~~0001102112us-gaap:~~0001102112pacw:TermLoansByOriginationDateMemberus-gaap:CommercialPortfolioSegmentMemberpacw:~~A68ClassifiedMemberpacw:OtherCommercialMember2021-09-30~~A12HighPassMemberpacw:OtherCommercialMemberpacw:PriorMember2022-06-300001102112us-gaap:CommercialPortfolioSegmentMemberpacw:FinanceReceivablePayrollProtectionProgramLoanMember2022-06-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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


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

For the quarterly period ended ~~September~~June 30, ~~2021~~2022

Commission File No. 001-36408

PACWEST BANCORP

(Exact name of registrant as specified in its charter)


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

9701 Wilshire Blvd., Suite 700

Beverly Hills, CA 90212

(Address of Principal Executive Offices, Including Zip Code)

(310) 887-8500

(Registrant's Telephone Number, Including Area Code)

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

Common Stock, par value $0.01 per share

PACW

The Nasdaq Stock Market LLC

Depositary Shares, each representing a 1/40th interest

in a share of 7.75% fixed rate reset non-cumulative

perpetual preferred stock, Series A

PACWP

The Nasdaq Stock Market LLC

(Title of Each Class)

(Trading Symbol)

(Name of Exchange on Which Registered)

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

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

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

☑

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of ~~October 29, 2021,~~July 28, 2022, there were ~~117,257,813~~117,771,762 shares of the registrant's common stock outstanding, excluding ~~2,298,882~~2,573,337 shares of unvested restricted stock.

PACWEST BANCORP

~~SEPTEMBER~~JUNE 30, ~~2021~~2022 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Earnings ~~(Loss)~~ (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	6
	Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows (Unaudited)	9
	Notes to Condensed Consolidated Financial Statements (Unaudited)	11
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	5458
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8791
Item 4.	Controls and Procedures	9195

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	9195
Item 1A.	Risk Factors	9195
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9195
Item 6.	Index to Exhibits	9296
Signatures		9497

PART I

Glossary of Acronyms, Abbreviations, and Terms

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

ACL

Allowance for Credit Losses

~~FRB~~FRBSF

~~Board of Governors of the~~ Federal Reserve ~~System~~Bank of San Francisco

AFS

Available-for-Sale

GDP

Gross Domestic Product

AFX

American Financial Exchange

~~FRBSF~~HOA Business

~~Federal Reserve~~Homeowners Association Services Division of MUFG Union Bank, ~~of San Francisco~~N.A. (a business acquired on October 8, 2021)

ALLL

Allowance for Loan and Lease Losses

~~GDP~~HTM

~~Gross Domestic Product~~Held-to-Maturity

ALM

Asset Liability Management

IPO

Initial Public Offering

ASC

Accounting Standards Codification

IRR

Interest Rate Risk

ASU

Accounting Standards Update

LIBOR

London Inter-bank Offered Rate

Basel III

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

LIHTC

Low Income Housing Tax Credit

BHCA

Bank Holding Company Act of 1956, as amended

MBS

Mortgage-Backed Securities

BOLI

Bank Owned Life Insurance

MVE

Market Value of Equity

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

NAV

Net Asset Value

CDI

Core Deposit Intangible Assets

NII

Net Interest Income

CECL

Current Expected Credit Loss

NIM

Net Interest Margin

CET1

Common Equity Tier 1

NSF

Non-Sufficient Funds

Civic

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

OREO

Other Real Estate Owned

CMBS

Commercial Mortgage-Backed Securities

~~PD/LGD~~PPP

~~Probability of Default/Loss Given Default~~Paycheck Protection Program

CMOs

Collateralized Mortgage Obligations

~~PPP~~

~~Paycheck Protection Program~~

~~COVID-19~~

~~Coronavirus Disease~~

PRSUs

Performance-Based Restricted Stock Units

~~CPI~~Core Deposits

~~Consumer Price Index~~Includes noninterest-bearing checking accounts, interest checking accounts, money market accounts, and savings accounts

PWAM

Pacific Western Asset Management Inc.

COVID-19

Coronavirus Disease

ROU

Right-of-use

CPI

Consumer Price Index

S&P

Standard & Poor's

CRA

Community Reinvestment Act

~~ROU~~SBA

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

CRE

Commercial Real Estate

~~SBA~~SBIC

Small Business ~~Administration~~Investment Company

CRI

Customer Relationship Intangible Assets

~~SBIC~~SEC

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

DFPI

California Department of Financial Protection and Innovation

~~SEC~~

~~Securities and Exchange Commission~~

~~DTAs~~

~~Deferred Tax Assets~~

SOFR

Secured Overnight Financing Rate

~~Dodd-Frank Act~~DTAs

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

Tax Equivalent Net Interest Income

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

~~EAD~~Dodd-Frank Act

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

Tax Equivalent NIM

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

Efficiency Ratio

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

TDRs

Troubled Debt Restructurings

FASB

Financial Accounting Standards Board

TRSAs

Time-Based Restricted Stock Awards

FDIC

Federal Deposit Insurance Corporation

U.S. GAAP

U.S. Generally Accepted Accounting Principles

FHLB

Federal Home Loan Bank of San Francisco

VIE

Variable Interest Entity

FRB

Board of Governors of the Federal Reserve System

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


		September 30,		December 31,			June 30,		December 31,
		2021		2020			2022		2021
		(Unaudited)					(Unaudited)
		(Dollars in thousands, except par value amounts)					(Dollars in thousands, except par value amounts)
ASSETS:	ASSETS:					ASSETS:
Cash and due from banks	Cash and due from banks	$	174,585	$	150,464	Cash and due from banks	$	197,027	$	112,548
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	3,524,613		3,010,197		Interest-earning deposits in financial institutions	2,192,877		3,944,686
Total cash, cash equivalents, and restricted cash	Total cash, cash equivalents, and restricted cash	3,699,198		3,160,661		Total cash, cash equivalents, and restricted cash	2,389,904		4,057,234
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value	9,276,926		5,235,591		Securities available-for-sale, at fair value	6,780,648		10,694,458
Securities held-to-maturity, at amortized cost, net of allowance for credit losses						Securities held-to-maturity, at amortized cost, net of allowance for credit losses	2,260,367		—
Federal Home Loan Bank stock, at cost	Federal Home Loan Bank stock, at cost	17,250		17,250		Federal Home Loan Bank stock, at cost	33,210		17,250
Total investment securities	Total investment securities	9,294,176		5,252,841		Total investment securities	9,074,225		10,711,708

Gross loans and leases held for investment	Gross loans and leases held for investment	20,588,255		19,153,357		Gross loans and leases held for investment	26,608,541		23,026,308
Deferred fees, net	Deferred fees, net	(77,235)		(69,980)		Deferred fees, net	(107,404)		(84,760)
Allowance for loan and lease losses	Allowance for loan and lease losses	(203,733)		(348,181)		Allowance for loan and lease losses	(188,705)		(200,564)
Total loans and leases held for investment, net	Total loans and leases held for investment, net	20,307,287		18,735,196		Total loans and leases held for investment, net	26,312,432		22,740,984
Equipment leased to others under operating leases	Equipment leased to others under operating leases	334,275		333,846		Equipment leased to others under operating leases	324,233		339,150
Premises and equipment, net	Premises and equipment, net	47,246		39,234		Premises and equipment, net	51,083		46,740
Foreclosed assets, net	Foreclosed assets, net	13,364		14,027		Foreclosed assets, net	—		12,843
Goodwill	Goodwill	1,204,118		1,078,670		Goodwill	1,405,736		1,405,736
Core deposit and customer relationship intangibles, net	Core deposit and customer relationship intangibles, net	15,533		23,641		Core deposit and customer relationship intangibles, net	37,659		44,957
Other assets	Other assets	970,479		860,326		Other assets	1,355,451		1,083,992
Total assets	Total assets	$	35,885,676	$	29,498,442	Total assets	$	40,950,723	$	40,443,344

LIABILITIES:	LIABILITIES:					LIABILITIES:
Noninterest-bearing deposits	Noninterest-bearing deposits	$	12,881,806	$	9,193,827	Noninterest-bearing deposits	$	13,338,029	$	14,543,133
Interest-bearing deposits	Interest-bearing deposits	17,677,939		15,746,890		Interest-bearing deposits	20,630,123		20,454,624
Total deposits	Total deposits	30,559,745		24,940,717		Total deposits	33,968,152		34,997,757
Borrowings	Borrowings	—		5,000		Borrowings	1,592,000		—
Subordinated debt	Subordinated debt	862,447		465,812		Subordinated debt	863,756		863,283
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	545,050		491,962		Accrued interest payable and other liabilities	548,412		582,674
Total liabilities	Total liabilities	31,967,242		25,903,491		Total liabilities	36,972,320		36,443,714

Commitments and contingencies	Commitments and contingencies	0		0		Commitments and contingencies	0		0

STOCKHOLDERS' EQUITY:	STOCKHOLDERS' EQUITY:					STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)		—		—
Common stock ($0.01 par value, 200,000,000 shares authorized at September 30, 2021 and
December 31, 2020; 122,093,755 and 120,736,834 shares issued, respectively, includes
2,321,753 and 1,608,126 shares of unvested restricted stock, respectively)		1,221		1,207
Preferred stock ($0.01 par value; 5,000,000 shares authorized; 513,250 Series A shares,						Preferred stock ($0.01 par value; 5,000,000 shares authorized; 513,250 Series A shares,
$1,000 per share liquidation preference, issued and outstanding at June 30, 2022)						$1,000 per share liquidation preference, issued and outstanding at June 30, 2022)	498,516		—
Common stock ($0.01 par value, 200,000,000 shares authorized at June 30, 2022 and						Common stock ($0.01 par value, 200,000,000 shares authorized at June 30, 2022 and
December 31, 2021; 123,037,577 and 122,105,853 shares issued, respectively, includes						December 31, 2021; 123,037,577 and 122,105,853 shares issued, respectively, includes
2,516,279 and 2,312,080 shares of unvested restricted stock, respectively)						2,516,279 and 2,312,080 shares of unvested restricted stock, respectively)	1,230		1,221
Additional paid-in capital	Additional paid-in capital	3,035,052		3,100,633		Additional paid-in capital	2,970,647		3,013,399
Retained earnings	Retained earnings	880,305		409,391		Retained earnings	1,258,838		1,016,350
Treasury stock, at cost (2,514,189 and 2,321,981 shares at September 30, 2021 and
December 31, 2020)		(97,003)		(88,803)
Accumulated other comprehensive income, net		98,859		172,523
Treasury stock, at cost (2,749,553 and 2,520,999 shares at June 30, 2022 and December 31, 2021)						Treasury stock, at cost (2,749,553 and 2,520,999 shares at June 30, 2022 and December 31, 2021)	(106,078)		(97,308)
Accumulated other comprehensive (loss) income, net						Accumulated other comprehensive (loss) income, net	(644,750)		65,968
Total stockholders' equity	Total stockholders' equity	3,918,434		3,594,951		Total stockholders' equity	3,978,403		3,999,630
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	35,885,676	$	29,498,442	Total liabilities and stockholders' equity	$	40,950,723	$	40,443,344

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

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


		Three Months Ended						Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,				June 30,
		2021		2021		2020		2021		2020			2022		2021		2022		2021
		(Unaudited)											(Unaudited)
		(Dollars in thousands, except per share amounts)											(In thousands, except per share amounts)
Interest income:	Interest income:											Interest income:
Loans and leases	Loans and leases	$	246,722	$	244,529	$	240,811	$	732,795	$	750,940	Loans and leases	$	293,286	$	244,529	$	561,045	$	486,073
Investment securities	Investment securities	40,780		33,954		24,443		104,999		77,927		Investment securities	52,902		33,954		106,324		64,219
Deposits in financial institutions	Deposits in financial institutions	2,580		2,022		654		6,130		2,448		Deposits in financial institutions	4,330		2,022		6,053		3,550
Total interest income	Total interest income	290,082		280,505		265,908		843,924		831,315		Total interest income	350,518		280,505		673,422		553,842
Interest expense:	Interest expense:											Interest expense:
Deposits	Deposits	6,417		7,269		9,887		21,186		51,209		Deposits	15,362		7,269		21,570		14,769
Borrowings	Borrowings	101		265		27		559		8,124		Borrowings	2,441		265		2,602		458
Subordinated debt	Subordinated debt	7,722		6,663		4,670		18,760		16,632		Subordinated debt	8,790		6,663		16,608		11,038
Total interest expense	Total interest expense	14,240		14,197		14,584		40,505		75,965		Total interest expense	26,593		14,197		40,780		26,265
Net interest income	Net interest income	275,842		266,308		251,324		803,419		755,350		Net interest income	323,925		266,308		632,642		527,577
Provision for credit losses	Provision for credit losses	(20,000)		(88,000)		97,000		(156,000)		329,000		Provision for credit losses	11,500		(88,000)		11,500		(136,000)
Net interest income after provision for credit losses	Net interest income after provision for credit losses	295,842		354,308		154,324		959,419		426,350		Net interest income after provision for credit losses	312,425		354,308		621,142		663,577
Noninterest income:	Noninterest income:											Noninterest income:
Leased equipment income	Leased equipment income	10,943		10,847		9,900		33,144		34,188		Leased equipment income	12,335		10,847		25,429		22,201
Other commissions and fees	Other commissions and fees	11,792		10,704		10,541		31,654		30,373		Other commissions and fees	10,813		10,704		22,393		19,862
Service charges on deposit accounts	Service charges on deposit accounts	3,407		3,452		2,570		9,793		7,232		Service charges on deposit accounts	3,634		3,452		7,205		6,386
Gain on sale of loans and leases	Gain on sale of loans and leases	—		1,422		35		1,561		468		Gain on sale of loans and leases	12		1,422		72		1,561
Gain on sale of securities		515		—		5,270		616		13,167
(Loss) gain on sale of securities												(Loss) gain on sale of securities	(1,209)		—		(1,105)		101
Dividends and gains (losses) on equity investments												Dividends and gains (losses) on equity investments	4,097		5,394		(7,278)		16,298
Warrant income												Warrant income	1,615		5,650		2,244		11,773
Other income	Other income	24,688		13,946		9,936		59,777		20,782		Other income	3,049		2,902		6,204		7,018
Total noninterest income	Total noninterest income	51,345		40,371		38,252		136,545		106,210		Total noninterest income	34,346		40,371		55,164		85,200
Noninterest expense:	Noninterest expense:											Noninterest expense:
Compensation	Compensation	98,061		90,807		75,131		268,750		198,323		Compensation	102,542		90,807		194,782		170,689
Occupancy	Occupancy	14,928		14,784		14,771		43,766		43,472		Occupancy	15,268		14,784		30,468		28,838
Customer related expense												Customer related expense	11,748		4,973		24,403		9,791
Data processing												Data processing	9,258		7,758		18,887		14,715
Leased equipment depreciation	Leased equipment depreciation	8,603		8,614		7,057		26,186		21,364		Leased equipment depreciation	8,934		8,614		18,123		17,583
Data processing		7,391		7,758		6,505		22,106		20,061
Loan expense												Loan expense	7,037		4,031		12,194		7,224
Other professional services	Other professional services	5,164		5,256		4,713		15,546		13,117		Other professional services	6,726		5,256		12,680		10,382
Insurance and assessments	Insurance and assessments	3,685		3,745		3,939		12,333		17,561		Insurance and assessments	5,632		3,745		11,122		8,648
Customer related expense		4,538		4,973		4,762		14,329		13,102
Loan expense		4,180		4,031		3,499		11,404		9,528
Intangible asset amortization	Intangible asset amortization	2,890		2,889		3,751		8,858		11,581		Intangible asset amortization	3,649		2,889		7,298		5,968
Foreclosed assets income, net												Foreclosed assets income, net	(28)		(119)		(3,381)		(118)
Acquisition, integration and reorganization costs	Acquisition, integration and reorganization costs	200		200		—		3,825		—		Acquisition, integration and reorganization costs	—		200		—		3,625
Foreclosed assets expense (income), net		165		(119)		335		47		255
Goodwill impairment		—		—		—		—		1,470,000
Other expense	Other expense	9,616		8,812		8,939		34,157		29,973		Other expense	12,879		8,812		24,495		24,541
Total noninterest expense	Total noninterest expense	159,421		151,750		133,402		461,307		1,848,337		Total noninterest expense	183,645		151,750		351,071		301,886
Earnings (loss) before income taxes		187,766		242,929		59,174		634,657		(1,315,777)
Earnings before income taxes												Earnings before income taxes	163,126		242,929		325,235		446,891
Income tax expense	Income tax expense	47,770		62,417		13,671		163,743		38,627		Income tax expense	40,766		62,417		82,747		115,973
Net earnings (loss)		$	139,996	$	180,512	$	45,503	$	470,914	$	(1,354,404)
Net earnings												Net earnings	$	122,360	$	180,512	$	242,488	$	330,918

Earnings (loss) per share:
Earnings per common share:												Earnings per common share:
Basic	Basic	$	1.17	$	1.52	$	0.38	$	3.96	$	(11.60)	Basic	$	1.02	$	1.52	$	2.03	$	2.78
Diluted	Diluted	$	1.17	$	1.52	$	0.38	$	3.96	$	(11.60)	Diluted	$	1.02	$	1.52	$	2.03	$	2.78

See Notes to Condensed Consolidated Financial Statements.

` PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


		Three Months Ended						Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,				June 30,
		2021		2021		2020		2021		2020			2022		2021		2022		2021
		(Unaudited)											(Unaudited)
		(In thousands)											(In thousands)
Net earnings (loss)		$	139,996	$	180,512	$	45,503	$	470,914	$	(1,354,404)
Net earnings												Net earnings	$	122,360	$	180,512	$	242,488	$	330,918
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:											Other comprehensive income (loss), net of tax:
Unrealized net holding (losses) gains on securities	Unrealized net holding (losses) gains on securities											Unrealized net holding (losses) gains on securities
available-for-sale arising during the period	available-for-sale arising during the period	(63,956)		54,076		19,745		(101,403)		119,708		available-for-sale arising during the period	(72,572)		54,076		(682,398)		(37,447)
Income tax benefit (expense) related to net unrealized	Income tax benefit (expense) related to net unrealized											Income tax benefit (expense) related to net unrealized
holding (losses) gains arising during the period		17,672		(14,941)		(5,510)		28,185		(33,399)
holding gains (losses) arising during the period												holding gains (losses) arising during the period	19,928		(14,941)		187,386		10,513
Unrealized net holding (losses) gains on securities	Unrealized net holding (losses) gains on securities											Unrealized net holding (losses) gains on securities
available-for-sale, net of tax	available-for-sale, net of tax	(46,284)		39,135		14,235		(73,218)		86,309		available-for-sale, net of tax	(52,644)		39,135		(495,012)		(26,934)
Reclassification adjustment for net gains
included in net earnings (1)		(515)		—		(5,270)		(616)		(13,167)
Income tax expense related to reclassification
Reclassification adjustment for net losses (gains) included												Reclassification adjustment for net losses (gains) included
in net earnings (1)												in net earnings (1)	1,209		—		1,105		(101)
Income tax (benefit) expense related to reclassification												Income tax (benefit) expense related to reclassification
adjustment	adjustment	142		—		1,471		170		3,674		adjustment	(332)		—		(303)		28
Reclassification adjustment for net gains
Reclassification adjustment for net losses (gains)												Reclassification adjustment for net losses (gains)
included in net earnings, net of tax	included in net earnings, net of tax	(373)		—		(3,799)		(446)		(9,493)		included in net earnings, net of tax	877		—		802		(73)
Unrealized net loss on securities transferred from												Unrealized net loss on securities transferred from
available-for-sale to held-to-maturity												available-for-sale to held-to-maturity	(218,326)		—		(218,326)		—
Amortization of unrealized net loss on securities												Amortization of unrealized net loss on securities
transferred from available-for-sale to												transferred from available-for-sale to
held-to-maturity												held-to-maturity	2,507		—		2,507		—
Income tax (benefit) expense related to amortization												Income tax (benefit) expense related to amortization
of unrealized net loss on securities transferred												of unrealized net loss on securities transferred
from available-for-sale to held-to-maturity												from available-for-sale to held-to-maturity	(689)		—		(689)		—
Amortization of unrealized net loss on securities												Amortization of unrealized net loss on securities
transferred from available-for-sale to												transferred from available-for-sale to
held-to-maturity, net of tax												held-to-maturity, net of tax	1,818		—		1,818		—
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(46,657)		39,135		10,436		(73,664)		76,816		Other comprehensive income (loss), net of tax	(268,275)		39,135		(710,718)		(27,007)
Comprehensive income (loss)	Comprehensive income (loss)	$	93,339	$	219,647	$	55,939	$	397,250	$	(1,277,588)	Comprehensive income (loss)	$	(145,915)	$	219,647	$	(468,230)	$	303,911

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


		Nine Months Ended September 30, 2021														Six Months Ended June 30, 2022
		Common Stock									Accumulated							Common Stock									Accumulated
					Additional						Other										Additional						Other
			Par		Paid-in		Retained		Treasury		Comprehensive					Preferred			Par		Paid-in		Retained		Treasury		Comprehensive
		Shares	Value		Capital		Earnings		Stock		Income		Total			Stock		Shares	Value		Capital		Earnings		Stock		Income (Loss)		Total
		(Unaudited)																(Unaudited)
		(Dollars in thousands)																(In thousands, except per share amount)
Balance, December 31, 2020		118,414,853	$	1,207	$	3,100,633	$	409,391	$	(88,803)	$	172,523	$	3,594,951
Balance, December 31, 2021															Balance, December 31, 2021	$	—	119,584,854	$	1,221	$	3,013,399	$	1,016,350	$	(97,308)	$	65,968	$	3,999,630
Net earnings	Net earnings	—	—		—		150,406		—		—		150,406		Net earnings	—		—	—		—		120,128		—		—		120,128
Other comprehensive loss - net
unrealized loss on securities
available-for-sale, net of tax		—	—		—		—		—		(66,142)		(66,142)
Other comprehensive loss,															Other comprehensive loss,
net of tax															net of tax	—		—	—		—		—		—		(442,443)		(442,443)
Restricted stock awarded and															Restricted stock awarded and
earned stock compensation,															earned stock compensation,
net of shares forfeited															net of shares forfeited	—		109,466	1		7,556		—		—		—		7,557

Restricted stock surrendered															Restricted stock surrendered	—		(92,554)	—		—		—		(4,481)		—		(4,481)
Cash dividends paid:															Cash dividends paid:
Common stock, $0.25/share															Common stock, $0.25/share	—		—	—		(29,796)		—		—		—		(29,796)

Balance, March 31, 2022															Balance, March 31, 2022	$	—	119,601,766	$	1,222	$	2,991,159	$	1,136,478	$	(101,789)	$	(376,475)	$	3,650,595
Net earnings															Net earnings	—		—	—		—		122,360		—		—		122,360
Other comprehensive loss,															Other comprehensive loss,
net of tax															net of tax	—		—	—		—		—		—		(268,275)		(268,275)
Issuance of preferred stock,															Issuance of preferred stock,
net of offering costs (1)															net of offering costs (1)	498,516		—	—		—		—		—		—		498,516
Restricted stock awarded and	Restricted stock awarded and														Restricted stock awarded and
earned stock compensation,	earned stock compensation,														earned stock compensation,
net of shares forfeited	net of shares forfeited	743,444	8		6,409		—		—		—		6,417		net of shares forfeited	—		822,258	8		9,690		—		—		—		9,698
Restricted stock surrendered	Restricted stock surrendered	(52,655)	—		—		—		(1,908)		—		(1,908)		Restricted stock surrendered	—		(136,000)	—		—		—		(4,289)		—		(4,289)

Cash dividends paid:	Cash dividends paid:														Cash dividends paid:
Common stock, $0.25/share	Common stock, $0.25/share	—	—		(29,587)		—		—		—		(29,587)		Common stock, $0.25/share	—		—	—		(30,202)		—		—		—		(30,202)
Balance, March 31, 2021		119,105,642	$	1,215	$	3,077,455	$	559,797	$	(90,711)	$	106,381	$	3,654,137
Net earnings		—	—		—		180,512		—		—		180,512
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax		—	—		—		—		—		39,135		39,135
Restricted stock awarded and
earned stock compensation,
net of shares forfeited		586,271	6		8,983		—		—		—		8,989
Restricted stock surrendered		(136,811)	—		—		—		(6,176)		—		(6,176)

Balance, June 30, 2022															Balance, June 30, 2022	$	498,516	120,288,024	$	1,230	$	2,970,647	$	1,258,838	$	(106,078)	$	(644,750)	$	3,978,403

Cash dividends paid:
Common stock, $0.25/share		—	—		(29,916)		—		—		—		(29,916)
Balance, June 30, 2021		119,555,102	$	1,221	$	3,056,522	$	740,309	$	(96,887)	$	145,516	$	3,846,681
Net earnings		—	—		—		139,996		—		—		139,996
Other comprehensive loss - net
unrealized loss on securities
available-for-sale, net of tax		—	—		—		—		—		(46,657)		(46,657)
Restricted stock awarded and
earned stock compensation,
net of shares forfeited		27,206	—		8,501		—		—		—		8,501
Restricted stock surrendered		(2,742)	—		—		—		(116)		—		(116)

Cash dividends paid:
Common stock, $0.25/share		—	—		(29,971)		—		—		—		(29,971)
Balance, September 30, 2021		119,579,566	$	1,221	$	3,035,052	$	880,305	$	(97,003)	$	98,859	$	3,918,434

(1) There were 513,250 shares of Series A preferred stock issued during the 2nd quarter of 2022 that remained outstanding at June 30, 2022.

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Nine Months Ended September 30, 2020
Common Stock Accumulated
Additional Other
Par Paid-in Retained Treasury Comprehensive
Shares Value Capital Earnings Stock Income Total
(Unaudited)
(Dollars in thousands)
Balance, December 31, 2019 119,781,605 $ 1,219 $ 3,306,006 $ 1,652,248 $ (83,434) $ 78,658 $ 4,954,697
Cumulative effect of change in
accounting principle (1)
— — — (5,283) — — (5,283)
Net loss — — — (1,433,111) — — (1,433,111)
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax — — — — — 12,258 12,258
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 194,916 2 6,492 — — — 6,494
Restricted stock surrendered (106,021) — — — (3,460) — (3,460)
Common stock repurchased under
Stock Repurchase Program (1,953,711) (20) (69,980) — — — (70,000)
Cash dividends paid:
Common stock, $0.60/share — — (71,206) — — — (71,206)
Balance, March 31, 2020 117,916,789 $ 1,201 $ 3,171,312 $ 213,854 $ (86,894) $ 90,916 $ 3,390,389
Net earnings — — — 33,204 — — 33,204
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax — — — — — 54,122 54,122
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 550,738 6 6,283 — — — 6,289
Restricted stock surrendered (92,924) — — — (1,601) — (1,601)
Cash dividends paid:
Common stock, $0.25/share — — (29,505) — — — (29,505)
Balance, June 30, 2020 118,374,603 $ 1,207 $ 3,148,090 $ 247,058 $ (88,495) $ 145,038 $ 3,452,898
Net earnings — — — 45,503 — — 45,503
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax — — — — — 10,436 10,436
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 119,158 1 7,063 — — — 7,064
Restricted stock surrendered (3,834) — — — (71) — (71)
Cash dividends paid:
Common stock, $0.25/share — — (29,599) — — — (29,599)
Balance, September 30, 2020 118,489,927 $ 1,208 $ 3,125,554 $ 292,561 $ (88,566) $ 155,474 $ 3,486,231

~~________________________~~


	Six Months Ended June 30, 2021
	Common Stock									Accumulated
				Additional						Other
		Par		Paid-in		Retained		Treasury		Comprehensive
	Shares	Value		Capital		Earnings		Stock		Income		Total
	(Unaudited)
	(In thousands, except per share amount)
Balance, December 31, 2020	118,414,853	$	1,207	$	3,100,633	$	409,391	$	(88,803)	$	172,523	$	3,594,951
Net earnings	—	—		—		150,406		—		—		150,406
Other comprehensive loss,
net of tax	—	—		—		—		—		(66,142)		(66,142)
Restricted stock awarded and
earned stock compensation,
net of shares forfeited	743,444	8		6,409		—		—		—		6,417
Restricted stock surrendered	(52,655)	—		—		—		(1,908)		—		(1,908)


Cash dividends paid:
Common stock, $0.25/share	—	—		(29,587)		—		—		—		(29,587)
Balance, March 31, 2021	119,105,642	$	1,215	$	3,077,455	$	559,797	$	(90,711)	$	106,381	$	3,654,137
Net earnings	—	—		—		180,512		—		—		180,512
Other comprehensive income,

net of tax	—	—		—		—		—		39,135		39,135
Restricted stock awarded and
earned stock compensation,
net of shares forfeited	586,271	6		8,983		—		—		—		8,989
Restricted stock surrendered	(136,811)	—		—		—		(6,176)		—		(6,176)


Cash dividends paid:
Common stock, $0.25/share	—	—		(29,916)		—		—		—		(29,916)
Balance, June 30, 2021	119,555,102	$	1,221	$	3,056,522	$	740,309	$	(96,887)	$	145,516	$	3,846,681

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended
September 30,
2021 2020
(Unaudited)
(In thousands)
Cash flows from operating activities:
Net earnings (loss) $ 470,914 $ (1,354,404)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Goodwill impairment — 1,470,000
Depreciation and amortization 38,311 33,303
Amortization of net premiums on securities available-for-sale 28,480 9,994
Amortization of intangible assets 8,858 11,581
Amortization of operating lease ROU assets 22,866 22,080
Provision for credit losses (156,000) 329,000
Gain on sale of foreclosed assets (135) (187)
Provision for losses on foreclosed assets 14 267
Gain on sale of loans and leases (1,561) (468)
(Gain) loss on sale of premises and equipment (5) 309
Gain on sale of securities (616) (13,167)
Gain on BOLI death benefit (491) —
Unrealized (gain) loss on derivatives and foreign currencies, net (804) 494
Earned stock compensation 23,907 19,847
Increase in other assets (1,516) (60,450)
Decrease in accrued interest payable and other liabilities (39,911) (125,262)
Net cash provided by operating activities 392,311 342,937
Cash flows from investing activities:
Cash paid for acquisition, net (123,090) —
Net increase in loans and leases (1,485,780) (269,253)
Proceeds from sales of loans and leases 128,541 6,536
Proceeds from maturities and paydowns of securities available-for-sale 628,988 292,769
Proceeds from sales of securities available-for-sale 121,351 167,267
Purchases of securities available-for-sale (4,921,557) (1,085,749)
Net redemptions of Federal Home Loan Bank stock — 23,674
Proceeds from sales of foreclosed assets 1,846 983
Purchases of premises and equipment, net (15,078) (11,013)
Proceeds from sales of premises and equipment 95 4
Proceeds from BOLI death benefit 4,143 761
Net (increase) decrease in equipment leased to others under operating leases (16,346) 16,860
Net cash used in investing activities (5,676,887) (857,161)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits 3,650,640 2,105,033
Net increase in interest-bearing deposits 1,931,049 2,629,213
Net decrease in borrowings (55,210) (1,699,008)
Proceeds from subordinated notes offering 394,308 —
Common stock repurchased and restricted stock surrendered (8,200) (75,132)
Cash dividends paid (89,474) (130,310)
Net cash provided by financing activities 5,823,113 2,829,796
Net increase in cash, cash equivalents, and restricted cash 538,537 2,315,572
Cash, cash equivalents, and restricted cash, beginning of period 3,160,661 637,624
Cash, cash equivalents, and restricted cash, end of period $ 3,699,198 $ 2,953,196

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


	Six Months Ended
	June 30,
	2022		2021
	(Unaudited)
	(In thousands)
Cash flows from operating activities:
Net earnings	$	242,488	$	330,918
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization	26,946		25,564
Amortization of net premiums on investment securities	29,742		16,561
Amortization of intangible assets	7,298		5,968
Amortization of operating lease ROU assets	15,100		15,215
Provision for credit losses	11,500		(136,000)
Gain on sale of foreclosed assets	(3,170)		(214)
Provision for losses on foreclosed assets	—		14
Gain on sale of loans and leases	(72)		(1,561)
Gain on sale of premises and equipment	(5)		(58)
Loss (gain) on sale of securities	1,105		(101)
Gain on BOLI death benefit	—		(51)
Unrealized gain on derivatives and foreign currencies, net	(1,330)		(995)
Earned stock compensation	17,255		15,406

(Increase) decrease in other assets	(24,626)		22,808
Decrease in accrued interest payable and other liabilities	(50,662)		(62,869)
Net cash provided by operating activities	271,569		230,605

Cash flows from investing activities:
Cash paid for acquisition, net	—		(123,090)
Net increase in loans and leases	(3,600,769)		(477,874)
Proceeds from sales of loans and leases	41,089		126,366
Proceeds from maturities and paydowns of securities available-for-sale	417,760		435,761
Proceeds from sales of securities available-for-sale	598,415		44,652
Purchases of securities available-for-sale	(374,921)		(2,497,439)
Proceeds from maturities and paydowns of securities held-to-maturity	82		—
Net purchases of Federal Home Loan Bank stock	(15,960)		—
Proceeds from sales of foreclosed assets	16,317		1,647
Purchases of premises and equipment, net	(10,423)		(4,547)
Proceeds from sales of premises and equipment	9		95
Proceeds from BOLI death benefit	555		1,188
Net (increase) decrease in equipment leased to others under operating leases	(3,196)		12,953
Net cash used in investing activities	(2,931,042)		(2,480,288)

Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposits	(1,205,104)		2,021,120
Net increase in interest-bearing deposits	175,499		2,647,858
Net increase (decrease) in borrowings	1,592,000		(48,585)
Proceeds from subordinated notes offering	—		394,308
Proceeds from preferred stock offering	498,516		—
Common stock repurchased and restricted stock surrendered	(8,770)		(8,084)
Cash dividends paid	(59,998)		(59,503)
Net cash provided by financing activities	992,143		4,947,114

Net (decrease) increase in cash, cash equivalents, and restricted cash	(1,667,330)		2,697,431
Cash, cash equivalents, and restricted cash, beginning of period	4,057,234		3,160,661
Cash, cash equivalents, and restricted cash, end of period	$	2,389,904	$	5,858,092

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Nine Months Ended					Six Months Ended
		September 30,					June 30,
		2021		2020			2022		2021
		(Unaudited)					(Unaudited)
		(In thousands)					(In thousands)
Supplemental disclosures of cash flow information:	Supplemental disclosures of cash flow information:					Supplemental disclosures of cash flow information:
Cash paid for interest	Cash paid for interest	$	35,505	$	86,060	Cash paid for interest	$	38,596	$	24,683
Cash paid for income taxes	Cash paid for income taxes	94,770		92,953		Cash paid for income taxes	76,037		74,147

Loans transferred to foreclosed assets	Loans transferred to foreclosed assets	1,062		14,370		Loans transferred to foreclosed assets	304		647
Transfers from loans held for investment to loans held for sale	Transfers from loans held for investment to loans held for sale	25,554		—		Transfers from loans held for investment to loans held for sale	—		25,554
Transfer of securities available-for-sale to held-to-maturity						Transfer of securities available-for-sale to held-to-maturity	2,260,407		—

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

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

We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 69 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 provides venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. The Bank also offers financing of business-purpose, non-owner-occupied investor properties through Civic, ~~Financial Services,~~ a wholly-owned subsidiary. The Bank also ~~offers~~provides a specialized suite of services for the HOA industry. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.

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

Significant Accounting Policies

Our accounting policies are described in Note 1. Nature of Operations and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the Securities and Exchange Commission ("Form 10-K"). Updates to our significant accounting policies described below reflect the impact of the Company's transfer of $2.3 billion in fair value of debt securities from available-for-sale to held-to-maturity effective June 1, 2022.

~~Accounting Standards Adopted in 2021~~ Transfer Between Categories of Debt Securities

~~Effective January 1, 2021,~~Upon transfer of a debt security from the ~~Company adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” which simplifies the accounting for income taxes by eliminating certain exceptions related~~available-for-sale category to the ~~approach~~held-to-maturity category, the security's new amortized cost is reset to fair value, reduced by any previous write-offs but excluding any allowance for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendment also simplifies aspectscredit losses. Any associated unrealized gains or losses on such investments as of the ~~accounting~~date of transfer become part of the security's amortized cost and are subsequently amortized or accreted into interest income over the remaining life of the securities as effective yield adjustments using the interest method. In addition, the related unrealized gains and losses included in accumulated other comprehensive income on the date of transfer are also subsequently amortized or accreted into interest income over the remaining life of the securities as effective yield adjustments using the interest method. For transfers of securities from the available-for-sale category to the held-to-maturity category, any allowance for ~~franchise taxes~~credit losses that was previously recorded under the available-for-sale model is reversed and ~~enacted changes in tax laws or rates~~an allowance for credit losses is subsequently recorded under the held-to-maturity debt security model. The reversal and ~~clarifies~~re-establishment of the ~~accounting~~allowance for ~~transactions that result in a step-up~~credit losses are recorded in the ~~tax basis of goodwill. The adoption of this standard did not have a material impact~~"Provisions for credit losses" on the ~~Company’s~~Company's condensed consolidated ~~financial statements.~~

~~Effective January 1, 2021, the Company adopted ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)” which clarifies that entities that apply the measurement alternative in ASC 321 should consider observable transactions that result in entities initially applying or discontinuing the use~~statements of the equity method of accounting under ASC 323. The guidance also clarifies that certain forward contracts and purchased options on equity securities that are not deemed to be in-substance common stock under ASC 323 or accounted for as derivatives under ASC 815 are in the scope of ASC 321. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

earnings.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Held-to-Maturity Debt Securities

Debt securities that the Company has the intent and ability to hold until maturity are classified as held-to-maturity and are carried at amortized cost, net of the allowance for credit losses. Held-to-maturity debt securities are generally placed on nonaccrual status using factors similar to those described for loans. The amortized cost of the Company's held-to-maturity debt securities excludes accrued interest receivable, which is included in "Other assets" on the Company's condensed consolidated balance sheets. The Company has made an accounting policy election not to recognize an allowance for credit losses for accrued interest receivable on held-to-maturity debt securities, as the Company reverses any accrued interest against interest income if a debt security is placed on nonaccrual status. Any cash collected on nonaccrual held-to-maturity securities is applied to reduce the security's amortized cost basis and not as interest income. Generally, the Company returns a held-to-maturity security to accrual status when all delinquent interest and principal become current under the contractual terms of the security, and the collectability of remaining principal and interest is no longer doubtful.

Allowance for Credit Losses on Held-to-Maturity Debt Securities

The ACL for held-to-maturity debt securities is recorded at the time of purchase, acquisition or when the Company designates securities as held-to-maturity, representing the Company's best estimate of current expected credit losses as of the date of the condensed consolidated balance sheets. For each major held-to-maturity debt security type, the allowance for credit losses is estimated collectively for groups of securities with similar risk characteristics. For debt securities that do not share similar risk characteristics, the losses are estimated individually. Debt securities that are either guaranteed or issued by the U.S. government or government agency, are highly rated by major rating agencies, and have a long history of no credit losses are an example of such securities to which the Company applies a zero credit loss assumption. Any expected credit loss is provided through the allowance for credit losses on held-to-maturity debt securities and deducted from the amortized cost basis of the security, so that the balance sheet reflects the net amount that the Company expects to collect.

Accounting Standards Adopted in 2022

Effective January 1, ~~2021,~~2022, the Company partially adopted ASU ~~2020-08, “~~2022-02, ~~Codification Improvements~~“Financial Instruments – Credit Losses (Topic 326),” specifically the amendment related to ~~Subtopic 310-20, Receivables – Nonrefundable Fees~~the vintage disclosures, which requires creditors that are public entities to disclose current-period gross charge-offs by year of origination for financing receivables and ~~Other Costs” which clarifies the Company should reevaluate whether a callable debt security that has multiple call dates is~~net investments in leases within the scope of ASC ~~310-20-35-33~~326-20, “Financial Instruments – Credit Losses – Measured at ~~each reporting period.~~Amortized Cost.” The amendment also eliminates the disclosure of gross recoveries by year of origination previously presented in Example 15 in ASC ~~310-20-35-33 requires that,~~326-20-50-79, since it is not required under the guidance in ASC 326-20-50-6. The Company updated the vintage table disclosure in Note 4. Loans and Leases to ~~the extent the amortized cost basis~~present only current-period gross charge-offs by year of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess should be amortized to the earliest call date. As the Company’s accounting policy to amortize premiums on investments in callable debt securities to the earliest call date is consistent with the manner required by ASU 2020-08, theorigination. The adoption of this ~~standard had no~~amendment did not have a material impact on the Company’s condensed consolidated financial statements.

Basis of Presentation

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Use of Estimates

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation format. ~~In our loan~~On the consolidated statements of earnings, new lines are presented for "Dividends and ~~allowance tables, we realigned our venture capital subclasses to better reflect~~gains (losses) on equity investments" and ~~report our lending. Prior to~~"Warrant income," as those categories exceeded the ~~realignment, our venture capital subclasses were: (1) equity fund loans, (2) early stage, (3) expansion stage, and (4) late stage. After~~disclosure materiality threshold in the realignment, our venture capital subclasses are: (1) equity fund loans and (2) venture lending (which includes early stage, expansion stage, and late stage). Additionally, we realigned our other commercial subclasses by moving our cash flow subclass into the other lending subclass. Allfourth quarter of the loan and allowance tables, both current period and prior periods, reflect these realignments. In our securities available-for-sale tables, we are presenting a new line for private label commercial MBS,2021, which previously had ~~previously~~ been included ~~with the asset-backed securities line. All~~as part of ~~the securities available-for-sale tables, both current period and prior periods, reflect this new presentation.~~

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

~~NOTE 2. ACQUISITIONS~~

~~Acquisition of Civic~~

On February 1, 2021, the Bank completed the acquisition of Civic in an all-cash transaction. Civic, located in Redondo Beach, California, is one of the leading lenders in the United States specializing in residential non-owner-occupied investment properties. The acquisition of Civic advances the Bank’s strategy to diversify and expand its lending portfolio, diversify its revenue streams, and deploy excess liquidity into higher-yielding assets. Civic operates as a subsidiary of the Bank and at September 30, 2021 had $1.0 billion of loans outstanding. The loans are categorized as either income producing and other residential real estate mortgage or residential real estate construction and land based on their purpose.

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

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


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




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


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

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


~~Borrowings~~	~~50,210~~

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

~~Total consideration - paid in cash~~	$	~~160,420~~

"Other income."

NOTE 3.2. RESTRICTED CASH BALANCES

The FRBSF establishes cash reserve requirements that its member banks must maintain based on a percentage of deposit liabilities. ~~On March 26, 2020, the FRBSF reduced the reserve requirement ratios to zero percent.~~ There ~~was~~were no average reserves required to be held at the FRBSF for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021. ~~The average reserves required to be held at the FRBSF for the nine months ended September 30,2020 was $55.2 million.~~ As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we pledged cash collateral for our derivative contracts of $2.0 ~~million and $2.9~~ million.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4.3. INVESTMENT SECURITIES

Transfer of Securities Available-for-Sale to Held-to Maturity

Effective June 1, 2022, the Company transferred $2.3 billion in fair value of municipal securities, agency commercial MBS, private label commercial MBS, U.S. Treasury securities, and corporate debt securities from available-for-sale to held-to-maturity. At the time of transfer, $218.3 million of unrealized losses, net of tax, was retained in "Accumulated other comprehensive income (loss)" on the condensed consolidated balance sheets.

Securities Available-for-Sale

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


		September 30, 2021								December 31, 2020									June 30, 2022								December 31, 2021
				Gross		Gross						Gross		Gross							Gross		Gross						Gross		Gross
		Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair			Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
Security Type	Security Type	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value		Security Type	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
		(In thousands)																	(In thousands)
Agency residential MBS	Agency residential MBS	$	2,185,544	$	11,236	$	(15,787)	$	2,180,993	$	329,488	$	12,483	$	(897)	$	341,074	Agency residential MBS	$	2,898,484	$	901	$	(321,670)	$	2,577,715	$	2,921,993	$	8,866	$	(32,649)	$	2,898,210
Municipal securities		1,929,753		67,167		(6,991)		1,989,929		1,438,004		93,631		(18)		1,531,617
Agency commercial MBS	Agency commercial MBS	1,269,984		49,063		(5,023)		1,314,024		1,207,676		74,238		(37)		1,281,877		Agency commercial MBS	1,020,083		849		(44,711)		976,221		1,660,516		37,664		(9,213)		1,688,967
Agency residential CMOs	Agency residential CMOs	1,062,836		29,440		(3,739)		1,088,537		1,172,166		47,994		(280)		1,219,880		Agency residential CMOs	844,508		109		(41,308)		803,309		1,021,716		22,288		(5,870)		1,038,134
Municipal securities																		Municipal securities	742,845		3,219		(45,459)		700,605		2,248,749		75,192		(7,973)		2,315,968
U.S. Treasury securities	U.S. Treasury securities	973,307		2,060		(4,099)		971,268		4,989		313		—		5,302		U.S. Treasury securities	771,019		—		(74,965)		696,054		973,555		1,641		(8,298)		966,898
Corporate debt securities	Corporate debt securities	505,800		11,976		(1,161)		516,615		308,803		3,490		(404)		311,889		Corporate debt securities	388,466		75		(19,080)		369,461		514,077		13,774		(757)		527,094
Private label commercial MBS		389,030		716		(1,428)		388,318		81,878		1,089		(10)		82,957
Collateralized loan obligations	Collateralized loan obligations	359,057		163		(673)		358,547		136,777		23		(924)		135,876		Collateralized loan obligations	365,354		—		(13,064)		352,290		385,410		396		(444)		385,362
Private label residential CMOs	Private label residential CMOs	301,743		3,508		(1,570)		303,681		110,891		6,076		(21)		116,946		Private label residential CMOs	248,155		—		(32,052)		216,103		265,851		1,857		(3,291)		264,417
Asset-backed securities	Asset-backed securities	132,421		855		(279)		132,997		166,861		445		(760)		166,546		Asset-backed securities	33,354		4		(711)		32,647		129,387		484		(324)		129,547
Private label commercial MBS																		Private label commercial MBS	34,411		—		(1,895)		32,516		453,314		147		(3,244)		450,217
SBA securities	SBA securities	30,849		1,185		(17)		32,017		39,437		2,217		(27)		41,627		SBA securities	24,322		—		(595)		23,727		28,950		726		(32)		29,644

Total	Total	$	9,140,324	$	177,369	$	(40,767)	$	9,276,926	$	4,996,970	$	241,999	$	(3,378)	$	5,235,591	Total	$	7,371,001	$	5,157	$	(595,510)	$	6,780,648	$	10,603,518	$	163,035	$	(72,095)	$	10,694,458

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

As of June 30, 2022, securities available-for-sale with a fair value of ~~$492.0 million~~$2.2 billion 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 (losses) gains for the years indicated:

Three Months Ended Nine Months Ended
September 30, September 30,
Sales of Securities Available-for-Sale 2021 2020 2021 2020
(In thousands)
Amortized cost of securities sold $ 76,184 $ 17,000 $ 120,735 $ 154,100
Gross realized gains $ 517 $ 5,270 $ 618 $ 13,199
Gross realized losses (2) — (2) (32)
Net realized gains $ 515 $ 5,270 $ 616 $ 13,167


	Three Months Ended				Six Months Ended
	June 30,				June 30,
Sales of Securities Available-for-Sale	2022		2021		2022		2021
	(In thousands)
Amortized cost of securities sold	$	393,432	$	—	$	599,520	$	44,551

Gross realized gains	$	1,544	$	—	$	2,734	$	101
Gross realized losses	(2,753)		—		(3,839)		—
Net realized (losses) gains	$	(1,209)	$	—	$	(1,105)	$	101

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Unrealized Losses on Securities Available-for-Sale

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


		September 30, 2021													June 30, 2022
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
				Gross				Gross				Gross					Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Security Type	Security Type	Value		Losses		Value		Losses		Value		Losses		Security Type	Value		Losses		Value		Losses		Value		Losses
		(In thousands)													(In thousands)
Agency residential MBS	Agency residential MBS	$	1,697,399	$	(15,779)	$	680	$	(8)	$	1,698,079	$	(15,787)	Agency residential MBS	$	2,232,774	$	(288,563)	$	262,847	$	(33,107)	$	2,495,621	$	(321,670)
Municipal securities		583,499		(6,860)		2,559		(131)		586,058		(6,991)
Agency commercial MBS	Agency commercial MBS	282,753		(5,023)		—		—		282,753		(5,023)		Agency commercial MBS	851,935		(39,376)		41,199		(5,335)		893,134		(44,711)
Agency residential CMOs	Agency residential CMOs	189,684		(3,700)		11,283		(39)		200,967		(3,739)		Agency residential CMOs	707,516		(29,892)		88,546		(11,416)		796,062		(41,308)
Municipal securities														Municipal securities	463,945		(45,459)		—		—		463,945		(45,459)
U.S. Treasury securities	U.S. Treasury securities	632,950		(4,099)		—		—		632,950		(4,099)		U.S. Treasury securities	696,054		(74,965)		—		—		696,054		(74,965)
Corporate debt securities	Corporate debt securities	127,786		(1,161)		—		—		127,786		(1,161)		Corporate debt securities	355,637		(19,080)		—		—		355,637		(19,080)
Private label commercial MBS		266,238		(1,428)		—		—		266,238		(1,428)
Collateralized loan obligations	Collateralized loan obligations	202,528		(600)		43,930		(73)		246,458		(673)		Collateralized loan obligations	269,865		(9,256)		82,425		(3,808)		352,290		(13,064)
Private label residential CMOs	Private label residential CMOs	234,541		(1,555)		319		(15)		234,860		(1,570)		Private label residential CMOs	216,103		(32,052)		—		—		216,103		(32,052)
Asset-backed securities	Asset-backed securities	25,044		(49)		16,126		(230)		41,170		(279)		Asset-backed securities	31,261		(711)		—		—		31,261		(711)
Private label commercial MBS														Private label commercial MBS	23,206		(1,177)		9,311		(718)		32,517		(1,895)
SBA securities	SBA securities	—		—		1,897		(17)		1,897		(17)		SBA securities	21,946		(521)		1,781		(74)		23,727		(595)

Total	Total	$	4,242,422	$	(40,254)	$	76,794	$	(513)	$	4,319,216	$	(40,767)	Total	$	5,870,242	$	(541,052)	$	486,109	$	(54,458)	$	6,356,351	$	(595,510)


		December 31, 2020													December 31, 2021
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
				Gross				Gross				Gross					Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized			Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Security Type	Security Type	Value		Losses		Value		Losses		Value		Losses		Security Type	Value		Losses		Value		Losses		Value		Losses
		(In thousands)													(In thousands)
Agency residential MBS	Agency residential MBS	$	90,722	$	(897)	$	—	$	—	$	90,722	$	(897)	Agency residential MBS	$	2,502,536	$	(31,670)	$	57,329	$	(979)	$	2,559,865	$	(32,649)
Municipal securities		5,919		(18)		—		—		5,919		(18)
Agency commercial MBS	Agency commercial MBS	58,408		(37)		—		—		58,408		(37)		Agency commercial MBS	440,938��		(5,066)		106,745		(4,147)		547,683		(9,213)
Agency residential CMOs	Agency residential CMOs	97,863		(280)		—		—		97,863		(280)		Agency residential CMOs	216,445		(3,757)		67,340		(2,113)		283,785		(5,870)
Municipal securities														Municipal securities	505,080		(6,965)		29,726		(1,008)		534,806		(7,973)
U.S. Treasury securities														U.S. Treasury securities	628,767		(8,298)		—		—		628,767		(8,298)
Corporate debt securities	Corporate debt securities	87,596		(404)		—		—		87,596		(404)		Corporate debt securities	32,761		(757)		—		—		32,761		(757)
Private label commercial MBS		3,058		(10)		—		—		3,058		(10)
Collateralized loan obligations	Collateralized loan obligations	96,442		(729)		28,972		(195)		125,414		(924)		Collateralized loan obligations	137,619		(374)		43,730		(70)		181,349		(444)
Private label residential CMOs	Private label residential CMOs	788		(19)		74		(2)		862		(21)		Private label residential CMOs	201,988		(3,291)		—		—		201,988		(3,291)
Asset-backed securities	Asset-backed securities	14,636		(53)		61,031		(707)		75,667		(760)		Asset-backed securities	38,742		(137)		15,762		(187)		54,504		(324)
Private label commercial MBS														Private label commercial MBS	397,619		(3,244)		—		—		397,619		(3,244)
SBA securities	SBA securities	2,127		(27)		—		—		2,127		(27)		SBA securities	—		—		1,864		(32)		1,864		(32)
Total	Total	$	457,559	$	(2,474)	$	90,077	$	(904)	$	547,636	$	(3,378)	Total	$	5,102,495	$	(63,559)	$	322,496	$	(8,536)	$	5,424,991	$	(72,095)

The securities that were in an unrealized loss position at ~~September~~June 30, ~~2021,~~2022, were considered impaired and required further review to determine if the unrealized losses were credit-related. We concluded the unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. We also considered the seniority of the tranches and U.S. government agency guarantees, if any, to assess whether an unrealized loss was credit-related. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive ~~income"~~income (loss)" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Contractual Maturities of Securities Available-for-Sale

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

September 30, 2021
Amortized Fair
Maturities Cost Value
(In thousands)
Due in one year or less $ 40,903 $ 41,218
Due after one year through five years 578,943 606,629
Due after five years through ten years 2,991,339 3,029,128
Due after ten years 5,529,139 5,599,951
Total securities available-for-sale $ 9,140,324 $ 9,276,926


	June 30, 2022
			Due After		Due After
	Due		One Year		Five Years		Due
	Within		Through		Through		After
Security Type	One Year		Five Years		Ten Years		Ten Years		Total
	(In thousands)
Amortized Cost:
Agency residential MBS	$	28	$	6,756	$	4,625	$	2,887,075	$	2,898,484
Agency commercial MBS	6,847		529,921		452,921		30,394		1,020,083
Agency residential CMOs	—		1,487		206,723		636,298		844,508
Municipal securities	17,625		85,139		394,484		245,597		742,845
U.S. Treasury securities	4,996		—		766,023		—		771,019
Corporate debt securities	—		22,500		365,966		—		388,466
Collateralized loan obligations	—		—		101,154		264,200		365,354
Private label residential CMOs	—		—		—		248,155		248,155
Asset-backed securities	—		—		1,382		31,972		33,354
Private label commercial MBS	4,004		—		—		30,407		34,411
SBA securities	1,855		6,007		—		16,460		24,322
Total	$	35,355	$	651,810	$	2,293,278	$	4,390,558	$	7,371,001

Fair Value:
Agency residential MBS	$	29	$	6,794	$	4,692	$	2,566,200	$	2,577,715
Agency commercial MBS	6,847		517,077		422,320		29,977		976,221
Agency residential CMOs	—		1,486		191,837		609,986		803,309
Municipal securities	17,639		84,751		355,007		243,208		700,605
U.S. Treasury securities	4,995		—		691,059		—		696,054
Corporate debt securities	—		22,050		347,411		—		369,461
Collateralized loan obligations	—		—		98,461		253,829		352,290
Private label residential CMOs	—		—		—		216,103		216,103
Asset-backed securities	—		—		1,386		31,261		32,647
Private label commercial MBS	3,890		—		—		28,626		32,516
SBA securities	1,781		5,862		—		16,084		23,727
Total	$	35,181	$	638,020	$	2,112,173	$	3,995,274	$	6,780,648

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.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Securities Held-to-Maturity

The following table presents amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair values of securities held-to-maturity as of the date indicated:


	June 30, 2022
			Allowance
			for		Net		Gross		Gross
	Amortized		Credit		Carrying		Unrealized		Unrealized		Fair
Security Type	Cost		Losses		Amount		Gains		Losses		Value
	(In thousands)

Municipal securities	$	1,241,664	$	(140)	$	1,241,524	$	554	$	(36,762)	$	1,205,316
Agency commercial MBS	424,274		—		424,274		—		(4,626)		419,648
Private label commercial MBS	343,545		—		343,545		—		(5,663)		337,882
U.S. Treasury securities	182,751		—		182,751		—		(1,855)		180,896
Corporate debt securities	69,633		(1,360)		68,273		—		(2,256)		66,017





Total (1)	$	2,261,867	$	(1,500)	$	2,260,367	$	554	$	(51,162)	$	2,209,759

__________________________

(1) Excludes accrued interest receivable of $13.7 million at June 30, 2022 which is recorded in "Other assets" on the condensed consolidated balance sheets.

As of June 30, 2022, securities held-to-maturity with a fair value of $619.4 million were pledged as collateral for public deposits and other purposes as required by various statutes and agreements.

Allowance for Credit Losses on Securities Held-to-Maturity

The following table presents the changes by major security type in our allowance for credit losses on securities held-to-maturity for the periods indicated:


	Allowance for		Provision						Allowance for
	Credit Losses,		for						Credit Losses,
	Beginning		Credit						End of
Security Type	of Period		Losses		Charge-offs		Recoveries		Period
	(In thousands)
Three Months Ended June 30, 2022
Municipal securities	$	—	$	140	$	—	$	—	$	140
Corporate debt securities	—		1,360		—		—		1,360
Total	$	—	$	1,500	$	—	$	—	$	1,500

Six Months Ended June 30, 2022
Municipal securities	$	—	$	140	$	—	$	—	$	140
Corporate debt securities	—		1,360		—		—		1,360
Total	$	—	$	1,500	$	—	$	—	$	1,500

Credit losses on HTM securities are recorded at the time of purchase, acquisition, or when the Company designates securities as held-to-maturity. Credit losses on HTM securities are representative of current expected credit losses that may be incurred over the life of the investment. Accrued interest receivable on HTM securities, which is included in other assets on the condensed consolidated balance sheets, is excluded from the estimate of expected credit losses. HTM U.S. treasury securities and agency-backed MBS securities are considered to have no risk of loss as they are either explicitly or implicitly guaranteed by the U.S. government. The change in fair value in the HTM private label CMBS portfolio is solely driven by changes in interest rates. The Company has no knowledge of any underlying credit issues and the cash flows underlying the debt securities have not changed and are not expected to be impacted by changes in interest rates and, thus, there is no related ACL for this portfolio. The underlying bonds in the Company’s HTM municipal securities and HTM corporate debt securities portfolios are evaluated for credit losses in conjunction with management’s estimate of the allowance for credit losses based primarily on credit ratings.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Securities Held-to-Maturity by Credit Quality Indicator

The Company uses S&P, Moody's, Fitch, Kroll, and Egan Jones ratings as the credit quality indicators for its held-to-maturity securities. The following table presents our securities held-to-maturity portfolio by the lowest available credit rating as of the date indicated:


	June 30, 2022
Security Type	AAA		AA+		AA		AA-		A		A-		BBB		NR		Total
	(In thousands)
Amortized Cost:
Municipal securities	$	585,084	$	363,461	$	178,341	$	89,655	$	1,997	$	—	$	—	$	23,126	$	1,241,664
Agency commercial MBS	—		424,274		—		—		—		—		—		—		424,274
Private label commercial
MBS	343,545		—		—		—		—		—		—		—		343,545
U.S. Treasury securities	—		182,751		—		—		—		—		—		—		182,751
Corporate debt securities	—		—		—		—		—		23,196		20,985		25,452		69,633
Total	$	928,629	$	970,486	$	178,341	$	89,655	$	1,997	$	23,196	$	20,985	$	48,578	$	2,261,867

Contractual Maturities of Securities Held-to-Maturity

The following table presents the contractual maturities of our securities held-to-maturity portfolio based on amortized cost and carrying value as of the date indicated:


	June 30, 2022
			Due After		Due After
	Due		One Year		Five Years		Due
	Within		Through		Through		After
Security Type	One Year		Five Years		Ten Years		Ten Years		Total
	(In thousands)
Amortized Cost:

Municipal securities	$	—	$	—	$	286,105	$	955,559	$	1,241,664
Agency commercial MBS	—		—		400,499		23,775		424,274
Private label commercial MBS	—		—		35,780		307,765		343,545
U.S. Treasury securities	—		—		182,751		—		182,751
Corporate debt securities	—		—		—		69,633		69,633





Total	$	—	$	—	$	905,135	$	1,356,732	$	2,261,867

Fair Value:

Municipal securities	$	—	$	—	$	283,530	$	921,786	$	1,205,316
Agency commercial MBS	—		—		396,316		23,332		419,648
Private label commercial MBS	—		—		35,209		302,673		337,882
U.S. Treasury securities	—		—		180,896		—		180,896
Corporate debt securities	—		—		—		66,017		66,017





Total	$	—	$	—	$	895,951	$	1,313,808	$	2,209,759

CMBS 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.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Interest Income on Investment Securities

The following table presents the composition of our interest income on investment securities, including available-for-sale and held-to-maturity, for the periods indicated:


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(In thousands)									(In thousands)
Taxable interest	Taxable interest	$	31,980	$	17,835	$	79,156	$	59,457	Taxable interest	$	44,467	$	25,206	$	89,109	$	47,176
Non-taxable interest	Non-taxable interest	8,542		6,272		25,113		17,113		Non-taxable interest	8,180		8,493		16,699		16,571
Dividend income	Dividend income	258		336		730		1,357		Dividend income	255		255		516		472
Total interest income on investment securities	Total interest income on investment securities	$	40,780	$	24,443	$	104,999	$	77,927	Total interest income on investment securities	$	52,902	$	33,954	$	106,324	$	64,219

1619

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5.4. LOANS AND LEASES

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

Loans and Leases Held for Investment

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


		September 30,		December 31,			June 30,		December 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Real estate mortgage	Real estate mortgage	$	9,590,037	$	7,905,193	Real estate mortgage	$	13,570,353	$	11,189,278
Real estate construction and land(1)	Real estate construction and land(1)	3,699,435		3,393,145		Real estate construction and land(1)	4,059,965		3,491,340
Commercial	Commercial	6,892,846		7,534,801		Commercial	8,494,614		7,888,068
Consumer	Consumer	405,937		320,218		Consumer	483,609		457,622
Total gross loans and leases held for investment	Total gross loans and leases held for investment	20,588,255		19,153,357		Total gross loans and leases held for investment	26,608,541		23,026,308
Deferred fees, net	Deferred fees, net	(77,235)		(69,980)		Deferred fees, net	(107,404)		(84,760)
Total loans and leases held for investment, net of deferred fees	Total loans and leases held for investment, net of deferred fees	20,511,020		19,083,377		Total loans and leases held for investment, net of deferred fees	26,501,137		22,941,548
Allowance for loan and lease losses	Allowance for loan and lease losses	(203,733)		(348,181)		Allowance for loan and lease losses	(188,705)		(200,564)
Total loans and leases held for investment, net ~~(1)~~(2)	Total loans and leases held for investment, net ~~(1)~~(2)	$	20,307,287	$	18,735,196	Total loans and leases held for investment, net ~~(1)~~(2)	$	26,312,432	$	22,740,984

____________________

(1) Includes land and acquisition and development loans of $116.3 million and $151.8 million at June 30, 2022 and December 31, 2021.

(2) Excludes accrued interest receivable of ~~$75.7~~$88.9 million and ~~$79.7~~$80.3 million at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, which is recorded in "Other assets" on the condensed consolidated balance sheets.

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


		September 30, 2021											June 30, 2022
		30 - 89		90 or More									30 - 89		90 or More
		Days		Days		Total							Days		Days		Total
		Past Due		Past Due		Past Due		Current		Total			Past Due		Past Due		Past Due		Current		Total
		(In thousands)											(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	$	899	$	2,954	$	3,853	$	3,690,744	$	3,694,597	Commercial	$	13,345	$	1,859	$	15,204	$	3,655,311	$	3,670,515
Income producing and other residential		3,760		5,661		9,421		5,876,939		5,886,360
Residential												Residential	14,425		22,447		36,872		9,842,259		9,879,131
Total real estate mortgage	Total real estate mortgage	4,659		8,615		13,274		9,567,683		9,580,957		Total real estate mortgage	27,770		24,306		52,076		13,497,570		13,549,646
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	—		—		—		992,003		992,003		Commercial	—		—		—		837,423		837,423
Residential	Residential	13,017		19,587		32,604		2,627,266		2,659,870		Residential	26,288		12,477		38,765		3,114,851		3,153,616
Total real estate construction and land	Total real estate construction and land	13,017		19,587		32,604		3,619,269		3,651,873		Total real estate construction and land	26,288		12,477		38,765		3,952,274		3,991,039
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	—		479		479		3,661,290		3,661,769		Asset-based	—		441		441		5,067,671		5,068,112
Venture capital	Venture capital	1,670		—		1,670		1,631,191		1,632,861		Venture capital	—		—		—		2,179,190		2,179,190
Other commercial	Other commercial	561		1,654		2,215		1,575,377		1,577,592		Other commercial	10,812		638		11,450		1,218,054		1,229,504
Total commercial	Total commercial	2,231		2,133		4,364		6,867,858		6,872,222		Total commercial	10,812		1,079		11,891		8,464,915		8,476,806
Consumer	Consumer	1,042		357		1,399		404,569		405,968		Consumer	1,711		205		1,916		481,730		483,646
Total	Total	$	20,949	$	30,692	$	51,641	$	20,459,379	$	20,511,020	Total	$	66,581	$	38,067	$	104,648	$	26,396,489	$	26,501,137

1720

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		December 31, 2020											December 31, 2021
		30 - 89		90 or More									30 - 89		90 or More
		Days		Days		Total							Days		Days		Total
		Past Due		Past Due		Past Due		Current		Total			Past Due		Past Due		Past Due		Current		Total
		(In thousands)											(In thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	$	6,750	$	29,145	$	35,895	$	4,060,776	$	4,096,671	Commercial	$	5,307	$	2,236	$	7,543	$	3,754,756	$	3,762,299
Income producing and other residential		600		373		973		3,802,292		3,803,265
Residential												Residential	40,505		9,666		50,171		7,366,250		7,416,421
Total real estate mortgage	Total real estate mortgage	7,350		29,518		36,868		7,863,068		7,899,936		Total real estate mortgage	45,812		11,902		57,714		11,121,006		11,178,720
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:
Commercial	Commercial	—		—		—		1,117,121		1,117,121		Commercial	—		—		—		832,591		832,591
Residential	Residential	759		—		759		2,242,401		2,243,160		Residential	7,271		2,223		9,494		2,595,042		2,604,536
Total real estate construction and land	Total real estate construction and land	759		—		759		3,359,522		3,360,281		Total real estate construction and land	7,271		2,223		9,494		3,427,633		3,437,127
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	—		2,128		2,128		3,427,155		3,429,283		Asset-based	—		464		464		4,075,013		4,075,477
Venture capital	Venture capital	540		—		540		1,697,968		1,698,508		Venture capital	—		—		—		2,320,593		2,320,593
Other commercial	Other commercial	2,323		4,766		7,089		2,368,025		2,375,114		Other commercial	955		3,601		4,556		1,467,425		1,471,981
Total commercial	Total commercial	2,863		6,894		9,757		7,493,148		7,502,905		Total commercial	955		4,065		5,020		7,863,031		7,868,051
Consumer	Consumer	1,260		111		1,371		318,884		320,255		Consumer	1,004		276		1,280		456,370		457,650
Total	Total	$	12,232	$	36,523	$	48,755	$	19,034,622	$	19,083,377	Total	$	55,042	$	18,466	$	73,508	$	22,868,040	$	22,941,548

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

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


		September 30, 2021						December 31, 2020							June 30, 2022						December 31, 2021
		Nonaccrual		Performing		Total		Nonaccrual		Performing		Total			Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
		(In thousands)													(In thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	25,615	$	3,668,982	$	3,694,597	$	43,731	$	4,052,940	$	4,096,671	Commercial	$	28,529	$	3,641,986	$	3,670,515	$	27,540	$	3,734,759	$	3,762,299
Income producing and other residential		7,547		5,878,813		5,886,360		1,826		3,801,439		3,803,265
Residential														Residential	27,524		9,851,607		9,879,131		12,292		7,404,129		7,416,421
Total real estate mortgage	Total real estate mortgage	33,162		9,547,795		9,580,957		45,557		7,854,379		7,899,936		Total real estate mortgage	56,053		13,493,593		13,549,646		39,832		11,138,888		11,178,720
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	—		992,003		992,003		315		1,116,806		1,117,121		Commercial	—		837,423		837,423		—		832,591		832,591
Residential	Residential	19,918		2,639,952		2,659,870		—		2,243,160		2,243,160		Residential	13,287		3,140,329		3,153,616		4,715		2,599,821		2,604,536
Total real estate construction and land	Total real estate construction and land	19,918		3,631,955		3,651,873		315		3,359,966		3,360,281		Total real estate construction and land	13,287		3,977,752		3,991,039		4,715		3,432,412		3,437,127
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	1,605		3,660,164		3,661,769		2,679		3,426,604		3,429,283		Asset-based	1,189		5,066,923		5,068,112		1,464		4,074,013		4,075,477
Venture capital	Venture capital	2,348		1,630,513		1,632,861		1,980		1,696,528		1,698,508		Venture capital	3,120		2,176,070		2,179,190		2,799		2,317,794		2,320,593
Other commercial	Other commercial	6,979		1,570,613		1,577,592		40,243		2,334,871		2,375,114		Other commercial	4,655		1,224,849		1,229,504		11,950		1,460,031		1,471,981
Total commercial	Total commercial	10,932		6,861,290		6,872,222		44,902		7,458,003		7,502,905		Total commercial	8,964		8,467,842		8,476,806		16,213		7,851,838		7,868,051
Consumer	Consumer	495		405,473		405,968		389		319,866		320,255		Consumer	223		483,423		483,646		414		457,236		457,650
Total	Total	$	64,507	$	20,446,513	$	20,511,020	$	91,163	$	18,992,214	$	19,083,377	Total	$	78,527	$	26,422,610	$	26,501,137	$	61,174	$	22,880,374	$	22,941,548

1821

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

At ~~September~~June 30, ~~2021,~~2022, nonaccrual loans and leases included ~~$30.7~~$38.1 million of loans and leases 90 or more days past due, ~~$0.7~~$15.8 million of loans and leases 30 to 89 days past due, and ~~$33.2~~$24.7 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, ~~2020,~~2021, nonaccrual loans and leases included ~~$36.5~~$18.5 million of loans and leases 90 or more days past due, ~~$3.4~~$6.3 million of loans and leases 30 to 89 days past due, and ~~$51.3~~$36.4 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.

As of ~~September~~June 30, ~~2021,~~2022, our three largest loan relationships on nonaccrual status had an aggregate carrying value of ~~$16.6~~$19.5 million and represented ~~26%~~25% of total nonaccrual loans and leases.

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


		September 30, 2021									June 30, 2022
		Classified		Special Mention		Pass		Total			Classified		Special Mention		Pass		Total
		(In thousands)									(In thousands)
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Commercial	Commercial	$	69,059	$	202,029	$	3,423,509	$	3,694,597	Commercial	$	46,203	$	157,476	$	3,466,836	$	3,670,515
Income producing and other residential		13,603		73,831		5,798,926		5,886,360
Residential										Residential	32,443		19,248		9,827,440		9,879,131
Total real estate mortgage	Total real estate mortgage	82,662		275,860		9,222,435		9,580,957		Total real estate mortgage	78,646		176,724		13,294,276		13,549,646
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	—		67,649		924,354		992,003		Commercial	—		155,745		681,678		837,423
Residential	Residential	19,918		7,324		2,632,628		2,659,870		Residential	13,287		39,357		3,100,972		3,153,616
Total real estate construction and land	Total real estate construction and land	19,918		74,973		3,556,982		3,651,873		Total real estate construction and land	13,287		195,102		3,782,650		3,991,039
Commercial:	Commercial:									Commercial:
Asset-based	Asset-based	4,734		87,980		3,569,055		3,661,769		Asset-based	1,189		54,131		5,012,792		5,068,112
Venture capital	Venture capital	4,840		38,281		1,589,740		1,632,861		Venture capital	3,116		37,831		2,138,243		2,179,190
Other commercial	Other commercial	28,926		17,107		1,531,559		1,577,592		Other commercial	7,727		11,081		1,210,696		1,229,504
Total commercial	Total commercial	38,500		143,368		6,690,354		6,872,222		Total commercial	12,032		103,043		8,361,731		8,476,806
Consumer	Consumer	524		2,165		403,279		405,968		Consumer	299		5,392		477,955		483,646
Total	Total	$	141,604	$	496,366	$	19,873,050	$	20,511,020	Total	$	104,264	$	480,261	$	25,916,612	$	26,501,137


		December 31, 2020									December 31, 2021
		Classified		Special Mention		Pass		Total			Classified		Special Mention		Pass		Total
		(In thousands)									(In thousands)
Real estate mortgage:	Real estate mortgage:									Real estate mortgage:
Commercial	Commercial	$	91,543	$	262,462	$	3,742,666	$	4,096,671	Commercial	$	62,206	$	191,809	$	3,508,284	$	3,762,299
Income producing and other residential		8,767		61,384		3,733,114		3,803,265
Residential										Residential	17,700		19,848		7,378,873		7,416,421
Total real estate mortgage	Total real estate mortgage	100,310		323,846		7,475,780		7,899,936		Total real estate mortgage	79,906		211,657		10,887,157		11,178,720
Real estate construction and land:	Real estate construction and land:									Real estate construction and land:
Commercial	Commercial	42,558		107,592		966,971		1,117,121		Commercial	—		67,727		764,864		832,591
Residential	Residential	—		759		2,242,401		2,243,160		Residential	4,715		1,720		2,598,101		2,604,536
Total real estate construction and land	Total real estate construction and land	42,558		108,351		3,209,372		3,360,281		Total real estate construction and land	4,715		69,447		3,362,965		3,437,127
Commercial:	Commercial:									Commercial:
Asset-based	Asset-based	27,867		153,301		3,248,115		3,429,283		Asset-based	4,591		78,305		3,992,581		4,075,477
Venture capital	Venture capital	6,508		118,125		1,573,875		1,698,508		Venture capital	4,794		14,833		2,300,966		2,320,593
Other commercial	Other commercial	87,557		14,930		2,272,627		2,375,114		Other commercial	21,659		15,528		1,434,794		1,471,981
Total commercial	Total commercial	121,932		286,356		7,094,617		7,502,905		Total commercial	31,044		108,666		7,728,341		7,868,051
Consumer	Consumer	462		2,732		317,061		320,255		Consumer	439		1,841		455,370		457,650
Total	Total	$	265,262	$	721,285	$	18,096,830	$	19,083,377	Total	$	116,104	$	391,611	$	22,433,833	$	22,941,548

1922

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


				Three Months		Nine Months				Three Months		Nine Months					Three Months		Six Months				Three Months		Six Months
				Ended		Ended				Ended		Ended					Ended		Ended				Ended		Ended
		September 30,		September 30,		September 30,		September 30,		September 30,		September 30,			June 30,		June 30,		June 30,		June 30,		June 30,		June 30,
		2021		2021		2021		2020		2020		2020			2022		2022		2022		2021		2021		2021
		Nonaccrual		Interest		Interest		Nonaccrual		Interest		Interest			Nonaccrual		Interest		Interest		Nonaccrual		Interest		Interest
		Recorded		Income		Income		Recorded		Income		Income			Recorded		Income		Income		Recorded		Income		Income
		Investment		Recognized		Recognized		Investment		Recognized		Recognized			Investment		Recognized		Recognized		Investment		Recognized		Recognized
		(In thousands)													(In thousands)
With An Allowance Recorded:	With An Allowance Recorded:													With An Allowance Recorded:
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	72	$	—	$	—	$	736	$	—	$	—	Commercial	$	66	$	—	$	—	$	74	$	—	$	—
Income producing and other residential		3,323		—		—		1,163		—		—
Residential														Residential	6,941		—		—		2,806		—		—
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:

Commercial														Commercial	—		—		—		—		—		—
Residential	Residential	1,987		—		—		—		—		—		Residential	1,646		—		—		403		—		—
Commercial:	Commercial:													Commercial:
Asset based	Asset based	1,126		—		—		2,248		—		—		Asset based	748		—		—		1,484		—		—
Venture capital	Venture capital	2,347		—		—		2,001		—		—		Venture capital	3,120		—		—		2,717		—		—
Other commercial	Other commercial	1,170		—		—		1,235		—		—		Other commercial	1,262		—		—		1,472		—		—
Consumer	Consumer	495		—		—		404		—		—		Consumer	223		—		—		360		—		—
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	$	25,543	$	90	$	511	$	44,384	$	155	$	285	Commercial	$	28,463	$	14	$	98	$	31,991	$	140	$	430
Income producing and other residential		4,224		—		—		845		—		—
Residential														Residential	20,583		—		—		3,327		—		—
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	—		—		—		324		—		—		Commercial	—		—		—		284		—		—
Residential	Residential	17,931		—		—		—		—		—		Residential	11,641		—		—		1,531		—		—
Commercial:	Commercial:													Commercial:
Asset based	Asset based	479		—		—		569		—		—		Asset based	441		—		—		489		—		—

Venture capital														Venture capital	—		—		—		—		—		—
Other commercial	Other commercial	5,810		3		5		31,706		517		1,628		Other commercial	3,393		7		361		9,865		1,814		3,644

Consumer														Consumer	—		—		—		—		—		—
Total Loans and Leases With and	Total Loans and Leases With and													Total Loans and Leases With and
Without an Allowance Recorded:	Without an Allowance Recorded:													Without an Allowance Recorded:
Real estate mortgage	Real estate mortgage	$	33,162	$	90	$	511	$	47,128	$	155	$	285	Real estate mortgage	$	56,053	$	14	$	98	$	38,198	$	140	$	430
Real estate construction and land	Real estate construction and land	19,918		—		—		324		—		—		Real estate construction and land	13,287		—		—		2,218		—		—
Commercial	Commercial	10,932		3		5		37,759		517		1,628		Commercial	8,964		7		361		16,027		1,814		3,644
Consumer	Consumer	495		—		—		404		—		—		Consumer	223		—		—		360		—		—
Total	Total	$	64,507	$	93	$	516	$	85,615	$	672	$	1,913	Total	$	78,527	$	21	$	459	$	56,803	$	1,954	$	4,074

2023

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


																Revolving																			Revolving
																Converted																			Converted
Amortized Cost Basis (1)	Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term				Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
September 30, 2021		2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
June 30, 2022																				June 30, 2022	2022		2021		2020		2019		2018		Prior		Loans		Loans		Total
		(In thousands)																			(In thousands)
Real Estate Mortgage:	Real Estate Mortgage:																			Real Estate Mortgage:
Commercial	Commercial																			Commercial
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	565	$	5,835	$	48,421	$	5,816	$	10,448	$	37,536	$	2	$	—	$	108,623	1-2 High pass	$	—	$	3,156	$	7,553	$	7,041	$	6,031	$	40,194	$	27,677	$	—	$	91,652
3-4 Pass	3-4 Pass	316,700		539,855		344,575		536,615		505,934		1,014,656		44,726		11,825		3,314,886		3-4 Pass	282,678		497,641		522,878		283,379		493,351		1,203,978		80,868		10,411		3,375,184
5 Special mention	5 Special mention	—		4,839		67,336		79,223		7,985		42,646		—		—		202,029		5 Special mention	—		—		3,278		73,578		50,678		29,942		—		—		157,476
6-8 Classified	6-8 Classified	—		494		17,116		5,767		12,473		33,209		—		—		69,059		6-8 Classified	—		—		476		2,078		29,357		14,292		—		—		46,203
Total	Total	$	317,265	$	551,023	$	477,448	$	627,421	$	536,840	$	1,128,047	$	44,728	$	11,825	$	3,694,597	Total	$	282,678	$	500,797	$	534,185	$	366,076	$	579,417	$	1,288,406	$	108,545	$	10,411	$	3,670,515
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	190	$	168	$	53	$	168	$	—	$	—	$	579	Gross charge-offs	$	—	$	—	$	—	$	—	$	1,488	$	183	$	—	$	—	$	1,671
Gross recoveries		—		—		—		—		—		(5,934)		—		—		(5,934)
Net		$	—	$	—	$	190	$	168	$	53	$	(5,766)	$	—	$	—	$	(5,355)

Real Estate Mortgage:	Real Estate Mortgage:																			Real Estate Mortgage:
Income Producing and
Other Residential
Residential																				Residential
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	28,374	$	32,923	$	62,522	$	26,751	$	13,363	$	26,586	$	28,044	$	—	$	218,563	1-2 High pass	$	—	$	99,724	$	22,983	$	57,363	$	55,435	$	44,419	$	1,000	$	—	$	280,924
3-4 Pass	3-4 Pass	2,327,323		625,371		713,871		944,356		594,336		265,707		109,206		193		5,580,363		3-4 Pass	3,118,273		4,045,948		568,720		583,160		452,990		646,013		131,295		117		9,546,516
5 Special mention	5 Special mention	384		13,803		17,214		42,270		—		—		160		—		73,831		5 Special mention	1,828		4,279		151		12,990		—		—		—		—		19,248
6-8 Classified	6-8 Classified	334		4,022		—		3,045		101		5,793		—		308		13,603		6-8 Classified	2,724		20,325		3,209		—		3,061		2,897		—		227		32,443
Total	Total	$	2,356,415	$	676,119	$	793,607	$	1,016,422	$	607,800	$	298,086	$	137,410	$	501	$	5,886,360	Total	$	3,122,825	$	4,170,276	$	595,063	$	653,513	$	511,486	$	693,329	$	132,295	$	344	$	9,879,131
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	28	$	1	$	—	$	—	$	—	$	55	$	—	$	—	$	84	Gross charge-offs	$	—	$	34	$	1	$	—	$	—	$	—	$	—	$	—	$	35
Gross recoveries		—		—		—		—		—		(55)		(1)		—		(56)
Net		$	28	$	1	$	—	$	—	$	—	$	—	$	(1)	$	—	$	28

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	$	—	$	—	$	43	$	—	$	—	$	—	$	—	$	—	$	43	1-2 High pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	3-4 Pass	29,494		100,207		367,405		396,084		725		14,220		16,176		—		924,311		3-4 Pass	33,665		132,772		80,308		368,548		57,553		8,843		(11)		—		681,678
5 Special mention	5 Special mention	—		—		—		—		67,649		—		—		—		67,649		5 Special mention	—		—		—		—		86,528		69,217		—		—		155,745
6-8 Classified	6-8 Classified	—		—		—		—		—		—		—		—		—		6-8 Classified	—		—		—		—		—		—		—		—		—
Total	Total	$	29,494	$	100,207	$	367,448	$	396,084	$	68,374	$	14,220	$	16,176	$	—	$	992,003	Total	$	33,665	$	132,772	$	80,308	$	368,548	$	144,081	$	78,060	$	(11)	$	—	$	837,423
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	775	$	—	$	—	$	—	$	—	$	775	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Gross recoveries		—		—		—		—		—		—		—		—		—
Net		$	—	$	—	$	—	$	775	$	—	$	—	$	—	$	—	$	775

____________________

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
September 30, 2021 2021 2020 2019 2018 2017 Prior Loans Loans Total
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass $ — $ — $ — $ — $ — $ — $ — $ — $ —
3-4 Pass 841,092 532,400 973,649 195,691 51,769 5,471 25,435 7,121 2,632,628
5 Special mention 1,767 5,557 — — — — — — 7,324
6-8 Classified 5,398 5,899 8,621 — — — — — 19,918
Total $ 848,257 $ 543,856 $ 982,270 $ 195,691 $ 51,769 $ 5,471 $ 25,435 $ 7,121 $ 2,659,870
Current YTD period:
Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Gross recoveries — — — — — — — — —
Net $ — $ — $ — $ — $ — $ — $ — $ — $ —
Commercial: Asset-Based
Internal risk rating:
1-2 High pass $ 103,920 $ 76,652 $ 172,748 $ 120,030 $ 67,234 $ 183,114 $ 577,818 $ 54,890 $ 1,356,406
3-4 Pass 83,672 86,281 62,353 48,794 16,584 38,221 1,866,135 10,609 2,212,649
5 Special mention — — 50,293 20,949 — — 12,640 4,098 87,980
6-8 Classified — — — — — 479 4,029 226 4,734
Total $ 187,592 $ 162,933 $ 285,394 $ 189,773 $ 83,818 $ 221,814 $ 2,460,622 $ 69,823 $ 3,661,769
Current YTD period:
Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ 232 $ 232
Gross recoveries — — — — — (451) (23) — (474)
Net $ — $ — $ — $ — $ — $ (451) $ (23) $ 232 $ (242)
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$ — $ 1,999 $ — $ — $ (3) $ 15 $ 170,192 $ — $ 172,203
3-4 Pass 106,056 67,392 56,089 12,490 5,771 4,791 1,155,622 9,326 1,417,537
5 Special mention 10,992 3,111 20,506 — — 3,704 (32) — 38,281
6-8 Classified — — — 2,500 — — (7) 2,347 4,840
Total $ 117,048 $ 72,502 $ 76,595 $ 14,990 $ 5,768 $ 8,510 $ 1,325,775 $ 11,673 $ 1,632,861
Current YTD period:
Gross charge-offs $ — $ — $ — $ — $ — $ 620 $ — $ — $ 620
Gross recoveries — — — (13) (93) (27) — — (133)
Net $ — $ — $ — $ (13) $ (93) $ 593 $ — $ — $ 487

~~____________________~~

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

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
September 30, 2021 2021 2020 2019 2018 2017 Prior Loans Loans Total
(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass $ 227,874 $ 44,485 $ 285 $ 5 $ 278 $ 51 $ 41,464 $ 694 $ 315,136
3-4 Pass 270,186 73,562 80,334 78,067 49,397 90,990 564,920 8,967 1,216,423
5 Special mention — 1,901 658 1,509 97 10,591 2,261 90 17,107
6-8 Classified 2,042 — 414 (2) 229 4,275 20,808 1,160 28,926
Total $ 500,102 $ 119,948 $ 81,691 $ 79,579 $ 50,001 $ 105,907 $ 629,453 $ 10,911 $ 1,577,592
Current YTD period:
Gross charge-offs $ — $ — $ 122 $ 47 $ 63 $ 521 $ 75 $ 2,122 $ 2,950
Gross recoveries — — (27) — (44) (1,423) (57) (111) (1,662)
Net $ — $ — $ 95 $ 47 $ 19 $ (902) $ 18 $ 2,011 $ 1,288
Consumer
Internal risk rating:
1-2 High pass $ — $ 11 $ — $ 6 $ 6 $ — $ 663 $ — $ 686
3-4 Pass 181,973 31,750 74,081 44,997 23,654 37,991 8,137 10 402,593
5 Special mention 256 377 1,071 210 23 153 — 75 2,165
6-8 Classified — — 159 — 173 171 2 19 524
Total $ 182,229 $ 32,138 $ 75,311 $ 45,213 $ 23,856 $ 38,315 $ 8,802 $ 104 $ 405,968
Current YTD period:
Gross charge-offs $ — $ 55 $ 545 $ 259 $ 107 $ 113 $ — $ 1 $ 1,080
Gross recoveries — — — (27) (10) (75) (1) — (113)
Net $ — $ 55 $ 545 $ 232 $ 97 $ 38 $ (1) $ 1 $ 967
Total Loans and Leases
Internal risk rating:
1-2 High pass $ 360,733 $ 161,905 $ 284,019 $ 152,608 $ 91,326 $ 247,302 $ 818,183 $ 55,584 $ 2,171,660
3-4 Pass 4,156,496 2,056,818 2,672,357 2,257,094 1,248,170 1,472,047 3,790,357 48,051 17,701,390
5 Special mention 13,399 29,588 157,078 144,161 75,754 57,094 15,029 4,263 496,366
6-8 Classified 7,774 10,415 26,310 11,310 12,976 43,927 24,832 4,060 141,604
Total $ 4,538,402 $ 2,258,726 $ 3,139,764 $ 2,565,173 $ 1,428,226 $ 1,820,370 $ 4,648,401 $ 111,958 $ 20,511,020
Current YTD period:
Gross charge-offs $ 28 $ 56 $ 857 $ 1,249 $ 223 $ 1,477 $ 75 $ 2,355 $ 6,320
Gross recoveries — — (27) (40) (147) (7,965) (82) (111) (8,372)
Net $ 28 $ 56 $ 830 $ 1,209 $ 76 $ (6,488) $ (7) $ 2,244 $ (2,052)

~~______________________~~

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

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
December 31, 2020 2020 2019 2018 2017 2016 Prior Loans Loans Total
(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass $ — $ 28,304 $ 4,848 $ 13,184 $ 12,241 $ 41,222 $ — $ — $ 99,799
3-4 Pass 554,143 413,785 574,497 725,503 405,367 893,008 62,586 13,978 3,642,867
5 Special mention 2,622 78,484 99,397 14,625 9,967 57,367 — — 262,462
6-8 Classified 504 1,255 7,489 7,869 16,797 57,629 — — 91,543
Total $ 557,269 $ 521,828 $ 686,231 $ 761,181 $ 444,372 $ 1,049,226 $ 62,586 $ 13,978 $ 4,096,671
Current YTD period:
Gross charge-offs $ — $ — $ 154 $ 3,330 $ — $ 6,694 $ — $ — $ 10,178
Gross recoveries — — — (9) — (280) — — (289)
Net $ — $ — $ 154 $ 3,321 $ — $ 6,414 $ — $ — $ 9,889
Real Estate Mortgage:
Income Producing and
Other Residential
Internal risk rating:
1-2 High pass $ 58,714 $ 55,826 $ 28,831 $ 33,017 $ 18,991 $ 9,265 $ — $ — $ 204,644
3-4 Pass 491,504 850,978 1,067,109 577,906 238,499 187,959 113,987 528 3,528,470
5 Special mention 12,307 4,207 42,455 1,554 — — 861 — 61,384
6-8 Classified — — 2,862 — — 4,950 118 837 8,767
Total $ 562,525 $ 911,011 $ 1,141,257 $ 612,477 $ 257,490 $ 202,174 $ 114,966 $ 1,365 $ 3,803,265
Current YTD period:
Gross charge-offs $ — $ — $ — $ — $ — $ 51 $ — $ 457 $ 508
Gross recoveries — — — — — (327) (1) — (328)
Net $ — $ — $ — $ — $ — $ (276) $ (1) $ 457 $ 180
Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass $ — $ — $ — $ — $ — $ — $ — $ — $ —
3-4 Pass 66,114 369,588 357,295 118,586 36,027 11,778 7,583 — 966,971
5 Special mention — — 40,396 67,196 — — — — 107,592
6-8 Classified — — — — 42,243 315 — — 42,558
Total $ 66,114 $ 369,588 $ 397,691 $ 185,782 $ 78,270 $ 12,093 $ 7,583 $ — $ 1,117,121
Current YTD period:
Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —
Gross recoveries — — — — — — — — —
Net $ — $ — $ — $ — $ — $ — $ — $ — $ —

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


																Revolving																			Revolving
																Converted																			Converted
Amortized Cost Basis (1)	Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term				Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
December 31, 2020		2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
June 30, 2022																				June 30, 2022	2022		2021		2020		2019		2018		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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	3-4 Pass	345,134		670,894		849,819		285,072		28,725		688		9,034		53,035		2,242,401		3-4 Pass	505,330		962,146		845,779		621,951		165,271		820		(325)		—		3,100,972
5 Special mention	5 Special mention	759		—		—		—		—		—		—		—		759		5 Special mention	16,070		3,421		19,866		—		—		—		—		—		39,357
6-8 Classified	6-8 Classified	—		—		—		—		—		—		—		—		—		6-8 Classified	(365)		7,105		5,700		588		—		259		—		—		13,287
Total	Total	$	345,893	$	670,894	$	849,819	$	285,072	$	28,725	$	688	$	9,034	$	53,035	$	2,243,160	Total	$	521,035	$	972,672	$	871,345	$	622,539	$	165,271	$	1,079	$	(325)	$	—	$	3,153,616
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	Gross charge-offs	$	—	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Gross recoveries		—		—		—		—		—		(21)		—		—		(21)
Net		$	—	$	—	$	—	$	—	$	—	$	(21)	$	—	$	—	$	(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	$	116,247	$	173,457	$	111,630	$	69,244	$	121,838	$	88,201	$	275,093	$	72,017	$	1,027,727	1-2 High pass	$	180,149	$	166,488	$	53,533	$	189,543	$	117,975	$	231,190	$	868,141	$	17,039	$	1,824,058
3-4 Pass	3-4 Pass	155,221		84,798		85,539		42,928		8,227		46,663		1,750,934		46,078		2,220,388		3-4 Pass	383,309		248,015		59,956		56,192		36,185		49,379		2,248,953		106,745		3,188,734
5 Special mention	5 Special mention	—		59,822		41,789		9,022		14,274		482		23,257		4,655		153,301		5 Special mention	—		—		—		32,720		9,070		—		8,604		3,737		54,131
6-8 Classified	6-8 Classified	—		—		—		—		19,417		551		8,799		(900)		27,867		6-8 Classified	—		—		—		—		—		441		—		748		1,189
Total	Total	$	271,468	$	318,077	$	238,958	$	121,194	$	163,756	$	135,897	$	2,058,083	$	121,850	$	3,429,283	Total	$	563,458	$	414,503	$	113,489	$	278,455	$	163,230	$	281,010	$	3,125,698	$	128,269	$	5,068,112
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	11,817	$	—	$	—	$	11,817	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Gross recoveries		(52)		—		—		—		—		(420)		(236)		—		(708)
Net		$	(52)	$	—	$	—	$	—	$	—	$	11,397	$	(236)	$	—	$	11,109

Commercial: Venture	Commercial: Venture																			Commercial: Venture
Capital	Capital																			Capital
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	1,999	$	4,797	$	—	$	(4)	$	(4)	$	52	$	167,296	$	—	$	174,136	1-2 High pass	$	16,009	$	—	$	1,999	$	—	$	—	$	8	$	137,261	$	—	$	155,277
3-4 Pass	3-4 Pass	48,132		103,437		37,818		7,789		29,738		5,494		1,161,606		5,725		1,399,739		3-4 Pass	46,412		164,767		18,740		21,192		4,510		4,523		1,697,801		25,021		1,982,966
5 Special mention	5 Special mention	21,645		42,499		2,202		—		—		—		46,765		5,014		118,125		5 Special mention	—		29,958		2,111		4,025		—		—		1,737		—		37,831
6-8 Classified	6-8 Classified	—		(1,710)		4,000		—		—		3,690		528		—		6,508		6-8 Classified	—		475		—		—		1,284		—		(4)		1,361		3,116
Total	Total	$	71,776	$	149,023	$	44,020	$	7,785	$	29,734	$	9,236	$	1,376,195	$	10,739	$	1,698,508	Total	$	62,421	$	195,200	$	22,850	$	25,217	$	5,794	$	4,531	$	1,836,795	$	26,382	$	2,179,190
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	6,533	$	—	$	(8)	$	150	$	144	$	—	$	6,819	Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Gross recoveries		—		—		(478)		(176)		(154)		(3)		(450)		—		(1,261)
Net		$	—	$	—	$	6,055	$	(176)	$	(162)	$	147	$	(306)	$	—	$	5,558

____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


																Revolving																			Revolving
																Converted																			Converted
Amortized Cost Basis (1)	Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term				Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
December 31, 2020		2020		2019		2018		2017		2016		Prior		Loans		Loans		Total
June 30, 2022																				June 30, 2022	2022		2021		2020		2019		2018		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	$	1,057,405	$	380	$	4	$	366	$	69	$	1,350	$	74,206	$	80	$	1,133,860	1-2 High pass	$	494	$	24,925	$	8,799	$	214	$	9	$	217	$	21,052	$	—	$	55,710
3-4 Pass	3-4 Pass	88,875		95,110		99,434		77,557		23,305		89,865		657,088		7,533		1,138,767		3-4 Pass	43,910		292,506		65,676		47,213		52,217		93,869		547,544		12,051		1,154,986
5 Special mention	5 Special mention	—		40		2,145		564		484		10,440		335		922		14,930		5 Special mention	—		830		202		503		1,508		7,863		77		98		11,081
6-8 Classified	6-8 Classified	2		564		80		230		755		3,813		75,046		7,067		87,557		6-8 Classified	—		1,150		—		357		(3)		2,841		2,147		1,235		7,727
Total	Total	$	1,146,282	$	96,094	$	101,663	$	78,717	$	24,613	$	105,468	$	806,675	$	15,602	$	2,375,114	Total	$	44,404	$	319,411	$	74,677	$	48,287	$	53,731	$	104,790	$	570,820	$	13,384	$	1,229,504
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	—	$	—	$	506	$	239	$	33,521	$	27,332	$	1,871	$	63,469	Gross charge-offs	$	—	$	159	$	—	$	—	$	—	$	1,701	$	1,818	$	66	$	3,744
Gross recoveries		—		(18)		(8)		(34)		(226)		(3,155)		(100)		(19)		(3,560)
Net		$	—	$	(18)	$	(8)	$	472	$	13	$	30,366	$	27,232	$	1,852	$	59,909

Consumer	Consumer																			Consumer
Internal risk rating:	Internal risk rating:																			Internal risk rating:
1-2 High pass	1-2 High pass	$	15	$	—	$	8	$	14	$	—	$	—	$	509	$	—	$	546	1-2 High pass	$	—	$	34	$	9	$	—	$	3	$	—	$	614	$	—	$	660
3-4 Pass	3-4 Pass	40,585		110,993		62,833		39,036		41,623		12,831		8,536		78		316,515		3-4 Pass	83,997		230,843		19,477		59,951		29,422		43,835		9,770		—		477,295
5 Special mention	5 Special mention	45		137		1,628		261		422		239		—		—		2,732		5 Special mention	890		2,401		183		1,433		87		305		93		—		5,392
6-8 Classified	6-8 Classified	—		35		—		36		56		306		2		27		462		6-8 Classified	—		181		—		—		24		75		1		18		299
Total	Total	$	40,645	$	111,165	$	64,469	$	39,347	$	42,101	$	13,376	$	9,047	$	105	$	320,255	Total	$	84,887	$	233,459	$	19,669	$	61,384	$	29,536	$	44,215	$	10,478	$	18	$	483,646
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	97	$	86	$	177	$	363	$	44	$	22	$	9	$	798	Gross charge-offs	$	—	$	—	$	22	$	338	$	—	$	216	$	—	$	—	$	576
Gross recoveries		—		—		(1)		(10)		(16)		(174)		—		—		(201)
Net		$	—	$	97	$	85	$	167	$	347	$	(130)	$	22	$	9	$	597

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	$	1,234,380	$	262,764	$	145,321	$	115,821	$	153,135	$	140,090	$	517,104	$	72,097	$	2,640,712	1-2 High pass	$	196,652	$	294,327	$	94,876	$	254,161	$	179,453	$	316,028	$	1,055,745	$	17,039	$	2,408,281
3-4 Pass	3-4 Pass	1,789,708		2,699,583		3,134,344		1,874,377		811,511		1,248,286		3,771,354		126,955		15,456,118		3-4 Pass	4,497,574		6,574,638		2,181,534		2,041,586		1,291,499		2,051,260		4,715,895		154,345		23,508,331
5 Special mention	5 Special mention	37,378		185,189		230,012		93,222		25,147		68,528		71,218		10,591		721,285		5 Special mention	18,788		40,889		25,791		125,249		147,871		107,327		10,511		3,835		480,261
6-8 Classified	6-8 Classified	506		144		14,431		8,135		79,268		71,254		84,493		7,031		265,262		6-8 Classified	2,359		29,236		9,385		3,023		33,723		20,805		2,144		3,589		104,264
Total	Total	$	3,061,972	$	3,147,680	$	3,524,108	$	2,091,555	$	1,069,061	$	1,528,158	$	4,444,169	$	216,674	$	19,083,377	Total	$	4,715,373	$	6,939,090	$	2,311,586	$	2,424,019	$	1,652,546	$	2,495,420	$	5,784,295	$	178,808	$	26,501,137
Current YTD period:	Current YTD period:																			Current YTD period:
Gross charge-offs	Gross charge-offs	$	—	$	97	$	6,773	$	4,013	$	594	$	52,277	$	27,498	$	2,337	$	93,589	Gross charge-offs	$	—	$	200	$	23	$	338	$	1,488	$	2,100	$	1,818	$	66	$	6,033
Gross recoveries		(52)		(18)		(487)		(229)		(396)		(4,380)		(787)		(19)		(6,368)
Net		$	(52)	$	79	$	6,286	$	3,784	$	198	$	47,897	$	26,711	$	2,318	$	87,221

______________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


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

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


															Revolving
															Converted
Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
December 31, 2021	2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
	(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	849,188		672,864		851,127		163,950		17,526		3,970		28,804		10,672		2,598,101
5 Special mention	276		1,185		—		—		259		—		—		—		1,720
6-8 Classified	849		3,278		588		—		—		—		—		—		4,715
Total	$	850,313	$	677,327	$	851,715	$	163,950	$	17,785	$	3,970	$	28,804	$	10,672	$	2,604,536
Current YTD period:
Gross charge-offs	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Gross recoveries	—		—		—		—		—		—		—		—		—
Net	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	7

Commercial: Asset-Based
Internal risk rating:
1-2 High pass	$	138,836	$	72,725	$	178,291	$	123,947	$	71,940	$	188,411	$	706,656	$	50,495	$	1,531,301
3-4 Pass	242,209		71,930		59,748		45,375		8,350		34,833		1,992,677		6,158		2,461,280
5 Special mention	—		—		48,796		13,138		—		—		12,393		3,978		78,305
6-8 Classified	—		—		—		—		—		464		4,027		100		4,591
Total	$	381,045	$	144,655	$	286,835	$	182,460	$	80,290	$	223,708	$	2,715,753	$	60,731	$	4,075,477
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	232	$	232
Gross recoveries	—		—		—		—		—		(691)		(28)		—		(719)
Net	$	—	$	—	$	—	$	—	$	—	$	(691)	$	(28)	$	232	$	(487)

Commercial: Venture
Capital
Internal risk rating:
1-2 High pass	$	—	$	1,999	$	—	$	—	$	(4)	$	14	$	228,820	$	—	$	230,829
3-4 Pass	229,567		58,283		46,007		7,241		1,614		4,166		1,715,057		8,202		2,070,137
5 Special mention	8,980		2,778		499		—		—		2,593		(17)		—		14,833
6-8 Classified	500		—		—		2,000		—		—		(6)		2,300		4,794
Total	$	239,047	$	63,060	$	46,506	$	9,241	$	1,610	$	6,773	$	1,943,854	$	10,502	$	2,320,593
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	620	$	—	$	—	$	620
Gross recoveries	—		—		(127)		(37)		(158)		(82)		—		—		(404)
Net	$	—	$	—	$	(127)	$	(37)	$	(158)	$	538	$	—	$	—	$	216

____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


															Revolving
															Converted
Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
December 31, 2021	2021		2020		2019		2018		2017		Prior		Loans		Loans		Total
	(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass	$	134,825	$	22,556	$	261	$	4	$	246	$	(50)	$	18,206	$	693	$	176,741
3-4 Pass	286,281		73,328		77,487		67,591		46,939		89,408		607,197		9,822		1,258,053
5 Special mention	—		291		1		2,088		115		11,911		1,061		61		15,528
6-8 Classified	53		1		395		(3)		223		4,212		15,731		1,047		21,659
Total	$	421,159	$	96,176	$	78,144	$	69,680	$	47,523	$	105,481	$	642,195	$	11,623	$	1,471,981
Current YTD period:
Gross charge-offs	$	1,992	$	—	$	122	$	47	$	139	$	797	$	985	$	2,364	$	6,446
Gross recoveries	—		—		(42)		—		(268)		(4,076)		(57)		(145)		(4,588)
Net	$	1,992	$	—	$	80	$	47	$	(129)	$	(3,279)	$	928	$	2,219	$	1,858

Consumer
Internal risk rating:
1-2 High pass	$	36	$	11	$	—	$	5	$	4	$	—	$	646	$	—	$	702
3-4 Pass	261,678		24,195		73,860		35,623		21,707		31,916		5,689		—		454,668
5 Special mention	797		363		496		—		50		135		—		—		1,841
6-8 Classified	—		22		123		111		21		143		—		19		439
Total	$	262,511	$	24,591	$	74,479	$	35,739	$	21,782	$	32,194	$	6,335	$	19	$	457,650
Current YTD period:
Gross charge-offs	$	—	$	185	$	654	$	156	$	270	$	188	$	—	$	54	$	1,507
Gross recoveries	—		—		—		(27)		(13)		(79)		(1)		—		(120)
Net	$	—	$	185	$	654	$	129	$	257	$	109	$	(1)	$	54	$	1,387

Total Loans and Leases
Internal risk rating:
1-2 High pass	$	369,274	$	135,778	$	268,730	$	179,933	$	90,210	$	238,571	$	982,446	$	51,188	$	2,316,130
3-4 Pass	6,869,712		2,152,244		2,390,507		1,667,175		1,134,114		1,345,890		4,511,074		46,987		20,117,703
5 Special mention	12,924		13,238		126,180		91,598		74,684		55,351		13,597		4,039		391,611
6-8 Classified	6,563		9,006		18,143		10,771		6,826		41,306		19,752		3,737		116,104
Total	$	7,258,473	$	2,310,266	$	2,803,560	$	1,949,477	$	1,305,834	$	1,681,118	$	5,526,869	$	105,951	$	22,941,548
Current YTD period:
Gross charge-offs	$	2,027	$	265	$	965	$	1,146	$	753	$	1,924	$	985	$	2,650	$	10,715
Gross recoveries	(28)		—		(169)		(64)		(447)		(11,358)		(86)		(446)		(12,598)
Net	$	1,999	$	265	$	796	$	1,082	$	306	$	(9,434)	$	899	$	2,204	$	(1,883)

____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


		Three Months Ended September 30,											Three Months Ended June 30,
		2021					2020						2022					2021
			Pre-		Post-			Pre-		Post-				Pre-		Post-			Pre-		Post-
			Modification		Modification			Modification		Modification				Modification		Modification			Modification		Modification
		Number	Outstanding		Outstanding		Number	Outstanding		Outstanding			Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
		of	Recorded		Recorded		of	Recorded		Recorded			of	Recorded		Recorded		of	Recorded		Recorded
Troubled Debt Restructurings	Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment		Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment
		(Dollars in thousands)											(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	—	$	—	$	—	1	$	12,594	$	—	Commercial	—	$	—	$	—	1	$	—	$	—
Income producing and other residential		3	297		297		2	157		157
Residential												Residential	1	208		208		—	—		—
Real estate construction and land:												Real estate construction and land:

Residential												Residential	—	—		—		1	208		208
Commercial:												Commercial:

Commercial:
Asset-based		1	1,484		1,484		1	15,267		—
Venture capital	Venture capital	2	2,382		2,382		1	2,015		2,015		Venture capital	4	3,330		3,330		1	2,408		2,408
Other commercial	Other commercial	2	85		85		5	7,105		100		Other commercial	6	57		57		25	16,358		16,358

Consumer												Consumer	1	18		18		—	—		—
Total	Total	8	$	4,248	$	4,248	10	$	37,138	$	2,272	Total	12	$	3,613	$	3,613	28	$	18,974	$	18,974


		Nine Months Ended September 30,											Six Months Ended June 30,
		2021					2020						2022					2021
			Pre-		Post-			Pre-		Post-				Pre-		Post-			Pre-		Post-
			Modification		Modification			Modification		Modification				Modification		Modification			Modification		Modification
		Number	Outstanding		Outstanding		Number	Outstanding		Outstanding			Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
		of	Recorded		Recorded		of	Recorded		Recorded			of	Recorded		Recorded		of	Recorded		Recorded
Troubled Debt Restructurings	Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment		Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment
		(Dollars in thousands)											(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:											Real estate mortgage:
Commercial	Commercial	2	$	647	$	—	9	$	16,339	$	3,745	Commercial	1	$	—	$	—	2	$	647	$	—
Income producing and other residential		4	518		518		6	911		911
Residential												Residential	2	512		207		2	266		266
Real estate construction and land:	Real estate construction and land:											Real estate construction and land:

Residential	Residential	1	208		208		—	—		—		Residential	—	—		—		1	208		208
Commercial:	Commercial:											Commercial:
Asset-based	Asset-based	2	1,987		1,987		8	17,008		1,741		Asset-based	—	—		—		1	503		503
Venture capital	Venture capital	4	4,502		2,529		2	2,047		2,047		Venture capital	5	3,330		3,330		3	4,502		2,529
Other commercial	Other commercial	37	48,694		30,719		33	30,324		21,544		Other commercial	19	1,131		1,131		35	48,608		30,634
Consumer	Consumer	1	20		20		3	212		212		Consumer	1	18		18		1	20		20
Total	Total	51	$	56,576	$	35,981	61	$	66,841	$	30,200	Total	28	$	4,991	$	4,686	45	$	54,754	$	34,160

During the three months and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, there was 1 ~~asset-based~~residential real estate mortgage loan for ~~$479,000~~$104,000 and 2 other commercial loans ~~totaling $95,000~~for $110,000 restructured in the preceding 12-month period that subsequently defaulted. During the three months and six months ended ~~September~~June 30, ~~2020,~~2021, there ~~was 1 $412,000 real estate mortgage~~were 2 other commercial loan for $134,000 restructured in the preceding ~~12-month period that subsequently defaulted.~~ 1~~During the nine months ended September 30, 2020, there was~~ 1 ~~$412,000real estate mortgage commercial loan~~ ~~and 1 $5,000~~ ~~other commercial loan~~ ~~restructured in the preceding 12-month~~2-month period that subsequently defaulted.

2730

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 9.8. Leases for information regarding operating leases where we are the lessor.

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(In thousands)									(In thousands)
Component of leases receivable income:	Component of leases receivable income:									Component of leases receivable income:
Interest income on net investments in leases	Interest income on net investments in leases	$	2,287	$	1,869	$	6,645	$	6,224	Interest income on net investments in leases	$	2,491	$	2,278	$	4,879	$	4,358

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


		September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
		(In thousands)					(In thousands)
Net investment in direct financing leases:	Net investment in direct financing leases:					Net investment in direct financing leases:
Lease payments receivable	Lease payments receivable	$	171,412	$	158,740	Lease payments receivable	$	213,628	$	190,025
Unguaranteed residual assets	Unguaranteed residual assets	24,862		19,303		Unguaranteed residual assets	23,976		21,487
Deferred costs and other	Deferred costs and other	1,257		996		Deferred costs and other	1,822		1,373
Aggregate net investment in leases	Aggregate net investment in leases	$	197,531	$	179,039	Aggregate net investment in leases	$	239,426	$	212,885

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


		September 30, 2021			June 30, 2022
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2021		$	18,527
2022	2022	52,542		2022	$	29,235
2023	2023	39,820		2023	59,343
2024	2024	35,214		2024	54,917
2025	2025	20,231		2025	37,721
2026				2026	25,076
Thereafter	Thereafter	24,163		Thereafter	33,619
Total undiscounted cash flows	Total undiscounted cash flows	190,497		Total undiscounted cash flows	239,911
Less: Unearned income	Less: Unearned income	(19,085)		Less: Unearned income	(26,283)
Present value of lease payments	Present value of lease payments	$	171,412	Present value of lease payments	$	213,628

2831

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Allowance for Loan and Lease Losses

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

Three Months Ended September 30, 2021
Real Estate
Real Estate Construction
Mortgage and Land Commercial Consumer Total
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $ 107,013 $ 54,582 $ 57,697 $ 6,308 $ 225,600
Charge-offs (29) — (951) (536) (1,516)
Recoveries 563 — 543 43 1,149
Net (charge-offs) recoveries 534 — (408) (493) (367)
Provision (11,344) (1,923) (9,792) 1,559 (21,500)
Balance, end of period $ 96,203 $ 52,659 $ 47,497 $ 7,374 $ 203,733
Nine Months Ended September 30, 2021
Real Estate
Real Estate Construction
Mortgage and Land Commercial Consumer Total
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $ 138,342 $ 78,356 $ 126,403 $ 5,080 $ 348,181
Charge-offs (663) (775) (3,802) (1,080) (6,320)
Recoveries 5,990 — 2,269 113 8,372
Net (charge-offs) recoveries 5,327 (775) (1,533) (967) 2,052
Provision (47,466) (24,922) (77,373) 3,261 (146,500)
Balance, end of period $ 96,203 $ 52,659 $ 47,497 $ 7,374 $ 203,733
Ending Allowance by
Evaluation Methodology:
Individually evaluated $ 189 $ — $ 2,721 $ — $ 2,910
Collectively evaluated $ 96,014 $ 52,659 $ 44,776 $ 7,374 $ 200,823
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated $ 34,822 $ 19,364 $ 38,647 $ — $ 92,833
Collectively evaluated 9,546,135 3,632,509 6,833,575 405,968 20,418,187
Ending balance $ 9,580,957 $ 3,651,873 $ 6,872,222 $ 405,968 $ 20,511,020


	Three Months Ended June 30, 2022
			Real Estate
	Real Estate		Construction
	Mortgage		and Land		Commercial		Consumer		Total
	(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period	$	86,715	$	44,161	$	57,056	$	9,466	$	197,398
Charge-offs	(1,538)		(7)		(911)		(343)		(2,799)
Recoveries	1,305		—		2,790		11		4,106
Net (charge-offs) recoveries	(233)		(7)		1,879		(332)		1,307
Provision	(1,195)		(2,376)		(4,904)		(1,525)		(10,000)
Balance, end of period	$	85,287	$	41,778	$	54,031	$	7,609	$	188,705


	Six Months Ended June 30, 2022
			Real Estate
	Real Estate		Construction
	Mortgage		and Land		Commercial		Consumer		Total
	(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period	$	98,053	$	45,079	$	48,718	$	8,714	$	200,564



Charge-offs	(1,706)		(7)		(3,744)		(576)		(6,033)
Recoveries	1,468		149		4,525		32		6,174
Net (charge-offs) recoveries	(238)		142		781		(544)		141
Provision	(12,528)		(3,443)		4,532		(561)		(12,000)
Balance, end of period	$	85,287	$	41,778	$	54,031	$	7,609	$	188,705

Ending Allowance by
Evaluation Methodology:
Individually evaluated	$	140	$	—	$	812	$	—	$	952
Collectively evaluated	$	85,147	$	41,778	$	53,219	$	7,609	$	187,753

Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated	$	40,178	$	27,121	$	11,419	$	—	$	78,718
Collectively evaluated	13,509,468		3,963,918		8,465,387		483,646		26,422,419
Ending balance	$	13,549,646	$	3,991,039	$	8,476,806	$	483,646	$	26,501,137

2932

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


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

		Nine Months Ended September 30, 2020											Six Months Ended June 30, 2021
				Real Estate											Real Estate
		Real Estate		Construction									Real Estate		Construction
		Mortgage		and Land		Commercial		Consumer		Total			Mortgage		and Land		Commercial		Consumer		Total
		(In thousands)											(In thousands)
Allowance for Loan and Lease Losses:	Allowance for Loan and Lease Losses:											Allowance for Loan and Lease Losses:
Balance, beginning of period	Balance, beginning of period	$	44,575	$	30,544	$	61,528	$	2,138	$	138,785	Balance, beginning of period	$	138,342	$	78,356	$	126,403	$	5,080	$	348,181
Cumulative effect of change in accounting
principle - CECL		5,308		(8,592)		6,860		41		3,617
Balance, January 1, 2020		49,883		21,952		68,388		2,179		142,402
Charge-offs	Charge-offs	(6,233)		—		(66,337)		(705)		(73,275)		Charge-offs	(634)		(775)		(2,851)		(544)		(4,804)
Recoveries	Recoveries	360		21		4,410		48		4,839		Recoveries	5,427		—		1,726		70		7,223
Net (charge-offs) recoveries	Net (charge-offs) recoveries	(5,873)		21		(61,927)		(657)		(68,436)		Net (charge-offs) recoveries	4,793		(775)		(1,125)		(474)		2,419
Provision	Provision	77,684		68,200		121,804		4,312		272,000		Provision	(36,122)		(22,999)		(67,581)		1,702		(125,000)
Balance, end of period	Balance, end of period	$	121,694	$	90,173	$	128,265	$	5,834	$	345,966	Balance, end of period	$	107,013	$	54,582	$	57,697	$	6,308	$	225,600

Ending Allowance by	Ending Allowance by											Ending Allowance by
Evaluation Methodology:	Evaluation Methodology:											Evaluation Methodology:
Individually evaluated	Individually evaluated	$	340	$	—	$	2,584	$	—	$	2,924	Individually evaluated	$	203	$	—	$	3,265	$	—	$	3,468
Collectively evaluated	Collectively evaluated	$	121,354	$	90,173	$	125,681	$	5,834	$	343,042	Collectively evaluated	$	106,810	$	54,582	$	54,432	$	6,308	$	222,132

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	$	51,852	$	1,782	$	41,501	$	—	$	95,135	Individually evaluated	$	41,145	$	3,254	$	46,400	$	—	$	90,799
Collectively evaluated	Collectively evaluated	7,825,193		3,421,965		7,321,673		362,234		18,931,065		Collectively evaluated	8,371,875		3,502,330		7,175,844		365,409		19,415,458
Ending balance	Ending balance	$	7,877,045	$	3,423,747	$	7,363,174	$	362,234	$	19,026,200	Ending balance	$	8,413,020	$	3,505,584	$	7,222,244	$	365,409	$	19,506,257

The allowance for loan and lease losses decreased by ~~$21.9~~$8.7 million in the ~~third~~second quarter of ~~2021~~2022 to ~~$203.7~~$188.7 million due primarily to a provision for loan and lease losses benefit of ~~$21.5~~$10.0 million driven by improvement in ~~both key macro-economic variables and~~credit risks specific to the COVID-19 pandemic combined with changes in our loan portfolio ~~credit quality metrics,~~composition, offset partially by an increased ~~provisions~~provision for ~~unfunded commitments~~loan growth and ~~loan growth.~~economic uncertainty.

We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act during 2020 and ~~2021.~~2021, originating $1.65 billion of such loans. As of ~~September~~June 30, ~~2021,~~2022, PPP loans ~~had an outstanding balance~~totaled $33.0 million, net of ~~approximately $279.4 million.~~deferred fees. The loans ~~are~~have two or five year terms, are fully guaranteed by the SBA, and do not carry an allowance.

3033

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


		September 30, 2021						December 31, 2020							June 30, 2022						December 31, 2021
		Real		Business				Real		Business					Real		Business				Real		Business
		Property		Assets		Total		Property		Assets		Total			Property		Assets		Total		Property		Assets		Total
		(In thousands)													(In thousands)
Real estate mortgage	Real estate mortgage	$	28,195	$	—	$	28,195	$	43,656	$	—	$	43,656	Real estate mortgage	$	48,253	$	—	$	48,253	$	30,817	$	—	$	30,817
Real estate construction and land	Real estate construction and land	19,364		—		19,364		1,766		—		1,766		Real estate construction and land	13,621		—		13,621		10,421		—		10,421
Commercial	Commercial	—		3,662		3,662		—		31,100		31,100		Commercial	—		440		440		—		7,586		7,586
Total	Total	$	47,559	$	3,662	$	51,221	$	45,422	$	31,100	$	76,522	Total	$	61,874	$	440	$	62,314	$	41,238	$	7,586	$	48,824

Allowance for Credit Losses

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

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


		Three Months Ended						Three Months Ended
		September 30, 2021								June 30, 2022
		Allowance for		Reserve for		Total				Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for				Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses				Lease Losses		Commitments		Credit Losses
		(In thousands)								(In thousands)
Balance, beginning of period	Balance, beginning of period	$	225,600	$	74,571	$	300,171		Balance, beginning of period	$	197,398	$	75,071	$	272,469
Charge-offs	Charge-offs	(1,516)		—		(1,516)			Charge-offs	(2,799)		—		(2,799)
Recoveries	Recoveries	1,149		—		1,149			Recoveries	4,106		—		4,106
Net charge-offs		(367)		—		(367)
Net recoveries									Net recoveries	1,307		—		1,307
Provision	Provision	(21,500)		1,500		(20,000)			Provision	(10,000)		20,000		10,000
Balance, end of period	Balance, end of period	$	203,733	$	76,071	$	279,804		Balance, end of period	$	188,705	$	95,071	$	283,776

		Nine Months Ended						Six Months Ended
		September 30, 2021						June 30, 2022
		Allowance for		Reserve for		Total				Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for				Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses				Lease Losses		Commitments		Credit Losses
		(In thousands)								(In thousands)
Balance, beginning of period	Balance, beginning of period	$	348,181	$	85,571	$	433,752		Balance, beginning of period	$	200,564	$	73,071	$	273,635
Charge-offs	Charge-offs	(6,320)		—		(6,320)			Charge-offs	(6,033)		—		(6,033)
Recoveries	Recoveries	8,372		—		8,372			Recoveries	6,174		—		6,174
Net recoveries	Net recoveries	2,052		—		2,052			Net recoveries	141		—		141
Provision	Provision	(146,500)		(9,500)		(156,000)			Provision	(12,000)		22,000		10,000
Balance, end of period	Balance, end of period	$	203,733	$	76,071	$	279,804		Balance, end of period	$	188,705	$	95,071	$	283,776

3134

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


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

		Nine Months Ended						Six Months Ended
		September 30, 2020						June 30, 2021
		Allowance for		Reserve for		Total				Allowance for		Reserve for		Total
		Loan and		Unfunded Loan		Allowance for				Loan and		Unfunded Loan		Allowance for
		Lease Losses		Commitments		Credit Losses				Lease Losses		Commitments		Credit Losses
		(In thousands)								(In thousands)
Balance, beginning of period	Balance, beginning of period	$	138,785	$	35,861	$	174,646		Balance, beginning of period	$	348,181	$	85,571	$	433,752
Cumulative effect of change in accounting
principle - CECL		3,617		3,710		7,327
Balance, January 1, 2020		142,402		39,571		181,973
Charge-offs	Charge-offs	(73,275)		—		(73,275)			Charge-offs	(4,804)		—		(4,804)
Recoveries	Recoveries	4,839		—		4,839			Recoveries	7,223		—		7,223
Net charge-offs		(68,436)		—		(68,436)
Net recoveries									Net recoveries	2,419		—		2,419
Provision	Provision	272,000		57,000		329,000			Provision	(125,000)		(11,000)		(136,000)
Balance, end of period	Balance, end of period	$	345,966	$	96,571	$	442,537		Balance, end of period	$	225,600	$	74,571	$	300,171

3235

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6.5. FORECLOSED ASSETS, NET

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


		September 30,		December 31,			June 30,		December 31,
Property Type	Property Type	2021		2020		Property Type	2022		2021
		(In thousands)					(In thousands)
Commercial real estate	Commercial real estate	$	12,594	$	12,979	Commercial real estate	$	—	$	12,594
Construction and land development		—		219
Single-family residence		415		—

Multi‑family						Multi‑family	—		—
Total other real estate owned, net	Total other real estate owned, net	13,009		13,198		Total other real estate owned, net	—		12,594
Other foreclosed assets	Other foreclosed assets	355		829		Other foreclosed assets	—		249
Total foreclosed assets, net	Total foreclosed assets, net	$	13,364	$	14,027	Total foreclosed assets, net	$	—	$	12,843

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


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

Transfers to foreclosed assets from loans	~~1,062~~304

~~Provision for losses~~	~~(14)~~
Reductions related to sales	~~(1,711)~~(13,147)
Balance, ~~September~~June 30, ~~2021~~2022	$	~~13,364~~—

NOTE 7.6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

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

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


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

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

earnings.

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

~~The following table presents the estimated aggregate future amortization expense for our current intangible assets as of the date indicated:~~

September 30, 2021
(In thousands)
Period ending December 31,
2021 $ 2,362
2022 7,672
2023 3,788
2024 1,711
Net CDI and CRI $ 15,533

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(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	$	100,550	$	109,646	$	109,646	$	117,573	Balance, beginning of period	$	133,850	$	100,550	$	133,850	$	109,646
Addition from Civic acquisition	Addition from Civic acquisition	—		—		750		—		Addition from Civic acquisition	—		—		—		750
Fully amortized portion	Fully amortized portion	—		—		(9,846)		(7,927)		Fully amortized portion	—		—		—		(9,846)

Balance, end of period	Balance, end of period	100,550		109,646		100,550		109,646		Balance, end of period	133,850		100,550		133,850		100,550
Accumulated Amortization:	Accumulated Amortization:									Accumulated Amortization:
Balance, beginning of period	Balance, beginning of period	(82,127)		(79,082)		(86,005)		(79,179)		Balance, beginning of period	(92,542)		(79,238)		(88,893)		(86,005)
Amortization expense	Amortization expense	(2,890)		(3,751)		(8,858)		(11,581)		Amortization expense	(3,649)		(2,889)		(7,298)		(5,968)
Fully amortized portion	Fully amortized portion	—		—		9,846		7,927		Fully amortized portion	—		—		—		9,846

Balance, end of period	Balance, end of period	(85,017)		(82,833)		(85,017)		(82,833)		Balance, end of period	(96,191)		(82,127)		(96,191)		(82,127)
Net CDI and CRI, end of period	Net CDI and CRI, end of period	$	15,533	$	26,813	$	15,533	$	26,813	Net CDI and CRI, end of period	$	37,659	$	18,423	$	37,659	$	18,423

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


	June 30, 2022
	(In thousands)
Period ending December 31,
2022	$	6,277
2023	9,085
2024	6,404
2025	4,087
2026	3,482
Thereafter	8,324
Net CDI and CRI	$	37,659

3437

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 8.7. OTHER ASSETS

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


		September 30,		December 31,			June 30,		December 31,
Other Assets	Other Assets	2021		2020		Other Assets	2022		2021
		(In thousands)					(In thousands)
LIHTC investments	LIHTC investments	$	279,608	$	213,034	LIHTC investments	$	300,448	$	297,746
Deferred tax asset, net (1)						Deferred tax asset, net (1)	254,090		—
Cash surrender value of BOLI	Cash surrender value of BOLI	202,725		203,031		Cash surrender value of BOLI	205,498		203,836
Operating lease ROU assets, net (1)		124,926		119,787
Interest receivable	Interest receivable	109,855		101,596		Interest receivable	128,960		120,329
Operating lease ROU assets, net (2)						Operating lease ROU assets, net (2)	128,601		123,225
Equity investments without readily determinable fair values						Equity investments without readily determinable fair values	63,268		62,975
SBIC investments	SBIC investments	42,553		32,327		SBIC investments	57,337		46,861
Equity investments without readily determinable fair values		36,787		34,304
Prepaid expenses	Prepaid expenses	28,512		22,999		Prepaid expenses	26,816		27,632
Taxes receivable						Taxes receivable	39,635		36,011
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	18,829		6,147		Equity investments with readily determinable fair values	57		28,578
Taxes receivable		16,898		59,565
Equity warrants (2)		3,747		4,520
Equity warrants (3)						Equity warrants (3)	4,001		3,555

Other receivables/assets	Other receivables/assets	106,039		63,016		Other receivables/assets	146,740		133,244
Total other assets	Total other assets	$	970,479	$	860,326	Total other assets	$	1,355,451	$	1,083,992

____________________

(1) At December 31, 2021, this was a net deferred tax liability of $19.6 million. The change to a deferred tax asset in 2022 was primarily attributable to the increase in unrealized losses on the Company's investment securities portfolio.

~~(1)~~(2) See Note 9.8. Leases for further details regarding the operating lease ROU assets.

~~(2)~~(3) See Note ~~11.~~10. Derivatives for information regarding equity warrants.

NOTE 9.8. LEASES

Operating Leases as a Lessee

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
	(In thousands)
Operating lease expense:
Fixed costs	$	9,042	$	8,776	$	17,521	$	17,272
Variable costs	36		9		59		24
Short-term lease costs	379		429		743		685
Sublease income	(1,077)		(1,084)		(2,153)		(2,183)
Net lease expense	$	8,380	$	8,130	$	16,170	$	15,798

Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(In thousands)
Operating lease expense:
Fixed costs $ 8,678 $ 8,950 $ 25,950 $ 26,027
Variable costs 18 15 42 40
Short-term lease costs 357 117 1,042 312
Sublease income (1,114) (1,081) (3,297) (3,100)
Net lease expense $ 7,939 $ 8,001 $ 23,737 $ 23,279

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

Nine Months Ended
September 30,
2021 2020
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 27,386 $ 25,198
ROU assets obtained in exchange for lease obligations:
Operating leases $ 29,840 $ 19,027


	Six Months Ended
	June 30,
	2022		2021
	(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17,574	$	18,450
ROU assets obtained in exchange for lease obligations:
Operating leases	$	23,804	$	16,649

3538

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


	June 30,			December 31,
	2022			2021
	(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net	$	128,601		$	123,225
Operating lease liabilities	$	149,905		$	142,117

Weighted average remaining lease term (in years)	5.9			5.6
Weighted average discount rate	2.28		%	2.23		%

September 30, December 31,
2021 2020
(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net $ 124,926 $ 119,787
Operating lease liabilities $ 144,259 $ 139,501
Weighted average remaining lease term (in years) 5.7 5.8
Weighted average discount rate 2.27 % 2.54 %

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

September 30, 2021
(In thousands)
Period ending December 31,
2021 $ 8,840
2022 34,415
2023 31,900
2024 24,810
2025 18,100
Thereafter 36,547
Total operating lease liabilities 154,612
Less: Imputed interest (10,353)
Present value of operating lease liabilities $ 144,259


	June 30, 2022
	(In thousands)
Period ending December 31,
2022	$	18,808
2023	35,920
2024	28,731
2025	21,902
2026	16,817
Thereafter	38,902
Total operating lease liabilities	161,080
Less: Imputed interest	(11,175)
Present value of operating lease liabilities	$	149,905

Operating Leases as a Lessor

We provide equipment financing to our customers through operating leases where we facilitate the purchase of equipment leased to our customers. The equipment is shown on the condensed consolidated balance sheets as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the condensed consolidated statements of earnings, ~~(loss),~~ according to our fixed asset accounting policy. We receive periodic rental income payments under the leases, which are recorded as "Noninterest Income" in the condensed consolidated statements of ~~earnings (loss).~~earnings. The equipment is tested periodically for impairment. No impairment was recorded on "Equipment leased to others under operating leases" induring the ~~three or nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

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

September 30, 2021
(In thousands)
Period ending December 31,
2021 $ 10,678
2022 45,363
2023 36,169
2024 30,483
2025 23,114
Thereafter 47,870
Total undiscounted cash flows $ 193,677


	June 30, 2022
	(In thousands)
Period ending December 31,
2022	$	22,902
2023	40,722
2024	36,156
2025	27,659
2026	21,901
Thereafter	44,456
Total undiscounted cash flows	$	193,796

3639

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Borrowings

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

~~September 30, 2021~~

~~December 31, 2020~~

~~Weighted~~

~~Average~~

~~Balance~~

~~Rate~~

~~Balance~~

~~Rate~~

~~(Dollars in thousands)~~

~~FHLB secured advances~~

—

~~5,000~~

—

~~Total borrowings~~

—

~~5,000~~

—


	June 30, 2022				December 31, 2021
			Weighted				Weighted
			Average				Average
	Balance		Rate		Balance		Rate
	(Dollars in thousands)
FHLB secured advances	$	1,230,000	1.57	%	$	—	—	%
FHLB unsecured overnight advance	112,000		1.61	%	—		—	%
AFX short-term borrowings	250,000		1.70	%	—		—	%

Total borrowings	$	1,592,000	1.59	%	$	—	—	%

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

FHLB Secured Line of Credit. The Bank had secured financing capacity with the FHLB as of ~~September~~June 30, ~~2021~~2022 of ~~$3.6~~$5.4 billion, collateralized by a blanket lien on ~~$5.9~~$5.7 billion of qualifying ~~loans.~~

~~The following table presents~~loans and $2.1 billion of securities. As of June 30, 2022, the ~~interest rates~~balance outstanding was $1.2 billion, which consisted of a $1.0 billion overnight advance and a $200.0 million one-month advance with a July 6, 2022 maturity ~~dates~~date. As of ~~FHLB secured advances as of the dates indicated:~~

~~September 30,~~December 31, 2021, there was no balance outstanding.

~~December 31, 2020~~

~~Maturity~~

~~Balance~~

~~Rate~~

~~Date~~

~~Balance~~

~~Rate~~

~~Date~~

~~(Dollars in thousands)~~

~~FHLB term advance~~

—

~~5,000~~

—

~~5/6/2021~~

~~Total~~

—

~~5,000~~

—

FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of ~~September~~June 30, ~~2021,~~2022, the Bank had secured borrowing capacity of ~~$1.4~~$2.4 billion collateralized by liens covering ~~$1.8~~$3.0 billion of qualifying loans. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were no 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 no balances~~was a $112.0 million balance outstanding at ~~September~~June 30, ~~2021~~2022 and no balance outstanding at December 31, ~~2020.~~2021.

Federal Funds Arrangements with Commercial Banks. As of ~~September~~June 30, ~~2021,~~2022, the Bank had unsecured lines of credit of $180.0 million in the aggregate with several correspondent banks for the purchase of overnight funds, subject to availability of funds. These lines are renewable annually and have no unused commitment fees. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were no balances outstanding. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of ~~September~~June 30, ~~2021 and~~2022, the balance outstanding was $250.0 million, which consisted of $250.0 million in overnight borrowings. As of December 31, ~~2020,~~2021, there ~~were~~was no ~~borrowings~~balance outstanding.

3740

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Subordinated Debt

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


		September 30, 2021				December 31, 2020				Date	Maturity	Rate Index		June 30, 2022				December 31, 2021				Date	Maturity	Rate Index
Series	Series	Balance		Rate (1)		Balance		Rate (1)		Issued	Date	(Quarterly Reset)	Series	Balance		Rate (1)		Balance		Rate (1)		Issued	Date	(Quarterly Reset) (6)
		(Dollars in thousands)												(Dollars in thousands)
Subordinated notes, net (2)	Subordinated notes, net (2)	$	394,511	3.25	%	$	—	—	%	4/30/2021	5/1/2031	Fixed rate (3)	Subordinated notes, net (2)	$	394,882	3.25	%	$	394,634	3.25	%	4/30/2021	5/1/2031	Fixed rate (3)
Trust V	Trust V	10,310		3.22	%	10,310		3.33	%	8/15/2003	9/17/2033	3-month LIBOR + 3.10	Trust V	10,310		5.13	%	10,310		3.32	%	8/15/2003	9/17/2033	3-month LIBOR + 3.10
Trust VI	Trust VI	10,310		3.17	%	10,310		3.27	%	9/3/2003	9/15/2033	3-month LIBOR + 3.05	Trust VI	10,310		4.88	%	10,310		3.25	%	9/3/2003	9/15/2033	3-month LIBOR + 3.05
Trust CII	Trust CII	5,155		3.07	%	5,155		3.18	%	9/17/2003	9/17/2033	3-month LIBOR + 2.95	Trust CII	5,155		4.98	%	5,155		3.17	%	9/17/2003	9/17/2033	3-month LIBOR + 2.95
Trust VII	Trust VII	61,856		2.88	%	61,856		2.96	%	2/5/2004	4/23/2034	3-month LIBOR + 2.75	Trust VII	61,856		4.04	%	61,856		2.88	%	2/5/2004	4/23/2034	3-month LIBOR + 2.75
Trust CIII	Trust CIII	20,619		1.81	%	20,619		1.91	%	8/15/2005	9/15/2035	3-month LIBOR + 1.69	Trust CIII	20,619		3.52	%	20,619		1.89	%	8/15/2005	9/15/2035	3-month LIBOR + 1.69
Trust FCCI	Trust FCCI	16,495		1.72	%	16,495		1.82	%	1/25/2007	3/15/2037	3-month LIBOR + 1.60	Trust FCCI	16,495		3.43	%	16,495		1.80	%	1/25/2007	3/15/2037	3-month LIBOR + 1.60
Trust FCBI	Trust FCBI	10,310		1.67	%	10,310		1.77	%	9/30/2005	12/15/2035	3-month LIBOR + 1.55	Trust FCBI	10,310		3.38	%	10,310		1.75	%	9/30/2005	12/15/2035	3-month LIBOR + 1.55
Trust CS 2005-1	Trust CS 2005-1	82,475		2.07	%	82,475		2.17	%	11/21/2005	12/15/2035	3-month LIBOR + 1.95	Trust CS 2005-1	82,475		3.78	%	82,475		2.15	%	11/21/2005	12/15/2035	3-month LIBOR + 1.95
Trust CS 2005-2	Trust CS 2005-2	128,866		2.08	%	128,866		2.16	%	12/14/2005	1/30/2036	3-month LIBOR + 1.95	Trust CS 2005-2	128,866		3.24	%	128,866		2.08	%	12/14/2005	1/30/2036	3-month LIBOR + 1.95
Trust CS 2006-1	Trust CS 2006-1	51,545		2.08	%	51,545		2.16	%	2/22/2006	4/30/2036	3-month LIBOR + 1.95	Trust CS 2006-1	51,545		3.24	%	51,545		2.08	%	2/22/2006	4/30/2036	3-month LIBOR + 1.95
Trust CS 2006-2	Trust CS 2006-2	51,550		2.08	%	51,550		2.16	%	9/27/2006	10/30/2036	3-month LIBOR + 1.95	Trust CS 2006-2	51,550		3.24	%	51,550		2.08	%	9/27/2006	10/30/2036	3-month LIBOR + 1.95
Trust CS 2006-3 (4)	Trust CS 2006-3 (4)	29,847		1.50	%	31,487		1.54	%	9/29/2006	10/30/2036	3-month EURIBOR + 2.05	Trust CS 2006-3 (4)	27,022		1.61	%	29,306		1.49	%	9/29/2006	10/30/2036	3-month EURIBOR + 2.05
Trust CS 2006-4	Trust CS 2006-4	16,470		2.08	%	16,470		2.16	%	12/5/2006	1/30/2037	3-month LIBOR + 1.95	Trust CS 2006-4	16,470		3.24	%	16,470		2.08	%	12/5/2006	1/30/2037	3-month LIBOR + 1.95
Trust CS 2006-5	Trust CS 2006-5	6,650		2.08	%	6,650		2.16	%	12/19/2006	1/30/2037	3-month LIBOR + 1.95	Trust CS 2006-5	6,650		3.24	%	6,650		2.08	%	12/19/2006	1/30/2037	3-month LIBOR + 1.95
Trust CS 2007-2	Trust CS 2007-2	39,177		2.08	%	39,177		2.16	%	6/13/2007	7/30/2037	3-month LIBOR + 1.95	Trust CS 2007-2	39,177		3.24	%	39,177		2.08	%	6/13/2007	7/30/2037	3-month LIBOR + 1.95
Total subordinated debt	Total subordinated debt	936,146		2.62	%	543,275		2.24	%				Total subordinated debt	933,692		3.36	%	935,728		2.64	%
Acquisition discount (5)	Acquisition discount (5)	(73,699)				(77,463)							Acquisition discount (5)	(69,936)				(72,445)
Net subordinated debt	Net subordinated debt	$	862,447			$	465,812						Net subordinated debt	$	863,756			$	863,283

___________________

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

(2) Net of unamortized issuance costs of ~~$5.5~~$5.1 million.

(3) Interest rate is fixed until May 1, 2026, when it changes to a floating rate and resets quarterly at a benchmark rate plus ~~25,200~~252 basis points.

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

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

~~Subordinated Notes Offering~~

~~On April 30, 2021,~~(6) Interest rate will default to the ~~Bank completed~~last published or determined rate of LIBOR, and for Trust CS 2006-4, the ~~sale~~Base Rate, defined as the greater of ~~$400 million aggregate principal amount~~Prime and the federal funds rate, upon cessation of ~~3.25% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due May 1, 2031 (the “Maturity Date”). Subject~~LIBOR and effectively converting these instruments to ~~any redemption~~fixed rate, if not modified prior to the Maturity Date, the Notes will bear interest from and including the original issue date to, but excluding, May 1, 2026 (the “Reset Date”), at a fixed rate of 3.25% per annum and from and including the Reset Date, but excluding the Maturity Date, the Notes will bear interest at a floating per annum rate equal to a benchmark rate (which is expected to be the Three-Month Term SOFR) plus 252 basis points.

Interest on the Notes will be payable on May 1 and November 1 of each year through, but not including, the Reset Date, and quarterly thereafter on February 1, May 1, August 1, and November 1 of each year to, but not including, the Maturity Date or earlier redemption date. The first interest payment will be made on November 1, 2021. The Bank may, at its option, beginning with the interest payment date of May 1, 2026, and on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part, from time to time, subject to any required regulatory approval to the extent such approval is then required, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption, subject to certain conditions. The costs incurred in connection with the Notes offering amortize to interest expense over the term of the Notes. The Notes qualify as Tier 2 capital for regulatory capital purposes.June 30, 2023.

3841

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~11.~~10. DERIVATIVES

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


		September 30, 2021				December 31, 2020					June 30, 2022				December 31, 2021
		Notional		Fair		Notional		Fair			Notional		Fair		Notional		Fair
Derivatives Not Designated As Hedging Instruments	Derivatives Not Designated As Hedging Instruments	Amount		Value		Amount		Value		Derivatives Not Designated As Hedging Instruments	Amount		Value		Amount		Value
		(In thousands)									(In thousands)
Derivative Assets:	Derivative Assets:									Derivative Assets:
Interest rate contracts	Interest rate contracts	$	87,927	$	952	$	59,867	$	1,028	Interest rate contracts	$	86,533	$	4,198	$	87,470	$	992
Foreign exchange contracts	Foreign exchange contracts	28,463		1,711		73,108		3,202		Foreign exchange contracts	28,463		631		28,463		1,517
Interest rate and economic contracts	Interest rate and economic contracts	116,390		2,663		132,975		4,230		Interest rate and economic contracts	114,996		4,829		115,933		2,509
Equity warrant assets	Equity warrant assets	19,539		3,747		24,081		4,520		Equity warrant assets	18,612		4,001		18,539		3,555
Total	Total	$	135,929	$	6,410	$	157,056	$	8,750	Total	$	133,608	$	8,830	$	134,472	$	6,064

Derivative Liabilities:	Derivative Liabilities:									Derivative Liabilities:
Interest rate contracts	Interest rate contracts	$	87,927	$	878	$	59,867	$	1,004	Interest rate contracts	$	86,533	$	4,008	$	87,470	$	931
Foreign exchange contracts	Foreign exchange contracts	28,463		—		73,108		146		Foreign exchange contracts	28,463		—		28,463		—
Total	Total	$	116,390	$	878	$	132,975	$	1,150	Total	$	114,996	$	4,008	$	115,933	$	931

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

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

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


		September 30,		December 31,			June 30,		December 31,
		2021		2020			2022		2021
		(In thousands)					(In thousands)
Loan commitments to extend credit	Loan commitments to extend credit	$	8,480,599	$	7,601,390	Loan commitments to extend credit	$	11,866,437	$	9,006,350
Standby letters of credit	Standby letters of credit	344,383		337,336		Standby letters of credit	328,143		345,769
Commitments to contribute capital to SBICs
and CRA-related loan pools		78,551		55,499
Total	Total	$	8,903,533	$	7,994,225	Total	$	12,194,580	$	9,352,119

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

Commitments to extend credit are contractual agreements to lend to our customers when customers are in compliance with their contractual credit agreements and when customers have contractual availability to borrow under such agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The estimated exposure to loss from these commitments is included in the reserve for unfunded loan commitments, which amounted to ~~$76.1~~$95.1 million at ~~September~~June 30, ~~2021~~2022 and ~~$85.6~~$73.1 million at December 31, ~~2020.~~2021.

3942

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

In addition, we invest in SBICs that call for capital contributions up to an amount specified in the partnership agreements, and in CRA-related loan pools. As of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we had commitments to contribute capital to these entities totaling ~~$78.6~~$80.4 million and ~~$55.5~~$85.9 million.

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


		September 30, 2021			June 30, 2022
		(In thousands)			(In thousands)
Period ending December 31,	Period ending December 31,			Period ending December 31,
2021		$	34,229
2022	2022	35,112		2022	$	35,761
2023	2023	3,652		2023	39,084
2024	2024	5,558		2024	5,558

Total	Total	$	78,551	Total	$	80,403

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.

4043

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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

For information regarding the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03), see Note 1. Nature of Operations and Summary of Significant Accounting Policies, and Note ~~13.~~15. Fair Value Measurements, to the Consolidated Financial Statements of the Company's Form 10-K.

The Company also holds SBIC investments measured at fair value using the NAV per share practical expedient that are not required to be classified in the fair value hierarchy. At ~~September~~June 30, ~~2021,~~2022, the fair value of these investments was ~~$42.6~~$57.3 million.

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


		Fair Value Measurements as of									Fair Value Measurements as of
		September 30, 2021									June 30, 2022
Measured on a Recurring Basis	Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)									(In thousands)
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
Agency residential MBS	Agency residential MBS	$	2,180,993	$	—	$	2,180,993	$	—	Agency residential MBS	$	2,577,715	$	—	$	2,577,715	$	—
Municipal securities		1,989,929		—		1,989,929		—
Agency commercial MBS	Agency commercial MBS	1,314,024		—		1,314,024		—		Agency commercial MBS	976,221		—		976,221		—
Agency residential CMOs	Agency residential CMOs	1,088,537		—		1,088,537		—		Agency residential CMOs	803,309		—		803,309		—
Municipal securities										Municipal securities	700,605		—		700,605		—
U.S. Treasury securities	U.S. Treasury securities	971,268		971,268		—		—		U.S. Treasury securities	696,054		696,054		—		—
Corporate debt securities	Corporate debt securities	516,615		—		516,615		—		Corporate debt securities	369,461		—		369,461		—
Private label commercial MBS		388,318		—		369,989		18,329
Collateralized loan obligations	Collateralized loan obligations	358,547		—		358,547		—		Collateralized loan obligations	352,290		—		352,290		—
Private label residential CMOs	Private label residential CMOs	303,681		—		299,860		3,821		Private label residential CMOs	216,103		—		216,103		—
Asset-backed securities	Asset-backed securities	132,997		—		132,997		—		Asset-backed securities	32,647		—		32,647		—
Private label commercial MBS										Private label commercial MBS	32,516		—		32,516		—
SBA securities	SBA securities	32,017		—		32,017		—		SBA securities	23,727		—		23,727		—
Total securities available-for-sale	Total securities available-for-sale	$	9,276,926	$	971,268	$	8,283,508	$	22,150	Total securities available-for-sale	$	6,780,648	$	696,054	$	6,084,594	$	—
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	$	18,829	$	18,829	$	—	$	—	Equity investments with readily determinable fair values	$	57	$	57	$	—	$	—
Derivatives (1):	Derivatives (1):									Derivatives (1):
Equity warrants	Equity warrants	3,747		—		—		3,747		Equity warrants	4,001		—		—		4,001
Interest rate and economic contracts	Interest rate and economic contracts	2,663		—		2,663		—		Interest rate and economic contracts	4,829		—		4,829		—
Derivative liabilities	Derivative liabilities	878		—		878		—		Derivative liabilities	4,008		—		4,008		—

4144

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Fair Value Measurements as of									Fair Value Measurements as of
		December 31, 2020									December 31, 2021
Measured on a Recurring Basis	Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3		Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
		(In thousands)									(In thousands)
Securities available-for-sale:	Securities available-for-sale:									Securities available-for-sale:
Agency residential MBS										Agency residential MBS	$	2,898,210	$	—	$	2,898,210	$	—
Municipal securities	Municipal securities	$	1,531,617	$	—	$	1,531,617	$	—	Municipal securities	2,315,968		—		2,315,968		—
Agency commercial MBS	Agency commercial MBS	1,281,877		—		1,281,877		—		Agency commercial MBS	1,688,967		—		1,688,967		—
Agency residential CMOs	Agency residential CMOs	1,219,880		—		1,219,880		—		Agency residential CMOs	1,038,134		—		1,038,134		—
Agency residential MBS		341,074		—		341,074		—
U.S. Treasury securities										U.S. Treasury securities	966,898		966,898		—		—
Corporate debt securities	Corporate debt securities	311,889		—		311,889		—		Corporate debt securities	527,094		—		527,094		—
Asset-backed securities		166,546		—		166,546		—
Private label commercial MBS										Private label commercial MBS	450,217		—		435,216		15,001
Collateralized loan obligations	Collateralized loan obligations	135,876		—		135,876		—		Collateralized loan obligations	385,362		—		385,362		—
Private label residential CMOs	Private label residential CMOs	116,946		—		112,299		4,647		Private label residential CMOs	264,417		—		264,417		—
Private label commercial MBS		82,957		—		57,232		25,725
Asset-backed securities										Asset-backed securities	129,547		—		129,547		—
SBA securities	SBA securities	41,627		—		41,627		—		SBA securities	29,644		—		29,644		—
U.S. Treasury securities		5,302		5,302		—		—
Total securities available-for-sale	Total securities available-for-sale	$	5,235,591	$	5,302	$	5,199,917	$	30,372	Total securities available-for-sale	$	10,694,458	$	966,898	$	9,712,559	$	15,001
Equity investments with readily determinable fair values	Equity investments with readily determinable fair values	$	6,147	$	6,147	$	—	$	—	Equity investments with readily determinable fair values	$	28,578	$	28,578	$	—	$	—
Derivatives (1):	Derivatives (1):									Derivatives (1):
Equity warrants	Equity warrants	4,520		—		—		4,520		Equity warrants	3,555		—		—		3,555
Interest rate and economic contracts	Interest rate and economic contracts	4,230		—		4,230		—		Interest rate and economic contracts	2,509		—		2,509		—
Derivative liabilities	Derivative liabilities	1,150		—		1,150		—		Derivative liabilities	931		—		931		—

____________________

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

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, there was a ~~$582,000~~$9,000 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 There was also a $4.6 million transfer of private label commercial MBS ~~available-for-sale measured at fair value on a recurring basis as of~~from Level 3 to Level 2 during the ~~date indicated:~~six months ended June 30, 2022.

September 30, 2021
Private Label Residential CMOs Private Label Commercial MBS
Weighted Input or Weighted
Range Average Range Average
Unobservable Inputs of Inputs
Input (1)
of Inputs
Input (2)
Voluntary annual prepayment speeds 4.0% - 31.3% 12.5% 10.0% - 15.0% 11.9%
Annual default rates (3)
0.1% - 12.0% 2.4% 2.0% 2.0%
Loss severity rates (3)
16.5% - 82.1% 56.5% 60.0% 60.0%
Discount rates 0.0% - 10.5% 6.7% 2.7% - 3.3% 2.9%

~~____________________~~

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

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

~~PACWEST BANCORP AND SUBSIDIARIES~~

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

~~The~~0The following table presents information about quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:


	~~September~~June 30, ~~2021~~2022
	Equity Warrants
		Weighted
	Range	Average
Unobservable Inputs	of Inputs	Input (1)
Volatility	~~19.7%~~25.2% - ~~145.9%~~141.3%	~~29.4%~~28.9%
Risk-free interest rate	~~0.0%~~1.3% - ~~1.0%~~3.0%	~~0.5%~~2.9%
Remaining life assumption (in years)	0.08 - ~~4.99~~4.98	~~2.91~~3.09

____________________

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

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

Private Label Private Label Equity
Residential CMOs Commercial MBS Warrants
(In thousands)
Balance, December 31, 2020 $ 4,647 $ 25,725 $ 4,520
Total included in earnings 263 (64) 25,351
Total included in other comprehensive income (270) (20) —
Issuances — — 267
Sales
— — (25,809)
Net settlements (819) (7,312) —
Transfers to Level 1 (equity investments with readily
determinable fair values) — — (582)
Balance, September 30, 2021 $ 3,821 $ 18,329 $ 3,747
Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end $ 823 $ 136

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

Fair Value Measurement as of
September 30, 2021
Measured on a Non-Recurring Basis Total Level 1 Level 2 Level 3
(In thousands)
Individually evaluated loans and leases (1)
$ 32,765 $ — $ 654 $ 32,111
Total non-recurring $ 32,765 $ — $ 654 $ 32,111
~~______________________~~

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

4345

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value Measurement as of
December 31, 2020
Measured on a Non-Recurring Basis Total Level 1 Level 2 Level 3
(In thousands)
Individually evaluated loans and leases (1)
$ 102,274 $ — $ 4,160 $ 98,114
Total non-recurring $ 102,274 $ — $ 4,160 $ 98,114
The following table summarizes activity for our Level 3 private label commercial MBS available-for-sale and equity warrants measured at fair value on a recurring basis for the period indicated:

~~_____________________~~


	Private Label		Equity
	Commercial MBS		Warrants
	(In thousands)
Balance, December 31, 2021	$	15,001	$	3,555
Total included in earnings	(8)		2,244
Total included in other comprehensive income (loss)	(156)		—

Issuances	—		392


Transfer to Level 2	(4,552)		—
Net settlements	(10,285)		—
Exercises and settlements	—		(2,181)
Transfers to Level 1 (equity investments with readily determinable fair values)	—		(9)
Balance, June 30, 2022	$	—	$	4,001

Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end	$	—

~~(1) Includes nonaccrual loans and leases and performing TDRs with balances greater than $250,000.~~The following tables present assets measured at fair value on a non-recurring basis as of the dates indicated:


	Fair Value Measurement as of
	June 30, 2022
Measured on a Non-Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Individually evaluated loans and leases	$	23,501	$	—	$	13,760	$	9,741


Total non-recurring	$	23,501	$	—	$	13,760	$	9,741


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

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

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
Losses on Assets	Losses on Assets	September 30,				September 30,				Losses on Assets	June 30,				June 30,
Measured on a Non-Recurring Basis	Measured on a Non-Recurring Basis	2021		2020		2021		2020		Measured on a Non-Recurring Basis	2022		2021		2022		2021
		(In thousands)									(In thousands)
Individually evaluated loans and leases	Individually evaluated loans and leases	$	243	$	29,047	$	2,499	$	40,920	Individually evaluated loans and leases	$	1,569	$	1,951	$	1,584	$	2,653

OREO	OREO	—		157		14		267		OREO	—		—		—		14
Total losses	Total losses	$	243	$	29,204	$	2,513	$	41,187	Total losses	$	1,569	$	1,951	$	1,584	$	2,667

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

September 30, 2021

June 30, 2022

Valuation

Unobservable

Input or

Weighted

Valuation

Unobservable

Input or

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

Asset

Fair Value

Technique

Inputs

Range

Average

(In thousands)

(Dollars in thousands)

Individually evaluated

loans and leases

26,278

Discounted cash flows

Discount rates

3.75% - 7.75%

6.21%

loans and leases

7,103

Discounted cash flows

Discount rates

5.50% - 9.25%

7.11%

Individually evaluated

loans and leases

5,833

Third party appraisals

No discounts

loans and leases

2,638

Third party appraisals

No discounts

Total non-recurring Level 3

32,111

Total non-recurring Level 3

9,741

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


	June 30, 2022
	Carrying		Estimated Fair Value
	Amount		Total		Level 1		Level 2		Level 3
	(In thousands)
Financial Assets:
Cash and due from banks	$	197,027	$	197,027	$	197,027	$	—	$	—
Interest-earning deposits in financial institutions	2,192,877		2,192,877		2,192,877		—		—
Securities available-for-sale	6,780,648		6,780,648		696,054		6,084,594		—
Securities held-to-maturity	2,260,367		2,209,759		180,896		2,028,863		—
Investment in FHLB stock	33,210		33,210		—		33,210		—

Loans and leases held for investment, net	26,312,432		24,639,943		—		13,760		24,626,183
Equity investments with readily determinable fair values	57		57		57		—		—
Equity warrants	4,001		4,001		—		—		4,001
Interest rate and economic contracts	4,829		4,829		—		4,829		—
Servicing rights	839		839		—		—		839

Financial Liabilities:
Core deposits	29,218,646		29,218,646		—		29,218,646		—
Non-core non-maturity deposits	2,185,248		2,185,248		—		2,185,248		—
Time deposits	2,564,258		2,542,229		—		2,542,229		—
Borrowings	1,592,000		1,591,920		1,392,000		199,920		—
Subordinated debt	863,756		880,648		—		880,648		—
Derivative liabilities	4,008		4,008		—		4,008		—

4447

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

September 30, 2021
Carrying Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(In thousands)
Financial Assets:
Cash and due from banks $ 174,585 $ 174,585 $ 174,585 $ — $ —
Interest-earning deposits in financial institutions 3,524,613 3,524,613 3,524,613 — —
Securities available-for-sale 9,276,926 9,276,926 971,268 8,283,508 22,150
Investment in FHLB stock 17,250 17,250 — 17,250 —
Loans and leases held for investment, net 20,307,287 20,904,189 — 654 20,903,535
Equity investments with readily determinable fair values 18,829 18,829 18,829 — —
Equity warrants 3,747 3,747 — — 3,747
Interest rate and economic contracts 2,663 2,663 — 2,663 —
Servicing rights 1,636 1,636 — — 1,636
Financial Liabilities:
Core deposits 28,140,708 28,140,708 — 28,140,708 —
Non-core non-maturity deposits 960,438 960,438 — 960,438 —
Time deposits 1,458,599 1,459,457 — 1,459,457 —
Borrowings — — — — —
Subordinated debt 862,447 923,374 — 923,374 —
Derivative liabilities 878 878 — 878 —

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

~~PACWEST BANCORP AND SUBSIDIARIES~~

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


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

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

Limitations

Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of ~~September~~June 30, ~~2021,~~2022, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

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


		Three Months Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2021		2020		2021		2020			2022		2021		2022		2021
		(Dollars in thousands, except per share data)									(Dollars in thousands, except per share data)
Basic Earnings (Loss) Per Share:
Net earnings (loss)		$	139,996	$	45,503	$	470,914	$	(1,354,404)
Basic Earnings Per Common Share:										Basic Earnings Per Common Share:
Net earnings										Net earnings	$	122,360	$	180,512	$	242,488	$	330,918
Less: Earnings allocated to unvested restricted stock(1)	Less: Earnings allocated to unvested restricted stock(1)	(2,417)		(578)		(7,930)		(1,603)		Less: Earnings allocated to unvested restricted stock(1)	(2,351)		(3,172)		(4,389)		(5,495)
Net earnings (loss) allocated to common shares		$	137,579	$	44,925	$	462,984	$	(1,356,007)
Net earnings allocated to common shares										Net earnings allocated to common shares	$	120,009	$	177,340	$	238,099	$	325,423

Weighted-average basic shares and unvested restricted	Weighted-average basic shares and unvested restricted									Weighted-average basic shares and unvested restricted
stock outstanding	stock outstanding	119,569		118,438		119,272		118,469		stock outstanding	120,022		119,386		119,810		119,121
Less: Weighted-average unvested restricted stock	Less: Weighted-average unvested restricted stock									Less: Weighted-average unvested restricted stock
outstanding	outstanding	(2,340)		(1,684)		(2,235)		(1,596)		outstanding	(2,460)		(2,356)		(2,354)		(2,181)
Weighted-average basic shares outstanding	Weighted-average basic shares outstanding	117,229		116,754		117,037		116,873		Weighted-average basic shares outstanding	117,562		117,030		117,456		116,940

Basic earnings (loss) per share		$	1.17	$	0.38	$	3.96	$	(11.60)
Basic earnings per common share										Basic earnings per common share	$	1.02	$	1.52	$	2.03	$	2.78

Diluted Earnings (Loss) Per Share:
Net earnings (loss) allocated to common shares		$	137,579	$	44,925	$	462,984	$	(1,356,007)
Diluted Earnings Per Common Share:										Diluted Earnings Per Common Share:
Net earnings allocated to common shares										Net earnings allocated to common shares	$	120,009	$	177,340	$	238,099	$	325,423

Weighted-average diluted shares outstanding	Weighted-average diluted shares outstanding	117,229		116,754		117,037		116,873		Weighted-average diluted shares outstanding	117,562		117,030		117,456		116,940

Diluted earnings (loss) per share		$	1.17	$	0.38	$	3.96	$	(11.60)
Diluted earnings per common share										Diluted earnings per common share	$	1.02	$	1.52	$	2.03	$	2.78

________________________

(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.

4649

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Disaggregation of Revenue

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


		Three Months Ended September 30,									Three Months Ended June 30,
		2021				2020					2022				2021
		Total		Revenue from		Total		Revenue from			Total		Revenue from		Total		Revenue from
		Recorded		Contracts with		Recorded		Contracts with			Recorded		Contracts with		Recorded		Contracts with
		Revenue		Customers		Revenue		Customers			Revenue		Customers		Revenue		Customers
		(In thousands)									(In thousands)
Total interest income	Total interest income	$	290,082	$	—	$	265,908	$	—	Total interest income	$	350,518	$	—	$	280,505	$	—
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	3,407		3,407		2,570		2,570		Service charges on deposit accounts	3,634		3,634		3,452		3,452
Other commissions and fees	Other commissions and fees	11,792		2,680		10,541		3,228		Other commissions and fees	10,813		4,001		10,704		2,603
Leased equipment income	Leased equipment income	10,943		—		9,900		—		Leased equipment income	12,335		—		10,847		—
Gain on sale of loans	Gain on sale of loans	—		—		35		—		Gain on sale of loans	12		—		1,422		—
Gain on sale of securities		515		—		5,270		—
Loss on sale of securities										Loss on sale of securities	(1,209)		—		—		—
Dividends and gains on equity securities										Dividends and gains on equity securities	4,097		—		5,394		—
Warrant income										Warrant income	1,615		—		5,650		—
Other income	Other income	24,688		(14)		9,936		289		Other income	3,049		65		2,902		394
Total noninterest income	Total noninterest income	51,345		6,073		38,252		6,087		Total noninterest income	34,346		7,700		40,371		6,449
Total revenue	Total revenue	$	341,427	$	6,073	$	304,160	$	6,087	Total revenue	$	384,864	$	7,700	$	320,876	$	6,449

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

Three Months Ended
September 30,
2021 2020
(In thousands)
Products and services transferred at a point in time $ 2,754 $ 3,189
Products and services transferred over time 3,319 2,898
Total revenue from contracts with customers $ 6,073 $ 6,087


	Three Months Ended
	June 30,
	2022		2021
	(In thousands)
Products and services transferred at a point in time	$	3,771	$	3,068
Products and services transferred over time	3,929		3,381
Total revenue from contracts with customers	$	7,700	$	6,449

4750

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


		Nine Months Ended September 30,									Six Months Ended June 30,
		2021				2020					2022				2021
		Total		Revenue from		Total		Revenue from			Total		Revenue from		Total		Revenue from
		Recorded		Contracts with		Recorded		Contracts with			Recorded		Contracts with		Recorded		Contracts with
		Revenue		Customers		Revenue		Customers			Revenue		Customers		Revenue		Customers
		(In thousands)									(In thousands)
Total interest income	Total interest income	$	843,924	$	—	$	831,315	$	—	Total interest income	$	673,422	$	—	$	553,842	$	—
Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	9,793		9,793		7,232		7,232		Service charges on deposit accounts	7,205		7,205		6,386		6,386
Other commissions and fees	Other commissions and fees	31,654		8,140		30,373		10,388		Other commissions and fees	22,393		7,774		19,862		5,460
Leased equipment income	Leased equipment income	33,144		—		34,188		—		Leased equipment income	25,429		—		22,201		—
Gain on sale of loans	Gain on sale of loans	1,561		—		468		—		Gain on sale of loans	72		—		1,561		—
Gain on sale of securities		616		—		13,167		—
(Loss) gain on sale of securities										(Loss) gain on sale of securities	(1,105)		—		101		—
Dividends and (losses) gains on equity securities										Dividends and (losses) gains on equity securities	(7,278)		—		16,298		—
Warrant income										Warrant income	2,244		—		11,773		—
Other income	Other income	59,777		560		20,782		961		Other income	6,204		63		7,018		574
Total noninterest income	Total noninterest income	136,545		18,493		106,210		18,581		Total noninterest income	55,164		15,042		85,200		12,420
Total revenue	Total revenue	$	980,469	$	18,493	$	937,525	$	18,581	Total revenue	$	728,586	$	15,042	$	639,042	$	12,420

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

Nine Months Ended
September 30,
2021 2020
(In thousands)
Products and services transferred at a point in time $ 8,819 $ 10,152
Products and services transferred over time 9,674 8,429
Total revenue from contracts with customers $ 18,493 $ 18,581


	Six Months Ended
	June 30,
	2022		2021
	(In thousands)
Products and services transferred at a point in time	$	7,697	$	6,065
Products and services transferred over time	7,345		6,355
Total revenue from contracts with customers	$	15,042	$	12,420

Contract Balances

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

September 30, 2021 December 31, 2020
(In thousands)
Receivables, which are included in "Other assets" $ 1,219 $ 1,046
Contract assets, which are included in "Other assets" $ — $ —
Contract liabilities, which are included in "Accrued interest payable and other liabilities" $ 261 $ 359


	June 30, 2022		December 31, 2021
	(In thousands)
Receivables, which are included in "Other assets"	$	1,406	$	1,066

Contract liabilities, which are included in "Accrued interest payable and other liabilities"	$	163	$	229

Contract liabilities relate to advance consideration received from customers for which revenue is recognized over the life of the contract. The change in contract liabilities for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 due to revenue recognized that was included in the contract liability balance at the beginning of the period was ~~$98,000~~$66,000.

4851

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE ~~16. STOCK-BASED COMPENSATION~~15. STOCKHOLDERS' EQUITY

Stock-Based Compensation

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

The Amended and Restated 2017 Plan authorizes grants of stock-based compensation instruments to ~~purchase or~~ issue up to 6,650,000 shares, representing 4,000,000 shares originally approved for grant under the Original 2017 Stock Incentive Plan plus 2,650,000 shares added as result of the approval of the Amended and Restated 2017 Plan.shares. As of ~~September~~June 30, ~~2021,~~2022, there were ~~3,027,093~~2,083,271 shares available for grant under the Amended and Restated 2017 Plan.

Restricted Stock

Restricted stock amortization totaled $~~8.4~~9.0 million and ~~$7.1~~$8.2 million for the three months ended ~~September~~June 30, 2022 and 2021 and ~~2020 and~~ $~~23.0~~16.5 million and ~~$19.2~~$14.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021. Such amounts are included in "Compensation expense" on the condensed consolidated statements of ~~earnings (loss).~~earnings. The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of ~~September~~June 30, ~~2021~~2022 totaled $~~76.5~~82.3 million.

Time-Based Restricted Stock Awards

At ~~September~~June 30, ~~2021,~~2022, there were ~~2,321,753 shar~~ 2,516,279 shares of unvested TRSAs outstanding. TRSAs generally vest ratably over a service period of three or four years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs is based on the fair value of the underlying award on the grant date and is recognized over the vesting period using the straight-line method.

Performance-Based Restricted Stock Units

At ~~September~~June 30, ~~2021,~~2022, there were ~~512,863~~505,647 units of unvested PRSUs that have been granted. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a three-year performance period. The shares underlying the PRSUs are not considered issued and outstanding until they vest. PRSUs are granted and initially expensed based on a target number. The number of shares that will ultimately vest based on actual performance will range from zero to a maximum of either 150% or 200% of target.

Compensation expense related to PRSUs is based on the fair value of the underlying 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.

Preferred Stock Issuance

On June 6, 2022, the Company issued and sold 20,530,000 depositary shares (the “Depositary Shares”), each representing a 1/40th ownership interest in a share of the Company’s 7.75% fixed rate reset non-cumulative, non-convertible, perpetual preferred stock, Series A, par value $0.01 per share (the “Series A preferred stock”), with a liquidation preference of $1,000 per share of Series A preferred stock (equivalent to $25.00 per Depositary Share). The Series A preferred stock qualifies as Tier 1 capital for purposes of regulatory capital calculations. The gross proceeds were $513.3 million while net proceeds from the issuance of the Series A preferred stock, after deducting $14.7 million of offering costs including the underwriting discount and other expenses, were $498.5 million.

Holders of the Depositary Shares will be entitled to all proportional rights and preferences of the Series A preferred stock (including dividend, voting, redemption, and liquidation rights).

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Dividends on the Series A preferred stock will not be cumulative or mandatory. If the Company’s board of directors does not declare a dividend on the Series A preferred stock in respect of a dividend period, then no dividend shall be deemed to be payable for such dividend period, or be cumulative, and the Company will have no obligation to pay any dividend for that dividend period, whether or not the board of directors, declares a dividend on the Series A preferred stock or any other class or series of its capital stock for any future dividend period. Additionally, so long as any share of Series A preferred stock remains outstanding, unless dividends on all outstanding shares of Series A preferred stock for the most recently completed dividend period have been paid in full or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on the Company’s common stock.

The Series A preferred stock is perpetual and has no maturity date. The Series A preferred stock is not subject to any mandatory redemption, sinking fund, or other similar provisions. The Company, at its option and subject to prior regulatory approval, may redeem the Series A preferred stock (i) in whole or in part, from time to time, on any dividend payment date on or after September 1, 2027 or (ii) in whole but not in part at any time within 90 days following a regulatory capital treatment event, in each case, at a redemption price equal to $1,000 per share of Series A preferred stock (equivalent to $25 per Depositary Share), plus any declared and unpaid dividends, without regard to any undeclared dividends, to but excluding the redemption date. Neither the holders of the Series A preferred stock nor holders of the Depositary Shares will have the right to require the redemption or repurchase of the Series A preferred stock.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

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

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

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

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

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

The Company has completed its readiness efforts to identify loans and other financial instruments that are impacted by the discontinuance of LIBOR. ~~We have~~The Company has also completed ~~our~~its review for fallback language contained in contracts for LIBOR-based loans and other financial instruments and ~~have~~has begun to execute a transition plan to amend those legacy contracts maturing after June 30, 2023 that do not have or have inadequate fallback ~~language. With~~language by adding fallback language or to convert the ~~impending phase-out~~base rate of ~~LIBOR,~~ the ~~Company has considered several viable alternative reference rates. Based on our current assessment, we plan~~contract to ~~offer SOFR as~~a SOFR-based rate or another rate or index offered by the primary alternative reference rate, but may consider alternate rates such as the American Interbank Offered Rate (“Ameribor”) and others based on customer demands and/or the type of loan or financial instrument. Company.

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

5054

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~Effective~~

~~Effect on the Financial Statements~~

~~Standard~~

~~Description~~

~~Date~~

~~or Other Significant Matters~~

~~ASU 2021-06,~~ Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services— Investment Companies (Topic 946), Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants

This Update amends certain SEC paragraphs from the Codification to reflect the SEC’s recent issuance of rules intended to modernize and streamline disclosure requirements, including:
(1) SEC Final Rule No. 33-10786 was issued on May 20, 2020, which amended Regulation S-X financial disclosure requirements applicable to acquisition and dispositions of business. It also changes the significant tests registrants must use to determine what to disclosure, the periods the financial statements must cover and the form of pro forma financial information that must be included in certain reports.
(2) SEC Final Rule No. 33-10835 was issued on September 11, 2020, which updated the statistical disclosure requirements for bank and savings and loan registrants. It also (1) eliminates disclosure items that overlap with SEC rules, U.S. GAAP or IFRS Standards, and (2) replaces Industry Guide 3, “Statistical Disclosure by Bank Holding Companies” with updated disclosure requirements codified in a new Subpart 1400 of Regulation S-K.

~~Effective upon issuance.~~

The Company adopted Rule 33-10786 on January 1, 2021 on its effective date and it did not have a material impact on the Company’s consolidated financial statements. The Company plans to adopt Rule 33-10835 on the presentation of financial statements and update of statistical disclosures for bank and savings and loan registrants in conjunction with the completion of our Annual Report on Form 10-K for the fiscal year ending December 31, 2021. The adoption of this disclosure guidance is not expected to have a material impact on our consolidated financial statements.

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

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

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

January 1, 2023

The Company ~~has~~will apply the amendments prospectively to business combinations occurring on or after the effective date. This standard is not ~~yet determined the effect of the adoption of ASU 2021-08~~expected to have a material impact on the Company’s consolidated financial statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

ASU 2022-02, Financial Instruments – Credit Losses (Topic 326)

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

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

January 1, 2023

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

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

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions

This standard clarifies that a contractual sale restriction is not considered in measuring an equity security at fair value. The standard also clarifies that an entity cannot recognize a contractual sale restriction as a separate unit of account, such as a contra-asset or liability. The standard requires new disclosures for all entities with equity securities subject to contractual sales restrictions. Additionally, early adoption is permitted.

January 1, 2024

The Company does not take into account contractual sale restrictions in determining the fair value of its equity securities. The Company expects that this standard will not have a material impact on its consolidated financial statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 17. RELATED PARTY TRANSACTIONS

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

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

NOTE 18. SUBSEQUENT EVENTS

~~Acquisition of Homeowners Association Services Division~~

On October 8, 2021, the Bank completed its previously announced acquisition of the Homeowners Association (“HOA”) Services Division of MUFG Union Bank, N.A. (“Union Bank”) pursuant to the terms of the Purchase and Assumption Agreement (the “Purchase Agreement”), dated March 31, 2021, between the Bank and Union Bank.

Under the terms of the Purchase Agreement, the Bank acquired certain assets and assumed certain liabilities related to Union Bank’s HOA Services Division for cash consideration of approximately $255 million, which represents the aggregate of a 5.9% deposit premium and the net book value of certain acquired assets and assumed liabilities. At closing, there were approximately $4.1 billion of deposits related to Union Bank’s HOA Services Division and approximately $6.4 million in related loans. Due to the timing of the acquisition, the Company is currently in the process of completing the purchase accounting and has not made all of the remaining disclosures required by ASC 805-10-50, "~~Business Combinations - Overall - Disclosure~~," such as the fair value of assets acquired, which will be disclosed in subsequent filings. The existing management team and employees transitioned with the HOA Services Division to the Bank in connection with the close of the acquisition.

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

Common Stock Dividends

On ~~November~~August 1, ~~2021,~~2022, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.25 per common share. The cash dividend is payable on ~~November 30, 2021~~August 31, 2022 to stockholders of record at the close of business on ~~November~~August 15, ~~2021.~~2022.

Preferred Stock Dividends

On August 1, 2022, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.4575 per Depositary Share. The cash dividend is payable on September 1, 2022 to stockholders of record at the close of business on August 15, 2022.

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

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~~PACWEST BANCORP AND SUBSIDIARIES~~

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

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

Forward-Looking Information

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

•the ongoing COVID-19 pandemic continues to affect the Company, its employees, customers and third-party service providers, and the ultimate extent of the impacts of the pandemic and related government stimulus programs on its business, financial position, results of operations, liquidity and prospects is still uncertain, due in part to the ~~Delta variant~~new variants of ~~COVID-19. Weaker~~COVID-19;

•weaker than expected ~~improvement in~~ general business and economic conditions, including a recession, could adversely affect the Company’s revenues, the values of its assets and liabilities, ~~and continue to~~ negatively impact loan ~~growth;~~

•and deposit growth, and may impact our borrowers ability to complete pending and future acquisitions, and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;repay their loans;

•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, the rate of inflation, or other changes in the state of the economy or the markets in which we conduct business (including the levels of ~~IPOs~~initial public offerings and mergers and acquisitions), which may affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;

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

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

•our ability to efficiently deploy excess liquidity;

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

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

•~~uncertainty regarding~~impact of the ~~future of LIBOR and~~benchmark interest rate reform in the U.S. including the transition away from ~~LIBOR toward new~~the U.S. dollar London Inter-bank Offering Rate ("LIBOR") to alternative reference ~~rates by the end of 2021;~~rates;

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

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

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

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

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

•higher than anticipated increases in operating expenses;

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

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

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

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

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

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

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

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

Overview

The Bank is focused on relationship-based business banking to small, middle-market, and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services throug~~h 69 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 provides venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. The Bank also offers financing of non-owner-occupied investor properties through Civic Financial Services, a wholly-owned subsidiary. The Bank also offers a specialized suite of services for the HOA industry. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.

In managing the top line of our business, we focus on loan growth, loan yield, deposit cost, and net interest margin. Net interest income, on a year-to-date basis in ~~2021,~~2022, accounted for ~~85.5%~~92.0% of net revenue (net interest income plus noninterest income).

At ~~September~~June 30, ~~2021,~~2022, the Company had total assets of ~~$35.9~~$41.0 billion, including ~~$20.5~~$26.5 billion of total loans and leases, net of deferred fees, $6.8 billion of securities available-for-sale, $2.3 billion of securities held-to-maturity, and $2.2 billion of interest-earning deposits in financial institutions compared to $40.4 billion of total assets at December 31, 2021, including $22.9 billion of total loans and leases, net of deferred fees, ~~$9.3~~$10.7 billion of securities available-for-sale, no securities held-to-maturity, and ~~$3.5~~$3.9 billion of interest-earning deposits in financial institutions compared to $29.5 billion of total assets, including $19.1 billion of total loans and leases, net of deferred fees, $5.2 billion of securities available-for-sale, and $3.0 billion of interest-earning deposits in financial institutions at December 31, 2020.institutions. The ~~$6.4 billion~~$507.4 million increase in total assets since year-end was due primarily to a ~~$4.0 billion increase in securities available-for-sale, a $1.4~~$3.6 billion increase in loans and leases, net of deferred fees, and a ~~$514.4 million~~$2.3 billion increase in securities held-to-maturity, offset partially by a $3.9 billion decrease in securities available-for-sale and a $1.8 billion decrease in interest-earning deposits in financial institutions. The changes in securities available-for-sale and securities held-to-maturity was due mainly to a $2.3 billion transfer from available-for-sale to held-to-maturity during the second quarter of 2022.

At ~~September~~June 30, ~~2021,~~2022, the Company had total liabilities of ~~$32.0~~$37.0 billion, including total deposits of ~~$30.6~~$34.0 billion and ~~subordinated debt~~borrowings of ~~$862.4 million,~~$1.6 billion, compared to ~~$25.9~~$36.4 billion of total liabilities at December 31, 2021, including ~~$24.9~~$35.0 billion of total deposits and ~~$465.8~~no borrowings. The $528.6 million ~~of subordinated debt at December 31, 2020. The $6.1 billion~~ increase in total liabilities since year-end was due mainly to increases of ~~$5.9~~$1.0 billion in overnight FHLB borrowings, $1.3 billion in non-core non-maturity deposits, and $1.2 billion in time deposits, offset partially by a decrease of $3.5 billion in core ~~deposits and $396.6 million in subordinated debt.~~deposits. The ~~increase~~decrease in core deposits was due primarily to ~~continued strong deposit growth~~a $3.4 billion decline in balances from our venture banking ~~and community banking~~ clients. At ~~September~~June 30, ~~2021,~~2022, core deposits totaled ~~$28.1~~$29.2 billion, or ~~92%~~86% of total deposits, including ~~$12.9~~$13.3 billion of noninterest-bearing demand deposits, or ~~42%~~39% of total deposits. The increase in subordinated debt was due to the $400 million of subordinated notes issued by the Bank on April 30, 2021. The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.

At ~~September~~June 30, ~~2021,~~2022, the Company had total stockholders' equity of ~~$3.9~~$4.0 billion which was virtually unchanged compared to ~~$3.6 billion at~~ December 31, ~~2020.~~2021. The ~~$323.5~~$21.2 million ~~increase~~decrease in stockholders' equity since year-end was due mainly to ~~$470.9 million in net earnings, offset partially by~~ a ~~$73.7~~$710.7 million decrease in accumulated other comprehensive income (loss) attributable to the investment securities portfolio going from a net unrealized gain of $66.0 million to a net unrealized loss of $644.8 million, and ~~$89.5~~$60.0 million of cash dividends ~~paid. Consolidated capital ratios remained strong with~~paid, offset partially by $498.5 million in net proceeds from our Series A preferred stock issuance in June 2022 and $242.5 million in net earnings. Our consolidated Tier 1 capital and total capital ratios increased to 10.15%, and 13.12% at June 30, 2022 due primarily to the Series A preferred stock issuance, while our consolidated common equity Tier 1 capital ratio decreased to 8.24% due to risk-weighted assets growing at a higher percentage than Tier 1 capital and the exclusion of ~~10.65% and 14.36% at September 30, 2021.~~Series A preferred stock from this capital calculation.

Recent Events

~~Acquisition of Homeowners Association Services Division~~

Under the terms of the Purchase Agreement, the Bank acquired certain assets and assumed certain liabilities related to Union Bank’s HOA Services Division for cash consideration of approximately $255 million, which represents the aggregate of a 5.9% deposit premium and the net book value of certain acquired assets and assumed liabilities. At closing, there were approximately $4.1 billion of deposits related to Union Bank’s HOA Services Division and approximately $6.4 million in related loans. For further information, see Note 18. ~~Subsequent Events~~ ~~in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."~~

~~Subordinated Notes Offering~~Preferred Stock Issuance

On ~~April 30, 2021,~~June 6, 2022, the ~~Bank~~Company issued ~~$400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes~~and sold 20,530,000 depositary shares (the ~~“Notes”) due May 1, 2031 (the “Maturity Date”~~“Depositary Shares”), ~~if not previously redeemed. Subject~~each representing a 1/40th ownership interest in a share of the Company’s 7.75% fixed rate reset non-cumulative, non-convertible, perpetual preferred stock, Series A, par value $0.01 per share (the “Series A preferred stock”), with a liquidation preference of $1,000 per share of Series A preferred stock (equivalent to ~~any redemption prior to~~$25.00 per Depositary Share). The Series A preferred stock qualifies as Tier 1 capital for purposes of the ~~Maturity Date,~~regulatory capital calculations. The gross proceeds were $513.3 million while net proceeds from the ~~Notes will bear interest from and~~issuance of the Series A preferred stock, after deducting $14.7 million of offering costs including the ~~original issue date to, but excluding, May 1, 2026 (the “Reset Date”), at a fixed rate~~underwriting discount and other expenses, were $498.5 million. A total of ~~3.25% per annum and from and including~~513,250 shares of Series A preferred stock was issued. For additional information regarding the Reset Date to, but excluding the Maturity Date, the Notes will bear interest at a floating per annum rate equal to a benchmark rate (which is expected to be the Three-Month Term SOFR) plus 252 basis points. For further information,Series A preferred stock issuance, see Note ~~10.~~15. ~~Borrowings and Subordinated Debt~~Stockholders' Equity ~~in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)~~."

~~Acquisition of Civic~~Stock Repurchase Program

On February 15, 2022, PacWest's Board of Directors authorized a new Stock Repurchase Program, effective March 1, ~~2021, the Bank completed the acquisition~~2022, to repurchase shares of ~~Civic in~~its common stock for an all-cash transaction. Civic, located in Redondo Beach, California, is one of the leading lenders in the United States specializing in residential non-owner-occupied investment properties. The acquisition of Civic advances the Bank’s strategyaggregate purchase price not to ~~diversify and expand its lending portfolio, diversify its revenue streams, and deploy excess liquidity into higher-yielding assets. Civic operates as a subsidiary of the Bank and at~~ ~~September 30, 2021 had~~ ~~$1.0 billion of loans outstanding.~~

~~The Civic acquisition h~~as been accounted for under the acquisition method of accounting which resulted in the recognition of goodwill of $125.4 million. All of the recognized goodwill is expected to be deductible for tax purposes. For further information, see Note 2. ~~Acquisitions~~ ~~in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."~~

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

From a business perspective, the impact in 2021 from the ongoing COVID-19 pandemic has decreased, however, new variants may continue to impact key macro-economic indicators such as unemployment and GDP and we will continue to closely monitor our loan portfolio. In the early stages of the COVID-19 pandemic, we experienced an increase in customers seeking loan modifications through payment deferrals and extension of terms. Most of the modifications were for payment deferrals for three months, while some deferrals were up to six months. Some loans were subsequently modified with deferrals of three to twelve months. As of September 30, 2021, there were 17 loansexceed $100 million with a ~~balance~~program maturity date of ~~$50.2 million on deferral. The Company did not apply a TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act.~~

~~We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act. As of September 30, 2021,~~ ~~PPP loans had an outstanding balance of approximately~~ ~~$279.4 million.In th~~e third quarter of 2021, we did not originate any PPP loans, while loans forgiven under the PPP program totaled approximately $337.7 million. The loans have origination fees that are recognized over the life of the loan with the fee recognition accelerated upon forgiveness or repayment of the loan. Fees recognized in the third quarter of 2021 were $7.9 million. As of ~~September 30, 2021, the remaining unamortized fees, net of deferred costs, totaled $7.7 million. The PPP loans are fully guaranteed by the SBA and do not carry an allowance.~~

As the COVID-19 pandemic unfolded in March 2020, we immediately enhanced the monitoring of our loan and lease portfolio with particular emphasis on certain loan and lease portfolios that we expected to be most impacted by the COVID-19 pandemic, such as the hotel, retail, commercial aviation, restaurant, and oil services loan and lease portfolios. We continue to closely monitor all of our portfolios, although with the increase in oil prices, the credit risk in the oil services portfolio has diminished. The hotel portfolio as of September 30, 2021 is comprised of hotel CRE loans of $506.4 million, hotel construction loans of $521.8 million, and hotel SBA loans of $29.2 million.

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

September 30, 2021
% of
Special Total Loans
Loan and Lease Portfolio Classified Mention Pass Total and Leases
(Dollars in thousands)
Hotel $ 16,141 $ 199,346 $ 841,934 $ 1,057,421 5.2 %
Retail CRE 224 1,433 422,757 424,414 2.1 %
Commercial aviation — 65,370 84,661 150,031 0.7 %
Restaurant 4,885 26,325 118,101 149,311 0.7 %
Total $ 21,250 $ 292,474 $ 1,467,453 $ 1,781,177 8.7 %

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 %

From a credit perspective, most of our credit metrics improved during the third quarter of 2021 as economic conditions and economic forecasts continued to improve. This improvement led to a provision for credit losses benefit of $20.0 million for the third quarter of 2021, compared to a provision for credit losses benefit of $88.0 million for the second quarter of 2021 and compared to a provision for credit losses of $97.0 million for the third quarter of 2020. For further details on CECL and the impacts to our process, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans ~~and Leases Held for Investment” contained herein.~~February 28, 2023.

Key Performance Indicators

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

The Level of Net Interest Income

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

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

Loan and Lease Growth

We actively seek new lending opportunities ~~under~~in 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. ToOn occasion, to augment our internal loan production, we have ~~historically~~ purchased loans such as multi-family loans from other banks, ~~and~~ private student loans from third-party lenders, and, most recently, ~~have begun to purchase owner-occupied,~~ single-family residential mortgage loans. Prior to our acquisition of Civic, we also purchased loans from ~~other banks as well.~~Civic. These loan purchases help us manage the concentrations in our portfolio as they diversify the geographic, interest-rate risk, credit risk, and product composition of our loan portfolio. Achieving net loan growth is subject to many factors, including maintaining strict credit standards, competition from other lenders, and borrowers that opt to prepay loans.

The Magnitude of Credit Losses

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

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

The Level of Noninterest Expense

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

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

Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
Efficiency Ratio 2021 2021 2020 2021 2020
(Dollars in thousands)
Noninterest expense $ 159,421 $ 151,750 $ 133,402 $ 461,307 $ 1,848,337
Less: Intangible asset amortization 2,890 2,889 3,751 8,858 11,581
Foreclosed assets expense (income), net 165 (119) 335 47 255
Goodwill impairment — — — — 1,470,000
Acquisition, integration and reorganization costs 200 200 — 3,825 —
Noninterest expense used for efficiency ratio $ 156,166 $ 148,780 $ 129,316 $ 448,577 $ 366,501
Net interest income (tax equivalent) $ 279,777 $ 270,083 $ 253,632 $ 814,495 $ 761,354
Noninterest income 51,345 40,371 38,252 136,545 106,210
Net revenues 331,122 310,454 291,884 951,040 867,564
Less: Gain on sale of securities 515 — 5,270 616 13,167
Net revenues used for efficiency ratio $ 330,607 $ 310,454 $ 286,614 $ 950,424 $ 854,397
Efficiency ratio 47.2 % 47.9 % 45.1 % 47.2 % 42.9 %

The increase in the efficiency ratio was attributable primarily to higher noninterest expense related to the Civic acquisition that closed on February 1, 2021. The level of revenues related to Civic lag the level of their noninterest expense as we shift from a gain on loan sales model pre-acquisition to a hold for portfolio model post-acquisition. Therefore, it will take time for the revenues to build as the on-balance sheet loan portfolio grows.


		Three Months Ended						Six Months Ended
		June 30,						June 30,
Efficiency Ratio		2022			2021			2022			2021
		(Dollars in thousands)
Noninterest expense		$	183,645		$	151,750		$	351,071		$	301,886
Less:	Intangible asset amortization	3,649			2,889			7,298			5,968
	Foreclosed assets income, net	(28)			(119)			(3,381)			(118)
	Acquisition, integration and reorganization costs	—			200			—			3,625
	Noninterest expense used for efficiency ratio	$	180,024		$	148,780		$	347,154		$	292,411

Net interest income (tax equivalent)		$	327,801		$	270,083		$	640,452		$	534,718
Noninterest income		34,346			40,371			55,164			85,200
	Net revenues	362,147			310,454			695,616			619,918
Less:	(Loss) gain on sale of securities	(1,209)			—			(1,105)			101
	Net revenues used for efficiency ratio	$	363,356		$	310,454		$	696,721		$	619,817

Efficiency ratio		49.5		%	47.9		%	49.8		%	47.2		%

Critical Accounting Policies and Estimates

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

Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K.

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 common equity, tangible common equity ratio, and tangible book value per common 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 common share, respectively. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.


			Three Months Ended									Nine Months Ended								Three Months Ended						Six Months Ended
			September 30,			June 30,			September 30,			September 30,								June 30,						June 30,
Return on Average Tangible Equity			2021			2021			2020			2021			2020
Return on Average Tangible Common Equity																		Return on Average Tangible Common Equity		2022			2021			2022			2021
			(Dollars in thousands)																	(Dollars in thousands)
Net earnings (loss)			$	139,996		$	180,512		$	45,503		$	470,914		$	(1,354,404)
Net earnings																		Net earnings		$	122,360		$	180,512		$	242,488		$	330,918
Add:	Add:	Intangible asset amortization	2,890			2,889			3,751			8,858			11,581			Add:	Intangible asset amortization	3,649			2,889			7,298			5,968
		Goodwill impairment	—			—			—			—			1,470,000
		Adjusted net earnings used for return on																	Adjusted net earnings used for return on average
		average tangible equity	$	142,886		$	183,401		$	49,254		$	479,772		$	127,177			tangible common equity	$	126,009		$	183,401		$	249,786		$	336,886

Average stockholders' equity	Average stockholders' equity		$	3,916,621		$	3,739,042		$	3,497,869		$	3,758,733		$	3,965,453		Average stockholders' equity		$	3,652,368		$	3,739,042		$	3,749,386		$	3,678,481
Less:	Less:	Average intangible assets	1,221,253			1,224,208			1,107,548			1,212,851			1,594,231			Less:	Average intangible assets	1,445,333			1,224,208			1,447,184			1,208,581
Less:																		Less:	Average preferred stock	137,100			—			68,929			—
		Average tangible common equity	$	2,695,368		$	2,514,834		$	2,390,321		$	2,545,882		$	2,371,222			Average tangible common equity	$	2,069,935		$	2,514,834		$	2,233,273		$	2,469,900

Return on average equity (1)	Return on average equity (1)		14.18		%	19.36		%	5.18		%	16.75		%	(45.62)		%	Return on average equity (1)		13.44		%	19.36		%	13.04		%	18.14		%
Return on average tangible equity (2)			21.03		%	29.25		%	8.20		%	25.20		%	7.16		%
Return on average tangible common equity (2)																		Return on average tangible common equity (2)		24.42		%	29.25		%	22.55		%	27.51		%

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

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


Tangible Common Equity Ratio and	Tangible Common Equity Ratio and	September 30,			December 31,			Tangible Common Equity Ratio and	June 30,			December 31,
Tangible Book Value Per Share		2021			2020
Tangible Book Value Per Common Share								Tangible Book Value Per Common Share	2022			2021
		(Dollars in thousands, except per share data)							(Dollars in thousands, except per share data)
Stockholders’ equity	Stockholders’ equity	$	3,918,434		$	3,594,951		Stockholders’ equity	$	3,978,403		$	3,999,630
Less: Preferred stock								Less: Preferred stock	498,516			—
Total common equity								Total common equity	3,479,887			3,999,630
Less: Intangible assets	Less: Intangible assets	1,219,651			1,102,311			Less: Intangible assets	1,443,395			1,450,693
Tangible common equity	Tangible common equity	$	2,698,783		$	2,492,640		Tangible common equity	$	2,036,492		$	2,548,937

Total assets	Total assets	$	35,885,676		$	29,498,442		Total assets	$	40,950,723		$	40,443,344
Less: Intangible assets	Less: Intangible assets	1,219,651			1,102,311			Less: Intangible assets	1,443,395			1,450,693
Tangible assets	Tangible assets	$	34,666,025		$	28,396,131		Tangible assets	$	39,507,328		$	38,992,651

Equity to assets ratio	Equity to assets ratio	10.92		%	12.19		%	Equity to assets ratio	9.72		%	9.89		%
Tangible common equity ratio (1)	Tangible common equity ratio (1)	7.79		%	8.78		%	Tangible common equity ratio (1)	5.15		%	6.54		%
Book value per share		$	32.77		$	30.36
Tangible book value per share (2)		$	22.57		$	21.05
Book value per common share								Book value per common share	$	28.93		$	33.45
Tangible book value per common share (2)								Tangible book value per common share (2)	$	16.93		$	21.31
Shares outstanding	Shares outstanding	119,579,566			118,414,853			Shares outstanding	120,288,024			119,584,854

_______________________________________

(1) Tangible common equity divided by tangible assets.

(2) Tangible common equity divided by shares outstanding.

•~~Adjusted net earnings and adjusted earnings per share:~~ ~~These non-GAAP measurements are presented in the following tables for the periods presented. See Note~~ 14. ~~Earnings (Loss) Per Share~~ ~~for the GAAP calculation of earnings per share.~~

Three Months Ended Nine Months Ended
Adjusted Net Earnings and September 30, June 30, September 30, September 30,
Adjusted Earnings Per Share 2021 2021 2020 2021 2020
(Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss) $ 139,996 $ 180,512 $ 45,503 $ 470,914 $ (1,354,404)
Add: Goodwill impairment — — — — 1,470,000
Adjusted net earnings $ 139,996 $ 180,512 $ 45,503 $ 470,914 $ 115,596
Adjusted Basic Earnings Per Share:
Adjusted net earnings $ 139,996 $ 180,512 $ 45,503 $ 470,914 $ 115,596
Less: Earnings allocated to unvested restricted stock (2,417) (3,172) (578) (7,930) (1,603)
Adjusted net earnings allocated to
common shares $ 137,579 $ 177,340 $ 44,925 $ 462,984 $ 113,993
Weighted-average basic shares and unvested restricted
stock outstanding 119,569 119,386 118,438 119,272 118,469
Less: Weighted-average unvested restricted stock
outstanding (2,340) (2,356) (1,684) (2,235) (1,596)
Weighted-average basic shares outstanding 117,229 117,030 116,754 117,037 116,873
Adjusted basic earnings per share $ 1.17 $ 1.52 $ 0.38 $ 3.96 $ 0.98
Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares $ 137,579 $ 177,340 $ 44,925 $ 462,984 $ 113,993
Weighted-average diluted shares outstanding 117,229 117,030 116,754 117,037 116,873
Adjusted diluted earnings per share $ 1.17 $ 1.52 $ 0.38 $ 3.96 $ 0.98

6063

Results of Operations

Earnings Performance

The following table presents performance metrics for the periods indicated:


		Three Months Ended									Nine Months Ended							Three Months Ended						Six Months Ended
		September 30,			June 30,			September 30,			September 30,							June 30,						June 30,
		2021			2021			2020			2021			2020				2022			2021			2022			2021
		(Dollars in thousands, except per share data)																(Dollars in thousands, except per share data)
Earnings Summary:	Earnings Summary:																Earnings Summary:
Interest income	Interest income	$	290,082		$	280,505		$	265,908		$	843,924		$	831,315		Interest income	$	350,518		$	280,505		$	673,422		$	553,842
Interest expense	Interest expense	(14,240)			(14,197)			(14,584)			(40,505)			(75,965)			Interest expense	(26,593)			(14,197)			(40,780)			(26,265)
Net interest income	Net interest income	275,842			266,308			251,324			803,419			755,350			Net interest income	323,925			266,308			632,642			527,577
Provision for credit losses	Provision for credit losses	20,000			88,000			(97,000)			156,000			(329,000)			Provision for credit losses	(11,500)			88,000			(11,500)			136,000
Noninterest income	Noninterest income	51,345			40,371			38,252			136,545			106,210			Noninterest income	34,346			40,371			55,164			85,200
Operating expense		(159,421)			(151,750)			(133,402)			(461,307)			(378,337)
Goodwill impairment		—			—			—			—			(1,470,000)

Earnings (loss) before income taxes		187,766			242,929			59,174			634,657			(1,315,777)
Noninterest expense																	Noninterest expense	(183,645)			(151,750)			(351,071)			(301,886)
Earnings before income taxes																	Earnings before income taxes	163,126			242,929			325,235			446,891
Income tax expense	Income tax expense	(47,770)			(62,417)			(13,671)			(163,743)			(38,627)			Income tax expense	(40,766)			(62,417)			(82,747)			(115,973)
Net earnings (loss)		$	139,996		$	180,512		$	45,503		$	470,914		$	(1,354,404)
Net earnings																	Net earnings	$	122,360		$	180,512		$	242,488		$	330,918

Per Common Share Data:	Per Common Share Data:																Per Common Share Data:
Diluted earnings (loss) per share		$	1.17		$	1.52		$	0.38		$	3.96		$	(11.60)
Book value per share		$	32.77		$	32.17		$	29.42
Tangible book value per share (1)		$	22.57		$	21.95		$	20.09
Diluted earnings per common share																	Diluted earnings per common share	$	1.02		$	1.52		$	2.03		$	2.78
Book value per common share																	Book value per common share	$	28.93		$	32.17
Tangible book value per common share (1)																	Tangible book value per common share (1)	$	16.93		$	21.95

Performance Ratios:	Performance Ratios:																Performance Ratios:
Return on average assets	Return on average assets	1.55		%	2.11		%	0.65		%	1.86		%	(6.65)		%	Return on average assets	1.23		%	2.11		%	1.22		%	2.03		%
Return on average tangible equity (1)		21.03		%	29.25		%	8.20		%	25.20		%	7.16		%
Return on average tangible common equity (1)																	Return on average tangible common equity (1)	24.42		%	29.25		%	22.55		%	27.51		%
Net interest margin (tax equivalent)	Net interest margin (tax equivalent)	3.33		%	3.40		%	3.90		%	3.46		%	4.13		%	Net interest margin (tax equivalent)	3.56		%	3.40		%	3.50		%	3.53		%
Yield on average loans and leases (tax equivalent)	Yield on average loans and leases (tax equivalent)	5.01		%	5.18		%	5.01		%	5.13		%	5.18		%	Yield on average loans and leases (tax equivalent)	4.65		%	5.18		%	4.66		%	5.19		%
Cost of average total deposits	Cost of average total deposits	0.08		%	0.10		%	0.17		%	0.10		%	0.32		%	Cost of average total deposits	0.18		%	0.10		%	0.13		%	0.11		%
Efficiency ratio	Efficiency ratio	47.2		%	47.9		%	45.1		%	47.2		%	42.9		%	Efficiency ratio	49.5		%	47.9		%	49.8		%	47.2		%

Capital Ratios (consolidated):	Capital Ratios (consolidated):																Capital Ratios (consolidated):
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	10.15		%	10.41		%	10.45		%							Common equity tier 1 capital ratio	8.24		%	10.41		%
Tier 1 capital ratio	Tier 1 capital ratio	10.65		%	10.41		%	10.45		%							Tier 1 capital ratio	10.15		%	10.41		%
Total capital ratio	Total capital ratio	14.36		%	14.99		%	13.74		%							Total capital ratio	13.12		%	14.99		%
Risk-weighted assets																	Risk-weighted assets	$	33,009,455		$	24,274,256

_____________________________

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

6164

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

Net earnings for the ~~third~~second quarter of ~~2021~~2022 were $~~140.0~~122.4 million, or $~~1.17~~1.02 per diluted share, compared to net earnings for the second quarter of 2021 of $180.5 million, or $1.52 per diluted share. The ~~$40.5~~$58.2 million decrease in net earnings from the ~~prior~~second quarter of 2021 was due mainly to a ~~lower~~higher provision for credit losses ~~benefit~~ of ~~$68.0~~$99.5 million, lower noninterest income of $6.0 million and higher noninterest expense of ~~$7.7~~$31.9 million, offset partially by higher net interest income of $57.6 million and lower income tax expense of ~~$14.6 million, higher noninterest income of $11.0 million, and higher net interest income of $9.5~~$21.7 million. The ~~third quarter~~increase in the provision for credit losses for the second quarter of 2022 from the second quarter of 2021 was due to an $11.5 million provision in the second quarter of 2022 compared to a provision benefit ~~reflected~~of $88.0 million in the second quarter of 2021. The provision in the second quarter of 2022 was due primarily to the growth in unfunded loan commitments of $2.0 billion in the quarter. The provision benefit in the second quarter of 2021 was due mainly to improvement in both ~~macro-economic~~macroeconomic forecast variables and loan portfolio credit quality metrics ~~offset partially by increased~~along with decreased provisions for unfunded commitments and loan growth in the third quarter of 2021. Noninterest expense increased due mostly to a $7.3 million increase in compensation expense attributable mainly to higher bonus and incentives expense as we updated our full-year bonus estimates based on the growth inindividually evaluated loans and deposits in the third quarter of 2021, overall year-to-date performance, and increased warrant income. The decrease in income tax expense was primarily due to lower pre-tax earnings in the third quarter of 2021 compared to the second quarter of 2021.unfunded loan commitments. Noninterest income ~~increased~~decreased due primarily to ~~increases~~decreases of ~~$7.9~~$4.0 million in warrant income, ~~and $3.0~~$1.3 million in dividends and gains (losses) on equity ~~investments. Net interest income increased due mainly to higher income~~investments, and $1.4 million in gain on ~~investment securities and~~sale of loans and leases, ~~as a result of higher average balances.~~

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

~~Net earnings for~~with the ~~third quarter of 2021 were~~ ~~$140.0 million, or~~ ~~$1.17~~ per diluted share, compared to net earnings for the third quarter of 2020 of $45.5 million, or $0.38 per diluted share. The $94.5 million increase in net earnings from the year-ago quarter was due mainlyfirst two items attributable mostly to a lower provision for credit losses of $117.0 million, higher net interest income of $24.5 million, and higher noninterest income of $13.1 million, offset partially by higher income tax expense of $34.1 million and higher operating expense of $26.0 million. The decrease in ~~the provision for credit losses for the third quarter of 2021 from the year-ago quarter reflected improvement~~capital markets activity in certain key macro-economic forecast variables and loan portfolio credit quality metrics. Net interest income increased due mainly to higher income on investment securities and loans and leases as a result of higher average balances, offset partially by a lower yield on average investment securities and the negative impact on net interest income due to the change in the mix of average interest-earning assets. Noninterest income increased due primarily to a $13.1 million increase in warrant income. The increase in income tax expense was due primarily to higher pre-tax earnings in the third quarter of 2021 compared to the year-ago quarter.2022. Noninterest expense increased primarily due ~~mostly~~ to an increase of ~~$22.9~~$11.7 million in compensation expense, due mostly to the incremental expense of the ~~Civic~~higher headcount in 2022 from the acquired operations of the HOA Business in 2021 and increased levels of loan production in 2022. Net interest income increased due mainly to higher ~~bonus~~income on loans and leases and investment securities due primarily to higher average balances, offset partially by higher interest expense on interest-bearing liabilities due mainly to ~~year-to-date performance.~~higher average balances and rates. The decrease in income tax expense was due primarily to lower pre-tax earnings in the second quarter of 2022 compared to the second quarter of 2021.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

Net earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 were ~~$470.9~~$242.5 million, or ~~$3.96~~$2.03 per diluted share, compared to a net ~~loss~~earnings for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 of ~~$1.35 billion,~~$330.9 million, or ~~$11.60 loss~~$2.78 per diluted share. The ~~$1.83 billion increase~~$88.4 million decrease in net earnings from the year-ago period was due mainly to ~~$1.47 billion~~a higher provision for credit losses of ~~goodwill impairment~~$147.5 million, lower noninterest income of $30.0 million, and higher noninterest expense ~~recognized in 2020 combined with a decrease~~of $49.2 million, offset partially by higher net interest income of $105.1 million and lower income tax expense of $33.2 million. The increase in the provision for credit losses ~~of $485.0 million~~for the six months ended June 30, 2022 from the year-ago period was due to ~~improvements~~an $11.5 million provision in the six months ended June 30, 2022 compared to a provision benefit of $136.0 million in the six months ended June 30, 2021. The provision in the six months ended June 30, 2022 was due primarily to the growth in unfunded loan commitments of $2.9 billion during the period. The provision benefit in the six months ended June 30, 2021 was due mainly to improvement in both ~~macro-economic~~macroeconomic forecast variables and loan portfolio credit quality metrics. Noninterest income decreased due primarily to decreases of $23.6 million in dividends and gains (losses) on equity investments and $9.5 million in warrant income, attributable mostly to a decrease in capital markets activity in 2022. Noninterest expense increased primarily due to an increase of $24.1 million in compensation expense, due mostly to the incremental expense of the higher headcount in 2022 from the acquired operations of Civic and the HOA Business in 2021 and increased levels of loan production in 2022. Net interest income increased due mainly to higher income on loans and leases and investment securities due primarily to higher average balances, offset partially by higher interest expense on interest-bearing liabilities due mainly to higher average balances and rates. The decrease in income tax expense was due primarily to lower pre-tax earnings in the six months ended June 30, 2022 compared to the year-ago period.

6265

Net Interest Income

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


		Three Months Ended																			Three Months Ended
		September 30, 2021						June 30, 2021						September 30, 2020							June 30, 2022						June 30, 2021
				Interest		Yields				Interest		Yields				Interest		Yields					Interest		Yields				Interest		Yields
		Average		Income/		and		Average		Income/		and		Average		Income/		and			Average		Income/		and		Average		Income/		and
		Balance		Expense		Rates		Balance		Expense		Rates		Balance		Expense		Rates			Balance		Expense		Rates		Balance		Expense		Rates
		(Dollars in thousands)																			(Dollars in thousands)
ASSETS:	ASSETS:																			ASSETS:
Loans and leases (1)(2)(3)	Loans and leases (1)(2)(3)	$	19,670,671	$	248,485	5.01	%	$	19,057,420	$	246,147	5.18	%	$	19,195,737	$	241,547	5.01	%	Loans and leases (1)(2)(3)	$	25,449,773	$	295,154	4.65	%	$	19,057,420	$	246,147	5.18	%
Investment securities (2)(4)	Investment securities (2)(4)	8,047,098		42,952		2.12	%	6,492,721		36,111		2.23	%	4,107,915		26,015		2.52	%	Investment securities (2)(4)	9,488,653		54,910		2.32	%	6,492,721		36,111		2.23	%
Deposits in financial institutions	Deposits in financial institutions	5,657,768		2,580		0.18	%	6,347,764		2,022		0.13	%	2,554,349		654		0.10	%	Deposits in financial institutions	1,984,751		4,330		0.88	%	6,347,764		2,022		0.13	%
Total interest‑earning assets (2)	Total interest‑earning assets (2)	33,375,537		294,017		3.50	%	31,897,905		284,280		3.57	%	25,858,001		268,216		4.13	%	Total interest‑earning assets (2)	36,923,177		354,394		3.85	%	31,897,905		284,280		3.57	%
Other assets	Other assets	2,496,127						2,428,207						2,077,192						Other assets	3,108,714						2,428,207
Total assets	Total assets	$	35,871,664					$	34,326,112					$	27,935,193					Total assets	$	40,031,891					$	34,326,112

LIABILITIES AND	LIABILITIES AND																			LIABILITIES AND
STOCKHOLDERS’ EQUITY:	STOCKHOLDERS’ EQUITY:																			STOCKHOLDERS’ EQUITY:
Interest checking	Interest checking	$	7,372,859	2,042		0.11	%	$	7,235,726	2,394		0.13	%	$	4,904,614	2,019		0.16	%	Interest checking	$	6,517,381	3,816		0.23	%	$	7,235,726	2,394		0.13	%
Money market	Money market	8,662,449		2,997		0.14	%	8,484,933		3,318		0.16	%	7,170,842		3,081		0.17	%	Money market	10,553,942		8,448		0.32	%	8,484,933		3,318		0.16	%
Savings	Savings	620,079		38		0.02	%	598,225		36		0.02	%	565,395		35		0.02	%	Savings	650,479		41		0.03	%	598,225		36		0.02	%
Time	Time	1,475,307		1,340		0.36	%	1,498,169		1,521		0.41	%	1,876,072		4,752		1.01	%	Time	1,939,816		3,057		0.63	%	1,498,169		1,521		0.41	%
Total interest‑bearing deposits	Total interest‑bearing deposits	18,130,694		6,417		0.14	%	17,817,053		7,269		0.16	%	14,516,923		9,887		0.27	%	Total interest‑bearing deposits	19,661,618		15,362		0.31	%	17,817,053		7,269		0.16	%
Borrowings	Borrowings	238,335		101		0.17	%	225,446		265		0.47	%	181,315		27		0.06	%	Borrowings	1,356,616		2,441		0.72	%	225,446		265		0.47	%
Subordinated debt	Subordinated debt	862,272		7,722		3.55	%	735,725		6,663		3.63	%	462,375		4,670		4.02	%	Subordinated debt	863,653		8,790		4.08	%	735,725		6,663		3.63	%
Total interest‑bearing liabilities	Total interest‑bearing liabilities	19,231,301		14,240		0.29	%	18,778,224		14,197		0.30	%	15,160,613		14,584		0.38	%	Total interest‑bearing liabilities	21,881,887		26,593		0.49	%	18,778,224		14,197		0.30	%
Noninterest‑bearing demand deposits	Noninterest‑bearing demand deposits	12,198,313						11,304,757						8,812,391						Noninterest‑bearing demand deposits	13,987,398						11,304,757
Other liabilities	Other liabilities	525,429						504,089						464,320						Other liabilities	510,238						504,089
Total liabilities	Total liabilities	31,955,043						30,587,070						24,437,324						Total liabilities	36,379,523						30,587,070
Stockholders’ equity	Stockholders’ equity	3,916,621						3,739,042						3,497,869						Stockholders’ equity	3,652,368						3,739,042
Total liabilities and
stockholders' equity		$	35,871,664					$	34,326,112					$	27,935,193
Total liabilities and stockholders' equity																				Total liabilities and stockholders' equity	$	40,031,891					$	34,326,112
Net interest income (2)	Net interest income (2)			$	279,777					$	270,083					$	253,632			Net interest income (2)			$	327,801					$	270,083
Net interest rate spread (2)	Net interest rate spread (2)					3.21	%					3.27	%					3.75	%	Net interest rate spread (2)					3.36	%					3.27	%
Net interest margin (2)	Net interest margin (2)					3.33	%					3.40	%					3.90	%	Net interest margin (2)					3.56	%					3.40	%

Total deposits (5)	Total deposits (5)	$	30,329,007	$	6,417	0.08	%	$	29,121,810	$	7,269	0.10	%	$	23,329,314	$	9,887	0.17	%	Total deposits (5)	$	33,649,016	$	15,362	0.18	%	$	29,121,810	$	7,269	0.10	%

_____________________

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

(2) Tax equivalent.

(3) Includes net loan premium amortization ofof $~~2.4~~5.8 million and $1.5 million ~~and net loan discount accretion of $35,000~~ for the three months ended ~~September 30, 2021,~~ June 30, ~~2021,~~2022 and ~~September 30, 2020,~~2021, respectively.

(4) Includes tax-equivalent adjustments of ~~$2.2~~$2.0 million and $2.2 million ~~and $1.6 million~~ for the three months ended ~~September 30, 2021,~~ June 30, 2022 and 2021, ~~and September 30, 2020,~~ respectively, related to tax-exempt ~~income~~interest on investment securities. The fe~~deral~~federal statutory ~~tax~~ rate utilized ~~was~~was 21%.

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

6366

Nine Months Ended
September 30, 2021 September 30, 2020
Interest Yields Interest Yields
Average Income/ and Average Income/ and
Balance Expense Rates Balance Expense Rates
(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)
$ 19,221,192 $ 737,478 5.13 % $ 19,403,365 $ 752,785 5.18 %
Investment securities (2)(4)
6,650,744 111,392 2.24 % 3,936,492 82,086 2.79 %
Deposits in financial institutions 5,601,765 6,130 0.15 % 1,279,628 2,448 0.26 %
Total interest-earning assets (2)
31,473,701 855,000 3.63 % 24,619,485 837,319 4.54 %
Other assets 2,413,840 2,601,617
Total assets $ 33,887,541 $ 27,221,102
LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking $ 7,007,042 6,668 0.13 % $ 4,127,239 10,727 0.35 %
Money market 8,376,974 9,593 0.15 % 6,181,312 15,953 0.34 %
Savings 597,260 109 0.02 % 529,362 228 0.06 %
Time 1,488,848 4,816 0.43 % 2,343,645 24,301 1.39 %
Total interest-bearing deposits 17,470,124 21,186 0.16 % 13,181,558 51,209 0.52 %
Borrowings 229,990 559 0.32 % 1,023,307 8,124 1.06 %
Subordinated debt 689,484 18,760 3.64 % 460,088 16,632 4.83 %
Total interest-bearing liabilities 18,389,598 40,505 0.29 % 14,664,953 75,965 0.69 %
Noninterest-bearing demand deposits 11,232,927 8,157,169
Other liabilities 506,283 433,527
Total liabilities 30,128,808 23,255,649
Stockholders’ equity 3,758,733 3,965,453
Total liabilities and
stockholders' equity $ 33,887,541 $ 27,221,102
Net interest income (2)
$ 814,495 $ 761,354
Net interest rate spread (2)
3.34 % 3.85 %
Net interest margin (2)
3.46 % 4.13 %
Total deposits (5)
$ 28,703,051 $ 21,186 0.10 % $ 21,338,727 $ 51,209 0.32 %


	Six Months Ended
	June 30, 2022						June 30, 2021
			Interest		Yields				Interest		Yields
	Average		Income/		and		Average		Income/		and
	Balance		Expense		Rates		Balance		Expense		Rates
	(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)	$	24,446,967	$	564,675	4.66	%	$	18,992,727	$	488,993	5.19	%
Investment securities (2)(4)	9,940,670		110,504		2.24	%	5,940,995		68,440		2.32	%
Deposits in financial institutions	2,530,921		6,053		0.48	%	5,573,300		3,550		0.13	%
Total interest‑earning assets (2)	36,918,558		681,232		3.72	%	30,507,022		560,983		3.71	%
Other assets	3,039,450						2,372,015
Total assets	$	39,958,008					$	32,879,037

LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking	$	6,804,407	5,592		0.17	%	$	6,821,101	4,626		0.14	%
Money market	10,702,374		11,909		0.22	%	8,231,870		6,596		0.16	%
Savings	646,615		80		0.02	%	585,662		71		0.02	%
Time	1,611,039		3,989		0.50	%	1,495,731		3,476		0.47	%
Total interest‑bearing deposits	19,764,435		21,570		0.22	%	17,134,364		14,769		0.17	%
Borrowings	830,453		2,602		0.63	%	225,748		458		0.41	%
Subordinated debt	863,613		16,608		3.88	%	601,658		11,038		3.70	%
Total interest‑bearing liabilities	21,458,501		40,780		0.38	%	17,961,770		26,265		0.29	%
Noninterest‑bearing demand deposits	14,224,217						10,742,233
Other liabilities	525,904						496,553
Total liabilities	36,208,622						29,200,556
Stockholders’ equity	3,749,386						3,678,481
Total liabilities and stockholders' equity	$	39,958,008					$	32,879,037
Net interest income (2)			$	640,452					$	534,718
Net interest rate spread (2)					3.34	%					3.42	%
Net interest margin (2)					3.50	%					3.53	%

Total deposits (5)	$	33,988,652	$	21,570	0.13	%	$	27,876,597	$	14,769	0.11	%

_____________________

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

(2) Tax equivalent.

(3) Includes net loan premium amortization ofof $~~5.0~~11.5 million and ~~net loan discount accretion of $4.4~~$2.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~,2021, respectively.

(4) Includes tax-equivalent adjustments of $4.2 million and $4.2 million ~~$6.4 million~~ ~~and $4.2 million~~ for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, ~~and 2020~~respectively, , ~~respectively,~~ related to tax-exempt ~~income~~interest on investment securities. The federal statutory ~~tax~~ rate utilized ~~was~~was 21%.

6467

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

Net interest income increased by ~~$9.5~~$57.6 million to ~~$275.8~~$323.9 million for the ~~third~~second quarter of ~~2021~~2022 compared to $266.3 million for the second quarter of 2021 due mainly to higher income on ~~investment securities and~~ loans and leases due mostly to higher average balances as we deployed our excess liquidity. Income on investment securities increased by $6.8 million in the third quarter of 2021 due to a $1.6 billion increase in the average balance ofand investment securities, offset partially by ~~an 11 basis point decrease~~higher interest expense. The increase in ~~the yield on average investment securities. Income~~interest income on loans and leases increased by $2.2 million in the third quarter of 2021 due to a $613.3 million increase in the average balance of loans and leases, offset partially by a 17 basis point decrease in the yield on average loans and leases. The tax-equivalent yield on average loans and leases was ~~5.01% for the third quarter of 2021 compared to 5.18% for the second quarter of 2021.~~

The tax equivalent NIM was 3.33% for the third quarter of 2021 compared to 3.40% for the second quarter of 2021. The decrease in the tax equivalent NIM was due primarily to the change in the earning assets mix driven by the increase in the investment portfolio as a percentage of earning assets. The average balance of investment securities increased by $1.6 billion to $8.0 billion, the average balance of deposits in financial institutions decreased by $690.0 million to $5.7 billion, and the average balance of loans and leases increased by $613.3 million in the third quarter of 2021 to $19.7 billion. The increase in average balances of investment securities and loans and leases was the result of prudently deploying some of our excess liquidity ahead of the closing of the acquisition of the HOA Services Division of MUFG Union Bank that added approximately $4.1 billion of deposits on October 8, 2021. Excess liquidity continues to negatively impact the tax equivalent NIM, however, the impact decreased from approximately 73 basis points in the second quarter of 2021 to approximately 57 basis points in the third quarter of 2021. Average loans and leases as a percentage of average interest-earning assets was 59% for the third quarter of 2021 compared to 60% for the second quarter of 2021.

The cost of average total deposits decreased to 0.08% for the third quarter of 2021 from 0.10% for the second quarter of 2021. The lower cost of average total deposits was due primarily to the $894 million increase in the average balance of noninterest-bearing deposits.

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

Net interest income increased by $24.5 million to $275.8 million for the third quarter of 2021 compared to $251.3 million for the third quarter of 2020 due mainly to higher income on investment securities attributable to a higher average balance, offset partially by a lower yield ~~higher income~~ on average loans and leases due to a higher average balance, and lower interest expense. Interest expense declined due principally to a lower cost of average interest-bearing deposits, offset partially by a higher balance of average subordinated debt attributable to the $400 million of subordinated notes issued in the second quarter of 2021.leases. The tax equivalent yield on average loans and leases was ~~5.01%~~4.65% for the ~~third~~second quarter of ~~2021, unchanged~~2022, compared to ~~5.01%~~5.18% for the same quarter of ~~2020.~~2021. The increase in interest income on investment securities was due to a higher average balance. The increase in interest expense was due to a higher cost and balance of average interest-bearing liabilities.

The tax equivalent NIM was ~~3.33%~~3.56% for the ~~third~~second quarter of ~~2021~~2022 compared to ~~3.90%~~3.40% for the ~~same~~comparable quarter last ye~~ar.~~year. The ~~decrease~~increase in the tax equivalent NIM was due mostly to the change in the mix of average interest-earning assets, ~~and~~offset partially by the lower yield on average ~~investment securities, offset partially by lower deposit costs.~~loans and leases. The change in the mix of average interest-earning assets was due to ~~a $3.9 billion~~the increase in ~~average investment securities, a $3.1 billion increase in average deposits in financial institutions, and a $474.9 million increase in~~the balance of average loans and ~~leases. Average loans~~leases and ~~leases~~investment securities as a percentage of average interest-earning assets ~~was 59% for~~from 80% to 95% and the ~~third quarter~~decrease in the balance of ~~2021 compared~~average deposits in financial institutions as a percentage of average interest-earning assets from 20% to ~~74% for~~5%. The balance of average loans and leases increased by $6.4 billion, the ~~third quarter~~balance of ~~2020.~~average investment securities increased by $3.0 billion, and the balance of average deposits in financial institutions declined by $4.4 billion.

The cost of average total deposits ~~decreased~~increased to ~~0.08%~~0.18% for the ~~third~~second quarter of ~~2021~~2022 from ~~0.17%~~0.10% for the ~~third~~second quarter of ~~2020~~2021 due mainly to ~~lower~~higher average balances and rates ~~paid~~ on higher-cost wholesale and brokered time deposits, ~~in conjunction with decreased~~as well as higher market ~~rates.~~rates on our deposit products. Average wholesale and brokered time deposits increased by $630.1 million to $1.9 billion for the second quarter of 2022 from $1.2 billion for the second quarter of 2021.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2020~~2021

Net interest income increased by ~~$48.1~~$105.1 million to ~~$803.4~~$632.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~$755.4~~$527.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 due mainly to higher income on loans and leases and investment securities, offset partially by higher interest expense. The increase in interest income on loans and leases was attributable to a higher average balance, offset partially by a lower yield ~~combined with lower interest expense due to lower rates paid~~ on deposits, borrowings, and subordinated debt in conjunction with decreased market rates; the aforementioned increase in net interest income is offset partially by lower income on loans and leases due to a lower average loans and ~~leases balance coupled with a lower loans and leases yield also attributable to decreased market rates.~~leases. The tax equivalent yield on average loans and leases was ~~5.13%~~4.66% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~5.18%~~5.19% for the same period in ~~2020.~~2021. The increase in interest income on investment securities was due to a higher average balance. The increase in interest expense was due to a higher balance and cost of average interest-bearing liabilities.

The tax equivalent NIM was ~~3.46%~~3.50% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to ~~4.13%~~3.53% for the same period last year. The decrease in the tax equivalent NIM was due mostly to the lower yields on average loans and leases and investment securities, offset partially by the change in the mix of average interest-earning assets. The change in the mix of average interest-earning assets ~~and~~was due to the ~~lower yields on~~increase in the balance of average ~~investment securities and~~ loans and leases ~~offset partially by lower costs of deposits, borrowings,~~ and ~~subordinated debt. The change in mix of average interest-earning assets was due to a $4.3 billion increase in average deposits in financial institutions, a $2.7 billion increase in average~~ investment securities ~~and a $182.2 million decrease in average loans and leases. Average loans and leases~~ as a percentage of average interest-earning assets ~~was 61% for~~from 82% to 93% and the ~~nine months ended September 30, 2021 compared~~decrease in the balance of average deposits in financial institutions as a percentage of average interest-earning assets from 18% to ~~79% for~~7%. The balance of average loans and leases increased by $5.5 billion, the ~~nine months ended September 30, 2020.~~balance of average investment securities increased by $4.0 billion, and the balance of average deposits in financial institutions declined by $3.0 billion.

The cost of average total deposits ~~decreased~~increased to ~~0.10%~~0.13% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 from ~~0.32%~~0.11% for the same period last year due mainly to ~~lower~~higher market rates ~~paid~~ on ~~deposits in conjunction with decreased market rates.~~our deposit products.

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 held-to-maturity securities and information regarding credit quality metrics for the periods indicated:


		Three Months Ended									Nine Months Ended							Three Months Ended						Six Months Ended
		September 30,			June 30,			September 30,			September 30,							June 30,						June 30,
		2021			2021			2020			2021			2020				2022			2021			2022			2021
		(Dollars in thousands)																(Dollars in thousands)
Provision For Credit Losses:	Provision For Credit Losses:																Provision For Credit Losses:
(Reduction in) addition to allowance for loan and lease losses	(Reduction in) addition to allowance for loan and lease losses	$	(21,500)		$	(72,000)		$	81,000		$	(146,500)		$	272,000		(Reduction in) addition to allowance for loan and lease losses	$	(10,000)		$	(72,000)		$	(12,000)		$	(125,000)
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	1,500			(16,000)			16,000			(9,500)			57,000			loan commitments	20,000			(16,000)			22,000			(11,000)
Total loan-related provision																	Total loan-related provision	$	10,000		$	(88,000)		$	10,000		$	(136,000)
Addition to allowance for																	Addition to allowance for
held-to-maturity securities																	held-to-maturity securities	1,500			—			1,500			—
Total provision for credit losses	Total provision for credit losses	$	(20,000)		$	(88,000)		$	97,000		$	(156,000)		$	329,000		Total provision for credit losses	$	11,500		$	(88,000)		$	11,500		$	(136,000)

Credit Quality Metrics:	Credit Quality Metrics:																Credit Quality Metrics:
Net charge-offs (recoveries) on loans and leases
Net recoveries on loans and leases																	Net recoveries on loans and leases
held for investment (1)	held for investment (1)	$	367		$	(5,155)		$	36,084		$	(2,052)		$	68,436		held for investment (1)	$	(1,307)		$	(5,155)		$	(141)		$	(2,419)
Annualized net charge-offs to average loans and leases		0.01		%	(0.11)		%	0.75		%	(0.01)		%	0.47		%
Annualized net recoveries to average loans and leases																	Annualized net recoveries to average loans and leases	(0.02)		%	(0.11)		%	—		%	(0.03)		%
At quarter-end:	At quarter-end:																At quarter-end:
Allowance for credit losses	Allowance for credit losses	$	279,804		$	300,171		$	442,537								Allowance for credit losses	$	283,776		$	300,171
Allowance for credit losses to loans and leases
Allowance for credit losses to loans and leases held																	Allowance for credit losses to loans and leases held
for investment																	for investment	1.07		%	1.54		%
Allowance for credit losses to nonaccrual loans and leases																	Allowance for credit losses to nonaccrual loans and leases
held for investment	held for investment	1.36		%	1.54		%	2.33		%							held for investment	361.4		%	528.4		%
Allowance for credit losses to nonaccrual
loans and leases held for investment		433.8		%	528.4		%	516.9		%
Nonaccrual loans and leases held for investment	Nonaccrual loans and leases held for investment	$	64,507		$	56,803		$	85,615								Nonaccrual loans and leases held for investment	$	78,527		$	56,803
Performing TDRs held for investment	Performing TDRs held for investment	$	36,750		$	40,129		$	13,679								Performing TDRs held for investment	$	11,723		$	40,129
Classified loans and leases held for investment	Classified loans and leases held for investment	$	141,604		$	147,267		$	274,572								Classified loans and leases held for investment	$	104,264		$	147,267
Special mention loans and leases held for investment																	Special mention loans and leases held for investment	$	480,261		$	536,052

______________________

(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.

6669

Provisions for credit losses are charged to earnings for ~~both~~ the allowance for loan and lease losses, ~~and~~ the reserve for unfunded loan commitments, ~~(collectively,~~and the allowance for credit ~~losses).~~losses on held-to-maturity securities. 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 loan-related allowance for credit losses methodology, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.

Second Quarter of 2022 Compared to Second Quarter of 2021

The provision for credit losses ~~benefit was $20.0~~increased by $99.5 million to a provision of $11.5 million for the ~~third~~second quarter of ~~2021~~2022 compared to a provision benefit of $88.0 million for the second quarter of 2021. ~~The third~~During the second quarter ~~benefit reflected improvement~~of 2022, the $10.0 million loan-related provision was primarily attributable to growth in ~~both macro-economic forecast variables~~unfunded loan commitments. We also recorded a $1.5 million provision on held-to-maturity securities related to the $2.3 billion transfer from available-for-sale securities during the quarter and ~~loan portfolio~~the estimated current expected credit ~~quality metrics, offset partially by increased provisions for unfunded commitments and loan growth.~~

~~The provision for credit losses benefit was $20.0 million for~~loss on those held-to-maturity securities. During the ~~third~~second quarter of 2021, ~~compared to~~ a provision ~~of $97.0 million for the third quarter of 2020~~benefit was recorded as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

The provision for credit losses ~~benefit was $156.0~~increased by $147.5 million to a provision of $11.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 compared to a provision benefit of ~~$329.0~~$136.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021. During the six months ended June 30, 2022, the $10.0 million loan-related provision was primarily attributable to growth in unfunded loan commitments. We also recorded a $1.5 million provision on held-to-maturity securities related to the $2.3 billion transfer from available-for-sale securities during the second quarter of 2022 and the estimated current expected credit loss on those held-to-maturity securities. During the six months ended June 30, 2021, a provision benefit was recorded as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics.

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

Noninterest Income

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


		Three Months Ended						Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,				June 30,
Noninterest Income	Noninterest Income	2021		2021		2020		2021		2020		Noninterest Income	2022		2021		2022		2021
		(In thousands)											(In thousands)
Leased equipment income												Leased equipment income	$	12,335	$	10,847	$	25,429	$	22,201
Other commissions and fees	Other commissions and fees	$	11,792	$	10,704	$	10,541	$	31,654	$	30,373	Other commissions and fees	10,813		10,704		22,393		19,862
Leased equipment income		10,943		10,847		9,900		33,144		34,188
Service charges on deposit accounts	Service charges on deposit accounts	3,407		3,452		2,570		9,793		7,232		Service charges on deposit accounts	3,634		3,452		7,205		6,386
Gain on sale of loans and leases	Gain on sale of loans and leases	—		1,422		35		1,561		468		Gain on sale of loans and leases	12		1,422		72		1,561
Gain on sale of securities		515		—		5,270		616		13,167
Other income:
(Loss) gain on sale of securities												(Loss) gain on sale of securities	(1,209)		—		(1,105)		101
Dividends and gains (losses) on equity investments	Dividends and gains (losses) on equity investments	8,387		5,394		6,945		24,685		9,920		Dividends and gains (losses) on equity investments	4,097		5,394		(7,278)		16,298
Warrant income	Warrant income	13,578		5,650		500		25,351		3,310		Warrant income	1,615		5,650		2,244		11,773
Other	Other	2,723		2,902		2,491		9,741		7,552		Other	3,049		2,902		6,204		7,018
Total noninterest income	Total noninterest income	$	51,345	$	40,371	$	38,252	$	136,545	$	106,210	Total noninterest income	$	34,346	$	40,371	$	55,164	$	85,200

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

Noninterest income ~~increased~~decreased by $~~11.0~~6.0 million to $~~51.3~~34.3 million for the ~~third~~second quarter of ~~2021~~2022 compared to $40.4 million for the second quarter of 2021 due ~~primarily~~mainly to ~~increases~~decreases of ~~$7.9~~$4.0 million in warrant income, ~~and $3.0~~$1.3 million in dividends and gains on equity investments. Warrant income increased due to a higher number of and dollar amount of gains on warrant exercises given the active capital markets, including one warrant gain of approximately $8.2 million. Dividends and gains on equity investments increased due primarily to higher gains on sales of equity investments and higher income distributions on SBIC investments, offset partially by lower net fair value gains on equity investments still held.

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

~~Noninterest income increased by~~ ~~$13.1 million~~ to ~~$51.3 million~~ ~~for the third quarter of 2021 compared to $38.3 million for the third quarter of 2020 due mainly to increases of $13.1 million in warrant income, $1.4 million in dividends and gains~~(losses) on equity investments, and ~~$1.3~~$1.4 million ~~in other commissions and fees, offset partially by a $4.8 million decrease~~ in gain on sale of ~~securities.~~loans and leases. The first two items decreased due to decreased capital market activity in 2022 and volatility resulting from geopolitical tensions and inflationary pressures. Warrant income ~~increased~~decreased due principally to ~~higher~~fewer gains from exercised warrants, driven by the less active capital ~~markets.~~markets in 2022. The ~~increase~~decrease in dividends and gains (losses) on equity investments was due primarily to ~~higher~~lower gains on sales of equity investments, ~~and higher income distributions on SBIC investments,~~ offset partially by ~~lower net~~higher fair value gains on equity investments still held. The increase in other commissions and fees was primarily due to higher foreign exchange fees and customer success fees. Gain on sale of securities decreased due to a net gain of $0.5 million on sales of $76.2 million for the third quarter of 2021 compared to a net gain of $5.3 million on sales of $17.0 million for the third quarter of 2020.

~~Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020~~

~~Noninterest income increased by~~ ~~$30.3 million~~ to ~~$136.5 million~~ for the nine months ended September 30, 2021 compared to $106.2 million for the nine months ended September 30, 2020 due mainly to increases of $22.0 million in warrant income, $14.8 million in dividends and gains on equity investments, and $2.6 million in service charges on deposit accounts, offset partially by a $12.6 million decrease in gain on sale of ~~securities.~~loans and leases resulted from the sale of $4.3 million of loans for a gain of $12,000 for the second quarter of 2022 compared to sales of $52.2 million of loans for a gain of $1.4 million for the second quarter of 2021.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Noninterest income decreased by $30.0 million to $55.2 million for the six months ended June 30, 2022 compared to $85.2 million for the six months ended June 30, 2021 due mainly to decreases of $23.6 million in dividends and gains (losses) on equity investments and $9.5 million in warrant income. These two items declined due to decreased capital market activity in 2022 and volatility resulting from geopolitical tensions and inflationary pressures. The decrease in dividends and gains (losses) on equity investments was due primarily to lower gains on sales of equity investments. Warrant income ~~increased~~decreased due principally to ~~higher~~fewer gains from exercised warrants, driven by the less active capital ~~markets. The increase~~markets in dividends and gains on equity investments was due primarily to higher gains on sales of equity investments and higher income distributions on SBIC investments, offset partially by lower net fair value gains on equity investments still held. The increase in service charges on deposit accounts was due primarily to a higher volume of fee waivers that we granted customers in 2020 during the COVID pandemic. Gain on sale of securities decreased due to a net gain of $0.6 million on sales of $120.7 million for the nine months ended September 30, 2021 compared to a net gain of $13.2 million on sales of $154.1 million for the same period last year.2022.

Noninterest Expense

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


		Three Months Ended						Nine Months Ended					Three Months Ended				Six Months Ended
		September 30,		June 30,		September 30,		September 30,					June 30,				June 30,
Noninterest Expense	Noninterest Expense	2021		2021		2020		2021		2020		Noninterest Expense	2022		2021		2022		2021
		(In thousands)											(In thousands)
Compensation	Compensation	$	98,061	$	90,807	$	75,131	$	268,750	$	198,323	Compensation	$	102,542	$	90,807	$	194,782	$	170,689
Occupancy	Occupancy	14,928		14,784		14,771		43,766		43,472		Occupancy	15,268		14,784		30,468		28,838
Customer related expense												Customer related expense	11,748		4,973		24,403		9,791
Data processing												Data processing	9,258		7,758		18,887		14,715
Leased equipment depreciation	Leased equipment depreciation	8,603		8,614		7,057		26,186		21,364		Leased equipment depreciation	8,934		8,614		18,123		17,583
Data processing		7,391		7,758		6,505		22,106		20,061
Loan expense												Loan expense	7,037		4,031		12,194		7,224
Other professional services	Other professional services	5,164		5,256		4,713		15,546		13,117		Other professional services	6,726		5,256		12,680		10,382
Customer related expense		4,538		4,973		4,762		14,329		13,102
Loan expense		4,180		4,031		3,499		11,404		9,528
Insurance and assessments	Insurance and assessments	3,685		3,745		3,939		12,333		17,561		Insurance and assessments	5,632		3,745		11,122		8,648
Intangible asset amortization	Intangible asset amortization	2,890		2,889		3,751		8,858		11,581		Intangible asset amortization	3,649		2,889		7,298		5,968
Acquisition, integration and reorganization costs	Acquisition, integration and reorganization costs	200		200		—		3,825		—		Acquisition, integration and reorganization costs	—		200		—		3,625
Foreclosed assets expense (income), net		165		(119)		335		47		255
Foreclosed assets income, net												Foreclosed assets income, net	(28)		(119)		(3,381)		(118)
Other	Other	9,616		8,812		8,939		34,157		29,973		Other	12,879		8,812		24,495		24,541
Total operating expense		159,421		151,750		133,402		461,307		378,337
Goodwill impairment		—		—		—		—		1,470,000
Total noninterest expense	Total noninterest expense	$	159,421	$	151,750	$	133,402	$	461,307	$	1,848,337	Total noninterest expense	$	183,645	$	151,750	$	351,071	$	301,886

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

Noninterest expense increased by ~~$7.7~~$31.9 million to ~~$159.4~~$183.6 million for the ~~third~~second quarter of ~~2021~~2022 compared to $151.8 million for the second quarter of 2021 due ~~mostly~~primarily to ~~an increase~~increases of ~~$7.3~~$11.7 million in compensation expense, attributable mainly to higher bonus and incentives expense as we updated our full-year bonus estimates based on the growth in loans and deposits in the third quarter of 2021, overall year-to-date performance, and increased warrant income.

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

~~Noninterest expense increased by $26.0 million to $159.4 million for the third quarter of 2021 compared to $133.4 million for the third quarter of 2020 due primarily to increases of $22.9~~$6.8 million in ~~compensation~~customer related expense, due mostly to the incremental compensation expense for Civic that was acquired on February 1, 2021 and higher bonus expense due to year-to-date performance in 2021, and $1.5 million in leased equipment depreciation due to a higher balance of leased equipment.

~~Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020~~

Noninterest expense decreased by $1.39 billion to $461.3 million for the nine months ended September 30, 2021 compared to $1.85 billion for the nine months ended September 30, 2020 due primarily to a $1.47 billion goodwill impairment in the 2020 period. Excluding the goodwill impairment, noninterest expense increased by $83.0 million in the 2021 period compared to the 2020 period. This increase was due primarily to increases of $70.4 million increase in compensation expense, $4.8 million in leased equipment depreciation, $4.2$4.1 million in other expense, and ~~$3.8~~$3.0 million ~~increase~~ in ~~acquisition, integration~~loan expense attributable mostly to the incremental expense related to the increased headcount and ~~reorganization costs. The increase~~operations in 2022 due to the HOA Business operation that was acquired in 2021and increased levels of loan production in 2022.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Noninterest expense increased by $49.2 million to $351.1 million for the six months ended June 30, 2022 compared to $301.9 million for the six months ended June 30, 2021 due mainly to increases of $24.1 million in compensation expense, ~~was~~$14.6 million customer related expense, $5.0 million in loan expense, and $4.2 million in data processing expense attributable mostly to the incremental expense related to the increased headcount and operations in 2022 due to the ~~incremental compensation expense from eight months of~~ Civic and HOA Business operations ~~in the 2021 period and higher bonus expense, given the operating results~~that were acquired in 2021 ~~while the 2020 bonus amounts were below historical~~and increased levels ~~as a result~~ of ~~the higher provisions for credit losses~~loan production in 2020. Leased equipment depreciation increased due to a higher balance of leased equipment. Other expense increased due mainly to higher legal settlement costs. The increase in acquisition, integration, and reorganization costs was due to the costs in the 2021 period related to the closed Civic acquisition and the acquisition of MUFG Union Bank's HOA Services Division that closed on October 8, 2021.2022.

Income Taxes

The effective tax rate for the ~~third~~second quarter of ~~2021~~2022 was ~~25.4%~~25.0% compared to 25.7% for the second quarter of ~~2021 and 23.1% for the third quarter of 2020. The increased effective tax rate for the third quarter of 2021 compared to the third quarter of 2020 was primarily due to higher book income in~~ 2021. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~25.8%~~25.4% compared to ~~(2.9)%~~26.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2020. Excluding non-deductible goodwill impairment,~~2021. The lower effective tax rates in 2022 were due primarily to the ~~effective income~~higher tax ~~rate was 25.0% for~~credits in the ~~nine months ended September 30, 2020.~~second quarter of 2022. The Company’s blended statutory tax rate for federal and state is ~~27.6%~~27.5% and the effective tax rate for the full year ~~2021~~2022 is estimated to be in the range of 25-27%.

6972

Balance Sheet Analysis

Securities Available-for-Sale

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

September 30, 2021 June 30, 2021 December 31, 2020
Fair % of Duration Fair % of Duration Fair % of Duration
Security Type Value Total (in years) Value Total (in years) Value Total (in years)
(Dollars in thousands)
Agency residential MBS $ 2,180,993 24 % 3.3 $ 552,411 8 % 3.3 $ 341,074 7 % 1.9
Municipal securities 1,989,929 21 % 8.3 1,817,499 25 % 8.2 1,531,617 29 % 8.2
Agency commercial MBS 1,314,024 14 % 3.9 1,257,628 18 % 3.6 1,281,877 24 % 3.2
Agency residential CMOs 1,088,537 12 % 3.0 1,142,398 16 % 3.0 1,219,880 23 % 2.7
U.S. Treasury securities 971,268 10 % 6.8 877,153 12 % 7.7 5,302 — % 1.3
Corporate debt securities 516,615 6 % 3.7 508,708 7 % 3.8 311,889 6 % 3.7
Private label commercial MBS 388,318 4 % 7.4 378,235 5 % 7.4 82,957 2 % 1.8
Collateralized loan obligations 358,547 4 % 0.2 382,043 5 % — 135,876 3 % —
Private label residential CMOs 303,681 3 % 3.3 96,922 1 % 2.5 116,946 2 % 2.1
Asset-backed securities 132,997 2 % 0.1 149,583 2 % 0.1 166,546 3 % 0.1
SBA securities 32,017 — % 3.7 36,028 1 % 3.7 41,627 1 % 3.2
Total securities available-
for-sale $ 9,276,926 100 % 4.8 $ 7,198,608 100 % 5.1 $ 5,235,591 100 % 4.3


	June 30, 2022					December 31, 2021
	Fair		% of		Duration	Fair		% of		Duration
Security Type	Value		Total		(in years)	Value		Total		(in years)
	(Dollars in thousands)
Agency residential MBS	$	2,577,715	38	%	7.9	$	2,898,210	27	%	2.9
Agency commercial MBS	976,221		14	%	3.8	1,688,967		16	%	5.2
Agency residential CMOs	803,309		12	%	3.7	1,038,134		10	%	3.2
Municipal securities	700,605		10	%	5.6	2,315,968		22	%	7.7
U.S. Treasury securities	696,054		10	%	5.5	966,898		9	%	6.6
Corporate debt securities	369,461		6	%	3.1	527,094		5	%	4.2
Collateralized loan obligations	352,290		5	%	—	385,362		4	%	0.1
Private label residential CMOs	216,103		3	%	5.6	264,417		2	%	3.9
Asset-backed securities	32,647		1	%	—	129,547		1	%	0.1
Private label commercial MBS	32,516		1	%	2.3	450,217		4	%	7.5
SBA securities	23,727		—	%	2.3	29,644		—	%	3.7
Total securities available-for-sale	$	6,780,648	100	%	5.5	$	10,694,458	100	%	4.8

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


		September 30, 2021					June 30, 2022
		Fair		% of			Fair		% of
Municipal Securities by State	Municipal Securities by State	Value		Total		Municipal Securities by State	Value		Total
		(Dollars in thousands)					(Dollars in thousands)
California	California	$	542,158	27	%	California	$	177,178	25	%
Texas	Texas	325,478		16	%	Texas	151,016		22	%
Washington	Washington	279,348		14	%	Washington	113,668		16	%
Oregon	Oregon	121,199		6	%	Oregon	49,575		7	%
Maryland		73,467		4	%
Georgia		68,062		4	%
Delaware						Delaware	32,693		5	%
New York	New York	66,378		3	%	New York	24,360		3	%
Colorado		57,940		3	%
Minnesota	Minnesota	55,694		3	%	Minnesota	22,082		3	%
Florida	Florida	45,659		2	%	Florida	17,609		3	%

Illinois						Illinois	15,114		2	%
Ohio						Ohio	13,649		2	%
Total of ten largest states	Total of ten largest states	1,635,383		82	%	Total of ten largest states	616,944		88	%
All other states	All other states	354,546		18	%	All other states	83,661		12	%
Total municipal securities		$	1,989,929	100	%
Total municipal securities available-for-sale						Total municipal securities available-for-sale	$	700,605	100	%

7073

Securities Held-to-Maturity

The following table presents the composition and durations of our securities held-to-maturity as of the dates indicated:


	June 30, 2022
	Amortized		% of		Duration
Security Type	Cost		Total		(in years)
	(Dollars in thousands)

Municipal securities	$	1,241,664	55	%	9.3
Agency commercial MBS	424,274		19	%	8.1
Private label commercial MBS	343,545		15	%	7.6
U.S. Treasury securities	182,751		8	%	8.1
Corporate debt securities	69,633		3	%	5.0




Total securities held-to-maturity	$	2,261,867	100	%	8.6

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


	June 30, 2022
	Amortized		% of
Municipal Securities by State	Cost		Total
	(Dollars in thousands)
California	$	306,501	25	%
Texas	274,796		22	%
Washington	190,704		15	%
Oregon	77,425		6	%
Maryland	65,100		5	%
Georgia	55,417		5	%
Colorado	49,369		4	%
Minnesota	35,364		3	%
Tennessee	30,785		2	%
Florida	21,984		2	%
Total of ten largest states	1,107,445		89	%
All other states	134,219		11	%
Total municipal securities held-to-maturity	$	1,241,664	100	%

Loans and Leases Held for Investment

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


		September 30, 2021				June 30, 2021				December 31, 2020					June 30, 2022				December 31, 2021
				% of				% of				% of					% of				% of
Loan and Lease Portfolio	Loan and Lease Portfolio	Balance		Total		Balance		Total		Balance		Total		Loan and Lease Portfolio	Balance		Total		Balance		Total
		(Dollars in thousands)													(Dollars in thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Other commercial real estate		$	2,438,398	12	%	$	2,483,856	13	%	$	2,747,526	14	%
Commercial real estate														Commercial real estate	$	2,498,193	10	%	$	2,545,517	11	%
SBA program	SBA program	628,112		3	%	625,023		3	%	599,788		3	%	SBA program	620,910		2	%	623,579		3	%
Hotel	Hotel	506,355		2	%	521,869		2	%	571,917		3	%	Hotel	551,412		2	%	593,203		3	%
Healthcare real estate		121,732		1	%	161,450		1	%	177,440		1	%
Total commercial real estate mortgage	Total commercial real estate mortgage	3,694,597		18	%	3,792,198		19	%	4,096,671		21	%	Total commercial real estate mortgage	3,670,515		14	%	3,762,299		17	%
Income producing and other residential		4,561,758		23	%	4,378,932		23	%	3,718,457		20	%
Other residential real estate		1,324,602		6	%	241,890		1	%	84,808		—	%
Total income producing and other
residential real estate mortgage		5,886,360		29	%	4,620,822		24	%	3,803,265		20	%
Multi-family														Multi-family	5,062,422		19	%	3,916,317		17	%
Residential mortgage														Residential mortgage	2,977,871		11	%	2,449,693		11	%
Investor-owned residential														Investor-owned residential	1,838,838		7	%	1,050,411		4	%
Total residential real estate mortgage														Total residential real estate mortgage	9,879,131		37	%	7,416,421		32	%
Total real estate mortgage	Total real estate mortgage	9,580,957		47	%	8,413,020		43	%	7,899,936		41	%	Total real estate mortgage	13,549,646		51	%	11,178,720		49	%
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial		992,003		5	%	930,785		5	%	1,117,121		6	%
Residential		2,659,870		13	%	2,574,799		13	%	2,243,160		12	%
Commercial real estate construction and land														Commercial real estate construction and land	837,423		3	%	832,591		4	%
Residential construction														Residential construction	2,649,177		10	%	2,182,091		9	%
Construction - renovation														Construction - renovation	504,439		2	%	422,445		2	%
Total residential real estate construction and land														Total residential real estate construction and land	3,153,616		12	%	2,604,536		11	%
Total real estate construction and land (1)	Total real estate construction and land (1)	3,651,873		18	%	3,505,584		18	%	3,360,281		18	%	Total real estate construction and land (1)	3,991,039		15	%	3,437,127		15	%
Total real estate	Total real estate	13,232,830		65	%	11,918,604		61	%	11,260,217		59	%	Total real estate	17,540,685		66	%	14,615,847		64	%
Commercial:	Commercial:													Commercial:
Lender finance	Lender finance	2,373,810		12	%	2,256,828		12	%	2,095,963		11	%	Lender finance	3,181,175		12	%	2,617,712		11	%
Equipment finance	Equipment finance	574,531		3	%	638,898		3	%	700,042		4	%	Equipment finance	856,133		3	%	681,266		3	%
Premium finance	Premium finance	522,406		2	%	482,822		2	%	438,761		2	%	Premium finance	781,265		3	%	586,267		3	%
Other asset-based	Other asset-based	191,022		1	%	172,355		1	%	194,517		1	%	Other asset-based	249,539		1	%	190,232		1	%
Total asset-based	Total asset-based	3,661,769		18	%	3,550,903		18	%	3,429,283		18	%	Total asset-based	5,068,112		19	%	4,075,477		18	%
Equity fund loans	Equity fund loans	1,114,292		5	%	1,245,283		6	%	1,032,718		5	%	Equity fund loans	1,618,190		6	%	1,707,143		7	%
Venture lending	Venture lending	518,569		3	%	504,149		3	%	665,790		4	%	Venture lending	561,000		2	%	613,450		3	%
Total venture capital	Total venture capital	1,632,861		8	%	1,749,432		9	%	1,698,508		9	%	Total venture capital	2,179,190		8	%	2,320,593		10	%
Secured business loans	Secured business loans	471,869		2	%	434,032		2	%	430,263		2	%	Secured business loans	500,509		2	%	486,088		2	%
Paycheck Protection Program	Paycheck Protection Program	271,679		1	%	609,200		3	%	1,057,422		5	%	Paycheck Protection Program	33,015		—	%	156,699		1	%
Security monitoring		160,483		1	%	207,232		1	%	329,312		2	%
Other lending	Other lending	673,561		3	%	671,445		4	%	558,117		3	%	Other lending	695,980		3	%	829,194		3	%
Total other commercial	Total other commercial	1,577,592		7	%	1,921,909		10	%	2,375,114		12	%	Total other commercial	1,229,504		5	%	1,471,981		6	%
Total commercial	Total commercial	6,872,222		33	%	7,222,244		37	%	7,502,905		39	%	Total commercial	8,476,806		32	%	7,868,051		34	%
Consumer	Consumer	405,968		2	%	365,409		2	%	320,255		2	%	Consumer	483,646		2	%	457,650		2	%
Total loans and leases held for investment,	Total loans and leases held for investment,													Total loans and leases held for investment,
net of deferred fees	net of deferred fees	$	20,511,020	100	%	$	19,506,257	100	%	$	19,083,377	100	%	net of deferred fees	$	26,501,137	100	%	$	22,941,548	100	%

Total unfunded loan commitments														Total unfunded loan commitments	$	11,866,437			$	9,006,350

________________________________

(1) Includes land and acquisition and development loans of ~~$144.9 million at September 30, 2021, $153.1~~$116.3 million at June 30, ~~2021~~2022 and ~~$167.1~~$151.8 million at December 31, ~~2020.~~2021.

7175

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


		September 30, 2021				December 31, 2020					June 30, 2022				December 31, 2021
				% of				% of					% of				% of
Real Estate Loans by State	Real Estate Loans by State	Balance		Total		Balance		Total		Real Estate Loans by State	Balance		Total		Balance		Total
		(Dollars in thousands)									(Dollars in thousands)
California	California	$	7,920,685	60	%	$	6,942,768	62	%	California	$	10,038,405	57	%	$	8,916,633	61	%
Florida	Florida	778,466		6	%	598,167		5	%	Florida	1,067,920		6	%	556,057		4	%
Colorado										Colorado	830,207		5	%	721,343		5	%
Texas										Texas	734,321		4	%	392,836		3	%
New York	New York	725,657		5	%	716,329		6	%	New York	652,375		4	%	675,948		5	%
Colorado		647,441		5	%	386,480		3	%
Washington	Washington	392,674		3	%	413,014		4	%	Washington	621,769		4	%	500,836		3	%
Oregon		356,233		3	%	269,600		2	%
Texas		332,886		2	%	263,731		2	%
Nevada	Nevada	236,419		2	%	195,663		2	%	Nevada	457,492		3	%	346,838		2	%
Arizona	Arizona	212,762		2	%	171,533		2	%	Arizona	439,363		2	%	253,289		2	%
Virginia		203,839		1	%	135,501		2	%
Oregon										Oregon	383,046		2	%	375,223		3	%
Georgia										Georgia	267,125		1	%	203,360		1	%
Total of 10 largest states	Total of 10 largest states	11,807,062		89	%	10,092,786		90	%	Total of 10 largest states	15,492,023		88	%	12,942,363		89	%
All other states	All other states	1,425,768		11	%	1,167,431		10	%	All other states	2,048,662		12	%	1,673,484		11	%
Total real estate loans held for investment, net of deferred fees	Total real estate loans held for investment, net of deferred fees	$	13,232,830	100	%	$	11,260,217	100	%	Total real estate loans held for investment, net of deferred fees	$	17,540,685	100	%	$	14,615,847	100	%

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

Three Months Ended Nine Months Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)
September 30, 2021 September 30, 2021
(Dollars in thousands)
Balance, beginning of period $ 19,506,257 $ 19,083,377
Additions:
Production 2,406,024 5,681,952
Disbursements 1,349,333 4,034,963
Total production and disbursements 3,755,357 9,716,915
Reductions:
Payoffs (1,732,621) (5,337,003)
Paydowns (1,013,867) (2,883,507)
Total payoffs and paydowns (2,746,488) (8,220,510)
Sales (2,175) (101,426)
Transfers to foreclosed assets (415) (1,062)
Charge-offs (1,516) (6,320)
Transfers to loans held for sale — (25,554)
Total reductions (2,750,594) (8,354,872)
Loans and leases acquired through acquisition — 65,600
Net increase 1,004,763 1,427,643
Balance, end of period $ 20,511,020 $ 20,511,020
Weighted average rate on production (2)
4.24 % 4.37 %


	Six Months Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)	June 30, 2022
	(In thousands)
Balance, beginning of period	$	22,941,548
Additions:
Production	5,390,041
Disbursements	3,460,779
Total production and disbursements	8,850,820
Reductions:
Payoffs	(2,796,127)
Paydowns	(2,447,749)
Total payoffs and paydowns	(5,243,876)
Sales	(41,017)
Transfers to foreclosed assets	(305)
Charge-offs	(6,033)

Total reductions	(5,291,231)

Net increase	3,559,589
Balance, end of period	$	26,501,137

Weighted average rate on production (2)	4.46		%

_______________________________________

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

(2) The weighted average rate on production presents contractual rates on a tax equivalent basis and does not include amortized fees. Amortized fees added approximately 4023 basis points to loan yields for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

7276

Allowance for Credit Losses on Loans and Leases Held for Investment

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

Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates.

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

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

InFor the ~~third~~second quarter of ~~2021,~~2022, we used the Moody’s Consensus Forecast dated ~~September~~June 9, ~~2021~~2022 for the calculation of our quantitative ~~component, which is~~component. The Consensus Forecast has been consistently used since the first quarter of 2021. The economic forecast was relatively consistent with the ~~second quarter and first quarter of 2021 when we also used the Moody's Consensus Forecast. The key macro-economic variables used improved from the~~ prior quarter as a result of updating and advancing the forecast by a quarter which, when combined with improvements in other credit quality metrics such as a decline in classified and special mention loans, drove the decrease inquarter; however, the quantitative ~~calculation~~component of the allowance for credit losses ~~in the third quarter. This decrease was offset partially by~~increased due to provisions for net growth in loans and unfunded loan ~~growth.~~commitments.

As part of our allowance for credit losses methodology, we consistently incorporate the use of qualitative factors in determining the overall allowance for credit losses to capture risks that may not be adequately reflected in our quantitative models. During the first quarter of 2021, we added qualitative components that were based on management’s assessment of various qualitative factors such as economic conditions and collateral dependency. These qualitative components were primarily related to certain loan portfolios including hotels, retail, and office properties that were more directly affected by the COVID-19 pandemic and may react more slowly to the improvements in the general economic conditions. These sectors may see a slower economic recovery to pre-pandemic levels due to changes in consumer behavior such as less business travel due to more virtual meetings, more online shopping versus in person shopping, or the potential for more permanent shifts to remote or hybrid working arrangements. Additionally, small businesses in these sectors may face greater challenges once debt relief and PPP funding is exhausted. ~~During the third quarter of~~Throughout 2021, these qualitative adjustments were updated ~~resulting~~based on evolving forecasts of property values and the pace of recovery for small businesses.During the second quarter of 2022, forecasted property values for hotels, retail, and office properties improved and the outlook for small businesses improved and, therefore, our pandemic-specific qualitative adjustments were decreased.

Given the inherent lag in the Consensus Forecast and economic uncertainty due to near-term recession risk based on historically high inflation and the impact of a ~~decrease~~prolonged conflict between Russia and Ukraine, a qualitative adjustment was added during the second quarter of 2022 based on a 50% probability of Moody’s S2 Downside 75th Percentile alternative forecast scenario.

The addition of an economic uncertainty qualitative adjustment and increases in the quantitative reserve for net loan and unfunded loan commitment growth were offset partially by decreases in pandemic-specific qualitative adjustments and, as a result, a $10.0 million loan-related provision for credit losses was recognized during the second quarter of 2022.The loan-related allowance for credit losses as a percentage of loans and leases held for investment decreased slightly due to loan growth in lending areas with lower credit risk and is consistent with stable credit quality and minimal charge-offs.

The use of different economic forecasts, whether based on different scenarios, the use of multiple or single scenarios, or updated economic forecasts and scenarios, can change the outcome of the calculations. In addition to the economic forecasts, there are numerous components and assumptions that are integral to the overall estimation of allowance for credit losses. As part of our allowance for credit losses process, sensitivity analyses are performed to assess the impact of how changing certain assumptions could impact the estimated allowance for credit losses. At times, these analyses can provide information to further assist management in making decisions on certain assumptions. We calculated alternative values for our June 30, 2022 ACL using various alternative forecast scenarios provided by Moody’s including Moody's Baseline, S5 Slower Trend Growth, and S2 Downside 75th Percentile and the calculated amounts for the quantitative component differed from the Consensus Forecast ranging from lower by 0.83% to higher by 6.98%. However, changing one assumption and not reassessing other assumptions used in the quantitative or qualitative process could yield results that are not reasonable or appropriate, hence all assumptions and information must be considered. From a sensitivity analysis perspective, changing key assumptions such as the macro-economic variable inputs from the economic forecasts, the reasonable and supportable forecast period, prepayment rates, loan segmentation, historical loss factors and/or periods, among others, would all change the outcome of the quantitative components of the allowance for credit losses. Those results would then need to be assessed from a qualitative perspective potentially requiring further adjustments to the qualitative component ~~primarily~~ to ~~reflect an improved forecast~~arrive at a reasonable and appropriate allowance for ~~hotel properties, compared to the first and second quarters of 2021.~~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 on loans and leases held for investment as quantified in the allowance for credit losses considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan and lease composition, and relative credit risks known as of the balance sheet date.

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

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


	June 30,			December 31,
Allowance for Credit Losses Data	2022			2021
	(Dollars in thousands)
Allowance for loan and lease losses	$	188,705		$	200,564
Reserve for unfunded loan commitments	95,071			73,071
Total allowance for credit losses	$	283,776		$	273,635

Allowance for loan and lease losses to loans and leases held for investment	0.71		%	0.87		%


Allowance for credit losses to loans and leases held for investment	1.07		%	1.19		%

September 30, June 30, December 31, September 30,
Allowance for Credit Losses Data
2021 2021 2020 2020
(Dollars in thousands)
Allowance for loan and lease losses $ 203,733 $ 225,600 $ 348,181 $ 345,966
Reserve for unfunded loan commitments 76,071 74,571 85,571 96,571
Total allowance for credit losses $ 279,804 $ 300,171 $ 433,752 $ 442,537
Allowance for loan and lease losses to loans and leases held for investment 0.99 % 1.16 % 1.82 % 1.82 %
Allowance for loan and lease losses to loans and leases held for investment,
excluding PPP loans 1.01 % 1.19 % 1.93 % 1.94 %
Allowance for credit losses to loans and leases held for investment 1.36 % 1.54 % 2.27 % 2.33 %
Allowance for credit losses to loans and leases held for investment,
excluding PPP loans 1.38 % 1.59 % 2.41 % 2.48 %

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

Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
Allowance for Credit Losses Roll Forward
2021 2021 2020 2021 2020
(Dollars in thousands)
Balance, beginning of period $ 300,171 $ 383,016 $ 381,621 $ 433,752 $ 174,646
Cumulative effect of change in accounting
principle - CECL, as of January 1, 2020:
Allowance for loan and lease losses — — — — 3,617
Reserve for unfunded loan commitments — — — — 3,710
Total cumulative effect — — — — 7,327
Provision for credit losses:
(Reduction in) addition to allowance for loan and lease losses (21,500) (72,000) 81,000 (146,500) 272,000
Addition to (reduction in) reserve for unfunded
loan commitments 1,500 (16,000) 16,000 (9,500) 57,000
Total provision for credit losses (20,000) (88,000) 97,000 (156,000) 329,000
Loans and leases charged off:
Real estate mortgage (29) (266) (1,551) (663) (6,233)
Real estate construction and land — (75) — (775) —
Commercial (951) (277) (35,666) (3,802) (66,337)
Consumer (536) (198) (67) (1,080) (705)
Total loans and leases charged off (1,516) (816) (37,284) (6,320) (73,275)
Recoveries on loans charged off:
Real estate mortgage 563 4,882 109 5,990 360
Real estate construction and land — — 21 — 21
Commercial 543 1,029 1,063 2,269 4,410
Consumer 43 60 7 113 48
Total recoveries on loans charged off 1,149 5,971 1,200 8,372 4,839
Net (charge-offs) recoveries (367) 5,155 (36,084) 2,052 (68,436)
Balance, end of period $ 279,804 $ 300,171 $ 442,537 $ 279,804 $ 442,537
Annualized net charge-offs (recoveries) to
average loans and leases 0.01 % (0.11) % 0.75 % (0.01) % 0.47 %


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Allowance for Credit Losses Roll Forward	2022			2021			2022			2021
	(Dollars in thousands)
Balance, beginning of period	$	272,469		$	383,016		$	273,635		$	433,752





Provision for credit losses:
Reduction in allowance for loan and lease losses	(10,000)			(72,000)			(12,000)			(125,000)
Addition to reserve for unfunded loan commitments	20,000			(16,000)			22,000			(11,000)
Total provision for credit losses	10,000			(88,000)			10,000			(136,000)
Loans and leases charged off:
Real estate mortgage	(1,538)			(266)			(1,706)			(634)
Real estate construction and land	(7)			(75)			(7)			(775)
Commercial	(911)			(277)			(3,744)			(2,851)
Consumer	(343)			(198)			(576)			(544)
Total loans and leases charged off	(2,799)			(816)			(6,033)			(4,804)
Recoveries on loans charged off:
Real estate mortgage	1,305			4,882			1,468			5,427
Real estate construction and land	—			—			149			—
Commercial	2,790			1,029			4,525			1,726
Consumer	11			60			32			70
Total recoveries on loans charged off	4,106			5,971			6,174			7,223
Net recoveries	1,307			5,155			141			2,419
Balance, end of period	$	283,776		$	300,171		$	283,776		$	300,171

Annualized net recoveries to
average loans and leases	(0.02)		%	(0.11)		%	—		%	(0.03)		%

7479

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

Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
Allowance for Credit Losses Charge-offs
2021 2021 2020 2021 2020
(In thousands)
Real estate mortgage:
Healthcare real estate $ — $ — $ — $ — $ —
Hotel — — — 343 —
SBA program — 211 6 236 280
Other commercial real estate — — 1,494 — 5,727
Total commercial real estate mortgage — 211 1,500 579 6,007
Income producing and other residential 29 55 — 84 —
Other residential real estate — — 51 — 226
Total income producing and other residential
real estate mortgage 29 55 51 84 226
Total real estate mortgage 29 266 1,551 663 6,233
Real estate construction and land:
Commercial — 75 — 775 —
Residential — — — — —
Total real estate construction and land — 75 — 775 —
Commercial:
Lender finance 232 — — 232 —
Equipment finance — — 267 — 11,817
Premium finance — — — — —
Other asset-based — — — — —
Total asset-based 232 — 267 232 11,817
Equity fund loans — — — — —
Venture lending — — 5 620 6,818
Total venture capital — — 5 620 6,818
Paycheck Protection Program — — — — —
Security monitoring — — 33,796 — 44,032
Secured business loans 73 — — 120 —
Other lending 646 277 1,598 2,830 3,670
Total other commercial 719 277 35,394 2,950 47,702
Total commercial 951 277 35,666 3,802 66,337
Consumer 536 198 67 1,080 705
Total charge-offs $ 1,516 $ 816 $ 37,284 $ 6,320 $ 73,275


	Three Months Ended				Six Months Ended
	June 30,				June 30,
Allowance for Credit Losses Charge-offs	2022		2021		2022		2021
	(In thousands)
Real estate mortgage:
Commercial real estate	$	1,488	$	—	$	1,488	$	—
SBA program	15		211		128		236
Hotel	—		—		55		343
Total commercial real estate mortgage	1,503		211		1,671		579
Multi-family	—		55		—		55
Residential mortgage	—		—		—		—
Investor-owned residential	35		—		35		—
Total residential real estate mortgage	35		55		35		55
Total real estate mortgage	1,538		266		1,706		634
Real estate construction and land:
Commercial real estate construction and land	—		75		—		775
Residential construction	—		—		—		—
Construction - renovation	7		—		7		—
Total residential real estate construction and land	7		—		7		—
Total real estate construction and land	7		75		7		775
Commercial:
Lender finance	—		—		—		—
Equipment finance	—		—		—		—
Premium finance	—		—		—		—
Other asset-based	—		—		—		—
Total asset-based	—		—		—		—
Equity fund loans	—		—		—		—
Venture lending	—		—		—		620
Total venture capital	—		—		—		620
Secured business loans	—		—		244		47
Paycheck Protection Program	—		—		—		—
Other lending	911		277		3,500		2,184
Total other commercial	911		277		3,744		2,231
Total commercial	911		277		3,744		2,851
Consumer	343		198		576		544
Total charge-offs	$	2,799	$	816	$	6,033	$	4,804

7580

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

Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
Allowance for Credit Losses Recoveries 2021 2021 2020 2021 2020
(In thousands)
Real estate mortgage:
Healthcare real estate $ — $ — $ — $ — $ —
Hotel — — — — —
SBA program 513 20 31 550 153
Other commercial real estate — 4,860 3 5,384 118
Total commercial real estate mortgage 513 4,880 34 5,934 271
Income producing and other residential — — — — —
Other residential real estate 50 2 75 56 89
Total income producing and other
residential real estate mortgage 50 2 75 56 89
Total real estate mortgage 563 4,882 109 5,990 360
Real estate construction and land:
Commercial — — — — —
Residential — — 21 — 21
Total real estate construction and land — — 21 — 21
Commercial:
Lender finance — — — — —
Equipment finance — 7 31 114 269
Premium finance — — — — —
Other asset-based 101 98 175 360 324
Total asset-based 101 105 206 474 593
Equity fund loans — — — — —
Venture lending 32 44 604 133 903
Total venture capital 32 44 604 133 903
Paycheck Protection Program — — — — —
Security monitoring — — — — —
Secured business loans 125 73 56 324 273
Other lending 285 807 197 1,338 2,641
Total other commercial 410 880 253 1,662 2,914
Total commercial 543 1,029 1,063 2,269 4,410
Consumer 43 60 7 113 48
Total recoveries $ 1,149 $ 5,971 $ 1,200 $ 8,372 $ 4,839


	Three Months Ended				Six Months Ended
	June 30,				June 30,
Allowance for Credit Losses Recoveries	2022		2021		2022		2021
	(In thousands)
Real estate mortgage:
Commercial real estate	$	1,200	$	4,860	$	1,200	$	5,384
SBA program	21		20		33		37
Hotel	—		—		—		—
Total commercial real estate mortgage	1,221		4,880		1,233		5,421
Multi-family	4		—		4		—
Residential mortgage	80		2		231		6
Investor-owned residential	—		—		—		—
Total residential real estate mortgage	84		2		235		6
Total real estate mortgage	1,305		4,882		1,468		5,427
Real estate construction and land:
Commercial real estate construction and land	—		—		149		—
Residential construction	—		—		—		—
Construction - renovation	—		—		—		—
Total residential real estate construction and land	—		—		—		—
Total real estate construction and land	—		—		149		—
Commercial:
Lender finance	—		—		—		—
Equipment finance	—		7		163		114
Premium finance	—		—		—		—
Other asset-based	13		98		105		259
Total asset-based	13		105		268		373
Equity fund loans	—		—		—		—
Venture lending	50		44		172		101
Total venture capital	50		44		172		101
Secured business loans	66		73		96		199
Paycheck Protection Program	—		—		—		—
Other lending	2,661		807		3,989		1,053
Total other commercial	2,727		880		4,085		1,252
Total commercial	2,790		1,029		4,525		1,726
Consumer	11		60		32		70
Total recoveries	$	4,106	$	5,971	$	6,174	$	7,223

7681

Deposits

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


		September 30, 2021				June 30, 2021				December 31, 2020					June 30, 2022				December 31, 2021
				% of				% of				% of					% of				% of
Deposit Composition	Deposit Composition	Balance		Total		Balance		Total		Balance		Total		Deposit Composition	Balance		Total		Balance		Total
		(Dollars in thousands)													(Dollars in thousands)
Noninterest-bearing demand	Noninterest-bearing demand	$	12,881,806	42	%	$	11,252,286	38	%	$	9,193,827	37	%	Noninterest-bearing demand	$	13,338,029	39	%	$	14,543,133	41	%
Interest checking	Interest checking	7,168,472		24	%	7,394,472		25	%	5,974,910		24	%	Interest checking	6,197,234		18	%	7,319,898		21	%
Money market	Money market	7,463,261		24	%	7,777,199		26	%	6,532,917		26	%	Money market	9,029,433		27	%	10,241,265		29	%
Savings	Savings	627,169		2	%	614,204		2	%	562,826		2	%	Savings	653,950		2	%	630,653		2	%
Total core deposits	Total core deposits	28,140,708		92	%	27,038,161		91	%	22,264,480		89	%	Total core deposits	29,218,646		86	%	32,734,949		93	%
Non-core non-maturity deposits	Non-core non-maturity deposits	960,438		3	%	1,122,971		4	%	1,149,467		5	%	Non-core non-maturity deposits	2,185,248		6	%	889,976		3	%
Total non-maturity deposits	Total non-maturity deposits	29,101,146		95	%	28,161,132		95	%	23,413,947		94	%	Total non-maturity deposits	31,403,894		92	%	33,624,925		96	%
Time deposits $250,000 and under	Time deposits $250,000 and under	882,551		3	%	913,371		3	%	994,197		4	%	Time deposits $250,000 and under	1,898,312		6	%	885,938		3	%
Time deposits over $250,000	Time deposits over $250,000	576,048		2	%	572,531		2	%	532,573		2	%	Time deposits over $250,000	665,946		2	%	486,894		1	%
Total time deposits	Total time deposits	1,458,599		5	%	1,485,902		5	%	1,526,770		6	%	Total time deposits	2,564,258		8	%	1,372,832		4	%
Total deposits	Total deposits	$	30,559,745	100	%	$	29,647,034	100	%	$	24,940,717	100	%	Total deposits	$	33,968,152	100	%	$	34,997,757	100	%

During the ~~third quarter of 2021,~~six months ended June 30, 2022, total deposits ~~increased~~decreased by $~~912.7 million~~1.0 billion to $~~30.6~~34.0 billion, due primarily to ~~an increase~~a decline of $~~1.1~~3.5 billion in core deposits, offset partially by increases of $1.3 billion in non-core non-maturity deposits and $1.2 billion in time deposits. The ~~increase~~decrease in core deposits infor the ~~third quarter of 2021~~six months ended June 30, 2022 was driven primarily by ~~continued strong deposit growth~~a $3.4 billion decrease in balances from our venture banking ~~and community~~clients. The decline in venture banking ~~customers.~~deposits was primarily attributable to the lack of capital market activity, which has significantly decreased cash inflows while the underlying clients continue to use cash to fund normal ongoing business operations, commonly referred to as “cash burn” within the venture banking community. At ~~September~~June 30, ~~2021,~~2022, our venture banking deposits were $12.1 billion. At June 30, 2022, core deposits totaled $~~28.1~~29.2 billion, or ~~92%~~86% of total deposits, including $~~12.9~~13.3 billion of noninterest-bearing demand deposits, or ~~42%~~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
September 30, 2021		and Under		$250,000		Total
June 30, 2022								June 30, 2022	and Under		$250,000		Total
		(In thousands)							(In thousands)
Maturities:	Maturities:							Maturities:
Due in three months or less	Due in three months or less	$	281,940	$	161,805	$	443,745	Due in three months or less	$	660,275	$	155,271	$	815,546
Due in over three months through six months	Due in over three months through six months	155,375		185,918		341,293		Due in over three months through six months	510,290		343,582		853,872
Due in over six months through twelve months	Due in over six months through twelve months	225,713		217,151		442,864		Due in over six months through twelve months	548,714		80,595		629,309
Total due within twelve months	Total due within twelve months	663,028		564,874		1,227,902		Total due within twelve months	1,719,279		579,448		2,298,727
Due in over 12 months through 24 months	Due in over 12 months through 24 months	97,078		8,802		105,880		Due in over 12 months through 24 months	96,484		84,012		180,496
Due in over 24 months	Due in over 24 months	122,445		2,372		124,817		Due in over 24 months	82,549		2,486		85,035
Total due over twelve months								Total due over twelve months	179,033		86,498		265,531
Total	Total	$	882,551	$	576,048	$	1,458,599	Total	$	1,898,312	$	665,946	$	2,564,258

Client Investment Funds

In addition to deposit products, we also offer select clients non-depository cash investment options through PWAM, our registered investment adviser subsidiary, and third-party money market sweep products. PWAM provides customized investment advisory and asset management solutions. At ~~September~~June 30, ~~2021,~~2022, total off-balance sheet client investment funds were $~~1.4~~2.1 billion, of which $~~1.0~~1.5 billion was managed by PWAM. At December 31, ~~2020,~~2021, total off-balance sheet client investment funds were ~~$1.3~~$1.4 billion, of which ~~$1.0~~$0.9 billion was managed by PWAM.

7782

Credit Quality

Nonperforming Assets, Performing TDRs, and Classified Loans and Leases

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

September 30, June 30, December 31, September 30,
2021 2021 2020 2020
(Dollars in thousands)
Nonaccrual loans and leases held for investment $ 64,507 $ 56,803 $ 91,163 $ 85,615
Foreclosed assets, net 13,364 13,227 14,027 13,747
Total nonperforming assets $ 77,871 $ 70,030 $ 105,190 $ 99,362
Performing TDRs held for investment $ 36,750 $ 40,129 $ 14,254 $ 13,679
Classified loans and leases held for investment $ 141,604 $ 147,267 $ 265,262 $ 274,572
Nonaccrual loans and leases held for investment to
loans and leases held for investment 0.31 % 0.29 % 0.48 % 0.45 %
Nonperforming assets to loans and leases held for investment
and foreclosed assets, net 0.38 % 0.36 % 0.55 % 0.52 %
Allowance for credit losses to nonaccrual loans and leases
held for investment 433.8 % 528.4 % 475.8 % 516.9 %
Classified loans and leases held for investment
to loans and leases held for investment 0.69 % 0.75 % 1.39 % 1.44 %


	June 30,			December 31,
	2022			2021
	(Dollars in thousands)
Nonaccrual loans and leases held for investment	$	78,527		$	61,174

Foreclosed assets, net	—			12,843
Total nonperforming assets	$	78,527		$	74,017

Performing TDRs held for investment	$	11,723		$	24,430
Classified loans and leases held for investment	$	104,264		$	116,104
Special mention loans and leases held for investment	$	480,261		$	391,611
Nonaccrual loans and leases held for investment to loans and leases held for investment	0.30		%	0.27		%
Nonperforming assets to loans and leases held for investment and foreclosed assets, net	0.30		%	0.32		%
Allowance for credit losses to nonaccrual loans and leases held for investment	361.4		%	447.3		%
Classified loans and leases held for investment to loans and leases held for investment	0.39		%	0.51		%
Special mention loans and leases held for investment to loans and leases held for investment	1.81		%	1.71		%

Nonaccrual Loans and Leases Held for Investment

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


		September 30, 2021				June 30, 2021				Increase (Decrease)					June 30, 2022				December 31, 2021				Increase (Decrease)
				Accruing				Accruing				Accruing					Accruing				Accruing				Accruing
				and 30-89				and 30-89				and 30-89					and 30-89				and 30-89				and 30-89
				Days Past				Days Past				Days Past					Days Past				Days Past				Days Past
		Nonaccrual		Due		Nonaccrual		Due		Nonaccrual		Due			Nonaccrual		Due		Nonaccrual		Due		Nonaccrual		Due
		(Dollars in thousands)													(In thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	25,615	$	676	$	32,065	$	—	$	(6,450)	$	676	Commercial	$	28,529	$	14	$	27,540	$	2,165	$	989	$	(2,151)
Income producing and other residential		7,547		3,760		6,133		2,179		1,414		1,581
Residential														Residential	27,524		13,577		12,292		39,929		15,232		(26,352)
Total real estate mortgage	Total real estate mortgage	33,162		4,436		38,198		2,179		(5,036)		2,257		Total real estate mortgage	56,053		13,591		39,832		42,094		16,221		(28,503)
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	—		—		284		—		(284)		—		Commercial	—		—		—		—		—		—
Residential	Residential	19,918		12,809		1,934		22,714		17,984		(9,905)		Residential	13,287		25,981		4,715		5,031		8,572		20,950
Total real estate construction and land	Total real estate construction and land	19,918		12,809		2,218		22,714		17,700		(9,905)		Total real estate construction and land	13,287		25,981		4,715		5,031		8,572		20,950
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	1,605		—		1,973		—		(368)		—		Asset-based	1,189		—		1,464		—		(275)		—
Venture capital	Venture capital	2,348		1,670		2,717		—		(369)		1,670		Venture capital	3,120		—		2,799		—		321		—
Other commercial	Other commercial	6,979		340		11,337		270		(4,358)		70		Other commercial	4,655		9,503		11,950		630		(7,295)		8,873
Total commercial	Total commercial	10,932		2,010		16,027		270		(5,095)		1,740		Total commercial	8,964		9,503		16,213		630		(7,249)		8,873
Consumer	Consumer	495		1,042		360		1,454		135		(412)		Consumer	223		1,711		414		1,004		(191)		707
Total held for investment	Total held for investment	$	64,507	$	20,297	$	56,803	$	26,617	$	7,704	$	(6,320)	Total held for investment	$	78,527	$	50,786	$	61,174	$	48,759	$	17,353	$	2,027

7883

During the ~~third quarter of 2021,~~six months ended June 30, 2022, nonaccrual loan and leases held for investment ~~increased~~ increased by ~~$7.7~~$17.4 million to ~~$64.5~~$78.5 million at ~~September~~June 30, ~~2021~~2022 due mainly to additions of ~~$21.6~~$56.3 million, offset partially by charge-offs of $3.8 million, returns to accrual status of ~~$5.9~~$3.3 million, and ~~charge-offs of $1.0 million and~~ principal ~~payments~~ and other reductions of ~~$7.1~~$31.9 million. Additionally, a residential real estate construction loan of $7.5 million on nonaccrual status as of September 30, 2021, which was also the largest nonaccrual loan as of this date, paid off on October 1, 2021. As of ~~September~~June 30, ~~2021,~~2022, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of ~~$16.6~~$19.5 million and represented ~~26%~~25% of total nonaccrual loans and leases.

Foreclosed Assets

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


		September 30,		June 30,		December 31,		September 30,			June 30,		December 31,
Property Type	Property Type	2021		2021		2020		2020		Property Type	2022		2021
		(In thousands)									(In thousands)
Commercial real estate	Commercial real estate	$	12,594	$	12,594	$	12,979	$	12,594	Commercial real estate	$	—	$	12,594
Single-family residence		415		—		—		—
Construction and land development		—		219		219		219

Multi-family										Multi-family	—		—
Total OREO, net	Total OREO, net	13,009		12,813		13,198		12,813		Total OREO, net	—		12,594
Other foreclosed assets	Other foreclosed assets	355		414		829		934		Other foreclosed assets	—		249
Total foreclosed assets, net	Total foreclosed assets, net	$	13,364	$	13,227	$	14,027	$	13,747	Total foreclosed assets, net	$	—	$	12,843

During the ~~third quarter of 2021,~~six months ended June 30, 2022, foreclosed assets ~~increased~~decreased by $~~0.1~~$12.8 million to ~~$13.4 million~~zero at ~~September~~June 30, ~~2021~~2022 due mainly to ~~additions~~sales of ~~$0.4~~$13.1 million, offset partially by ~~sales~~additions of $0.3 million. In the first quarter of 2022, we sold our largest foreclosed asset with a book value of $12.6 million, which resulted in a gain on sale of $3.2 million.

Performing TDRs Held for Investment

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


		September 30, 2021			June 30, 2021			December 31, 2020				June 30, 2022			December 31, 2021
				Number			Number			Number				Number			Number
				of			of			of				of			of
Performing TDRs	Performing TDRs	Balance		Loans	Balance		Loans	Balance		Loans	Performing TDRs	Balance		Loans	Balance		Loans
		(Dollars in thousands)										(Dollars in thousands)
Real estate mortgage	Real estate mortgage	$	5,926	18	$	6,415	19	$	6,631	20	Real estate mortgage	$	6,054	18	$	6,204	18
Real estate construction and land	Real estate construction and land	1,433		1	1,439		1	1,451		1	Real estate construction and land	1,412		1	1,428		1
Commercial	Commercial	29,366		24	32,250		20	6,146		21	Commercial	4,233		21	16,773		24
Consumer	Consumer	25		1	25		1	26		1	Consumer	24		1	25		1
Total performing TDRs held for investment	Total performing TDRs held for investment	$	36,750	44	$	40,129	41	$	14,254	43	Total performing TDRs held for investment	$	11,723	41	$	24,430	44

During the ~~third quarter of 2021,~~six months ended June 30, 2022, performing TDRs held for investment decreased by ~~$3.4~~$12.7 million to $~~36.8~~11.7 million at ~~September~~June 30, ~~2021~~2022 attributable primarily to payments and other reductions of ~~$7.0 million, offset partially by transfers from nonaccrual status to performing TDRs of $3.6~~$12.7 million.

7984

Classified and Special Mention Loans and Leases Held for Investment

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


		September 30,		June 30,		December 31,		September 30,			June 30,		December 31,
Loan and Lease Credit Risk Ratings	Loan and Lease Credit Risk Ratings	2021		2021		2020		2020		Loan and Lease Credit Risk Ratings	2022		2021
		(Dollars in thousands)									(In thousands)
Pass	Pass	$	19,873,050	$	18,822,938	$	18,096,830	$	17,967,872	Pass	$	25,916,612	$	22,433,833
Special mention	Special mention	496,366		536,052		721,285		783,756		Special mention	480,261		391,611
Classified	Classified	141,604		147,267		265,262		274,572		Classified	104,264		116,104
Total loans and leases held for investment, net of deferred fees	Total loans and leases held for investment, net of deferred fees	$	20,511,020	$	19,506,257	$	19,083,377	$	19,026,200	Total loans and leases held for investment, net of deferred fees	$	26,501,137	$	22,941,548

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

During the ~~third quarter of 2021,~~six months ended June 30, 2022, classified loans and leases decreased by ~~$5.7~~$11.8 million to ~~$141.6~~$104.3 million at ~~September~~June 30, ~~2021~~2022 due mostly to decreases of ~~$19.6~~$16.0 million in ~~asset-based~~commercial real estate mortgage loans and ~~$10.1~~$13.9 million in other commercial loans, offset partially by ~~increases~~an increase of ~~$18.0~~$14.7 million in residential ~~real estate construction and land loans and $6.2 million in commercial~~ real estate mortgage loans. Classified loans and leases peaked in the second quarter of 2020 at $293.2 million.

During the ~~third quarter of 2021,~~six months ended June 30, 2022, special mention loans and leases ~~decreased~~increased by ~~$39.7~~$88.7 million to ~~$496.4~~$480.3 million at ~~September~~June 30, ~~2021~~2022 due mainly to ~~a decrease~~increases of ~~$40.1~~$88.0 million in commercial real estate construction and land loans, $37.6 million in residential real estate construction and land loans and $23.0 million in venture capital loans, offset partially by decreases of $34.3 million in commercial real estate mortgage loans and $24.2 million in asset-based loans. Special mention loans and leases peaked in the first quarter of 2020 at $898.7 million, as we proactively downgraded certain loans at the onset of the COVID-19 pandemic.

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


		September 30, 2021				June 30, 2021				Increase (Decrease)					June 30, 2022				December 31, 2021				Increase (Decrease)
				Special				Special				Special					Special				Special				Special
		Classified		Mention		Classified		Mention		Classified		Mention			Classified		Mention		Classified		Mention		Classified		Mention
		(In thousands)													(In thousands)
Real estate mortgage:	Real estate mortgage:													Real estate mortgage:
Commercial	Commercial	$	69,059	$	202,029	$	62,827	$	242,159	$	6,232	$	(40,130)	Commercial	$	46,203	$	157,476	$	62,206	$	191,809	$	(16,003)	$	(34,333)
Income producing and other residential		13,603		73,831		12,681		60,843		922		12,988
Residential														Residential	32,443		19,248		17,700		19,848		14,743		(600)
Total real estate mortgage	Total real estate mortgage	82,662		275,860		75,508		303,002		7,154		(27,142)		Total real estate mortgage	78,646		176,724		79,906		211,657		(1,260)		(34,933)
Real estate construction and land:	Real estate construction and land:													Real estate construction and land:
Commercial	Commercial	—		67,649		284		67,292		(284)		357		Commercial	—		155,745		—		67,727		—		88,018
Residential	Residential	19,918		7,324		1,934		8,234		17,984		(910)		Residential	13,287		39,357		4,715		1,720		8,572		37,637
Total real estate construction and land	Total real estate construction and land	19,918		74,973		2,218		75,526		17,700		(553)		Total real estate construction and land	13,287		195,102		4,715		69,447		8,572		125,655
Commercial:	Commercial:													Commercial:
Asset-based	Asset-based	4,734		87,980		24,351		102,734		(19,617)		(14,754)		Asset-based	1,189		54,131		4,591		78,305		(3,402)		(24,174)
Venture capital	Venture capital	4,840		38,281		5,708		33,910		(868)		4,371		Venture capital	3,116		37,831		4,794		14,833		(1,678)		22,998
Other commercial	Other commercial	28,926		17,107		39,005		18,340		(10,079)		(1,233)		Other commercial	7,727		11,081		21,659		15,528		(13,932)		(4,447)
Total commercial	Total commercial	38,500		143,368		69,064		154,984		(30,564)		(11,616)		Total commercial	12,032		103,043		31,044		108,666		(19,012)		(5,623)
Consumer	Consumer	524		2,165		477		2,540		47		(375)		Consumer	299		5,392		439		1,841		(140)		3,551
Total	Total	$	141,604	$	496,366	$	147,267	$	536,052	$	(5,663)	$	(39,686)	Total	$	104,264	$	480,261	$	116,104	$	391,611	$	(11,840)	$	88,650

8085

Regulatory Matters

Capital

Bank regulatory agencies measure capital adequacy through standardized risk-based capital guidelines that compare different levels of capital (as defined by such guidelines) to risk-weighted assets and off-balance sheet obligations. At ~~September~~June 30, ~~2021,~~2022, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%.

Basel III currently requires all banking organizations to maintain a 2.50% capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the common equity tier 1, tier 1, and total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At ~~September~~June 30, ~~2021,~~2022, the Company and Bank were in compliance with the capital conservation buffer requirement.

The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the ~~September~~June 30, ~~2021~~2022 ratios include this election. This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2022. This cumulative amount will then be phased out of regulatory capital over the next three years from 2023 to 2025. The add-back as of ~~September~~June 30, ~~2021~~2022 ranged from 0 basis points to 116 basis points for the capital ratios below.

In the third quarter of 2021, approximately $131 million of trust preferred securities were reclassified from Tier II capital to Tier I capital due to a reassessment of the Basel III implementation rule that permitted the grandfathering of certain trust preferred securities as Tier I capital. This change increased the Tier I leverage capital ratio by approximately 38 basis points and increased the Tier I capital ratio by approximately 50 basis points in the third quarter of 2021. Prior periods were not required to be revised for this change.

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


			Minimum Required					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
September 30, 2021
June 30, 2022						June 30, 2022
PacWest Bancorp Consolidated	PacWest Bancorp Consolidated					PacWest Bancorp Consolidated
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	8.05%	4.00%	4.00%	N/A	Tier 1 leverage capital ratio	8.52%	4.00%	N/A	N/A
CET1 capital ratio	CET1 capital ratio	10.15%	4.50%	7.00%	N/A	CET1 capital ratio	8.24%	4.50%	7.00%	N/A
Tier 1 capital ratio	Tier 1 capital ratio	10.65%	6.00%	8.50%	N/A	Tier 1 capital ratio	10.15%	6.00%	8.50%	N/A
Total capital ratio	Total capital ratio	14.36%	8.00%	10.50%	N/A	Total capital ratio	13.12%	8.00%	10.50%	N/A

Pacific Western Bank	Pacific Western Bank					Pacific Western Bank
Tier 1 leverage capital ratio	Tier 1 leverage capital ratio	8.40%	4.00%	4.00%	5.00%	Tier 1 leverage capital ratio	8.21%	4.00%	N/A	5.00%
CET1 capital ratio	CET1 capital ratio	11.12%	4.50%	7.00%	6.50%	CET1 capital ratio	9.78%	4.50%	7.00%	6.50%
Tier 1 capital ratio	Tier 1 capital ratio	11.12%	6.00%	8.50%	8.00%	Tier 1 capital ratio	9.78%	6.00%	8.50%	8.00%
Total capital ratio	Total capital ratio	13.59%	8.00%	10.50%	10.00%	Total capital ratio	11.77%	8.00%	10.50%	10.00%

8186


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

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

The Company's consolidated Tier 1 leverage, Tier 1, and Total capital ratios increased during the six months ended June 30, 2022 due mainly to the $513.2 million Series A preferred stock issuance in June 2022, while the consolidated common equity Tier 1 capital ratio decreased as Series A preferred stock is excluded from this capital calculation. The net Series A preferred stock proceeds of $498.5 million and year-to-date net earnings of $242.5 million increased regulatory capital, offset partially by an increase in risk-weighted assets of $4.5 billion from $28.5 billion as of December 31, 2021 to $33.0 billion as of June 30, 2022 primarily as a result of the growth in loans and unfunded loan commitments.

Subordinated Debt

We issued or assumed through mergers subordinated debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. ~~On April~~As of June 30, ~~2021,~~2022, the ~~Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due May 1, 2031. For further information, see Note 10.~~ ~~Borrowings and Subordinated Debt~~ ~~in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."~~

~~The~~ carrying value of subordinated debt totaled ~~$862.4 million at September~~$863.8 million. At June 30, ~~2021. At September 30, 2021,~~2022, $131.0 million of the trust preferred securities were included in the Company's Tier I capital and ~~$717.4~~$718.7 million were included in Tier II capital.

Dividends on Common Stock and Interest on Subordinated Debt

As a bank holding company, PacWest is required to notify and receive approval from the FRB prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. Interest payments made on subordinated debt are considered dividend payments under FRB regulations. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. ~~Given~~Further, if the ~~impact~~Company defaults or elects to defer the interest payments on its subordinated debt, it is restricted from paying dividends on its Series A preferred and common stock.

Dividends on Preferred Stock

The Company's ability to pay dividends on the Series A preferred stock depends on the ability of the ~~goodwill impairment charge on net earnings~~Bank to pay dividends to the holding company. The ability of the Company and the Bank to pay dividends in the ~~first quarter of 2020, we were required~~future is subject to ~~receive approval from~~bank regulatory requirements, including capital regulations and policies established by the FRB, ~~prior~~the FDIC and the DFPI, as applicable. Dividends on the Series A preferred stock will not be declared, paid, or set aside for payment to ~~declaring~~the extent such act would cause us to fail to comply with applicable laws and regulations, including applicable FRB capital adequacy regulations and policies.

Dividends on the Series A preferred stock will not be cumulative or mandatory. If the Company’s board of directors does not declare a dividend ~~from March 31, 2020 through March 31, 2021, but are~~on the Series A preferred stock in respect of a dividend period, then no ~~longer required~~dividend shall be deemed to ~~obtain~~be payable for such ~~approval.~~dividend period, or be cumulative, and the Company will have no obligation to pay any dividend for that dividend period, whether or not the board of directors, declares a dividend on the Series A preferred stock or any other class or series of its capital stock for any future dividend period. Additionally, so long as any share of Series A preferred stock remains outstanding, unless dividends on all outstanding shares of Series A preferred stock for the most recently completed dividend period have been paid in full or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on the Company’s common stock.

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, unpledged securities available-for-sale, and unpledged securities ~~available-for-sale,~~held-to-maturity, which we refer to as our primary liquidity. We also maintain available borrowing capacity under secured credit lines with the FHLB and the FRBSF, which we refer to as our secondary liquidity.

As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of ~~$3.6~~$5.4 billion at ~~September~~June 30, ~~2021,~~2022, of which all but $1.2 billion was available on that date. The FHLB secured credit line was collateralized by a blanket lien on ~~$5.9~~$5.7 billion of certain qualifying ~~loans.~~loans and $2.1 billion of securities. The Bank also had secured borrowing capacity with the FRBSF of ~~$1.4~~$2.4 billion at ~~September~~June 30, ~~2021,~~2022, all of which was available on that date. The FRBSF secured credit line was collateralized by liens on ~~$1.8~~$3.0 billion of qualifying loans.

In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the purpose of borrowing overnight funds, subject to availability, of $112.0 million with the FHLB and $180.0 million in the aggregate with several correspondent banks. As of ~~September~~June 30, ~~2021,~~2022, there was noa $112.0 million balance outstanding related to the FHLB unsecured line of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of ~~September~~June 30, ~~2021,~~2022, the Bank had borrowed ~~nothing~~$250.0 million through the AFX.

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


		September 30,			June 30,			December 31,				June 30,			December 31,
Primary Liquidity - On-Balance Sheet	Primary Liquidity - On-Balance Sheet	2021			2021			2020			Primary Liquidity - On-Balance Sheet	2022			2021
		(Dollars in thousands)										(Dollars in thousands)
Cash and due from banks	Cash and due from banks	$	174,585		$	179,505		$	150,464		Cash and due from banks	$	197,027		$	112,548
Interest-earning deposits in financial institutions	Interest-earning deposits in financial institutions	3,524,613			5,678,587			3,010,197			Interest-earning deposits in financial institutions	2,192,877			3,944,686
Securities available-for-sale		9,276,926			7,198,608			5,235,591
Less: pledged securities		(492,046)			(489,976)			(449,330)
Securities available-for-sale, at fair value											Securities available-for-sale, at fair value	6,780,648			10,694,458
Securities held-to-maturity, at fair value											Securities held-to-maturity, at fair value	2,209,759			—
Less: pledged securities, available-for-sale, at fair value											Less: pledged securities, available-for-sale, at fair value	(2,164,676)			(532,418)
Less: pledged securities, held-to-maturity, at fair value											Less: pledged securities, held-to-maturity, at fair value	(619,449)			—
Total primary liquidity	Total primary liquidity	$	12,484,078		$	12,566,724		$	7,946,922		Total primary liquidity	$	8,596,186		$	14,219,274

Ratio of primary liquidity to total deposits	Ratio of primary liquidity to total deposits	40.9		%	42.4		%	31.9		%	Ratio of primary liquidity to total deposits	25.3		%	40.6		%

Secondary Liquidity - Off-Balance Sheet September 30, June 30, December 31,
Available Secured Borrowing Capacity 2021 2021 2020
(In thousands)
Secured borrowing capacity with the FHLB $ 3,624,409 $ 3,307,329 $ 3,330,715
Less: secured advances outstanding — — (5,000)
Available secured borrowing capacity with the FHLB 3,624,409 3,307,329 3,325,715
Available secured borrowing capacity with the FRBSF 1,376,803 1,436,648 1,409,452
Total secondary liquidity $ 5,001,212 $ 4,743,977 $ 4,735,167


Secondary Liquidity - Off-Balance Sheet	June 30,		December 31,
Available Secured Borrowing Capacity	2022		2021
	(In thousands)
Total secured borrowing capacity with the FHLB	$	5,412,953	$	3,976,465
Less: secured advances outstanding	(1,230,000)		—
Available secured borrowing capacity with the FHLB	4,182,953		3,976,465
Available secured borrowing capacity with the FRBSF	2,425,786		1,380,191
Total secondary liquidity	$	6,608,739	$	5,356,656

During the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company's primary liquidity decreased by ~~$82.6 million~~$5.6 billion to ~~$12.5~~$8.6 billion at ~~September~~June 30, ~~2021~~2022 due mainly to a ~~$2.2~~$1.8 billion decrease in interest-earning deposits in financial institutions, ~~offset partially by~~ a ~~$2.1~~$1.7 billion decrease in securities, and a $2.3 billion increase in ~~securities available-for-sale.~~pledged securities. During the ~~third quarter of 2021,~~six months ended June 30, 2022, the Company's secondary liquidity increased by ~~$257.2 million~~$1.3 billion to ~~$5.0~~$6.6 billion at ~~September~~June 30, ~~2021~~2022 due ~~primarily~~mainly to ~~a $317.1 million increase~~increases in secured borrowing capacity with the FHLB and FRBSF of $1.4 billion and $1.0 billion, offset partially by ~~a $59.8 million decrease~~an increase in FHLB secured ~~borrowing capacity with the FRBSF.~~advances outstanding of $1.2 billion.

In addition to our primary liquidity, we generate liquidity from cash flows from our loan and securities portfolios and from our large base of core deposits, defined as noninterest-bearing demand, interest checking, savings, and non-brokered money market accounts. At ~~September~~June 30, ~~2021,~~2022, core deposits totaled ~~$28.1~~$29.2 billion and represented ~~92%~~86% of the Company's total deposits. Core deposits are normally less volatile, often with customer relationships tied to other products offered by the Bank promoting long-standing relationships and stable funding sources. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our core deposits.

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

We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At ~~September~~June 30, ~~2021,~~2022, brokered deposits totaled ~~$1.2~~$3.4 billion, consisting ~~primarily~~ of ~~$960.4 million~~$2.2 billion of non-maturity brokered accounts and ~~$195.7 million~~$1.2 billion of brokered time deposits. At December 31, ~~2020,~~2021, brokered deposits totaled ~~$1.3~~$1.1 billion, consisting ~~mainly~~ of ~~$1.1 billion~~$890.0 million of non-maturity brokered accounts and $195.7 million of brokered time deposits.

Our liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Liquidity Buffer Coverage Ratio (the ratio of cash and unpledged securities to the estimated 30 day cash outflow in a defined stress scenario), Liquidity Stress Test Survival Horizon (the number of days that the Bank’s liquidity buffer plus available secured borrowing capacity is sufficient to offset cumulative cash outflow in a defined stress scenario), Loan to Funding Ratio (measurement of gross loans net of fees divided by deposits plus borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. At ~~September~~June 30, ~~2021,~~2022, the Bank was in compliance with all established liquidity guidelines.

Holding Company Liquidity

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

Dividends paid by California state-chartered banks are regulated by the FDIC for non-member banks and the DFPI under their general supervisory authority. The Bank may declare a dividend without the approval of the DFPI and FDIC as long as the total dividends declared in a calendar year do not exceed either the retained earnings or the total of net earnings for the three previous fiscal years less any dividends paid during such period. The Bank had a net loss of ~~$256.7~~$155.3 million during the three fiscal years of 2021, 2020, ~~2019,~~ and ~~2018,~~2019, compared to dividends of ~~$1.3 billion~~$776.0 million paid by the Bank during that same period. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, PacWest received ~~$33.0~~$35.0 million and ~~$99.0~~$68.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of ~~$1.6~~$1.4 billion at ~~September~~June 30, ~~2021,~~2022, for the foreseeable future any dividends from the Bank to PacWest will continue to require DFPI and FDIC approval consistent with what has been required since 2008 when Bank first had an accumulated deficit triggered by goodwill impairment write-downs during the financial crisis of 2007-2008.

At ~~September~~June 30, ~~2021,~~2022, PacWest had ~~$144.9~~$379.6 million in cash and cash equivalents, of which substantially all was on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months.

Stock Repurchase Program

~~Contractual Obligations~~

~~The following table summarizes the known contractual obligations~~On February 15, 2022, PacWest's Board of ~~the Company as~~Directors authorized a new Stock Repurchase Program, effective March 1, 2022, to repurchase shares of ~~the date indicated:~~

Due After Due After
Due One Year Three Years Due
Within Through Through After
September 30, 2021 One Year Three Years Five Years Five Years Total
(In thousands)
Time deposits $ 1,227,902 $ 170,978 $ 59,553 $ 166 $ 1,458,599
Long-term debt obligations (1)
— — — 941,635 941,635
Contractual interest (2)
14,257 28,096 22,388 6 64,747
Operating lease obligations 35,339 59,671 33,021 26,265 154,296
Other contractual obligations 78,700 140,952 25,838 22,409 267,899
Total $ 1,356,198 $ 399,697 $ 140,800 $ 990,481 $ 2,887,176

~~_______________________________________~~

~~(1) Excludes issuance costs and~~its common stock for an aggregate purchase ~~accounting fair value adjustments.~~

~~(2) Excludes interest on variable rate subordinated debt instruments.~~

~~Long-term debt obligations include subordinated debt. Debt obligations are also discussed in Note 10.~~ ~~Borrowings and Subordinated Debt, in the Notes~~price not to Condensed Consolidated Financial Statements (Unaudited) contained in “Item 1. Condensed Consolidated Financial Statements (Unaudited).” Operating lease obligations are discussed in the Notes to Consolidated Financial Statements included in our Form 10-K. The other contractual obligations relate to our minimum liability associated with our data and item processing contractexceed $100 million 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~~program maturity date 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.February 28, 2023.

Off-Balance Sheet Arrangements

Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At ~~September~~June 30, ~~2021,~~2022, our loan commitments and standby letters of credit were ~~$8.5~~$11.9 billion and ~~$344.4~~$328.1 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity - Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note ~~12.~~11. Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Market Risk - Foreign Currency Exposure

We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps to hedge exposures to debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar, and the derivatives that hedge those exposures. As of ~~September~~June 30, ~~2021,~~2022, the U.S. Dollar notional amounts of subordinated debt payable denominated in foreign currencies was ~~$29.8~~$27.0 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures was $28.5 million. We recognized a foreign currency translation net gain of ~~$129,000~~$1.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and a foreign currency translation net ~~loss~~gain of ~~$368,000~~$218,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

Asset/Liability Management and Interest Rate Sensitivity

Interest Rate Risk

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

We evaluated the results of our NII simulation model and MVE model prepared as of ~~September~~June 30, ~~2021,~~2022, the results of which are presented below. Our NII simulation and MVE model indicate that our balance sheet is asset-sensitive. An asset-sensitive profile would suggest that a sudden sustained increase in rates would result in an increase in our estimated NII and MVE, while a liability-sensitive profile would suggest that these amounts would decrease.

Net Interest Income Simulation

We used a NII simulation model to measure the estimated changes in NII that would result over the next 12 months from immediate and sustained changes in interest rates as of ~~September~~June 30, ~~2021.~~2022. This model is an interest rate risk management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth or changes in the product mix of either our total interest-sensitive assets or liabilities over the next 12 months, therefore the results reflect an interest rate shock to a static balance sheet.

This analysis calculates the difference between NII forecasted using both increasing and decreasing interest rate scenarios using the forward yield curve at ~~September~~June 30, ~~2021.~~2022. In order to arrive at the base case, we extend our balance sheet at ~~September~~June 30, ~~2021~~2022 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of ~~September~~June 30, ~~2021.~~2022. Based on such repricing, we calculate an estimated NII and NIM for each rate scenario.

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The NII simulation model is dependent upon numerous assumptions. For example, ~~the majority~~almost half of our loans are variable rate ~~that~~(excluding hybrid loans), which are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (embedded options) and the simulation model uses prepayment assumptions to estimate these accelerated cash flows and reinvest these proceeds at current simulated yields. Our interest-bearing deposits reprice at our discretion and are assumed to reprice at a rate less than the change in market rates. The 12-month NII simulation model as of ~~September~~June 30, ~~2021~~2022 assumes interest-bearing deposits reprice at ~~28%~~ ofat 36% and total deposits reprice at 22% of the change in market rates in a rising interest rate scenario, depending on the amount of the rate change (this is commonly referred to as the "deposit beta"). The effects of certain balance sheet attributes, such as fixed-rate loans, variable-rate loans that have reached their floors, and the volume of noninterest-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our NII simulation model. Additionally, we assume that all market interest rates have an interest rate floor of 0%. Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, loan and deposit pricing, changes in the mix of earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.

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


		Forecasted			Forecasted	Forecasted		Forecasted			Forecasted	Forecasted
		Net Interest		Percentage	Net Interest	Net Interest		Net Interest		Percentage	Net Interest	Net Interest
		Income		Change	Margin	Margin Change		Income		Change	Margin	Margin Change
September 30, 2021		(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
June 30, 2022							June 30, 2022	(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
		(Dollars in millions)						(Dollars in millions)
Interest Rate Scenario:	Interest Rate Scenario:						Interest Rate Scenario:
Up 300 basis points	Up 300 basis points	$	1,306.9	20.4%	3.96%	0.67%	Up 300 basis points	$	1,570.8	12.9%	4.07%	0.46%
Up 200 basis points	Up 200 basis points	$	1,224.0	12.8%	3.71%	0.42%	Up 200 basis points	$	1,508.9	8.5%	3.91%	0.30%
Up 100 basis points	Up 100 basis points	$	1,145.1	5.5%	3.47%	0.18%	Up 100 basis points	$	1,449.6	4.2%	3.76%	0.15%
BASE CASE	BASE CASE	$	1,085.4	—	3.29%		BASE CASE	$	1,390.8	—	3.61%
Down 25 basis points	Down 25 basis points	$	1,082.9	(0.2)%	3.28%	(0.01)%	Down 25 basis points	$	1,389.9	(0.1)%	3.58%	(0.03)%
Down 50 basis points	Down 50 basis points	$	1,070.3	(1.4)%	3.24%	(0.05)%	Down 50 basis points	$	1,377.4	(1.0)%	3.57%	(0.04)%
Down 100 basis points	Down 100 basis points	$	1,059.1	(2.4)%	3.21%	(0.08)%	Down 100 basis points	$	1,380.3	(0.8)%	3.58%	(0.03)%

During the ~~third quarter of 2021,~~six months ended June 30, 2022, total base case year 1 tax equivalent NII increased by ~~$49.3~~$207.4 million or 18% to ~~$1.1~~$1.4 billion at ~~September~~June 30, ~~2021,~~2022, and the base case tax equivalent NIM increased to ~~3.29%~~3.61% at June 30, 2022 from ~~3.26%.~~3.17% at December 31, 2021. The increase in year 1 NII and tax equivalent NIM compared to ~~June 30,~~the December 31, 2021 forecasted NII and NIM was attributable to ~~growth in~~ the ~~balance of and~~ shift in the mix of interest-earning assets resulting from the ~~increases~~increase in loans and leases and ~~investment securities and~~the decrease in interest-earning deposits in financial ~~institutions.~~institutions, the impact of actual rate hikes, and the impact of the increase in the implied forward yield curve. The implied forward yield curve for December 31, 2021 included three 25 basis points rate hikes over a 12-month horizon to a Fed target rate of 1.00%, while the implied forward yield curve for June 30, 2022 included five 25 basis points rate hikes over a 12-month horizon to a Fed target rate of 3.50%.

In addition to parallel interest rate shock scenarios, we also model various alternative rate vectors. The most favorable alternate rate vector that we model is the “Bear Flattener Severe” scenario, when short-term rates increase faster than long-term rates. In the “Bear Flattener Severe” scenario, Year 1 tax equivalent NII increases by~~3.6%~~ 6.8%. Be~~cause~~Because of the low level of market interest rates and the assumption that market rates contain a 0% floor, the ad hoc scenarios that assume decreasing interest rates do not differ materially from the base case scenario.

8792

At ~~September~~June 30, ~~2021,~~2022, we had ~~$20.6~~$26.6 billion of total loans that included ~~$10.8~~$11.5 billion or 44% with variable interest rate terms (excluding hybrid loans discussed below). Of the variable interest rate loans, ~~$9.1~~$10.3 billion, or ~~85%~~89%, contained interest rate floor provisions, which included ~~$8.9~~$1.9 billion of loans at or below their floors and $8.4 billion of loans that are above their floors and will reprice with ~~"in-the-money" floors, meaning the loan coupon will not adjust down if there are~~ future ~~decreases to the index interest rate.~~rate increases. The following table summarizes the ~~estimated balance~~amount of loans ~~with "in-the-money"~~at or below their floors ~~for~~that will reprice based on the indicated increases in interest rates:


~~September~~June 30, ~~2021~~2022
	~~Total Amount of~~Variable Rate
	Loans ~~With~~At or Below
	Their Floors That
Basis Points of	~~"In-the-Money"~~Will Reprice As
Rate Increases	~~Loan Floors~~Rates Increase
	(~~Dollars in~~In millions)
50 bps	$~~5,711~~	955
100 bps	~~$3,500~~641
150 bps	~~$2,390~~279
200 bps	~~$937~~9
250 bps	23
300 bps	—
400 bps	1
Total	$20	1,908

At ~~September~~June 30, ~~2021,~~2022, we also had ~~$2.9~~$5.1 billion of variable-rate hybrid loans, representing 19% of total loans, that do not reprice 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 ~~$139.6~~$132.5 million, ~~$483.0~~$497.3 million, and ~~$824.7~~$911.9 million in the next one, two, and three years.

LIBOR is expected to be phased out ~~after 2021,~~in 2023, as such the Company ~~is assessing the impacts~~stopped originations of ~~this transition and exploring alternatives to use in place of LIBOR.~~LIBOR-indexed loans effective December 31, 2021. The business processes impacted relate primarily to our variable-rate loans and our subordinated debt, both of which are indexed to LIBOR. In the third quarter of 2021 we began using SOFR for some of our newly originated loans as we began to phase out LIBOR. We have included fallback language in loan documents going back to the third quarter of 2020 and continue to complete other aspects of our LIBOR transition plan. For further information, see Item ~~1A.~~7A. "Risk Factors" of our Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2021.

Market Value of Equity

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

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

2022.

8893

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


										Ratio of											Ratio of
		Projected		Dollar		Percentage		Percentage		Projected			Projected		Dollar		Percentage		Percentage		Projected
		Market Value		Change		Change		of Total		Market Value			Market Value		Change		Change		of Total		Market Value
September 30, 2021		of Equity		From Base		From Base		Assets		to Book Value
June 30, 2022												June 30, 2022	of Equity		From Base		From Base		Assets		to Book Value
		(Dollars in millions)											(Dollars in millions)
Interest Rate Scenario:	Interest Rate Scenario:											Interest Rate Scenario:
Up 300 basis points	Up 300 basis points	$	6,905.7	$	489.2	7.6	%	19.2	%	176.2	%	Up 300 basis points	$	8,821.9	$	331.3	3.9	%	21.5	%	221.7	%
Up 200 basis points	Up 200 basis points	$	6,793.8	$	377.4	5.9	%	18.9	%	173.4	%	Up 200 basis points	$	8,776.0	$	285.4	3.4	%	21.4	%	220.6	%
Up 100 basis points	Up 100 basis points	$	6,644.6	$	228.2	3.6	%	18.5	%	169.6	%	Up 100 basis points	$	8,660.9	$	170.4	2.0	%	21.1	%	217.7	%
BASE CASE	BASE CASE	$	6,416.5	$	—	—	%	17.9	%	163.8	%	BASE CASE	$	8,490.5	$	—	—	%	20.7	%	213.4	%
Down 50 basis points	Down 50 basis points	$	6,276.0	$	(140.5)	(2.2)	%	17.5	%	160.2	%	Down 50 basis points	$	8,394.3	$	(96.2)	(1.1)	%	20.5	%	211.0	%
Down 100 basis points	Down 100 basis points	$	6,151.8	$	(264.7)	(4.1)	%	17.1	%	157.0	%	Down 100 basis points	$	8,298.0	$	(192.5)	(2.3)	%	20.3	%	208.6	%

During the ~~third quarter of 2021,~~six months ended June 30, 2022, total base case projected market value of equity ~~increased~~decreased from December 31, 2021 by ~~$371.8~~$181.3 million to ~~$6.4 billion.~~$8.5 billion at June 30, 2022. This ~~increase~~decrease in base case projected MVE was due mostly to: (1) a ~~$267.7~~$2.4 billion decrease in the mark-to-market adjustment for loans and leases; (2) a $48.9 million decrease in the mark-to-market adjustment for investment securities; and (3) a $21.2 million decrease in the book value of stockholders' equity; offset partially by (4) a $2.3 billion decrease in the mark-to-market adjustment for total deposits, borrowings, and subordinated ~~debt (due primarily to the increase in FHLB rates used as discount rates in deposit valuations); (2) a $71.8 million increase~~debt. The decrease in the book value of stockholders' equity was due mainly to ~~$140.0~~a $710.7 million ~~of net earnings, offset partially by a $46.7 million decrease~~decline in accumulated other comprehensive income and ~~$30.0~~$60.0 million of cash dividends ~~paid;~~paid, offset partially by the $498.5 million net proceeds from issuance of Series A preferred stock and ~~(3) a $33.1~~$242.5 million ~~increase in the mark-to-market adjustment for loans and leases.~~of net earnings.

8994

ITEM 4. CONTROLS AND PROCEDURES

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

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

ITEM 1A. RISK FACTORS

For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. See also "Forward-Looking Information" disclosed in Part I, Item 2 of this quarterly report on Form 10-Q.

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

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

Total Number of Maximum Dollar
Shares Purchased Value of Shares
Total as Part of That May Yet
Number of Average Publicly Be Purchased
Shares Price Paid Announced Under the
Purchase Dates
Purchased (1)
Per Share
Program (2)
Program (2)
(In thousands)
July 1 - July 31, 2021 — $ — — $ —
August 1 - August 31, 2021 2,742 $ 42.55 — $ —
September 1 - September 30, 2021 — $ — — $ —
Total 2,742 $ 42.55 —


				Total Number of	Maximum Dollar
				Shares Purchased	Value of Shares
	Total			as Part of	That May Yet
	Number of	Average		Publicly	Be Purchased
	Shares	Price Paid		Announced	Under the
Purchase Dates	Purchased (1)	Per Share		Program (2)	Program (2)
	(Dollars in thousands, except per share amounts)
April 1 - April 30, 2022	—	$	—	—	$	100,000
May 1 - May 31, 2022	134,852	$	31.58	—	$	100,000
June 1 - June 30, 2022	1,148	$	26.66	—	$	100,000
Total	136,000	$	31.54	—

__________________________

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

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

9095

ITEM 6. INDEX TO EXHIBITS


Exhibit Number			Description
~~2.1~~			Purchase and Assumption Agreement, dated March 31, 2021, between Pacific Western Bank and MUFG Union Bank, N.A. (Exhibit 2.1 to Form 8-K filed on April 1, 2021 and incorporated herein by this reference).*
3.1			Certificate of ~~Incorporation, as amended, of PacWest Bancorp, a Delaware corporation, dated April 22, 2008~~Designation for the 7.75% Fixed Rate Reset Non-cumulative Perpetual Preferred Stock, Series A, effective June 3, 2022 (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~~June 6, 2022 and incorporated herein by this reference).
4.1			~~Description~~Deposit Agreement, dated June 6, 2022, by and among PacWest Bancorp, Equiniti Trust Company, and the holders from time to time of ~~Registered Securities~~Depositary Shares described herein (Exhibit ~~4.2~~4.1 to Form ~~10-K~~8-K filed on ~~February 28, 2020~~June 6, 2022 and incorporated herein by this reference).
~~10.1~~4.2			~~PacWest Bancorp 2017 Stock Incentive Plan, as amended, dated May 15, 2017~~Form of Depositary Receipt (included in Exhibit 4.3 hereto) (Exhibit ~~10.1~~4.2 to Form ~~S-8~~8-K filed on ~~May 15, 2017~~June 6, 2022 and incorporated herein by this reference).
~~10.2~~			~~Form of Stock Unit Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan (Exhibit 10.2 to Form 8-K filed on May 18, 2017 and incorporated herein by reference).~~
~~10.3~~			~~Form of Stock Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan (Exhibit 10.3 to Form 8-K filed on May 18, 2017 and incorporated herein by reference).~~
~~10.4~~			Form of Stock Unit Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan, as amended (Exhibit 10.7 to Form 10-Q filed on August 8, 2019 and incorporated herein by this reference).
~~10.5~~			Form of Stock Award Agreement and Grant Notice pursuant to the Company's 2017 Stock Incentive Plan, as amended (Exhibit 10.8 for Form 10-Q filed on August 8, 2019 and incorporated herein by this reference).
~~10.6~~			~~2018 Executive Incentive Plan, as amended and restated February 14, 2018 (Exhibit 10.1 to Form 8-K filed on February 16, 2018 and incorporated herein by this reference).~~
~~10.7~~			~~Indemnification Agreement applicable to the directors and executive officers of the Company (Exhibit 10.10 to Form 10-K filed on February 28, 2020 and incorporated herein by this reference).~~
~~10.8~~			~~PacWest Bancorp Change in Control Severance Plan, dated February 12, 2020 (Exhibit 10.1 to Form 8-K filed on February 14, 2020 and incorporated herein by this reference).~~
~~10.9~~			~~Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (Appendix A to the Company's Definitive Proxy Statement filed on March 26, 2021 and incorporated herein by this reference).~~
~~10.10~~			Form of Stock Award Agreement and Grant Notice pursuant to the Company's Amended and Restated 2017 Stock Incentive Plan (Exhibit 10.10 to Form 10-Q filed on August 6, 2021 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).


~~Exhibit Number~~			~~Description~~
101			Interactive data files pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021, (ii) the Condensed Consolidated Statements of Earnings ~~(Loss)~~ for the three and six months ended ~~September 30, 2021,~~ June 30, ~~2021~~2022 and ~~September 30, 2020 and nine months ended September 30,~~ 2021 ~~and 2020~~, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended ~~September 30, 2021,~~ June 30, ~~2021~~2022 and ~~September 30, 2020 and nine months ended September 30,~~ 2021 ~~and 2020~~, (iv) the Condensed Consolidated Statement of Changes in Stockholders’ Equity for the ~~nine~~ three and six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021, (v) the Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021, and (vi) the Notes to Condensed Consolidated Financial Statements. (Pursuant to Rule 406T of Regulation S-T, this information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.) (Filed herewith).
104			Cover page of PacWest Bancorp’s Quarterly Report on Form 10-Q formatted as Inline XBRL and contained in Exhibit 101.

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

9296

Signatures

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


		PACWEST BANCORP

Date:	~~November~~August 8, ~~2021~~2022	/s/ Bart R. Olson
		Bart R. Olson
		Chief Financial Officer and Principal Financial Officer

9397


	Three Months Ended September 30, 2021
			Real Estate
	Real Estate		Construction
	Mortgage		and Land		Commercial		Consumer		Total
	(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period	$	107,013	$	54,582	$	57,697	$	6,308	$	225,600
Charge-offs	(29)		—		(951)		(536)		(1,516)
Recoveries	563		—		543		43		1,149
Net (charge-offs) recoveries	534		—		(408)		(493)		(367)
Provision	(11,344)		(1,923)		(9,792)		1,559		(21,500)
Balance, end of period	$	96,203	$	52,659	$	47,497	$	7,374	$	203,733


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



Charge-offs	(663)		(775)		(3,802)		(1,080)		(6,320)
Recoveries	5,990		—		2,269		113		8,372
Net (charge-offs) recoveries	5,327		(775)		(1,533)		(967)		2,052
Provision	(47,466)		(24,922)		(77,373)		3,261		(146,500)
Balance, end of period	$	96,203	$	52,659	$	47,497	$	7,374	$	203,733

Ending Allowance by
Evaluation Methodology:
Individually evaluated	$	189	$	—	$	2,721	$	—	$	2,910
Collectively evaluated	$	96,014	$	52,659	$	44,776	$	7,374	$	200,823

Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated	$	34,822	$	19,364	$	38,647	$	—	$	92,833
Collectively evaluated	9,546,135		3,632,509		6,833,575		405,968		20,418,187
Ending balance	$	9,580,957	$	3,651,873	$	6,872,222	$	405,968	$	20,511,020


		Three Months Ended						Nine Months Ended
Adjusted Net Earnings and		September 30,		June 30,		September 30,		September 30,
Adjusted Earnings Per Share		2021		2021		2020		2021		2020
		(Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss)		$	139,996	$	180,512	$	45,503	$	470,914	$	(1,354,404)
Add:	Goodwill impairment	—		—		—		—		1,470,000
	Adjusted net earnings	$	139,996	$	180,512	$	45,503	$	470,914	$	115,596

Adjusted Basic Earnings Per Share:
Adjusted net earnings		$	139,996	$	180,512	$	45,503	$	470,914	$	115,596
Less:	Earnings allocated to unvested restricted stock	(2,417)		(3,172)		(578)		(7,930)		(1,603)
	Adjusted net earnings allocated to
	common shares	$	137,579	$	177,340	$	44,925	$	462,984	$	113,993

Weighted-average basic shares and unvested restricted
	stock outstanding	119,569		119,386		118,438		119,272		118,469
Less:	Weighted-average unvested restricted stock
	outstanding	(2,340)		(2,356)		(1,684)		(2,235)		(1,596)
	Weighted-average basic shares outstanding	117,229		117,030		116,754		117,037		116,873

Adjusted basic earnings per share		$	1.17	$	1.52	$	0.38	$	3.96	$	0.98

Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares		$	137,579	$	177,340	$	44,925	$	462,984	$	113,993
Weighted-average diluted shares outstanding		117,229		117,030		116,754		117,037		116,873
Adjusted diluted earnings per share		$	1.17	$	1.52	$	0.38	$	3.96	$	0.98