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PACWEST BANCORP - Quarter Report: 2021 June (Form 10-Q)


 
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

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

For the quarterly period ended June 30, 2021
Commission File No. 001-36408
PACWEST BANCORP
(Exact name of registrant as specified in its charter)
Delaware33-0885320
(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 sharePACWThe 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 filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes No 
As of July 30, 2021, there were 117,213,554 shares of the registrant's common stock outstanding, excluding 2,334,433 shares of unvested restricted stock.
1


PACWEST BANCORP
JUNE 30, 2021 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
Page
PART I. FINANCIAL INFORMATION
Item 1.Condensed Consolidated Financial Statements (Unaudited) 
 Condensed Consolidated Balance Sheets (Unaudited)
Condensed Consolidated Statements of Earnings (Loss) (Unaudited)
 Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Notes to Condensed Consolidated Financial Statements (Unaudited)
Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Item 4.Controls and Procedures
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Item 1A.Risk Factors
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.Index to Exhibits
Signatures

2


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 LossesFRBBoard of Governors of the Federal Reserve System
AFXAmerican Financial ExchangeFRBSFFederal Reserve Bank of San Francisco
ALLLAllowance for Loan and Lease LossesGDPGross Domestic Product
ALMAsset Liability ManagementIPOInitial Public Offering
ASCAccounting Standards CodificationIRRInterest Rate Risk
ASUAccounting Standards UpdateLIBORLondon Inter-bank Offered Rate
Basel IIIA comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013LIHTCLow Income Housing Tax Credit
BHCABank Holding Company Act of 1956, as amendedMBSMortgage-Backed Securities
BOLIBank Owned Life InsuranceMVEMarket Value of Equity
CARES ActCoronavirus Aid, Relief, and Economic Security ActNAVNet Asset Value
CDICore Deposit Intangible AssetsNIINet Interest Income
CECLCurrent Expected Credit LossNIMNet Interest Margin
CET1Common Equity Tier 1NSFNon-Sufficient Funds
Civic Civic Financial Services, LLC (a company acquired on February 1, 2021)OREOOther Real Estate Owned
CMBS Commercial Mortgage-Backed SecuritiesPD/LGDProbability of Default/Loss Given Default
CMOsCollateralized Mortgage ObligationsPPPPaycheck Protection Program
COVID-19Coronavirus DiseasePRSUsPerformance-Based Restricted Stock Units
CPIConsumer Price IndexPWAMPacific Western Asset Management Inc.
CRACommunity Reinvestment ActROURight-of-use
CRECommercial Real EstateSBASmall Business Administration
CRICustomer Relationship Intangible AssetsSBICSmall Business Investment Company
DFPICalifornia Department of Financial Protection and InnovationSECSecurities and Exchange Commission
DTAsDeferred Tax AssetsSOFRSecured Overnight Financing Rate
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection ActTax Equivalent Net Interest IncomeNet interest income reflecting adjustments related to tax-exempt interest on certain loans and investment securities
EADExposure at DefaultTax Equivalent NIMNIM reflecting adjustments related to tax-exempt interest on certain loans and investment securities
Efficiency RatioNoninterest 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)TDRsTroubled Debt Restructurings
FASBFinancial Accounting Standards BoardTRSAsTime-Based Restricted Stock Awards
FDICFederal Deposit Insurance CorporationU.S. GAAPU.S. Generally Accepted Accounting Principles
FHLBFederal Home Loan Bank of San FranciscoVIEVariable Interest Entity

3


ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30,December 31,
 20212020
(Unaudited)
 (Dollars in thousands, except par value amounts)
ASSETS:
Cash and due from banks$179,505 $150,464 
Interest-earning deposits in financial institutions5,678,587 3,010,197 
Total cash, cash equivalents, and restricted cash5,858,092 3,160,661 
Securities available-for-sale, at fair value7,198,608 5,235,591 
Federal Home Loan Bank stock, at cost17,250 17,250 
Total investment securities7,215,858 5,252,841 
Loans held for sale— — 
Gross loans and leases held for investment19,580,731 19,153,357 
Deferred fees, net(74,474)(69,980)
Allowance for loan and lease losses(225,600)(348,181)
Total loans and leases held for investment, net19,280,657 18,735,196 
Equipment leased to others under operating leases313,574 333,846 
Premises and equipment, net39,541 39,234 
Foreclosed assets, net13,227 14,027 
Goodwill1,204,118 1,078,670 
Core deposit and customer relationship intangibles, net18,423 23,641 
Other assets924,497 860,326 
Total assets$34,867,987 $29,498,442 
LIABILITIES:  
Noninterest-bearing deposits$11,252,286 $9,193,827 
Interest-bearing deposits18,394,748 15,746,890 
Total deposits29,647,034 24,940,717 
Borrowings6,625 5,000 
Subordinated debt861,788 465,812 
Accrued interest payable and other liabilities505,859 491,962 
Total liabilities31,021,306 25,903,491 
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)
— — 
Common stock ($0.01 par value, 200,000,000 shares authorized at June 30, 2021 and
December 31, 2020; 122,066,549 and 120,736,834 shares issued, respectively, includes
2,341,548 and 1,608,126 shares of unvested restricted stock, respectively)
1,221 1,207 
Additional paid-in capital3,056,522 3,100,633 
Retained earnings740,309 409,391 
Treasury stock, at cost (2,511,447 and 2,321,981 shares at June 30, 2021 and
December 31, 2020)(96,887)(88,803)
Accumulated other comprehensive income, net145,516 172,523 
Total stockholders' equity3,846,681 3,594,951 
Total liabilities and stockholders' equity$34,867,987 $29,498,442 
See Notes to Condensed Consolidated Financial Statements.
4


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
 20212021202020212020
(Unaudited)
 (Dollars in thousands, except per share amounts)
Interest income:
Loans and leases$244,529 $241,544 $247,851 $486,073 $510,129 
Investment securities33,954 30,265 26,038 64,219 53,484 
Deposits in financial institutions2,022 1,528 186 3,550 1,794 
Total interest income280,505 273,337 274,075 553,842 565,407 
Interest expense:
Deposits7,269 7,500 13,075 14,769 41,322 
Borrowings 265 193 1,319 458 8,097 
Subordinated debt6,663 4,375 5,402 11,038 11,962 
Total interest expense14,197 12,068 19,796 26,265 61,381 
Net interest income266,308 261,269 254,279 527,577 504,026 
Provision for credit losses(88,000)(48,000)120,000 (136,000)232,000 
Net interest income after provision for credit losses354,308 309,269 134,279 663,577 272,026 
Noninterest income:
Leased equipment income10,847 11,354 12,037 22,201 24,288 
Other commissions and fees10,704 9,158 10,111 19,862 19,832 
Service charges on deposit accounts3,452 2,934 2,004 6,386 4,662 
Gain on sale of loans and leases1,422 139 346 1,561 433 
Gain on sale of securities— 101 7,715 101 7,897 
Other income13,946 21,143 6,645 35,089 10,846 
Total noninterest income40,371 44,829 38,858 85,200 67,958 
Noninterest expense:
Compensation90,807 79,882 61,910 170,689 123,192 
Occupancy14,784 14,054 14,494 28,838 28,701 
Leased equipment depreciation8,614 8,969 7,102 17,583 14,307 
Data processing7,758 6,957 7,102 14,715 13,556 
Other professional services5,256 5,126 4,146 10,382 8,404 
Insurance and assessments3,745 4,903 9,373 8,648 13,622 
Customer related expense4,973 4,818 4,408 9,791 8,340 
Loan expense4,031 3,193 3,379 7,224 6,029 
Intangible asset amortization2,889 3,079 3,882 5,968 7,830 
Acquisition, integration and reorganization costs200 3,425 — 3,625 — 
Foreclosed assets (income) expense, net(119)(146)(118)(80)
Goodwill impairment— — — — 1,470,000 
Other expense8,812 15,729 11,315 24,541 21,034 
Total noninterest expense151,750 150,136 126,965 301,886 1,714,935 
Earnings (loss) before income taxes242,929 203,962 46,172 446,891 (1,374,951)
Income tax expense62,417 53,556 12,968 115,973 24,956 
Net earnings (loss)$180,512 $150,406 $33,204 $330,918 $(1,399,907)
Earnings (loss) per share:
Basic$1.52 $1.27 $0.28 $2.78 $(11.98)
Diluted$1.52 $1.27 $0.28 $2.78 $(11.98)
See Notes to Condensed Consolidated Financial Statements.
5


` PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
20212021202020212020
(Unaudited)
(In thousands)
Net earnings (loss)$180,512 $150,406 $33,204 $330,918 $(1,399,907)
Other comprehensive income (loss), net of tax:
Unrealized net holding gains (losses) on securities
available-for-sale arising during the period54,076 (91,523)82,780 (37,447)99,963 
Income tax (expense) benefit related to net unrealized
holding gains (losses) arising during the period(14,941)25,454 (23,095)10,513 (27,889)
Unrealized net holding gains (losses) on securities
available-for-sale, net of tax39,135 (66,069)59,685 (26,934)72,074 
Reclassification adjustment for net gains
included in net earnings (1)
— (101)(7,715)(101)(7,897)
Income tax expense related to reclassification
adjustment— 28 2,152 28 2,203 
Reclassification adjustment for net gains
included in net earnings, net of tax— (73)(5,563)(73)(5,694)
Other comprehensive income (loss), net of tax39,135 (66,142)54,122 (27,007)66,380 
Comprehensive income (loss)$219,647 $84,264 $87,326 $303,911 $(1,333,527)
___________________________________
(1)    Entire amounts are recognized in "Gain on sale of securities" on the Condensed Consolidated Statements of Earnings (Loss).
See Notes to Condensed Consolidated Financial Statements.

6


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2021
Common StockAccumulated
AdditionalOther
ParPaid-inRetainedTreasuryComprehensive
 SharesValueCapitalEarningsStockIncome Total
(Unaudited)
 (Dollars in thousands)
Balance, December 31, 2020118,414,853 $1,207 $3,100,633 $409,391 $(88,803)$172,523 $3,594,951 
Net earnings— — — 150,406 — — 150,406 
Other comprehensive loss - net
unrealized loss on securities
available-for-sale, net of tax— — — — — (66,142)(66,142)
Restricted stock awarded and
earned stock compensation,
net of shares forfeited743,444 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, 2021119,105,642 $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 forfeited586,271 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, 2021119,555,102 $1,221 $3,056,522 $740,309 $(96,887)$145,516 $3,846,681 

See Notes to Condensed Consolidated Financial Statements.














7



PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Six Months Ended June 30, 2020
Common StockAccumulated
AdditionalOther
ParPaid-inRetainedTreasuryComprehensive
 SharesValueCapitalEarningsStockIncomeTotal
(Unaudited)
 (Dollars in thousands)
Balance, December 31, 2019119,781,605 $1,219 $3,306,006 $1,652,248 $(83,434)$78,658 $4,954,697 
Cumulative effect of change 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 forfeited194,916 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, 2020117,916,789 $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 forfeited550,738 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, 2020118,374,603 $1,207 $3,148,090 $247,058 $(88,495)$145,038 $3,452,898 
________________________
(1)    Impact due to adoption on January 1, 2020 of ASU 2016-13, "Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments," and the related amendments, commonly referred to as CECL.

See Notes to Condensed Consolidated Financial Statements.
8


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
 June 30,
 20212020
(Unaudited)
 (In thousands)
Cash flows from operating activities:  
Net earnings (loss) $330,918 $(1,399,907)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Goodwill impairment— 1,470,000 
Depreciation and amortization 25,564 22,124 
Amortization of net premiums on securities available-for-sale16,561 5,591 
Amortization of intangible assets5,968 7,830 
Amortization of operating lease ROU assets15,215 14,662 
Provision for credit losses (136,000)232,000 
Gain on sale of foreclosed assets(214)(112)
Provision for losses on foreclosed assets14 110 
Gain on sale of loans and leases(1,561)(433)
(Gain) loss on sale of premises and equipment (58)187 
Gain on sale of securities(101)(7,897)
Gain on BOLI death benefit(51)— 
Unrealized (gain) loss on derivatives and foreign currencies, net(995)564 
Earned stock compensation 15,406 12,783 
Decrease in other assets22,808 8,393 
Decrease in accrued interest payable and other liabilities(62,869)(91,873)
Net cash provided by operating activities230,605 274,022 
Cash flows from investing activities:
Cash paid for acquisition, net (123,090)— 
Net increase in loans and leases(477,874)(887,247)
Proceeds from sales of loans and leases 126,366 3,522 
Proceeds from maturities and paydowns of securities available-for-sale435,761 170,245 
Proceeds from sales of securities available-for-sale44,652 144,997 
Purchases of securities available-for-sale(2,497,439)(274,824)
Net purchases of Federal Home Loan Bank stock— 23,674 
Proceeds from sales of foreclosed assets1,647 769 
Purchases of premises and equipment, net(4,547)(9,772)
Proceeds from sales of premises and equipment95 
Proceeds from BOLI death benefit1,188 761 
Net decrease in equipment leased to others under operating leases12,953 15,147 
Net cash used in investing activities(2,480,288)(812,726)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits2,021,120 1,387,698 
Net increase in interest-bearing deposits2,647,858 2,309,298 
Net decrease in borrowings(48,585)(1,699,008)
Proceeds from subordinated notes offering394,308 — 
Common stock repurchased and restricted stock surrendered(8,084)(75,061)
Cash dividends paid(59,503)(100,711)
Net cash provided by financing activities4,947,114 1,822,216 
Net increase in cash, cash equivalents, and restricted cash2,697,431 1,283,512 
Cash, cash equivalents, and restricted cash, beginning of period3,160,661 637,624 
Cash, cash equivalents, and restricted cash, end of period$5,858,092 $1,921,136 
See Notes to Condensed Consolidated Financial Statements.
9


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
 June 30,
 20212020
(Unaudited)
 (In thousands)
Supplemental disclosures of cash flow information:
Cash paid for interest$24,683 $68,390 
Cash paid for income taxes74,147 3,850 
Loans transferred to foreclosed assets647 1,776 
Transfers from loans held for investment to loans held for sale25,554 — 
Effective February 1, 2021, the Company acquired Civic
in a transaction summarized as follows:
Fair value of assets acquired$307,997 — 
Cash paid(160,420)— 
Liabilities assumed$147,577 — 
See Notes to Condensed Consolidated Financial Statements.

10



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 70 full-service branches located in California, one branch located in Durham, North Carolina, one branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.
We generate our revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities, and fees received in connection with deposit services, extending credit and other services offered, including foreign exchange services. Our major operating expenses are interest paid by the Bank on deposits and borrowings, compensation, occupancy, and general operating expenses.
Significant Accounting Policies
Our accounting policies are described in Note 1. Nature of Operations and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the Securities and Exchange Commission ("Form 10-K").
Accounting Standards Adopted in 2021
Effective January 1, 2021, the Company adopted ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” which simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendment also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
Effective January 1, 2021, the Company adopted ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)” which clarifies that entities that apply the measurement alternative in ASC 321 should consider observable transactions that result in entities initially applying or discontinuing the use of the equity method of accounting under ASC 323. The guidance also clarifies that certain forward contracts and purchased options on equity securities that are not deemed to be in-substance common stock under ASC 323 or accounted for as derivatives under ASC 815 are in the scope of ASC 321. The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.

11



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Effective January 1, 2021, the Company adopted ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs” which clarifies the Company should reevaluate whether a callable debt security that has multiple call dates is within the scope of ASC 310-20-35-33 at each reporting period. ASC 310-20-35-33 requires that, to the extent the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess should be amortized to the earliest call date. As the Company’s accounting policy to amortize premiums on investments in callable debt securities to the earliest call date is consistent with the manner required by ASU 2020-08, the adoption of this standard had no 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.
Use of Estimates
We have made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses, the carrying value of goodwill and other intangible assets, and the realization of deferred tax assets. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s presentation format. In our loan and allowance tables, we realigned our venture capital subclasses to better reflect and report our lending. Prior to the realignment, our venture capital subclasses were: (1) equity fund loans, (2) early stage, (3) expansion stage, and (4) late stage. After the realignment, our venture capital subclasses are: (1) equity fund loans and (2) venture lending (which includes early stage, expansion stage, and late stage). Additionally, we realigned our other commercial subclasses by moving our cash flow subclass into the other lending subclass. All of the loan and allowance tables, both current period and prior periods, reflect these realignments. In our securities available-for-sale tables, we are presenting a new line for private label commercial MBS, which had previously been included with the asset-backed securities line. All of the securities available-for-sale tables, both current period and prior periods, reflect this new presentation.
12



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 2. ACQUISITIONS
The following assets acquired and liabilities assumed, both tangible and intangible, of the acquired entity are presented at estimated fair value as of the acquisition date:
Acquisition and
Date Acquired
Civic Financial
Services
February 1, 2021
(In thousands)
Assets Acquired:
Cash and due from banks$37,331 
Loans and leases67,294 
Premises and equipment1,197 
Goodwill125,448 
Customer relationship intangible750 
Other assets75,977 
Total assets acquired$307,997 
Liabilities Assumed:
Noninterest-bearing demand deposits$37,339 
Borrowings50,210 
Accrued interest payable and other liabilities60,028 
Total liabilities assumed$147,577 
Total consideration - paid in cash$160,420 
Acquisition of Civic
On February 1, 2021, the Bank completed the acquisition of Civic in an all-cash transaction. Civic, located in Redondo Beach, California, is one of the leading lenders in the United States specializing in residential non-owner-occupied investment properties. The acquisition of Civic advances the Bank’s strategy to diversify and expand its lending portfolio, diversify its revenue streams, and deploy excess liquidity into higher-yielding assets. Civic operates as a subsidiary of the Bank and at June 30, 2021 had $662.1 million of loans outstanding. The loans are categorized as either income producing and other residential real estate mortgage or residential real estate construction and land based on their purpose.
The Civic acquisition has been accounted for under the acquisition method of accounting. We acquired $308.0 million of assets and assumed $147.6 million of liabilities upon closing of the acquisition. We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and assumed liabilities. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. The application of the acquisition method of accounting resulted in the recognition of goodwill of $125.4 million. All of the recognized goodwill is expected to be deductible for tax purposes.
13



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Homeowners Association Services Division Acquisition Announcement
On April 1, 2021, PacWest announced that the Bank entered into a definitive agreement to acquire MUFG Union Bank, N.A.’s (“Union Bank”) Homeowners Association (“HOA”) Services Division. The Bank will acquire certain assets and assume certain liabilities related to the HOA Services Division for a premium of 5.9% on deposits plus the net book values of certain assumed assets and liabilities for aggregate cash consideration of approximately $250 million. The final amount of consideration to be paid will be based on balances at closing, which is expected to occur in the fourth quarter of 2021 subject to customary closing conditions.
The HOA Services Division provides a full range of banking services to community HOA management companies and their homeowners associations. This acquisition will significantly expand the Bank’s existing HOA banking practice, which provides lockbox, electronic receivables processing and other financial services to HOA management companies. This acquisition advances the Bank’s strategy to expand its product offerings to its customers and to diversify its revenue and funding sources. Management believes that the HOA business unit’s high quality, low-cost deposits will diversify the Bank’s existing core deposits and provide an attractive funding source in a rising interest rate environment.
Union Bank’s HOA Services Division is a long-time provider of specialized HOA banking services to a national base of clients with approximately $4 billion in deposits. The existing management team and employees will transition with the HOA Services Division to the Bank in connection with the close of the acquisition.
NOTE 3. RESTRICTED CASH BALANCES
The FRBSF establishes cash reserve requirements that its member banks must maintain based on a percentage of deposit liabilities. On March 26, 2020, the FRBSF reduced the reserve requirement ratios to zero percent. There was no average reserves required to be held at the FRBSF for the six months ended June 30, 2021. The average reserves required to be held at the FRBSF for the six months ended June 30, 2020 was $83.1 million. As of June 30, 2021 and December 31, 2020, we pledged cash collateral for our derivative contracts of $2.0 million and $2.9 million.
14



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4. INVESTMENT SECURITIES     
Securities Available-for-Sale
The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:
 June 30, 2021December 31, 2020
GrossGrossGrossGross
AmortizedUnrealizedUnrealizedFairAmortizedUnrealizedUnrealizedFair
Security TypeCostGainsLossesValueCostGainsLossesValue
 (In thousands)
Municipal securities $1,735,937 $83,607 $(2,045)$1,817,499 $1,438,004 $93,631 $(18)$1,531,617 
Agency commercial MBS1,203,537 56,261 (2,170)1,257,628 1,207,676 74,238 (37)1,281,877 
Agency residential CMOs1,108,587 36,736 (2,925)1,142,398 1,172,166 47,994 (280)1,219,880 
U.S. Treasury securities873,480 4,266 (593)877,153 4,989 313 — 5,302 
Agency residential MBS544,762 11,208 (3,559)552,411 329,488 12,483 (897)341,074 
Corporate debt securities496,749 12,457 (498)508,708 308,803 3,490 (404)311,889 
Collateralized loan obligations382,935 260 (1,152)382,043 136,777 23 (924)135,876 
Private label commercial MBS375,184 3,126 (75)378,235 81,878 1,089 (10)82,957 
Asset-backed securities148,965 961 (343)149,583 166,861 445 (760)166,546 
Private label residential CMOs93,011 4,141 (230)96,922 110,891 6,076 (21)116,946 
SBA securities34,388 1,659 (19)36,028 39,437 2,217 (27)41,627 
Total$6,997,535 $214,682 $(13,609)$7,198,608 $4,996,970 $241,999 $(3,378)$5,235,591 
As of June 30, 2021, securities available-for-sale with a fair value of $490.0 million were pledged as collateral for public deposits and other purposes as required by various statutes and agreements.
Realized Gains and Losses on Securities Available-for-Sale
The following table presents the amortized cost of securities sold with related gross realized gains, gross realized losses, and net realized gains for the years indicated:
Three Months EndedSix Months Ended
June 30,June 30,
Sales of Securities Available-for-Sale2021202020212020
(In thousands)
Amortized cost of securities sold $— $122,334 $44,551 $137,100 
Gross realized gains$— $7,747 $101 $7,929 
Gross realized losses— (32)— (32)
Net realized gains $— $7,715 $101 $7,897 


15



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Unrealized Losses on Securities Available-for-Sale
The following tables present the gross unrealized losses and fair values of securities available-for-sale that were in unrealized loss positions as of the dates indicated:
June 30, 2021
 Less Than 12 Months12 Months or MoreTotal
GrossGrossGross
FairUnrealizedFairUnrealizedFairUnrealized
Security TypeValueLossesValueLossesValueLosses
 (In thousands)
Municipal securities $203,261 $(2,045)$— $— $203,261 $(2,045)
Agency commercial MBS126,899 (2,170)— — 126,899 (2,170)
Agency residential CMOs125,880 (2,925)— — 125,880 (2,925)
U.S. Treasury securities374,149 (593)— — 374,149 (593)
Agency residential MBS303,546 (3,551)687 (8)304,233 (3,559)
Corporate debt securities57,401 (498)— — 57,401 (498)
Collateralized loan obligations201,170 (995)43,854 (157)245,024 (1,152)
Private label commercial MBS13,476 (67)2,196 (8)15,672 (75)
Asset-backed securities— — 16,381 (343)16,381 (343)
Private label residential CMOs24,957 (216)624 (14)25,581 (230)
SBA securities— — 1,914 (19)1,914 (19)
Total$1,430,739 $(13,060)$65,656 $(549)$1,496,395 $(13,609)
December 31, 2020
 Less Than 12 Months12 Months or MoreTotal
GrossGrossGross
FairUnrealizedFairUnrealizedFairUnrealized
Security TypeValueLossesValueLossesValueLosses
 (In thousands)
Municipal securities $5,919 $(18)$— $— $5,919 $(18)
Agency commercial MBS58,408 (37)— — 58,408 (37)
Agency residential CMOs97,863 (280)— — 97,863 (280)
Agency residential MBS90,722 (897)— — 90,722 (897)
Asset-backed securities14,636 (53)61,031 (707)75,667 (760)
Corporate debt securities87,596 (404)— — 87,596 (404)
Collateralized loan obligations96,442 (729)28,972 (195)125,414 (924)
Private label commercial MBS3,058 (10)— — 3,058 (10)
Private label residential CMOs788 (19)74 (2)862 (21)
SBA securities2,127 (27)— — 2,127 (27)
Total$457,559 $(2,474)$90,077 $(904)$547,636 $(3,378)
The securities that were in an unrealized loss position at June 30, 2021, 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" 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.
16



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Contractual Maturities of Securities Available-for-Sale
The following table presents the contractual maturities of our securities available-for-sale portfolio based on amortized cost and carrying value as of the date indicated:
June 30, 2021
AmortizedFair
MaturitiesCostValue
 (In thousands)
Due in one year or less$27,259 $27,267 
Due after one year through five years579,444 608,063 
Due after five years through ten years2,657,145 2,713,777 
Due after ten years3,733,687 3,849,501 
Total securities available-for-sale$6,997,535 $7,198,608 
CMBS, CMOs, and MBS have contractual maturity dates, but require periodic payments based upon scheduled amortization terms. Actual principal collections on these securities usually occur more rapidly than the scheduled amortization terms because of prepayments made by obligors of the underlying loan collateral.
Interest Income on Investment Securities
The following table presents the composition of our interest income on investment securities for the periods indicated:
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
(In thousands)
Taxable interest$25,206 $19,836 $47,176 $41,622 
Non-taxable interest8,493 5,612 16,571 10,841 
Dividend income255 590 472 1,021 
Total interest income on investment securities$33,954 $26,038 $64,219 $53,484 
17



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5.  LOANS AND LEASES
Our loans are carried at the principal amount outstanding, net of deferred fees and costs, and in the case of acquired and purchased loans, net of purchase discounts and premiums. Deferred fees and costs and purchase discounts and premiums on acquired loans are recognized as an adjustment to interest income over the contractual life of the loans primarily using the effective interest method or taken into income when the related loans are paid off or included in the carrying amount of loans that are sold.
Loans and Leases Held for Investment
The following table summarizes the composition of our loans and leases held for investment as of the dates indicated:
June 30,December 31,
20212020
(In thousands)
Real estate mortgage$8,420,546 $7,905,193 
Real estate construction and land3,544,890 3,393,145 
Commercial7,249,917 7,534,801 
Consumer365,378 320,218 
Total gross loans and leases held for investment19,580,731 19,153,357 
Deferred fees, net(74,474)(69,980)
Total loans and leases held for investment, net of deferred fees19,506,257 19,083,377 
Allowance for loan and lease losses(225,600)(348,181)
Total loans and leases held for investment, net (1)
$19,280,657 $18,735,196 
____________________
(1)    Excludes accrued interest receivable of $73.5 million and $79.7 million at June 30, 2021 and December 31, 2020, respectively, which is recorded in "Other assets" on the condensed consolidated balance sheets.
The following tables present an aging analysis of our loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:
June 30, 2021
30 - 8990 or More
DaysDaysTotal
Past DuePast DuePast DueCurrentTotal
 (In thousands)
Real estate mortgage:
Commercial$445 $2,955 $3,400 $3,788,798 $3,792,198 
Income producing and other residential2,179 4,957 7,136 4,613,686 4,620,822 
Total real estate mortgage2,624 7,912 10,536 8,402,484 8,413,020 
Real estate construction and land:
Commercial— — — 930,785 930,785 
Residential22,714 1,934 24,648 2,550,151 2,574,799 
Total real estate construction and land22,714 1,934 24,648 3,480,936 3,505,584 
Commercial:
Asset-based— 1,484 1,484 3,549,419 3,550,903 
Venture capital— 335 335 1,749,097 1,749,432 
Other commercial320 1,740 2,060 1,919,849 1,921,909 
Total commercial320 3,559 3,879 7,218,365 7,222,244 
Consumer1,454 287 1,741 363,668 365,409 
Total$27,112 $13,692 $40,804 $19,465,453 $19,506,257 
18



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

December 31, 2020
30 - 8990 or More
DaysDaysTotal
Past DuePast DuePast DueCurrentTotal
 (In thousands)
Real estate mortgage:
Commercial$6,750 $29,145 $35,895 $4,060,776 $4,096,671 
Income producing and other residential600 373 973 3,802,292 3,803,265 
Total real estate mortgage7,350 29,518 36,868 7,863,068 7,899,936 
Real estate construction and land:
Commercial— — — 1,117,121 1,117,121 
Residential759 — 759 2,242,401 2,243,160 
Total real estate construction and land759 — 759 3,359,522 3,360,281 
Commercial:
Asset-based— 2,128 2,128 3,427,155 3,429,283 
Venture capital540 — 540 1,697,968 1,698,508 
Other commercial2,323 4,766 7,089 2,368,025 2,375,114 
Total commercial2,863 6,894 9,757 7,493,148 7,502,905 
Consumer1,260 111 1,371 318,884 320,255 
Total$12,232 $36,523 $48,755 $19,034,622 $19,083,377 
It is our policy to discontinue accruing interest when principal or interest payments are past due 90 days or more (unless the loan is both well secured and in the process of collection) or when, in the opinion of management, there is a reasonable doubt as to the collectability of a loan or lease in the normal course of business. Interest income on nonaccrual loans is recognized only to the extent cash is received and the principal balance of the loan is deemed collectable.
The following table presents our nonaccrual and performing loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:  
 June 30, 2021December 31, 2020
NonaccrualPerformingTotalNonaccrualPerformingTotal
 (In thousands)
Real estate mortgage:
Commercial$32,065 $3,760,133 $3,792,198 $43,731 $4,052,940 $4,096,671 
Income producing and other residential6,133 4,614,689 4,620,822 1,826 3,801,439 3,803,265 
Total real estate mortgage38,198 8,374,822 8,413,020 45,557 7,854,379 7,899,936 
Real estate construction and land:
Commercial284 930,501 930,785 315 1,116,806 1,117,121 
Residential1,934 2,572,865 2,574,799 — 2,243,160 2,243,160 
Total real estate construction and land2,218 3,503,366 3,505,584 315 3,359,966 3,360,281 
Commercial:
Asset-based1,973 3,548,930 3,550,903 2,679 3,426,604 3,429,283 
Venture capital2,717 1,746,715 1,749,432 1,980 1,696,528 1,698,508 
Other commercial11,337 1,910,572 1,921,909 40,243 2,334,871 2,375,114 
Total commercial16,027 7,206,217 7,222,244 44,902 7,458,003 7,502,905 
Consumer360 365,049 365,409 389 319,866 320,255 
Total$56,803 $19,449,454 $19,506,257 $91,163 $18,992,214 $19,083,377 
19



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

At June 30, 2021, nonaccrual loans and leases included $13.7 million of loans and leases 90 or more days past due, $0.5 million of loans and leases 30 to 89 days past due, and $42.6 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, 2020, nonaccrual loans and leases included $36.5 million of loans and leases 90 or more days past due, $3.4 million of loans and leases 30 to 89 days past due, and $51.3 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.
As of June 30, 2021, our three largest loan relationships on nonaccrual status had an aggregate carrying value of $12.9 million and represented 23% of total nonaccrual loans and leases.
The following tables present the credit risk rating categories for loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated. Classified loans and leases are those with a credit risk rating of either substandard or doubtful.
June 30, 2021
ClassifiedSpecial MentionPassTotal
(In thousands)
Real estate mortgage:
Commercial$62,827 $242,159 $3,487,212 $3,792,198 
Income producing and other residential12,681 60,843 4,547,298 4,620,822 
Total real estate mortgage75,508 303,002 8,034,510 8,413,020 
Real estate construction and land:
Commercial284 67,292 863,209 930,785 
Residential1,934 8,234 2,564,631 2,574,799 
Total real estate construction and land2,218 75,526 3,427,840 3,505,584 
Commercial:
Asset-based24,351 102,734 3,423,818 3,550,903 
Venture capital5,708 33,910 1,709,814 1,749,432 
Other commercial39,005 18,340 1,864,564 1,921,909 
Total commercial69,064 154,984 6,998,196 7,222,244 
Consumer 477 2,540 362,392 365,409 
Total$147,267 $536,052 $18,822,938 $19,506,257 

December 31, 2020
ClassifiedSpecial MentionPassTotal
(In thousands)
Real estate mortgage:
Commercial$91,543 $262,462 $3,742,666 $4,096,671 
Income producing and other residential8,767 61,384 3,733,114 3,803,265 
Total real estate mortgage100,310 323,846 7,475,780 7,899,936 
Real estate construction and land:
Commercial42,558 107,592 966,971 1,117,121 
Residential— 759 2,242,401 2,243,160 
Total real estate construction and land42,558 108,351 3,209,372 3,360,281 
Commercial:
Asset-based27,867 153,301 3,248,115 3,429,283 
Venture capital6,508 118,125 1,573,875 1,698,508 
Other commercial87,557 14,930 2,272,627 2,375,114 
Total commercial121,932 286,356 7,094,617 7,502,905 
Consumer 462 2,732 317,061 320,255 
Total$265,262 $721,285 $18,096,830 $19,083,377 
20



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 MonthsSix MonthsThree MonthsSix Months
EndedEndedEndedEnded
June 30,June 30,June 30,June 30,June 30,June 30,
 202120212021202020202020
NonaccrualInterestInterestNonaccrualInterestInterest
Recorded Income IncomeRecordedIncomeIncome
InvestmentRecognizedRecognizedInvestmentRecognizedRecognized
 (In thousands)
With An Allowance Recorded:  
Real estate mortgage:
Commercial$74 $— $— $304 $ $— 
Income producing and other residential2,806 — — 1,445  — 
Real estate construction and land:
Residential403 — — —  — 
Commercial:
Asset based1,484 — — 2,458  — 
Venture capital2,717 — — 8,270  — 
Other commercial1,472 — — 45,569  — 
Consumer360 — — 520  — 
With No Related Allowance Recorded:
Real estate mortgage:
Commercial$31,991 $140 $430 $61,467 $62 $130 
Income producing and other residential3,327 — — 762 — — 
Real estate construction and land:
Commercial284 — — 337 — — 
Residential1,531 — — — — — 
Commercial:
Asset based489 — — 16,555 — — 
Other commercial9,865 1,814 3,644 28,426 1,196 1,220 
Total Loans and Leases With and
Without an Allowance Recorded:
Real estate mortgage$38,198 $140 $430 $63,978 $62 $130 
Real estate construction and land2,218 — — 337 — — 
Commercial16,027 1,814 3,644 101,278 1,196 1,220 
Consumer360 — — 520 — — 
Total$56,803 $1,954 $4,074 $166,113 $1,258 $1,350 










21



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
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
June 30, 202120212020201920182017PriorLoansLoansTotal
(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass$— $3,604 $53,211 $5,853 $9,062 $38,846 $$— $110,579 
3-4 Pass171,826 541,881 352,574 532,213 622,252 1,079,673 61,007 15,207 3,376,633 
5 Special mention— 2,596 80,292 94,499 8,158 56,614 — — 242,159 
6-8 Classified— 500 3,967 7,665 12,648 38,047 — — 62,827 
Total$171,826 $548,581 $490,044 $640,230 $652,120 $1,213,180 $61,010 $15,207 $3,792,198 
Current YTD period:
Gross charge-offs$— $— $190 $168 $53 $168 $— $— $579 
Gross recoveries— — — — — (5,421)— — (5,421)
Net $— $— $190 $168 $53 $(5,253)$— $— $(4,842)
Real Estate Mortgage:
Income Producing and
Other Residential
Internal risk rating:
1-2 High pass$7,474 $40,341 $65,881 $30,001 $12,927 $27,593 $— $— $184,217 
3-4 Pass632,881 634,036 794,568 1,037,846 644,016 343,522 276,013 199 4,363,081 
5 Special mention358 12,595 4,207 42,581 947 — 155 — 60,843 
6-8 Classified— 2,727 — 3,059 117 6,018 — 760 12,681 
Total$640,713 $689,699 $864,656 $1,113,487 $658,007 $377,133 $276,168 $959 $4,620,822 
Current YTD period:
Gross charge-offs$— $— $— $— $— $55 $— $— $55 
Gross recoveries— — — — — (5)(1)— (6)
Net $— $— $— $— $— $50 $(1)$— $49 
Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass12,713 88,977 359,970 384,692 730 16,127 — — 863,209 
5 Special mention— — — — 67,292 — — — 67,292 
6-8 Classified— — — — — 284 — — 284 
Total$12,713 $88,977 $359,970 $384,692 $68,022 $16,411 $— $— $930,785 
Current YTD period:
Gross charge-offs$— $— $— $775 $— $— $— $— $775 
Gross recoveries— — — — — — — — — 
Net $— $— $— $775 $— $— $— $— $775 


22



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
June 30, 202120212020201920182017PriorLoansLoansTotal
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass562,843 487,332 935,712 388,440 111,140 23,121 — 56,043 2,564,631 
5 Special mention3,679 4,555 — — — — — — 8,234 
6-8 Classified547 974 413 — — — — — 1,934 
Total$567,069 $492,861 $936,125 $388,440 $111,140 $23,121 $— $56,043 $2,574,799 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $— $— 
Gross recoveries— — — — — — — — — 
Net $— $— $— $— $— $— $— $— $— 
Commercial: Asset-Based
Internal risk rating:
1-2 High pass$58,134 $82,132 $165,284 $113,965 $72,924 $203,548 $480,376 $73,966 $1,250,329 
3-4 Pass66,807 104,947 67,780 56,499 20,667 42,132 1,802,197 12,460 2,173,489 
5 Special mention— — 53,097 31,720 — — 13,601 4,316 102,734 
6-8 Classified— — — — — 19,738 5,513 (900)24,351 
Total$124,941 $187,079 $286,161 $202,184 $93,591 $265,418 $2,301,687 $89,842 $3,550,903 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $— $— 
Gross recoveries— — — — — (359)(14)— (373)
Net $— $— $— $— $— $(359)$(14)$— $(373)
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$— $1,999 $— $— $(5)$22 $227,411 $— $229,427 
3-4 Pass54,712 63,937 74,756 18,347 2,256 18,158 1,238,948 9,273 1,480,387 
5 Special mention— 8,380 20,625 — 4,986 — (81)— 33,910 
6-8 Classified— — — 3,000 — — 326 2,382 5,708 
Total$54,712 $74,316 $95,381 $21,347 $7,237 $18,180 $1,466,604 $11,655 $1,749,432 
Current YTD period:
Gross charge-offs$— $— $— $— $— $620 $— $— $620 
Gross recoveries— — — (13)(70)(18)— — (101)
Net $— $— $— $(13)$(70)$602 $— $— $519 
____________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.

23



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
June 30, 202120212020201920182017PriorLoansLoansTotal
(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass$357,890 $252,019 $310 $$302 $375 $77,917 $695 $689,517 
3-4 Pass198,420 90,403 79,878 82,235 65,037 95,808 552,735 10,531 1,175,047 
5 Special mention— 1,639 3,364 2,546 115 10,231 445 — 18,340 
6-8 Classified2,042 593 23 16 4,611 26,405 5,314 39,005 
Total$558,352 $344,062 $84,145 $84,813 $65,470 $111,025 $657,502 $16,540 $1,921,909 
Current YTD period:
Gross charge-offs$— $— $— $47 $$359 $53 $1,771 $2,231 
Gross recoveries— — (18)— (34)(1,127)— (73)(1,252)
Net $— $— $(18)$47 $(33)$(768)$53 $1,698 $979 
Consumer
Internal risk rating:
1-2 High pass$— $12 $— $$$— $666 $— $693 
3-4 Pass115,446 34,877 83,346 50,146 27,398 41,878 8,573 35 361,699 
5 Special mention331 602 966 318 54 269 — — 2,540 
6-8 Classified— 55 262 — 15 121 21 477 
Total$115,777 $35,546 $84,574 $50,470 $27,476 $42,268 $9,242 $56 $365,409 
Current YTD period:
Gross charge-offs$— $— $209 $156 $108 $71 $— $— $544 
Gross recoveries— — — (26)(5)(38)(1)— (70)
Net $— $— $209 $130 $103 $33 $(1)$— $474 
Total Loans and Leases
Internal risk rating:
1-2 High pass$423,498 $380,107 $284,686 $149,834 $95,219 $270,384 $786,373 $74,661 $2,464,762 
3-4 Pass1,815,648 2,046,390 2,748,584 2,550,418 1,493,496 1,660,419 3,939,473 103,748 16,358,176 
5 Special mention4,368 30,367 162,551 171,664 81,552 67,114 14,120 4,316 536,052 
6-8 Classified2,589 4,257 5,235 13,747 12,796 68,819 32,247 7,577 147,267 
Total$2,246,103 $2,461,121 $3,201,056 $2,885,663 $1,683,063 $2,066,736 $4,772,213 $190,302 $19,506,257 
Current YTD period:
Gross charge-offs$— $— $399 $1,146 $162 $1,273 $53 $1,771 $4,804 
Gross recoveries— — (18)(39)(109)(6,968)(16)(73)(7,223)
Net $— $— $381 $1,107 $53 $(5,695)$37 $1,698 $(2,419)
______________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
24



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202020202019201820172016PriorLoansLoansTotal
(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass$— $28,304 $4,848 $13,184 $12,241 $41,222 $— $— $99,799 
3-4 Pass554,143 413,785 574,497 725,503 405,367 893,008 62,586 13,978 3,642,867 
5 Special mention2,622 78,484 99,397 14,625 9,967 57,367 — — 262,462 
6-8 Classified504 1,255 7,489 7,869 16,797 57,629 — — 91,543 
Total$557,269 $521,828 $686,231 $761,181 $444,372 $1,049,226 $62,586 $13,978 $4,096,671 
Current YTD period:
Gross charge-offs$— $— $154 $3,330 $— $6,694 $— $— $10,178 
Gross recoveries— — — (9)— (280)— — (289)
Net $— $— $154 $3,321 $— $6,414 $— $— $9,889 
Real Estate Mortgage:
Income Producing and
Other Residential
Internal risk rating:
1-2 High pass$58,714 $55,826 $28,831 $33,017 $18,991 $9,265 $— $— $204,644 
3-4 Pass491,504 850,978 1,067,109 577,906 238,499 187,959 113,987 528 3,528,470 
5 Special mention12,307 4,207 42,455 1,554 — — 861 — 61,384 
6-8 Classified— — 2,862 — — 4,950 118 837 8,767 
Total$562,525 $911,011 $1,141,257 $612,477 $257,490 $202,174 $114,966 $1,365 $3,803,265 
Current YTD period:
Gross charge-offs$— $— $— $— $— $51 $— $457 $508 
Gross recoveries— — — — — (327)(1)— (328)
Net $— $— $— $— $— $(276)$(1)$457 $180 
Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass66,114 369,588 357,295 118,586 36,027 11,778 7,583 — 966,971 
5 Special mention— — 40,396 67,196 — — — — 107,592 
6-8 Classified— — — — 42,243 315 — — 42,558 
Total$66,114 $369,588 $397,691 $185,782 $78,270 $12,093 $7,583 $— $1,117,121 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $— $— 
Gross recoveries— — — — — — — — — 
Net $— $— $— $— $— $— $— $— $— 
25



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202020202019201820172016PriorLoansLoansTotal
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass$— $— $— $— $— $— $— $— $— 
3-4 Pass345,134 670,894 849,819 285,072 28,725 688 9,034 53,035 2,242,401 
5 Special mention759 — — — — — — — 759 
6-8 Classified— — — — — — — — — 
Total$345,893 $670,894 $849,819 $285,072 $28,725 $688 $9,034 $53,035 $2,243,160 
Current YTD period:
Gross charge-offs$— $— $— $— $— $— $— $— $— 
Gross recoveries— — — — — (21)— — (21)
Net $— $— $— $— $— $(21)$— $— $(21)
Commercial: Asset-Based
Internal risk rating:
1-2 High pass$116,247 $173,457 $111,630 $69,244 $121,838 $88,201 $275,093 $72,017 $1,027,727 
3-4 Pass155,221 84,798 85,539 42,928 8,227 46,663 1,750,934 46,078 2,220,388 
5 Special mention— 59,822 41,789 9,022 14,274 482 23,257 4,655 153,301 
6-8 Classified— — — — 19,417 551 8,799 (900)27,867 
Total$271,468 $318,077 $238,958 $121,194 $163,756 $135,897 $2,058,083 $121,850 $3,429,283 
Current YTD period:
Gross charge-offs$— $— $— $— $— $11,817 $— $— $11,817 
Gross recoveries(52)— — — — (420)(236)— (708)
Net $(52)$— $— $— $— $11,397 $(236)$— $11,109 
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$1,999 $4,797 $— $(4)$(4)$52 $167,296 $— $174,136 
3-4 Pass48,132 103,437 37,818 7,789 29,738 5,494 1,161,606 5,725 1,399,739 
5 Special mention21,645 42,499 2,202 — — — 46,765 5,014 118,125 
6-8 Classified— (1,710)4,000 — — 3,690 528 — 6,508 
Total$71,776 $149,023 $44,020 $7,785 $29,734 $9,236 $1,376,195 $10,739 $1,698,508 
Current YTD period:
Gross charge-offs$— $— $6,533 $— $(8)$150 $144 $— $6,819 
Gross recoveries— — (478)(176)(154)(3)(450)— (1,261)
Net $— $— $6,055 $(176)$(162)$147 $(306)$— $5,558 

26



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination YearRevolvingto Term
December 31, 202020202019201820172016PriorLoansLoansTotal
(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass$1,057,405 $380 $$366 $69 $1,350 $74,206 $80 $1,133,860 
3-4 Pass88,875 95,110 99,434 77,557 23,305 89,865 657,088 7,533 1,138,767 
5 Special mention— 40 2,145 564 484 10,440 335 922 14,930 
6-8 Classified564 80 230 755 3,813 75,046 7,067 87,557 
Total$1,146,282 $96,094 $101,663 $78,717 $24,613 $105,468 $806,675 $15,602 $2,375,114 
Current YTD period:
Gross charge-offs$— $— $— $506 $239 $33,521 $27,332 $1,871 $63,469 
Gross recoveries— (18)(8)(34)(226)(3,155)(100)(19)(3,560)
Net $— $(18)$(8)$472 $13 $30,366 $27,232 $1,852 $59,909 
Consumer
Internal risk rating:
1-2 High pass$15 $— $$14 $— $— $509 $— $546 
3-4 Pass40,585 110,993 62,833 39,036 41,623 12,831 8,536 78 316,515 
5 Special mention45 137 1,628 261 422 239 — — 2,732 
6-8 Classified— 35 — 36 56 306 27 462 
Total$40,645 $111,165 $64,469 $39,347 $42,101 $13,376 $9,047 $105 $320,255 
Current YTD period:
Gross charge-offs$— $97 $86 $177 $363 $44 $22 $$798 
Gross recoveries— — (1)(10)(16)(174)— — (201)
Net $— $97 $85 $167 $347 $(130)$22 $$597 
Total Loans and Leases
Internal risk rating:
1-2 High pass$1,234,380 $262,764 $145,321 $115,821 $153,135 $140,090 $517,104 $72,097 $2,640,712 
3-4 Pass1,789,708 2,699,583 3,134,344 1,874,377 811,511 1,248,286 3,771,354 126,955 15,456,118 
5 Special mention37,378 185,189 230,012 93,222 25,147 68,528 71,218 10,591 721,285 
6-8 Classified506 144 14,431 8,135 79,268 71,254 84,493 7,031 265,262 
Total$3,061,972 $3,147,680 $3,524,108 $2,091,555 $1,069,061 $1,528,158 $4,444,169 $216,674 $19,083,377 
Current YTD period:
Gross charge-offs$— $97 $6,773 $4,013 $594 $52,277 $27,498 $2,337 $93,589 
Gross recoveries(52)(18)(487)(229)(396)(4,380)(787)(19)(6,368)
Net $(52)$79 $6,286 $3,784 $198 $47,897 $26,711 $2,318 $87,221 
______________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
27



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 June 30,
 20212020
Pre-Post-Pre-Post-
ModificationModificationModificationModification
NumberOutstandingOutstandingNumberOutstandingOutstanding
of RecordedRecordedof RecordedRecorded
Troubled Debt RestructuringsLoansInvestmentInvestmentLoansInvestmentInvestment
 (Dollars in thousands)
Real estate mortgage:
Commercial$— $— $3,745 $3,745 
Income producing and other residential— — — 787 787 
Real estate construction and land:
Residential208 208 — — — 
Commercial:
Asset-based — — — 1,234 1,234 
Venture capital2,408 2,408 — — — 
Other commercial25 16,358 16,358 19 18,840 15,726 
Consumer— — — 212 212 
Total 28 $18,974 $18,974 40 $24,818 $21,704 
Six Months Ended June 30,
 20212020
Pre-Post-Pre-Post-
ModificationModificationModificationModification
NumberOutstandingOutstandingNumberOutstandingOutstanding
of RecordedRecordedof RecordedRecorded
Troubled Debt RestructuringsLoansInvestmentInvestmentLoansInvestmentInvestment
 (Dollars in thousands)
Real estate mortgage:
Commercial$647 $— $3,745 $3,745 
Income producing and other residential266 266 787 787 
Real estate construction and land:
Residential208 208 — — — 
Commercial:
Asset-based 503 503 1,741 1,741 
Venture capital4,502 2,529 2,047 2,047 
Other commercial35 48,608 30,634 30 23,219 21,444 
Consumer20 20 212 212 
Total 45 $54,754 $34,160 55 $31,751 $29,976 



28



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

During the three and six months ended June 30, 2021, there were two other commercial loans totaling $134,000 restructured in the preceding 12-month period that subsequently defaulted. During the three months ended June 30, 2020, there was one $2.0 million venture capital loan restructured in the preceding 12-month period that subsequently defaulted. During the six months ended June 30, 2020, there was one $2.0 million venture capital loan and one $7,000 other commercial loan restructured in the preceding 12-month period that subsequently defaulted.
Leases Receivable
We provide equipment financing to our customers primarily with operating and direct financing leases. For direct financing leases, lease receivables are recorded on the balance sheet but the leased equipment is not, although we generally retain legal title to the leased equipment until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Direct financing leases are subject to our accounting for allowance for loan and lease losses. See Note 9. 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 EndedSix Months Ended
June 30,June 30,
2021202020212020
(In thousands)
Component of leases receivable income:
Interest income on net investments in leases$2,278 $2,103 $4,358 $4,355 
The following table presents the components of leases receivable as of the dates indicated:
June 30, 2021December 31, 2020
(In thousands)
Net investment in direct financing leases:
Lease payments receivable$173,058 $158,740 
Unguaranteed residual assets21,831 19,303 
Deferred costs and other1,285 996 
Aggregate net investment in leases$196,174 $179,039 
The following table presents maturities of leases receivable as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021$39,885 
202249,531 
202336,807 
202431,357 
202517,956 
Thereafter16,335 
Total undiscounted cash flows191,871 
Less: Unearned income(18,813)
Present value of lease payments$173,058 

29



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Allowance for Loan and Lease Losses
The following tables present a summary of the activity in the allowance for loan and lease losses on loans and leases held for investment by loan portfolio segment for the periods indicated:
Three Months Ended June 30, 2021
Real Estate
Real EstateConstruction
Mortgageand LandCommercialConsumerTotal
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $141,122 $66,775 $78,716 $5,832 $292,445 
Charge-offs(266)(75)(277)(198)(816)
Recoveries4,882 — 1,029 60 5,971 
Net (charge-offs) recoveries4,616 (75)752 (138)5,155 
Provision(38,725)(12,118)(21,771)614 (72,000)
Balance, end of period$107,013 $54,582 $57,697 $6,308 $225,600 
Six Months Ended June 30, 2021
Real Estate
Real EstateConstruction
Mortgageand LandCommercialConsumerTotal
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period$138,342 $78,356 $126,403 $5,080 $348,181 
Charge-offs(634)(775)(2,851)(544)(4,804)
Recoveries5,427 — 1,726 70 7,223 
Net (charge-offs) recoveries4,793 (775)(1,125)(474)2,419 
Provision (36,122)(22,999)(67,581)1,702 (125,000)
Balance, end of period$107,013 $54,582 $57,697 $6,308 $225,600 
Ending Allowance by
Evaluation Methodology:
Individually evaluated $203 $— $3,265 $— $3,468 
Collectively evaluated $106,810 $54,582 $54,432 $6,308 $222,132 
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated $41,145 $3,254 $46,400 $— $90,799 
Collectively evaluated 8,371,875 3,502,330 7,175,844 365,409 19,415,458 
Ending balance$8,413,020 $3,505,584 $7,222,244 $365,409 $19,506,257 


30



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended June 30, 2020
Real Estate
Real EstateConstruction
Mortgageand LandCommercialConsumerTotal
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $91,372 $40,173 $87,570 $2,177 $221,292 
Charge-offs(4,182)— (11,439)(165)(15,786)
Recoveries127 — 2,392 25 2,544 
Net charge-offs(4,055)— (9,047)(140)(13,242)
Provision43,407 29,940 19,424 229 93,000 
Balance, end of period$130,724 $70,113 $97,947 $2,266 $301,050 
Six Months Ended June 30, 2020
Real Estate
Real EstateConstruction
Mortgageand LandCommercialConsumerTotal
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $44,575 $30,544 $61,528 $2,138 $138,785 
Cumulative effect of change in accounting
principle - CECL5,308 (8,592)6,860 41 3,617 
Balance, January 1, 202049,883 21,952 68,388 2,179 142,402 
Charge-offs(4,682)— (30,671)(638)(35,991)
Recoveries251 — 3,347 41 3,639 
Net charge-offs(4,431)— (27,324)(597)(32,352)
Provision 85,272 48,161 56,883 684 191,000 
Balance, end of period$130,724 $70,113 $97,947 $2,266 $301,050 
Ending Allowance by
Evaluation Methodology:
Individually evaluated $211 $— $8,282 $— $8,493 
Collectively evaluated $130,513 $70,113 $89,665 $2,266 $292,557 
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated $68,240 $1,799 $105,661 $— $175,700 
Collectively evaluated 7,887,494 3,338,729 7,881,389 411,319 19,518,931 
Ending balance$7,955,734 $3,340,528 $7,987,050 $411,319 $19,694,631 
The allowance for loan and lease losses decreased by $66.8 million in the second quarter of 2021 to $225.6 million due primarily to a provision for loan and lease losses benefit of $72.0 million driven by improvement in both key macro-economic variables and loan portfolio credit quality metrics along with decreased provisions for individually evaluated loans and leases.
We actively participated in both rounds of the Paycheck Protection Program ("PPP") under the provisions of the CARES Act during 2020 and 2021. As of June 30, 2021, PPP loans had an outstanding balance of approximately $624.8 million. The loans are fully guaranteed by the SBA, and do not carry an allowance.
31



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

A loan is considered collateral-dependent, and is individually evaluated for reserve purposes, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent loans held for investment by collateral type as of the following dates:
June 30, 2021December 31, 2020
RealBusiness RealBusiness
PropertyAssetsTotalPropertyAssetsTotal
(In thousands)
Real estate mortgage$35,146 $— $35,146 $43,656 $— $43,656 
Real estate construction and land3,254 — 3,254 1,766 — 1,766 
Commercial— 4,100 4,100 — 31,100 31,100 
     Total$38,400 $4,100 $42,500 $45,422 $31,100 $76,522 
Allowance for Credit Losses
The allowance for credit losses is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets.
The following tables present a summary of the activity in the allowance for loan and lease losses and reserve for unfunded loan commitments for the periods indicated:
Three Months Ended
June 30, 2021
Allowance forReserve forTotal
Loan andUnfunded LoanAllowance for
Lease LossesCommitmentsCredit Losses
(In thousands)
Balance, beginning of period$292,445 $90,571 $383,016 
Charge-offs(816)— (816)
Recoveries5,971 — 5,971 
Net recoveries5,155 — 5,155 
Provision(72,000)(16,000)(88,000)
Balance, end of period$225,600 $74,571 $300,171 
Six Months Ended
June 30, 2021
Allowance for Reserve forTotal
Loan and Unfunded LoanAllowance for
Lease LossesCommitmentsCredit Losses
(In thousands)
Balance, beginning of period $348,181 $85,571 $433,752 
Charge-offs(4,804)— (4,804)
Recoveries7,223 — 7,223 
Net recoveries2,419 — 2,419 
Provision(125,000)(11,000)(136,000)
Balance, end of period$225,600 $74,571 $300,171 

32



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Three Months Ended
June 30, 2020
Allowance forReserve forTotal
Loan andUnfunded LoanAllowance for
Lease LossesCommitmentsCredit Losses
(In thousands)
Balance, beginning of period$221,292 $53,571 $274,863 
Charge-offs(15,786)— (15,786)
Recoveries2,544 — 2,544 
Net charge-offs(13,242)— (13,242)
Provision93,000 27,000 120,000 
Balance, end of period$301,050 $80,571 $381,621 
Six Months Ended
June 30, 2020
Allowance for Reserve forTotal
Loan and Unfunded LoanAllowance for
Lease LossesCommitmentsCredit Losses
(In thousands)
Balance, beginning of period$138,785 $35,861 $174,646 
Cumulative effect of change in accounting
principle - CECL3,617 3,710 7,327 
Balance, January 1, 2020142,402 39,571 181,973 
Charge-offs(35,991)— (35,991)
Recoveries3,639 — 3,639 
Net charge-offs(32,352)— (32,352)
Provision 191,000 41,000 232,000 
Balance, end of period$301,050 $80,571 $381,621 
33



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6.  FORECLOSED ASSETS, NET
The following table summarizes foreclosed assets, net of the valuation allowance, as of the dates indicated:
June 30,
December 31,
Property Type20212020
(In thousands)
Commercial real estate$12,594 $12,979 
Construction and land development219 219 
Total other real estate owned, net12,813 13,198 
Other foreclosed assets414 829 
Total foreclosed assets, net$13,227 $14,027 
The following table presents the changes in foreclosed assets, net of the valuation allowance, for the period indicated:
Foreclosed
Assets
(In thousands)
Balance, December 31, 2020$14,027 
Transfers to foreclosed assets from loans647 
Provision for losses(14)
Reductions related to sales(1,433)
Balance, June 30, 2021$13,227 
NOTE 7.  GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment annually unless a triggering event occurs thereby requiring an updated assessment. Our regular annual impairment assessment occurs in the fourth quarter. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds its fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the condensed consolidated statements of earnings (loss).
The 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 acquisition125,448 
Balance, June 30, 2021$1,204,118 
34



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Our other intangible assets with definite lives are CDI and CRI. CDI and CRI are amortized over their respective estimated useful lives and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or customer relationships acquired.
The following table presents the estimated aggregate future amortization expense for our current intangible assets as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021$5,252 
20227,672 
20233,788 
20241,711 
Net CDI and CRI$18,423 
The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:
 Three Months EndedSix Months Ended
June 30,June 30,
 2021202020212020
 (In thousands)
Gross Amount of CDI and CRI:    
Balance, beginning of period$100,550 $117,573 $109,646 $117,573 
Addition from Civic acquisition— — 750 — 
Fully amortized portion— (7,927)(9,846)(7,927)
Balance, end of period100,550 109,646 100,550 109,646 
Accumulated Amortization:
Balance, beginning of period(79,238)(83,127)(86,005)(79,179)
Amortization expense(2,889)(3,882)(5,968)(7,830)
Fully amortized portion— 7,927 9,846 7,927 
Balance, end of period(82,127)(79,082)(82,127)(79,082)
Net CDI and CRI, end of period$18,423 $30,564 $18,423 $30,564 
35



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 8.  OTHER ASSETS
The following table presents the detail of our other assets as of the dates indicated:
June 30,
December 31,
Other Assets20212020
(In thousands)
LIHTC investments $251,570 $213,034 
Cash surrender value of BOLI204,146 203,031 
Operating lease ROU assets, net (1)
120,595 119,787 
Interest receivable103,758 101,596 
SBIC investments 36,816 32,327 
Equity investments without readily determinable fair values35,321 34,304 
Taxes receivable27,900 59,565 
Prepaid expenses25,409 22,999 
Equity investments with readily determinable fair values 13,063 6,147 
Equity warrants (2)
4,391 4,520 
Other receivables/assets101,528 63,016 
Total other assets$924,497 $860,326 
____________________
(1)    See Note 9. Leases for further details regarding the operating lease ROU assets.
(2)    See Note 11. Derivatives for information regarding equity warrants.
NOTE 9. LEASES
Operating Leases as a Lessee
Our lease expense is a component of "Occupancy expense" on our condensed consolidated statements of earnings (loss). The following table presents the components of lease expense for the periods indicated:
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
(In thousands)
Operating lease expense:
Fixed costs$8,776 $8,832 $17,272 $17,077 
Variable costs12 24 25 
Short-term lease costs429 102 685 194 
Sublease income(1,084)(1,003)(2,183)(2,019)
Net lease expense$8,130 $7,943 $15,798 $15,277 
The following table presents supplemental cash flow information related to leases for the periods indicated:
Six Months Ended
June 30,
20212020
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$18,450 $16,519 
ROU assets obtained in exchange for lease obligations:
Operating leases$16,649 $14,542 
36



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,
20212020
(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net$120,595 $119,787 
Operating lease liabilities$139,435 $139,501 
Weighted average remaining lease term (in years)5.85.8
Weighted average discount rate2.38 %2.54 %
The following table presents the maturities of operating lease liabilities as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021$17,733 
202232,298 
202329,411 
202422,099 
202515,293 
Thereafter33,447 
Total operating lease liabilities150,281 
Less: Imputed interest(10,846)
Present value of operating lease liabilities$139,435 
Operating Leases as a Lessor
We provide equipment financing to our customers through operating leases where we facilitate the purchase of equipment leased to our customers. The equipment is shown on the condensed consolidated balance sheets as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the condensed consolidated statements of earnings (loss), according to our fixed asset accounting policy. We receive periodic rental income payments under the leases, which are recorded as "Noninterest Income" in the condensed consolidated statements of earnings (loss). The equipment is tested periodically for impairment. No impairment was recorded on "Equipment leased to others under operating leases" in the three or six months ended June 30, 2021 and 2020.
The following table presents the rental payments to be received on operating leases as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021$20,687 
202241,447 
202332,252 
202426,567 
202519,197 
Thereafter42,492 
Total undiscounted cash flows$182,642 
37



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 10.  BORROWINGS AND SUBORDINATED DEBT
Borrowings
The following table summarizes our borrowings as of the dates indicated:
June 30, 2021December 31, 2020
WeightedWeighted
AverageAverage
BalanceRateBalanceRate
(Dollars in thousands)
FHLB secured advances$— — %$5,000 — %
Other borrowings6,625 6.50 %— — %
Total borrowings$6,625 6.50 %$5,000 — %
The other borrowings were assumed in connection with the Civic acquisition and have a weighted average remaining term of 3.1 months.
The Bank has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, the FRBSF, and other financial institutions.
FHLB Secured Line of Credit. The Bank had secured financing capacity with the FHLB as of June 30, 2021 of $3.3 billion, collateralized by a blanket lien on $5.5 billion of qualifying loans.
The following table presents the interest rates and maturity dates of FHLB secured advances as of the dates indicated:
June 30, 2021December 31, 2020
MaturityMaturity
BalanceRateDateBalanceRateDate
(Dollars in thousands)
FHLB term advance$— — %$5,000 — %5/6/2021
Other borrowing6,625 6.50 %10/1/2021— — %
Total $6,625 6.50 %$5,000 — %
FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of June 30, 2021, the Bank had secured borrowing capacity of $1.4 billion collateralized by liens covering $1.9 billion of qualifying loans. As of June 30, 2021 and December 31, 2020, 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 outstanding at June 30, 2021 and December 31, 2020.
Federal Funds Arrangements with Commercial Banks. As of June 30, 2021, the Bank had unsecured lines of credit of $180.0 million in the aggregate with several correspondent banks for the purchase of overnight funds, subject to availability of funds. These lines are renewable annually and have no unused commitment fees. As of June 30, 2021 and December 31, 2020, 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 June 30, 2021 and December 31, 2020, there were no borrowings outstanding.
38



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Subordinated Debt
The following table summarizes the terms of each issuance of subordinated debt outstanding as of the dates indicated:
June 30, 2021December 31, 2020DateMaturityRate Index
SeriesBalance
Rate (1)
Balance
Rate (1)
IssuedDate(Quarterly Reset)
(Dollars in thousands)
Subordinated notes, net (2)
$394,390 3.25 %$— — %4/30/20215/1/2031
Fixed rate (3)
Trust V10,310 3.22 %10,310 3.33 %8/15/20039/17/2033
3-month LIBOR + 3.10
Trust VI10,310 3.17 %10,310 3.27 %9/3/20039/15/2033
3-month LIBOR + 3.05
Trust CII5,155 3.07 %5,155 3.18 %9/17/20039/17/2033
3-month LIBOR + 2.95
Trust VII61,856 2.94 %61,856 2.96 %2/5/20044/23/2034
3-month LIBOR + 2.75
Trust CIII20,619 1.81 %20,619 1.91 %8/15/20059/15/2035
3-month LIBOR + 1.69
Trust FCCI16,495 1.72 %16,495 1.82 %1/25/20073/15/2037
3-month LIBOR + 1.60
Trust FCBI10,310 1.67 %10,310 1.77 %9/30/200512/15/2035
3-month LIBOR + 1.55
Trust CS 2005-182,475 2.07 %82,475 2.17 %11/21/200512/15/2035
3-month LIBOR + 1.95
Trust CS 2005-2128,866 2.14 %128,866 2.16 %12/14/20051/30/2036
3-month LIBOR + 1.95
Trust CS 2006-151,545 2.14 %51,545 2.16 %2/22/20064/30/2036
3-month LIBOR + 1.95
Trust CS 2006-251,550 2.14 %51,550 2.16 %9/27/200610/30/2036
3-month LIBOR + 1.95
Trust CS 2006-3 (4)
30,564 1.52 %31,487 1.54 %9/29/200610/30/2036
3-month EURIBOR + 2.05
Trust CS 2006-4 16,470 2.14 %16,470 2.16 %12/5/20061/30/2037
3-month LIBOR + 1.95
Trust CS 2006-5 6,650 2.14 %6,650 2.16 %12/19/20061/30/2037
3-month LIBOR + 1.95
Trust CS 2007-239,177 2.14 %39,177 2.16 %6/13/20077/30/2037
3-month LIBOR + 1.95
Total subordinated debt936,742 2.65 %543,275 2.24 %
Acquisition discount (5)
(74,954)(77,463)
Net subordinated debt$861,788 $465,812 
___________________
(1)    Rates do not include the effects of discounts and issuance costs.
(2)    Net of issuance costs of $5.6 million.
(3)    Interest rate is fixed until May 1, 2026, when it changes to a floating rate and resets quarterly at a benchmark rate plus 252 basis points.
(4)    Denomination is in Euros with a value of €25.8 million.
(5)    Amount represents the fair value adjustment on trust preferred securities assumed in acquisitions.

Subordinated Notes Offering
On April 30, 2021, the Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due May 1, 2031 (the “Maturity Date”). Subject to any redemption prior to the Maturity Date, the Notes will bear interest from and including the original issue date to, but excluding, May 1, 2026 (the “Reset Date”), at a 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.
39



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 11.  DERIVATIVES
The following table presents the U.S. dollar notional amounts and fair values of our derivative instruments included in the condensed consolidated balance sheets as of the dates indicated:
June 30, 2021December 31, 2020
NotionalFairNotionalFair
Derivatives Not Designated As Hedging InstrumentsAmountValueAmountValue
(In thousands)
Derivative Assets:
Interest rate contracts$88,381 $916 $59,867 $1,028 
Foreign exchange contracts28,463 2,411 73,108 3,202 
Interest rate and economic contracts116,844 3,327 132,975 4,230 
Equity warrant assets22,345 4,391 24,081 4,520 
Total$139,189 $7,718 $157,056 $8,750 
Derivative Liabilities:
Interest rate contracts$88,381 $844 $59,867 $1,004 
Foreign exchange contracts28,463 — 73,108 146 
Total$116,844 $844 $132,975 $1,150 
For further information regarding our derivatives, see Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data" of the Form 10-K.
NOTE 12.  COMMITMENTS AND CONTINGENCIES
The following table presents a summary of commitments described below as of the dates indicated:
June 30,
December 31,
20212020
(In thousands)
Loan commitments to extend credit$7,891,875 $7,601,390 
Standby letters of credit343,719 337,336 
Commitments to contribute capital to SBICs
and CRA-related loan pools55,906 55,499 
Total$8,291,500 $7,994,225 
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement that the Company has in particular classes of financial instruments.
Commitments to extend credit are contractual agreements to lend to our customers when customers are in compliance with their contractual credit agreements and when customers have contractual availability to borrow under such agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The estimated exposure to loss from these commitments is included in the reserve for unfunded loan commitments, which amounted to $74.6 million at June 30, 2021 and $85.6 million at December 31, 2020.
40



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. Most guarantees expire within one year from the date of issuance. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation but would seek repayment of that financial obligation from the borrower. In some cases, borrowers have pledged cash and investment securities as collateral under these arrangements.
In addition, we invest in SBICs that call for capital contributions up to an amount specified in the partnership agreements, and in CRA-related loan pools. As of June 30, 2021 and December 31, 2020, we had commitments to contribute capital to these entities totaling $55.9 million and $55.5 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 and CRA-related loan pools as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021$27,953 
202227,953 
Total $55,906 
Legal Matters
In the ordinary course of our business, the Company is party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon currently available information, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations. The range of any reasonably possible liabilities is also not significant.
41



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13.  FAIR VALUE MEASUREMENTS
The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and leases and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets.
For information regarding the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03), see Note 1. Nature of Operations and Summary of Significant Accounting Policies, and Note 13. Fair Value Measurements, to the Consolidated Financial Statements of the Company's Form 10-K.
The Company also holds SBIC investments measured at fair value using the NAV per share practical expedient that are not required to be classified in the fair value hierarchy. At June 30, 2021, the fair value of these investments was $36.8 million.
The following tables present information on the assets and liabilities measured and recorded at fair value on a recurring basis as of the dates indicated:
Fair Value Measurements as of
June 30, 2021
Measured on a Recurring BasisTotalLevel 1Level 2Level 3
(In thousands)
Securities available-for-sale:
Municipal securities$1,817,499 $— $1,817,499 $— 
Agency commercial MBS1,257,628 — 1,257,628 — 
Agency residential CMOs1,142,398 — 1,142,398 — 
U.S. Treasury securities877,153 877,153 — — 
Agency residential MBS552,411 — 552,411 — 
Corporate debt securities508,708 — 508,708 — 
Collateralized loan obligations382,043 — 382,043 — 
Private label commercial MBS378,235 — 356,392 21,843 
Asset-backed securities149,583 — 149,583 — 
Private label residential CMOs96,922 — 92,778 4,144 
SBA securities36,028 — 36,028 — 
Total securities available-for-sale$7,198,608 $877,153 $6,295,468 $25,987 
Equity investments with readily determinable fair values$13,063 $13,063 $— $— 
Derivatives (1):
Equity warrants 4,391 — — 4,391 
Interest rate and economic contracts3,327 — 3,327 — 
Derivative liabilities 844 — 844 — 
42



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value Measurements as of
December 31, 2020
Measured on a Recurring BasisTotalLevel 1Level 2Level 3
(In thousands)
Securities available-for-sale:
Municipal securities$1,531,617 $— $1,531,617 $— 
Agency commercial MBS1,281,877 — 1,281,877 — 
Agency residential CMOs1,219,880 — 1,219,880 — 
Agency residential MBS341,074 — 341,074 — 
Corporate debt securities311,889 — 311,889 — 
Asset-backed securities166,546 — 166,546 — 
Collateralized loan obligations135,876 — 135,876 — 
Private label residential CMOs116,946 — 112,299 4,647 
Private label commercial MBS82,957 — 57,232 25,725 
SBA securities41,627 — 41,627 — 
U.S. Treasury securities5,302 5,302 — — 
Total securities available-for-sale$5,235,591 $5,302 $5,199,917 $30,372 
Equity investments with readily determinable fair values$6,147 $6,147 $— $— 
Derivatives (1):
Equity warrants 4,520 — — 4,520 
Interest rate and economic contracts4,230 — 4,230 — 
Derivative liabilities 1,150 — 1,150 — 
____________________
(1)    For information regarding derivative instruments, see Note 11. Derivatives.
During the six months ended June 30, 2021, there was a $131,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis.
The following table presents information about quantitative inputs and assumptions used to determine the fair values provided by our third party pricing service for our Level 3 private label residential CMOs and private label commercial MBS available-for-sale measured at fair value on a recurring basis as of the date indicated:
June 30, 2021
Private Label Residential CMOsPrivate Label Commercial MBS
Weighted
Input or
Weighted
Range
Average
Range
Average
Unobservable Inputsof Inputs
Input (1)
of Inputs
Input (2)
Voluntary annual prepayment speeds
4.3% - 20.6%
11.8%
10.0% - 15.0%
12.2%
Annual default rates (3)
0.9% - 10.3%
2.3%2.0%2.0%
Loss severity rates (3)
22.7% - 122.5%
55.1%60.0%60.0%
Discount rates
1.6% - 10.4%
6.9%
2.6% - 3.8%
2.8%
____________________
(1)    Unobservable inputs for private label residential CMOs were weighted by the relative fair values of the instruments.
(2)    Voluntary annual prepayment speeds and discount rates for 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.
43



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents information about quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:
June 30, 2021
Equity Warrants
Weighted
RangeAverage
Unobservable Inputsof Inputs
Input (1)
Volatility
18.4% - 166.3%
30.1%
Risk-free interest rate
0.1% - 0.9%
0.4%
Remaining life assumption (in years)
0.08 - 4.99
2.90
____________________
(1)    Unobservable inputs for equity warrants were weighted by the relative fair values of the instruments.
The following table summarizes activity for our Level 3 private label residential CMOs available-for-sale, private label commercial MBS available-for-sale, and equity warrants measured at fair value on a recurring basis for the period indicated:
Private LabelPrivate LabelEquity
Residential CMOsCommercial MBSWarrants
(In thousands)
Balance, December 31, 2020$4,647 $25,725 $4,520 
Total included in earnings166 (42)11,773 
Total included in other comprehensive income(155)28 — 
Issuances— — 173 
Sales
— — (11,944)
Net settlements(514)(3,868)— 
Transfers to Level 1 (equity investments with readily
determinable fair values)— — (131)
Balance, June 30, 2021$4,144 $21,843 $4,391 
Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end$939 $183 
The following tables present assets measured at fair value on a non-recurring basis as of the dates indicated:
Fair Value Measurement as of
June 30, 2021
Measured on a Non-Recurring BasisTotalLevel 1Level 2Level 3
(In thousands)
Individually evaluated loans and leases (1)
$39,538 $— $— $39,538 
Total non-recurring$39,538 $— $— $39,538 
______________________
(1)    Includes nonaccrual loans and leases and performing TDRs with balances greater than $250,000.






44



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Fair Value Measurement as of
December 31, 2020
Measured on a Non-Recurring BasisTotalLevel 1Level 2Level 3
(In thousands)
Individually evaluated loans and leases (1)
$102,274 $— $4,160 $98,114 
Total non-recurring$102,274 $— $4,160 $98,114 
_____________________
(1)    Includes nonaccrual loans and leases and performing TDRs with balances greater than $250,000.
The following table presents losses recognized on assets measured on a nonrecurring basis for the periods indicated:
Three Months EndedSix Months Ended
Losses on Assets June 30,June 30,
Measured on a Non-Recurring Basis2021202020212020
(In thousands)
Individually evaluated loans and leases$1,951 $9,483 $2,653 $29,317 
OREO— 14 110 
Total losses$1,951 $9,488 $2,667 $29,427 
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:
June 30, 2021
ValuationUnobservableInput or
Weighted
Asset
Fair Value
TechniqueInputsRange
Average
(In thousands)
Individually evaluated
loans and leases$33,413Discounted cash flowsDiscount rates
3.75% - 7.75%
6.20%
Individually evaluated
loans and leases6,125Third party appraisalsNo discounts
Total non-recurring Level 3$39,538






45



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:
June 30, 2021
Carrying
Estimated Fair Value
AmountTotalLevel 1Level 2Level 3
(In thousands)
Financial Assets:
Cash and due from banks$179,505 $179,505 $179,505 $— $— 
Interest-earning deposits in financial institutions5,678,587 5,678,587 5,678,587 — — 
Securities available-for-sale7,198,608 7,198,608 877,153 6,295,468 25,987 
Investment in FHLB stock17,250 17,250 — 17,250 — 
Loans and leases held for investment, net19,280,657 19,844,500 — — 19,844,500 
Equity warrants4,391 4,391 — — 4,391 
Interest rate and economic contracts3,327 3,327 — 3,327 — 
Equity investments with readily determinable fair values13,063 13,063 13,063 — — 
Servicing rights2,628 2,628 — — 2,628 
Financial Liabilities:
Core deposits27,038,161 27,038,161 — 27,038,161 — 
Non-core non-maturity deposits1,122,971 1,122,971 — 1,122,971 — 
Time deposits1,485,902 1,487,302 — 1,487,302 — 
Borrowings6,625 6,734 — 6,734 — 
Subordinated debt861,788 916,612 — 916,612 — 
Derivative liabilities844 844 — 844 — 

December 31, 2020
Carrying
Estimated Fair Value
AmountTotalLevel 1Level 2Level 3
(In thousands)
Financial Assets:
Cash and due from banks$150,464 $150,464 $150,464 $— $— 
Interest-earning deposits in financial institutions3,010,197 3,010,197 3,010,197 — — 
Securities available-for-sale5,235,591 5,235,591 5,302 5,199,917 30,372 
Investment in FHLB stock17,250 17,250 — 17,250 — 
Loans and leases held for investment, net18,735,196 19,305,998 — 4,160 19,301,838 
Equity warrants4,520 4,520 — — 4,520 
Interest rate and economic contracts4,230 4,230 — 4,230 — 
Equity investments with readily determinable fair values6,147 6,147 6,147 — — 
Financial Liabilities:
Core deposits22,264,480 22,264,480 — 22,264,480 — 
Non-core non-maturity deposits1,149,467 1,149,467 — 1,149,467 — 
Time deposits1,526,770 1,527,639 — 1,527,639 — 
Borrowings5,000 4,995 — 4,995 — 
Subordinated debt465,812 448,036 — 448,036 — 
Derivative liabilities1,150 1,150 — 1,150 — 
46



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Limitations
Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of June 30, 2021, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.
NOTE 14.  EARNINGS (LOSS) PER SHARE
The following table presents the computations of basic and diluted net earnings (loss) per share for the periods indicated:
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
(Dollars in thousands, except per share data)
Basic Earnings (Loss) Per Share:
Net earnings (loss) $180,512 $33,204 $330,918 $(1,399,907)
Less: Earnings allocated to unvested restricted stock(1)
(3,172)(362)(5,495)(1,251)
Net earnings (loss) allocated to common shares$177,340 $32,842 $325,423 $(1,401,158)
Weighted-average basic shares and unvested restricted
stock outstanding119,386 118,192 119,121 118,484 
Less: Weighted-average unvested restricted stock
outstanding(2,356)(1,606)(2,181)(1,551)
Weighted-average basic shares outstanding117,030 116,586 116,940 116,933 
Basic earnings (loss) per share$1.52 $0.28 $2.78 $(11.98)
Diluted Earnings (Loss) Per Share:
Net earnings (loss) allocated to common shares$177,340 $32,842 $325,423 $(1,401,158)
Weighted-average diluted shares outstanding117,030 116,586 116,940 116,933 
Diluted earnings (loss) per share$1.52 $0.28 $2.78 $(11.98)
________________________
(1)    Represents cash dividends paid to holders of unvested restricted stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
47



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 15. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following table presents interest income and noninterest income, the components of total revenue, as disclosed in the condensed consolidated statements of earnings (loss) and the related amounts which are from contracts with customers within the scope of ASC Topic 606, "Revenue from Contracts with Customers," for the periods indicated. As illustrated here, substantially all of our revenue is specifically excluded from the scope of ASC Topic 606.
Three Months Ended June 30,
20212020
TotalRevenue fromTotalRevenue from
RecordedContracts withRecordedContracts with
RevenueCustomersRevenueCustomers
(In thousands)
Total interest income$280,505 $— $274,075 $— 
Noninterest income:
   Service charges on deposit accounts3,452 3,452 2,004 2,004 
   Other commissions and fees10,704 2,603 10,111 3,006 
   Leased equipment income10,847 — 12,037 — 
   Gain on sale of loans1,422 — 346 — 
   Gain on sale of securities— — 7,715 — 
   Other income13,946 394 6,645 336 
      Total noninterest income40,371 6,449 38,858 5,346 
Total revenue$320,876 $6,449 $312,933 $5,346 
The following table presents revenue from contracts with customers based on the timing of revenue recognition for the periods indicated:
Three Months Ended
June 30,
20212020
(In thousands)
Products and services transferred at a point in time$3,068 $2,727 
Products and services transferred over time3,381 2,619 
Total revenue from contracts with customers$6,449 $5,346 
48



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Six Months Ended June 30,
20212020
TotalRevenue fromTotalRevenue from
RecordedContracts withRecordedContracts with
RevenueCustomersRevenueCustomers
(In thousands)
Total interest income$553,842 $— $565,407 $— 
Noninterest income:
   Service charges on deposit accounts6,386 6,386 4,662 4,662 
   Other commissions and fees19,862 5,460 19,832 7,160 
   Leased equipment income22,201 — 24,288 — 
   Gain on sale of loans1,561 — 433 — 
   Gain on sale of securities101 — 7,897 — 
   Other income35,089 574 10,846 672 
      Total noninterest income85,200 12,420 67,958 12,494 
Total revenue$639,042 $12,420 $633,365 $12,494 
The following table presents revenue from contracts with customers based on the timing of revenue recognition for the periods indicated:
Six Months Ended
June 30,
20212020
(In thousands)
Products and services transferred at a point in time$6,065 $6,963 
Products and services transferred over time6,355 5,531 
Total revenue from contracts with customers$12,420 $12,494 
Contract Balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of the dates indicated:
June 30, 2021December 31, 2020
(In thousands)
Receivables, which are included in "Other assets"$1,296 $1,046 
Contract assets, which are included in "Other assets"$— $— 
Contract liabilities, which are included in "Accrued interest payable and other liabilities"$294 $359 
Contract liabilities relate to advance consideration received from customers for which revenue is recognized over the life of the contract. The change in contract liabilities for the six months ended June 30, 2021 due to revenue recognized that was included in the contract liability balance at the beginning of the period was $65,000.
49



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 16.  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. As of June 30, 2021, there were 3,054,299 shares available for grant under the Amended and Restated 2017 Plan.
Restricted Stock
Restricted stock amortization totaled $8.2 million and $5.7 million for the three months ended June 30, 2021 and 2020 and $14.6 million and $12.2 million for the six months ended June 30, 2021 and 2020. Such amounts are included in "Compensation expense" on the condensed consolidated statements of earnings (loss). The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of June 30, 2021 totaled $83.7 million.
Time-Based Restricted Stock Awards
At June 30, 2021, there were 2,341,548 shares of unvested TRSAs outstanding. RSAs generally vest ratably over a service period of three or four years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs is based on the fair value of the underlying award on the grant date and is recognized over the vesting period using the straight-line method.
Performance-Based Restricted Stock Units
At June 30, 2021, there were 512,863 units of unvested PRSUs that have been granted. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a three-year performance period. The shares underlying the PRSUs are not considered issued and outstanding until they vest. PRSUs are granted and initially expensed based on a target number. The number of shares that will ultimately vest based on actual performance will range from 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.
50



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 17.  RECENTLY ISSUED ACCOUNTING STANDARDS
EffectiveEffect on the Financial Statements
StandardDescriptionDateor Other Significant Matters
ASU 2020-04, "Reference Rate Reform (Topic 848)" and ASU 2021-01, “Reference Rate Reform (Topic 848): Scope)"
This Update provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other agreements affected by the anticipated transition away from LIBOR toward new interest reference rates. For agreements that are modified because of reference rate reform and that meet certain scope guidance: (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. Additionally, the amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. ASU 2020-04 is effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. ASU 2021-01 is also effective immediately. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021 and up to December 31, 2022.
Effective upon the issuance date of March 12, 2020, and once adopted, will apply to contract modifications made and hedging relationships entered into on or before December 31, 2022.
The Company has established a cross-functional project team and implementation plan to facilitate the LIBOR transition. As of June 30, 2021, the Company has completed its readiness efforts to identify loans and other financial instruments that are impacted by the discontinuance of LIBOR. We have also completed our review for fallback language contained in contracts for LIBOR-based loans and other financial instruments and have begun to execute a transition plan to amend those legacy contracts that do not have or have inadequate fallback language. With the impending phase-out of LIBOR, the Company has considered several viable alternative reference rates. Based on our current assessment, we will plan to offer SOFR as the primary alternative reference rate, but may consider alternate rates such as the American Interbank Offered Rate (“Ameribor”) and others based on customer demands and/or the type of loan or financial instrument. The Company will also continue to assess impacts to our operations, financial models, data and technology as part of our transition plan. The Company plans to adopt these Updates this year. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.


51



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 18.  SUBSEQUENT EVENTS
Common Stock Dividends
On August 2, 2021, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.25 per common share. The cash dividend is payable on August 31, 2021 to stockholders of record at the close of business on August 17, 2021.
The Company has evaluated events that have occurred subsequent to June 30, 2021 and have concluded there are no other subsequent events that would require recognition in the accompanying condensed consolidated financial statements.

52


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This Form 10-Q contains certain “forward-looking statements” about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, strategies, goals, and projections and including statements about our expectations regarding our operating expenses, profitability, allowance for loan and lease losses, net interest margin, net interest income, deposit growth, loan and lease portfolio growth and production, acquisitions, maintaining capital adequacy, liquidity, goodwill, and interest rate risk management. All statements contained in this Form 10-Q that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:
the COVID-19 pandemic 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 of COVID-19. Weaker than expected improvement in general business and economic conditions could adversely affect the Company’s revenues, the values of its assets and liabilities and continue to negatively impact loan growth;
our ability to complete pending and future acquisitions, and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;
our ability to compete effectively against other financial service providers in our markets;
the impact of changes in interest rates or levels of market activity, especially on the fair value of our loan and investment portfolios;
deterioration, weaker than expected improvement, or other changes in the state of the economy or the markets in which we conduct business (including the levels of IPOs and mergers and acquisitions), which may affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;
changes in credit quality and the effect of credit quality and the CECL accounting standard on our provision for credit losses and allowance for credit losses;
our ability to attract deposits and other sources of funding or liquidity;
our ability to efficiently deploy excess liquidity;
the need to retain capital for strategic or regulatory reasons;
compression of the net interest margin due to changes in the interest rate environment, forward yield curves, loan products offered, spreads on newly originated loans and leases, changes in our asset or liability mix, and/or changes to the cost of deposits and borrowings;
uncertainty regarding the future of LIBOR and the transition away from LIBOR toward new reference rates by the end of 2021;
reduced demand for our services due to strategic or regulatory reasons or reduced demand for our products due to legislative changes such as new rent control laws;
our ability to successfully execute on initiatives relating to enhancements of our technology infrastructure, including client-facing systems and applications;
legislative or regulatory requirements or changes, including an increase of capital requirements, and increased political and regulatory uncertainty;
the impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties;
higher than anticipated increases in operating expenses;
lower than expected dividends paid from the Bank to the holding company;
the amount and exact timing of any common stock repurchases will depend upon market conditions and other factors;
53


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
PacWest Bancorp, a Delaware corporation, is a bank holding company registered under the BHCA, with our corporate headquarters located in Beverly Hills, California. Our principal business is to serve as the holding company for our wholly-owned subsidiary, Pacific Western Bank. References to "Pacific Western" or the "Bank" refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to "we," "us," or the "Company" refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to "PacWest" or to the "holding company," we are referring to PacWest Bancorp, the parent company, on a stand-alone basis.
The Bank is focused on relationship-based business banking to small, middle-market, and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 70 full-service branches located in California, one branch located in Durham, North Carolina, one branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.
In managing the top line of our business, we focus on loan growth, loan yield, deposit cost, and net interest margin. Net interest income, on a year-to-date basis in 2021, accounted for 86.1% of net revenue (net interest income plus noninterest income).
At June 30, 2021, the Company had total assets of $34.9 billion, including $19.5 billion of total loans and leases, net of deferred fees, $7.2 billion of securities available-for-sale, and $5.7 billion of interest-earning deposits in financial institutions compared to $29.5 billion of total assets, including $19.1 billion of total loans and leases, net of deferred fees, $5.2 billion of securities available-for-sale, and $3.0 billion of interest-earning deposits in financial institutions at December 31, 2020. The $5.4 billion increase in total assets since year-end was due primarily to a $2.7 billion increase in interest-earning deposits in financial institutions, a $2.0 billion increase in securities available-for-sale, and a $422.9 million increase in loans and leases, net of deferred fees.
54


At June 30, 2021, the Company had total liabilities of $31.0 billion, including total deposits of $29.6 billion and subordinated debt of $861.8 million, compared to $25.9 billion of total liabilities, including $24.9 billion of total deposits and $465.8 million of subordinated debt at December 31, 2020. The $5.1 billion increase in total liabilities since year-end was due mainly to increases of $4.8 billion in core deposits and $396.0 million in subordinated debt. The increase in core deposits was due primarily to continued strong deposit growth from our venture banking clients. At June 30, 2021, core deposits totaled $27.0 billion, or 91% of total deposits, including $11.3 billion of noninterest-bearing demand deposits, or 38% of total deposits. The increase in subordinated debt was due to the $400 million of subordinated notes issued by the Bank on April 30, 2021. The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.
At June 30, 2021, the Company had total stockholders' equity of $3.8 billion compared to $3.6 billion at December 31, 2020. The $251.7 million increase in stockholders' equity since year-end was due mainly to $330.9 million in net earnings, offset partially by a $27.0 million decrease in accumulated other comprehensive income and $59.5 million of cash dividends paid. Consolidated capital ratios remained strong with Tier 1 capital and total capital ratios of 10.41% and 14.99% at June 30, 2021.
Recent Events
Acquisition of Civic
On February 1, 2021, the Bank completed the acquisition of Civic in an all-cash transaction. Civic, located in Redondo Beach, California, is one of the leading lenders in the United States specializing in residential non-owner-occupied investment properties. The acquisition of Civic advances the Bank’s strategy to diversify and expand its lending portfolio, diversify its revenue streams, and deploy excess liquidity into higher-yielding assets. Civic operates as a subsidiary of the Bank and at June 30, 2021 had $662.1 million of loans outstanding.
The Civic acquisition has been accounted for under the acquisition method of accounting which resulted in the recognition of goodwill of $125.4 million. All of the recognized goodwill is expected to be deductible for tax purposes. For further information, see Note 2. Acquisitions in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
Homeowners Association Services Division Acquisition Announcement
On April 1, 2021, PacWest announced that the Bank entered into a definitive agreement to acquire MUFG Union Bank, N.A.’s (“Union Bank”) Homeowners Association (“HOA”) Services Division. The Bank will acquire certain assets and assume certain liabilities related to the HOA Services Division for a premium of 5.9% on deposits plus the net book values of certain assumed assets and liabilities for aggregate cash consideration of approximately $250 million. The final amount of consideration to be paid will be based on balances at closing, which is expected to occur in the fourth quarter of 2021 subject to customary closing conditions. For further information, see Note 2. Acquisitions in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
Subordinated Notes Offering
On April 30, 2021, the Bank issued $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes (the “Notes”) due May 1, 2031 (the “Maturity Date”), if not previously redeemed. Subject to any redemption prior to the Maturity Date, the Notes will bear interest from and including the original issue date to, but excluding, May 1, 2026 (the “Reset Date”), at a fixed rate of 3.25% per annum and from and including the Reset Date to, but excluding the Maturity Date, the Notes will bear interest at a floating per annum rate equal to a benchmark rate (which is expected to be the Three-Month Term SOFR) plus 252 basis points. For further information, see Note 10. Borrowings and Subordinated Debt in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."



55


COVID-19 Pandemic - Impact to Our Business
From a business perspective, the impact in 2021 from the COVID-19 pandemic has decreased, however, new variants may continue to impact key macro-economic indicators such as unemployment and GDP and we will continue to closely monitor our loan portfolio. In the early stages of the COVID-19 pandemic, we experienced an increase in customers seeking loan modifications through payment deferrals and extension of terms. Most of the modifications were for payment deferrals for three months, while some deferrals were up to six months. Some loans were subsequently modified with deferrals of three to twelve months. As of June 30, 2021, there were 29 loans with a balance of $48.4 million on deferral. The Company did not apply a TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act.
We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act. As of June 30, 2021, PPP loans had an outstanding balance of approximately $624.8 million. In the second quarter of 2021, we originated approximately $31.0 million in PPP loans with a five-year term, while loans forgiven under the PPP program totaled approximately $505.5 million. The loans have origination fees that are recognized over the life of the loan with the fee recognition accelerated upon forgiveness or repayment of the loan. Fees recognized in the second quarter of 2021 were $8.8 million. As of June 30, 2021, the remaining unamortized fees, net of deferred costs, totaled $15.6 million. The PPP loans are fully guaranteed by the SBA and do not carry an allowance. Our participation in the PPP contributed to the increase in core deposits beginning in the second quarter of 2020 due to PPP loan proceeds being deposited into customers' accounts.
As the COVID-19 pandemic unfolded in March 2020, we immediately enhanced the monitoring of our loan and lease portfolio with particular emphasis on certain loan and lease portfolios that we expected to be most impacted by the COVID-19 pandemic, such as the hotel, retail, commercial aviation, restaurant, and oil services loan and lease portfolios. We continue to closely monitor all of our portfolios, although with the increase in oil prices, the credit risk in the oil services portfolio has diminished. The hotel portfolio as of June 30, 2021 is comprised of hotel CRE loans of $521.9 million, hotel construction loans of $482.9 million, and hotel SBA loans of $29.5 million. In July 2021, our single classified commercial aviation loan paid off.
The table below shows our exposure to these loan and lease portfolios, which includes equipment leased to others under operating leases, as of the date indicated:
June 30, 2021
% of
SpecialTotal Loans
Loan and Lease PortfolioClassifiedMentionPassTotaland Leases
(Dollars in thousands)
Hotel$16,678 $224,812 $792,773 $1,034,263 5.3 %
Retail CRE233 1,449 432,533 434,215 2.2 %
Commercial aviation19,248 77,236 89,410 185,894 1.0 %
Restaurant5,090 28,883 121,672 155,645 0.8 %
Total$41,249 $332,380 $1,436,388 $1,810,017 9.3 %
From a credit perspective, most of our credit metrics improved during the second quarter of 2021 as economic conditions and economic forecasts continued to improve. This improvement led to a provision for credit losses benefit of $88.0 million for the second quarter of 2021 compared to a provision for credit losses benefit of $48.0 million for the first quarter of 2021 compared to a provision for credit losses of $120.0 million for the second quarter of 2020. For further details on CECL and the impacts to our process, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.
56


Key Performance Indicators
Among other factors, our operating results generally depend on the following key performance indicators:
The Level of Net Interest Income
Net interest income is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities. Net interest margin is net interest income (annualized if related to a quarterly period) expressed as a percentage of average interest-earning assets. Tax equivalent net interest income is net interest income increased by an adjustment for tax-exempt interest on certain loans and investment securities based on a 21% federal statutory tax rate. Tax equivalent net interest margin is calculated as tax equivalent net interest income divided by average interest-earning assets.
Net interest income is affected by changes in both interest rates and the volume of average interest-earning assets and interest-bearing liabilities. Our primary interest-earning assets are loans and investment securities, and our primary interest-bearing liabilities are deposits and borrowings. Contributing to our high net interest margin is our high yield on loans and leases and competitive cost of deposits. While our deposit balances will fluctuate depending on deposit holders’ perceptions of alternative yields available in the market, we seek to minimize the impact of these variances by attracting a high percentage of noninterest-bearing deposits.
Loan and Lease Growth
We actively seek new lending opportunities under an array of lending products. Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, and a small amount of consumer lending. Our commercial real estate loans and real estate construction loans are secured by a range of property types. Our commercial loans and leases portfolio is diverse and generally includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies during the various phases of their early life cycles, and secured business loans.
Our loan origination process emphasizes credit quality. To augment our internal loan production, we have historically purchased multi-family loans from other banks and private student loans from third-party lenders. These loan purchases help us manage the concentrations in our portfolio as they diversify the geographic, interest-rate risk, credit risk, and product composition of our loan portfolio. Achieving net loan growth is subject to many factors, including maintaining strict credit standards, competition from other lenders, and borrowers that opt to prepay loans.
The Magnitude of Credit Losses
We emphasize credit quality in originating and monitoring our loans and leases, and we measure our success by the levels of our classified loans and leases, nonaccrual loans and leases, and net charge-offs. We maintain an allowance for credit losses on loans and leases, which is the sum of the allowance for loan and lease losses and the reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off-balance sheet credit exposures. Loans and leases that are deemed uncollectable are charged off and deducted from the allowance for loan and lease losses. Recoveries on loans and leases previously charged off are added to the allowance for loan and lease losses. The provision for credit losses on the loan and lease portfolio is based on our allowance methodology, which considers the impact of assumptions and is reflective of historical experience, economic forecasts viewed to be reasonable and supportable by management, the current loan and lease composition, and relative credit risks known as of the balance sheet date. For originated and acquired credit-deteriorated loans, a provision for credit losses may be recorded to reflect credit deterioration after the origination date or after the acquisition date, respectively.
We regularly review loans and leases to determine whether there has been any deterioration in credit quality resulting from borrower operations or changes in collateral value or other factors which may affect collectability of our loans and leases. Changes in economic conditions, such as the rate of economic growth, the unemployment rate, rate of inflation, increases in the general level of interest rates, declines in real estate values, changes in commodity prices, and adverse conditions in borrowers’ businesses, could negatively impact our borrowers and cause us to adversely classify loans and leases. An increase in classified loans and leases generally results in increased provisions for credit losses and an increased allowance for credit losses. Any deterioration in the commercial real estate market may lead to increased provisions for credit losses because our loans are concentrated in commercial real estate loans.

57


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 EndedSix Months Ended
June 30,March 31,June 30,June 30,
Efficiency Ratio20212021202020212020
(Dollars in thousands)
Noninterest expense$151,750 $150,136 $126,965 $301,886 $1,714,935 
Less:Intangible asset amortization2,889 3,079 3,882 5,968 7,830 
Foreclosed assets (income) expense, net(119)(146)(118)(80)
Goodwill impairment— — — — 1,470,000 
Acquisition, integration and reorganization costs200 3,425 — 3,625 — 
Noninterest expense used for efficiency ratio$148,780 $143,631 $123,229 $292,411 $237,185 
Net interest income (tax equivalent)$270,083 $264,635 $256,294 $534,718 $507,722 
Noninterest income 40,371 44,829 38,858 85,200 67,958 
Net revenues310,454 309,464 295,152 619,918 575,680 
Less:Gain on sale of securities— 101 7,715 101 7,897 
Net revenues used for efficiency ratio$310,454 $309,363 $287,437 $619,817 $567,783 
Efficiency ratio47.9 %46.4 %42.9 %47.2 %41.8 %
Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates relate to the allowance for credit losses on loans and leases held for investment, the carrying value of goodwill and other intangible assets, and the realization of deferred income tax assets and liabilities.
Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K.

58


Non-GAAP Measurements
We use certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. We used the following non-GAAP measures in this Form 10-Q:
Return on average tangible equity, tangible common equity ratio, and tangible book value per share: Given that the use of these measures is prevalent among banking regulators, investors, and analysts, we disclose them in addition to the related GAAP measures of return on average equity, equity to assets ratio, and book value per share, respectively. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
Return on Average Tangible Equity
20212021202020212020
(Dollars in thousands)
Net earnings (loss)$180,512 $150,406 $33,204 $330,918 $(1,399,907)
Add:Intangible asset amortization2,889 3,079 3,882 5,968 7,830 
Goodwill impairment— — — — 1,470,000 
Adjusted net earnings used for return on
average tangible equity$183,401 $153,485 $37,086 $336,886 $77,923 
Average stockholders' equity$3,739,042 $3,617,248 $3,446,850 $3,678,481 $4,201,814 
Less:Average intangible assets1,224,208 1,192,780 1,111,302 1,208,581 1,840,246 
Average tangible common equity$2,514,834 $2,424,468 $2,335,548 $2,469,900 $2,361,568 
Return on average equity (1)
19.36 %16.86 %3.87 %18.14 %(67.00)%
Return on average tangible equity (2)
29.25 %25.67 %6.39 %27.51 %6.64 %
___________________________________
(1)     Annualized net earnings (loss) divided by average stockholders' equity.
(2)     Annualized adjusted net earnings divided by average tangible common equity.

Tangible Common Equity Ratio andJune 30,December 31,
Tangible Book Value Per Share20212020
(Dollars in thousands, except per share data)
Stockholders’ equity$3,846,681 $3,594,951 
Less: Intangible assets1,222,541 1,102,311 
Tangible common equity$2,624,140 $2,492,640 
Total assets$34,867,987 $29,498,442 
Less: Intangible assets1,222,541 1,102,311 
Tangible assets$33,645,446 $28,396,131 
Equity to assets ratio11.03 %12.19 %
Tangible common equity ratio (1)
7.80 %8.78 %
Book value per share$32.17 $30.36 
Tangible book value per share (2)
$21.95 $21.05 
Shares outstanding119,555,102 118,414,853 
_______________________________________ 
(1)    Tangible common equity divided by tangible assets.
(2)    Tangible common equity divided by shares outstanding.


59


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 EndedSix Months Ended
Adjusted Net Earnings and
June 30,March 31,June 30,June 30,
Adjusted Earnings Per Share20212021202020212020
(Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss)$180,512 $150,406 $33,204 $330,918 $(1,399,907)
Add:Goodwill impairment— — — — 1,470,000 
Adjusted net earnings$180,512 $150,406 $33,204 $330,918 $70,093 
Adjusted Basic Earnings Per Share:
Adjusted net earnings$180,512 $150,406 $33,204 $330,918 $70,093 
Less:Earnings allocated to unvested restricted stock(3,172)(2,355)(362)(5,495)(1,251)
Adjusted net earnings allocated to
common shares$177,340 $148,051 $32,842 $325,423 $68,842 
Weighted-average basic shares and unvested restricted
stock outstanding119,386 118,852 118,192 119,121 118,484 
Less:Weighted-average unvested restricted stock
outstanding(2,356)(2,003)(1,606)(2,181)(1,551)
Weighted-average basic shares outstanding117,030 116,849 116,586 116,940 116,933 
Adjusted basic earnings per share$1.52 $1.27 $0.28 $2.78 $0.59 
Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares$177,340 $148,051 $32,842 $325,423 $68,842 
Weighted-average diluted shares outstanding117,030 116,849 116,586 116,940 116,933 
Adjusted diluted earnings per share$1.52 $1.27 $0.28 $2.78 $0.59 





60


Results of Operations
Earnings Performance
The following table presents performance metrics for the periods indicated:
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
20212021202020212020
(Dollars in thousands, except per share data)
Earnings Summary:
Interest income$280,505 $273,337 $274,075 $553,842 $565,407 
Interest expense(14,197)(12,068)(19,796)(26,265)(61,381)
Net interest income266,308 261,269 254,279 527,577 504,026 
Provision for credit losses88,000 48,000 (120,000)136,000 (232,000)
Noninterest income40,371 44,829 38,858 85,200 67,958 
Operating expense(151,750)(150,136)(126,965)(301,886)(244,935)
Goodwill impairment— — — — (1,470,000)
Earnings (loss) before income taxes242,929 203,962 46,172 446,891 (1,374,951)
Income tax expense(62,417)(53,556)(12,968)(115,973)(24,956)
Net earnings (loss) $180,512 $150,406 $33,204 $330,918 $(1,399,907)
Per Common Share Data:
Diluted earnings (loss) per share$1.52 $1.27 $0.28 $2.78 $(11.98)
Book value per share$32.17 $30.68 $29.17 
Tangible book value per share (1)
$21.95 $20.39 $19.80 
Performance Ratios:
Return on average assets 2.11 %1.94 %0.50 %2.03 %(10.48)%
Return on average tangible equity (1)
29.25 %25.67 %6.39 %27.51 %6.64 %
Net interest margin (tax equivalent)3.40 %3.69 %4.20 %3.53 %4.26 %
Yield on average loans and leases (tax equivalent)5.18 %5.20 %5.01 %5.19 %5.27 %
Cost of average total deposits0.10 %0.11 %0.25 %0.11 %0.41 %
Efficiency ratio47.9 %46.4 %42.9 %47.2 %41.8 %
Capital Ratios (consolidated):
Common equity tier 1 capital ratio10.41 %10.39 %9.97 %
Total capital ratio14.99 %13.60 %13.18 %
_____________________________
(1)    See "- Non-GAAP Measurements."















61


Second Quarter of 2021 Compared to First Quarter of 2021
Net earnings for the second quarter of 2021 were $180.5 million, or $1.52 per diluted share, compared to net earnings for the first quarter of 2021 of $150.4 million, or $1.27 per diluted share. The $30.1 million increase in net earnings from the prior quarter was due to a lower provision for credit losses of $40.0 million and higher net interest income of $5.0 million, offset partially by higher income tax expense of $8.9 million, lower noninterest income of $4.5 million, and higher noninterest expense of $1.6 million. The decrease in the provision for credit losses reflected improvement in both macro-economic forecast variables and loan portfolio credit quality metrics along with decreased provisions for individually evaluated loans and leases and for unfunded commitments in the second quarter of 2021. Net interest income increased due mainly to higher income on investment securities and loans and leases as a result of higher average balances, offset partially by higher interest expense resulting from the $400 million of subordinated debt issued on April 30, 2021. The increase in income tax expense was primarily due to higher pre-tax earnings in the second quarter of 2021 compared to the first quarter of 2021. Noninterest income decreased due primarily to a decrease of $5.5 million in dividends and gains on equity investments and a $1.2 million decrease in other income, offset partially by increases of $1.5 million in other commissions and fees and $1.3 million in gain on sale of loans and leases. Noninterest expense increased due mostly to a $10.9 million increase in compensation expense, offset partially by decreases of $6.9 million in other expense, $3.2 million in acquisition, integration and reorganization costs, and $1.2 million in insurance and assessments expense.
Second Quarter of 2021 Compared to Second Quarter of 2020
Net earnings for the second quarter of 2021 were $180.5 million, or $1.52 per diluted share, compared to net earnings for the second quarter of 2020 of $33.2 million, or $0.28 per diluted share. The $147.3 million increase in net earnings from the year-ago quarter was due mainly to a lower provision for credit losses of $208.0 million and higher net interest income of $12.0 million, offset partially by higher income tax expense of $49.4 million and higher operating expense of $24.8 million. The decrease in the provision for credit losses for the second quarter of 2021 from the year-ago quarter reflected improvement in certain key macro-economic forecast variables and loan portfolio credit quality metrics. Net interest income increased due to a lower cost of average interest-bearing liabilities and a higher balance of average-interest earning assets, offset partially by a lower yield on average interest-earning assets and the negative impact on net interest income due to the change in the mix of average interest-earning assets. The increase in income tax expense was due primarily to higher pre-tax earnings in the second quarter of 2021 compared to the year-ago quarter. Noninterest expense increased due mostly to an increase of $28.9 million in compensation expense, due mostly to the incremental expense of the Civic operations in 2021, offset partially by a $5.6 million decrease in insurance and assessments expense due to lower FDIC assessment expense attributable to a decrease in the assessment rate.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Net earnings for the six months ended June 30, 2021 were $330.9 million, or $2.78 per diluted share, compared to a net loss for the six months ended June 30, 2020 of $1.40 billion, or $11.98 loss per diluted share. The $1.73 billion increase in net earnings from the year-ago period was due mainly to a $1.47 billion decrease in goodwill impairment expense combined with a decrease in the provision for credit losses of $368.0 million due to improvements in both macro-economic forecast variables and loan portfolio credit quality metrics.
62


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
June 30, 2021March 31, 2021June 30, 2020
Interest
Yields
Interest
Yields
Interest
Yields
Average
Income/
and
Average
Income/
and
Average
Income/
and
Balance
Expense
Rates
Balance
Expense
Rates
Balance
Expense
Rates
(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)
$19,057,420 $246,147 5.18 %$18,927,314 $242,846 5.20 %$19,951,603 $248,474 5.01 %
Investment securities (2)(4)
6,492,721 36,111 2.23 %5,383,140 32,329 2.44 %3,846,459 27,430 2.87 %
Deposits in financial institutions6,347,764 2,022 0.13 %4,790,231 1,528 0.13 %733,142 186 0.10 %
Total interest‑earning assets (2)
31,897,905 284,280 3.57 %29,100,685 276,703 3.86 %24,531,204 276,090 4.53 %
Other assets2,428,207 2,315,197 2,090,023 
Total assets$34,326,112 $31,415,882 $26,621,227 
LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking $7,235,726 2,394 0.13 %$6,401,869 2,232 0.14 %$4,001,750 1,573 0.16 %
Money market 8,484,933 3,318 0.16 %7,975,996 3,278 0.17 %6,114,354 2,856 0.19 %
Savings 598,225 36 0.02 %572,959 35 0.02 %524,335 33 0.03 %
Time 1,498,169 1,521 0.41 %1,493,267 1,955 0.53 %2,475,858 8,613 1.40 %
Total interest‑bearing deposits17,817,053 7,269 0.16 %16,444,091 7,500 0.18 %13,116,297 13,075 0.40 %
Borrowings225,446 265 0.47 %226,053 193 0.35 %871,110 1,319 0.61 %
Subordinated debt735,725 6,663 3.63 %466,101 4,375 3.81 %459,466 5,402 4.73 %
Total interest‑bearing liabilities18,778,224 14,197 0.30 %17,136,245 12,068 0.29 %14,446,873 19,796 0.55 %
Noninterest‑bearing demand deposits
11,304,757 10,173,459 8,292,151 
Other liabilities504,089 488,930 435,353 
Total liabilities30,587,070 27,798,634 23,174,377 
Stockholders’ equity3,739,042 3,617,248 3,446,850 
Total liabilities and
stockholders' equity$34,326,112 $31,415,882 $26,621,227 
Net interest income (2)
$270,083 $264,635 $256,294 
Net interest rate spread (2)
3.27 %3.57 %3.98 %
Net interest margin (2)
3.40 %3.69 %4.20 %
Total deposits (5)
$29,121,810 $7,269 0.10 %$26,617,550 $7,500 0.11 %$21,408,448 $13,075 0.25 %
_____________________
(1)    Includes nonaccrual loans and leases and loan fees. Includes tax-equivalent adjustments related to tax-exempt interest on loans.
(2)    Tax equivalent.
(3)    Includes net loan premium amortization of $1.5 million and $1.2 million and net loan discount accretion of $1.2 million for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively.
(4)    Includes tax-equivalent adjustments of $2.2 million, $2.1 million, and $1.4 million for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively, related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.
(5)    Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.
63


Six Months Ended
June 30, 2021June 30, 2020
Interest
Yields
Interest
Yields
Average
Income/
and
Average
Income/
and
Balance
Expense
Rates
Balance
Expense
Rates
(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)
$18,992,727 $488,993 5.19 %$19,508,319 $511,238 5.27 %
Investment securities (2)(4)
5,940,995 68,440 2.32 %3,849,838 56,071 2.93 %
Deposits in financial institutions5,573,300 3,550 0.13 %635,263 1,794 0.57 %
Total interest-earning assets (2)
30,507,022 560,983 3.71 %23,993,420 569,103 4.77 %
Other assets2,372,015 2,866,713 
Total assets$32,879,037 $26,860,133 
LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking $6,821,101 4,626 0.14 %$3,734,281 8,708 0.47 %
Money market 8,231,870 6,596 0.16 %5,681,110 12,872 0.46 %
Savings 585,662 71 0.02 %511,147 193 0.08 %
Time 1,495,731 3,476 0.47 %2,580,001 19,549 1.52 %
Total interest-bearing deposits17,134,364 14,769 0.17 %12,506,539 41,322 0.66 %
Borrowings225,748 458 0.41 %1,448,929 8,097 1.12 %
Subordinated debt601,658 11,038 3.70 %458,932 11,962 5.24 %
Total interest-bearing liabilities17,961,770 26,265 0.29 %14,414,400 61,381 0.86 %
Noninterest-bearing demand deposits
10,742,233 7,824,934 
Other liabilities496,553 418,985 
Total liabilities29,200,556 22,658,319 
Stockholders’ equity3,678,481 4,201,814 
Total liabilities and
stockholders' equity$32,879,037 $26,860,133 
Net interest income (2)
$534,718 $507,722 
Net interest rate spread (2)
3.42 %3.91 %
Net interest margin (2)
3.53 %4.26 %
Total deposits (5)
$27,876,597 $14,769 0.11 %$20,331,473 $41,322 0.41 %
_____________________
(1)    Includes nonaccrual loans and leases and loan fees. Includes tax-equivalent adjustments related to tax-exempt interest on loans.
(2)    Tax equivalent.
(3)    Includes net loan premium amortization of $2.7 million and net loan discount accretion of $4.4 million for the six months ended June 30, 2021 and 2020, respectively.
(4)    Includes tax-equivalent adjustments of $4.2 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively, related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.
(5)    Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.











64


Second Quarter of 2021 Compared to First Quarter of 2021
Net interest income increased by $5.0 million to $266.3 million for the second quarter of 2021 compared to $261.3 million for the first quarter of 2021 due mainly to higher income on investment securities and loans and leases due mostly to higher average balances, offset partially by higher interest expense resulting from the $400 million of subordinated debt issued on April 30, 2021. The tax-equivalent yield on average loans and leases was 5.18% for the second quarter of 2021 compared to 5.20% for the first quarter of 2021.
The tax equivalent NIM was 3.40% for the second quarter of 2021 compared to 3.69% for the first quarter of 2021. The decrease in the tax equivalent NIM was due primarily to the change in the earning assets mix driven by the increase in investment securities and deposits in financial institutions as a percentage of earning assets. The average balance of deposits in financial institutions increased by $1.6 billion to $6.3 billion, the average balance of investment securities increased by $1.1 billion to $6.5 billion, and the average balance of loans and leases increased by $130.1 million to $19.1 billion in the second quarter of 2021. Average loans and leases as a percentage of average interest-earning assets was 60% for the second quarter of 2021 compared to 65% for the first quarter of 2021. This excess liquidity had a negative impact on the second quarter tax equivalent NIM of approximately 73 basis points.
The cost of average total deposits decreased to 0.10% for the second quarter of 2021 from 0.11% for the first quarter of 2021. The lower cost of average total deposits was due primarily to the increased average balance of noninterest-bearing deposits.
Second Quarter of 2021 Compared to Second Quarter of 2020
Net interest income increased by $12.0 million to $266.3 million for the second quarter of 2021 compared to $254.3 million for the second quarter of 2020 due mainly to higher income on investment securities attributable to a higher average balance combined with lower interest expense, offset partially by lower income on loans and leases due mainly to a lower average balance. Interest expense declined due principally to lower rates and average balances for time deposits and borrowings, offset partially by a higher balance of average subordinated debt attributable to the $400 million of subordinated notes issued in the second quarter of 2021. The tax equivalent yield on average loans and leases was 5.18% for the second quarter of 2021 compared to 5.01% for the same quarter of 2020. The increase in the yield on average loans and leases was due mainly to higher loan prepayment fees and higher amortized loan fee income (mainly from PPP loans), offset partially by lower loan coupon interest from the repricing of variable-rate loans in conjunction with decreased market rates.
The tax equivalent NIM was 3.40% for the second quarter of 2021 compared to 4.20% for the same quarter last year. The decrease in the tax equivalent NIM was due mostly to the change in the mix of average interest-earning assets, offset partially by lower deposit and borrowing costs. The change in mix of average interest-earning assets was due to a $5.6 billion increase in average deposits in financial institutions, a $2.6 billion increase in average investment securities, and a $894.1 million decrease in average loans and leases. Average loans and leases as a percentage of average interest-earning assets was 60% for the second quarter of 2021 compared to 81% for the second quarter of 2020.
The cost of average total deposits decreased to 0.10% for the second quarter of 2021 from 0.25% for the second quarter of 2020 due mainly to lower rates paid on deposits in conjunction with decreased market rates.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Net interest income increased by $23.6 million to $527.6 million for the six months ended June 30, 2021 compared to $504.0 million for the six months ended June 30, 2020 due mainly to higher income on investment securities attributable to a higher average balance combined with lower interest expense due to lower rates paid on deposits and borrowings in conjunction with decreased market rates, offset partially by lower income on loans and leases due to a lower average loans and leases balance coupled with a lower loan and lease yield in conjunction with decreased market rates. The tax equivalent yield on average loans and leases was 5.19% for the six months ended June 30, 2021 compared to 5.27% for the same period in 2020.
65


The tax equivalent NIM was 3.53% for the six months ended June 30, 2021 compared to 4.26% for the same period last year. The decrease in the tax equivalent NIM was due mostly to the change in the mix of average interest-earning assets, offset partially by lower deposit and borrowing costs. The change in mix of average interest-earning assets was due to a $4.9 billion increase in average deposits in financial institutions, a $2.1 billion increase in average investment securities, and a $515.6 million decrease in average loans and leases. Average loans and leases as a percentage of average interest-earning assets was 62% for the six months ended June 30, 2021 compared to 81% for the six months ended June 30, 2020.
The cost of average total deposits decreased to 0.11% for the six months ended June 30, 2021 from 0.41% for the same period last year due mainly to lower rates paid on deposits in conjunction with decreased market rates.
Provision for Credit Losses
The following table sets forth the details of the provision for credit losses on loans and leases held for investment and information regarding credit quality metrics for the periods indicated:
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
20212021202020212020
(Dollars in thousands)
Provision For Credit Losses:
(Reduction in) addition to allowance for loan and lease losses$(72,000)$(53,000)$93,000 $(125,000)$191,000 
(Reduction in) addition to reserve for unfunded
loan commitments(16,000)5,000 27,000 (11,000)41,000 
Total provision for credit losses$(88,000)$(48,000)$120,000 $(136,000)$232,000 
Credit Quality Metrics:
Net (recoveries) charge-offs on loans and leases
held for investment (1)
$(5,155)$2,736 $13,242 $(2,419)$32,352 
Annualized net charge-offs to average loans and leases(0.11)%0.06 %0.27 %(0.03)%0.33 %
At quarter-end:
Allowance for credit losses$300,171 $383,016 $381,621 
Allowance for credit losses to loans and leases
held for investment1.54 %2.02 %1.94 %
Allowance for credit losses to nonaccrual
loans and leases held for investment528.4 %566.2 %229.7 %
Nonaccrual loans and leases held for investment $56,803 $67,652 $166,113 
Performing TDRs held for investment $40,129 $27,999 $15,037 
Classified loans and leases held for investment
$147,267 $163,117 $293,230 
______________________
(1)    See "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment" for detail of charge-offs and recoveries by loan portfolio segment, class, and subclass for the periods presented.
Provisions for credit losses are charged to earnings for both the allowance for loan and lease losses and the reserve for unfunded loan commitments (collectively, the allowance for credit losses). The provision for credit losses on our loans and leases held for investment is based on our allowance methodology and is an expense that, in our judgment, is required to maintain an adequate allowance for credit losses. For further details on our allowance for credit losses methodology, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.
66


The provision for credit losses decreased by $40.0 million to a benefit of $88.0 million for the second quarter of 2021 compared to a benefit of $48.0 million for the first quarter of 2021 as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics along with decreased provisions for individually evaluated loans and leases and for unfunded commitments.
The provision for credit losses decreased by $208.0 million to a benefit of $88.0 million for the second quarter of 2021 compared to a provision of $120.0 million for the second quarter of 2020 as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics.
The provision for credit losses decreased by $368.0 million to a benefit of $136.0 million for the six months ended June 30, 2021 compared to a provision of $232.0 million for the six months ended June 30, 2020 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 EndedSix Months Ended
June 30,March 31,June 30,June 30,
Noninterest Income20212021202020212020
(In thousands)
Leased equipment income$10,847 $11,354 $12,037 $22,201 $24,288 
Other commissions and fees10,704 9,158 10,111 19,862 19,832 
Service charges on deposit accounts3,452 2,934 2,004 6,386 4,662 
Gain on sale of loans and leases1,422 139 346 1,561 433 
Gain on sale of securities— 101 7,715 101 7,897 
Other income:
Dividends and gains (losses) on equity investments5,394 10,904 2,947 16,298 2,975 
Warrant income 5,650 6,123 1,973 11,773 2,810 
Other 2,902 4,116 1,725 7,018 5,061 
Total noninterest income$40,371 $44,829 $38,858 $85,200 $67,958 
Second Quarter of 2021 Compared to First Quarter of 2021
Noninterest income decreased by $4.5 million to $40.4 million for the second quarter of 2021 compared to $44.8 million for the first quarter of 2021 due mostly to a decrease of $5.5 million in dividends and gains on equity investments and a $1.2 million decrease in other income, offset partially by increases of $1.5 million in other commissions and fees and $1.3 million in gain on sale of loans and leases. The decrease in dividends and gains on equity investments was due primarily to a $10.1 million gain on one equity investment in the first quarter of 2021, offset partially by higher net fair value gains on equity investments still held. The decrease in other income was due primarily to lower foreign currency translation gains and negative fair value adjustments related to servicing assets. The increase in gain on sale of loans and leases resulted from the sales of $52.2 million of loans for gains of $1.4 million in the second quarter of 2021 compared to sales of $72.6 million for gains of $0.1 million in the first quarter of 2021. The decrease in warrant income was primarily attributable to lower gains from exercised warrants due to elevated gains in the first quarter of 2021.
67


Second Quarter of 2021 Compared to Second Quarter of 2020
Noninterest income increased by $1.5 million to $40.4 million for the second quarter of 2021 compared to $38.9 million for the second quarter of 2020 due mainly to increases of $3.7 million in warrant income, $2.4 million in dividends and gains on equity investments, $1.2 million in other income, and $1.1 million in gain on sale of loans, offset partially by a $7.7 million decrease in gain on sale of securities. Warrant income increased due principally to higher gains from exercised warrants, driven by the active capital markets. The increase in dividends and gains on equity investments was due primarily to higher gains on sales and higher fair value gains on equity investments still held. The increase in gain on sale of loans was primarily due to a $1.4 million gain on one loan sold in the second quarter of 2021. The decrease in gain on sale of securities was due to no sales in the second quarter of 2021.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Noninterest income increased by $17.2 million to $85.2 million for the six months ended June 30, 2021 compared to $68.0 million for the six months ended June 30, 2020 due mainly to increases of $13.3 million in dividends and gains on equity investments, $9.0 million in warrant income, and $1.7 million in service charges on deposit accounts, offset partially by a $7.8 million decrease in gain on sale of securities. The increase in dividends and gains on equity investments was due primarily to higher gains on sales and higher fair value gains on equity investments still held. Warrant income increased due principally to higher gains from exercised warrants, driven by the active capital markets. The increase in service charges on deposit accounts was due primarily to fee waivers we granted customers in 2020 during the COVID pandemic. The decrease in gain on sale of securities was due to minimal sales in the 2021 period.
Noninterest Expense
The following table summarizes noninterest expense by category for the periods indicated:
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
Noninterest Expense20212021202020212020
(In thousands)
Compensation$90,807 $79,882 $61,910 $170,689 $123,192 
Occupancy14,784 14,054 14,494 28,838 28,701 
Leased equipment depreciation8,614 8,969 7,102 17,583 14,307 
Data processing7,758 6,957 7,102 14,715 13,556 
Other professional services5,256 5,126 4,146 10,382 8,404 
Customer related expense4,973 4,818 4,408 9,791 8,340 
Loan expense4,031 3,193 3,379 7,224 6,029 
Insurance and assessments3,745 4,903 9,373 8,648 13,622 
Intangible asset amortization2,889 3,079 3,882 5,968 7,830 
Acquisition, integration and reorganization costs200 3,425 — 3,625 — 
Foreclosed assets (income) expense, net(119)(146)(118)(80)
Other8,812 15,729 11,315 24,541 21,034 
Total operating expense151,750 150,136 126,965 301,886 244,935 
Goodwill impairment— — — — 1,470,000 
Total noninterest expense$151,750 $150,136 $126,965 $301,886 $1,714,935 
68


Second Quarter of 2021 Compared to First Quarter of 2021
Noninterest expense increased by $1.6 million to $151.8 million for the second quarter of 2021 compared to $150.1 million for the first quarter of 2021 due mostly to an increase of $10.9 million in compensation expense, offset partially by decreases of $6.9 million in other expense, $3.2 million in acquisition, integration and reorganization costs, and $1.2 million in insurance and assessments expense. The increase in compensation expense was due mostly to compensation expense related to the Civic operations as a result of three months of activity in the second quarter of 2021 compared to two months of activity in the first quarter of 2021, in addition to growth across the Company which contributed to an increase in variable compensation during the second quarter of 2021. The decrease in other expense was due largely to a legal settlement accrual in the first quarter of 2021. The decrease in acquisition, integration and reorganization costs was due to lower advisory services and integration expenses related to the closed Civic acquisition and the pending acquisition of MUFG Union Bank's HOA Services Division. The decrease in insurance and assessments expense was due primarily to lower FDIC assessment expense resulting from a lower assessment rate, offset partially by a higher assessment base.
Second Quarter of 2021 Compared to Second Quarter of 2020
Noninterest expense increased by $24.8 million to $151.8 million for the second quarter of 2021 compared to $127.0 million for the second quarter of 2020 due primarily to a $28.9 million increase in compensation expense due mostly to the incremental compensation expense for Civic, which was acquired on February 1, 2021.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Noninterest expense decreased by $1.41 billion to $301.9 million for the six months ended June 30, 2021 compared to $1.71 billion for the six months ended June 30, 2020 due primarily to a $1.47 billion goodwill impairment in the 2020 period. Excluding the goodwill impairment, noninterest expense increased by $57.0 million in the 2021 period compared to the 2020 period. This increase was due primarily to a $47.5 million increase in compensation expense and a $3.6 million increase in acquisition, integration and reorganization costs. The increase in compensation expense was due to the incremental compensation expense from five months of Civic operations in the 2021 period and higher bonus expense, given the operating results in 2021, while the 2020 bonus amounts were below historical levels as a result of the higher provisions for credit losses in 2020. The increase in acquisition, integration, and reorganization costs was due to the costs in the 2021 period related to the closed Civic acquisition and the pending acquisition of MUFG Union Bank's HOA Services Division.
Income Taxes
The effective tax rate for the second quarter of 2021 was 25.7% compared to 26.3% for the first quarter of 2021 and 28.1% for the second quarter of 2020. The decreased effective tax rate in the second quarter of 2021 compared to the first quarter of 2021 and the second quarter of 2020 was primarily due to tax benefits resulting from the vesting of restricted stock and return-to-provision adjustments recorded in the second quarter of 2021. The effective tax rate for the six months ended June 30, 2021 was 26.0% compared to (1.8)% for the six months ended June 30, 2020. Excluding non-deductible goodwill impairment, the effective income tax rate was 26.3% for the six months ended June 30, 2020. The Company’s blended statutory tax rate for federal and state is 27.6% and the effective tax rate for the full year 2021 is estimated to be in the range of 25-27%.
69


Balance Sheet Analysis
Securities Available-for-Sale
The following table presents the composition and durations of our securities available-for-sale as of the dates indicated:
 June 30, 2021March 31, 2021December 31, 2020
Fair
% of
DurationFair
% of
DurationFair
% of
Duration
Security TypeValue
Total
(in years)Value
Total
(in years)Value
Total
(in years)
 (Dollars in thousands)
Municipal securities $1,817,499 25 %8.2 $1,646,054 28 %8.5 $1,531,617 29 %8.2 
Agency commercial MBS1,257,628 18 %3.6 1,273,402 22 %3.8 1,281,877 24 %3.2 
Agency residential CMOs1,142,398 16 %3.0 1,108,828 19 %2.8 1,219,880 23 %2.7 
U.S. Treasury securities877,153 12 %7.7 491,358 %7.4 5,302 — %1.3 
Agency residential MBS552,411 %3.3 433,100 %2.5 341,074 %1.9 
Corporate debt securities508,708 %3.8 380,407 %3.9 311,889 %3.7 
Collateralized loan obligations382,043 %— 244,240 %— 135,876 %— 
Private label commercial MBS378,235 %7.4 71,033 %2.2 82,957 %1.8 
Asset-backed securities149,583 %0.1 152,982 %0.1 166,546 %0.1 
Private label residential CMOs96,922 %2.5 103,376 %2.6 116,946 %2.1 
SBA securities36,028 %3.7 36,910 — %3.7 41,627 %3.2 
Total securities available-
   for-sale$7,198,608 100 %5.1 $5,941,690 100 %4.8 $5,235,591 100 %4.3 
The following table shows the geographic composition of the majority of our municipal securities portfolio as of the date indicated:
June 30, 2021
Fair
% of
Municipal Securities by State
Value
Total
(Dollars in thousands)
 California$471,398 26 %
 Texas325,433 18 %
 Washington284,026 15 %
 Maryland74,684 %
 Oregon71,513 %
 Georgia68,952 %
 New York67,159 %
 Colorado58,954 %
 Ohio39,666 %
 Tennessee35,617 %
Total of ten largest states1,497,402 82 %
 All other states320,097 18 %
Total municipal securities$1,817,499 100 %
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Loans and Leases Held for Investment
The following table presents the composition of our loans and leases held for investment, net of deferred fees, by loan portfolio segment, class, and subclass as of the dates indicated:
June 30, 2021March 31, 2021December 31, 2020
% of
% of
% of
Loan and Lease Portfolio
Balance
Total
Balance
Total
Balance
Total
(Dollars in thousands)
Real estate mortgage:
Other commercial real estate$2,483,856 13 %$2,617,227 14 %$2,747,526 14 %
SBA program625,023 %610,086 %599,788 %
Hotel521,869 %539,139 %571,917 %
Healthcare real estate161,450 %175,158 %177,440 %
Total commercial real estate mortgage3,792,198 19 %3,941,610 21 %4,096,671 21 %
Income producing and other residential4,378,932 23 %3,823,179 20 %3,718,457 20 %
Other residential real estate241,890 %222,424 %84,808 — %
Total income producing and other
residential real estate mortgage4,620,822 24 %4,045,603 21 %3,803,265 20 %
Total real estate mortgage8,413,020 43 %7,987,213 42 %7,899,936 41 %
Real estate construction and land:
Commercial930,785 %990,035 %1,117,121 %
Residential2,574,799 13 %2,575,788 14 %2,243,160 12 %
Total real estate construction and land (1)
3,505,584 18 %3,565,823 19 %3,360,281 18 %
Total real estate 11,918,604 61 %11,553,036 61 %11,260,217 59 %
Commercial:
Lender finance 2,256,828 12 %2,113,395 11 %2,095,963 11 %
Equipment finance638,898 %647,423 %700,042 %
Premium finance482,822 %449,440 %438,761 %
Other asset-based172,355 %173,145 %194,517 %
Total asset-based3,550,903 18 %3,383,403 18 %3,429,283 18 %
Equity fund loans1,245,283 %889,828 %1,032,718 %
Venture lending504,149 %605,970 %665,790 %
Total venture capital1,749,432 %1,495,798 %1,698,508 %
Paycheck Protection Program609,200 %1,079,258 %1,057,422 %
Secured business loans434,032 %397,558 %430,263 %
Security monitoring207,232 %205,798 %329,312 %
Other lending671,445 %524,025 %558,117 %
Total other commercial1,921,909 10 %2,206,639 11 %2,375,114 12 %
Total commercial7,222,244 37 %7,085,840 37 %7,502,905 39 %
Consumer365,409 %340,352 %320,255 %
Total loans and leases held for investment,
net of deferred fees$19,506,257 100 %$18,979,228 100 %$19,083,377 100 %
 ________________________________
(1)    Includes land and acquisition and development loans of $153.1 million at June 30, 2021, $148.1 million at March 31, 2021 and $167.1 million at December 31, 2020.
71


The following table presents the geographic composition of our real estate loans held for investment, net of deferred fees, by the top 10 states and all other states combined (in the order presented for the current quarter-end) as of the dates indicated:
June 30, 2021December 31, 2020
% of
% of
Real Estate Loans by StateBalance
Total
Balance
Total
(Dollars in thousands)
California$7,238,094 61 %$6,942,768 62 %
New York728,125 %716,329 %
Florida715,790 %598,167 %
Colorado560,049 %386,480 %
Washington408,010 %413,014 %
Oregon299,084 %269,600 %
Texas243,830 %263,731 %
Arizona197,542 %171,533 %
Nevada185,716 %195,663 %
Georgia172,794 %116,444 %
Total of 10 largest states10,749,034 90 %10,073,729 89 %
All other states1,169,570 10 %1,186,488 11 %
Total real estate loans held for investment, net of deferred fees$11,918,604 100 %$11,260,217 100 %
The following table presents a roll forward of loans and leases held for investment, net of deferred fees, for the periods indicated:
Three Months EndedSix Months Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)
June 30, 2021June 30, 2021
(Dollars in thousands)
Balance, beginning of period$18,979,228 $19,083,377 
Additions:
Production1,663,151 3,275,928 
Disbursements1,662,644 2,685,630 
Total production and disbursements3,325,795 5,961,558 
Reductions:
Payoffs (1,969,118)(3,604,382)
Paydowns(802,222)(1,869,640)
Total payoffs and paydowns(2,771,340)(5,474,022)
Sales(26,610)(99,251)
Transfers to foreclosed assets— (647)
Charge-offs(816)(4,804)
Transfers to loans held for sale— (25,554)
Total reductions(2,798,766)(5,604,278)
Loans and leases acquired through acquisition— 65,600 
Net increase527,029 422,880 
Balance, end of period$19,506,257 $19,506,257 
Weighted average rate on production (2)
4.55 %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 41 basis points to loan yields for the six months ended June 30, 2021.

72


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 on our estimation of expected credit losses given the changes in economic forecasts and assumptions along with the uncertainty related to the severity and duration of the economic consequences of the COVID-19 pandemic. Our methodology and framework along with the 4-quarter reasonable and supportable forecast period and 2-quarter reversion period have remained consistent since the implementation of CECL on January 1, 2020. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.
In the second quarter of 2021, we used the Moody’s Consensus Forecast dated June 9, 2021 for the calculation of our quantitative component, which is consistent with the first quarter of 2021 when the Moody's Consensus Forecast dated March 20, 2021 was used. The key macro-economic variables used improved from previous economic forecasts which, when combined with improvements in other credit quality metrics such as a decline in classified and special mention loans, drove the decrease in the quantitative calculation of the allowance for credit losses in the second quarter. During the first quarter of 2021, we added qualitative components that were based on management’s assessment of various qualitative factors such as economic conditions and collateral dependency. These qualitative components were primarily related to certain loan portfolios including hotels, retail, and office properties that may react more slowly to the improvements in the general economic conditions. These sectors may see a slower economic recovery to pre-pandemic levels due to changes in consumer behavior such as less business travel due to more virtual meetings, more online shopping versus in person shopping, or the potential for more permanent shifts to remote or hybrid working arrangements. Additionally, small businesses in these sectors may face greater challenges once debt relief and PPP funding is exhausted. During the second quarter of 2021, these qualitative adjustments were updated resulting in a decrease in the qualitative component, primarily to reflect an improved forecast for hotel properties, compared to the first quarter of 2021.
The determination of the allowance for credit losses is complex and highly dependent on numerous models, assumptions, and judgments made by management. Management's current expectation for credit losses as quantified in the allowance for credit losses considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan and lease composition, and relative credit risks known as of the balance sheet date.
Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan and lease portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements.
73


The following table presents information regarding the allowance for credit losses on loans and leases held for investment as of the dates indicated:
June 30,March 31,
December 31,
June 30,
Allowance for Credit Losses Data
2021202120202020
(Dollars in thousands)
Allowance for loan and lease losses$225,600 $292,445 $348,181 $301,050 
Reserve for unfunded loan commitments74,571 90,571 85,571 80,571 
Total allowance for credit losses$300,171 $383,016 $433,752 $381,621 
Allowance for loan and lease losses to loans and leases held for investment1.16 %1.54 %1.82 %1.53 %
Allowance for loan and lease losses to loans and leases held for investment,
excluding PPP loans1.19 %1.63 %1.93 %1.63 %
Allowance for credit losses to loans and leases held for investment1.54 %2.02 %2.27 %1.94 %
Allowance for credit losses to loans and leases held for investment,
 excluding PPP loans1.59 %2.14 %2.41 %2.06 %
The following table presents the changes in our allowance for credit losses on loans and leases held for investment for the periods indicated:
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
Allowance for Credit Losses Roll Forward
20212021202020212020
(Dollars in thousands)
Balance, beginning of period $383,016 $433,752 $274,863 $433,752 $174,646 
Cumulative effect of change in accounting
principle - CECL, as of January 1, 2020:
Allowance for loan and lease losses— — — — 3,617 
Reserve for unfunded loan commitments— — — — 3,710 
Total cumulative effect— — — — 7,327 
Provision for credit losses:
(Reduction in) addition to allowance for loan and lease losses(72,000)(53,000)93,000 (125,000)191,000 
Addition to (reduction in) reserve for unfunded
loan commitments(16,000)5,000 27,000 (11,000)41,000 
Total provision for credit losses(88,000)(48,000)120,000 (136,000)232,000 
Loans and leases charged off:
Real estate mortgage(266)(368)(4,182)(634)(4,682)
Real estate construction and land(75)(700)— (775)— 
Commercial(277)(2,574)(11,439)(2,851)(30,671)
Consumer(198)(346)(165)(544)(638)
Total loans and leases charged off(816)(3,988)(15,786)(4,804)(35,991)
Recoveries on loans charged off:
Real estate mortgage4,882 545 127 5,427 251 
Real estate construction and land— — — — — 
Commercial1,029 697 2,392 1,726 3,347 
Consumer60 10 25 70 41 
Total recoveries on loans charged off 5,971 1,252 2,544 7,223 3,639 
Net recoveries (charge-offs)5,155 (2,736)(13,242)2,419 (32,352)
Balance, end of period$300,171 $383,016 $381,621 $300,171 $381,621 
Annualized net (recoveries) charge-offs to
average loans and leases(0.11)%0.06 %0.27 %(0.03)%0.33 %
74


The following table presents charge-offs by loan portfolio segment, class, and subclass for the periods indicated:
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
Allowance for Credit Losses Charge-offs
20212021202020212020
(In thousands)
Real estate mortgage:
Healthcare real estate$— $— $— $— $— 
Hotel— 343 — 343 — 
SBA program211 25 76 236 274 
Other commercial real estate— — 4,106 — 4,233 
Total commercial real estate mortgage211 368 4,182 579 4,507 
Income producing and other residential55 — — 55 — 
Other residential real estate— — — — 175 
Total income producing and other residential
real estate mortgage 55 — — 55 175 
Total real estate mortgage266 368 4,182 634 4,682 
Real estate construction and land:
Commercial75 700 — 775 — 
Residential— — — — — 
Total real estate construction and land75 700 — 775 — 
Commercial:
Lender finance — — — — — 
Equipment finance— — — — 11,550 
Premium finance— — — — — 
Other asset-based— — — — — 
Total asset-based— — — — 11,550 
Equity fund loans— — — — — 
Venture lending— 620 6,470 620 6,813 
Total venture capital— 620 6,470 620 6,813 
Paycheck Protection Program — —  — 
Security monitoring— — 4,180 — 10,236 
Secured business loans— 47 — 47 2,072 
Other lending277 1,907 789 2,184 — 
Total other commercial277 1,954 4,969 2,231 12,308 
Total commercial277 2,574 11,439 2,851 30,671 
Consumer198 346 165 544 638 
Total charge-offs$816 $3,988 $15,786 $4,804 $35,991 


75


The following table presents recoveries by portfolio segment, class, and subclass for the periods indicated:
Three Months EndedSix Months Ended
June 30,March 31,June 30,June 30,
Allowance for Credit Losses Recoveries 20212021202020212020
(In thousands)
Real estate mortgage:
Healthcare real estate$— $— $— $— $— 
Hotel— — — — — 
SBA program20 17 15 37 122 
Other commercial real estate4,860 524 103 5,384 115 
Total commercial real estate mortgage4,880 541 118 5,421 237 
Income producing and other residential— — — — — 
Other residential real estate14 
Total income producing and other
residential real estate mortgage14 
Total real estate mortgage4,882 545 127 5,427 251 
Real estate construction and land:
Commercial— — — — — 
Residential— — — — — 
Total real estate construction and land— — — — — 
Commercial:
Lender finance — — — — — 
Equipment finance107 114 238 
Premium finance— — — — — 
Other asset-based98 161 14 259 149 
Total asset-based105 268 22 373 387 
Equity fund loans— — — — — 
Venture lending44 57 114 101 299 
Total venture capital44 57 114 101 299 
Paycheck Protection Program— — — — — 
Security monitoring— — — — — 
Secured business loans73 126 139 199 217 
Other lending807 246 2,117 1,053 2,444 
Total other commercial880 372 2,256 1,252 2,661 
Total commercial1,029 697 2,392 1,726 3,347 
Consumer60 10 25 70 41 
Total recoveries$5,971 $1,252 $2,544 $7,223 $3,639 
The increase in recoveries during the second quarter of 2021 was due mainly to a single commercial real estate loan related to a lifestyle retail center which paid off in full during the second quarter.
76


Deposits
The following table presents the balance of each major category of deposits as of the dates indicated:
June 30, 2021March 31, 2021December 31, 2020
% of
% of
% of
Deposit CompositionBalance
Total
Balance
Total
Balance
Total
(Dollars in thousands)
Noninterest-bearing demand $11,252,286 38 %$11,017,462 39 %$9,193,827 37 %
Interest checking7,394,472 25 %6,862,398 25 %5,974,910 24 %
Money market7,777,199 26 %7,112,610 25 %6,532,917 26 %
Savings614,204 %583,878 %562,826 %
Total core deposits27,038,161 91 %25,576,348 91 %22,264,480 89 %
Non-core non-maturity deposits1,122,971 %1,162,590 %1,149,467 %
Total non-maturity deposits28,161,132 95 %26,738,938 95 %23,413,947 94 %
Time deposits $250,000 and under913,371 %940,340 %994,197 %
Time deposits over $250,000572,531 %544,013 %532,573 %
Total time deposits1,485,902 %1,484,353 %1,526,770 %
Total deposits$29,647,034 100 %$28,223,291 100 %$24,940,717 100 %
During the second quarter of 2021, total deposits increased by $1.4 billion to $29.6 billion, due primarily to an increase of $1.5 billion in core deposits. The increase in core deposits in the second quarter of 2021 was driven primarily by continued strong deposit growth from our venture banking customers. At June 30, 2021, core deposits totaled $27.0 billion, or 91% of total deposits, including $11.3 billion of noninterest-bearing demand deposits, or 38% of total deposits.
The following table summarizes the maturities of time deposits as of the date indicated:
Time Deposits
$250,000
Over
June 30, 2021
and Under
$250,000
Total
(In thousands)
Maturities:
Due in three months or less$247,102 $94,967 $342,069 
Due in over three months through six months198,239 129,168 327,407 
Due in over six months through twelve months231,172 337,799 568,971 
Total due within twelve months676,513 561,934 1,238,447 
Due in over 12 months through 24 months101,988 8,296 110,284 
Due in over 24 months134,870 2,301 137,171 
Total $913,371 $572,531 $1,485,902 
Client Investment Funds
In addition to deposit products, we also offer select clients non-depository cash investment options through PWAM, our registered investment adviser subsidiary, and third-party money market sweep products. PWAM provides customized investment advisory and asset management solutions. At June 30, 2021, total off-balance sheet client investment funds were $1.3 billion, of which $1.0 billion was managed by PWAM. At December 31, 2020, total off-balance sheet client investment funds were $1.3 billion, of which $1.0 billion was managed by PWAM.
77


Credit Quality
Nonperforming Assets, Performing TDRs, and Classified Loans and Leases
The following table presents information on our nonperforming assets, performing TDRs, and classified loans and leases as of the dates indicated:
June 30,March 31,
December 31,
June 30,
2021202120202020
(Dollars in thousands)
Nonaccrual loans and leases held for investment $56,803 $67,652 $91,163 $166,113 
Foreclosed assets, net13,227 14,298 14,027 1,449 
Total nonperforming assets$70,030 $81,950 $105,190 $167,562 
Performing TDRs held for investment $40,129 $27,999 $14,254 $15,037 
Classified loans and leases held for investment $147,267 $163,117 $265,262 $293,230 
Nonaccrual loans and leases held for investment to
loans and leases held for investment 0.29 %0.36 %0.48 %0.84 %
Nonperforming assets to loans and leases held for investment
and foreclosed assets, net 0.36 %0.43 %0.55 %0.85 %
Allowance for credit losses to nonaccrual loans and leases
held for investment528.4 %566.2 %475.8 %229.7 %
Classified loans and leases held for investment
to loans and leases held for investment 0.75 %0.86 %1.39 %1.49 %
Nonaccrual Loans and Leases Held for Investment
The following table presents our nonaccrual loans and leases held for investment and accruing loans and leases past due between 30 and 89 days by loan portfolio segment and class as of the dates indicated:
June 30, 2021March 31, 2021Increase (Decrease)
Accruing AccruingAccruing
and 30-89and 30-89and 30-89
Days PastDays Past Days Past
NonaccrualDueNonaccrualDueNonaccrualDue
(Dollars in thousands)
Real estate mortgage:
Commercial$32,065 $— $46,436 $$(14,371)$(5)
Income producing and other residential6,133 2,179 2,471 6,339 3,662 (4,160)
Total real estate mortgage38,198 2,179 48,907 6,344 (10,709)(4,165)
Real estate construction and land:
Commercial284 — 302 — (18)— 
Residential1,934 22,714 416 1,241 1,518 21,473 
Total real estate construction and land2,218 22,714 718 1,241 1,500 21,473 
Commercial:
Asset-based1,973 — 2,379 — (406)— 
Venture capital2,717 — 2,432 6,750 285 (6,750)
Other commercial11,337 270 12,660 1,251 (1,323)(981)
Total commercial16,027 270 17,471 8,001 (1,444)(7,731)
Consumer360 1,454 556 954 (196)500 
Total held for investment$56,803 $26,617 $67,652 $16,540 $(10,849)$10,077 
78


The increase in 30-89 days delinquent residential construction loans in the second quarter of 2021 is due to an increase in delinquent short-term, single-family renovation loans. With this product, it is common for the borrower to let the loan become delinquent once they enter escrow to sell the renovated home as the loan will be paid off through the close of escrow.
During the second quarter of 2021, nonaccrual loan and leases held for investment decreased by $10.8 million to $56.8 million at June 30, 2021 due mainly to charge-offs of $0.5 million and principal payments and other reductions of $26.7 million, offset partially by additions of $16.3 million. Included in principal payments and other reductions was the payoff of one nonaccrual commercial real estate mortgage loan for $22.6 million. As of June 30, 2021, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of $12.9 million and represented 23% of total nonaccrual loans and leases.
Foreclosed Assets
The following table presents foreclosed assets (primarily OREO), net of the valuation allowance, by property type as of the dates indicated:
June 30,March 31,
December 31,
June 30,
Property Type2021202120202020
(In thousands)
Commercial real estate$12,594 $13,612 $12,979 $28 
Single-family residence— — — — 
Construction and land development219 219 219 219 
Total OREO, net12,813 13,831 13,198 247 
Other foreclosed assets414 467 829 1,202 
Total foreclosed assets, net$13,227 $14,298 $14,027 $1,449 
During the second quarter of 2021, foreclosed assets decreased by $1.1 million to $13.2 million at June 30, 2021 due to sales of $1.1 million.
Performing TDRs Held for Investment
The following table presents our performing TDRs held for investment by loan portfolio segment as of the dates indicated:
June 30, 2021March 31, 2021December 31, 2020
NumberNumberNumber
ofofof
Performing TDRs
BalanceLoansBalanceLoansBalanceLoans
(Dollars in thousands)
Real estate mortgage$6,415 19 $6,584 20 $6,631 20 
Real estate construction and land1,439 1,445 1,451 
Commercial32,250 20 19,944 23 6,146 21 
Consumer25 26 26 
Total performing TDRs held for investment $40,129 41 $27,999 45 $14,254 43 
During the second quarter of 2021, performing TDRs held for investment increased by $12.1 million to $40.1 million at June 30, 2021 attributable primarily to the addition of a $13.2 million security monitoring loan, offset by principal payments and other reductions of $1.1 million.
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Classified and Special Mention Loans and Leases Held for Investment
The following table presents the credit risk ratings of our loans and leases held for investment, net of deferred fees, as of the dates indicated:
June 30,March 31,December 31,June 30,
Loan and Lease Credit Risk Ratings
2021202120202020
(Dollars in thousands)
Pass$18,822,938 $18,183,114 $18,096,830 $18,635,004 
Special mention536,052 632,997 721,285 766,397 
Classified147,267 163,117 265,262 293,230 
Total loans and leases held for investment, net of deferred fees$19,506,257 $18,979,228 $19,083,377 $19,694,631 
Classified and special mention loans and leases fluctuate from period to period as a result of loan repayments and downgrades or upgrades from our ongoing active portfolio management.
During the second quarter of 2021, classified loans and leases decreased by $15.9 million to $147.3 million at June 30, 2021 due mostly to a decrease of $14.6 million in commercial real estate mortgage loans. Classified loans and leases peaked in the second quarter of 2020 at $293.2 million.
During the second quarter of 2021, special mention loans and leases decreased by $96.9 million to $536.1 million at June 30, 2021 due mainly to decreases of $55.5 million in venture capital loans and $39.4 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:
June 30, 2021March 31, 2021Increase (Decrease)
Special Special Special
ClassifiedMentionClassifiedMentionClassifiedMention
(In thousands)
Real estate mortgage:
Commercial$62,827 $242,159 $77,444 $254,463 $(14,617)$(12,304)
Income producing and other residential12,681 60,843 9,064 63,231 3,617 (2,388)
Total real estate mortgage75,508 303,002 86,508 317,694 (11,000)(14,692)
Real estate construction and land:
Commercial284 67,292 302 66,790 (18)502 
Residential1,934 8,234 416 602 1,518 7,632 
Total real estate construction and land2,218 75,526 718 67,392 1,500 8,134 
Commercial:
Asset-based24,351 102,734 24,941 142,122 (590)(39,388)
Venture capital5,708 33,910 8,727 89,423 (3,019)(55,513)
Other commercial39,005 18,340 41,597 13,535 (2,592)4,805 
Total commercial69,064 154,984 75,265 245,080 (6,201)(90,096)
Consumer477 2,540 626 2,831 (149)(291)
Total$147,267 $536,052 $163,117 $632,997 $(15,850)$(96,945)

80


Regulatory Matters
Capital
Bank regulatory agencies measure capital adequacy through standardized risk-based capital guidelines that compare different levels of capital (as defined by such guidelines) to risk-weighted assets and off-balance sheet obligations. At June 30, 2021, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%.
Basel III currently requires all banking organizations to maintain a 2.50% capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the common equity tier 1, tier 1, and total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At June 30, 2021, the Company and Bank were in compliance with the capital conservation buffer requirement.
The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the June 30, 2021 ratios include this election. This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2022. This cumulative amount will then be phased out of regulatory capital over the next three years from 2023 to 2025. The add-back as of June 30, 2021 ranged from 0 basis points to 14 basis points for the capital ratios below.
The following tables present a comparison of our actual capital ratios to the minimum required ratios and well capitalized ratios as of the dates indicated:
Minimum Required
For CapitalFor CapitalFor Well
AdequacyConservationCapitalized
ActualPurposesBufferClassification
June 30, 2021
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio7.67%4.00%4.00%N/A
CET1 capital ratio10.41%4.50%7.00%N/A
Tier 1 capital ratio10.41%6.00%8.50%N/A
Total capital ratio14.99%8.00%10.50%N/A
Pacific Western Bank
Tier 1 leverage capital ratio8.47%4.00%4.00%5.00%
CET1 capital ratio11.51%4.50%7.00%6.50%
Tier 1 capital ratio11.51%6.00%8.50%8.00%
Total capital ratio14.22%8.00%10.50%10.00%
81


Minimum Required
For CapitalFor CapitalFor Well
AdequacyConservationCapitalized
ActualPurposesBufferClassification
December 31, 2020
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio 8.55%4.00%4.00%N/A
CET1 capital ratio 10.53%4.50%7.00%N/A
Tier 1 capital ratio10.53%6.00%8.50%N/A
Total capital ratio 13.76%8.00%10.50%N/A
Pacific Western Bank
Tier 1 leverage capital ratio9.53%4.00%4.00%5.00%
CET1 capital ratio11.73%4.50%7.00%6.50%
Tier 1 capital ratio11.73%6.00%8.50%8.00%
Total capital ratio12.99%8.00%10.50%10.00%
Subordinated Debt
We issued or assumed through mergers subordinated debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. On April 30, 2021, the Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due May 1, 2031. For further information, see Note 10. Borrowings and Subordinated Debt in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
The carrying value of subordinated debt totaled $861.8 million at June 30, 2021. At June 30, 2021, none of the trust preferred securities was included in the Company's Tier I capital under the phase-out limitations of Basel III, and $847.8 million were included in Tier II capital.
Dividends on Common Stock and Interest on Subordinated Debt
As a bank holding company, PacWest is required to notify and receive approval from the FRB prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. Interest payments made on subordinated debt are considered dividend payments under FRB regulations. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. Given the impact of the goodwill impairment charge on net earnings in the first quarter of 2020, we were required to receive approval from the FRB prior to declaring a dividend from March 31, 2020 through March 31, 2021, but are no longer required to obtain such approval.
Liquidity
Liquidity Management
The goals of our liquidity management are to ensure the ability of the Company to meet its financial commitments when contractually due and to respond to other demands for funds such as the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers who have unfunded commitments. We have an Executive Management Asset/Liability Management Committee ("Executive ALM Committee") that is comprised of members of senior management and is responsible for managing commitments to meet the needs of customers while achieving our financial objectives. Our Executive ALM Committee meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.



82


We manage our liquidity by maintaining pools of liquid assets on-balance sheet, consisting of cash and due from banks, interest-earning deposits in other financial institutions, and unpledged securities available-for-sale, which we refer to as our primary liquidity. We also maintain available borrowing capacity under secured credit lines with the FHLB and the FRBSF, which we refer to as our secondary liquidity.
As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of $3.3 billion at June 30, 2021, of which all was available on that date. The FHLB secured credit line was collateralized by a blanket lien on $5.5 billion of certain qualifying loans. The Bank also had secured borrowing capacity with the FRBSF of $1.4 billion at June 30, 2021, all of which was available on that date. The FRBSF secured credit line was collateralized by liens on $1.9 billion of qualifying loans.
In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the purpose of borrowing overnight funds, subject to availability, of $112.0 million with the FHLB and $180.0 million in the aggregate with several correspondent banks. As of June 30, 2021, there was no balance outstanding related to the FHLB unsecured line of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of June 30, 2021, the Bank had borrowed nothing through the AFX.
    The following tables provide a summary of the Bank’s primary and secondary liquidity levels at the dates indicated:
June 30,March 31,
December 31,
Primary Liquidity - On-Balance Sheet202120212020
(Dollars in thousands)
Cash and due from banks$179,505 $177,199 $150,464 
Interest-earning deposits in financial institutions5,678,587 5,517,667 3,010,197 
Securities available-for-sale7,198,608 5,941,690 5,235,591 
Less: pledged securities(489,976)(488,047)(449,330)
Total primary liquidity$12,566,724 $11,148,509 $7,946,922 
Ratio of primary liquidity to total deposits42.4 %39.5 %31.9 %

Secondary Liquidity - Off-Balance Sheet June 30,March 31,
December 31,
Available Secured Borrowing Capacity202120212020
(In thousands)
Secured borrowing capacity with the FHLB$3,307,329 $3,459,294 $3,330,715 
Less: secured advances outstanding— (5,000)(5,000)
Available secured borrowing capacity with the FHLB3,307,329 3,454,294 3,325,715 
Available secured borrowing capacity with the FRBSF1,436,648 1,413,182 1,409,452 
Total secondary liquidity$4,743,977 $4,867,476 $4,735,167 
During the three months ended June 30, 2021, the Company's primary liquidity increased by $1.4 billion to $12.6 billion at June 30, 2021 due mainly to a $1.3 billion increase in securities available-for-sale and a $160.9 million increase in interest-earning deposits in financial institutions. During the second quarter of 2021, the Company's secondary liquidity decreased by $123.5 million to $4.7 billion at June 30, 2021 due primarily to a $147.0 million decrease in secured borrowing capacity with the FHLB, offset partially by a $23.5 million increase in secured borrowing capacity with the FRBSF.
In addition to our primary liquidity, we generate liquidity from cash flows from our loan and securities portfolios and from our large base of core deposits, defined as noninterest-bearing demand, interest checking, savings, and non-brokered money market accounts. At June 30, 2021, core deposits totaled $27.0 billion and represented 91% of the Company's total deposits. Core deposits are normally less volatile, often with customer relationships tied to other products offered by the Bank promoting long-standing relationships and stable funding sources. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our core deposits.
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Our deposit balances may decrease if customers withdraw funds from the Bank. In order to address the Bank’s liquidity risk from fluctuating deposit balances, the Bank maintains adequate levels of available liquidity on and off the balance sheet.
We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At June 30, 2021, brokered deposits totaled $1.3 billion, consisting primarily of $1.1 billion of non-maturity brokered accounts and $195.7 million of brokered time deposits. At December 31, 2020, brokered deposits totaled $1.3 billion, consisting mainly of $1.1 billion of non-maturity brokered accounts and $195.7 million of brokered time deposits.
Our liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Liquidity Buffer Coverage Ratio (the ratio of cash and unpledged securities to the estimated 30 day cash outflow in a defined stress scenario), Liquidity Stress Test Survival Horizon (the number of days that the Bank’s liquidity buffer plus available secured borrowing capacity is sufficient to offset cumulative cash outflow in a defined stress scenario), Loan to Funding Ratio (measurement of gross loans net of fees divided by deposits plus borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. At June 30, 2021, 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 million during the three fiscal years of 2020, 2019, and 2018, compared to dividends of $1.3 billion paid by the Bank during that same period. During the three and six months ended June 30, 2021, PacWest received $33.0 million and $66.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $1.7 billion at June 30, 2021, for the foreseeable future any dividends from the Bank to PacWest will continue to require DFPI and FDIC approval consistent with what has been required since 2008 when Bank first had an accumulated deficit triggered by goodwill impairment write-downs during the financial crisis of 2007-2008.
At June 30, 2021, PacWest had $133.4 million in cash and cash equivalents, of which substantially all is on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months.
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Contractual Obligations
The following table summarizes the known contractual obligations of the Company as of the date indicated:
Due AfterDue After
DueOne YearThree YearsDue
WithinThroughThroughAfter
June 30, 2021One YearThree YearsFive YearsFive YearsTotal
(In thousands)
Time deposits$1,238,447 $168,107 $79,348 $— $1,485,902 
Short-term borrowings6,625 — — — 6,625 
Long-term debt obligations (1)
— — — 942,352 942,352 
Contractual interest (2)
14,891 28,153 25,558 — 68,602 
Operating lease obligations35,231 59,113 31,109 28,309 153,762 
Other contractual obligations76,958 113,426 11,150 25,822 227,356 
Total$1,372,152 $368,799 $147,165 $996,483 $2,884,599 
_______________________________________ 
(1)    Excludes issuance costs and purchase accounting fair value adjustments.
(2)    Excludes interest on variable rate subordinated debt instruments.
Long-term debt obligations include subordinated debt. Debt obligations are also discussed in Note 10. Borrowings and Subordinated Debt, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in “Item 1. Condensed Consolidated Financial Statements (Unaudited).” Operating lease obligations are discussed in the Notes to Consolidated Financial Statements included in our Form 10-K. The other contractual obligations relate to our minimum liability associated with our data and item processing contract with a third-party provider, commitments to contribute capital to investments in low income housing project partnerships and private equity funds, and commitments under deferred compensation arrangements.
We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate liquidity levels. We expect to maintain adequate liquidity levels through profitability, loan and lease payoffs, securities repayments and maturities, and continued deposit gathering activities. We also have in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Off-Balance Sheet Arrangements
Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At June 30, 2021, our loan commitments and standby letters of credit were $7.9 billion and $343.7 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity - Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 12. Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This analysis should be read in conjunction with text under the caption "Quantitative and Qualitative Disclosures About Market Risk" in our Form 10-K, which text is incorporated herein by reference. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Item 2 regarding such forward-looking information.
Market Risk - Foreign Currency Exposure
We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps to hedge exposures to debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar, and the derivatives that hedge those exposures. As of June 30, 2021, the U.S. Dollar notional amounts of subordinated debt payable denominated in foreign currencies was $30.6 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures was $28.5 million. We recognized a foreign currency translation net gain of $218,000 for the six months ended June 30, 2021 and a foreign currency translation net loss of $614,000 for the six months ended June 30, 2020.
Asset/Liability Management and Interest Rate Sensitivity
Interest Rate Risk
We measure our IRR position on a monthly basis using two methods: (i) NII simulation analysis; and (ii) MVE modeling. The Executive ALM Committee and the Board Asset/Liability Management Committee review the results of these analyses quarterly. If hypothetical changes to interest rates cause changes to our simulated net present value of equity and/or net interest income outside our pre-established limits, we may adjust our asset and liability mix in an effort to bring our interest rate risk exposure within our established limits.
We evaluated the results of our NII simulation model and MVE model prepared as of June 30, 2021, the results of which are presented below. Our NII simulation and MVE model indicate that our balance sheet is asset-sensitive. An asset-sensitive profile would suggest that a sudden sustained increase in rates would result in an increase in our estimated NII and MVE, while a liability-sensitive profile would suggest that these amounts would decrease.
Net Interest Income Simulation
We used a NII simulation model to measure the estimated changes in NII that would result over the next 12 months from immediate and sustained changes in interest rates as of June 30, 2021. This model is an interest rate risk management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth or changes in the product mix of either our total interest-sensitive assets or liabilities over the next 12 months, therefore the results reflect an interest rate shock to a static balance sheet.
This analysis calculates the difference between NII forecasted using both increasing and decreasing interest rate scenarios using the forward yield curve at June 30, 2021. In order to arrive at the base case, we extend our balance sheet at June 30, 2021 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of June 30, 2021. Based on such repricing, we calculate an estimated NII and NIM for each rate scenario.
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The NII simulation model is dependent upon numerous assumptions. For example, the majority of our loans are variable rate that are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (embedded options) and the simulation model uses prepayment assumptions to estimate these accelerated cash flows and reinvest these proceeds at current simulated yields. Our interest-bearing deposits reprice at our discretion and are assumed to reprice at a rate less than the change in market rates. The 12-month NII simulation model as of June 30, 2021 assumes interest-bearing deposits reprice at 28% of the change in market rates in a rising interest rate scenario, depending on the amount of the rate change (this is commonly referred to as the "deposit beta"). The effects of certain balance sheet attributes, such as fixed-rate loans, variable-rate loans that have reached their floors, and the volume of noninterest-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our NII simulation model. Additionally, we assume that all market interest rates have an interest rate floor of 0%. Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, loan and deposit pricing, changes in the mix of earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.
The following table presents forecasted net interest income and net interest margin for the next 12 months using the static balance sheet and forward yield curve as the base scenario, with immediate and sustained parallel upward movements in interest rates of 100, 200, and 300 basis points and sustained parallel downward movements in interest rates of 25, 50, and 100 basis points as of the date indicated:
ForecastedForecastedForecasted
Net InterestPercentageNet InterestNet Interest
IncomeChange MarginMargin Change
June 30, 2021(Tax Equivalent)From Base(Tax Equivalent)From Base
(Dollars in millions)
Interest Rate Scenario:
Up 300 basis points$1,296.5 25.1%4.08%0.82%
Up 200 basis points$1,192.6 15.1%3.75%0.49%
Up 100 basis points$1,101.1 6.3%3.47%0.21%
BASE CASE$1,036.1 3.26%
Down 25 basis points$1,033.3 (0.3)%3.25%(0.01)%
Down 50 basis points$1,026.4 (0.9)%3.23%(0.03)%
Down 100 basis points$1,022.0 (1.4)%3.22%(0.04)%

During the second quarter of 2021, total base case year 1 tax equivalent NII increased by $1.7 million to $1.0 billion at June 30, 2021, and the base case tax equivalent NIM decreased to 3.26% from 3.48%. The increase in year 1 NII compared to March 31, 2021 NII was attributable to balance sheet growth (interest-earning deposits in financial institutions, investment securities, and loans and leases), offset partially by lower loan yields. The tax equivalent NIM decreased due to the lower loan yields and the earning assets mix shift from the increase in the balance of low yielding interest-earning deposits in financial institutions during the second quarter of 2021.
In addition to parallel interest rate shock scenarios, we also model various alternative rate vectors. The most favorable alternate rate vector that we model is the “Bear Flattener Severe” scenario, when short-term rates increase faster than long-term rates. In the “Bear Flattener Severe” scenario, Year 1 tax equivalent NII increases by 4.79%. Because of the low level of market interest rates and the assumption that market rates contain a 0% floor, the ad hoc scenarios that assume decreasing interest rates do not differ materially from the base case scenario.
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At June 30, 2021, we had $19.6 billion of total loans that included $10.9 billion with variable interest rate terms (excluding hybrid loans discussed below). Of the variable interest rate loans, $9.1 billion, or 83%, contained interest rate floor provisions, which included $9.0 billion of loans with "in-the-money" floors, meaning the loan coupon will not adjust down if there are future decreases to the index interest rate. The following table summarizes the estimated balance of loans with "in-the-money" floors for the indicated increases in interest rates:
June 30, 2021
Total Amount of
Loans With
Basis Points of "In-the-Money"
Rate IncreasesLoan Floors
(Dollars in millions)
50 bps$5,932
100 bps$3,728
150 bps$2,518
200 bps$1,044
250 bps$76
At June 30, 2021, we also had $2.9 billion of variable-rate hybrid loans that do not immediately reprice because the loans contain an initial fixed-rate period before they become variable. The cumulative amounts of hybrid loans that would switch from being fixed-rate to variable-rate because the initial fixed-rate term would expire were approximately $144.5 million, $486.2 million, and $925.1 million in the next one, two, and three years.
LIBOR is expected to be phased out after 2021, as such the Company is assessing the impacts of this transition and exploring alternatives to use in place of LIBOR.  The business processes impacted relate primarily to our variable-rate loans and our subordinated debt, both of which are indexed to LIBOR. For further information, see Item 1A. "Risk Factors" of our Form 10-K.
Market Value of Equity
We measure the impact of market interest rate changes on the net present value of estimated cash flows from our assets, liabilities, and off-balance sheet items, defined as the market value of equity, using our MVE model. This simulation model assesses the changes in the market value of our interest-sensitive financial instruments that would occur in response to an instantaneous and sustained increase in market interest rates of 100, 200, and 300 basis points and sustained decrease in market interest rates of 50 and 100 basis points. This analysis assigns significant value to our noninterest-bearing deposit balances. The projections include various assumptions regarding cash flows and interest rates and are by their nature forward-looking and inherently uncertain.
The MVE model is an interest rate risk management tool and the results are not necessarily an indication of our actual future results. Actual results may vary significantly from the results suggested by the market value of equity table. Loan prepayments and deposit attrition, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, among others, may vary significantly from our assumptions. The base case is determined by applying various current market discount rates to the estimated cash flows from the different types of assets, liabilities, and off-balance sheet items existing at June 30, 2021.








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The following table shows the projected change in the market value of equity for the rate scenarios presented as of the date indicated:
Ratio of
Projected
Dollar
Percentage
Percentage
Projected
Market Value
Change
Change
of Total
Market Value
June 30, 2021
of Equity
From Base
From Base
Assets
to Book Value
(Dollars in millions)
Interest Rate Scenario:
Up 300 basis points$6,927.4 $882.7 14.6 %19.9 %180.1 %
Up 200 basis points$6,661.4 $616.7 10.2 %19.1 %173.2 %
Up 100 basis points$6,361.2 $316.5 5.2 %18.2 %165.4 %
BASE CASE$6,044.7 $— — %17.3 %157.1 %
Down 50 basis points$5,885.1 $(159.6)(2.6)%16.9 %153.0 %
Down 100 basis points$5,771.4 $(273.3)(4.5)%16.6 %150.0 %
During the second quarter of 2021, total base case projected market value of equity increased by $45.3 million to $6.0 billion. This increase in base case projected MVE was due mostly to: (1) a $192.5 million increase in the book value of stockholders' equity due mainly to $180.5 million of net earnings and a $39.1 million increase in accumulated other comprehensive income, offset partially by $29.9 of cash dividends paid; offset partially by (2) a $62.2 million decrease in the mark-to-market adjustment for loans and leases; (3) a $16.3 million increase in the mark-to-market adjustment for total deposits; and (4) a $72.4 million increase in the mark-to-market adjustment for subordinated debt due primarily to the updated tighter credit spreads used for the valuation of holding company TRUPS.
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ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was carried out by the Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective.
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 12. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements (Unaudited) is incorporated herein by reference.
In addition, in the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations.
ITEM 1A. RISK FACTORS
For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2020. See also "Forward-Looking Information" disclosed in Part I, Item 2 of this quarterly report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents stock purchases made during the second quarter of 2021:
Total Number of Maximum Dollar
Shares PurchasedValue of Shares
Total as Part of That May Yet
Number of AveragePublicly Be Purchased
Shares Price PaidAnnouncedUnder the
Purchase Dates
Purchased (1)
Per Share
Program (2)
Program (2)
(In thousands)
April 1 - April 30, 2021
— $— — $— 
May 1 - May 31, 2021
135,663 $45.17 — $— 
June 1 - June 30, 2021
1,148 $41.16 — $— 
Total136,811 $45.14 — 
__________________________
(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, PacWest's Board authorized a new Stock Repurchase Program to purchase shares of its common stock for an aggregate purchase price not to exceed $200 million, effective February 29, 2020. No shares were repurchased under the new Stock Repurchase Program prior to expiration on February 28, 2021.
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ITEM 6. INDEX TO EXHIBITS
Exhibit NumberDescription
2.1
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
31.1
31.2
32.1
32.2

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Exhibit NumberDescription
101
Interactive data files pursuant to Rule 405 of Regulation S-T formatted in Inline XBRL: (i)  the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, (ii)  the Condensed Consolidated Statements of Earnings (Loss) for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020 and six months ended June 30, 2021 and 2020, (iii)  the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020 and six months ended June 30, 2021 and 2020, (iv)  the Condensed Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2021 and 2020, (v)   the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020, and (vi)  the Notes to Condensed Consolidated Financial Statements. (Pursuant to Rule 406T of Regulation S-T, this information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.) (Filed herewith).
104Cover 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.
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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 PACWEST BANCORP
Date:August 6, 2021
/s/ Bart R. Olson
 
Bart R. Olson
 Chief Financial Officer and Principal Financial Officer
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