic contracts										Interest rate and economic contracts	82,648		3,614		106,303		1,234
Equity warrant assets	Equity warrant assets	26,391		4,781		26,079		3,434		Equity warrant assets	25,729		4,742		26,079		3,434
Total	Total	$	117,280	$	7,966	$	132,382	$	4,668	Total	$	108,377	$	8,356	$	132,382	$	4,668

Derivative Liabilities:	Derivative Liabilities:									Derivative Liabilities:
Interest rate contracts	Interest rate contracts	$	10,649	$	107	$	15,159	$	71	Interest rate contracts	$	10,364	$	81	$	15,159	$	71
Foreign exchange contracts	Foreign exchange contracts	80,240		22		91,144		684		Foreign exchange contracts	72,284		0		91,144		684
Total	Total	$	90,889	$	129	$	106,303	$	755	Total	$	82,648	$	81	$	106,303	$	755

NOTE 11. COMMITMENTS AND CONTINGENCIES

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


		June 30,		December 31,			September 30,		December 31,
		2020		2019			2020		2019
		(In thousands)							(In thousands)
Loan commitments to extend credit	Loan commitments to extend credit	$	7,745,921	$	8,183,158	Loan commitments to extend credit	$	7,178,506	$	8,183,158
Standby letters of credit	Standby letters of credit	365,792		355,503		Standby letters of credit	353,820		355,503
Commitments to contribute capital to small business	Commitments to contribute capital to small business					Commitments to contribute capital to small business
investment companies and CRA-related loan pools	investment companies and CRA-related loan pools	49,993		40,698		investment companies and CRA-related loan pools	52,941		40,698
Commitments to contribute capital to low income housing	Commitments to contribute capital to low income housing					Commitments to contribute capital to low income housing
project partnerships ⁽¹⁾	project partnerships ⁽¹⁾	—		88,515		project partnerships (1)	0		88,515
Commitments to contribute capital to private equity funds	Commitments to contribute capital to private equity funds	50		50		Commitments to contribute capital to private equity funds	50		50
Total	Total	$	8,161,756	$	8,667,924	Total	$	7,585,317	$	8,667,924

____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Commitments to extend credit are contractual agreements to lend to our customers when customers are in compliance with their contractual credit agreements and when customers have contractual availability to borrow under such agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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

In addition, we invest in small business investment companies that call for capital contributions up to an amount specified in the partnership agreements, and in CRA-related loan pools. As of ~~June~~September 30, 2020 and December 31, 2019, we had commitments to contribute capital to these entities totaling ~~$50.0~~$52.9 million and $40.7 million. We also had commitments to contribute up to an additional $50,000 to private equity funds at ~~June~~September 30, 2020 and December 31, 2019.

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


		June 30, 2020			September 30, 2020
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2020	2020	$	25,876	2020	$	26,824
2021	2021	24,117		2021	26,117

Total	Total	$	49,993	Total	$	52,941

Legal Matters

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 12. FAIR VALUE MEASUREMENTS

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

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

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

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


		Fair Value Measurements as of															Fair Value Measurements as of
		June 30, 2020															September 30, 2020
Measured on a Recurring Basis	Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)															(In thousands)
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
Agency commercial MBS	Agency commercial MBS	$	1,133,086	$	—	$	1,133,086	$	—	Agency commercial MBS	$	1,204,315	$	0	$	1,204,315	$	0
Municipal securities										Municipal securities	1,203,030		0		1,203,030		0
Agency residential CMOs	Agency residential CMOs	1,049,742		—		1,049,742		—		Agency residential CMOs	1,165,872		0		1,165,872		0
Municipal securities		888,338		—		888,338		—
Agency residential MBS	Agency residential MBS	248,934		—		248,934		—		Agency residential MBS	246,498		0		246,498		0
Asset-backed securities	Asset-backed securities	227,206		—		193,513		33,693		Asset-backed securities	234,103		0		203,881		30,222
Corporate debt securities										Corporate debt securities	174,282		0		174,282		0
Collateralized loan obligations	Collateralized loan obligations	136,663		—		136,663		—		Collateralized loan obligations	135,333		0		135,333		0
Private label residential CMOs	Private label residential CMOs	96,775		—		91,639		5,136		Private label residential CMOs	121,162		0		116,111		5,051
SBA securities	SBA securities	44,576		—		44,576		—		SBA securities	42,684		0		42,684		0
Corporate debt securities		20,458		—		20,458		—
U.S. Treasury securities	U.S. Treasury securities	5,363		5,363		—		—		U.S. Treasury securities	5,335		5,335		0		0
Total securities available-for-sale	Total securities available-for-sale	$	3,851,141	$	5,363	$	3,806,949	$	38,829	Total securities available-for-sale	$	4,532,614	$	5,335	$	4,492,006	$	35,273
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	$	2,688	$	2,688	$	—	$	—	Equity investments with readily determinable fair values	$	1,135	$	1,135	$	0	$	0
Derivatives ⁽¹⁾:	Derivatives ⁽¹⁾:									Derivatives (1):
Equity warrants	Equity warrants	4,781		—		—		4,781		Equity warrants	4,742		0		0		4,742
Other derivative assets		3,185		—		3,185		—
Interest rate and economic contracts										Interest rate and economic contracts	3,614		0		3,614		0
Derivative liabilities	Derivative liabilities	129		—		129		—		Derivative liabilities	81		0		81		0

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Fair Value Measurements as of															Fair Value Measurements as of
		December 31, 2019															December 31, 2019
Measured on a Recurring Basis	Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)															(In thousands)
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
Agency commercial MBS	Agency commercial MBS	$	1,108,224	$	—	$	1,108,224	$	—	Agency commercial MBS	$	1,108,224	$	0	$	1,108,224	$	0
Agency residential CMOs	Agency residential CMOs	1,136,397		—		1,136,397		—		Agency residential CMOs	1,136,397		0		1,136,397		0
Municipal securities	Municipal securities	735,159		—		735,159		—		Municipal securities	735,159		0		735,159		0
Agency residential MBS	Agency residential MBS	305,198		—		305,198		—		Agency residential MBS	305,198		0		305,198		0
Asset-backed securities	Asset-backed securities	214,783		—		198,348		16,435		Asset-backed securities	214,783		0		198,348		16,435
Collateralized loan obligations	Collateralized loan obligations	123,756		—		123,756		—		Collateralized loan obligations	123,756		0		123,756		0
Private label residential CMOs	Private label residential CMOs	99,483		—		93,219		6,264		Private label residential CMOs	99,483		0		93,219		6,264
SBA securities	SBA securities	48,258		—		48,258		—		SBA securities	48,258		0		48,258		0
Corporate debt securities	Corporate debt securities	20,748		—		20,748		—		Corporate debt securities	20,748		0		20,748		0
U.S. Treasury securities	U.S. Treasury securities	5,181		5,181		—		—		U.S. Treasury securities	5,181		5,181		0		0
Total securities available-for-sale	Total securities available-for-sale	$	3,797,187	$	5,181	$	3,769,307	$	22,699	Total securities available-for-sale	$	3,797,187	$	5,181	$	3,769,307	$	22,699
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	$	2,998	$	2,998	$	—	$	—	Equity investments with readily determinable fair values	$	2,998	$	2,998	$	0	$	0
Derivatives ⁽¹⁾:	Derivatives ⁽¹⁾:									Derivatives (1):
Equity warrants	Equity warrants	3,434		—		—		3,434		Equity warrants	3,434		0		0		3,434
Other derivative assets		1,234		—		1,234		—
Interest rate and economic contracts										Interest rate and economic contracts	1,234		0		1,234		0
Derivative liabilities	Derivative liabilities	755		—		755		—		Derivative liabilities	755		0		755		0

____________________

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

During the ~~six~~nine months ended ~~June~~September 30, 2020, there was ~~a $5,000~~an $8,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis.

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


		June 30, 2020								September 30, 2020
		Private Label Residential CMOs			Asset-Backed Securities				Private Label Residential CMOs		Asset-Backed Securities
			Weighted	Input or	Weighted			Weighted	Input or	Weighted
		Range	Average	Range	Average		Range	Average	Range	Average
Unobservable Inputs	Unobservable Inputs	of Inputs	Input ⁽¹⁾	of Inputs	Input ⁽²⁾	Unobservable Inputs	of Inputs	Input (1)	of Inputs	Input (2)
Voluntary annual prepayment speeds	Voluntary annual prepayment speeds	6.1% - 17.7%	11.7%	10.0% - 15.0%	12.0%	Voluntary annual prepayment speeds	5.3% - 16.1%	10.7%	10.0% - 15.0%	12.1%
Annual default rates ⁽³⁾	Annual default rates ⁽³⁾	0.3% - 35.5%	2.2%	2.0%	2.0%	Annual default rates (3)	0.7% - 29.8%	3.1%	2.0%	2.0%
Loss severity rates ⁽³⁾	Loss severity rates ⁽³⁾	2.3% - 242.7%	53.8%	60.0%	60.0%	Loss severity rates (3)	1.9% - 165.2%	53.0%	60.0%	60.0%
Discount rates	Discount rates	2.1% - 9.9%	6.8%	3.0% - 5.1%	3.7%	Discount rates	2.1% - 7.9%	6.0%	3.0% - 5.2%	3.8%

____________________

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

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

~~June~~September 30, 2020

Equity Warrants

Weighted

Range

Average

Unobservable Inputs

of Inputs

Input ⁽¹⁾

Volatility

~~23.4%~~23.7% - ~~147.4%~~224.4%

~~28.4%~~31.8%

Risk-free interest rate

0.1% - 0.3%

0.2%

Remaining life assumption (in years)

~~0.10~~0.20 - ~~4.97~~4.95

~~2.98~~2.85

____________________

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

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


		Private Label		Asset-Backed		Equity			Private Label		Asset-Backed		Equity
		Residential CMOs		Securities		Warrants			Residential CMOs		Securities		Warrants
		(In thousands)											(In thousands)
Balance, December 31, 2019	Balance, December 31, 2019	$	6,264	$	16,435	$	3,434	Balance, December 31, 2019	$	6,264	$	16,435	$	3,434
Total included in earnings	Total included in earnings	244		78		2,810		Total included in earnings	326		42		3,310
Total included in other comprehensive income	Total included in other comprehensive income	(574)		(473)		—		Total included in other comprehensive income	(447)		(389)		0
Purchases	Purchases	—		20,100		—		Purchases	0		20,100		0
Issuances	Issuances	—		—		201		Issuances	0		0		240
Sales	Sales	—		—		(1,659)		Sales	0		0		(2,234)

Net settlements	Net settlements	(798)		(2,447)		—		Net settlements	(1,092)		(5,966)		0

Transfers to Level 1 (equity investments with readily	Transfers to Level 1 (equity investments with readily							Transfers to Level 1 (equity investments with readily
determinable fair values)	determinable fair values)	—		—		(5)		determinable fair values)	0		0		(8)
Balance, June 30, 2020		$	5,136	$	33,693	$	4,781
Balance, September 30, 2020								Balance, September 30, 2020	$	5,051	$	30,222	$	4,742

Unrealized net gains (losses) for the period included in other	Unrealized net gains (losses) for the period included in other							Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end	comprehensive income for securities held at quarter-end	$	1,112	$	(276)			comprehensive income for securities held at quarter-end	$	1,239	$	(192)

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


		Fair Value Measurement as of															Fair Value Measurement as of
		June 30, 2020															September 30, 2020
Measured on a Non-Recurring Basis	Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)															(In thousands)
Individually evaluated loans and leases ⁽¹⁾	Individually evaluated loans and leases ⁽¹⁾	$	134,012	$	—	$	3,346	$	130,666	Individually evaluated loans and leases (1)	$	63,865	$	0	$	3,031	$	60,834

OREO		28		—		—		28

Total non-recurring	Total non-recurring	$	134,040	$	—	$	3,346	$	130,694	Total non-recurring	$	63,865	$	0	$	3,031	$	60,834

______________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Fair Value Measurement as of															Fair Value Measurement as of
		December 31, 2019															December 31, 2019
Measured on a Non-Recurring Basis	Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)															(In thousands)
Impaired loans and leases ⁽¹⁾	Impaired loans and leases ⁽¹⁾	$	28,706	$	—	$	1,083	$	27,623	Impaired loans and leases (1)	$	28,706	$	0	$	1,083	$	27,623
OREO	OREO	105		—		—		105		OREO	105		0		0		105
Total non-recurring	Total non-recurring	$	28,811	$	—	$	1,083	$	27,728	Total non-recurring	$	28,811	$	0	$	1,083	$	27,728

_____________________

(1) Includes all nonaccrual loans and leases and performing TDRs.

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


		Three Months Ended						Six Months Ended								Three Months Ended				Nine Months Ended
Losses on Assets	Losses on Assets	June 30,						June 30,							Losses on Assets	September 30,				September 30,
Measured on a Non-Recurring Basis	Measured on a Non-Recurring Basis	2020		2019		2020		2019		Measured on a Non-Recurring Basis	2020		2019			2020		2019
		(In thousands)																(In thousands)
Individually evaluated loans and leases ⁽¹⁾	Individually evaluated loans and leases ⁽¹⁾	$	9,483	$	1,842	$	29,317	$	3,038	Individually evaluated loans and leases (1)	$	29,047	$	8,339		$	40,920	$	10,091

OREO	OREO	5		—		110		—		OREO	157		54			267		54
Total losses	Total losses	$	9,488	$	1,842	$	29,427	$	3,038	Total losses	$	29,204	$	8,393		$	41,187	$	10,145

_____________________

(1) For 2019, losses are 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:

June 30, 2020

September 30, 2020

Valuation

Unobservable

Input or

Weighted

Valuation

Unobservable

Input or

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

Asset

Fair Value

Technique

Inputs

Range

Average

(In thousands)

Individually evaluated

loans and leases

72,972

Discounted cash flows

Discount rates

2.25% - 10.46%

7.57%

loans and leases

26,357

Discounted cash flows

Discount rates

3.75% - 10.46%

8.19%

Individually evaluated

Discount from

Individually evaluated

Discount from

loans and leases(1)

57,252

Third party appraisal

appraisal

23.00% - 54.06%

36.07%

loans and leases(1)

26,889

Third party appraisal

appraisal

23.00%

Individually evaluated

loans and leases

442

Third party appraisals

No discounts

loans and leases

7,588

Third party appraisals

No discounts

Discount from

OREO ⁽¹⁾

Third party appraisal

appraisal

20.00%

Total non-recurring Level 3

130,694

Total non-recurring Level 3

60,834

~~____________________~~_____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


		June 30, 2020																			September 30, 2020
		Carrying		Estimated Fair Value															Carrying		Estimated Fair Value
		Amount		Total		Level 1		Level 2		Level 3			Amount		Total		Level 1		Level 2		Level 3
		(In thousands)																			(In thousands)
Financial Assets:	Financial Assets:											Financial Assets:
Cash and due from banks	Cash and due from banks	$	174,059	$	174,059	$	174,059	$	—	$	—	Cash and due from banks	$	187,176	$	187,176	$	187,176	$	0	$	0
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	1,747,077		1,747,077		1,747,077		—		—		Interest-earning deposits in financial institutions	2,766,020		2,766,020		2,766,020		0		0
Securities available-for-sale	Securities available-for-sale	3,851,141		3,851,141		5,363		3,806,949		38,829		Securities available-for-sale	4,532,614		4,532,614		5,335		4,492,006		35,273
Investment in FHLB stock	Investment in FHLB stock	17,250		17,250		—		17,250		—		Investment in FHLB stock	17,250		17,250		0		17,250		0

Loans and leases held for investment, net	Loans and leases held for investment, net	19,393,581		19,603,897		—		3,346		19,600,551		Loans and leases held for investment, net	18,680,234		19,040,922		0		3,031		19,037,891
Equity warrants	Equity warrants	4,781		4,781		—		—		4,781		Equity warrants	4,742		4,742		0		0		4,742
Other derivative assets		3,185		3,185		—		3,185		—
Interest rate and economic contracts												Interest rate and economic contracts	3,614		3,614		0		3,614		0
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	2,688		2,688		2,688		—		—		Equity investments with readily determinable fair values	1,135		1,135		1,135		0		0

Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Core deposits	Core deposits	19,535,814		19,535,814		—		19,535,814		—		Core deposits	21,117,629		21,117,629		0		21,117,629		0
Non-core non-maturity deposits	Non-core non-maturity deposits	1,217,266		1,217,266		—		1,217,266		—		Non-core non-maturity deposits	1,123,909		1,123,909		0		1,123,909		0
Time deposits	Time deposits	2,175,499		2,184,874		—		2,184,874		—		Time deposits	1,724,157		1,731,333		0		1,731,333		0
Borrowings	Borrowings	60,000		59,976		50,000		9,976		—		Borrowings	60,000		59,988		50,000		9,988		0
Subordinated debentures	Subordinated debentures	460,772		443,945		—		443,945		—		Subordinated debentures	463,282		445,978		0		445,978		0
Derivative liabilities	Derivative liabilities	129		129		—		129		—		Derivative liabilities	81		81		0		81		0


		December 31, 2019																			December 31, 2019
		Carrying		Estimated Fair Value															Carrying		Estimated Fair Value
		Amount		Total		Level 1		Level 2		Level 3			Amount		Total		Level 1		Level 2		Level 3
		(In thousands)																			(In thousands)
Financial Assets:	Financial Assets:											Financial Assets:
Cash and due from banks	Cash and due from banks	$	172,585	$	172,585	$	172,585	$	—	$	—	Cash and due from banks	$	172,585	$	172,585	$	172,585	$	0	$	0
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	465,039		465,039		465,039		—		—		Interest-earning deposits in financial institutions	465,039		465,039		465,039		0		0
Securities available-for-sale	Securities available-for-sale	3,797,187		3,797,187		5,181		3,769,307		22,699		Securities available-for-sale	3,797,187		3,797,187		5,181		3,769,307		22,699
Investment in FHLB stock	Investment in FHLB stock	40,924		40,924		—		40,924		—		Investment in FHLB stock	40,924		40,924		0		40,924		0
Loans and leases held for investment, net	Loans and leases held for investment, net	18,708,087		19,055,004		—		1,083		19,053,921		Loans and leases held for investment, net	18,708,087		19,055,004		0		1,083		19,053,921
Equity warrants	Equity warrants	3,434		3,434		—		—		3,434		Equity warrants	3,434		3,434		0		0		3,434
Other derivative assets		1,234		1,234		—		1,234		—
Interest rate and economic contracts												Interest rate and economic contracts	1,234		1,234		0		1,234		0
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	2,998		2,998		2,998		—		—		Equity investments with readily determinable fair values	2,998		2,998		2,998		0		0

Financial Liabilities:	Financial Liabilities:											Financial Liabilities:
Core deposits	Core deposits	16,187,287		16,187,287		—		16,187,287		—		Core deposits	16,187,287		16,187,287		0		16,187,287		0
Non-core non-maturity deposits	Non-core non-maturity deposits	496,407		496,407		—		496,407		—		Non-core non-maturity deposits	496,407		496,407		0		496,407		0
Time deposits	Time deposits	2,549,342		2,549,260		—		2,549,260		—		Time deposits	2,549,342		2,549,260		0		2,549,260		0
Borrowings	Borrowings	1,759,008		1,759,008		1,759,000		8		—		Borrowings	1,759,008		1,759,008		1,759,000		8		0
Subordinated debentures	Subordinated debentures	458,209		441,617		—		441,617		—		Subordinated debentures	458,209		441,617		0		441,617		0
Derivative liabilities	Derivative liabilities	755		755		—		755		—		Derivative liabilities	755		755		0		755		0

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Limitations

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

NOTE 13. EARNINGS (LOSS) PER SHARE

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


		Three Months Ended						Six Months Ended							Three Months Ended				Nine Months Ended
		June 30,						June 30,							September 30,				September 30,
		2020		2019		2020		2019			2020		2019		2020		2019
		(Dollars in thousands, except per share data)															(Dollars in thousands, except per share data)
Basic Earnings (Loss) Per Share:	Basic Earnings (Loss) Per Share:									Basic Earnings (Loss) Per Share:
Net earnings (loss)	Net earnings (loss)	$	33,204	$	128,125	$	(1,399,907)	$	240,729	Net earnings (loss)	$	45,503	$	110,026	$	(1,354,404)	$	350,755
Less: Earnings allocated to unvested restricted stock⁽¹⁾	Less: Earnings allocated to unvested restricted stock⁽¹⁾	(362)		(1,190)		(1,251)		(2,343)		Less: Earnings allocated to unvested restricted stock(1)	(578)		(1,369)		(1,603)		(3,725)
Net earnings (loss) allocated to common shares	Net earnings (loss) allocated to common shares	$	32,842	$	126,935	$	(1,401,158)	$	238,386	Net earnings (loss) allocated to common shares	$	44,925	$	108,657	$	(1,356,007)	$	347,030

Weighted-average basic shares and unvested restricted	Weighted-average basic shares and unvested restricted									Weighted-average basic shares and unvested restricted
stock outstanding	stock outstanding	118,192		120,042		118,484		121,128		stock outstanding	118,438		119,831		118,469		120,691
Less: Weighted-average unvested restricted stock	Less: Weighted-average unvested restricted stock									Less: Weighted-average unvested restricted stock
outstanding	outstanding	(1,606)		(1,462)		(1,551)		(1,407)		outstanding	(1,684)		(1,622)		(1,596)		(1,480)
Weighted-average basic shares outstanding	Weighted-average basic shares outstanding	116,586		118,580		116,933		119,721		Weighted-average basic shares outstanding	116,754		118,209		116,873		119,211

Basic earnings (loss) per share	Basic earnings (loss) per share	$	0.28	$	1.07	$	(11.98)	$	1.99	Basic earnings (loss) per share	$	0.38	$	0.92	$	(11.60)	$	2.91

Diluted Earnings (Loss) Per Share:	Diluted Earnings (Loss) Per Share:									Diluted Earnings (Loss) Per Share:
Net earnings (loss) allocated to common shares	Net earnings (loss) allocated to common shares	$	32,842	$	126,935	$	(1,401,158)	$	238,386	Net earnings (loss) allocated to common shares	$	44,925	$	108,657	$	(1,356,007)	$	347,030

Weighted-average diluted shares outstanding	Weighted-average diluted shares outstanding	116,586		118,580		116,933		119,721		Weighted-average diluted shares outstanding	116,754		118,209		116,873		119,211

Diluted earnings (loss) per share	Diluted earnings (loss) per share	$	0.28	$	1.07	$	(11.98)	$	1.99	Diluted earnings (loss) per share	$	0.38	$	0.92	$	(11.60)	$	2.91

________________________

(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.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 14. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

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


		Three Months Ended June 30,															Three Months Ended September 30,
		2020						2019							2020				2019
		Total		Revenue from		Total		Revenue from			Total		Revenue from		Total		Revenue from
		Recorded		Contracts with		Recorded		Contracts with			Recorded		Contracts with		Recorded		Contracts with
		Revenue		Customers		Revenue		Customers			Revenue		Customers		Revenue		Customers
		(In thousands)															(In thousands)
Total interest income	Total interest income	$	274,075	$	—	$	314,533	$	—	Total interest income	$	265,908	$	0	$	307,208	$	0
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	2,004		2,004		3,771		3,771		Service charges on deposit accounts	2,570		2,570		3,525		3,525
Other commissions and fees	Other commissions and fees	10,111		3,006		11,590		5,158		Other commissions and fees	10,541		3,228		10,855		4,965
Leased equipment income	Leased equipment income	12,037		—		9,182		—		Leased equipment income	9,900		0		9,615		0
Gain on sale of loans	Gain on sale of loans	346		—		326		—		Gain on sale of loans	35		0		765		0
Gain on sale of securities	Gain on sale of securities	7,715		—		22,192		—		Gain on sale of securities	5,270		0		908		0
Other income	Other income	6,645		336		3,832		454		Other income	9,936		289		7,761		428
Total noninterest income	Total noninterest income	38,858		5,346		50,893		9,383		Total noninterest income	38,252		6,087		33,429		8,918
Total revenue	Total revenue	$	312,933	$	5,346	$	365,426	$	9,383	Total revenue	$	304,160	$	6,087	$	340,637	$	8,918

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


		Three Months Ended							Three Months Ended
		June 30,							September 30,
		2020		2019			2020		2019
		(In thousands)							(In thousands)
Products and services transferred at a point in time	Products and services transferred at a point in time	$	2,727	$	4,987	Products and services transferred at a point in time	$	3,189	$	5,046
Products and services transferred over time	Products and services transferred over time	2,619		4,396		Products and services transferred over time	2,898		3,872
Total revenue from contracts with customers	Total revenue from contracts with customers	$	5,346	$	9,383	Total revenue from contracts with customers	$	6,087	$	8,918

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Six Months Ended June 30,															Nine Months Ended September 30,
		2020						2019							2020				2019
		Total		Revenue from		Total		Revenue from			Total		Revenue from		Total		Revenue from
		Recorded		Contracts with		Recorded		Contracts with			Recorded		Contracts with		Recorded		Contracts with
		Revenue		Customers		Revenue		Customers			Revenue		Customers		Revenue		Customers
		(In thousands)															(In thousands)
Total interest income	Total interest income	$	565,407	$	—	$	619,092	$	—	Total interest income	$	831,315	$	0	$	926,300	$	0
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	4,662		4,662		7,501		7,501		Service charges on deposit accounts	7,232		7,232		11,026		11,026
Other commissions and fees	Other commissions and fees	19,832		7,160		22,598		9,696		Other commissions and fees	30,373		10,388		33,453		14,661
Leased equipment income	Leased equipment income	24,288		—		18,464		—		Leased equipment income	34,188		0		28,079		0
Gain on sale of loans	Gain on sale of loans	433		—		326		—		Gain on sale of loans	468		0		1,091		0
Gain on sale of securities	Gain on sale of securities	7,897		—		24,353		—		Gain on sale of securities	13,167		0		25,261		0
Other income	Other income	10,846		672		8,715		825		Other income	20,782		961		16,476		1,253
Total noninterest income	Total noninterest income	67,958		12,494		81,957		18,022		Total noninterest income	106,210		18,581		115,386		26,940
Total revenue	Total revenue	$	633,365	$	12,494	$	701,049	$	18,022	Total revenue	$	937,525	$	18,581	$	1,041,686	$	26,940

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


		Six Months Ended							Nine Months Ended
		June 30,							September 30,
		2020		2019			2020		2019
		(In thousands)							(In thousands)
Products and services transferred at a point in time	Products and services transferred at a point in time	$	6,963	$	9,533	Products and services transferred at a point in time	$	10,152	$	14,579
Products and services transferred over time	Products and services transferred over time	5,531		8,489		Products and services transferred over time	8,429		12,361
Total revenue from contracts with customers	Total revenue from contracts with customers	$	12,494	$	18,022	Total revenue from contracts with customers	$	18,581	$	26,940

Contract Balances

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


		June 30, 2020		December 31, 2019			September 30, 2020		December 31, 2019
		(In thousands)							(In thousands)
Receivables, which are included in "Other assets"	Receivables, which are included in "Other assets"	$	936	$	1,094	Receivables, which are included in "Other assets"	$	1,207	$	1,094
Contract assets, which are included in "Other assets"	Contract assets, which are included in "Other assets"	$	—	$	—	Contract assets, which are included in "Other assets"	$	0	$	0
Contract liabilities, which are included in "Accrued interest payable and other liabilities"	Contract liabilities, which are included in "Accrued interest payable and other liabilities"	$	425	$	490	Contract liabilities, which are included in "Accrued interest payable and other liabilities"	$	392	$	490

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 15. STOCK-BASED COMPENSATION

The Company’s 2017 Stock Incentive Plan, or the 2017 Plan, permits stock-based compensation awards to officers, directors, employees, and consultants. The 2017 Plan authorized grants of stock-based compensation instruments to purchase or issue up to 4,000,000 shares of Company common stock. As of ~~June~~September 30, 2020, there were~~1,790,129~~ ~~shares~~1,670,705 shares available for grant under the 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 $~~5.7~~7.1 millionand $~~6.2~~7.3 million for the three months ended ~~June~~September 30, 2020 and 2019, and $~~12.2~~19.2 million and $~~12.0~~19.3 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019. Such amounts are included in "Compensation expense" on the condensed consolidated statements of earnings (loss). The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of ~~June~~September 30, 2020 totaled $~~55.3~~50.6 million.

Time-Based Restricted Stock Awards

At ~~June~~September 30, 2020, there were ~~1,624,622~~1,706,690 shares of unvested TRSAs outstanding pursuant to the Company's 2003 and 2017 Stock Incentive Plans. The TRSAs generally vest ratably over a service period of three to four years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs is based on the fair value of the underlying award on the grant date and is recognized over the vesting period using the straight-line method.

Performance-Based Restricted Stock Units

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 16. RECENTLY ISSUED ACCOUNTING STANDARDS

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

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

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

January 1, 2021

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

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

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

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

January 1, 2021

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

ASU 2020-04, "Reference Rate Reform (Topic 848)"

This Update provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other agreements affected by the anticipated transition away from LIBOR toward new interest reference rates. For agreements that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. This Update also provides numerous optional expedients for derivative accounting. An entity may elect to apply this Update for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. We anticipate that ASU 2020-04 will simplify any modifications we execute between the selected start date (not yet determined) and December 31, 2022 that are directly related to LIBOR transition.

March 12, 2020 through December 31, 2022

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

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

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

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

January 1, 2021

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

NOTE 17. SUBSEQUENT EVENTS

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

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

Forward-Looking Information

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

•the COVID-19 pandemic is adversely affecting the Company, its employees, customers and third-party service providers, and the ultimate extent of the impacts of the pandemic and related government stimulus programs on its business, financial position, results of operations, liquidity and prospects is uncertain. Continued deterioration in general business and economic conditions could adversely affect the Company’s revenues and the values of its assets and liabilities, lead to a tightening of credit and increase stock price volatility;

•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;

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

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

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

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

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

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

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

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

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

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

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

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

•higher than anticipated increases in operating expenses;

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

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

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

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

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

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

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

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

Overview

The Bank is focused on relationship-based business banking to small, middle-market, and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 7471 full-service branches located in California, one branch located in Durham, North Carolina, one branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key ~~innovative~~innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.

In managing the top line of our business, we focus on loan growth, loan yield, deposit cost, and net interest margin. Net interest income, on a year-to-date basis in 2020, accounted for ~~88.1%~~87.7% of net revenue (net interest income plus noninterest income).

At ~~June~~September 30, 2020, the Company had total assets of $~~27.4~~28.4 billion, including $~~19.7~~19.0 billion of total loans and leases, net of deferred fees, and $~~3.9~~4.5 billion of securities available-for-sale, compared to $26.8 billion of total assets, including $18.8 billion of total loans and leases, net of deferred fees, and $3.8 billion of securities available-for-sale at December 31, 2019. The ~~$594.9 million increase~~$1.7 billion increase in total assets since year-end was due primarily to a ~~$1.3~~$2.3 billion increase in interest-earning deposits in financial institutions and ~~an $847.8~~a $735.4 million increase in ~~loans and leases, net of deferred fees,~~securities available-for-sale, offset partially by a ~~$1.5~~$1.47 billion write-down of goodwill. The increase in loans and leases was driven mostly by $1.2 billion of loans funded under the Paycheck Protection Program and increased balances on existing loans resulting primarily from disbursements on construction loans.

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At ~~June~~September 30, 2020, the Company had total liabilities of ~~$23.9~~$24.9 billion, including total deposits of ~~$22.9~~$24.0 billion and borrowings of ~~$60.0~~$60.0 million, compared to $21.8 billion of total liabilities, including $19.2 billion of total deposits and $1.8 billion of borrowings at December 31, 2019. The ~~$2.1~~$3.1 billion increase in total liabilities since year-end was due mainly to increases of ~~$3.3~~$4.9 billion in core deposits and ~~$720.9~~$627.5 million in non-core non-maturity deposits, offset partially by decreases of ~~$1.7~~$1.7 billion in borrowings, primarily FHLB advances, and ~~$373.8~~$825.2 million in time deposits. The increase in core deposits was due primarily to PPP loan proceeds being deposited into customers' accounts and capital market activities by our venture banking clients, which saw deposits increase by ~~$1.6~~$3.0 billion to ~~a record $8.7~~$10.1 billion at ~~June~~September 30, 2020. At ~~June~~September 30, 2020, core deposits totaled ~~$19.5~~$21.1 billion, or ~~85%~~88% of total deposits, including ~~$8.6~~$9.3 billion ofof noninterest-bearing demand deposits, or ~~38%~~39% of total deposits.

At ~~June~~September 30, 2020, the Company had total stockholders' equity of ~~$3.5~~$3.5 billion compared to $5.0 billion at December 31, 2019. The ~~$1.5~~$1.5 billion decrease in stockholders' equity since year-end was due mainly to a ~~$1.4~~$1.35 billion net loss, attributable primarily to a $1.47 billion goodwill impairment charge, ~~$100.7~~$130.3 million of cash dividends paid, and $70.0 million of common stock repurchased under the Stock Repurchase Program, offset partially by a ~~$66.4~~$76.8 million increase in accumulated other comprehensive income. Consolidated capital ratios remained strong and continued to increase with Tier 1 capital and total capital ratios of ~~9.97%~~10.45% and ~~13.18%~~13.74% at ~~June~~September 30, 2020.

Recent Events

COVID-19 Pandemic

The outbreak of the Coronavirus Disease ("COVID-19") pandemic has impacted our business and operations in several ways as outlined below. Our first and continuing priority remains the safety and health of our employees and customers as we navigate our way through the pandemic. In the first quarter, we activated our Business Continuity Team and Pandemic Plan under the direction of a special task force comprised of executive level management from various departments to work closely with the Business Continuity Team to help lead our people and our business through this period of uncertainty. The special task force has continued to meet multiple times per week since the onset of the pandemic.

Our Employees

We took several actions in March to move everyone possible to a remote working environment, which has continued to this day; however, as an essential business service, some of our employees are required to work at one of our critical offices or at one of our branch locations where we are practicing social distancing and other safety measures to the best of our ability. We have applied social distancing, wearing of face masks, remote working, additional cleaning, reminders of frequent handwashing, installation of plexi-glass barriers among other steps to ensure the health and safety of employees and customers. We suspended all employee business travel and canceled all hosted client events. We require anyone who has traveled personally to a foreign country or on a cruise, to self-quarantine for 14 days. Despite these restrictions, we have remained fully operational and able to meet the needs of our clients and the communities we serve. To recognize our employees who must work in our branches or critical locations, we paid a special bonus of up to $1,000 in the second quarter of 2020. We have begun to re-open some office locations if permitted under local government guidance, but any such re-openings generally remain limited to no more than a 50% capacity. Despite some re-openings, the vast majority of our non-branch employees continue to work remotely.

Our Clients and Branch Operations

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

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Impact to Our Business

To date, from a business perspective, the impacts from the COVID-19 pandemic have been primarily related to our loan portfolio. We have experienced an increase in customers seeking loan modifications through payment deferrals and extension of terms. As of ~~June~~September 30, 2020, active loan payment or deferral modifications ~~were made on~~represented approximately 9%3.3% of the loan portfolio, ~~most~~down from approximately 6.6% of ~~which occurred in May and June.~~the loan portfolio at June 30, 2020. Most of the modifications were ~~either~~ for payment deferrals for ~~three months or maturity extensions up to~~ three months, while some deferrals were up to six months. As of September 30, 2020, approximately 13% of the loans that were granted a payment deferral received a second modification. Of the remaining $625 million of loans on deferral as of September 30, 2020, 95% expire by December 31, 2020.We also granted maturity extensions totaling approximately $315 million primarily for three months, ~~and~~while some extensions were ~~up to~~for one year. AsThe table below presents the amount of ~~July 30, 2020,~~active loan payment or deferral modifications ~~were 9% of~~by loan segment for the ~~June 30, 2020 loan and lease portfolio as shown in the table below:~~periods indicated:


			July 30, 2020		June 30, 2020		% of											Deferrals as % of
			Total Deferral		Loan and Lease		June 30, 2020									Total Loans		Total Loans
Loan and Lease Portfolio	Loan and Lease Portfolio		and Extensions		Portfolio		Loan and Lease		Loan and Lease Portfolio	Loan Deferrals Outstanding						and Leases		and Leases
Segment and Class	Segment and Class	Count	Balance		Balance		Portfolio		Segment and Class	June 30, 2020			September 30, 2020			September 30, 2020		September 30, 2020
		(Dollars in millions)																(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:								Real estate mortgage:
Commercial	Commercial	123	$	932	$	4,222	22	%	Commercial	$	810,689		$	430,682		$	4,192,466	10.3	%
Income producing and other residential	Income producing and other residential	49	225		3,734		6	%	Income producing and other residential	187,641			42,448			3,684,579		1.2	%
Real estate construction and land:	Real estate construction and land:								Real estate construction and land:
Commercial	Commercial	13	284		1,168		24	%	Commercial	208,866			86,963			1,241,647		7.0	%
Residential	Residential	9	192		2,173		9	%	Residential	329			—			2,182,100		—	%
Commercial:	Commercial:								Commercial:
Asset-based	Asset-based	43	115		3,413		3	%	Asset-based	30,572			30,507			3,153,048		1.0	%
Venture capital	Venture capital	19	18		1,814		1	%	Venture capital	12,497			2,849			1,637,132		0.2	%
Other commercial	Other commercial	151	46		2,760		2	%	Other commercial	42,687			30,556			2,572,994		1.2	%
Consumer	Consumer	499	34		411		8	%	Consumer	4,230			632			362,234		0.2	%
Total	Total	906	$	1,846	$	19,695	9	%	Total	$	1,297,511		$	624,637		$	19,026,200	3.3	%

As % of total loans and leases									As % of total loans and leases	6.6		%	3.3		%

We actively participated in the Paycheck Protection Program ("PPP"), under the provisions of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act. As of ~~June~~September 30, 2020, ~~we processed over 4,100~~PPP loans ~~for~~had an outstanding balance of approximately $1.2 ~~billion in loans through the PPP~~billion.. The loans ~~had~~have two-year terms with a 1% loan coupon rate and origination fees that varied from 1% to 5% depending on the size of the loan. These fees, which ~~amounted to~~totaled approximately $36.4 million, are recognized over the two-year life of the loan with the fee recognition accelerated upon forgiveness or repayment of the loan. The PPP loans are fully guaranteed by the SBA and do not carry an allowance. Our participation in the PPP resulted in a corresponding increase in core deposits in the second quarter of 2020 due to PPP loan proceeds being deposited into customers' accounts.

As events unfolded in March, we immediately increased the enhanced monitoring of our loan and lease portfolio with particular emphasis on certain loan and lease portfolios that we expected to be most impacted by the COVID-19 pandemic, such as hotel, retail, commercial aviation, restaurant, and oil services loan and lease portfolios. The economic impacts caused by the COVID-19 pandemic precipitated loan and lease risk rating downgrades across these loan and lease portfolios, resulting in increases of ~~$443.4~~$460.8 million in special mention loans and ~~$117.3~~$98.7 million in classified loans during the ~~six~~nine months ended ~~June~~September 30, 2020.

Our exposure to these loan and lease portfolios, which includes equipment leased to others under operating leases, is as follows:

June 30, 2020
% of
Special Total Loans
Loan and Lease Portfolio Classified Mention Pass Total and Leases
(Dollars in millions)
Hotel $ 2 $ 305 $ 836 $ 1,143 6 %
Retail 43 2 580 625 3 %
Commercial aviation — 150 147 297 2 %
Restaurant 12 4 145 161 1 %
Oil services 28 4 93 125 1 %
Total $ 85 $ 465 $ 1,801 $ 2,351 12 %


	September 30, 2020
									% of
			Special						Total Loans
Loan and Lease Portfolio	Classified		Mention		Pass		Total		and Leases
	(Dollars in thousands)
Hotel	$	57,635	$	281,044	$	847,960	$	1,186,639	6.2	%
Retail CRE	27,678		497		417,311		445,486		2.3	%
Commercial aviation	19,397		140,246		96,335		255,978		1.3	%
Restaurant	8,379		8,920		131,497		148,796		0.8	%
Oil services	12,883		5,438		74,305		92,626		0.5	%
Total	$	125,972	$	436,145	$	1,567,408	$	2,129,525	11.2	%

The deterioration in economic conditions caused by the COVID-19 pandemic has significantly impacted the economic forecasts and assumptions used in our estimation process for the allowance for credit losses under CECL. ~~Our~~Although our provision for credit losses for the third quarter of 2020 decreased by $23.0 million from the second quarter of 2020 ~~increased by $8.0~~to $97.0 million, ~~from the first quarter of 2020 to $120.0 million, while during the first quarter of 2020,~~ the provision for credit losses increased by ~~$109.0~~$310.0 million to ~~$112.0~~$329.0 million during the nine months ended September 30, 2020 when compared to the ~~fourth quarter of~~same period in 2019. Deterioration in the macro-economic variables used in economic forecasts used in the allowance for credit losses process has contributed to a higher provision for credit losses for the first ~~half~~nine months of the year. For further details on CECL and the impacts to our process in the ~~second~~third quarter, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein. .

During the first quarter of 2020, the economic impact of the COVID-19 pandemic also resulted in market volatility and a significant decline in stock market valuations, including our stock price. As a result, we performed an updated goodwill impairment assessment and recorded goodwill impairment of $1.47 billion in the first quarter, as the estimated fair value of equity was less than book value as of March 31, 2020. This is a non-cash charge and had no impact on our regulatory capital ratios, cash flows, or liquidity position. The goodwill impairment charge resulted in a net loss of ~~$1.4~~$1.43 billion in the first quarter and although our net earnings excluding the goodwill impairment charge were $36.9 million, or $0.31 per diluted share, the results contributed to our decision to reduce our quarterly dividend from $0.60 per share to $0.25 per share ~~during~~beginning in the second quarter.

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

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

Key Performance Indicators

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

The Level of Net Interest Income

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

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

Loan and Lease Growth

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

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

The Magnitude of Credit Losses

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

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

The Level of Noninterest Expense

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

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


			Three Months Ended																				Six Months Ended													Three Months Ended								Nine Months Ended
			June 30,				March 31,				June 30,				June 30,													September 30,				June 30,				September 30,				September 30,
Efficiency Ratio	Efficiency Ratio			2020				2020				2019				2020				2019			Efficiency Ratio		2020				2020				2019				2020				2019
			(Dollars in thousands)																																					(Dollars in thousands)
Noninterest expense	Noninterest expense			$	126,965			$	1,587,970			$	125,427			$	1,714,935			$	251,714		Noninterest expense		$	133,402			$	126,965			$	126,809			$	1,848,337			$	378,523
Less:	Less:	Intangible asset amortization	3,882				3,948				4,870				7,830				9,740	Less:		Intangible asset amortization		3,751				3,882				4,833				11,581				14,573
		Foreclosed assets (income) expense, net	(146)				66				(146)				(80)				(117)			Foreclosed assets expense (income), net		335				(146)				8				255				(109)
		Goodwill impairment	—				1,470,000				—				1,470,000				—			Goodwill impairment		—				—				—				1,470,000				—
		Acquisition, integration and reorganization costs	—				—				—				—				618			Acquisition, integration and reorganization costs		—				—				—				—				618
Noninterest expense used for efficiency ratio	Noninterest expense used for efficiency ratio			$	123,229			$	113,956			$	120,703			$	237,185			$	241,473		Noninterest expense used for efficiency ratio		$	129,316			$	123,229			$	121,968			$	366,501			$	363,441

Net interest income (tax equivalent)	Net interest income (tax equivalent)			$	256,294			$	251,428			$	261,689			$	507,722			$	517,742		Net interest income (tax equivalent)		$	253,632			$	256,294			$	255,974			$	761,354			$	773,716
Noninterest income	Noninterest income			38,858				29,100				50,893				67,958				81,957			Noninterest income		38,252				38,858				33,429				106,210				115,386
Net revenues	Net revenues			295,152				280,528				312,582				575,680				599,699			Net revenues		291,884				295,152				289,403				867,564				889,102
Less:	Less:	Gain on sale of securities	7,715				182				22,192				7,897				24,353	Less:		Gain on sale of securities		5,270				7,715				908				13,167				25,261
Net revenues used for efficiency ratio	Net revenues used for efficiency ratio			$	287,437			$	280,346			$	290,390			$	567,783			$	575,346		Net revenues used for efficiency ratio		$	286,614			$	287,437			$	288,495			$	854,397			$	863,841

Efficiency ratio	Efficiency ratio			42.9		%		40.6		%		41.6		%		41.8		%		42.0		%	Efficiency ratio		45.1		%		42.9		%		42.3		%		42.9		%		42.1		%

Critical Accounting Policies and Estimates

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

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

Goodwill and Other Intangible Assets

Allowance for Credit Losses on Loans and Leases Held for Investment

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

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Non-GAAP Measurements

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

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


			Three Months Ended																				Six Months Ended															Three Months Ended									Nine Months Ended
			June 30,				March 31,				June 30,				June 30,															September 30,				June 30,				September 30,				September 30,
Return on Average Tangible Equity	Return on Average Tangible Equity						2020				2020				2019				2020				2019		Return on Average Tangible Equity					2020				2020				2019				2020				2019
			(Dollars in thousands)																																							(Dollars in thousands)
Net earnings (loss)	Net earnings (loss)			$	33,204			$	(1,433,111)			$	128,125			$	(1,399,907)			$	240,729		Net earnings (loss)				$	45,503			$	33,204			$	110,026			$	(1,354,404)			$	350,755
Add:	Add:	Intangible asset amortization	3,882				3,948				4,870				7,830				9,740	Add:		Intangible asset amortization				3,751				3,882				4,833				11,581				14,573
		Goodwill impairment	—				1,470,000				—				1,470,000				—			Goodwill impairment				—				—				—				1,470,000				—
		Adjusted net earnings used for return																						Adjusted net earnings used for return
		on average tangible equity		$	37,086			$	40,837			$	132,995			$	77,923			$	250,469			on average tangible equity			$	49,254			$	37,086			$	114,859			$	127,177			$	365,328

Average stockholders' equity	Average stockholders' equity			$	3,446,850			$	4,956,778			$	4,818,889			$	4,201,814			$	4,817,435		Average stockholders' equity				$	3,497,869			$	3,446,850			$	4,890,746			$	3,965,453			$	4,842,140
Less:	Less:	Average intangible assets	1,111,302				2,569,189				2,598,762				1,840,246				2,601,288	Less:		Average intangible assets				1,107,548				1,111,302				2,593,925				1,594,231				2,598,806
Average tangible common equity	Average tangible common equity			$	2,335,548			$	2,387,589			$	2,220,127			$	2,361,568			$	2,216,147		Average tangible common equity				$	2,390,321			$	2,335,548			$	2,296,821			$	2,371,222			$	2,243,334

Return on average equity ⁽¹⁾	Return on average equity ⁽¹⁾			3.87		%		(116.28)		%		10.66		%		(67.00)		%		10.08		%	Return on average equity (1)				5.18		%		3.87		%		8.93		%		(45.62)		%		9.68		%
Return on average tangible equity ⁽²⁾	Return on average tangible equity ⁽²⁾			6.39		%		6.88		%		24.03		%		6.64		%		22.79		%	Return on average tangible equity (2)				8.20		%		6.39		%		19.84		%		7.16		%		21.77		%

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

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

Tangible Common Equity Ratio/ June 30, December 31,
Tangible Book Value Per Share 2020 2019
(Dollars in thousands, except per share data)
Stockholders’ equity $ 3,452,898 $ 4,954,697
Less: Intangible assets 1,109,234 2,587,064
Tangible common equity $ 2,343,664 $ 2,367,633
Total assets $ 27,365,738 $ 26,770,806
Less: Intangible assets 1,109,234 2,587,064
Tangible assets $ 26,256,504 $ 24,183,742
Equity to assets ratio 12.62 % 18.51 %
Tangible common equity ratio ⁽¹⁾
8.93 % 9.79 %
Book value per share $ 29.17 $ 41.36
Tangible book value per share⁽²⁾
$ 19.80 $ 19.77
Shares outstanding 118,374,603 119,781,605


Tangible Common Equity Ratio/	September 30,			December 31,
Tangible Book Value Per Share	2020			2019
	(Dollars in thousands, except per share data)
Stockholders’ equity	$	3,486,231		$	4,954,697
Less: Intangible assets	1,105,483			2,587,064
Tangible common equity	$	2,380,748		$	2,367,633

Total assets	$	28,426,716		$	26,770,806
Less: Intangible assets	1,105,483			2,587,064
Tangible assets	$	27,321,233		$	24,183,742

Equity to assets ratio	12.26		%	18.51		%
Tangible common equity ratio (1)	8.71		%	9.79		%
Book value per share	$	29.42		$	41.36
Tangible book value per share (2)	$	20.09		$	19.77
Shares outstanding	118,489,927			119,781,605

_______________________________________

(1) Tangible common equity divided by tangible assets.

(2) Tangible common equity divided by shares outstanding.

•~~Adjusted net earnings and adjusted earnings per share:~~ ~~These non-GAAP measurements are presented in the following tables for the periods presented. See Note 13.~~ ~~Earnings (Loss) Per Share~~ ~~for the GAAP calculation of earnings per share.~~

Three Months Ended Six Months Ended
Adjusted Net Earnings and June 30, March 31, June 30, June 30,
Adjusted Earnings Per Share 2020 2020 2019 2020 2019
(Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss) $ 33,204 $ (1,433,111) $ 128,125 $ (1,399,907) $ 240,729
Add: Goodwill impairment — 1,470,000 — 1,470,000 —
Adjusted net earnings $ 33,204 $ 36,889 $ 128,125 $ 70,093 $ 240,729
Adjusted Basic Earnings Per Share:
Adjusted net earnings $ 33,204 $ 36,889 $ 128,125 $ 70,093 $ 240,729
Less: Earnings allocated to unvested restricted
stock (362) (939) (1,190) (1,251) (2,343)
Adjusted net earnings allocated to common shares $ 32,842 $ 35,950 $ 126,935 $ 68,842 $ 238,386
Weighted-average basic shares and unvested restricted
stock outstanding 118,192 118,775 120,042 118,484 121,128
Less: Weighted-average unvested restricted
stock outstanding (1,606) (1,495) (1,462) (1,551) (1,407)
Weighted-average basic shares outstanding 116,586 117,280 118,580 116,933 119,721
Adjusted basic earnings per share $ 0.28 $ 0.31 $ 1.07 $ 0.59 $ 1.99
Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares $ 32,842 $ 35,950 $ 126,935 $ 68,842 $ 238,386
Weighted-average diluted shares outstanding 116,586 117,280 118,580 116,933 119,721
Adjusted diluted earnings per share $ 0.28 $ 0.31 $ 1.07 $ 0.59 $ 1.99

•PPNR and PPNR return on average assets: Given that the use of PPNR is prevalent among bank investors and analysts during periods of economic stress and elevated loan provisioning, we disclose it ~~as well as~~and the PPNR return on average assets, in addition to the related GAAP measures of net earnings and return on average assets. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for the periods presented.


			Three Months Ended																				Six Months Ended															Three Months Ended									Nine Months Ended
PPNR and PPNR Return	PPNR and PPNR Return						June 30,				March 31,				June 30,				June 30,									PPNR and PPNR Return						September 30,				June 30,				September 30,				September 30,
on Average Assets	on Average Assets						2020				2020				2019				2020				2019		on Average Assets					2020				2020				2019				2020				2019
			(Dollars in thousands)																																							(Dollars in thousands)
Net earnings (loss)	Net earnings (loss)			$	33,204			$	(1,433,111)			$	128,125			$	(1,399,907)			$	240,729		Net earnings (loss)				$	45,503			$	33,204			$	110,026			$	(1,354,404)			$	350,755
Add:	Add:	Provision for credit losses	120,000				112,000				8,000				232,000				12,000	Add:		Provision for credit losses				97,000				120,000				7,000				329,000				19,000
		Goodwill impairment	—				1,470,000				—				1,470,000				—			Goodwill impairment				—				—				—				1,470,000				—
		Income tax expense	12,968				11,988				50,239				24,956				93,288			Income tax expense				13,671				12,968				41,830				38,627				135,118
		Pre-provision, pre-goodwill impairment																						Pre-provision, pre-goodwill impairment
		pre-tax net revenue ("PPNR")		$	166,172			$	160,877			$	186,364			$	327,049			$	346,017			pre-tax net revenue ("PPNR")			$	156,174			$	166,172			$	158,856			$	483,223			$	504,873

Average assets	Average assets			$	26,621,227			$	27,099,040			$	25,849,189			$	26,860,133			$	25,812,771		Average assets				$	27,935,193			$	26,621,227			$	26,406,603			$	27,221,102			$	26,012,890

Return on average assets ⁽¹⁾	Return on average assets ⁽¹⁾			0.50		%		(21.27)		%		1.99		%		(10.48)		%		1.88		%	Return on average assets (1)				0.65		%		0.50		%		1.65		%		(6.65)		%		1.80		%
PPNR return on average assets ⁽²⁾	PPNR return on average assets ⁽²⁾			2.51		%		2.39		%		2.89		%		2.45		%		2.70		%	PPNR return on average assets (2)				2.22		%		2.51		%		2.39		%		2.37		%		2.59		%

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

(2) Annualized PPNR divided by average assets.

Results of Operations

Earnings Performance

The following table presents performance metrics for the periods indicated:


		Three Months Ended																	Six Months Ended								Three Months Ended						Nine Months Ended
		June 30,			March 31,			June 30,			June 30,										September 30,			June 30,			September 30,			September 30,
		2020			2020			2019			2020			2019				2020			2020			2019			2020			2019
		(Dollars in thousands, except per share data)																												(Dollars in thousands, except per share data)
Earnings Summary:	Earnings Summary:																Earnings Summary:
Interest income																	Interest income	$	265,908		$	274,075		$	307,208		$	831,315		$	926,300
Interest expense																	Interest expense	(14,584)			(19,796)			(54,972)			(75,965)			(158,290)
Net interest income	Net interest income	$	254,279		$	249,747		$	260,898		$	504,026		$	515,774		Net interest income	251,324			254,279			252,236			755,350			768,010
Provision for credit losses	Provision for credit losses	(120,000)			(112,000)			(8,000)			(232,000)			(12,000)			Provision for credit losses	(97,000)			(120,000)			(7,000)			(329,000)			(19,000)
Noninterest income	Noninterest income	38,858			29,100			50,893			67,958			81,957			Noninterest income	38,252			38,858			33,429			106,210			115,386
Operating expense	Operating expense	(126,965)			(117,970)			(125,427)			(244,935)			(251,714)			Operating expense	(133,402)			(126,965)			(126,809)			(378,337)			(378,523)
Goodwill impairment	Goodwill impairment	—			(1,470,000)			—			(1,470,000)			—			Goodwill impairment	—			—			—			(1,470,000)			—

Earnings (loss) before income taxes	Earnings (loss) before income taxes	46,172			(1,421,123)			178,364			(1,374,951)			334,017			Earnings (loss) before income taxes	59,174			46,172			151,856			(1,315,777)			485,873
Income tax expense	Income tax expense	(12,968)			(11,988)			(50,239)			(24,956)			(93,288)			Income tax expense	(13,671)			(12,968)			(41,830)			(38,627)			(135,118)
Net earnings (loss)	Net earnings (loss)	$	33,204		$	(1,433,111)		$	128,125		$	(1,399,907)		$	240,729		Net earnings (loss)	$	45,503		$	33,204		$	110,026		$	(1,354,404)		$	350,755

Pre-provision, pre-goodwill impairment,	Pre-provision, pre-goodwill impairment,																Pre-provision, pre-goodwill impairment,
pre-tax net revenue ("PPNR")⁽²⁾	pre-tax net revenue ("PPNR")⁽²⁾	$	166,172		$	160,877		$	186,364		$	327,049		$	346,017		pre-tax net revenue ("PPNR") (2)	$	156,174		$	166,172		$	158,856		$	483,223		$	504,873

Performance Measures:	Performance Measures:																Performance Measures:
Diluted earnings (loss) per share	Diluted earnings (loss) per share	$	0.28		$	(12.23)		$	1.07		$	(11.98)		$	1.99		Diluted earnings (loss) per share	$	0.38		$	0.28		$	0.92		$	(11.60)		$	2.91
Return on average assets	Return on average assets	0.50		%	(21.27)		%	1.99		%	(10.48)		%	1.88		%	Return on average assets	0.65		%	0.50		%	1.65		%	(6.65)		%	1.80		%
PPNR return on average assets ⁽²⁾	PPNR return on average assets ⁽²⁾	2.51		%	2.39		%	2.89		%	2.45		%	2.70		%	PPNR return on average assets (2)	2.22		%	2.51		%	2.39		%	2.37		%	2.59		%
Return on average tangible equity ⁽¹⁾⁽²⁾	Return on average tangible equity ⁽¹⁾⁽²⁾	6.39		%	6.88		%	24.03		%	6.64		%	22.79		%	Return on average tangible equity (1)(2)	8.20		%	6.39		%	19.84		%	7.16		%	21.77		%
Net interest margin (tax equivalent)	Net interest margin (tax equivalent)	4.20		%	4.31		%	4.72		%	4.26		%	4.70		%	Net interest margin (tax equivalent)	3.90		%	4.20		%	4.46		%	4.13		%	4.62		%
Yield on average loans and leases (tax equivalent)	Yield on average loans and leases (tax equivalent)	5.01		%	5.54		%	6.26		%	5.27		%	6.21		%	Yield on average loans and leases (tax equivalent)	5.01		%	5.01		%	5.91		%	5.18		%	6.11		%
Cost of average total deposits	Cost of average total deposits	0.25		%	0.59		%	0.81		%	0.41		%	0.77		%	Cost of average total deposits	0.17		%	0.25		%	0.83		%	0.32		%	0.79		%
Efficiency ratio	Efficiency ratio	42.9		%	40.6		%	41.6		%	41.8		%	42.0		%	Efficiency ratio	45.1		%	42.9		%	42.3		%	42.9		%	42.1		%

_____________________________

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

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

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

Net earnings for the third quarter of 2020 were $45.5 million, or $0.38 per diluted share, compared to net earnings for the second quarter of 2020 ~~was~~of $33.2 million, or $0.28 per diluted ~~share, compared to a net loss for the first quarter of 2020 of $1.43 billion, or a loss of $12.23 per diluted~~ share. The ~~$1.47 billion~~$12.3 million increase in net earnings from the prior quarter was due primarily to a $1.47 billion goodwill impairment charge in the first quarter, higher noninterest income of $9.8 million, and higher net interest income of $4.5 million, offset partially by higher noninterest expense (excluding the goodwill impairment charge) of $9.0 million, and a higherlower provision for credit losses of ~~$8.0 million. Noninterest income increased due primarily to a $7.5~~$23.0 million, ~~increase in gain on sale of securities and a $2.9 million increase in dividends and gains on equity investments,~~ offset partially by ~~a $1.6~~lower net interest income of $3.0 million and higher noninterest expense of $6.4 million. The decrease in the provision for credit losses reflected improvement in certain key macro-economic forecast variables (unemployment and real GDP growth), offset partially by deterioration in other ~~income.~~key macro-economic variables, including CRE price index and BBB spreads, and increased provisions for individually evaluated loans and leases. Net interest income ~~increased~~decreased due mainly to a lower ~~cost of average interest-bearing liabilities and a higher~~ balance of average loans and leases, offset partially by a lower ~~yield on~~cost of average ~~loans and leases and securities. The increase in noninterest~~interest-bearing liabilities. Noninterest expense ~~(excluding the goodwill impairment charge) was~~increased due mainly to ~~increases~~an increase of ~~$5.1~~$13.2 million in compensation expense, offset partially by decreases of $5.4 million in insurance and assessments expense and ~~$6.6~~$2.4 million in prepayment penalties incurred from the early payoff of $750 million of FHLB term advances, offset partially by the reversal of a $1.5 million accrual for operational loss contingencies. The increase in the provision for credit losses in the second quarter of 2020 was driven by the impact from the significant deterioration and continued uncertainty in the key macro-economic forecast variables such as unemployment and GDP as a result of the impact of COVID-19. Excluding the goodwill impairment charge, adjusted net earnings for the first quarter of 2020 were $36.9 million, or $0.31 per diluted share. See "Non-GAAP Measurements" for the calculations of these amounts.other expense.

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

Net earnings for the ~~second~~third quarter of 2020 were ~~$33.2~~$45.5 million, or ~~$0.28~~$0.38 per diluted share, compared to net earnings for the ~~second~~third quarter of 2019 of ~~$128.1~~$110.0 million, or ~~$1.07~~$0.92 per diluted share. The ~~$94.9~~$64.5 million decrease in net earnings from the year-ago quarter was due primarily to a higher provision for credit losses of ~~$112.0 million, lower noninterest income of $12.0~~$90.0 million and ~~lower net interest income~~higher noninterest expense of $6.6 million, offset partially by higher noninterest income of $4.8 million and lower income tax expense of ~~$37.3~~$28.2 million. The increase in the provision for credit losses for the ~~second~~third quarter of 2020 from the year-ago quarter was the result of the impact of the current economic forecast used in our CECL process, which reflected a significant deterioration in key macro-economic forecast variables such as unemployment and GDP growth as a result of COVID-19. ~~The decrease~~Noninterest expense increased due mostly to increases of $3.7 million in ~~noninterest~~compensation expense, $1.2 million in customer related expense, and $1.1 million in other expense. Noninterest income increased due principally to increases of $6.9 million in ~~the second quarter of 2020 compared to the year-ago quarter was primarily due to a $14.5~~dividends and gains on equity investments and $4.4 million ~~decrease~~ in ~~the~~ gain on sale of ~~securities. Net interest income decreased due primarily to lower yields on average loans and leases and~~ securities, ~~as a result of lower market rates,~~ offset partially by a ~~lower cost of average interest-bearing liabilities and a higher balance of average loans and leases.~~$3.4 million decrease in warrant income. The decrease in income tax expense is mostly due to lower pre-tax ~~net~~ earnings in the ~~second~~third quarter of 2020 compared to the year-ago quarter.

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

Net loss for the ~~six~~nine months ended ~~June~~September 30, 2020 was ~~$1.40~~$1.35 billion, or a loss of ~~$11.98~~$11.60 per diluted share, compared to net earnings for the ~~six~~nine months ended ~~June~~September 30, 2019 of ~~$240.7~~$350.8 million, or ~~$1.99~~$2.91 per diluted share. The ~~$1.64~~$1.71 billion decrease in net earnings from the year-ago period was due primarily to a $1.47 billion goodwill impairment charge in the first quarter of 2020, a higher provision for credit losses of ~~$220.0~~$310.0 million, lower noninterest income of ~~$14.0~~$9.2 million, and lower net interest income of ~~$11.7~~$12.7 million, offset partially by lower ~~noninterest expense of $6.8 million, excluding the goodwill impairment charge, and lower~~ income tax expense of ~~$68.3~~$96.5 million. The increase in the provision for credit losses for the ~~six~~nine months ended ~~June~~September 30, 2020 was the result of the impact of the current economic forecast used in our CECL process, which reflected a significant deterioration in key macro-economic forecast variables such as unemployment and GDP growth as a result of COVID-19. The decrease in noninterest income for the first ~~six~~nine months of 2020 compared to the same period a year ago was due primarily to a ~~$16.5~~$12.1 million decrease in the gain on sale of securities. Net interest income decreased due mainly to lower yields on average loans and leases and securities as a result of lower market rates, offset partially by a lower cost of average interest-bearing liabilities and a higher balance of average loans and leases. The decrease in noninterest expense, excluding the goodwill impairment charge was due mostly to lower compensation expense of $16.6 million, offset partially by higher insurance and assessments expense of $5.5 million and higher leased equipment depreciation of $3.1 million.

Net Interest Income

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


		Three Months Ended																																			Three Months Ended
		June 30, 2020										March 31, 2020										June 30, 2019									September 30, 2020						June 30, 2020		September 30, 2019
				Interest		Yields				Interest		Yields				Interest		Yields					Interest		Yields				Interest		Yields				Interest		Yields
		Average		Income/		and		Average		Income/		and		Average		Income/		and			Average		Income/		and		Average		Income/		and		Average		Income/		and
		Balance		Expense		Rates		Balance		Expense		Rates		Balance		Expense		Rates			Balance		Expense		Rates		Balance		Expense		Rates		Balance		Expense		Rates
		(Dollars in thousands)																																			(Dollars in thousands)
ASSETS:	ASSETS:																			ASSETS:
Loans and leases ^(1)(2)(3)	Loans and leases ^(1)(2)(3)	$	19,951,603	$	248,474	5.01	%	$	19,065,035	$	262,764	5.54	%	$	18,239,690	$	284,513	6.26	%	Loans and leases (1)(2)(3)	$	19,195,737	$	241,547	5.01	%	$	19,951,603	$	248,474	5.01	%	$	18,539,281	$	276,309	5.91	%
Investment securities ⁽²⁾⁽⁴⁾	Investment securities ⁽²⁾⁽⁴⁾	3,846,459		27,430		2.87	%	3,853,217		28,641		2.99	%	3,790,436		29,462		3.12	%	Investment securities (2)(4)	4,107,915		26,015		2.52	%	3,846,459		27,430		2.87	%	3,809,243		32,213		3.36	%
Deposits in financial institutions	Deposits in financial institutions	733,142		186		0.10	%	537,384		1,608		1.20	%	228,702		1,349		2.37	%	Deposits in financial institutions	2,554,349		654		0.10	%	733,142		186		0.10	%	445,152		2,424		2.16	%
Total interest‑earning assets⁽²⁾	Total interest‑earning assets⁽²⁾	24,531,204		276,090		4.53	%	23,455,636		293,013		5.02	%	22,258,828		315,324		5.68	%	Total interest‑earning assets (2)	25,858,001		268,216		4.13	%	24,531,204		276,090		4.53	%	22,793,676		310,946		5.41	%
Other assets	Other assets	2,090,023						3,643,404						3,590,361						Other assets	2,077,192						2,090,023						3,612,927
Total assets	Total assets	$	26,621,227					$	27,099,040					$	25,775,949					Total assets	$	27,935,193					$	26,621,227					$	26,406,603

LIABILITIES AND	LIABILITIES AND																			LIABILITIES AND
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:																			STOCKHOLDERS’ EQUITY:
Interest checking	Interest checking	$	4,001,750	1,573		0.16	%	$	3,466,812	7,135		0.83	%	$	3,242,960	10,644		1.32	%	Interest checking	$	4,904,614	2,019		0.16	%	$	4,001,750	1,573		0.16	%	$	3,598,698	11,942		1.32	%
Money market	Money market	6,114,354		2,856		0.19	%	5,247,866		10,016		0.77	%	5,046,021		14,604		1.16	%	Money market	7,170,842		3,081		0.17	%	6,114,354		2,856		0.19	%	5,121,856		14,807		1.15	%
Savings	Savings	524,335		33		0.03	%	497,959		160		0.13	%	525,648		227		0.17	%	Savings	565,395		35		0.02	%	524,335		33		0.03	%	515,649		218		0.17	%
Time	Time	2,475,858		8,613		1.40	%	2,684,143		10,936		1.64	%	2,731,156		13,245		1.95	%	Time	1,876,072		4,752		1.01	%	2,475,858		8,613		1.40	%	2,795,573		13,736		1.95	%
Total interest‑bearing deposits	Total interest‑bearing deposits	13,116,297		13,075		0.40	%	11,896,780		28,247		0.95	%	11,545,785		38,720		1.35	%	Total interest‑bearing deposits	14,516,923		9,887		0.27	%	13,116,297		13,075		0.40	%	12,031,776		40,703		1.34	%
Borrowings	Borrowings	871,110		1,319		0.61	%	2,026,749		6,778		1.35	%	1,142,223		7,210		2.53	%	Borrowings	181,315		27		0.06	%	871,110		1,319		0.61	%	1,181,313		6,852		2.30	%
Subordinated debentures	Subordinated debentures	459,466		5,402		4.73	%	458,399		6,560		5.76	%	454,901		7,705		6.79	%	Subordinated debentures	462,375		4,670		4.02	%	459,466		5,402		4.73	%	456,011		7,417		6.45	%
Total interest‑bearing liabilities	Total interest‑bearing liabilities	14,446,873		19,796		0.55	%	14,381,928		41,585		1.16	%	13,142,909		53,635		1.64	%	Total interest‑bearing liabilities	15,160,613		14,584		0.38	%	14,446,873		19,796		0.55	%	13,669,100		54,972		1.60	%
Noninterest‑bearing demand deposits	Noninterest‑bearing demand deposits	8,292,151						7,357,717						7,544,027						Noninterest‑bearing demand deposits	8,812,391						8,292,151						7,487,555
Other liabilities	Other liabilities	435,353						402,617						343,364						Other liabilities	464,320						435,353						359,202
Total liabilities	Total liabilities	23,174,377						22,142,262						21,030,300						Total liabilities	24,437,324						23,174,377						21,515,857
Stockholders’ equity	Stockholders’ equity	3,446,850						4,956,778						4,818,889						Stockholders’ equity	3,497,869						3,446,850						4,890,746
Total liabilities and	Total liabilities and																			Total liabilities and
stockholders' equity	stockholders' equity	$	26,621,227					$	27,099,040					$	25,849,189					stockholders' equity	$	27,935,193					$	26,621,227					$	26,406,603
Net interest income ⁽²⁾	Net interest income ⁽²⁾			$	256,294					$	251,428					$	261,689			Net interest income (2)			$	253,632					$	256,294					$	255,974
Net interest rate spread ⁽²⁾	Net interest rate spread ⁽²⁾					3.98	%					3.86	%					4.04	%	Net interest rate spread (2)					3.75	%					3.98	%					3.81	%
Net interest margin ⁽²⁾	Net interest margin ⁽²⁾					4.20	%					4.31	%					4.72	%	Net interest margin (2)					3.90	%					4.20	%					4.46	%

Total deposits ⁽⁵⁾	Total deposits ⁽⁵⁾	$	21,408,448	$	13,075	0.25	%	$	19,254,497	$	28,247	0.59	%	$	19,089,812	$	38,720	0.81	%	Total deposits (5)	$	23,329,314	$	9,887	0.17	%	$	21,408,448	$	13,075	0.25	%	$	19,519,331	$	40,703	0.83	%

_____________________

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

(2) Tax equivalent.

(3) Includes discount accretion on acquired loans of $~~2.5~~2.0 million, ~~$4.8~~$2.5 million, and ~~$3.5~~$2.6 million for the three months ended September 30, 2020, June 30, 2020, ~~March 31, 2020,~~ and ~~June~~September 30, 2019, respectively.

(4) Includes tax-equivalent adjustments of $~~1.4~~1.6 million, ~~$1.2~~$1.4 million, and ~~$0.5~~$3.4 million for the three months ended September 30, 2020, June 30, 2020, ~~March 31, 2020,~~ and ~~June~~September 30, 2019, respectively, related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.

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


		Six Months Ended																							Nine Months Ended
		June 30, 2020										June 30, 2019									September 30, 2020						September 30, 2019
				Interest		Yields				Interest		Yields					Interest		Yields				Interest		Yields
		Average		Income/		and		Average		Income/		and			Average		Income/		and		Average		Income/		and
		Balance		Expense		Rates		Balance		Expense		Rates			Balance		Expense		Rates		Balance		Expense		Rates
		(Dollars in thousands)																							(Dollars in thousands)
ASSETS:	ASSETS:													ASSETS:
Loans and leases ^(1)(2)(3)	Loans and leases ^(1)(2)(3)	$	19,508,319	$	511,238	5.27	%	$	18,152,444	$	559,026	6.21	%	Loans and leases (1)(2)(3)	$	19,403,365	$	752,785	5.18	%	$	18,282,807	$	835,335	6.11	%
Investment securities ⁽²⁾⁽⁴⁾	Investment securities ⁽²⁾⁽⁴⁾	3,849,838		56,071		2.93	%	3,878,991		60,035		3.12	%	Investment securities (2)(4)	3,936,492		82,086		2.79	%	3,855,486		92,248		3.20	%
Deposits in financial institutions	Deposits in financial institutions	635,263		1,794		0.57	%	170,649		1,999		2.36	%	Deposits in financial institutions	1,279,628		2,448		0.26	%	263,155		4,423		2.25	%
Total interest-earning assets⁽²⁾	Total interest-earning assets⁽²⁾	23,993,420		569,103		4.77	%	22,202,084		621,060		5.64	%	Total interest-earning assets (2)	24,619,485		837,319		4.54	%	22,401,448		932,006		5.56	%
Other assets	Other assets	2,866,713						3,610,687						Other assets	2,601,617						3,611,442
Total assets	Total assets	$	26,860,133					$	25,812,771					Total assets	$	27,221,102					$	26,012,890

LIABILITIES AND	LIABILITIES AND													LIABILITIES AND
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:													STOCKHOLDERS’ EQUITY:
Interest checking	Interest checking	$	3,734,281	8,708		0.47	%	$	3,142,946	19,965		1.28	%	Interest checking	$	4,127,239	10,727		0.35	%	$	3,296,533	31,907		1.29	%
Money market	Money market	5,681,110		12,872		0.46	%	5,159,871		29,512		1.15	%	Money market	6,181,312		15,953		0.34	%	5,147,060		44,319		1.15	%
Savings	Savings	511,147		193		0.08	%	539,264		469		0.18	%	Savings	529,362		228		0.06	%	531,306		687		0.17	%
Time	Time	2,580,001		19,549		1.52	%	2,510,271		23,009		1.85	%	Time	2,343,645		24,301		1.39	%	2,606,417		36,745		1.88	%
Total interest-bearing deposits	Total interest-bearing deposits	12,506,539		41,322		0.66	%	11,352,352		72,955		1.30	%	Total interest-bearing deposits	13,181,558		51,209		0.52	%	11,581,316		113,658		1.31	%
Borrowings	Borrowings	1,448,929		8,097		1.12	%	1,180,060		14,920		2.55	%	Borrowings	1,023,307		8,124		1.06	%	1,180,482		21,772		2.47	%
Subordinated debentures	Subordinated debentures	458,932		11,962		5.24	%	454,554		15,443		6.85	%	Subordinated debentures	460,088		16,632		4.83	%	455,045		22,860		6.72	%
Total interest-bearing liabilities	Total interest-bearing liabilities	14,414,400		61,381		0.86	%	12,986,966		103,318		1.60	%	Total interest-bearing liabilities	14,664,953		75,965		0.69	%	13,216,843		158,290		1.60	%
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	7,824,934						7,663,177						Noninterest-bearing demand deposits	8,157,169						7,603,993
Other liabilities	Other liabilities	418,985						345,193						Other liabilities	433,527						349,914
Total liabilities	Total liabilities	22,658,319						20,995,336						Total liabilities	23,255,649						21,170,750
Stockholders’ equity	Stockholders’ equity	4,201,814						4,817,435						Stockholders’ equity	3,965,453						4,842,140
Total liabilities and	Total liabilities and													Total liabilities and
stockholders' equity	stockholders' equity	$	26,860,133					$	25,812,771					stockholders' equity	$	27,221,102					$	26,012,890
Net interest income ⁽²⁾	Net interest income ⁽²⁾			$	507,722					$	517,742			Net interest income (2)			$	761,354					$	773,716
Net interest rate spread ⁽²⁾	Net interest rate spread ⁽²⁾					3.91	%					4.04	%	Net interest rate spread (2)					3.85	%					3.96	%
Net interest margin ⁽²⁾	Net interest margin ⁽²⁾					4.26	%					4.70	%	Net interest margin (2)					4.13	%					4.62	%

Total deposits ⁽⁵⁾	Total deposits ⁽⁵⁾	$	20,331,473	$	41,322	0.41	%	$	19,015,529	$	72,955	0.77	%	Total deposits (5)	$	21,338,727	$	51,209	0.32	%	$	19,185,309	$	113,658	0.79	%

_____________________

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

(2) Tax equivalent.

(3) Includes discount accretion on acquired loans of $~~7.3~~9.3 million and $~~6.5~~9.1 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively.

(4) Includes tax-equivalent adjustments of ~~$2.6~~$4.2 million and ~~$1.4~~$4.8 million for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively, related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.

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

Net interest income ~~increased~~decreased by ~~$4.5~~$3.0 million to $251.3 million for the third quarter of 2020 compared to $254.3 million for the second quarter of 2020 ~~compared to $249.7 million for the first quarter of 2020~~ due mainly to a lower ~~cost of average interest-bearing liabilities and a higher~~ balance of average loans and leases, offset partially by a lower ~~yield on~~cost of average ~~loans and leases.~~interest-bearing liabilities. The tax-equivalent yield on average loans and leases was 5.01% for both the third quarter and second quarter of ~~2020 compared to 5.54% for the first quarter of~~ 2020. The decrease in the yield on average loans and leases was due principally to lower market rates, a lower rate on loan production from the impact of the PPP loans, and lower loan discount accretion. Excluding the PPP loans, which have a coupon rate of 1%, the tax equivalent yield on average loans and leases was 5.10%.

The tax equivalent NIM was ~~4.20%~~3.90% for the ~~second~~third quarter of 2020 compared to ~~4.31%~~4.20% for the ~~first~~second quarter of 2020. The decrease in the tax equivalent NIM was due ~~mainly~~mostly to ~~lower market rates resulting~~the change in the earning asset mix. Average loans and leases decreased by $756 million, while the average balance of deposits in financial institutions increased by $1.8 billion in the third quarter of 2020. This excess liquidity had a ~~lower loan and lease yield, a lower rate~~negative impact on ~~loan production from~~ the ~~impact~~third quarter tax equivalent NIM of 32 basis points, while the PPP loans, ~~and lower loan discount accretion. Excluding the PPP loans, the tax equivalent NIM was 4.25% for the second quarter~~which have a coupon rate of ~~2020. Despite the above, the NIM proved to be resilient in part due to interest rate floors on variable-rate loans.~~1%, had a negative impact of seven basis points.

The cost of average total deposits decreased to ~~0.25%~~0.17% for the ~~second~~third quarter of 2020 from ~~0.59%~~0.25% for the ~~first~~second quarter of 2020. The lower cost of average ~~interest-bearing~~total deposits ~~reflected actions taken~~was due primarily to ~~reduce deposit rates in light~~the repricing of ~~the two emergency interest rate cuts by the Federal Reserve in March of 2020.~~maturing time deposits. The ~~spot rate of our~~ cost of deposits was ~~0.19% on June~~0.13% at September 30, 2020.

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

Net interest income decreased by ~~$6.6~~$0.9 million to ~~$254.3~~$251.3 million for the ~~second~~third quarter of 2020 compared to ~~$260.9~~$252.2 million for the ~~second~~third quarter of 2019 due mainly to a lower yield on average loans and leases, offset partially by a lower cost of average interest-bearing liabilities and a higher balance of average loans and leases. The tax equivalent yield on average loans and leases was 5.01% for the ~~second~~third quarter of 2020 compared to ~~6.26%~~5.91% for the same quarter of 2019. The decrease in the yield on average loans and leases was due mainly to lower loan coupon interest from the repricing of variable-rate loans in conjunction with decreased market rates and a lower rate on loan production from the impact of the PPP loans.

The tax equivalent NIM was ~~4.20%~~3.90% for the ~~second~~third quarter of 2020 compared to ~~4.72%~~4.46% for the same quarter last year. The decrease in the tax equivalent NIM was due mostly to the decrease in the yield on average loans and leases as described above, offset partially by lower deposit and borrowing costs. Total discount accretion on acquired loans contributed ~~five~~three basis points to the NIM for the ~~second~~third quarter of 2020 compared to ~~seven~~four basis points for the ~~second~~third quarter of 2019.

The cost of average total deposits decreased to ~~0.25%~~0.17% for the ~~second~~third quarter of 2020 from ~~0.81%~~0.83% for the ~~second~~third quarter of 2019 due mainly to lower rates paid on deposits in conjunction with decreased market rates.

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

Net interest income decreased by ~~$11.7~~$12.7 million to ~~$504.0~~$755.4 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~$515.8~~$768.0 million for the ~~six~~nine months ended ~~June~~September 30, 2019 due mainly to a lower yield on average loans and leases and higher balances of average interest-bearing deposits and borrowings, offset partially by a lower cost of average interest-bearing liabilities and a higher balance of average loans and leases. The tax equivalent yield on average loans and leases was ~~5.27%~~5.18% for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~6.21%~~6.11% for the same period in 2019. The decrease in the yield on average loans and leases was due mainly to lower loan coupon interest from the repricing of variable-rate loans in conjunction with decreased market rates and a lower rate on loan production from the impact of the PPP loans. Excluding the PPP loans, which have a coupon rate of 1%, the tax equivalent yield on average loans and leases was ~~5.32%.~~5.28% in the 2020 period.

The tax equivalent NIM was ~~4.26%~~4.13% for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~4.70%~~4.62% for the same period last year. The decrease in the tax equivalent NIM was due mostly to the decrease in the yield on average loans and leases as described above, offset partially by lower deposit and borrowing costs. Excluding the PPP loans, the tax equivalent NIM was ~~4.28%~~4.17% for the ~~six~~nine months ended ~~June~~September 30, 2020.

The cost of average total deposits decreased to ~~0.41%~~0.32% for the ~~six~~nine months ended ~~June~~September 30, 2020 from ~~0.77%~~0.79% for the ~~six~~nine months ended ~~June~~September 30, 2019 due mainly to lower rates paid on deposits resulting from decreased market rates.

Provision for Credit Losses

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


		Three Months Ended																	Six Months Ended								Three Months Ended						Nine Months Ended
		June 30,			March 31,			June 30,			June 30,										September 30,			June 30,			September 30,			September 30,
		2020			2020			2019			2020			2019				2020			2020			2019			2020			2019
		(Dollars in thousands)																												(Dollars in thousands)
Provision For Credit Losses:	Provision For Credit Losses:																Provision For Credit Losses:
Addition to allowance for loan and lease losses	Addition to allowance for loan and lease losses	$	93,000		$	98,000		$	10,000		$	191,000		$	14,000		Addition to allowance for loan and lease losses	$	81,000		$	93,000		$	8,000		$	272,000		$	22,000
Addition to (reduction in) reserve for unfunded	Addition to (reduction in) reserve for unfunded																Addition to (reduction in) reserve for unfunded
loan commitments	loan commitments	27,000			14,000			(2,000)			41,000			(2,000)			loan commitments	16,000			27,000			(1,000)			57,000			(3,000)
Total provision for credit losses	Total provision for credit losses	$	120,000		$	112,000		$	8,000		$	232,000		$	12,000		Total provision for credit losses	$	97,000		$	120,000		$	7,000		$	329,000		$	19,000

Credit Quality Metrics:	Credit Quality Metrics:																Credit Quality Metrics:
Net charge-offs on loans and leases held for	Net charge-offs on loans and leases held for																Net charge-offs on loans and leases held for
investment ⁽¹⁾	investment ⁽¹⁾	$	13,242		$	19,110		$	11,244		$	32,352		$	11,435		investment (1)	$	36,084		$	13,242		$	4,485		$	68,436		$	15,920
Annualized net charge-offs to average loans and leases	Annualized net charge-offs to average loans and leases	0.27		%	0.40		%	0.25		%	0.33		%	0.13		%	Annualized net charge-offs to average loans and leases	0.75		%	0.27		%	0.10		%	0.47		%	0.12		%
At quarter-end:	At quarter-end:																At quarter-end:
Allowance for credit losses	Allowance for credit losses	$	381,621		$	274,863		$	169,898								Allowance for credit losses	$	442,537		$	381,621		$	172,413
Allowance for credit losses to loans and leases	Allowance for credit losses to loans and leases																Allowance for credit losses to loans and leases
held for investment	held for investment	1.94		%	1.39		%	0.92		%							held for investment	2.33		%	1.94		%	0.92		%
Allowance for credit losses to nonaccrual	Allowance for credit losses to nonaccrual																Allowance for credit losses to nonaccrual
loans and leases held for investment	loans and leases held for investment	229.7		%	287.5		%	209.1		%							loans and leases held for investment	516.9		%	229.7		%	174.0		%

Nonaccrual loans and leases held for investment	Nonaccrual loans and leases held for investment	$	166,113		$	95,602		$	81,265								Nonaccrual loans and leases held for investment	$	85,615		$	166,113		$	99,113
Performing TDRs held for investment	Performing TDRs held for investment	$	15,037		$	8,978		$	16,464								Performing TDRs held for investment	$	13,679		$	15,037		$	16,329
Classified loans and leasesheld for investment	Classified loans and leasesheld for investment	$	293,230		$	147,705		$	190,979								Classified loans and leases held for investment	$	274,572		$	293,230		$	188,607

______________________

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

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

The provision for credit losses ~~increased~~decreased by ~~$8.0~~$23.0 million to $97.0 million for the third quarter of 2020 compared to $120.0 million for the second quarter of 2020 ~~compared to $112.0 million for the first quarter of 2020~~ as a result of ~~reserve builds that reflected significant deterioration and continued uncertainty~~improvement in ~~the~~certain key macro-economic forecast variables ~~such as unemployment~~(unemployment and real GDP ~~as a result of COVID-19.~~growth), offset partially by deterioration in other key macro-economic variables, including CRE price index and BBB spreads, and increased provisions for individually evaluated loans and leases.

The provision for credit losses increased by ~~$112.0~~$90.0 million to ~~$120.0~~$97.0 million for the ~~second~~third quarter of 2020 compared to ~~$8.0~~$7.0 million for the ~~second~~third quarter of 2019 as a result of the impact of the current economic forecast used in our CECL process, which reflected a significant deterioration in key macro-economic forecast variables such as unemployment and GDP growth as a result of COVID-19.

The provision for credit losses increased by ~~$220.0~~$310.0 million to ~~$232.0~~$329.0 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~$12.0~~$19.0 million for the ~~six~~nine months ended ~~June~~September 30, 2019 as a result of the impact of the current economic forecast used in our CECL process, which reflected a significant deterioration in key macro-economic forecast variables such as unemployment and GDP growth as a result of COVID-19.

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

Noninterest Income

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


		Three Months Ended												Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,		March 31,		June 30,		June 30,							September 30,		June 30,		September 30,		September 30,
Noninterest Income	Noninterest Income	2020		2020		2019		2020		2019		Noninterest Income	2020		2020		2019		2020		2019
		(In thousands)																			(In thousands)
Leased equipment income	Leased equipment income	$	12,037	$	12,251	$	9,182	$	24,288	$	18,464	Leased equipment income	$	9,900	$	12,037	$	9,615	$	34,188	$	28,079
Other commissions and fees	Other commissions and fees	10,111		9,721		11,590		$	19,832	$	22,598	Other commissions and fees	10,541		10,111		10,855		30,373		33,453
Service charges on deposit accounts	Service charges on deposit accounts	2,004		2,658		3,771		4,662		7,501		Service charges on deposit accounts	2,570		2,004		3,525		7,232		11,026
Gain on sale of loans and leases	Gain on sale of loans and leases	346		87		326		433		326		Gain on sale of loans and leases	35		346		765		468		1,091
Gain on sale of securities	Gain on sale of securities	7,715		182		22,192		7,897		24,353		Gain on sale of securities	5,270		7,715		908		13,167		25,261
Other income:	Other income:											Other income:
Dividends and gains (losses) on equity investments	Dividends and gains (losses) on equity investments	2,947		28		(83)		2,975		213		Dividends and gains (losses) on equity investments	6,945		2,947		14		9,920		227
Warrant income	Warrant income	1,973		837		1,214		2,810		3,493		Warrant income	500		1,973		3,936		3,310		7,429
Other	Other	1,725		3,336		2,701		5,061		5,009		Other	2,491		1,725		3,811		7,552		8,820
Total noninterest income	Total noninterest income	$	38,858	$	29,100	$	50,893	$	67,958	$	81,957	Total noninterest income	$	38,252	$	38,858	$	33,429	$	106,210	$	115,386

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

Noninterest income ~~increased~~decreased by ~~$9.8~~$0.6 million to $38.3 million for the third quarter of 2020 compared to $38.9 million for the second quarter of 2020 ~~compared to $29.1 million for the first quarter of 2020~~ due mainly to ~~a $7.5~~decreases of $2.4 million ~~increase~~ in gain on sale of securities, $2.1 million in leased equipment income, and $1.5 million in warrant income, offset partially by a ~~$2.9~~$4.0 million increase in dividends and gains on equity investments. The decrease in gain on sale of securities resulted from the sale of $17.0 million of securities for a gain of $5.3 million in the third quarter compared to sales of $122.3 million of securities for a gain of $7.7 million in the second quarter. Leased equipment income decreased due mainly to lower gains from early lease terminations and lower rental income attributable to operating leases placed on nonaccrual status in the third quarter. Warrant income decreased due principally to lower gains from exercised warrants. The increase in dividends and gains on equity investments resulted primarily from net fair value gains of $5.9 million recorded in the third quarter of 2020 on equity investments still held.

Third Quarter of 2020 Compared to Third Quarter of 2019

Noninterest income increased by $4.8 million to $38.3 million for the third quarter of 2020 compared to $33.4 million for the third quarter of 2019 due mainly to increases of $6.9 million in dividends and gains on equity investments and $4.4 million in gain on sale of securities, offset partially by a ~~$1.6~~decrease of $3.4 million ~~decrease~~ in ~~other~~warrant income. The increase in dividends and gains on equity investments resulted primarily from net fair value gains of $5.9 million on equity investments still held recorded in the third quarter of 2020. The increase in gain on sale of securities resulted from the sale of ~~$122.3~~$17.0 million of securities for a gain of $5.3 million in the ~~second quarter. The increase in dividends and gains on equity investments resulted from increases~~third quarter of 2020 compared to sales of $143.4 million of securities for a gain of $0.9 million in the ~~fair value~~third quarter of ~~equity investments still held and a $1.5 million gain on sale of an equity investment. The decrease in other~~2019. Warrant income ~~was primarily~~decreased due principally to ~~$1.1 million of bankruptcy proceeds received on a former credit in the first quarter.~~lower gains from exercised warrants.

~~Second Quarter of~~

Nine Months Ended September 30, 2020 Compared to ~~Second Quarter of~~Nine Months Ended September 30, 2019

Noninterest income decreased by ~~$12.0~~$9.2 million to ~~$38.9~~$106.2 million for the ~~second quarter of~~nine months ended September 30, 2020 compared to ~~$50.9~~$115.4 million for the ~~second quarter of~~nine months ended September 30, 2019 due mainly to ~~a $14.5~~decreases of $12.1 million ~~decrease~~ in gain on sale of securities, ~~a $1.8~~$4.1 million ~~decrease~~in warrant income, $3.8 million in service charges on deposit accounts, and ~~a $1.5~~$3.1 million ~~decrease~~ in other commissions and fees, offset partially by ~~a $3.0~~increases of $9.7 million ~~increase~~ in dividends and gains on equity investments and ~~a $2.9~~$6.1 million ~~increase~~ in leased equipment income. Gain on sale of securities decreased primarily due to lower sales activity in the second quarter of 2020 as compared to the second quarter of 2019. Service charges on deposit accounts decreased due primarily to lower analysis fees and NSF fees in the second quarter of 2020 as compared to the second quarter of 2019. Other commissions and fees decreased primarily due to lower credit card fee income and lower foreign exchange fees, offset partially by higher customer success fees. The increase in dividends and gains on equity investments resulted primarily from increases in the fair value of equity investments still held and gains on sales of equity investments sold. Leased equipment income increased due to early lease terminations resulting in higher termination gains in the second quarter of 2020 as compared to the second quarter of 2019 and a higher average balance of leases in 2020 resulting in higher lease income as compared to the 2019 period.

~~Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019~~

~~Noninterest income decreased by $14.0 million to $68.0 million for the six months ended June 30, 2020 compared to $82.0 million for the six months ended June 30, 2019 due mainly to a $16.5 million~~ decrease in gain on sale of securities a $2.8 million decrease in service charges on deposit accounts, and a $2.8 million decrease in other commissions and fees, offset partially by a $5.8 million increase in leased equipment income and a $2.8 million increase in dividends and gains on equity investments. Gain onresulted from the sale of $154.1 million of securities for a gain of $13.2 million for the nine months ended September 30, 2020 compared to sales of $1.5 billion of securities for a gain of $25.3 million for the nine months ended September 30, 2019. Warrant income decreased ~~primarily~~ due principally to lower ~~sales activity in the 2020 period as compared to the prior year period.~~gains from exercised warrants. Service charges on deposit accounts decreased due primarily to lower analysis fees and NSF fees for the ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the same period last year as we waived certain fees for a period of time as part of our response to the COVID-19 pandemic. Other commissions and fees decreased primarily due to lower foreign exchange fees and lower credit card fee income, offset partially by higher customer success fees. Dividends and gains on equity investments increased due primarily to increases 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 ~~six~~nine months ended ~~June~~September 30, 2020 as compared to the ~~six~~nine months ended ~~June~~September 30, 2019 and a higher average balance of leases in 2020 resulting in higher lease income as compared to the 2019 ~~period. The increase~~period, offset partially by lower rental income attributable to operating leases placed on nonaccrual status in ~~dividends and gains on equity investments resulted primarily from increases in the fair value of equity investments still held.~~2020.

Noninterest Expense

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


		Three Months Ended												Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,		March 31,		June 30,		June 30,							September 30,		June 30,		September 30,		September 30,
Noninterest Expense	Noninterest Expense	2020		2020		2019		2020		2019		Noninterest Expense	2020		2020		2019		2020		2019
		(In thousands)																			(In thousands)
Compensation	Compensation	$	61,910	$	61,282	$	68,956	$	123,192	$	139,801	Compensation	$	75,131	$	61,910	$	71,424	$	198,323	$	211,225
Occupancy	Occupancy	14,494		14,207		14,457		28,701		28,777		Occupancy	14,771		14,494		14,089		43,472		42,866
Leased equipment depreciation	Leased equipment depreciation	7,102		7,205		5,558		14,307		11,209		Leased equipment depreciation	7,057		7,102		5,951		21,364		17,160
Data processing	Data processing	7,102		6,454		6,817		13,556		13,742		Data processing	6,505		7,102		7,044		20,061		20,786
Other professional services	Other professional services	4,146		4,258		4,629		8,404		9,142		Other professional services	4,713		4,146		4,400		13,117		13,542
Insurance and assessments	Insurance and assessments	9,373		4,249		4,098		13,622		8,136		Insurance and assessments	3,939		9,373		4,100		17,561		12,236
Intangible asset amortization	Intangible asset amortization	3,882		3,948		4,870		7,830		9,740		Intangible asset amortization	3,751		3,882		4,833		11,581		14,573
Customer related expense	Customer related expense	4,408		3,932		3,405		8,340		6,348		Customer related expense	4,762		4,408		3,539		13,102		9,887
Loan expense	Loan expense	3,379		2,650		3,451		6,029		6,336		Loan expense	3,499		3,379		3,628		9,528		9,964
Foreclosed assets (income) expense, net		(146)		66		(146)		(80)		(117)
Foreclosed assets expense (income), net												Foreclosed assets expense (income), net	335		(146)		8		255		(109)
Acquisition, integration and reorganization costs	Acquisition, integration and reorganization costs	—		—		—		—		618		Acquisition, integration and reorganization costs	—		—		—		—		618
Other	Other	11,315		9,719		9,332		21,034		17,982		Other	8,939		11,315		7,793		29,973		25,775
Total operating expense	Total operating expense	126,965		117,970		125,427		244,935		251,714		Total operating expense	133,402		126,965		126,809		378,337		378,523
Goodwill impairment	Goodwill impairment	—		1,470,000		—		1,470,000		—		Goodwill impairment	—		—		—		1,470,000		—
Total noninterest expense	Total noninterest expense	$	126,965	$	1,587,970	$	125,427	$	1,714,935	$	251,714	Total noninterest expense	$	133,402	$	126,965	$	126,809	$	1,848,337	$	378,523

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

Noninterest expense ~~decreased~~increased by ~~$1.46 billion~~$6.4 million to $133.4 million for the third quarter of 2020 compared to $127.0 million for the second quarter of 2020 ~~compared to $1.59 billion for the first quarter of 2020~~ attributable primarily to a ~~$1.47 billion goodwill impairment charge~~$13.2 million increase in ~~the first quarter. Excluding the goodwill impairment charge, noninterest~~compensation expense, ~~increased~~offset partially by ~~$9.0~~decreases of $5.4 million ~~to $127.0 million. This increase was due mainly to a $5.1 million increase~~ in insurance and assessments expense ~~a $1.6~~and $2.4 million in other expense. Compensation expense increased due mainly to higher bonus accruals of $12.4 million and stock compensation expense of $1.4 million. Projections for accruals for discretionary bonuses were reduced in the first quarter with the onset of the pandemic and continued at the lower accrual rate in the second quarter, before being increased in the third quarter causing an incremental increase in ~~other expense, a $0.7 million increase in loan expense,~~the third quarter based on the updated bonus projections. The updated annual bonus projections remain below normal historical levels and ~~a $0.6 million increase in data processing expense. The increase in insurance~~are subject to change. Insurance and assessments expense ~~was~~decreased due mostly to ~~an increase~~a decline in FDIC assessment expense, ~~resulting from an increase in our assessment rate due~~which was attributable primarily to increases in liquidity and uninsured deposits during the ~~first quarter loss from the goodwill impairment charge.~~last two quarters. The ~~higher assessment rate will continue for one year. The increase~~decrease in other expense was due primarily to $6.6 million in prepayment penalties incurred in the second quarter from the early payoff of $750 million of FHLB term advances, offset partially by higher legal accruals in the reversal of a $1.5 million accrual for operational loss contingencies and decreases in various business expenses due to less activity as a result of COVID-19. The FHLB term advances had a weighted average interest rate of 0.96% and the prepayment decision was made after the significant drop in market rates in March and the expectation of continued low rates for extended time. The increase in loan expense was due primarily to higher loan-related legal and workout expenses. The increase in data processing expense was due to a one-time expense to purchase systems for the origination and loan documentation submissions necessary for the Paycheck Protection Program.third quarter.

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

Noninterest expense increased by ~~$1.5~~$6.6 million to ~~$127.0~~$133.4 million for the ~~second~~third quarter of 2020 compared to ~~$125.4~~$126.8 million for the ~~second~~third quarter of 2019 due mainly to increases of $3.7 million in compensation expense, $1.2 million in customer related expense, and $1.1 million in other expense. Compensation expense increased due mostly to higher bonus expense reflecting the incremental increase to the annual bonus projection discussed above and higher vacation accrual expense. Customer related expense increased due primarily to higher customer analysis expenses. Other expense increased due mainly to higher legal accruals, offset partially by lower business development expenses as a result of COVID-19.

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

Noninterest expense increased by $1.47 billion to $1.85 billion for the nine months ended September 30, 2020 compared to $378.5 million for the nine months ended September 30, 2019 due mainly to a $1.47 billion goodwill impairment charge. Excluding the goodwill impairment charge, noninterest expense decreased by $0.2 million to $378.3 million. This decrease was due mainly to decreases of $12.9 million in compensation expense and $3.0 million in intangible asset amortization, offset partially by increases of $5.3 million ~~increase~~ in insurance and assessments, ~~a $2.0~~$4.2 million ~~increase in other expense and a $1.5 million increase~~ in leased equipment depreciation, ~~offset partially by~~and $4.2 million in other expense. Compensation expense decreased due mainly to lower bonus expense in the 2020 period compared to the prior year. Intangible asset amortization decreased due mostly to lower CDI amortization related to a ~~$7.0 million decrease~~financial institution acquired in ~~compensation expense.~~2017. Insurance and assessments expense increased due primarily to an increase in our FDIC assessment rate as a result of the first quarter 2020 loss from the goodwill impairment charge. ~~The increase in other~~Leased equipment depreciation increased due principally to a higher average balance of leased equipment. Other expense ~~was~~increased due mainly to $6.6 million in prepayment penalties incurred in the second quarter from the early payoff of $750 million of FHLB term advances and higher legal accruals, offset partially by ~~decreases in various~~lower business development expenses ~~due to less activity~~and employee related expenses as a result of COVID-19. The increase in leased equipment depreciation is due mainly to a higher average balance in the 2020 quarter as compared to the 2019 quarter. The decrease in compensation expense was due mainly to lower bonus expense in the 2020 quarter compared to the 2019 quarter.

~~Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019~~

Noninterest expense increased by $1.46 billion to $1.71 billion for the six months ended June 30, 2020 compared to $251.7 million for the six months ended June 30, 2019 due mainly to a $1.47 billion goodwill impairment charge. Excluding the goodwill impairment charge, noninterest expense decreased by $6.8 million to $244.9 million. This decrease was due mainly to a $16.6 million decrease in compensation expense, offset partially by a $5.5 million increase in insurance and assessments due primarily to an increase in our FDIC assessment rate as a result of the first quarter 2020 loss from the goodwill impairment charge, and a $3.1 million increase in leased equipment depreciation due to a higher average balance of leased equipment. The decrease in compensation expense was due mainly to lower bonus expense in the 2020 period compared to the prior year.

Income Taxes

The effective tax rate for the ~~second~~third quarter of 2020 was ~~28.1%~~23.1% compared to ~~(0.8)% for the first quarter of 2020 and 28.2%~~28.1% for the second quarter of ~~2019. Excluding non-deductible goodwill impairment, the effective income tax rate was 24.5%~~2020 and 27.5% for the ~~first~~third quarter of ~~2020.~~2019. The ~~higher~~lower effective tax rate in the ~~second~~third quarter of 2020 was due mainly ~~due~~ to the tax ~~expense related to~~effects of restricted stock vestings ~~combined with benefits recorded~~ in the ~~first~~second quarter ~~related to~~that elevated the ~~filing of amended state returns.~~second quarter effective tax rate. The effective tax rate for the ~~six~~nine months ended ~~June~~September 30, 2020 was ~~(1.8)~~(2.9)% compared to ~~27.9%~~27.8% for the ~~six~~nine months ended ~~June~~September 30, 2019. Excluding non-deductible goodwill impairment, the effective income tax rate was ~~26.3%~~25.0% for the ~~six~~nine months ended ~~June~~September 30, 2020. The Company’s blended statutory tax rate for federal and state is 27.9% and the effective tax rate for the full year 2020, excluding non-deductible goodwill impairment, is estimated to be in the range of ~~26-28%~~25-27%.

Balance Sheet Analysis

Securities Available-for-Sale

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


		June 30, 2020									March 31, 2020										December 31, 2019								September 30, 2020					June 30, 2020	December 31, 2019
		Fair		% of		Duration	Fair		% of		Duration	Fair		% of		Duration		Fair		% of			Duration	Fair		% of		Duration	Fair		% of		Duration
Security Type	Security Type	Value		Total		(in years)	Value		Total		(in years)	Value		Total		(in years)	Security Type	Value		Total			(in years)	Value		Total		(in years)	Value		Total		(in years)
		(Dollars in thousands)																															(Dollars in thousands)
Agency commercial MBS	Agency commercial MBS	$	1,133,086	29	%	2.8	$	1,125,432	30	%	3.1	$	1,108,224	29	%	4.4	Agency commercial MBS	$	1,204,315	27		%	2.6	$	1,133,086	29	%	2.8	$	1,108,224	29	%	4.4
Municipal securities																	Municipal securities	1,203,030		27		%	7.7	888,338		23	%	7.2	735,159		19	%	7.6
Agency residential CMOs	Agency residential CMOs	1,049,742		27	%	2.9	1,102,097		29	%	2.8	1,136,397		30	%	3.7	Agency residential CMOs	1,165,872		26		%	2.8	1,049,742		27	%	2.9	1,136,397		30	%	3.7
Municipal securities		888,338		23	%	7.2	733,884		20	%	6.7	735,159		19	%	7.6
Agency residential MBS	Agency residential MBS	248,934		6	%	2.5	289,831		8	%	2.6	305,198		8	%	3.3	Agency residential MBS	246,498		5		%	1.8	248,934		6	%	2.5	305,198		8	%	3.3
Asset-backed securities	Asset-backed securities	227,206		6	%	0.6	210,699		6	%	0.8	214,783		6	%	1.1	Asset-backed securities	234,103		5		%	0.7	227,206		6	%	0.6	214,783		6	%	1.1
Corporate debt securities																	Corporate debt securities	174,282		4		%	3.7	20,458		1	%	9.9	20,748		1	%	11.3
Collateralized loan obligations	Collateralized loan obligations	136,663		4	%	(0.1)	130,082		3	%	(0.2)	123,756		3	%	0.2	Collateralized loan obligations	135,333		3		%	—	136,663		4	%	(0.1)	123,756		3	%	0.2
Private label residential CMOs	Private label residential CMOs	96,775		3	%	2.3	97,862		3	%	2.4	99,483		3	%	3.2	Private label residential CMOs	121,162		2		%	2.5	96,775		3	%	2.3	99,483		3	%	3.2
SBA securities	SBA securities	44,576		1	%	3.0	45,441		1	%	3.1	48,258		1	%	4.0	SBA securities	42,684		1		%	3.0	44,576		1	%	3.0	48,258		1	%	4.0
Corporate debt securities		20,458		1	%	9.9	16,957		—	%	9.4	20,748		1	%	11.3
U.S. Treasury securities	U.S. Treasury securities	5,363		—	%	1.6	5,378		—	%	1.9	5,181		—	%	3.2	U.S. Treasury securities	5,335		—		%	1.4	5,363		—	%	1.6	5,181		—	%	3.2
Total securities available-	Total securities available-																Total securities available-
for-sale	for-sale	$	3,851,141	100	%	3.6	$	3,757,663	100	%	3.5	$	3,797,187	100	%	4.4	for-sale	$	4,532,614	100		%	3.8	$	3,851,141	100	%	3.6	$	3,797,187	100	%	4.4

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


		June 30, 2020							September 30, 2020
		Fair		% of			Fair		% of
Municipal Securities by State	Municipal Securities by State	Value		Total		Municipal Securities by State	Value		Total
		(Dollars in thousands)							(Dollars in thousands)
California	California	$	309,659	35	%	California	$	376,174	31	%
Texas						Texas	176,618		15	%
Washington	Washington	126,840		14	%	Washington	168,705		14	%
Texas		92,695		10	%
Georgia						Georgia	67,524		6	%
Oregon						Oregon	52,616		4	%
New York	New York	52,236		6	%	New York	52,325		4	%
Utah	Utah	42,620		5	%	Utah	41,282		3	%
Oregon		31,530		4	%
Maryland						Maryland	29,052		3	%
Florida	Florida	24,456		3	%	Florida	24,468		2	%
Illinois	Illinois	23,556		3	%	Illinois	23,469		2	%
Ohio		20,738		2	%
Nebraska		19,642		2	%
Total of ten largest states	Total of ten largest states	743,972		84	%	Total of ten largest states	1,012,233		84	%

All other states	All other states	144,366		16	%	All other states	190,797		16	%
Total municipal securities	Total municipal securities	$	888,338	100	%	Total municipal securities	$	1,203,030	100	%

Loans and Leases Held for Investment

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


		June 30, 2020						March 31, 2020								December 31, 2019					September 30, 2020				June 30, 2020		December 31, 2019
				% of				% of				% of					% of				% of				% of
Loan and Lease Portfolio	Loan and Lease Portfolio	Balance		Total		Balance		Total		Balance		Total		Loan and Lease Portfolio	Balance		Total		Balance		Total		Balance		Total
		(Dollars in thousands)																							(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Healthcare real estate	Healthcare real estate	$	237,287	1	%	$	290,636	1	%	$	334,070	2	%	Healthcare real estate	$	202,570	1	%	$	237,287	1	%	$	334,070	2	%
Hotel	Hotel	648,081		4	%	621,375		3	%	625,798		3	%	Hotel	648,523		4	%	648,081		4	%	625,798		3	%
SBA program	SBA program	573,149		3	%	560,384		3	%	556,889		3	%	SBA program	600,668		3	%	573,149		3	%	556,889		3	%
Other commercial real estate	Other commercial real estate	2,763,558		14	%	2,748,254		14	%	2,685,930		14	%	Other commercial real estate	2,740,705		14	%	2,763,558		14	%	2,685,930		14	%
Total commercial real estate mortgage	Total commercial real estate mortgage	4,222,075		22	%	4,220,649		21	%	4,202,687		22	%	Total commercial real estate mortgage	4,192,466		22	%	4,222,075		22	%	4,202,687		22	%
Income producing and other residential	Income producing and other residential	3,638,835		19	%	3,688,642		19	%	3,665,790		19	%	Income producing and other residential	3,592,905		19	%	3,638,835		19	%	3,665,790		19	%
Other residential real estate	Other residential real estate	94,824		—	%	99,653		—	%	104,270		1	%	Other residential real estate	91,674		—	%	94,824		—	%	104,270		1	%
Total income producing and other	Total income producing and other													Total income producing and other
residential real estate mortgage	residential real estate mortgage	3,733,659		19	%	3,788,295		19	%	3,770,060		20	%	residential real estate mortgage	3,684,579		19	%	3,733,659		19	%	3,770,060		20	%
Total real estate mortgage	Total real estate mortgage	7,955,734		41	%	8,008,944		40	%	7,972,747		42	%	Total real estate mortgage	7,877,045		41	%	7,955,734		41	%	7,972,747		42	%
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	1,167,609		6	%	1,087,505		6	%	1,082,368		6	%	Commercial	1,241,647		7	%	1,167,609		6	%	1,082,368		6	%
Residential	Residential	2,172,919		11	%	1,792,748		9	%	1,655,434		9	%	Residential	2,182,100		11	%	2,172,919		11	%	1,655,434		9	%
Total real estate construction and land ⁽¹⁾	Total real estate construction and land ⁽¹⁾	3,340,528		17	%	2,880,253		15	%	2,737,802		15	%	Total real estate construction and land (1)	3,423,747		18	%	3,340,528		17	%	2,737,802		15	%
Total real estate	Total real estate	11,296,262		58	%	10,889,197		55	%	10,710,549		57	%	Total real estate	11,300,792		59	%	11,296,262		58	%	10,710,549		57	%
Commercial:	Commercial:													Commercial:
Lender finance & timeshare		1,979,392		10	%	2,293,613		12	%	2,118,767		11	%
Lender finance														Lender finance	1,819,169		10	%	1,979,392		10	%	2,118,767		11	%
Equipment finance	Equipment finance	786,388		4	%	822,491		4	%	852,278		5	%	Equipment finance	692,089		4	%	786,388		4	%	852,278		5	%
Premium finance	Premium finance	420,479		2	%	490,439		2	%	467,469		2	%	Premium finance	k		#VALUE!		420,479		2	%	467,469		2	%
Other asset-based	Other asset-based	226,172		1	%	331,859		2	%	309,893		2	%	Other asset-based	219,804		#VALUE!		226,172		1	%	309,893		2	%
Total asset-based	Total asset-based	3,412,431		17	%	3,938,402		20	%	3,748,407		20	%	Total asset-based	3,153,048		17	%	3,412,431		17	%	3,748,407		20	%
Equity fund loans	Equity fund loans	739,761		4	%	1,402,464		7	%	1,199,268		6	%	Equity fund loans	745,596		4	%	739,761		4	%	1,199,268		6	%
Early stage		211,703		1	%	242,106		1	%	212,509		1	%
Expansion stage		738,427		4	%	934,420		5	%	693,459		4	%
Late stage		124,450		—	%	136,847		1	%	74,186		1	%
Venture lending														Venture lending	891,536		5	%	1,074,580		5	%	980,154		6	%
Total venture capital	Total venture capital	1,814,341		9	%	2,715,837		14	%	2,179,422		12	%	Total venture capital	1,637,132		9	%	1,814,341		9	%	2,179,422		12	%
Paycheck Protection Program	Paycheck Protection Program	1,211,163		6	%	—		—	%	—		—	%	Paycheck Protection Program	1,212,477		6	%	1,211,163		6	%	—		—	%
Secured business loans	Secured business loans	501,680		3	%	667,439		3	%	583,300		3	%	Secured business loans	411,559		2	%	501,680		3	%	583,300		3	%
Security monitoring	Security monitoring	498,895		2	%	539,038		3	%	619,260		3	%	Security monitoring	411,271		2	%	498,895		2	%	619,260		3	%
Other lending	Other lending	511,655		3	%	527,281		3	%	527,049		3	%	Other lending	507,105		3	%	511,655		3	%	527,049		3	%
Cash flow	Cash flow	36,885		—	%	38,227		—	%	38,058		—	%	Cash flow	30,582		—	%	36,885		—	%	38,058		—	%
Total other commercial	Total other commercial	2,760,278		14	%	1,771,985		9	%	1,767,667		9	%	Total other commercial	2,572,994		13	%	2,760,278		14	%	1,767,667		9	%
Total commercial	Total commercial	7,987,050		40	%	8,426,224		43	%	7,695,496		41	%	Total commercial	7,363,174		39	%	7,987,050		40	%	7,695,496		41	%
Consumer	Consumer	411,319		2	%	429,884		2	%	440,827		2	%	Consumer	362,234		2	%	411,319		2	%	440,827		2	%
Total loans and leases held for investment,	Total loans and leases held for investment,													Total loans and leases held for investment,
net of deferred fees	net of deferred fees	$	19,694,631	100	%	$	19,745,305	100	%	$	18,846,872	100	%	net of deferred fees	$	19,026,200	100	%	$	19,694,631	100	%	$	18,846,872	100	%

(1) Includes ~~$145.5~~land and acquisition and development loans of $154.1 million ~~$169.4 million, and $173.4~~at September 30, 2020, $145.5 million at June 30, 2020, ~~March 31, 2020~~ and $173.4 million at December 31, ~~2019 of land, acquisition and development loans.~~2019.

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


		June 30, 2020						December 31, 2019							September 30, 2020				December 31, 2019
				% of				% of					% of				% of
Real Estate Loans by State	Real Estate Loans by State	Balance		Total		Balance		Total		Real Estate Loans by State	Balance		Total		Balance		Total
		(Dollars in thousands)															(Dollars in thousands)
California	California	$	6,811,720	60	%	$	6,510,094	61	%	California	$	6,783,946	60	%	$	6,510,094	61	%
New York	New York	731,872		7	%	711,301		7	%	New York	719,294		7	%	711,301		7	%
Florida	Florida	632,517		6	%	598,561		6	%	Florida	679,130		6	%	598,561		5	%
Washington	Washington	357,491		3	%	324,588		3	%	Washington	386,659		3	%	324,588		3	%
Colorado	Colorado	314,122		3	%	126,370		1	%	Colorado	354,968		3	%	126,370		1	%
Texas										Texas	282,806		3	%	260,513		2	%
Oregon	Oregon	302,588		3	%	288,764		3	%	Oregon	270,765		2	%	288,764		3	%
Texas		267,000		2	%	260,513		2	%
Arizona	Arizona	174,731		2	%	162,317		2	%	Arizona	193,400		2	%	162,317		1	%
Nevada										Nevada	167,943		1	%	88,650		1	%
District of Columbia	District of Columbia	154,119		1	%	166,641		1	%	District of Columbia	154,242		1	%	166,641		2	%
North Carolina		152,053		1	%	124,738		1	%
Total of 10 largest states	Total of 10 largest states	9,898,213		88	%	9,273,887		87	%	Total of 10 largest states	9,993,153		88	%	9,237,799		86	%
All other states	All other states	1,398,049		12	%	1,436,662		13	%	All other states	1,307,639		12	%	1,472,750		14	%
Total real estate loans held for investment, net of deferred fees	Total real estate loans held for investment, net of deferred fees	$	11,296,262	100	%	$	10,710,549	100	%	Total real estate loans held for investment, net of deferred fees	$	11,300,792	100	%	$	10,710,549	100	%

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


		Three Months Ended			Six Months Ended				Three Months Ended			Nine Months Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees ⁽¹⁾	Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees ⁽¹⁾	June 30, 2020			June 30, 2020			Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)	September 30, 2020			September 30, 2020
		(Dollars in thousands)										(Dollars in thousands)
Balance, beginning of period	Balance, beginning of period	$	19,745,305		$	18,846,872		Balance, beginning of period	$	19,694,631		$	18,846,872
Additions:	Additions:							Additions:
Production(2)	Production(2)	1,802,956			2,592,702			Production(2)	519,671			3,112,373
Disbursements	Disbursements	800,458			2,797,538			Disbursements	1,008,336			3,805,874
Total production and disbursements	Total production and disbursements	2,603,414			5,390,240			Total production and disbursements	1,528,007			6,918,247
Reductions:	Reductions:							Reductions:
Payoffs	Payoffs	(612,837)			(1,425,544)			Payoffs	(982,889)			(2,408,433)
Paydowns	Paydowns	(2,022,376)			(3,076,081)			Paydowns	(1,160,692)			(4,236,773)
Total payoffs and paydowns	Total payoffs and paydowns	(2,635,213)			(4,501,625)			Total payoffs and paydowns	(2,143,581)			(6,645,206)
Sales	Sales	(3,089)			(3,089)			Sales	(2,979)			(6,068)
Transfers to foreclosed assets	Transfers to foreclosed assets	—			(1,776)			Transfers to foreclosed assets	(12,594)			(14,370)
Charge-offs	Charge-offs	(15,786)			(35,991)			Charge-offs	(37,284)			(73,275)

Total reductions	Total reductions	(2,654,088)			(4,542,481)			Total reductions	(2,196,438)			(6,738,919)

Net (decrease) increase	Net (decrease) increase	(50,674)			847,759			Net (decrease) increase	(668,431)			179,328
Balance, end of period	Balance, end of period	$	19,694,631		$	19,694,631		Balance, end of period	$	19,026,200		$	19,026,200

Weighted average rate on production ⁽²⁾⁽³⁾	Weighted average rate on production ⁽²⁾⁽³⁾	2.33		%	2.93		%	Weighted average rate on production ⁽²⁾⁽³⁾	4.95		%	3.27		%

_______________________________________

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

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

(3) The weighted average rate on production presents contractual rates on a tax equivalent basis and does not include amortized fees. Amortized fees added approximately 2126 and 23 basis points to loan yields for the three and ~~six~~nine months ended ~~June~~September 30, 2020. Excluding PPP loans, which were at a 1% rate, the weighted average rate on production for the nine months ended September 30, 2020 was 4.81%.

Allowance for Credit Losses on Loans and Leases Held for Investment

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

Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates. ~~The resulting~~For further information regarding the calculation of the 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 recent 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~~held for investment using the ~~allowance.~~

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 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 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 qualitative loss factors which are applied to our population of loans and leases and assessed at a pool level. The loan portfolio is segmented into four loan segments, eight loan classes and 22 loan pools based upon loan type that share similar default risk characteristics to calculate quantitative loss factors for each pool. Six 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 probability of default (“PD”) during the reasonable and supportable period using seven econometric regression models developed to correlate macroeconomic variables to credit performance (including risk rating upgrades/downgrades and defaults). The loans and unfunded commitments are grouped into nine loss given default (“LGD”) pools based on portfolio classes that share similar collateral risk characteristics. LGD rates are computed based on the net charge-offs recognized divided by the exposure at default (“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, estimated prepayments, and estimated usage of unfunded commitments to compute the current expected credit loss. We use our actual historical loan prepayment experience from 2009 - 2019 to estimate future prepayments by loan pool. Given that no historical period exhibits economic conditions similar to the single scenario baseline forecast discussed below, prepayment rates based on all historical prepayment experience from 2009 - 2019 are consistently applied during the reasonable and supportable, reversion, and post-reversion periods.

•~~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.

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,effective January 1, 2020, see Note 4.1. ~~Loans~~Organization - Significant Accounting Policies and ~~Leases~~Accounting Standards Adopted in 2020 of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

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

In calculating our allowance for credit losses in the ~~second~~third quarter of 2020, we continued to consider the impacts of the COVID-19 pandemic on our ~~processes outlined above~~estimation of expected credit losses given the changes in economic forecasts and assumptions along with the uncertainty asrelated to the severity and duration of the economic consequences of the COVID-19 pandemic. Our methodology and framework ~~is consistent~~along with the description above and consistent with what we did in the first quarter as we did not change any of the macroeconomic variables themselves, such as GDP, unemployment, BBB spreads and the CRE index, used in our models; nor did we change our loan segmentation, our4-quarter reasonable and supportable forecast period ~~of four quarters or our~~and 2-quarter reversion period have remained consistent since the implementation of ~~two quarters. Other~~CECL on January 1, 2020. Certain management assumptions ~~which~~are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual ~~basis in~~basis. In the second quarter ~~were~~of 2020, we updated ~~including~~ our estimated prepayment rates and ~~our~~ expected future utilization rates for the reserve for unfunded ~~commitments.~~ commitments, while during the third quarter of 2020, we updated our PD econometric regression models.

In the second ~~quarter,~~and third quarters of 2020, we used the Moody’s Consensus Scenario Forecast dated June 11, 2020 and September 11, 2020, respectively, for our quantitative component, unlike the first quarter when we used the Moody’s Baseline Forecast dated March 27, 2020, as the Consensus Scenario Forecast at that time was considered stale due to the fact it was dated March 12, 2020 and ~~was~~did not ~~updated to~~ reflect the pandemic and rapidly changing environment. ~~Similar to~~For the first ~~quarter,~~and second quarters of 2020, we made additional adjustments to the quantitative calculation due to regression model limitations caused by the sudden and unprecedented changes in macroeconomic variables and for imprecision inherent in the economic forecasts. ~~Consistent with our allowance for credit losses methodology,~~In the third quarter of 2020, as part of the planned annual update of the PD regression models, we ~~also incorporated~~recalibrated the ~~qualitative factors as prescribed~~models in ~~U.S. GAAP and existing regulatory guidance.~~

consideration of known model limitations to improve performance when applying highly volatile economic forecasts. The ~~other qualitative criteria we consider when establishing~~recalibration of models included expanding 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;~~

•~~Collateral Dependency - considers changes in collateral values;~~

•~~Lending Policy - current lending policies~~number of macroeconomic variables 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~~variable transformations used to correlate to historical credit ~~performance trends, including~~performance. As a ~~borrower's financial condition, credit rating, and ability to meet loan payment requirements;~~

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

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

We estimate the reserve for unfunded loan commitments using the same PD, LGD, and prepayment rates as used for the allowance for loan and lease losses. The reserve for unfunded loan commitments is computed using expected future utilization ratesresult of the unfunded commitments during the contractual life of the commitments based on historical usage of unfunded commitments for the various loan types from the first quarter of 2015 to the fourth quarter of 2019. The utilization rates are updated ~~on an annual basis during the second quarter.~~

Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan and lease portfolio and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements. In addition, current credit risk ratings are subject to change as we continue to monitor our loans and leases. To the extent we experience increased levels of borrower loan defaults, borrowers’ noncompliance with loan agreements, adverse changes in collateral values, or changes in economic and business conditions that adversely affect our borrowers, 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. In addition, economic forecasts utilized in the estimation process will change in future periods, which will result in changes to the estimates made for current expected credit losses as of a point in time. However, as noted above, economic forecasts are just one of many assumptions and components that go into estimating the allowance for credit losses.

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, selection of the most reliable econometricPD regression models, ~~segmentation of the loan and lease portfolio, determining the amount of loss history to consider, determining the relevant macroeconomic inputs~~adjustments that were made to the quantitative ~~models, determining~~calculation in the ~~methodology to forecast prepayments, selection of~~first and second quarters were not necessary in the most appropriate economic forecast scenario, determining the length of the reasonable and supportable forecast and reversion periods, determining expected utilization rates on unfunded loan commitments and determining 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 we have established an allowance for credit losses that we consider appropriate, there can be no assurance that the allowance will be sufficient to absorb future losses.third quarter.

~~As noted above, the~~The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, ~~will~~can change the outcome of the calculations. ~~However,~~In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of allowance for credit ~~losses calculation process.~~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 ~~loan portfolio and~~estimated allowance for credit ~~losses calculations.~~losses. At times, these analyses can provide information to further assist management in making decisions on certain assumptions. However, changing one assumption and not reassessing other assumptions used in the quantitative or qualitative process could yield results that are not reasonable or appropriate, hence all assumptions and information must be considered. From a sensitivity analysis perspective, changing key assumptions such as the macro-economic variable inputs from the economic forecasts, the reasonable and supportable forecast period, prepayment rates, loan segmentation, historical loss factors and/or periods, among others, would all change the outcome of the quantitative components of the allowance for credit losses. Those results would ~~however,~~ 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.

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


		June 30,			March 31,			December 31,			June 30,				September 30,			June 30,			December 31,			September 30,
Allowance for Credit Losses Data	Allowance for Credit Losses Data	2020			2020			2019			2019			Allowance for Credit Losses Data	2020			2020			2019			2019
		(Dollars in thousands)																						(Dollars in thousands)
Allowance for loan and lease losses	Allowance for loan and lease losses	$	301,050		$	221,292		$	138,785		$	135,037		Allowance for loan and lease losses	$	345,966		$	301,050		$	138,785		$	138,552
Reserve for unfunded loan commitments	Reserve for unfunded loan commitments	80,571			53,571			35,861			34,861			Reserve for unfunded loan commitments	96,571			80,571			35,861			33,861
Total allowance for credit losses	Total allowance for credit losses	$	381,621		$	274,863		$	174,646		$	169,898		Total allowance for credit losses	$	442,537		$	381,621		$	174,646		$	172,413

Allowance for loan and lease losses to loans and leases held for investment	Allowance for loan and lease losses to loans and leases held for investment	1.53		%	1.12		%	0.74		%	0.73		%	Allowance for loan and lease losses to loans and leases held for investment	1.82		%	1.53		%	0.74		%	0.74		%
Allowance for credit losses to loans and leases held for investment	Allowance for credit losses to loans and leases held for investment	1.94		%	1.39		%	0.93		%	0.92		%	Allowance for credit losses to loans and leases held for investment	2.33		%	1.94		%	0.93		%	0.92		%
Allowance for credit losses to nonaccrual loans and leases held for investment	Allowance for credit losses to nonaccrual loans and leases held for investment	229.7		%	287.5		%	189.1		%	209.1		%	Allowance for credit losses to nonaccrual loans and leases held for investment	516.9		%	229.7		%	189.1		%	174.0		%

7674

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


		Three Months Ended																	Six Months Ended								Three Months Ended						Nine Months Ended
		June 30,			March 31,			June 30,			June 30,										September 30,			June 30,			September 30,			September 30,
Allowance for Credit Losses Roll Forward	Allowance for Credit Losses Roll Forward	2020			2020			2019			2020			2019			Allowance for Credit Losses Roll Forward	2020			2020			2019			2020			2019
		(Dollars in thousands)																												(Dollars in thousands)
Balance, beginning of period	Balance, beginning of period	$	274,863		$	174,646		$	173,142		$	174,646		$	169,333		Balance, beginning of period	$	381,621		$	274,863		$	169,898		$	174,646		$	169,333
Cumulative effect of change in accounting																	Cumulative effect of change in accounting
principle - CECL, as of January 1, 2020:																	principle - CECL, as of January 1, 2020:
Allowance for loan and lease losses																	Allowance for loan and lease losses	—			—			—			3,617			—
Reserve for unfunded loan commitments																	Reserve for unfunded loan commitments	—			—			—			3,710			—
Total cumulative effect																	Total cumulative effect	—			—			—			7,327			—
Provision for credit losses:	Provision for credit losses:																Provision for credit losses:
Addition to allowance for loan and lease losses	Addition to allowance for loan and lease losses	93,000			98,000			10,000			191,000			14,000			Addition to allowance for loan and lease losses	81,000			93,000			8,000			272,000			22,000
Addition to (reduction in) reserve for unfunded	Addition to (reduction in) reserve for unfunded																Addition to (reduction in) reserve for unfunded
loan commitments	loan commitments	27,000			14,000			(2,000)			41,000			(2,000)			loan commitments	16,000			27,000			(1,000)			57,000			(3,000)
Total provision for credit losses	Total provision for credit losses	120,000			112,000			8,000			232,000			12,000			Total provision for credit losses	97,000			120,000			7,000			329,000			19,000
Loans and leases charged off:	Loans and leases charged off:																Loans and leases charged off:
Real estate mortgage	Real estate mortgage	(4,182)			(500)			(534)			(4,682)			(730)			Real estate mortgage	(1,551)			(4,182)			(120)			(6,233)			(850)
Real estate construction and land	Real estate construction and land	—			—			—			—			—			Real estate construction and land	—			—			—			—			—
Commercial	Commercial	(11,439)			(19,232)			(16,927)			(30,671)			(19,930)			Commercial	(35,666)			(11,439)			(6,021)			(66,337)			(25,951)
Consumer	Consumer	(165)			(473)			(176)			(638)			(442)			Consumer	(67)			(165)			(360)			(705)			(802)
Total loans and leases charged off	Total loans and leases charged off	(15,786)			(20,205)			(17,637)			(35,991)			(21,102)			Total loans and leases charged off	(37,284)			(15,786)			(6,501)			(73,275)			(27,603)
Recoveries on loans charged off:	Recoveries on loans charged off:																Recoveries on loans charged off:
Real estate mortgage	Real estate mortgage	127			124			240			251			383			Real estate mortgage	109			127			95			360			478
Real estate construction and land	Real estate construction and land	—			—			—			—			—			Real estate construction and land	21			—			—			21			—
Commercial	Commercial	2,392			955			6,080			3,347			9,186			Commercial	1,063			2,392			1,898			4,410			11,084
Consumer	Consumer	25			16			73			41			98			Consumer	7			25			23			48			121
Total recoveries on loans charged off	Total recoveries on loans charged off	2,544			1,095			6,393			3,639			9,667			Total recoveries on loans charged off	1,200			2,544			2,016			4,839			11,683
Net charge-offs	Net charge-offs	(13,242)			(19,110)			(11,244)			(32,352)			(11,435)			Net charge-offs	(36,084)			(13,242)			(4,485)			(68,436)			(15,920)
Cumulative effect of change in accounting
principle - CECL:
Allowance for loan and lease losses		—			3,617			—			3,617			—
Reserve for unfunded loan commitments		—			3,710			—			3,710			—
Total cumulative effect		—			7,327			—			7,327			—
Balance, end of period	Balance, end of period	$	381,621		$	274,863		$	169,898		$	381,621		$	169,898		Balance, end of period	$	442,537		$	381,621		$	172,413		$	442,537		$	172,413

Annualized net charge-offs to average loans and leases	Annualized net charge-offs to average loans and leases	0.27		%	0.40		%	0.25		%	0.33		%	0.13		%	Annualized net charge-offs to average loans and leases	0.75		%	0.27		%	0.10		%	0.47		%	0.12		%

7775

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


		Three Months Ended												Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,		March 31,		June 30,		June 30,							September 30,		June 30,		September 30,		September 30,
Allowance for Credit Losses Charge-offs	Allowance for Credit Losses Charge-offs	2020		2020		2019		2020		2019		Allowance for Credit Losses Charge-offs	2020		2020		2019		2020		2019
		(In thousands)																			(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Healthcare real estate	Healthcare real estate	$	—	$	—	$	—	$	—	$	—	Healthcare real estate	$	—	$	—	$	—	$	—	$	—
Hotel	Hotel	—		—		—		—		—		Hotel	—		—		—		—		—
SBA program	SBA program	76		198		534		274		630		SBA program	6		76		120		280		750
Other commercial real estate	Other commercial real estate	4,106		127		—		4,233		9		Other commercial real estate	1,494		4,106		—		5,727		9
Total commercial real estate mortgage	Total commercial real estate mortgage	4,182		325		534		4,507		639		Total commercial real estate mortgage	1,500		4,182		120		6,007		759
Income producing and other residential	Income producing and other residential	—		—		—		—		—		Income producing and other residential	—		—		—		—		—
Other residential real estate	Other residential real estate	—		175		—		175		91		Other residential real estate	51		—		—		226		91
Total income producing and other residential	Total income producing and other residential											Total income producing and other residential
real estate mortgage	real estate mortgage	—		175		—		175		91		real estate mortgage	51		—		—		226		91
Total real estate mortgage	Total real estate mortgage	4,182		500		534		4,682		730		Total real estate mortgage	1,551		4,182		120		6,233		850
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	—		—		—		—		—		Commercial	—		—		—		—		—
Residential	Residential	—		—		—		—		—		Residential	—		—		—		—		—
Total real estate construction and land	Total real estate construction and land	—		—		—		—		—		Total real estate construction and land	—		—		—		—		—
Commercial:	Commercial:											Commercial:
Lender finance & timeshare		—		—		—		—		—
Lender finance												Lender finance	—		—		—		—		—
Equipment finance	Equipment finance	—		11,550		—		11,550		—		Equipment finance	267		—		—		11,817		—
Premium finance	Premium finance	—		—		—		—		—		Premium finance	—		—		—		—		—
Other asset-based	Other asset-based	—		—		11,800		—		11,800		Other asset-based	—		—		—		—		11,800
Total asset-based	Total asset-based	—		11,550		11,800		11,550		11,800		Total asset-based	267		—		—		11,817		11,800
Expansion stage		21		270		1,463		291		1,667
Early stage		6,449		73		—		6,522		96
Equity fund loans	Equity fund loans	—		—		—		—		—		Equity fund loans	—		—		—		—		—
Late stage		—		—		—		—		—
Venture lending												Venture lending	5		6,470		4,367		6,818		6,130
Total venture capital	Total venture capital	6,470		343		1,463		6,813		1,763		Total venture capital	5		6,470		4,367		6,818		6,130
Paycheck Protection Program	Paycheck Protection Program	—		—		—		—		—		Paycheck Protection Program	—		—		—		—		—
Security monitoring	Security monitoring	4,180		6,056		—		10,236		1,707		Security monitoring	33,796		4,180		—		44,032		1,707
Secured business loans	Secured business loans	—		—		100		—		109		Secured business loans	—		—		1,111		—		1,220
Other lending	Other lending	789		1,283		1,182		2,072		1,696		Other lending	1,353		789		437		3,425		2,133
Cash flow	Cash flow	—		—		2,382		—		2,855		Cash flow	245		—		106		245		2,961
Total other commercial	Total other commercial	4,969		7,339		3,664		12,308		6,367		Total other commercial	35,394		4,969		1,654		47,702		8,021
Total commercial	Total commercial	11,439		19,232		16,927		30,671		19,930		Total commercial	35,666		11,439		6,021		66,337		25,951
Consumer	Consumer	165		473		176		638		442		Consumer	67		165		360		705		802
Total charge-offs	Total charge-offs	$	15,786	$	20,205	$	17,637	$	35,991	$	21,102	Total charge-offs	$	37,284	$	15,786	$	6,501	$	73,275	$	27,603

7876

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


		Three Months Ended												Six Months Ended					Three Months Ended				Nine Months Ended
		June 30,		March 31,		June 30,		June 30,							September 30,		June 30,		September 30,		September 30,
Allowance for Credit Losses Recoveries	Allowance for Credit Losses Recoveries	2020		2020		2019		2020		2019		Allowance for Credit Losses Recoveries	2020		2020		2019		2020		2019
		(In thousands)																			(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Healthcare real estate	Healthcare real estate	$	—	$	—	$	—	$	—	$	—	Healthcare real estate	$	—	$	—	$	—	$	—	$	—
Hotel	Hotel	—		—		—		—		—		Hotel	—		—		—		—		—
SBA program	SBA program	15		107		88		122		121		SBA program	31		15		77		153		198
Other commercial real estate	Other commercial real estate	103		12		59		115		131		Other commercial real estate	3		103		12		118		143
Total commercial real estate mortgage	Total commercial real estate mortgage	118		119		147		237		252		Total commercial real estate mortgage	34		118		89		271		341
Income producing and other residential	Income producing and other residential	—		—		—		—		—		Income producing and other residential	—		—		—		—		—
Other residential real estate	Other residential real estate	9		5		93		14		131		Other residential real estate	75		9		6		89		137
Total income producing and other	Total income producing and other											Total income producing and other
residential real estate mortgage	residential real estate mortgage	9		5		93		14		131		residential real estate mortgage	75		9		6		89		137
Total real estate mortgage	Total real estate mortgage	127		124		240		251		383		Total real estate mortgage	109		127		95		360		478
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	—		—		—		—		—		Commercial	—		—		—		—		—
Residential	Residential	—		—		—		—		—		Residential	21		—		—		21		—
Total real estate construction and land	Total real estate construction and land	—		—		—		—		—		Total real estate construction and land	21		—		—		21		—
Commercial:	Commercial:											Commercial:
Lender finance & timeshare		—		—		1		—		2
Lender finance												Lender finance	—		—		3		—		5
Equipment finance	Equipment finance	8		230		—		238		11		Equipment finance	31		8		—		269		11
Premium finance	Premium finance	—		—		—		—		—		Premium finance	—		—		—		—		—
Other asset-based	Other asset-based	14		135		239		149		318		Other asset-based	175		14		227		324		545
Total asset-based	Total asset-based	22		365		240		387		331		Total asset-based	206		22		230		593		561
Expansion stage		52		46		1,961		98		2,058
Early stage		62		139		2,862		201		5,017
Equity fund loans	Equity fund loans	—		—		—		—		—		Equity fund loans	—		—		—		—		—
Late stage		—		—		—		—		—
Venture lending												Venture lending	604		114		428		903		7,503
Total venture capital	Total venture capital	114		185		4,823		299		7,075		Total venture capital	604		114		428		903		7,503
Paycheck Protection Program	Paycheck Protection Program	—		—		—		—		—		Paycheck Protection Program	—		—		—		—		—
Security monitoring	Security monitoring	—		—		—		—		—		Security monitoring	—		—		181		—		181
Secured business loans	Secured business loans	139		78		818		217		1,445		Secured business loans	56		139		731		273		2,176
Other lending	Other lending	117		265		190		382		315		Other lending	115		117		297		497		612
Cash flow	Cash flow	2,000		62		9		2,062		20		Cash flow	82		2,000		31		2,144		51
Total other commercial	Total other commercial	2,256		405		1,017		2,661		1,780		Total other commercial	253		2,256		1,240		2,914		3,020
Total commercial	Total commercial	2,392		955		6,080		3,347		9,186		Total commercial	1,063		2,392		1,898		4,410		11,084
Consumer	Consumer	25		16		73		41		98		Consumer	7		25		23		48		121
Total recoveries	Total recoveries	$	2,544	$	1,095	$	6,393	$	3,639	$	9,667	Total recoveries	$	1,200	$	2,544	$	2,016	$	4,839	$	11,683

7977

Deposits

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


		June 30, 2020						March 31, 2020								December 31, 2019					September 30, 2020				June 30, 2020		December 31, 2019
				% of				% of				% of					% of				% of				% of
Deposit Composition	Deposit Composition	Balance		Total		Balance		Total		Balance		Total		Deposit Composition	Balance		Total		Balance		Total		Balance		Total
		(Dollars in thousands)																							(Dollars in thousands)
Noninterest-bearing demand	Noninterest-bearing demand	$	8,629,543	38	%	$	7,510,218	38	%	$	7,243,298	38	%	Noninterest-bearing demand	$	9,346,744	39	%	$	8,629,543	38	%	$	7,243,298	38	%
Interest checking	Interest checking	4,858,168		21	%	3,333,147		17	%	3,753,978		19	%	Interest checking	4,657,511		20	%	4,858,168		21	%	3,753,978		19	%
Money market	Money market	5,498,150		24	%	4,712,118		24	%	4,690,420		24	%	Money market	6,539,313		27	%	5,498,150		24	%	4,690,420		24	%
Savings	Savings	549,953		2	%	495,039		3	%	499,591		3	%	Savings	574,061		2	%	549,953		2	%	499,591		3	%
Total core deposits	Total core deposits	19,535,814		85	%	16,050,522		82	%	16,187,287		84	%	Total core deposits	21,117,629		88	%	19,535,814		85	%	16,187,287		84	%
Non-core non-maturity deposits	Non-core non-maturity deposits	1,217,266		5	%	836,157		4	%	496,407		3	%	Non-core non-maturity deposits	1,123,909		5	%	1,217,266		5	%	496,407		3	%
Total non-maturity deposits	Total non-maturity deposits	20,753,080		90	%	16,886,679		86	%	16,683,694		87	%	Total non-maturity deposits	22,241,538		93	%	20,753,080		90	%	16,683,694		87	%
Time deposits $250,000 and under	Time deposits $250,000 and under	1,522,928		7	%	2,086,188		11	%	2,065,733		11	%	Time deposits $250,000 and under	1,047,621		4	%	1,522,928		7	%	2,065,733		11	%
Time deposits over $250,000	Time deposits over $250,000	652,571		3	%	602,970		3	%	483,609		2	%	Time deposits over $250,000	676,536		3	%	652,571		3	%	483,609		2	%
Total time deposits	Total time deposits	2,175,499		10	%	2,689,158		14	%	2,549,342		13	%	Total time deposits	1,724,157		7	%	2,175,499		10	%	2,549,342		13	%
Total deposits	Total deposits	$	22,928,579	100	%	$	19,575,837	100	%	$	19,233,036	100	%	Total deposits	$	23,965,695	100	%	$	22,928,579	100	%	$	19,233,036	100	%

During the ~~second~~third quarter of 2020, total deposits increased by $~~3.4~~1.0 billion to $~~22.9~~24.0 billion, due mainly to increases of ~~$3.5 billion in core deposits and~~ $~~381.1 million~~1.6 billion in ~~non-core non-maturity~~core deposits, offset partially by a decrease of $451.3 million in time deposits and a decrease of $~~513.7~~93.4 million in ~~time~~non-core non-maturity deposits. The ~~$3.5 billion~~ increase in core deposits in the ~~second~~third quarter was driven by ~~PPP loan proceeds being deposited into customers' accounts and~~continued strong deposit growth from our venture banking ~~which saw deposits increase by $2.0 billion to a record $8.7 billion at June 30, 2020.~~clients. At ~~June~~September 30, 2020, core deposits totaled $~~19.5~~21.1 billion, or ~~85%~~88% of total deposits, including $~~8.6~~9.3 billion of noninterest-bearing demand deposits, or ~~38%~~39% of total deposits.

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


		Time Deposits											Time Deposits
		$250,000		Over					$250,000		Over
June 30, 2020		and Under		$250,000		Total
September 30, 2020								September 30, 2020	and Under		$250,000		Total
		(In thousands)											(In thousands)
Maturities:	Maturities:							Maturities:
Due in three months or less	Due in three months or less	$	809,617	$	258,067	$	1,067,684	Due in three months or less	$	303,866	$	261,245	$	565,111
Due in over three months through six months	Due in over three months through six months	248,787		108,896		357,683		Due in over three months through six months	203,783		187,586		391,369
Due in over six months through twelve months	Due in over six months through twelve months	281,924		273,111		555,035		Due in over six months through twelve months	276,297		174,570		450,867
Total due within twelve months	Total due within twelve months	1,340,328		640,074		1,980,402		Total due within twelve months	783,946		623,401		1,407,347
Due in over 12 months through 24 months	Due in over 12 months through 24 months	75,883		10,080		85,963		Due in over 12 months through 24 months	90,807		51,311		142,118
Due in over 24 months	Due in over 24 months	106,717		2,417		109,134		Due in over 24 months	172,868		1,824		174,692
Total	Total	$	1,522,928	$	652,571	$	2,175,499	Total	$	1,047,621	$	676,536	$	1,724,157

Client Investment Funds

In addition to deposit products, we also offer select clients non-depository cash investment options through PWAM, our registered investment adviser subsidiary, and third-party money market sweep products. PWAM provides customized investment advisory and asset management solutions. At ~~June~~September 30, 2020, total off-balance sheet client investment funds were $~~1.4~~1.2 billion, of which $~~1.1~~1.0 billion was managed by PWAM. At December 31, 2019, total off-balance sheet client investment funds were $1.5 billion, of which $1.2 billion was managed by PWAM.

8078

Credit Quality

Nonperforming Assets, Performing TDRs, and Classified Loans and Leases

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


		June 30,			March 31,			December 31,			June 30,				September 30,			June 30,			December 31,			September 30,
		2020			2020			2019			2019				2020			2020			2019			2019
		(Dollars in thousands)																						(Dollars in thousands)
Nonaccrual loans and leases held for investment	Nonaccrual loans and leases held for investment	$	166,113		$	95,602		$	92,353		$	81,265		Nonaccrual loans and leases held for investment	$	85,615		$	166,113		$	92,353		$	99,113

Foreclosed assets, net	Foreclosed assets, net	1,449			1,701			440			1,472			Foreclosed assets, net	13,747			1,449			440			1,366
Total nonperforming assets	Total nonperforming assets	$	167,562		$	97,303		$	92,793		$	82,737		Total nonperforming assets	$	99,362		$	167,562		$	92,793		$	100,479

Performing TDRs held for investment	Performing TDRs held for investment	$	15,037		$	8,978		$	12,257		$	16,464		Performing TDRs held for investment	$	13,679		$	15,037		$	12,257		$	16,329
Classified loans and leases held for investment	Classified loans and leases held for investment	$	293,230		$	147,705		$	175,912		$	190,979		Classified loans and leases held for investment	$	274,572		$	293,230		$	175,912		$	188,607
Nonaccrual loans and leases held for investment to	Nonaccrual loans and leases held for investment to													Nonaccrual loans and leases held for investment to
loans and leases held for investment	loans and leases held for investment	0.84		%	0.48		%	0.49		%	0.44		%	loans and leases held for investment	0.45		%	0.84		%	0.49		%	0.53		%
Nonperforming assets to loans and leases held for investment	Nonperforming assets to loans and leases held for investment													Nonperforming assets to loans and leases held for investment
and foreclosed assets, net	and foreclosed assets, net	0.85		%	0.49		%	0.49		%	0.45		%	and foreclosed assets, net	0.52		%	0.85		%	0.49		%	0.54		%
Classified loans and leases held for investment	Classified loans and leases held for investment													Classified loans and leases held for investment
to loans and leases held for investment	to loans and leases held for investment	1.49		%	0.75		%	0.93		%	1.03		%	to loans and leases held for investment	1.44		%	1.49		%	0.93		%	1.01		%

Nonaccrual Loans and Leases Held for Investment

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


		June 30, 2020						March 31, 2020								Increase (Decrease)					September 30, 2020				June 30, 2020		Increase (Decrease)
				Accruing				Accruing				Accruing					Accruing				Accruing				Accruing
				and 30-89				and 30-89				and 30-89					and 30-89				and 30-89				and 30-89
				Days Past				Days Past				Days Past					Days Past				Days Past				Days Past
		Nonaccrual		Due		Nonaccrual		Due		Nonaccrual		Due			Nonaccrual		Due		Nonaccrual		Due		Nonaccrual		Due
		(Dollars in thousands)																							(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	61,771	$	—	$	19,088	$	1,807	$	42,683	$	(1,807)	Commercial	$	45,120	$	—	$	61,771	$	—	$	(16,651)	$	—
Income producing and other residential	Income producing and other residential	2,207		—		2,308		1,064		(101)		(1,064)		Income producing and other residential	2,008		1,761		2,207		—		(199)		1,761
Total real estate mortgage	Total real estate mortgage	63,978		—		21,396		2,871		42,582		(2,871)		Total real estate mortgage	47,128		1,761		63,978		—		(16,850)		1,761
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	337		—		351		—		(14)		—		Commercial	324		—		337		—		(13)		—
Residential	Residential	—		1,021		—		241		—		780		Residential	—		3,108		—		1,021		—		2,087
Total real estate construction and land	Total real estate construction and land	337		1,021		351		241		(14)		780		Total real estate construction and land	324		3,108		337		1,021		(13)		2,087
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	19,013		3,697		17,104		—		1,909		3,697		Asset-based	2,817		—		19,013		3,697		(16,196)		(3,697)
Venture capital	Venture capital	8,270		1,924		18,612		183		(10,342)		1,741		Venture capital	2,001		2,319		8,270		1,924		(6,269)		395
Other commercial	Other commercial	73,995		191		37,726		4,393		36,269		(4,202)		Other commercial	32,941		185		73,995		191		(41,054)		(6)
Total commercial	Total commercial	101,278		5,812		73,442		4,576		27,836		1,236		Total commercial	37,759		2,504		101,278		5,812		(63,519)		(3,308)
Consumer	Consumer	520		1,067		413		518		107		549		Consumer	404		791		520		1,067		(116)		(276)
Total held for investment	Total held for investment	$	166,113	$	7,900	$	95,602	$	8,206	$	70,511	$	(306)	Total held for investment	$	85,615	$	8,164	$	166,113	$	7,900	$	(80,498)	$	264

8179

During the ~~second~~third quarter of 2020, nonaccrual loan and leases held for investment ~~increased~~decreased by ~~$70.5~~$80.5 million to ~~$166.1~~$85.6 million at ~~June~~September 30, 2020 due mainly to ~~the addition~~charge-offs of ~~two retail real estate loans~~$36.3 million, transfers to foreclosed assets of $12.6 million, and ~~one security monitoring loan.~~principal payments and other reductions of $37.0 million, offset partially by additions of $5.4 million. As of ~~June~~September 30, 2020, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of ~~$86.5~~$49.3 million and represented ~~52%~~58% of total nonaccrual loans and leases.

Foreclosed Assets

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


		June 30,		March 31,		December 31,		June 30,			September 30,		June 30,		December 31,		September 30,
Property Type	Property Type	2020		2019		2019		2019		Property Type	2020		2019		2019		2019
		(In thousands)															(In thousands)
Commercial real estate	Commercial real estate	$	28	$	33	$	221	$	253	Commercial real estate	$	12,594	$	28	$	221	$	199
Single-family residence	Single-family residence	—		—		—		953		Single-family residence	—		—		—		948
Construction and land development	Construction and land development	219		219		219		219		Construction and land development	219		219		219		219

Total OREO, net	Total OREO, net	247		252		440		1,425		Total OREO, net	12,813		247		440		1,366
Other foreclosed assets	Other foreclosed assets	1,202		1,449		—		47		Other foreclosed assets	934		1,202		—		—
Total foreclosed assets		$	1,449	$	1,701	$	440	$	1,472
Total foreclosed assets, net										Total foreclosed assets, net	$	13,747	$	1,449	$	440	$	1,366

During the ~~second~~third quarter of 2020, foreclosed assets ~~decreased~~increased by $~~0.3~~12.3 million to $~~1.4~~13.7 million at ~~June~~September 30, 2020, due mainly to additions of $12.6 million related to a retail lifestyle center, offset partially by impairment losses of $0.2 million and sales of ~~$0.2 million~~.$0.1 million.

Performing TDRs Held for Investment

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


		June 30, 2020					March 31, 2020						December 31, 2019				September 30, 2020			June 30, 2020	December 31, 2019
				Number			Number			Number				Number			Number			Number
				of			of			of				of			of			of
Performing TDRs	Performing TDRs	Balance		Loans	Balance		Loans	Balance		Loans	Performing TDRs	Balance		Loans	Balance		Loans	Balance		Loans
		(Dollars in thousands)																		(Dollars in thousands)
Real estate mortgage	Real estate mortgage	$	6,900	21	$	7,095	21	$	10,165	22	Real estate mortgage	$	6,678	20	$	6,900	21	$	10,165	22
Real estate construction and land	Real estate construction and land	1,462		1	1,466		1	1,470		1	Real estate construction and land	1,458		1	1,462		1	1,470		1
Commercial	Commercial	6,612		12	350		10	550		12	Commercial	5,487		16	6,612		12	550		12
Consumer	Consumer	63		2	67		2	72		2	Consumer	56		2	63		2	72		2
Total performing TDRs held for investment	Total performing TDRs held for investment	$	15,037	36	$	8,978	34	$	12,257	37	Total performing TDRs held for investment	$	13,679	39	$	15,037	36	$	12,257	37

During the ~~second~~third quarter of 2020, performing TDRs held for investment ~~increased~~decreased by $~~6.1~~1.4 million to $~~15.0~~13.7 million at ~~June~~September 30, 2020 attributable primarily to ~~$6.1 million~~principal payments and other reductions of TDRs transferred from nonaccrual status. 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.$1.6 million.

8280

Classified and Special Mention Loans and Leases Held for Investment

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


		June 30,		March 31,		December 31,		June 30,			September 30,		June 30,		December 31,		September 30,
Loan and Lease Credit Risk Ratings	Loan and Lease Credit Risk Ratings	2020		2020		2019		2019		Loan and Lease Credit Risk Ratings	2020		2020		2019		2019
		(Dollars in thousands)															(Dollars in thousands)
Pass	Pass	$	18,635,004	$	18,698,942	$	18,348,004	$	18,042,569	Pass	$	17,967,872	$	18,635,004	$	18,348,004	$	18,279,011
Special mention	Special mention	766,397		898,658		322,956		239,304		Special mention	783,756		766,397		322,956		267,925
Classified	Classified	293,230		147,705		175,912		190,979		Classified	274,572		293,230		175,912		188,607
Total loans and leases held for investment, net of deferred fees	Total loans and leases held for investment, net of deferred fees	$	19,694,631	$	19,745,305	$	18,846,872	$	18,472,852	Total loans and leases held for investment, net of deferred fees	$	19,026,200	$	19,694,631	$	18,846,872	$	18,735,543

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

During the ~~second~~third quarter of 2020, classified loans and leases ~~increased~~decreased by ~~$145.5~~$18.7 million to ~~$293.2~~$274.6 million at ~~June~~September 30, ~~2020. This increase was~~2020 due mostly to ~~three security monitoring loans totaling $119.2~~charge-offs of $35.7 million, transfers to foreclosed assets of $12.6 million, and ~~two retail real estate~~principal payments and other reductions of $55.0 million, offset partially by the migration of $66.0 million in loans ~~totaling $42.0 million migrating out of~~and leases from special mention and ~~into the classified category.~~downgrades from pass of $19.4 million.

During the ~~second~~third quarter of 2020, special mention loans and leases ~~decreased~~increased by ~~$132.3~~$17.4 million to ~~$766.4~~$783.8 million at ~~June~~September 30, ~~2020. This decrease was~~2020 due ~~primarily~~mainly to ~~loan~~ downgrades ~~into~~from pass of $167.3 million, offset partially by the migration of $66.0 million in loans and leases to classified, ~~category discussed above.~~upgrades to pass of $39.4 million, and principal payments and other reductions of $44.5 million.

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


		June 30, 2020								March 31, 2020								Increase (Decrease)							September 30, 2020					June 30, 2020	Increase (Decrease)
				Special				Special					Special						Special				Special					Special
		Classified		Mention		Classified		Mention			Classified		Mention			Classified			Mention		Classified		Mention			Classified		Mention
		(In thousands)																										(In thousands)
Real estate mortgage:	Real estate mortgage:														Real estate mortgage:
Commercial	Commercial	$	71,446	$	322,312	$	33,908	$	371,668		$	37,538	$	(49,356)	Commercial	$	109,651		$	330,367	$	71,446	$	322,312		$	38,205	$	8,055
Income producing and other residential	Income producing and other residential	6,941		6,150		7,083		2,491			(142)		3,659		Income producing and other residential	9,558			63,378		6,941		6,150			2,617		57,228
Total real estate mortgage	Total real estate mortgage	78,387		328,462		40,991		374,159			37,396		(45,697)		Total real estate mortgage	119,209			393,745		78,387		328,462			40,822		65,283
Real estate construction and land:	Real estate construction and land:														Real estate construction and land:
Commercial	Commercial	337		12,354		351		10,577			(14)		1,777		Commercial	324			13,838		337		12,354			(13)		1,484
Residential	Residential	—		—		—		—			—		—		Residential	—			—		—		—			—		—
Total real estate construction and land	Total real estate construction and land	337		12,354		351		10,577			(14)		1,777		Total real estate construction and land	324			13,838		337		12,354			(13)		1,484
Commercial:	Commercial:														Commercial:
Asset-based	Asset-based	25,008		186,813		23,218		152,136			1,790		34,677		Asset-based	27,900			190,193		25,008		186,813			2,892		3,380
Venture capital	Venture capital	29,054		138,403		31,110		173,947			(2,056)		(35,544)		Venture capital	15,078			123,675		29,054		138,403			(13,976)		(14,728)
Other commercial	Other commercial	159,814		82,313		51,498		186,368			108,316		(104,055)		Other commercial	111,553			57,787		159,814		82,313			(48,261)		(24,526)
Total commercial	Total commercial	213,876		407,529		105,826		512,451			108,050		(104,922)		Total commercial	154,531			371,655		213,876		407,529			(59,345)		(35,874)
Consumer	Consumer	630		18,052		537		1,471			93		16,581		Consumer	508			4,518		630		18,052			(122)		(13,534)
Total	Total	$	293,230	$	766,397	$	147,705	$	898,658		$	145,525	$	(132,261)	Total	$	274,572		$	783,756	$	293,230	$	766,397		$	(18,658)	$	17,359

8381

Regulatory Matters

Capital

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

Basel III currently requires all banking organizations to maintain a 2.50% capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the common equity tier 1, tier 1, and total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At ~~June~~September 30, 2020, the Company and Bank were in compliance with the capital conservation buffer requirement. The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the ~~June~~September 30, 2020 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.~~years from 2023 to 2025. The add-back as of ~~June~~September 30, 2020 added approximately 2024 basis points to the capital ratios below.

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


			Minimum Required							Minimum Required
			For Capital	For Capital	For Well			For Capital	For Capital	For Well
			Adequacy	Conservation	Capitalized			Adequacy	Conservation	Capitalized
		Actual	Purposes	Buffer	Classification		Actual	Purposes	Buffer	Classification
June 30, 2020
September 30, 2020						September 30, 2020
PacWest Bancorp Consolidated	PacWest Bancorp Consolidated					PacWest Bancorp Consolidated
Tier 1 capital (to average assets)	Tier 1 capital (to average assets)	8.93%	4.00%	4.00%	N/A	Tier 1 capital (to average assets)	8.66%	4.00%	4.00%	N/A
CET1 capital (to risk weighted assets)	CET1 capital (to risk weighted assets)	9.97%	4.50%	7.00%	N/A	CET1 capital (to risk weighted assets)	10.45%	4.50%	7.00%	N/A
Tier 1 capital (to risk weighted assets)	Tier 1 capital (to risk weighted assets)	9.97%	6.00%	8.50%	N/A	Tier 1 capital (to risk weighted assets)	10.45%	6.00%	8.50%	N/A
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)	13.18%	8.00%	10.50%	N/A	Total capital (to risk weighted assets)	13.74%	8.00%	10.50%	N/A

Pacific Western Bank	Pacific Western Bank					Pacific Western Bank
Tier 1 capital (to average assets)	Tier 1 capital (to average assets)	10.03%	4.00%	4.00%	5.00%	Tier 1 capital (to average assets)	9.70%	4.00%	4.00%	5.00%
CET1 capital (to risk weighted assets)	CET1 capital (to risk weighted assets)	11.18%	4.50%	7.00%	6.50%	CET1 capital (to risk weighted assets)	11.70%	4.50%	7.00%	6.50%
Tier 1 capital (to risk weighted assets)	Tier 1 capital (to risk weighted assets)	11.18%	6.00%	8.50%	8.00%	Tier 1 capital (to risk weighted assets)	11.70%	6.00%	8.50%	8.00%
Total capital (to risk weighted assets)	Total capital (to risk weighted assets)	12.44%	8.00%	10.50%	10.00%	Total capital (to risk weighted assets)	12.95%	8.00%	10.50%	10.00%

8482


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

Pacific Western Bank
Tier 1 capital (to average assets)	10.95%	4.00%	4.00%	5.00%
CET1 capital (to risk weighted assets)	11.00%	4.50%	7.00%	6.50%
Tier 1 capital (to risk weighted assets)	11.00%	6.00%	8.50%	8.00%
Total capital (to risk weighted assets)	11.74%	8.00%	10.50%	10.00%

Subordinated Debentures

We issued or assumed through mergers subordinated debentures to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. The carrying value of subordinated debentures totaled ~~$460.8~~$463.3 million at ~~June~~September 30, 2020. At ~~June~~September 30, 2020, none of the trust preferred securities were included in the Company's Tier I capital under the phase-out limitations of Basel III, and ~~$446.9~~$449.4 million were included in Tier II capital.

Dividends on Common Stock and Interest on Subordinated Debentures

As a bank holding company, PacWest is required to notify and receive approval from the FRB prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. Interest payments made on subordinated debentures are considered dividend payments under FRB regulations. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. Due to the impact of the goodwill impairment charge on net earnings in the first quarter of 2020, we are ~~now~~ required to receive such approval from the FRB prior to declaring a dividend. ~~We received the~~The FRB ~~approval for~~approved our ~~second~~third quarter dividend, which was paid on September 10, 2020, and we are currently awaiting their approval for our ~~third~~fourth quarter dividend. ~~We expect to make an announcement on our dividends in August and anticipate similar timing, such as the second month following quarter-end, in future periods as long as this approval is required.~~

Liquidity

Liquidity Management

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

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

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As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of ~~$4.20~~$3.62 billion at ~~June~~September 30, 2020, of which ~~$4.19~~$3.61 billion was available on that date. The FHLB secured credit line was collateralized by a blanket lien on ~~$6.4~~$5.6 billion of certain qualifying loans. The Bank also had secured borrowing capacity with the FRBSF of $1.6 billion at ~~June~~September 30, 2020, all of which was available on that date. The FRBSF secured credit line was collateralized by liens on ~~$2.2~~$2.1 billion of qualifying loans.

In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the purpose of borrowing overnight funds, subject to availability, of $112.0 million with the FHLB and $180.0 million in the aggregate with several correspondent banks. As of ~~June~~September 30, 2020, there was no balance outstanding related to the FHLB unsecured line of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of ~~June~~September 30, 2020, the Bank had $50.0 million of borrowings outstanding through the AFX.

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


		June 30,			March 31,			December 31,				September 30,			June 30,			December 31,
Primary Liquidity - On-Balance Sheet	Primary Liquidity - On-Balance Sheet	2020			2020			2019			Primary Liquidity - On-Balance Sheet	2020			2020			2019
		(Dollars in thousands)																(Dollars in thousands)
Cash and due from banks	Cash and due from banks	$	174,059		$	172,570		$	172,585		Cash and due from banks	$	187,176		$	174,059		$	172,585
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	1,747,077			439,690			465,039			Interest-earning deposits in financial institutions	2,766,020			1,747,077			465,039
Securities available-for-sale	Securities available-for-sale	3,851,141			3,757,663			3,797,187			Securities available-for-sale	4,532,614			3,851,141			3,797,187
Less: pledged securities	Less: pledged securities	(642,029)			(2,522,520)			(486,200)			Less: pledged securities	(605,258)			(642,029)			(486,200)
Total primary liquidity	Total primary liquidity	$	5,130,248		$	1,847,403		$	3,948,611		Total primary liquidity	$	6,880,552		$	5,130,248		$	3,948,611

Ratio of primary liquidity to total deposits	Ratio of primary liquidity to total deposits	22.4		%	9.4		%	20.5		%	Ratio of primary liquidity to total deposits	28.7		%	22.4		%	20.5		%


Secondary Liquidity - Off-Balance Sheet	Secondary Liquidity - Off-Balance Sheet	June 30,		March 31,		December 31,		Secondary Liquidity - Off-Balance Sheet	September 30,		June 30,		December 31,
Available Secured Borrowing Capacity	Available Secured Borrowing Capacity	2020		2020		2019		Available Secured Borrowing Capacity	2020		2020		2019
		(In thousands)											(In thousands)
Secured borrowing capacity with the FHLB	Secured borrowing capacity with the FHLB	$	4,201,095	$	5,975,220	$	4,229,788	Secured borrowing capacity with the FHLB	$	3,623,177	$	4,201,095	$	4,229,788
Less: secured advances outstanding	Less: secured advances outstanding	(10,000)		(1,904,000)		(1,318,000)		Less: secured advances outstanding	(10,000)		(10,000)		(1,318,000)
Available secured borrowing capacity with the FHLB	Available secured borrowing capacity with the FHLB	4,191,095		4,071,220		2,911,788		Available secured borrowing capacity with the FHLB	3,613,177		4,191,095		2,911,788
Available secured borrowing capacity with the FRBSF	Available secured borrowing capacity with the FRBSF	1,552,204		1,898,666		1,988,028		Available secured borrowing capacity with the FRBSF	1,560,042		1,552,204		1,988,028
Total secondary liquidity	Total secondary liquidity	$	5,743,299	$	5,969,886	$	4,899,816	Total secondary liquidity	$	5,173,219	$	5,743,299	$	4,899,816

During the three months ended ~~June~~September 30, 2020, the Company's primary liquidity increased by ~~$3.3~~$1.8 billion to ~~$5.1~~$6.9 billion at ~~June~~September 30, 2020 due mainly to a ~~$1.9 billion decrease in pledged securities, a $1.3~~$1.0 billion increase in interest-earning deposits in financial institutions, ~~and~~ a ~~$93.5~~$681.5 million increase in securities ~~available-for-sale.~~available-for-sale, and a $36.8 million decrease in pledged securities. During the ~~second~~third quarter of 2020, the Company's secondary liquidity decreased by ~~$226.6~~$570.1 million to ~~$5.7~~$5.2 billion at ~~June~~September 30, 2020 due mostly to a ~~$346.5~~$577.9 million decrease in available borrowing capacity on the secured credit line with the FRBSF, offset partially by a $119.9 million increase in available secured borrowing capacity with the FHLB. The increase in the available secured borrowing capacity with the FHLB ~~resulted primarily from~~attributable to a ~~$1.9 billion decrease in the amount borrowed from the secured borrowing line with the FHLB, offset partially by a $1.8 billion decrease in the FHLB borrowing capacity due to the~~ decrease in pledged ~~securities.~~loans.

In addition to our primary liquidity, we generate liquidity from cash flows from our loan and securities portfolios and from our large base of core deposits, defined as noninterest-bearing demand, interest checking, savings, and non-brokered money market accounts. At ~~June~~September 30, 2020, core deposits totaled ~~$19.5~~$21.1 billion and represented ~~85%~~88% of the Company's total deposits. Core deposits are normally less volatile, often with customer relationships tied to other products offered by the Bank promoting long-standing relationships and stable funding sources. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our core deposits.

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

We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At ~~June~~September 30, 2020, brokered deposits totaled ~~$1.9~~$1.4 billion, consisting primarily of ~~$718.3~~$1.1 billion of non-maturity brokered accounts and $240.8 million of brokered time ~~deposits and $1.2 billion of non-maturity brokered accounts.~~deposits. At December 31, 2019, brokered deposits totaled $1.7 billion, consisting mainly of $1.2 billion of brokered time deposits and $496.4 million of non-maturity brokered accounts.

Our liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Liquidity Buffer Coverage Ratio (the ratio of cash and unpledged securities to the estimated 30 day cash outflow in a defined stress scenario), Liquidity Stress Test Survival Horizon (the number of days that the Bank’s liquidity buffer plus available secured borrowing capacity is sufficient to offset cumulative cash outflow in a defined stress scenario), Loan to Funding Ratio (measurement of gross loans net of fees divided by deposits plus borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. At ~~June~~September 30, 2020, 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. ~~Our~~PacWest's ability to obtain funds for the payment of dividends to our stockholders, the repurchase of shares of common stock, and other cash requirements is largely dependent upon the Bank’s earnings. The Bank is subject to restrictions under certain federal and state laws and regulations that limit its ability to transfer funds to the holding company through intercompany loans, advances, or cash dividends. Our ability to pay dividends is also subject to the restrictions set forth in Delaware law, by the FRB, and by certain covenants contained in our subordinated debentures. Approval by the FRB is also required prior to our declaring and paying a cash dividend during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. WePacWest 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.~~dividends. Due to the impact of the goodwill impairment charge on net ~~income~~earnings in the first quarter of 2020, we are now required to receive approval from the FRB, as described above, prior to declaring a dividend.

Dividends paid by California state-chartered banks are regulated by the FDIC for non-member banks and the ~~DBO~~DFPI 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 ~~DBO~~DFPI and FDIC as long as the total dividends declared in a calendar year do not exceed either the retained earnings or the total of net earnings for the three previous fiscal years less any dividends paid during such period. The Bank's net earnings during the three fiscal years of 2019, 2018, and 2017 exceeded dividends paid ~~by the Bank~~ during that same period by $34.8 million. During the three and ~~six~~nine months ended ~~June~~September 30, 2020, PacWest received ~~$35.0~~$33.0 million and ~~$192.0~~$225.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $2.1 billion at ~~June~~September 30, 2020, for the foreseeable future any dividends from the Bank to ~~the holding company~~PacWest will continue to require ~~DBO~~DFPI and FDIC approval consistent with what has been required since 2008 when Bank first had an accumulated deficit triggered by goodwill impairment write-downs during the ~~last financial crisis in 2008.~~Financial Crisis.

At ~~June~~September 30, 2020, PacWest had ~~$113.4~~$123.3 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.

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Stock Repurchase Programs

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

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

Contractual Obligations

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


				Due After		Due After									Due After		Due After
		Due		One Year		Three Years		Due					Due		One Year		Three Years		Due
		Within		Through		Through		After					Within		Through		Through		After
June 30, 2020		One Year		Three Years		Five Years		Five Years		Total
September 30, 2020												September 30, 2020	One Year		Three Years		Five Years		Five Years		Total
		(In thousands)																			(In thousands)
Time deposits	Time deposits	$	1,980,402	$	131,560	$	63,537	$	—	$	2,175,499	Time deposits	$	1,407,347	$	197,366	$	119,444	$	—	$	1,724,157
Short-term borrowings	Short-term borrowings	60,000		—		—		—		60,000		Short-term borrowings	60,000		—		—		—		60,000
Long-term debt obligations ⁽¹⁾	Long-term debt obligations ⁽¹⁾	—		—		—		540,744		540,744		Long-term debt obligations (1)	—		—		—		541,999		541,999
Contractual interest ⁽²⁾	Contractual interest ⁽²⁾	7,823		2,022		3,165		—		13,010		Contractual interest (2)	4,279		2,232		2,286		—		8,797
Operating lease obligations	Operating lease obligations	34,790		55,348		34,376		32,567		157,081		Operating lease obligations	34,675		55,113		33,168		30,091		153,047
Other contractual obligations	Other contractual obligations	80,249		82,045		9,059		25,861		197,214		Other contractual obligations	68,945		88,668		14,644		24,868		197,125
Total	Total	$	2,163,264	$	270,975	$	110,137	$	599,172	$	3,143,548	Total	$	1,575,246	$	343,379	$	169,542	$	596,958	$	2,685,125

_______________________________________

(1) Excludes purchase accounting fair value adjustments.

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

Long-term debt obligations include subordinated debentures. Debt obligations are also discussed in Note 9. Borrowings and Subordinated Debentures, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in “Item 1. Condensed Consolidated Financial Statements (Unaudited).” Operating lease obligations are discussed in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. The other contractual obligations relate to our minimum liability associated with our data and item processing contract with a third-party provider, commitments to contribute capital to investments in low income housing project partnerships and private equity funds, and commitments under deferred compensation arrangements.

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

Off-Balance Sheet Arrangements

Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At ~~June~~September 30, 2020, our loan commitments and standby letters of credit were ~~$7.7~~$7.2 billion and ~~$365.8~~$353.8 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity - Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 11. Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Market Risk - Foreign Currency Exchange

We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps and foreign exchange forward contracts to hedge exposures to loans and debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar, and the derivatives that hedge those exposures. As of ~~June~~September 30, 2020, the U.S. Dollar notional amounts of loans receivable and subordinated debentures payable denominated in foreign currencies were ~~$48.0~~$41.7 million and ~~$29.0~~$30.2 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures were ~~$51.8~~$43.8 million and $28.5 million. We recognized a foreign currency translation net loss of ~~$614,000~~$368,000 for the ~~six~~nine months ended ~~June~~September 30, 2020 and a foreign currency translation net gain of ~~$57,000~~$8,000 for the ~~six~~nine months ended ~~June~~September 30, 2019.

Asset/Liability Management and Interest Rate Sensitivity

Interest Rate Risk

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

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

Net Interest Income Simulation

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

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

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The NII simulation model is dependent upon numerous assumptions. For example, the majority of our loans are variable rate ~~which~~that are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (embedded options) and the simulation model uses prepayment assumptions to estimate these ~~prepayments~~accelerated cash flows and reinvest these proceeds at current simulated yields. Our interest-bearing deposits reprice at our discretion and are assumed to reprice at a rate less than the change in market rates. The 12-month NII simulation model as of ~~June~~September 30, 2020 assumes interest-bearing deposits reprice ~~at 32%~~at 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-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our NII simulation model. Additionally, we assume that all market interest rates have an interest rate floor of 0%. Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, loan and deposit pricing, changes in the mix of earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.

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


		Forecasted			Forecasted	Forecasted		Forecasted			Forecasted	Forecasted
		Net Interest		Percentage	Net Interest	Net Interest		Net Interest		Percentage	Net Interest	Net Interest
		Income		Change	Margin	Margin Change		Income		Change	Margin	Margin Change
June 30, 2020		(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
September 30, 2020							September 30, 2020	(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
		(Dollars in millions)						(Dollars in millions)
Interest Rate Scenario:	Interest Rate Scenario:						Interest Rate Scenario:
Up 300 basis points	Up 300 basis points	$	1,168.5	16.3%	4.74%	0.66%	Up 300 basis points	$	1,163.3	20.2%	4.54%	0.76%
Up 200 basis points	Up 200 basis points	$	1,092.7	8.7%	4.44%	0.36%	Up 200 basis points	$	1,078.0	11.4%	4.21%	0.43%
Up 100 basis points	Up 100 basis points	$	1,034.0	2.9%	4.20%	0.12%	Up 100 basis points	$	1,008.7	4.2%	3.94%	0.16%
BASE CASE	BASE CASE	$	1,005.1	—	4.08%	—	BASE CASE	$	967.8	—	3.78%	—
Down 25 basis points	Down 25 basis points	$	1,005.5	—%	4.08%	—%	Down 25 basis points	$	962.9	(0.5)%	3.76%	(0.02)%
Down 50 basis points	Down 50 basis points	$	1,003.0	(0.2)%	4.07%	(0.01)%	Down 50 basis points	$	959.1	(0.9)%	3.74%	(0.04)%
Down 100 basis points	Down 100 basis points	$	1,002.8	(0.2)%	4.07%	(0.01)%	Down 100 basis points	$	958.8	(0.9)%	3.74%	(0.04)%

During the ~~second~~third quarter of 2020, total base case year 1 tax equivalent NII decreased by ~~$3.6~~$37.3 million to ~~$1.0 billion~~$967.8 million at ~~June~~September 30, 2020, and the base case tax equivalent NIM decreased to ~~4.08%~~3.78% from ~~4.20%~~4.08%. The decrease in NII was attributable primarily to lower loan income due to unfavorable rate and volume changes, offset partially by lower cost of funds due to the shift in the funding mix from borrowings to core deposits. The decrease in NIM was due almost entirely to the quarter-over-quarter shift in the earning assets mix in the static balance sheet, as the balance of low yielding interest-earning deposits in financial institutions increased by ~~$1.3~~$1.0 billion from the large increase in core deposits during the ~~second~~third quarter. ~~A portion of the~~The core deposits increase ~~relates~~related primarily to ~~activity of a large Venture Banking customer and to deposits~~the strong deposit growth from ~~PPP loan originations which are not expected to remain over the long term.~~our venture banking clients.

In addition to parallel interest rate shock scenarios, we also model various alternative rate vectors. The most favorable alternate rate vector that we model is the “Bear Flattener” scenario, when short-term rates increase faster than long-term rates. In the “Bear Flattener” scenario, Year 1 tax equivalent NII increases by ~~6.6%~~1.9%. Because of the low level of market interest rates and the assumption that market rates contain a 0% floor, the ad hoc scenarios that assume decreasing interest rates do not differ materially from the base case scenario.

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At ~~June~~September 30, 2020, we had ~~$19.8~~$19.1 billion of total loans that included ~~$11.0~~$10.6 billion with variable interest rate terms (excluding hybrid loans discussed below). Of the variable interest rate loans, ~~$9.0~~$8.7 billion, or ~~81%~~83%, contained interest rate floor provisions, which included ~~$8.8~~$8.6 billion of loans with "in-the-money" floors, meaning the loan coupon will not adjust down if there are future decreases to the index interest rate. The following table summarizes the estimated balance of loans with "in-the-money" floors for the indicated increases in interest rates:

~~June~~September 30, 2020

Total Amount of

Loans With

Basis Points of

"In-the-Money"

Rate Increases

Loan Floors

(Dollars in millions)

50 bps

$~~6,715~~6,674

100 bps

$~~4,872~~4,823

150 bps

$~~2,912~~2,944

200 bps

$~~1,028~~1,108

250 bps

$~~154~~167

At ~~June~~September 30, 2020, we also had ~~$3.7~~$3.8 billion of variable-rate hybrid loans that do not immediately reprice because the loans contain an initial fixed-rate period before they become variable. The cumulative amounts of hybrid loans that would switch from being fixed-rate to variable-rate because the initial fixed-rate term would expire were approximately ~~$299~~$441 million, ~~$749 million,~~$2.1 billion, and ~~$1.3~~$2.8 billion in the next one, two, and three years.

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

Market Value of Equity

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

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

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


										Ratio of											Ratio of
		Projected		Dollar		Percentage		Percentage		Projected			Projected		Dollar		Percentage		Percentage		Projected
		Market Value		Change		Change		of Total		Market Value			Market Value		Change		Change		of Total		Market Value
June 30, 2020		of Equity		From Base		From Base		Assets		to Book Value
September 30, 2020												September 30, 2020	of Equity		From Base		From Base		Assets		to Book Value
		(Dollars in millions)													(Dollars in millions)
Interest Rate Scenario:	Interest Rate Scenario:											Interest Rate Scenario:
Up 300 basis points	Up 300 basis points	$	6,031.4	$	881.6	17.1	%	22.0	%	174.7	%	Up 300 basis points	$	5,692.9	$	889.7	18.5	%	20.0	%	163.3	%
Up 200 basis points	Up 200 basis points	$	5,760.9	$	611.1	11.9	%	21.1	%	166.8	%	Up 200 basis points	$	5,384.2	$	581.0	12.1	%	18.9	%	154.4	%
Up 100 basis points	Up 100 basis points	$	5,479.6	$	329.8	6.4	%	20.0	%	158.7	%	Up 100 basis points	$	5,066.7	$	263.5	5.5	%	17.8	%	145.3	%
BASE CASE	BASE CASE	$	5,149.8	$	—	—	%	18.8	%	149.1	%	BASE CASE	$	4,803.3	$	—	—	%	16.9	%	137.8	%
Down 50 basis points	Down 50 basis points	$	4,881.0	$	(268.8)	(5.2)	%	17.8	%	141.4	%	Down 50 basis points	$	4,642.8	$	(160.4)	(3.3)	%	16.3	%	133.2	%
Down 100 basis points	Down 100 basis points	$	4,567.2	$	(582.6)	(11.3)	%	16.7	%	132.3	%	Down 100 basis points	$	4,512.7	$	(290.5)	(6.0)	%	15.9	%	129.4	%

During the ~~second~~third quarter of 2020, total base case projected market value of equity ~~increased~~decreased by ~~$441~~$347 million to ~~$5.1~~$4.8 billion. This ~~increase~~decrease in base case projected MVE was due primarily to: (1) a ~~$662 million increase in the mark-to-market adjustment for loans and leases due~~ ~~to the impact of lower credit spreads used for calculating the valuation; and~~ (2) a $63 million increase in the book value of stockholders' equity due mainly to $33 million of net earnings and a $54 million increase in accumulated other comprehensive income, offset partially by $30 million of cash dividends paid; offset partially by (3) a $288$532 million increase in the mark-to-market adjustment for total deposits from the lower market interest rates used for the deposit ~~valuation.~~valuation, offset partially by (2) a $150 million increase in the mark-to-market adjustment for loans and leases due to the impact of lower credit spreads used for calculating the valuation; and (3) a $33 million increase in the book value of stockholders' equity due mainly to $46 million of net earnings and a $10 million increase in accumulated other comprehensive income, offset partially by $30 million of cash dividends paid.

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ITEM 4. CONTROLS AND PROCEDURES

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

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

ITEM 1A. RISK FACTORS

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

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

General Economic and Market Conditions Risk

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

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

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

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

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

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

Regulatory, Compliance and Legal Risk

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

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

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

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

Total Number of Maximum Dollar
Shares Purchased Value of Shares
Total as Part of That May Yet
Number of Average Publicly Be Purchased
Shares Price Paid Announced Under the
Purchase Dates
Purchased ⁽¹⁾
Per Share
Program ⁽²⁾
Program ⁽²⁾
(In thousands)
April 1 – April 30, 2020 — $ — — $ 200,000
May 1 – May 31, 2020 89,369 $ 17.12 — $ 200,000
June 1 – June 30, 2020 3,555 $ 19.71 — $ 200,000
Total 92,924 $ 17.22 —


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

__________________________

(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, and shares repurchased pursuant to the Company's publicly announced Stock Repurchase Program, described in (2) below.

(2) On February 12, 2020, PacWest's Board of Directors authorized a new Stock Repurchase Program to purchase shares of its common stock for an aggregate purchase price not to exceed $200 million until February 28, 2021. On April 21, 2020, stock repurchases under the current Stock Repurchase Program were suspended indefinitely. All shares repurchased under the various Stock Repurchase Programs were retired upon settlement.

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ITEM 6. INDEX TO EXHIBITS


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

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Exhibit Number			Description
101			Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Condensed Consolidated Balance Sheets as of ~~June~~September 30, 2020 and December 31, 2019, (ii) the Condensed Consolidated Statements of Earnings (Loss) for the three months ended September 30, 2020, June 30, 2020 ~~March 31, 2020~~ and ~~June~~September 30, 2019 and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, (iii) ~~the~~ the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended September 30, 2020, June 30, 2020 ~~March 31, 2020~~ and ~~June~~September 30, 2019 and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, (iv) the Condensed Consolidated Statement of Changes in Stockholders’ Equity for the ~~three~~nine months ended ~~June 30, 2020, March 31, 2020, and June 30, 2019 and the six months ended June~~September 30, 2020 and 2019, (v) the Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, and (vi) the Notes to Condensed Consolidated Financial Statements. (Pursuant to Rule 406T of Regulation S -TS-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 Quarterly Report on Form 10-Q ~~for the quarterly period ended June 30, 2020,~~ formatted inas Inline XBRL ~~(contained~~and contained in Exhibit ~~101).~~101.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		PACWEST BANCORP

Date:	~~August 7,~~November 6, 2020	/s/ Bart R. Olson
		Bart R. Olson
		~~Executive Vice President~~Deputy Chief Financial Officer and ~~Chief~~Principal Accounting Officer

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		Three Months Ended																				Six Months Ended
Adjusted Net Earnings and				June 30,				March 31,				June 30,				June 30,
Adjusted Earnings Per Share				2020				2020				2019				2020				2019
		(Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss)				$	33,204			$	(1,433,111)			$	128,125			$	(1,399,907)			$	240,729
Add:	Goodwill impairment	—				1,470,000				—				1,470,000				—
	Adjusted net earnings	$	33,204			$	36,889			$	128,125			$	70,093			$	240,729

Adjusted Basic Earnings Per Share:
Adjusted net earnings						$	33,204			$	36,889			$	128,125			$	70,093			$	240,729
Less:	Earnings allocated to unvested restricted
	stock	(362)				(939)				(1,190)				(1,251)				(2,343)
Adjusted net earnings allocated to common shares						$	32,842			$	35,950			$	126,935			$	68,842			$	238,386

Weighted-average basic shares and unvested restricted
	stock outstanding	118,192				118,775				120,042				118,484				121,128
Less:	Weighted-average unvested restricted
	stock outstanding	(1,606)				(1,495)				(1,462)				(1,551)				(1,407)
Weighted-average basic shares outstanding						116,586				117,280				118,580				116,933				119,721

Adjusted basic earnings per share						$	0.28			$	0.31			$	1.07			$	0.59			$	1.99

Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares						$	32,842			$	35,950			$	126,935			$	68,842			$	238,386

Weighted-average diluted shares outstanding						116,586				117,280				118,580				116,933				119,721

Adjusted diluted earnings per share						$	0.28			$	0.31			$	1.07			$	0.59			$	1.99