PACWEST BANCORP - Quarter Report: 2022 March (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


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

For the quarterly period ended March 31, 2022

Commission File No. 001-36408

PACWEST BANCORP

(Exact name of registrant as specified in its charter)


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

9701 Wilshire Blvd., Suite 700

Beverly Hills, CA 90212

(Address of Principal Executive Offices, Including Zip Code)

(310) 887-8500

(Registrant's Telephone Number, Including Area Code)

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

Common Stock, par value $0.01 per share

PACW

The Nasdaq Stock Market LLC

(Title of Each Class)

(Trading Symbol)

(Name of Exchange on Which Registered)

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

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

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

☑

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of April 28, 2022, there were 117,447,120 shares of the registrant's common stock outstanding, excluding 2,151,411 shares of unvested restricted stock.

PACWEST BANCORP

MARCH 31, 2022 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Earnings (Unaudited)	5
	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)	6
	Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	78
Item 4.	Controls and Procedures	82

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	82
Item 1A.	Risk Factors	82
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82
Item 6.	Index to Exhibits	83
Signatures		84

PART I

Glossary of Acronyms, Abbreviations, and Terms

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

ACL

Allowance for Credit Losses

FRB

Board of Governors of the Federal Reserve System

AFX

American Financial Exchange

FRBSF

Federal Reserve Bank of San Francisco

ALLL

Allowance for Loan and Lease Losses

GDP

Gross Domestic Product

ALM

Asset Liability Management

HOA Business

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

ASC

Accounting Standards Codification

IPO

Initial Public Offering

ASU

Accounting Standards Update

IRR

Interest Rate Risk

Basel III

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

LIBOR

London Inter-bank Offered Rate

BHCA

Bank Holding Company Act of 1956, as amended

LIHTC

Low Income Housing Tax Credit

BOLI

Bank Owned Life Insurance

MBS

Mortgage-Backed Securities

CARES Act

Coronavirus Aid, Relief, and Economic Security Act

MVE

Market Value of Equity

CDI

Core Deposit Intangible Assets

NAV

Net Asset Value

CECL

Current Expected Credit Loss

NII

Net Interest Income

CET1

Common Equity Tier 1

NIM

Net Interest Margin

Civic

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

NSF

Non-Sufficient Funds

CMBS

Commercial Mortgage-Backed Securities

OREO

Other Real Estate Owned

CMOs

Collateralized Mortgage Obligations

PPP

Paycheck Protection Program

Core Deposits

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

PRSUs

Performance-Based Restricted Stock Units

COVID-19

Coronavirus Disease

PWAM

Pacific Western Asset Management Inc.

CPI

Consumer Price Index

ROU

Right-of-use

CRA

Community Reinvestment Act

SBA

Small Business Administration

CRE

Commercial Real Estate

SBIC

Small Business Investment Company

CRI

Customer Relationship Intangible Assets

SEC

Securities and Exchange Commission

DFPI

California Department of Financial Protection and Innovation

SOFR

Secured Overnight Financing Rate

DTAs

Deferred Tax Assets

Tax Equivalent Net Interest Income

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

Dodd-Frank Act

Dodd-Frank Wall Street Reform and Consumer Protection Act

Tax Equivalent NIM

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

Efficiency Ratio

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

TDRs

Troubled Debt Restructurings

FASB

Financial Accounting Standards Board

TRSAs

Time-Based Restricted Stock Awards

FDIC

Federal Deposit Insurance Corporation

U.S. GAAP

U.S. Generally Accepted Accounting Principles

FHLB

Federal Home Loan Bank of San Francisco

VIE

Variable Interest Entity

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31,		December 31,
	2022		2021
	(Unaudited)
	(Dollars in thousands, except par value amounts)
ASSETS:
Cash and due from banks	$	205,446	$	112,548
Interest-earning deposits in financial institutions	1,865,235		3,944,686
Total cash, cash equivalents, and restricted cash	2,070,681		4,057,234
Securities available-for-sale, at fair value	9,975,109		10,694,458
Federal Home Loan Bank stock, at cost	17,250		17,250
Total investment securities	9,992,359		10,711,708

Gross loans and leases held for investment	24,439,749		23,026,308
Deferred fees, net	(87,677)		(84,760)
Allowance for loan and lease losses	(197,398)		(200,564)
Total loans and leases held for investment, net	24,154,674		22,740,984
Equipment leased to others under operating leases	325,305		339,150
Premises and equipment, net	51,011		46,740
Foreclosed assets, net	304		12,843
Goodwill	1,405,736		1,405,736
Core deposit and customer relationship intangibles, net	41,308		44,957
Other assets	1,208,261		1,083,992
Total assets	$	39,249,639	$	40,443,344

LIABILITIES:
Noninterest-bearing deposits	$	14,057,051	$	14,543,133
Interest-bearing deposits	19,167,844		20,454,624
Total deposits	33,224,895		34,997,757
Borrowings	991,000		—
Subordinated debt	863,880		863,283
Accrued interest payable and other liabilities	519,269		582,674
Total liabilities	35,599,044		36,443,714

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 March 31, 2022 and
December 31, 2021; 122,215,319 and 122,105,853 shares issued, respectively, includes
2,154,646 and 2,312,080 shares of unvested restricted stock, respectively)	1,222		1,221
Additional paid-in capital	2,991,159		3,013,399
Retained earnings	1,136,478		1,016,350
Treasury stock, at cost (2,613,553 and 2,520,999 shares at March 31, 2022 and
December 31, 2021)	(101,789)		(97,308)
Accumulated other comprehensive (loss) income, net	(376,475)		65,968
Total stockholders' equity	3,650,595		3,999,630
Total liabilities and stockholders' equity	$	39,249,639	$	40,443,344

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS


	Three Months Ended
	March 31,
	2022		2021
	(Unaudited)
	(In thousands, except per share amounts)
Interest income:
Loans and leases	$	267,759	$	241,544
Investment securities	53,422		30,265
Deposits in financial institutions	1,723		1,528
Total interest income	322,904		273,337
Interest expense:
Deposits	6,208		7,500
Borrowings	161		193
Subordinated debt	7,818		4,375
Total interest expense	14,187		12,068
Net interest income	308,717		261,269
Provision for credit losses	—		(48,000)
Net interest income after provision for credit losses	308,717		309,269
Noninterest income:
Leased equipment income	13,094		11,354
Other commissions and fees	11,580		9,158
Service charges on deposit accounts	3,571		2,934
Gain on sale of loans and leases	60		139
Gain on sale of securities	104		101
Dividends and (losses) gains on equity investments	(11,375)		10,904
Warrant income	629		6,123
Other income	3,155		4,116
Total noninterest income	20,818		44,829
Noninterest expense:
Compensation	92,240		79,882
Occupancy	15,200		14,054
Leased equipment depreciation	9,189		8,969
Data processing	9,629		6,957
Other professional services	5,954		5,126
Insurance and assessments	5,490		4,903
Customer related expense	12,655		4,818
Loan expense	5,157		3,193
Intangible asset amortization	3,649		3,079
Acquisition, integration and reorganization costs	—		3,425
Foreclosed assets (income) expense, net	(3,353)		1
Other expense	11,616		15,729
Total noninterest expense	167,426		150,136
Earnings before income taxes	162,109		203,962
Income tax expense	41,981		53,556
Net earnings	$	120,128	$	150,406

Earnings per share:
Basic	$	1.01	$	1.27
Diluted	$	1.01	$	1.27

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


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

___________________________________

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


	Three Months Ended March 31, 2022
	Common Stock									Accumulated
				Additional						Other
		Par		Paid-in		Retained		Treasury		Comprehensive
	Shares	Value		Capital		Earnings		Stock		Income (Loss)		Total
	(Unaudited)
	(In thousands, except per share amount)
Balance, December 31, 2021	119,584,854	$	1,221	$	3,013,399	$	1,016,350	$	(97,308)	$	65,968	$	3,999,630
Net earnings	—	—		—		120,128		—		—		120,128
Other comprehensive loss - net
unrealized loss on securities
available-for-sale, net of tax	—	—		—		—		—		(442,443)		(442,443)
Restricted stock awarded and
earned stock compensation,
net of shares forfeited	109,466	1		7,556		—		—		—		7,557
Restricted stock surrendered	(92,554)	—		—		—		(4,481)		—		(4,481)


Cash dividends paid:
Common stock, $0.25/share	—	—		(29,796)		—		—		—		(29,796)
Balance, March 31, 2022	119,601,766	$	1,222	$	2,991,159	$	1,136,478	$	(101,789)	$	(376,475)	$	3,650,595


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


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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	March 31,
	2022		2021
	(Unaudited)
	(In thousands)
Cash flows from operating activities:
Net earnings	$	120,128	$	150,406
Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization	13,577		12,924
Amortization of net premiums on securities available-for-sale	15,606		7,575
Amortization of intangible assets	3,649		3,079
Amortization of operating lease ROU assets	7,443		7,548
Provision for credit losses	—		(48,000)
Gain on sale of foreclosed assets	(3,177)		(73)
Provision for losses on foreclosed assets	—		14
Gain on sale of loans and leases	(60)		(139)
Gain on sale of premises and equipment	(2)		(28)
Gain on sale of securities	(104)		(101)

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

Decrease in other assets	29,162		60,160
Decrease in accrued interest payable and other liabilities	(58,397)		(52,533)
Net cash provided by operating activities	134,206		146,703

Cash flows from investing activities:
Cash paid for acquisition, net	—		(121,909)
Net (increase) decrease in loans and leases	(1,448,692)		68,916
Proceeds from sales of loans and leases	36,758		72,780
Proceeds from maturities and paydowns of securities available-for-sale	243,921		200,367
Proceeds from sales of securities available-for-sale	206,192		44,652
Purchases of securities available-for-sale	(356,196)		(1,050,217)

Proceeds from sales of foreclosed assets	16,020		435
Purchases of premises and equipment, net	(7,287)		(1,936)
Proceeds from sales of premises and equipment	3		64

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

Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposits	(486,082)		1,786,655
Net (decrease) increase in interest-bearing deposits	(1,286,780)		1,458,939
Net increase (decrease) in borrowings	991,000		(35,460)

Common stock repurchased and restricted stock surrendered	(4,481)		(1,908)
Cash dividends paid	(29,796)		(29,587)
Net cash (used in) provided by financing activities	(816,139)		3,178,639

Net (decrease) increase in cash, cash equivalents, and restricted cash	(1,986,553)		2,534,205
Cash, cash equivalents, and restricted cash, beginning of period	4,057,234		3,160,661
Cash, cash equivalents, and restricted cash, end of period	$	2,070,681	$	5,694,866

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended
	March 31,
	2022		2021
	(Unaudited)
	(In thousands)
Supplemental disclosures of cash flow information:
Cash paid for interest	$	10,635	$	12,421
Cash paid for income taxes	2,138		2,706

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

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

See Notes to Condensed Consolidated Financial Statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1. ORGANIZATION

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

We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 69 full-service branches located in California, one branch located in Durham, North Carolina, one branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank provides venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. The Bank also offers financing of business-purpose, non-owner-occupied investor properties through Civic, a wholly-owned subsidiary. The Bank also provides a specialized suite of services for the HOA industry. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.

We generate our revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities, and fees received in connection with deposit services, extending credit and other services offered, including treasury management and investment management services. Our major operating expenses are 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, 2021 as filed with the Securities and Exchange Commission ("Form 10-K").

Accounting Standards Adopted in 2022

Effective January 1, 2022, the Company partially adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326),” specifically the amendment related to the vintage disclosures, which requires creditors that are public entities to disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost.” The amendment also eliminates the disclosure of gross recoveries by year of origination previously presented in Example 15 in ASC 326-20-50-79, since it is not required under the guidance in ASC 326-20-50-6. The Company updated the vintage table disclosure in Note 4. Loans and Leases to present only current-period gross charge-offs by year of origination. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.

Basis of Presentation

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Use of Estimates

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period’s presentation format. On the consolidated statements of earnings, new lines are presented for "Dividends and gains (losses) on equity investments" and "Warrant income," as those categories exceeded the disclosure materiality threshold in the fourth quarter of 2021, which previously had been included as part of "Other income."

NOTE 2. RESTRICTED CASH BALANCES

The FRBSF establishes cash reserve requirements that its member banks must maintain based on a percentage of deposit liabilities. There were no average reserves required to be held at the FRBSF for the three months ended March 31, 2022 and 2021. As of March 31, 2022 and December 31, 2021, we pledged cash collateral for our derivative contracts of $2.0 million.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 3. INVESTMENT SECURITIES

Securities Available-for-Sale

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


	March 31, 2022								December 31, 2021
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
Security Type	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
	(In thousands)
Agency residential MBS	$	2,982,056	$	3,461	$	(196,703)	$	2,788,814	$	2,921,993	$	8,866	$	(32,649)	$	2,898,210
Municipal securities	2,234,457		15,158		(124,454)		2,125,161		2,248,749		75,192		(7,973)		2,315,968
Agency commercial MBS	1,627,516		3,968		(69,147)		1,562,337		1,660,516		37,664		(9,213)		1,688,967
Agency residential CMOs	962,218		2,181		(23,685)		940,714		1,021,716		22,288		(5,870)		1,038,134
U.S. Treasury securities	973,803		57		(66,117)		907,743		973,555		1,641		(8,298)		966,898
Corporate debt securities	513,981		2,619		(7,444)		509,156		514,077		13,774		(757)		527,094
Private label commercial MBS	439,909		—		(38,617)		401,292		453,314		147		(3,244)		450,217
Collateralized loan obligations	365,355		236		(1,785)		363,806		385,410		396		(444)		385,362
Private label residential CMOs	256,274		88		(18,202)		238,160		265,851		1,857		(3,291)		264,417
Asset-backed securities	112,875		375		(373)		112,877		129,387		484		(324)		129,547
SBA securities	25,655		—		(606)		25,049		28,950		726		(32)		29,644


Total	$	10,494,099	$	28,143	$	(547,133)	$	9,975,109	$	10,603,518	$	163,035	$	(72,095)	$	10,694,458

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

As of March 31, 2022, securities available-for-sale with a fair value of $558.0 million were pledged as collateral for public deposits and other purposes as required by various statutes and agreements.

Realized Gains and Losses on Securities Available-for-Sale

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


	Three Months Ended
	March 31,
Sales of Securities Available-for-Sale	2022		2021
	(In thousands)
Amortized cost of securities sold	$	206,088	$	44,551

Gross realized gains	$	1,190	$	101
Gross realized losses	(1,086)		—
Net realized gains	$	104	$	101

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Unrealized Losses on Securities Available-for-Sale

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


	March 31, 2022
	Less Than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Security Type	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Agency residential MBS	$	2,559,148	$	(189,302)	$	98,722	$	(7,401)	$	2,657,870	$	(196,703)
Municipal securities	1,584,374		(120,665)		31,483		(3,789)		1,615,857		(124,454)
Agency commercial MBS	993,615		(57,209)		102,398		(11,938)		1,096,013		(69,147)
Agency residential CMOs	441,966		(14,558)		96,639		(9,127)		538,605		(23,685)
U.S. Treasury securities	902,691		(66,117)		—		—		902,691		(66,117)
Corporate debt securities	276,481		(7,444)		—		—		276,481		(7,444)
Private label commercial MBS	390,858		(38,033)		10,433		(584)		401,291		(38,617)
Collateralized loan obligations	189,361		(1,036)		78,503		(749)		267,864		(1,785)
Private label residential CMOs	214,766		(18,202)		—		—		214,766		(18,202)
Asset-backed securities	51,934		(373)		—		—		51,934		(373)
SBA securities	23,249		(531)		1,800		(75)		25,049		(606)


Total	$	7,628,443	$	(513,470)	$	419,978	$	(33,663)	$	8,048,421	$	(547,133)


	December 31, 2021
	Less Than 12 Months				12 Months or More				Total
			Gross				Gross				Gross
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Security Type	Value		Losses		Value		Losses		Value		Losses
	(In thousands)
Agency residential MBS	$	2,502,536	$	(31,670)	$	57,329	$	(979)	$	2,559,865	$	(32,649)
Municipal securities	505,080		(6,965)		29,726		(1,008)		534,806		(7,973)
Agency commercial MBS	440,938		(5,066)		106,745		(4,147)		547,683		(9,213)
Agency residential CMOs	216,445		(3,757)		67,340		(2,113)		283,785		(5,870)
U.S. Treasury securities	628,767		(8,298)		—		—		628,767		(8,298)
Corporate debt securities	32,761		(757)		—		—		32,761		(757)
Private label commercial MBS	397,619		(3,244)		—		—		397,619		(3,244)
Collateralized loan obligations	137,619		(374)		43,730		(70)		181,349		(444)
Private label residential CMOs	201,988		(3,291)		—		—		201,988		(3,291)
Asset-backed securities	38,742		(137)		15,762		(187)		54,504		(324)
SBA securities	—		—		1,864		(32)		1,864		(32)
Total	$	5,102,495	$	(63,559)	$	322,496	$	(8,536)	$	5,424,991	$	(72,095)

The securities that were in an unrealized loss position at March 31, 2022, were considered impaired and required further review to determine if the unrealized losses were credit-related. We concluded the unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. We also considered the seniority of the tranches and U.S. government agency guarantees, if any, to assess whether an unrealized loss was credit-related. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive income (loss)" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Contractual Maturities of Securities Available-for-Sale

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


	March 31, 2022
	Amortized		Fair
Maturities	Cost		Value
	(In thousands)
Due in one year or less	$	43,600	$	43,705
Due after one year through five years	667,668		670,477
Due after five years through ten years	3,547,627		3,354,275
Due after ten years	6,235,204		5,906,652
Total securities available-for-sale	$	10,494,099	$	9,975,109

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

Interest Income on Investment Securities

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


	Three Months Ended
	March 31,
	2022		2021
	(In thousands)
Taxable interest	$	44,642	$	21,970
Non-taxable interest	8,519		8,078
Dividend income	261		217
Total interest income on investment securities	$	53,422	$	30,265

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4. LOANS AND LEASES

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

Loans and Leases Held for Investment

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


	March 31,		December 31,
	2022		2021
	(In thousands)
Real estate mortgage	$	12,052,868	$	11,189,278
Real estate construction and land	3,748,539		3,491,340
Commercial	8,133,779		7,888,068
Consumer	504,563		457,622
Total gross loans and leases held for investment	24,439,749		23,026,308
Deferred fees, net	(87,677)		(84,760)
Total loans and leases held for investment, net of deferred fees	24,352,072		22,941,548
Allowance for loan and lease losses	(197,398)		(200,564)
Total loans and leases held for investment, net (1)	$	24,154,674	$	22,740,984

____________________

(1) Excludes accrued interest receivable of $82.7 million and $80.3 million at March 31, 2022 and December 31, 2021, respectively, which is recorded in "Other assets" on the condensed consolidated balance sheets.

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


	March 31, 2022
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	3,777	$	2,323	$	6,100	$	3,663,641	$	3,669,741
Residential	36,703		8,547		45,250		8,324,300		8,369,550
Total real estate mortgage	40,480		10,870		51,350		11,987,941		12,039,291
Real estate construction and land:
Commercial	—		—		—		802,022		802,022
Residential	21,413		5,818		27,231		2,864,236		2,891,467
Total real estate construction and land	21,413		5,818		27,231		3,666,258		3,693,489
Commercial:
Asset-based	—		449		449		4,738,771		4,739,220
Venture capital	—		—		—		2,077,339		2,077,339
Other commercial	167		549		716		1,297,420		1,298,136
Total commercial	167		998		1,165		8,113,530		8,114,695
Consumer	995		369		1,364		503,233		504,597
Total	$	63,055	$	18,055	$	81,110	$	24,270,962	$	24,352,072

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


	December 31, 2021
	30 - 89		90 or More
	Days		Days		Total
	Past Due		Past Due		Past Due		Current		Total
	(In thousands)
Real estate mortgage:
Commercial	$	5,307	$	2,236	$	7,543	$	3,754,756	$	3,762,299
Residential	40,505		9,666		50,171		7,366,250		7,416,421
Total real estate mortgage	45,812		11,902		57,714		11,121,006		11,178,720
Real estate construction and land:
Commercial	—		—		—		832,591		832,591
Residential	7,271		2,223		9,494		2,595,042		2,604,536
Total real estate construction and land	7,271		2,223		9,494		3,427,633		3,437,127
Commercial:
Asset-based	—		464		464		4,075,013		4,075,477
Venture capital	—		—		—		2,320,593		2,320,593
Other commercial	955		3,601		4,556		1,467,425		1,471,981
Total commercial	955		4,065		5,020		7,863,031		7,868,051
Consumer	1,004		276		1,280		456,370		457,650
Total	$	55,042	$	18,466	$	73,508	$	22,868,040	$	22,941,548

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

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


	March 31, 2022						December 31, 2021
	Nonaccrual		Performing		Total		Nonaccrual		Performing		Total
	(In thousands)
Real estate mortgage:
Commercial	$	32,071	$	3,637,670	$	3,669,741	$	27,540	$	3,734,759	$	3,762,299
Residential	17,463		8,352,087		8,369,550		12,292		7,404,129		7,416,421
Total real estate mortgage	49,534		11,989,757		12,039,291		39,832		11,138,888		11,178,720
Real estate construction and land:
Commercial	—		802,022		802,022		—		832,591		832,591
Residential	6,215		2,885,252		2,891,467		4,715		2,599,821		2,604,536
Total real estate construction and land	6,215		3,687,274		3,693,489		4,715		3,432,412		3,437,127
Commercial:
Asset-based	1,323		4,737,897		4,739,220		1,464		4,074,013		4,075,477
Venture capital	3,659		2,073,680		2,077,339		2,799		2,317,794		2,320,593
Other commercial	5,420		1,292,716		1,298,136		11,950		1,460,031		1,471,981
Total commercial	10,402		8,104,293		8,114,695		16,213		7,851,838		7,868,051
Consumer	387		504,210		504,597		414		457,236		457,650
Total	$	66,538	$	24,285,534	$	24,352,072	$	61,174	$	22,880,374	$	22,941,548

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

At March 31, 2022, nonaccrual loans and leases included $18.1 million of loans and leases 90 or more days past due, $7.4 million of loans and leases 30 to 89 days past due, and $41.1 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, 2021, nonaccrual loans and leases included $18.5 million of loans and leases 90 or more days past due, $6.3 million of loans and leases 30 to 89 days past due, and $36.4 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.

As of March 31, 2022, our three largest loan relationships on nonaccrual status had an aggregate carrying value of $21.6 million and represented 32% of total nonaccrual loans and leases.

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


	March 31, 2022
	Classified		Special Mention		Pass		Total
	(In thousands)
Real estate mortgage:
Commercial	$	35,463	$	168,240	$	3,466,038	$	3,669,741
Residential	22,844		13,450		8,333,256		8,369,550
Total real estate mortgage	58,307		181,690		11,799,294		12,039,291
Real estate construction and land:
Commercial	—		68,864		733,158		802,022
Residential	6,215		15,780		2,869,472		2,891,467
Total real estate construction and land	6,215		84,644		3,602,630		3,693,489
Commercial:
Asset-based	4,449		60,367		4,674,404		4,739,220
Venture capital	3,722		37,083		2,036,534		2,077,339
Other commercial	8,911		10,914		1,278,311		1,298,136
Total commercial	17,082		108,364		7,989,249		8,114,695
Consumer	464		2,617		501,516		504,597
Total	$	82,068	$	377,315	$	23,892,689	$	24,352,072


	December 31, 2021
	Classified		Special Mention		Pass		Total
	(In thousands)
Real estate mortgage:
Commercial	$	62,206	$	191,809	$	3,508,284	$	3,762,299
Residential	17,700		19,848		7,378,873		7,416,421
Total real estate mortgage	79,906		211,657		10,887,157		11,178,720
Real estate construction and land:
Commercial	—		67,727		764,864		832,591
Residential	4,715		1,720		2,598,101		2,604,536
Total real estate construction and land	4,715		69,447		3,362,965		3,437,127
Commercial:
Asset-based	4,591		78,305		3,992,581		4,075,477
Venture capital	4,794		14,833		2,300,966		2,320,593
Other commercial	21,659		15,528		1,434,794		1,471,981
Total commercial	31,044		108,666		7,728,341		7,868,051
Consumer	439		1,841		455,370		457,650
Total	$	116,104	$	391,611	$	22,433,833	$	22,941,548

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


			Three Months				Three Months
			Ended				Ended
	March 31,		March 31,		March 31,		March 31,
	2022		2022		2021		2021
	Nonaccrual		Interest		Nonaccrual		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
	(In thousands)
With An Allowance Recorded:
Real estate mortgage:
Commercial	$	68	$	—	$	76	$	—
Residential	4,003		—		1,883		—
Real estate construction and land:
Commercial	—		—		—		—
Residential	600		—		116		—
Commercial:
Asset based	874		—		1,880		—
Venture capital	3,659		—		2,432		—
Other commercial	1,274		—		1,655		—
Consumer	387		—		556		—
With No Related Allowance Recorded:
Real estate mortgage:
Commercial	$	32,003	$	17	$	46,360	$	287
Residential	13,460		—		588		—
Real estate construction and land:
Commercial	—		—		302		—
Residential	5,615		—		300		—
Commercial:
Asset based	449		—		500		—
Venture capital	—		—		—		—
Other commercial	4,146		354		11,004		1,830
Consumer	—		—		—		—
Total Loans and Leases With and
Without an Allowance Recorded:
Real estate mortgage	$	49,534	$	17	$	48,907	$	287
Real estate construction and land	6,215		—		718		—
Commercial	10,402		354		17,471		1,830
Consumer	387		—		556		—
Total	$	66,538	$	371	$	67,652	$	2,117

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 Year												Revolving		to Term
March 31, 2022	2022		2021		2020		2019		2018		Prior		Loans		Loans		Total
	(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass	$	—	$	3,047	$	9,084	$	33,387	$	5,171	$	36,008	$	27,646	$	—	$	114,343
3-4 Pass	81,116		497,356		544,479		307,947		500,197		1,332,409		77,592		10,599		3,351,695
5 Special mention	—		—		4,783		73,552		50,681		39,224		—		—		168,240
6-8 Classified	—		—		482		2,158		14,404		18,419		—		—		35,463
Total	$	81,116	$	500,403	$	558,828	$	417,044	$	570,453	$	1,426,060	$	105,238	$	10,599	$	3,669,741
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	168	$	—	$	—	$	168

Real Estate Mortgage:
Residential
Internal risk rating:
1-2 High pass	$	—	$	94,641	$	23,097	$	52,848	$	50,593	$	45,650	$	1,000	$	—	$	267,829
3-4 Pass	1,346,363		4,241,531		559,766		559,016		531,570		686,935		140,148		98		8,065,427
5 Special mention	—		—		315		13,007		—		128		—		—		13,450
6-8 Classified	—		9,751		6,695		—		2,791		3,370		—		237		22,844
Total	$	1,346,363	$	4,345,923	$	589,873	$	624,871	$	584,954	$	736,083	$	141,148	$	335	$	8,369,550
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	22,136		105,608		93,720		341,314		155,658		14,722		—		—		733,158
5 Special mention	—		—		—		—		—		68,864		—		—		68,864
6-8 Classified	—		—		—		—		—		—		—		—		—
Total	$	22,136	$	105,608	$	93,720	$	341,314	$	155,658	$	83,586	$	—	$	—	$	802,022
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


															Revolving
															Converted
Amortized Cost Basis (1)	Term Loans by Origination Year												Revolving		to Term
March 31, 2022	2022		2021		2020		2019		2018		Prior		Loans		Loans		Total
	(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
3-4 Pass	182,292		872,932		789,164		807,854		169,889		15,040		21,516		10,785		2,869,472
5 Special mention	14,796		—		984		—		—		—		—		—		15,780
6-8 Classified	(356)		799		4,925		588		—		259		—		—		6,215
Total	$	196,732	$	873,731	$	795,073	$	808,442	$	169,889	$	15,299	$	21,516	$	10,785	$	2,891,467
Current YTD period:
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

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

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

____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


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

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

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

______________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


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

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


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

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

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

____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


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

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

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

____________________

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

TDRs are a result of rate reductions, term extensions, fee concessions, transfers to foreclosed assets, discounted loan payoffs, and debt forgiveness, or a combination thereof. The Company granted various commercial and consumer loan modifications to provide borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company elected to not apply TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act during its applicable period beginning on March 1, 2020 and ending on January 1, 2022. The following table presents our troubled debt restructurings of loans held for investment by loan portfolio segment and class for the periods indicated:


	Three Months Ended March 31,
	2022					2021
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
	of	Recorded		Recorded		of	Recorded		Recorded
Troubled Debt Restructurings	Loans	Investment		Investment		Loans	Investment		Investment
	(Dollars in thousands)
Real estate mortgage:
Commercial	—	$	—	$	—	1	$	647	$	—
Residential	1	304		—		2	266		266



Commercial:
Asset-based	—	—		—		1	503		503
Venture capital	—	—		—		3	4,502		2,529
Other commercial	13	1,074		1,074		12	32,250		14,276
Consumer	—	—		—		1	20		20
Total	14	$	1,378	$	1,074	20	$	38,188	$	17,594

During the three months ended March 31, 2022, there were two other commercial loans for $78,000 restructured in the preceding 12-month period that subsequently defaulted. During the three months ended March 31, 2021, there was one residential real estate mortgage loan for $163,000 and one other commercial loan for $87,000 restructured in the preceding 12-month period that subsequently defaulted.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Leases Receivable

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

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


	Three Months Ended
	March 31,
	2022		2021
	(In thousands)
Component of leases receivable income:
Interest income on net investments in leases	$	2,388	$	2,080

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


	March 31, 2022		December 31, 2021
	(In thousands)
Net investment in direct financing leases:
Lease payments receivable	$	189,992	$	190,025
Unguaranteed residual assets	22,146		21,487
Deferred costs and other	1,352		1,373
Aggregate net investment in leases	$	213,490	$	212,885

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


	March 31, 2022
	(In thousands)
Period ending December 31,
2022	$	43,028
2023	49,649
2024	45,301
2025	29,371
2026	18,268
Thereafter	26,760
Total undiscounted cash flows	212,377
Less: Unearned income	(22,385)
Present value of lease payments	$	189,992

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



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

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)
















	Three Months Ended March 31, 2021
			Real Estate
	Real Estate		Construction
	Mortgage		and Land		Commercial		Consumer		Total
	(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period	$	138,342	$	78,356	$	126,403	$	5,080	$	348,181
Charge-offs	(368)		(700)		(2,574)		(346)		(3,988)
Recoveries	545		—		697		10		1,252
Net (charge-offs) recoveries	177		(700)		(1,877)		(336)		(2,736)
Provision	2,603		(10,881)		(45,810)		1,088		(53,000)
Balance, end of period	$	141,122	$	66,775	$	78,716	$	5,832	$	292,445

Ending Allowance by
Evaluation Methodology:
Individually evaluated	$	220	$	—	$	1,581	$	—	$	1,801
Collectively evaluated	$	140,902	$	66,775	$	77,135	$	5,832	$	290,644

Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated	$	52,823	$	2,047	$	35,285	$	—	$	90,155
Collectively evaluated	7,934,390		3,563,776		7,050,555		340,352		18,889,073
Ending balance	$	7,987,213	$	3,565,823	$	7,085,840	$	340,352	$	18,979,228

The allowance for loan and lease losses decreased by $3.2 million in the first quarter of 2022 to $197.4 million due primarily to a provision for loan and lease losses benefit of $2.0 million driven by improvement in loan portfolio credit quality metrics combined with changes in our loan portfolio composition, offset partially by increased provisions for unfunded commitments and loan growth.

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

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


	March 31, 2022						December 31, 2021
	Real		Business				Real		Business
	Property		Assets		Total		Property		Assets		Total
	(In thousands)
Real estate mortgage	$	44,662	$	—	$	44,662	$	30,817	$	—	$	30,817
Real estate construction and land	7,578		—		7,578		10,421		—		10,421
Commercial	—		1,986		1,986		—		7,586		7,586
Total	$	52,240	$	1,986	$	54,226	$	41,238	$	7,586	$	48,824

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Allowance for Credit Losses

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

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
















	Three Months Ended
	March 31, 2022
	Allowance for		Reserve for		Total
	Loan and		Unfunded Loan		Allowance for
	Lease Losses		Commitments		Credit Losses
	(In thousands)
Balance, beginning of period	$	200,564	$	73,071	$	273,635
Charge-offs	(3,234)		—		(3,234)
Recoveries	2,068		—		2,068
Net charge-offs	(1,166)		—		(1,166)
Provision	(2,000)		2,000		—
Balance, end of period	$	197,398	$	75,071	$	272,469
















	Three Months Ended
	March 31, 2021
	Allowance for		Reserve for		Total
	Loan and		Unfunded Loan		Allowance for
	Lease Losses		Commitments		Credit Losses
	(In thousands)
Balance, beginning of period	$	348,181	$	85,571	$	433,752
Charge-offs	(3,988)		—		(3,988)
Recoveries	1,252		—		1,252
Net charge-offs	(2,736)		—		(2,736)
Provision	(53,000)		5,000		(48,000)
Balance, end of period	$	292,445	$	90,571	$	383,016

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5. FORECLOSED ASSETS, NET

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


	March 31,		December 31,
Property Type	2022		2021
	(In thousands)
Commercial real estate	$	—	$	12,594


Multi‑family	304		—
Total other real estate owned, net	304		12,594
Other foreclosed assets	—		249
Total foreclosed assets, net	$	304	$	12,843

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


	Foreclosed
	Assets, Net
	(In thousands)
Balance, December 31, 2021	$	12,843

Transfers to foreclosed assets from loans	304


Reductions related to sales	(12,843)
Balance, March 31, 2022	$	304

NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

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

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.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


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

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

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

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


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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 7. OTHER ASSETS

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


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

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

____________________

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

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

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

NOTE 8. LEASES

Operating Leases as a Lessee

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


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

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


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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


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

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

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


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

Operating Leases as a Lessor

We provide equipment financing to our customers through operating leases where we facilitate the purchase of equipment leased to our customers. The equipment is shown on the condensed consolidated balance sheets as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the condensed consolidated statements of earnings, 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. The equipment is tested periodically for impairment. No impairment was recorded on "Equipment leased to others under operating leases" in the three months ended March 31, 2022 and 2021.

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


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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 9. BORROWINGS AND SUBORDINATED DEBT

Borrowings

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


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

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

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

FHLB Secured Line of Credit. The Bank had secured financing capacity with the FHLB as of March 31, 2022 of $3.6 billion, collateralized by a blanket lien on $5.6 billion of qualifying loans. As of March 31, 2022, the balance outstanding was $629.0 million, which consisted of a $629.0 million overnight advance. As of December 31, 2021, there was no balance outstanding.

FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of March 31, 2022, the Bank had secured borrowing capacity of $2.4 billion collateralized by liens covering $2.9 billion of qualifying loans. As of March 31, 2022 and December 31, 2021, there were no balances outstanding.

FHLB Unsecured Line of Credit. The Bank has a $112.0 million unsecured line of credit with the FHLB for the purchase of overnight funds, of which there was a $112.0 million balance outstanding at March 31, 2022 and no balance outstanding at December 31, 2021.

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

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:


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

___________________

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

(2) Net of unamortized issuance costs of $5.2 million.

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

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

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 10. DERIVATIVES

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


	March 31, 2022				December 31, 2021
	Notional		Fair		Notional		Fair
Derivatives Not Designated As Hedging Instruments	Amount		Value		Amount		Value
	(In thousands)
Derivative Assets:
Interest rate contracts	$	87,003	$	2,620	$	87,470	$	992
Foreign exchange contracts	28,463		1,936		28,463		1,517
Interest rate and economic contracts	115,466		4,556		115,933		2,509
Equity warrant assets	18,602		3,771		18,539		3,555
Total	$	134,068	$	8,327	$	134,472	$	6,064

Derivative Liabilities:
Interest rate contracts	$	87,003	$	2,500	$	87,470	$	931
Foreign exchange contracts	28,463		—		28,463		—
Total	$	115,466	$	2,500	$	115,933	$	931

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

NOTE 11. COMMITMENTS AND CONTINGENCIES

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


	March 31,		December 31,
	2022		2021
	(In thousands)
Loan commitments to extend credit	$	9,899,345	$	9,006,350
Standby letters of credit	321,742		345,769
Total	$	10,221,087	$	9,352,119

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

Commitments to extend credit are contractual agreements to lend to our customers when customers are in compliance with their contractual credit agreements and when customers have contractual availability to borrow under such agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The estimated exposure to loss from these commitments is included in the reserve for unfunded loan commitments, which amounted to $75.1 million at March 31, 2022 and $73.1 million at December 31, 2021.

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 March 31, 2022 and December 31, 2021, we had commitments to contribute capital to these entities totaling $84.8 million and $85.9 million.

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


	March 31, 2022
	(In thousands)
Period ending December 31,
2022	$	38,496
2023	46,276




Total	$	84,772

Legal Matters

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 12. FAIR VALUE MEASUREMENTS

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

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

The Company also holds SBIC investments measured at fair value using the NAV per share practical expedient that are not required to be classified in the fair value hierarchy. At March 31, 2022, the fair value of these investments was $50.6 million.

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


	Fair Value Measurements as of
	March 31, 2022
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available-for-sale:
Agency residential MBS	$	2,788,814	$	—	$	2,788,814	$	—
Municipal securities	2,125,161		—		2,125,161		—
Agency commercial MBS	1,562,337		—		1,562,337		—
Agency residential CMOs	940,714		—		940,714		—
U.S. Treasury securities	907,743		907,743		—		—
Corporate debt securities	509,156		—		509,156		—
Private label commercial MBS	401,292		—		395,716		5,576
Collateralized loan obligations	363,806		—		363,806		—
Private label residential CMOs	238,160		—		238,160		—
Asset-backed securities	112,877		—		112,877		—
SBA securities	25,049		—		25,049		—
Total securities available-for-sale	$	9,975,109	$	907,743	$	9,061,790	$	5,576
Equity investments with readily determinable fair values	$	8,814	$	8,814	$	—	$	—
Derivatives (1):
Equity warrants	3,771		—		—		3,771
Interest rate and economic contracts	4,556		—		4,556		—
Derivative liabilities	2,500		—		2,500		—

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


	Fair Value Measurements as of
	December 31, 2021
Measured on a Recurring Basis	Total		Level 1		Level 2		Level 3
	(In thousands)
Securities available-for-sale:
Agency residential MBS	$	2,898,210	$	—	$	2,898,210	$	—
Municipal securities	2,315,968		—		2,315,968		—
Agency commercial MBS	1,688,967		—		1,688,967		—
Agency residential CMOs	1,038,134		—		1,038,134		—
U.S. Treasury securities	966,898		966,898		—		—
Corporate debt securities	527,094		—		527,094		—
Private label commercial MBS	450,217		—		435,216		15,001
Collateralized loan obligations	385,362		—		385,362		—
Private label residential CMOs	264,417		—		264,417		—
Asset-backed securities	129,547		—		129,547		—
SBA securities	29,644		—		29,644		—
Total securities available-for-sale	$	10,694,458	$	966,898	$	9,712,559	$	15,001
Equity investments with readily determinable fair values	$	28,578	$	28,578	$	—	$	—
Derivatives (1):
Equity warrants	3,555		—		—		3,555
Interest rate and economic contracts	2,509		—		2,509		—
Derivative liabilities	931		—		931		—

____________________

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

During the three months ended March 31, 2022, there was a $7,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis.

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

March 31, 2022

Private Label Commercial MBS

Input or

Weighted

Range

Average

Unobservable Inputs

of Inputs

Input (1)

Voluntary annual prepayment speeds (2)

15.0%

Annual default rates (2)

2.0%

Loss severity rates (2)

60.0%

Discount rates

4.6% - 4.8%

4.8%

____________________

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

The 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:


	March 31, 2022
	Equity Warrants
		Weighted
	Range	Average
Unobservable Inputs	of Inputs	Input (1)
Volatility	22.6% - 124.9%	28.2%
Risk-free interest rate	0.2% - 2.5%	2.3%
Remaining life assumption (in years)	0.08 - 4.98	3.07

____________________

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

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


	Private Label		Equity
	Commercial MBS		Warrants
	(In thousands)
Balance, December 31, 2021	$	15,001	$	3,555
Total included in earnings	(4)		629
Total included in other comprehensive income (loss)	(94)		—

Issuances	—		178



Net settlements	(9,327)		—
Exercises and settlements	—		(584)
Transfers to Level 1 (equity investments with readily
determinable fair values)	—		(7)
Balance, March 31, 2022	$	5,576	$	3,771

Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end	$	(53)

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


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


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


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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

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


	Three Months Ended
Losses on Assets	March 31,
Measured on a Non-Recurring Basis	2022		2021
	(In thousands)
Individually evaluated loans and leases	$	434	$	702

OREO	—		14
Total losses	$	434	$	716

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

March 31, 2022

Valuation

Unobservable

Input or

Weighted

Asset

Fair Value

Technique

Inputs

Range

Average

(Dollars in thousands)

Individually evaluated

loans and leases

9,609

Discounted cash flows

Discount rates

5.50% - 9.25%

6.82%

Individually evaluated

loans and leases

3,634

Third party appraisals

No discounts

Total non-recurring Level 3

13,243

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


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

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

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)


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

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

Limitations

Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of March 31, 2022, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 13. EARNINGS PER SHARE

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


	Three Months Ended
	March 31,
	2022		2021
	(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Net earnings	$	120,128	$	150,406
Less: Earnings allocated to unvested restricted stock(1)	(2,037)		(2,355)
Net earnings allocated to common shares	$	118,091	$	148,051

Weighted-average basic shares and unvested restricted
stock outstanding	119,595		118,852
Less: Weighted-average unvested restricted stock
outstanding	(2,246)		(2,003)
Weighted-average basic shares outstanding	117,349		116,849

Basic earnings per share	$	1.01	$	1.27

Diluted Earnings Per Share:
Net earnings allocated to common shares	$	118,091	$	148,051

Weighted-average diluted shares outstanding	117,349		116,849

Diluted earnings per share	$	1.01	$	1.27

________________________

(1) Represents cash dividends paid to holders of unvested restricted stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 14. REVENUE FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenue

The following table presents interest income and noninterest income, the components of total revenue, as disclosed in the condensed consolidated statements of earnings 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 March 31,
	2022				2021
	Total		Revenue from		Total		Revenue from
	Recorded		Contracts with		Recorded		Contracts with
	Revenue		Customers		Revenue		Customers
	(In thousands)
Total interest income	$	322,904	$	—	$	273,337	$	—
Noninterest income:
Service charges on deposit accounts	3,571		3,571		2,934		2,934
Other commissions and fees	11,580		3,773		9,158		2,857
Leased equipment income	13,094		—		11,354		—
Gain on sale of loans	60		—		139		—
Gain on sale of securities	104		—		101		—
Dividends and (losses) gains on equity securities	(11,375)		—		10,904		—
Warrant income	629		—		6,123		—
Other income	3,155		(2)		4,116		180
Total noninterest income	20,818		7,342		44,829		5,971
Total revenue	$	343,722	$	7,342	$	318,166	$	5,971

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


	Three Months Ended
	March 31,
	2022		2021
	(In thousands)
Products and services transferred at a point in time	$	3,926	$	2,997
Products and services transferred over time	3,416		2,974
Total revenue from contracts with customers	$	7,342	$	5,971

Contract Balances

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


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

Contract liabilities relate to advance consideration received from customers for which revenue is recognized over the life of the contract. The change in contract liabilities for the three months ended March 31, 2022 due to revenue recognized that was included in the contract liability balance at the beginning of the period was $33,000.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 15. STOCK-BASED COMPENSATION

At the annual meeting of stockholders held on May 11, 2021, the Company's stockholders approved the Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (the “Amended and Restated 2017 Plan”). The Company’s Amended and Restated 2017 Plan permits stock-based compensation awards to officers, directors, employees, and consultants and will remain in effect until December 31, 2026. The Amended and Restated 2017 Plan authorizes grants of stock-based compensation instruments to issue up to 6,650,000 shares. As of March 31, 2022, there were 2,905,529 shares available for grant under the Amended and Restated 2017 Plan.

Restricted Stock

Restricted stock amortization totaled $7.6 million and $6.4 million for the three months ended March 31, 2022 and 2021. Such amounts are included in "Compensation expense" on the condensed consolidated statements of earnings. The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of March 31, 2022 totaled $67.3 million.

Time-Based Restricted Stock Awards

At March 31, 2022, there were 2,154,646 shares of unvested TRSAs outstanding. TRSAs generally vest ratably over a service period of three or four years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs is based on the fair value of the underlying award on the grant date and is recognized over the vesting period using the straight-line method.

Performance-Based Restricted Stock Units

At March 31, 2022, there were 505,647 units of unvested PRSUs that have been granted. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a three-year performance period. The shares underlying the PRSUs are not considered issued and outstanding until they vest. PRSUs are granted and initially expensed based on a target number. The number of shares that will ultimately vest based on actual performance will range from zero to a maximum of either 150% or 200% of target.

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 16. RECENTLY ISSUED ACCOUNTING STANDARDS

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

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

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

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

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

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

The Company has completed its readiness efforts to identify loans and other financial instruments that are impacted by the discontinuance of LIBOR. The Company has also completed its review for fallback language contained in contracts for LIBOR-based loans and other financial instruments and has begun to execute a transition plan to amend those legacy contracts maturing after June 30, 2023 that do not have or have inadequate fallback language by adding fallback language or to convert the base rate of the contract to a SOFR-based rate or another rate or index offered by the Company.

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

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

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

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

January 1, 2023

The Company will apply the amendments prospectively to business combinations occurring on or after the effective date. This standard is not expected to have a material impact on the Company’s consolidated financial statements.

PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

Effective

Effect on the Financial Statements

Standard

Description

Date

or Other Significant Matters

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

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

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

January 1, 2023

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

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

NOTE 17. RELATED PARTY TRANSACTIONS

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

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

NOTE 18. SUBSEQUENT EVENTS

Common Stock Dividends

On May 2, 2022, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.25 per common share. The cash dividend is payable on May 31, 2022 to stockholders of record at the close of business on May 16, 2022.

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

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

Forward-Looking Information

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

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

•weaker than expected general business and economic conditions could adversely affect the Company’s revenues, the values of its assets and liabilities and negatively impact loan growth;

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

•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 initial public offerings and mergers and acquisitions), which may affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;

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

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

•our ability to efficiently deploy excess liquidity;

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

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

•impact of the benchmark interest rate reform in the U.S. including the transition away from the U.S. dollar London Inter-bank Offering Rate ("LIBOR") to alternative reference rates;

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

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

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

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

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

•higher than anticipated increases in operating expenses;

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

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

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

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

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

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

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

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

Overview

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 2022, accounted for 93.7% of net revenue (net interest income plus noninterest income).

At March 31, 2022, the Company had total assets of $39.2 billion, including $24.4 billion of total loans and leases, net of deferred fees, $10.0 billion of securities available-for-sale, and $1.9 billion of interest-earning deposits in financial institutions compared to $40.4 billion of total assets, including $22.9 billion of total loans and leases, net of deferred fees, $10.7 billion of securities available-for-sale, and $3.9 billion of interest-earning deposits in financial institutions at December 31, 2021. The $1.2 billion decrease in total assets since year-end was due primarily to a $2.1 billion decrease in interest-earning deposits in financial institutions and a $719.3 million decrease in securities available-for-sale, offset partially by a $1.4 billion increase in loans and leases, net of deferred fees. The decrease in investment securities was due primarily to a decline in fair value as the portfolio had a net pre-tax unrealized gain of $90.9 million at December 31, 2021 that decreased to a net pre-tax unrealized loss of $519.0 million at March 31, 2022.

At March 31, 2022, the Company had total liabilities of $35.6 billion, including total deposits of $33.2 billion and borrowings of $991.0 million, compared to $36.4 billion of total liabilities, including $35.0 billion of total deposits and no borrowings at December 31, 2021. The $844.7 million decrease in total liabilities since year-end was due mainly to decreases of $1.1 billion in core deposits and $567.2 million in non-core non-maturity deposits, offset partially by an increase in overnight borrowings of $991.0 million. The decrease in core deposits was due primarily to a decline in balances from our venture banking clients of $1.5 billion, offset partially by an increase in community banking and national lending deposits of $415 million. At March 31, 2022, core deposits totaled $31.7 billion, or 95% of total deposits, including $14.1 billion of noninterest-bearing demand deposits, or 42% of total deposits.

At March 31, 2022, the Company had total stockholders' equity of $3.7 billion compared to $4.0 billion at December 31, 2021. The $349.0 million decrease in stockholders' equity since year-end was due mainly to a $442.4 million decrease in accumulated other comprehensive income (loss) due to the investment securities portfolio going from a net unrealized gain of $66.0 million to a net unrealized loss of $376.5 million, and $29.8 million of cash dividends paid, offset partially by $120.1 million in net earnings. Consolidated capital ratios decreased given the increase in risk-weighted assets of $1.8 billion, primarily from loan growth, resulting in common equity Tier 1 capital, Tier 1 capital, and total capital ratios of 8.64%, 9.07%, and 12.27% at March 31, 2022.

Recent Events

Stock Repurchase Program

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

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 strong net interest margin is our strong yield on loans and leases and competitive cost of deposits. While our deposit balances will fluctuate depending on deposit holders’ perceptions of alternative yields available in the market, we seek to minimize the impact of these variances by attracting a high percentage of noninterest-bearing deposits.

Loan and Lease Growth

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

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

The Magnitude of Credit Losses

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

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

The Level of Noninterest Expense

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

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


		Three Months Ended
		March 31,
Efficiency Ratio		2022			2021
		(Dollars in thousands)
Noninterest expense		$	167,426		$	150,136
Less:	Intangible asset amortization	3,649			3,079
	Foreclosed assets (income) expense, net	(3,353)			1
	Acquisition, integration and reorganization costs	—			3,425
	Noninterest expense used for efficiency ratio	$	167,130		$	143,631

Net interest income (tax equivalent)		$	312,651		$	264,635
Noninterest income		20,818			44,829
	Net revenues	333,469			309,464
Less:	Gain on sale of securities	104			101
	Net revenues used for efficiency ratio	$	333,365		$	309,363

Efficiency ratio		50.1		%	46.4		%

Critical Accounting Policies and Estimates

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

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

Non-GAAP Measurements

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

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


		Three Months Ended
		March 31,
Return on Average Tangible Equity		2022			2021
		(Dollars in thousands)
Net earnings		$	120,128		$	150,406
Add:	Intangible asset amortization	3,649			3,079
	Adjusted net earnings used for return on average tangible equity	$	123,777		$	153,485

Average stockholders' equity		$	3,847,481		$	3,617,248
Less:	Average intangible assets	1,449,056			1,192,780
	Average tangible common equity	$	2,398,425		$	2,424,468

Return on average equity (1)		12.66		%	16.86		%
Return on average tangible equity (2)		20.93		%	25.67		%

___________________________________

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

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


Tangible Common Equity Ratio and	March 31,			December 31,
Tangible Book Value Per Share	2022			2021
	(Dollars in thousands, except per share data)
Stockholders’ equity	$	3,650,595		$	3,999,630
Less: Intangible assets	1,447,044			1,450,693
Tangible common equity	$	2,203,551		$	2,548,937

Total assets	$	39,249,639		$	40,443,344
Less: Intangible assets	1,447,044			1,450,693
Tangible assets	$	37,802,595		$	38,992,651

Equity to assets ratio	9.30		%	9.89		%
Tangible common equity ratio (1)	5.83		%	6.54		%
Book value per share	$	30.52		$	33.45
Tangible book value per share (2)	$	18.42		$	21.31
Shares outstanding	119,601,766			119,584,854

_______________________________________

(1) Tangible common equity divided by tangible assets.

(2) Tangible common equity divided by shares outstanding.

Results of Operations

Earnings Performance

The following table presents performance metrics for the periods indicated:


	Three Months Ended
	March 31,
	2022			2021
	(Dollars in thousands, except per share data)
Earnings Summary:
Interest income	$	322,904		$	273,337
Interest expense	(14,187)			(12,068)
Net interest income	308,717			261,269
Provision for credit losses	—			48,000
Noninterest income	20,818			44,829
Noninterest expense	(167,426)			(150,136)
Earnings before income taxes	162,109			203,962
Income tax expense	(41,981)			(53,556)
Net earnings	$	120,128		$	150,406

Per Common Share Data:
Diluted earnings per share	$	1.01		$	1.27
Book value per share	$	30.52		$	30.68
Tangible book value per share (1)	$	18.42		$	20.39

Performance Ratios:
Return on average assets	1.22		%	1.94		%
Return on average tangible equity (1)	20.93		%	25.67		%
Net interest margin (tax equivalent)	3.43		%	3.69		%
Yield on average loans and leases (tax equivalent)	4.66		%	5.20		%
Cost of average total deposits	0.07		%	0.11		%
Efficiency ratio	50.1		%	46.4		%

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

_____________________________

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

First Quarter of 2022 Compared to First Quarter of 2021

Net earnings for the first quarter of 2022 were $120.1 million, or $1.01 per diluted share, compared to net earnings for the first quarter of 2021 of $150.4 million, or $1.27 per diluted share. The $30.3 million decrease in net earnings from the year-ago quarter was due mainly to a higher provision for credit losses of $48.0 million, lower noninterest income of $24.0 million and higher operating expense of $17.3 million, offset partially by higher net interest income of $47.4 million and lower income tax expense of $11.6 million. The increase in the provision for credit losses for the first quarter of 2022 from the year-ago quarter was due to no provision in the first quarter of 2022 compared to a provision benefit of $48.0 million in the first quarter of 2021 as there were improvements in certain key macro-economic forecast variables in the first quarter of 2021. Noninterest income decreased primarily due to a $22.3 million decrease in dividends and gains on equity investments and a $5.5 million decrease in warrant income due to less capital markets activity in the first quarter of 2022. Noninterest expense increased primarily due to an increase of $12.4 million in compensation expense, due mostly to the incremental expense of the higher headcount in 2022 from the acquired operations of Civic and the HOA Business. Net interest income increased due mainly to higher income on investment securities and loans and leases due primarily to higher average balances. The decrease in income tax expense was due primarily to lower pre-tax earnings in the first quarter of 2022 compared to the year-ago quarter.

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
	March 31, 2022						March 31, 2021
			Interest		Yields				Interest		Yields
	Average		Income/		and		Average		Income/		and
	Balance		Expense		Rates		Balance		Expense		Rates
	(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)	$	23,433,019	$	269,521	4.66	%	$	18,927,314	$	242,846	5.20	%
Investment securities (2)(4)	10,397,709		55,594		2.17	%	5,383,140		32,329		2.44	%
Deposits in financial institutions	3,083,159		1,723		0.23	%	4,790,231		1,528		0.13	%
Total interest‑earning assets (2)	36,913,887		326,838		3.59	%	29,100,685		276,703		3.86	%
Other assets	2,969,417						2,315,197
Total assets	$	39,883,304					$	31,415,882

LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking	$	7,094,623	1,776		0.10	%	$	6,401,869	2,232		0.14	%
Money market	10,852,454		3,461		0.13	%	7,975,996		3,278		0.17	%
Savings	642,709		39		0.02	%	572,959		35		0.02	%
Time	1,278,609		932		0.30	%	1,493,267		1,955		0.53	%
Total interest‑bearing deposits	19,868,395		6,208		0.13	%	16,444,091		7,500		0.18	%
Borrowings	298,444		161		0.22	%	226,053		193		0.35	%
Subordinated debt	863,572		7,818		3.67	%	466,101		4,375		3.81	%
Total interest‑bearing liabilities	21,030,411		14,187		0.27	%	17,136,245		12,068		0.29	%
Noninterest‑bearing demand deposits	14,463,667						10,173,459
Other liabilities	541,745						488,930
Total liabilities	36,035,823						27,798,634
Stockholders’ equity	3,847,481						3,617,248
Total liabilities and
stockholders' equity	$	39,883,304					$	31,415,882
Net interest income (2)			$	312,651					$	264,635
Net interest rate spread (2)					3.32	%					3.57	%
Net interest margin (2)					3.43	%					3.69	%

Total deposits (5)	$	34,332,062	$	6,208	0.07	%	$	26,617,550	$	7,500	0.11	%

_____________________

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

(2) Tax equivalent.

(3) Includes net loan premium amortization of $5.7 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively.

(4) Includes tax-equivalent adjustments of $2.2 million and $2.1 million for the three months ended March 31, 2022 and 2021, respectively, related to tax-exempt interest on investment securities. The federal statutory rate utilized was 21%.

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

First Quarter of 2022 Compared to First Quarter of 2021

Net interest income increased by $47.4 million to $308.7 million for the first quarter of 2022 compared to $261.3 million for the first quarter of 2021 due mainly to higher income on loans and leases and investment securities attributable to higher average balances, offset partially by lower yields on average loans and leases and average investment securities. The tax-equivalent yield on investment securities was 2.17% for the first quarter of 2022, compared to 2.44% for the same quarter of 2021. The tax equivalent yield on average loans and leases was 4.66% for the first quarter of 2022, compared to 5.20% for the same quarter of 2021.

The tax equivalent NIM was 3.43% for the first quarter of 2022 compared to 3.69% for the comparable quarter last year. The decrease in the tax equivalent NIM was due mostly to the lower yields on average loans and leases and average investment securities, offset partially by the change in the mix of average interest-earning assets driven by the increase in the balance of average loans and leases and investment securities as a percentage of average interest-earning assets from 84% to 92% and the decrease in the balance of average deposits in financial institutions as a percentage of average interest-earning assets from 16% to 8%. The balance of average loans and leases increased by $4.5 billion, the balance of average investment securities increased by $5.0 billion, and the balance of average deposits in financial institutions declined by $1.7 billion.

The cost of average total deposits decreased to 0.07% for the first quarter of 2022 from 0.11% for the first quarter of 2021 due mainly to lower rates paid on deposits in conjunction with decreased market rates.

Provision for Credit Losses

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


	Three Months Ended
	March 31,
	2022			2021
	(Dollars in thousands)
Provision For Credit Losses:
(Reduction in) addition to allowance for loan and lease losses	$	(2,000)		$	(53,000)
Addition to (reduction in) reserve for unfunded loan commitments	2,000			5,000
Total provision for credit losses	$	—		$	(48,000)

Credit Quality Metrics:
Net charge-offs on loans and leases
held for investment (1)	$	1,166		$	2,736
Annualized net charge-offs to average loans and leases	0.02		%	0.06		%
At quarter-end:
Allowance for credit losses	$	272,469		$	383,016
Allowance for credit losses to loans and leases held for investment	1.12		%	2.02		%
Allowance for credit losses to nonaccrual loans and leases held for investment	409.5		%	566.2		%
Nonaccrual loans and leases held for investment	$	66,538		$	67,652
Performing TDRs held for investment	$	16,781		$	27,999
Classified loans and leases held for investment	$	82,068		$	163,117
Special mention loans and leases held for investment	$	377,315		$	632,997

______________________

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

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

There was no provision for credit losses for the first quarter of 2022 compared to a provision benefit of $48.0 million for the first quarter of 2021. During the first quarter of 2022, continued credit quality improvement combined with the changes in our loan portfolio composition, offset by the provision need for growth in loans and unfunded commitments, resulted in no provision for the quarter. During the first quarter of 2021, a provision benefit was recorded as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics.

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

Noninterest Income

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


	Three Months Ended
	March 31,
Noninterest Income	2022		2021
	(In thousands)
Other commissions and fees	$	11,580	$	9,158
Leased equipment income	13,094		11,354
Service charges on deposit accounts	3,571		2,934
Gain on sale of loans and leases	60		139
Gain on sale of securities	104		101
Dividends and (losses) gains on equity investments	(11,375)		10,904
Warrant income	629		6,123
Other	3,155		4,116
Total noninterest income	$	20,818	$	44,829

First Quarter of 2022 Compared to First Quarter of 2021

Noninterest income decreased by $24.0 million to $20.8 million for the first quarter of 2022 compared to $44.8 million for the first quarter of 2021 due mainly to decreases of $5.5 million in warrant income and $22.3 million in dividends and gains (losses) on equity investments. Both of these items decreased in the first quarter of 2022 due to decreased capital market activity and volatility resulting from geopolitical tensions and inflationary pressures. Warrant income decreased due principally to fewer gains from exercised warrants, driven by the less active capital markets. The decrease in dividends and gains (losses) on equity investments was due primarily to lower gains on sales of equity investments, higher fair value losses on equity investments still held, and lower income distributions and fair value marks on SBIC investments. The net realized and unrealized losses on equity investments were $12.2 million in the first quarter of 2022, with one equity investment accounting for $7.5 million of the total net losses. As of March 31, 2022, we held six equity investments with a carrying value of $8.8 million, two of which were sold in April reducing the balance to $0.1 million.

Noninterest Expense

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


	Three Months Ended
	March 31,
Noninterest Expense	2022		2021
	(In thousands)
Compensation	$	92,240	$	79,882
Occupancy	15,200		14,054
Leased equipment depreciation	9,189		8,969
Data processing	9,629		6,957
Other professional services	5,954		5,126
Customer related expense	12,655		4,818
Loan expense	5,157		3,193
Insurance and assessments	5,490		4,903
Intangible asset amortization	3,649		3,079
Acquisition, integration and reorganization costs	—		3,425
Foreclosed assets (income) expense, net	(3,353)		1
Other	11,616		15,729
Total noninterest expense	$	167,426	$	150,136

First Quarter of 2022 Compared to First Quarter of 2021

Noninterest expense increased by $17.3 million to $167.4 million for the first quarter of 2022 compared to $150.1 million for the first quarter of 2021 due primarily to an increase of $12.4 million in compensation expense, an increase of $7.8 million in customer related expense, and an increase of $2.7 million in data processing expense due mostly to the incremental expense related to the increased headcount and operations in 2022 due to the Civic and HOA Business operations that were acquired in 2021. These increases were partially offset by a $3.4 million increase in foreclosed assets income due mostly to a $3.2 million gain on the sale of our largest foreclosed asset in the first quarter of 2022.

Income Taxes

The effective tax rate for the first quarter of 2022 was 25.9% compared to 26.3% for the first quarter of 2021. The Company’s blended statutory tax rate for federal and state is 27.5% and the effective tax rate for the full year 2022 is estimated to be in the range of 25-27%.

Balance Sheet Analysis

Securities Available-for-Sale

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


	March 31, 2022					December 31, 2021
	Fair		% of		Duration		Fair		% of		Duration
Security Type	Value		Total		(in years)		Value		Total		(in years)
	(Dollars in thousands)
Agency residential MBS	$	2,788,814	28	%	6.2		$	2,898,210	27	%	2.9
Municipal securities	2,125,161		21	%	8.0		2,315,968		22	%	7.7
Agency commercial MBS	1,562,337		16	%	5.1		1,688,967		16	%	5.2
Agency residential CMOs	940,714		10	%	3.4		1,038,134		10	%	3.2
U.S. Treasury securities	907,743		9	%	6.3		966,898		9	%	6.6
Corporate debt securities	509,156		5	%	3.9		527,094		5	%	4.2
Private label commercial MBS	401,292		4	%	7.4		450,217		4	%	7.5
Collateralized loan obligations	363,806		4	%	0.1		385,362		4	%	0.1
Private label residential CMOs	238,160		2	%	5.3		264,417		2	%	3.9
Asset-backed securities	112,877		1	%	—		129,547		1	%	0.1
SBA securities	25,049		—	%	2.4		29,644		—	%	3.7

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

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


	March 31, 2022
	Fair		% of
Municipal Securities by State	Value		Total
	(Dollars in thousands)
California	$	517,471	24	%
Texas	456,268		21	%
Washington	329,987		16	%
Oregon	132,834		6	%
Maryland	66,926		3	%
Georgia	61,836		3	%
New York	61,669		3	%
Minnesota	60,445		3	%
Colorado	53,637		3	%
Florida	40,397		2	%
Total of ten largest states	1,781,470		84	%
All other states	343,691		16	%
Total municipal securities	$	2,125,161	100	%

Loans and Leases Held for Investment

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


	March 31, 2022				December 31, 2021
			% of					% of
Loan and Lease Portfolio	Balance		Total			Balance		Total
	(Dollars in thousands)
Real estate mortgage:
Commercial real estate	$	2,495,649	10	%		$	2,545,517	11	%
SBA program	621,911		3	%		623,579		3	%
Hotel	552,181		2	%		593,203		3	%
Total commercial real estate mortgage	3,669,741		15	%		3,762,299		17	%
Multi-family	4,080,257		17	%		3,916,317		17	%
Residential mortgage	2,977,986		12	%		2,449,693		11	%
Investor-owned residential	1,311,307		6	%		1,050,411		4	%
Total residential real estate mortgage	8,369,550		35	%		7,416,421		32	%
Total real estate mortgage	12,039,291		50	%		11,178,720		49	%
Real estate construction and land:
Commercial real estate construction and land	802,022		3	%		832,591		4	%
Residential construction	2,421,694		10	%		2,182,091		9	%
Construction - renovation	469,773		2	%		422,445		2	%
Total residential real estate construction and land	2,891,467		12	%		2,604,536		11	%
Total real estate construction and land (1)	3,693,489		15	%		3,437,127		15	%
Total real estate	15,732,780		65	%		14,615,847		64	%
Commercial:
Lender finance	3,100,621		13	%		2,617,712		11	%
Equipment finance	770,761		3	%		681,266		3	%
Premium finance	650,791		2	%		586,267		3	%
Other asset-based	217,047		1	%		190,232		1	%
Total asset-based	4,739,220		19	%		4,075,477		18	%
Equity fund loans	1,543,491		7	%		1,707,143		7	%
Venture lending	533,848		2	%		613,450		3	%
Total venture capital	2,077,339		9	%		2,320,593		10	%
Secured business loans	478,560		2	%		486,088		2	%
Paycheck Protection Program	70,420		—	%		156,699		1	%
Other lending	749,156		3	%		829,194		3	%
Total other commercial	1,298,136		5	%		1,471,981		6	%
Total commercial	8,114,695		33	%		7,868,051		34	%
Consumer	504,597		2	%		457,650		2	%
Total loans and leases held for investment,
net of deferred fees	$	24,352,072	100	%		$	22,941,548	100	%

________________________________

(1) Includes land and acquisition and development loans of $165.4 million at March 31, 2022 and $151.8 million at December 31, 2021.

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:


	March 31, 2022				December 31, 2021
			% of				% of
Real Estate Loans by State	Balance		Total		Balance		Total
	(Dollars in thousands)
California	$	9,372,463	60	%	$	8,916,633	61	%
Colorado	779,652		5	%	721,343		5	%
Florida	735,154		5	%	556,057		4	%
New York	620,051		4	%	675,948		5	%
Washington	532,633		3	%	500,836		3	%
Texas	475,204		3	%	392,836		3	%
Oregon	406,690		3	%	375,223		3	%
Nevada	375,481		2	%	346,838		2	%
Arizona	335,602		2	%	253,289		2	%
New Jersey	250,997		1	%	214,087		1	%
Total of 10 largest states	13,883,927		88	%	12,953,090		89	%
All other states	1,848,853		12	%	1,662,757		11	%
Total real estate loans held for investment, net of deferred fees	$	15,732,780	100	%	$	14,615,847	100	%

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


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

Total reductions	(2,753,488)

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

Weighted average rate on production (2)	4.31		%

_______________________________________

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

(2) The weighted average rate on production presents contractual rates on a tax equivalent basis and does not include amortized fees. Amortized fees added approximately 24 basis points to loan yields for the three months ended March 31, 2022.

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

In the first quarter of 2022, we used the Moody’s Consensus Forecast dated March 10, 2022 for the calculation of our quantitative component, which is consistent with each of the quarters in 2021. The economic forecast was relatively consistent with the prior quarter; however, the quantitative component of the allowance for credit losses increased due to provisions for net loan growth.

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

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

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

The determination of the allowance for credit losses is complex and highly dependent on numerous models, assumptions, and judgments made by management. Management's current expectation for credit losses as quantified in the allowance for credit losses considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan and lease composition, and relative credit risks known as of the balance sheet date.

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

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


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

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

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


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





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

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

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


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

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


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

Deposits

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


	March 31, 2022				December 31, 2021
			% of					% of
Deposit Composition	Balance		Total			Balance		Total
	(Dollars in thousands)
Noninterest-bearing demand	$	14,057,051	42	%		$	14,543,133	41	%
Interest checking	6,673,696		20	%		7,319,898		21	%
Money market	10,301,996		31	%		10,241,265		29	%
Savings	643,661		2	%		630,653		2	%
Total core deposits	31,676,404		95	%		32,734,949		93	%
Non-core non-maturity deposits	322,732		1	%		889,976		3	%
Total non-maturity deposits	31,999,136		96	%		33,624,925		96	%
Time deposits $250,000 and under	878,383		3	%		885,938		3	%
Time deposits over $250,000	347,376		1	%		486,894		1	%
Total time deposits	1,225,759		4	%		1,372,832		4	%
Total deposits	$	33,224,895	100	%		$	34,997,757	100	%

During the first quarter of 2022, total deposits decreased by $1.8 billion to $33.2 billion, due primarily to declines of $1.1 billion in core deposits and $567.2 million in non-core non-maturity deposits. The decrease in core deposits in the first quarter of 2022 was driven primarily by a decrease in balances from our venture banking clients of $1.5 billion, offset partially by an increase in deposits from our community banking and national lending clients of $415 million. The decrease in non-core non-maturity deposits of $0.6 billion included the planned maturity of a $0.5 billion wholesale deposit. At March 31, 2022, core deposits totaled $31.7 billion, or 95% of total deposits, including $14.1 billion of noninterest-bearing demand deposits, or 42% of total deposits.

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


	Time Deposits
	$250,000		Over
March 31, 2022	and Under		$250,000		Total
	(In thousands)
Maturities:
Due in three months or less	$	314,591	$	208,715	$	523,306
Due in over three months through six months	163,021		52,110		215,131
Due in over six months through twelve months	198,549		79,906		278,455
Total due within twelve months	676,161		340,731		1,016,892
Due in over 12 months through 24 months	89,638		4,161		93,799
Due in over 24 months	112,584		2,484		115,068
Total due over twelve months	202,222		6,645		208,867
Total	$	878,383	$	347,376	$	1,225,759

Client Investment Funds

In addition to deposit products, we also offer select clients non-depository cash investment options through PWAM, our registered investment adviser subsidiary, and third-party money market sweep products. PWAM provides customized investment advisory and asset management solutions. At March 31, 2022, total off-balance sheet client investment funds were $1.7 billion, of which $1.0 billion was managed by PWAM. At December 31, 2021, total off-balance sheet client investment funds were $1.4 billion, of which $0.9 billion was managed by PWAM.

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:


	March 31,			December 31,
	2022			2021
	(Dollars in thousands)
Nonaccrual loans and leases held for investment	$	66,538		$	61,174

Foreclosed assets, net	304			12,843
Total nonperforming assets	$	66,842		$	74,017

Performing TDRs held for investment	$	16,781		$	24,430
Classified loans and leases held for investment	$	82,068		$	116,104
Special mention loans and leases held for investment	$	377,315		$	391,611
Nonaccrual loans and leases held for investment to
loans and leases held for investment	0.27		%	0.27		%
Nonperforming assets to loans and leases held for investment
and foreclosed assets, net	0.27		%	0.32		%
Allowance for credit losses to nonaccrual loans and leases held for investment	409.5		%	447.3		%
Classified loans and leases held for investment
to loans and leases held for investment	0.34		%	0.51		%

Nonaccrual Loans and Leases Held for Investment

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


	March 31, 2022				December 31, 2021				Increase (Decrease)
			Accruing				Accruing				Accruing
			and 30-89				and 30-89				and 30-89
			Days Past				Days Past				Days Past
	Nonaccrual		Due		Nonaccrual		Due		Nonaccrual		Due
	(In thousands)
Real estate mortgage:
Commercial	$	32,071	$	2,090	$	27,540	$	2,165	$	4,531	$	(75)
Residential	17,463		31,103		12,292		39,929		5,171		(8,826)
Total real estate mortgage	49,534		33,193		39,832		42,094		9,702		(8,901)
Real estate construction and land:
Commercial	—		—		—		—		—		—
Residential	6,215		21,413		4,715		5,031		1,500		16,382
Total real estate construction and land	6,215		21,413		4,715		5,031		1,500		16,382
Commercial:
Asset-based	1,323		—		1,464		—		(141)		—
Venture capital	3,659		—		2,799		—		860		—
Other commercial	5,420		47		11,950		630		(6,530)		(583)
Total commercial	10,402		47		16,213		630		(5,811)		(583)
Consumer	387		994		414		1,004		(27)		(10)
Total held for investment	$	66,538	$	55,647	$	61,174	$	48,759	$	5,364	$	6,888

During the first quarter of 2022, nonaccrual loan and leases held for investment increased by $5.4 million to $66.5 million at March 31, 2022 due mainly to additions of $30.4 million, offset partially by charge-offs of $2.0 million, returns to accrual status of $3.0 million, and principal and other reductions of $20.1 million. As of March 31, 2022, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of $21.6 million and represented 32% of total nonaccrual loans and leases.

Foreclosed Assets

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


	March 31,		December 31,
Property Type	2022		2021
	(In thousands)
Commercial real estate	$	—	$	12,594


Multi-family	304		—
Total OREO, net	304		12,594
Other foreclosed assets	—		249
Total foreclosed assets, net	$	304	$	12,843

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

Performing TDRs Held for Investment

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


	March 31, 2022			December 31, 2021
			Number			Number
			of			of
Performing TDRs	Balance		Loans	Balance		Loans
	(Dollars in thousands)
Real estate mortgage	$	6,154	18	$	6,204	18
Real estate construction and land	1,422		1	1,428		1
Commercial	9,181		22	16,773		24
Consumer	24		1	25		1
Total performing TDRs held for investment	$	16,781	42	$	24,430	44

During the first quarter of 2022, performing TDRs held for investment decreased by $7.6 million to $16.8 million at March 31, 2022 attributable primarily to payments and other reductions of $7.6 million.

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:


	March 31,		December 31,
Loan and Lease Credit Risk Ratings	2022		2021
	(In thousands)
Pass	$	23,892,689	$	22,433,833
Special mention	377,315		391,611
Classified	82,068		116,104
Total loans and leases held for investment, net of deferred fees	$	24,352,072	$	22,941,548

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

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

During the first quarter of 2022, special mention loans and leases decreased by $14.3 million to $377.3 million at March 31, 2022 due mainly to decreases of $23.6 million in commercial real estate mortgage loans, $17.9 million in asset-based loans and $6.4 million in residential real estate mortgage loans, offset partially by increases of $22.3 million in venture capital loans and $14.1 million in commercial real estate construction and land loans. Special mention loans and leases peaked in the first quarter of 2020 at $898.7 million, as we proactively downgraded certain loans at the onset of the COVID-19 pandemic.

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


	March 31, 2022				December 31, 2021				Increase (Decrease)
			Special				Special				Special
	Classified		Mention		Classified		Mention		Classified		Mention
	(In thousands)
Real estate mortgage:
Commercial	$	35,463	$	168,240	$	62,206	$	191,809	$	(26,743)	$	(23,569)
Residential	22,844		13,450		17,700		19,848		5,144		(6,398)
Total real estate mortgage	58,307		181,690		79,906		211,657		(21,599)		(29,967)
Real estate construction and land:
Commercial	—		68,864		—		67,727		—		1,137
Residential	6,215		15,780		4,715		1,720		1,500		14,060
Total real estate construction and land	6,215		84,644		4,715		69,447		1,500		15,197
Commercial:
Asset-based	4,449		60,367		4,591		78,305		(142)		(17,938)
Venture capital	3,722		37,083		4,794		14,833		(1,072)		22,250
Other commercial	8,911		10,914		21,659		15,528		(12,748)		(4,614)
Total commercial	17,082		108,364		31,044		108,666		(13,962)		(302)
Consumer	464		2,617		439		1,841		25		776
Total	$	82,068	$	377,315	$	116,104	$	391,611	$	(34,036)	$	(14,296)

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 March 31, 2022, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%.

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

Basel III currently requires all banking organizations to maintain a 2.50% capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the common equity tier 1, tier 1, and total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At March 31, 2022, the Company and Bank were in compliance with the capital conservation buffer requirement.

The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the March 31, 2022 ratios include this election. This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2022. This cumulative amount will then be phased out of regulatory capital over the next three years from 2023 to 2025. The add-back as of March 31, 2022 ranged from 0 basis points to 7 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 Capital	For Capital	For Well
		Adequacy	Conservation	Capitalized
	Actual	Purposes	Buffer	Classification
March 31, 2022
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio	7.11%	4.00%	N/A	N/A
CET1 capital ratio	8.64%	4.50%	7.00%	N/A
Tier 1 capital ratio	9.07%	6.00%	8.50%	N/A
Total capital ratio	12.27%	8.00%	10.50%	N/A

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


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

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

Subordinated Debt

We issued or assumed through mergers subordinated debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. As of March 31, 2022, the carrying value of subordinated debt totaled $863.9 million. At March 31, 2022, $131.0 million of the trust preferred securities were included in the Company's Tier I capital and $718.8 million were included in Tier II capital.

Dividends on Common Stock and Interest on Subordinated Debt

As a bank holding company, PacWest is required to notify and receive approval from the FRB prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. Interest payments made on subordinated debt are considered dividend payments under FRB regulations. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations.

Liquidity

Liquidity Management

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

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

As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of $3.6 billion at March 31, 2022, of which all but $629.0 million was available on that date. The FHLB secured credit line was collateralized by a blanket lien on $5.6 billion of certain qualifying loans. The Bank also had secured borrowing capacity with the FRBSF of $2.4 billion at March 31, 2022, all of which was available on that date. The FRBSF secured credit line was collateralized by liens on $2.9 billion of qualifying loans.

In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the purpose of borrowing overnight funds, subject to availability, of $112.0 million with the FHLB and $180.0 million in the aggregate with several correspondent banks. As of March 31, 2022, there was a $112.0 million balance outstanding related to the FHLB unsecured line of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of March 31, 2022, the Bank had borrowed $250.0 million through the AFX.

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


	March 31,			December 31,
Primary Liquidity - On-Balance Sheet	2022			2021
	(Dollars in thousands)
Cash and due from banks	$	205,446		$	112,548
Interest-earning deposits in financial institutions	1,865,235			3,944,686
Securities available-for-sale	9,975,109			10,694,458
Less: pledged securities	(558,004)			(532,418)
Total primary liquidity	$	11,487,786		$	14,219,274

Ratio of primary liquidity to total deposits	34.6		%	40.6		%


Secondary Liquidity - Off-Balance Sheet	March 31,		December 31,
Available Secured Borrowing Capacity	2022		2021
	(In thousands)
Secured borrowing capacity with the FHLB	$	3,573,555	$	3,976,465
Less: secured advances outstanding	(629,000)		—
Available secured borrowing capacity with the FHLB	2,944,555		3,976,465
Available secured borrowing capacity with the FRBSF	2,410,630		1,380,191
Total secondary liquidity	$	5,355,185	$	5,356,656

During the three months ended March 31, 2022, the Company's primary liquidity decreased by $2.7 billion to $11.5 billion at March 31, 2022 due mainly to a $2.1 billion decrease in interest-earning deposits in financial institutions and a $719.3 million decrease in securities available-for-sale. The Company's secondary liquidity was $5.4 billion at both March 31, 2022 and December 31, 2021.

In addition to our primary liquidity, we generate liquidity from cash flows from our loan and securities portfolios and from our large base of core deposits, defined as noninterest-bearing demand, interest checking, savings, and non-brokered money market accounts. At March 31, 2022, core deposits totaled $31.7 billion and represented 95% of the Company's total deposits. Core deposits are normally less volatile, often with customer relationships tied to other products offered by the Bank promoting long-standing relationships and stable funding sources. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our core deposits.

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 March 31, 2022, brokered deposits totaled $518.4 million, consisting primarily of $322.7 million of non-maturity brokered accounts and $195.6 million of brokered time deposits. At December 31, 2021, brokered deposits totaled $1.1 billion, consisting mainly of $890.0 million of non-maturity brokered accounts and $195.7 million of brokered time deposits.

Our liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Liquidity Buffer Coverage Ratio (the ratio of cash and unpledged securities to the estimated 30 day cash outflow in a defined stress scenario), Liquidity Stress Test Survival Horizon (the number of days that the Bank’s liquidity buffer plus available secured borrowing capacity is sufficient to offset cumulative cash outflow in a defined stress scenario), Loan to Funding Ratio (measurement of gross loans net of fees divided by deposits plus borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. At March 31, 2022, the Bank was in compliance with all established liquidity guidelines.

Holding Company Liquidity

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

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 $155.3 million during the three fiscal years of 2021, 2020, and 2019, compared to dividends of $776.0 million paid by the Bank during that same period. During the three months ended March 31, 2022, PacWest received $33.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $1.4 billion at March 31, 2022, for the foreseeable future any dividends from the Bank to PacWest will continue to require DFPI and FDIC approval consistent with what has been required since 2008 when Bank first had an accumulated deficit triggered by goodwill impairment write-downs during the financial crisis of 2007-2008.

At March 31, 2022, PacWest had $173.7 million in cash and cash equivalents, of which substantially all was on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months.

Stock Repurchase Program

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 March 31, 2022, our loan commitments and standby letters of credit were $9.9 billion and $321.7 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity - Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 11. Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."

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 March 31, 2022, the U.S. Dollar notional amounts of subordinated debt payable denominated in foreign currencies was $28.5 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures was $28.5 million. We recognized a foreign currency translation net gain of $1.2 million for the three months ended March 31, 2022 and a foreign currency translation net gain of $358,000 for the three months ended March 31, 2021.

Asset/Liability Management and Interest Rate Sensitivity

Interest Rate Risk

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

We evaluated the results of our NII simulation model and MVE model prepared as of March 31, 2022, the results of which are presented below. Our NII simulation and MVE model indicate that our balance sheet is asset-sensitive. An asset-sensitive profile would suggest that a sudden sustained increase in rates would result in an increase in our estimated NII and MVE, while a liability-sensitive profile would suggest that these amounts would decrease.

Net Interest Income Simulation

We used a NII simulation model to measure the estimated changes in NII that would result over the next 12 months from immediate and sustained changes in interest rates as of March 31, 2022. This model is an interest rate risk management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth or changes in the product mix of either our total interest-sensitive assets or liabilities over the next 12 months, therefore the results reflect an interest rate shock to a static balance sheet.

This analysis calculates the difference between NII forecasted using both increasing and decreasing interest rate scenarios using the forward yield curve at March 31, 2022. In order to arrive at the base case, we extend our balance sheet at March 31, 2022 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of March 31, 2022. Based on such repricing, we calculate an estimated NII and NIM for each rate scenario.

The NII simulation model is dependent upon numerous assumptions. For example, almost half of our loans are variable rate (excluding hybrid loans), which are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (embedded options) and the simulation model uses prepayment assumptions to estimate these accelerated cash flows and reinvest these proceeds at current simulated yields. Our interest-bearing deposits reprice at our discretion and are assumed to reprice at a rate less than the change in market rates. The 12-month NII simulation model as of March 31, 2022 assumes interest-bearing deposits reprice at 30% of the change in market rates in a rising interest rate scenario, depending on the amount of the rate change (this is commonly referred to as the "deposit beta"). The effects of certain balance sheet attributes, such as fixed-rate loans, variable-rate loans that have reached their floors, and the volume of noninterest-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our NII simulation model. Additionally, we assume that all market interest rates have an interest rate floor of 0%. Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, loan and deposit pricing, changes in the mix of earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.

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


	Forecasted			Forecasted	Forecasted
	Net Interest		Percentage	Net Interest	Net Interest
	Income		Change	Margin	Margin Change
March 31, 2022	(Tax Equivalent)		From Base	(Tax Equivalent)	From Base
	(Dollars in millions)
Interest Rate Scenario:
Up 300 basis points	$	1,465.4	10.4%	3.98%	0.37%
Up 200 basis points	$	1,418.4	6.8%	3.86%	0.25%
Up 100 basis points	$	1,375.3	3.6%	3.74%	0.13%
BASE CASE	$	1,327.5	—	3.61%
Down 25 basis points	$	1,321.9	(0.4)%	3.59%	(0.02)%
Down 50 basis points	$	1,315.6	(0.9)%	3.58%	(0.03)%
Down 100 basis points	$	1,293.8	(2.5)%	3.52%	(0.09)%

During the first quarter of 2022, total base case year 1 tax equivalent NII increased by $144.1 million to $1.3 billion at March 31, 2022, and the base case tax equivalent NIM increased to 3.61% at March 31, 2022 from 3.17% at December 31, 2021. The increase in year 1 NII and tax equivalent NIM compared to the December 31, 2021 forecasted NII and NIM was attributable to the shift in the mix of interest-earning assets resulting from the increase in loans and leases and the decrease in interest-earning deposits in financial institutions, and the impact of the increase in the implied forward yield curve. The implied forward yield curve for December 31, 2021 included three 25 basis points rate hikes, while the implied forward yield curve for March 31, 2022 included nine 25 basis points rate hikes.

In addition to parallel interest rate shock scenarios, we also model various alternative rate vectors. The most favorable alternate rate vector that we model is the “Bear Flattener Severe” scenario, when short-term rates increase faster than long-term rates. In the “Bear Flattener Severe” scenario, Year 1 tax equivalent NII increases by 4.5%. 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.

At March 31, 2022, we had $24.4 billion of total loans that included $11.1 billion with variable interest rate terms (excluding hybrid loans discussed below). Of the variable interest rate loans, $9.8 billion, or 88%, contained interest rate floor provisions, which included $6.5 billion of loans at or below their floors and $3.3 billion of loans that are above their floors and will reprice with future rate increases. The following table summarizes the amount of loans at or below their floors that will reprice based on the indicated increases in interest rates:


March 31, 2022
	Variable Rate
	Loans At or Below
	Their Floors That
Basis Points of	Will Reprice As
Rate Increases	Rates Increase
	(In millions)
50 bps	$	2,598
100 bps	1,972
150 bps	910
200 bps	872
250 bps	177
300 bps	4
400 bps	2
Total	$	6,535

At March 31, 2022, we also had $4.5 billion of variable-rate hybrid loans that do not immediately reprice because the loans contain an initial fixed-rate period before they become variable. The cumulative amounts of hybrid loans that would switch from being fixed-rate to variable-rate because the initial fixed-rate term would expire were approximately $146.6 million, $508.2 million, and $945.6 million in the next one, two, and three years.

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

Market Value of Equity

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

The MVE model is an interest rate risk management tool and the results are not necessarily an indication of our actual future results. Actual results may vary significantly from the results suggested by the market value of equity table. Loan prepayments and deposit attrition, changes in the mix of our earning assets or funding sources, and future asset/liability management decisions, among others, may vary significantly from our assumptions. The base case is determined by applying various current market discount rates to the estimated cash flows from the different types of assets, liabilities, and off-balance sheet items existing at March 31, 2022.

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
March 31, 2022	of Equity		From Base		From Base		Assets		to Book Value
	(Dollars in millions)
Interest Rate Scenario:
Up 300 basis points	$	9,968.7	$	1,034.8	11.6	%	25.4	%	273.1	%
Up 200 basis points	$	9,715.8	$	781.9	8.8	%	24.8	%	266.1	%
Up 100 basis points	$	9,372.1	$	438.2	4.9	%	23.9	%	256.7	%
BASE CASE	$	8,933.9	$	—	—	%	22.8	%	244.7	%
Down 50 basis points	$	8,670.3	$	(263.6)	(3.0)	%	22.1	%	237.5	%
Down 100 basis points	$	8,329.7	$	(604.2)	(6.8)	%	21.2	%	228.2	%

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

ITEM 4. CONTROLS AND PROCEDURES

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

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

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

ITEM 1A. RISK FACTORS

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

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

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


				Total Number of	Maximum Dollar
				Shares Purchased	Value of Shares
	Total			as Part of	That May Yet
	Number of	Average		Publicly	Be Purchased
	Shares	Price Paid		Announced	Under the
Purchase Dates	Purchased (1)	Per Share		Program (2)	Program (2)
	(Dollars in thousands, except per share amounts)
January 1 - January 31, 2022	31,081	$	46.43	—	$	—
February 1 - February 28, 2022	61,473	$	49.42	—	$	—
March 1 - March 31, 2022	—	$	—	—	$	100,000
Total	92,554	$	48.42	—

__________________________

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

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

ITEM 6. INDEX TO EXHIBITS


Exhibit Number			Description
31.1			Section 302 Certification of Chief Executive Officer (Filed herewith).
31.2			Section 302 Certification of Chief Financial Officer (Filed herewith).
32.1			Section 906 Certification of Chief Executive Officer (Filed herewith).
32.2			Section 906 Certification of Chief Financial Officer (Filed herewith).


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

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

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