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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the quarterly period ended June 30, 2021
Commission File No. 001-36408
PACWEST BANCORP
(Exact name of registrant as specified in its charter)
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 July 30, 2021, there were 117,213,554 shares of the registrant's common stock outstanding, excluding 2,334,433 shares of unvested restricted stock.
1


PACWEST BANCORP
JUNE 30, 2021 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)  
  Condensed Consolidated Balance Sheets (Unaudited)
4
Condensed Consolidated Statements of Earnings (Loss) (Unaudited)
5
  Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
6
Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
7
Condensed Consolidated Statements of Cash Flows (Unaudited)
9
  Notes to Condensed Consolidated Financial Statements (Unaudited)
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
53
Item 3. Quantitative and Qualitative Disclosures About Market Risk
86
Item 4. Controls and Procedures
90
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
90
Item 1A. Risk Factors
90
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
90
Item 6. Index to Exhibits
91
Signatures
93

2


PART I
Glossary of Acronyms, Abbreviations, and Terms
The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-Q, including "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."
ACL Allowance for Credit 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 IPO Initial Public Offering
ASC Accounting Standards Codification IRR Interest Rate Risk
ASU Accounting Standards Update LIBOR London Inter-bank Offered Rate
Basel III A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013 LIHTC Low Income Housing Tax Credit
BHCA Bank Holding Company Act of 1956, as amended MBS Mortgage-Backed Securities
BOLI Bank Owned Life Insurance MVE Market Value of Equity
CARES Act Coronavirus Aid, Relief, and Economic Security Act NAV Net Asset Value
CDI Core Deposit Intangible Assets NII Net Interest Income
CECL Current Expected Credit Loss NIM Net Interest Margin
CET1 Common Equity Tier 1 NSF Non-Sufficient Funds
Civic Civic Financial Services, LLC (a company acquired on February 1, 2021) OREO Other Real Estate Owned
CMBS Commercial Mortgage-Backed Securities PD/LGD Probability of Default/Loss Given Default
CMOs Collateralized Mortgage Obligations PPP Paycheck Protection Program
COVID-19 Coronavirus Disease PRSUs Performance-Based Restricted Stock Units
CPI Consumer Price Index PWAM Pacific Western Asset Management Inc.
CRA Community Reinvestment Act ROU Right-of-use
CRE Commercial Real Estate SBA Small Business Administration
CRI Customer Relationship Intangible Assets SBIC Small Business Investment Company
DFPI California Department of Financial Protection and Innovation SEC Securities and Exchange Commission
DTAs Deferred Tax Assets SOFR Secured Overnight Financing Rate
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act Tax Equivalent Net Interest Income Net interest income reflecting adjustments related to tax-exempt interest on certain loans and investment securities
EAD Exposure at Default 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

3


ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
  2021 2020
(Unaudited)
  (Dollars in thousands, except par value amounts)
ASSETS:
Cash and due from banks $ 179,505  $ 150,464 
Interest-earning deposits in financial institutions 5,678,587  3,010,197 
Total cash, cash equivalents, and restricted cash 5,858,092  3,160,661 
Securities available-for-sale, at fair value 7,198,608  5,235,591 
Federal Home Loan Bank stock, at cost 17,250  17,250 
Total investment securities 7,215,858  5,252,841 
Loans held for sale —  — 
Gross loans and leases held for investment 19,580,731  19,153,357 
Deferred fees, net (74,474) (69,980)
Allowance for loan and lease losses (225,600) (348,181)
Total loans and leases held for investment, net 19,280,657  18,735,196 
Equipment leased to others under operating leases 313,574  333,846 
Premises and equipment, net 39,541  39,234 
Foreclosed assets, net 13,227  14,027 
Goodwill 1,204,118  1,078,670 
Core deposit and customer relationship intangibles, net 18,423  23,641 
Other assets 924,497  860,326 
Total assets $ 34,867,987  $ 29,498,442 
LIABILITIES:    
Noninterest-bearing deposits $ 11,252,286  $ 9,193,827 
Interest-bearing deposits 18,394,748  15,746,890 
Total deposits 29,647,034  24,940,717 
Borrowings 6,625  5,000 
Subordinated debt 861,788  465,812 
Accrued interest payable and other liabilities 505,859  491,962 
Total liabilities 31,021,306  25,903,491 
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding)
—  — 
Common stock ($0.01 par value, 200,000,000 shares authorized at June 30, 2021 and
December 31, 2020; 122,066,549 and 120,736,834 shares issued, respectively, includes
2,341,548 and 1,608,126 shares of unvested restricted stock, respectively)
1,221  1,207 
Additional paid-in capital 3,056,522  3,100,633 
Retained earnings 740,309  409,391 
Treasury stock, at cost (2,511,447 and 2,321,981 shares at June 30, 2021 and
December 31, 2020) (96,887) (88,803)
Accumulated other comprehensive income, net 145,516  172,523 
Total stockholders' equity 3,846,681  3,594,951 
Total liabilities and stockholders' equity $ 34,867,987  $ 29,498,442 
See Notes to Condensed Consolidated Financial Statements.
4


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
  2021 2021 2020 2021 2020
(Unaudited)
  (Dollars in thousands, except per share amounts)
Interest income:
Loans and leases $ 244,529  $ 241,544  $ 247,851  $ 486,073  $ 510,129 
Investment securities 33,954  30,265  26,038  64,219  53,484 
Deposits in financial institutions 2,022  1,528  186  3,550  1,794 
Total interest income 280,505  273,337  274,075  553,842  565,407 
Interest expense:
Deposits 7,269  7,500  13,075  14,769  41,322 
Borrowings 265  193  1,319  458  8,097 
Subordinated debt 6,663  4,375  5,402  11,038  11,962 
Total interest expense 14,197  12,068  19,796  26,265  61,381 
Net interest income 266,308  261,269  254,279  527,577  504,026 
Provision for credit losses (88,000) (48,000) 120,000  (136,000) 232,000 
Net interest income after provision for credit losses 354,308  309,269  134,279  663,577  272,026 
Noninterest income:
Leased equipment income 10,847  11,354  12,037  22,201  24,288 
Other commissions and fees 10,704  9,158  10,111  19,862  19,832 
Service charges on deposit accounts 3,452  2,934  2,004  6,386  4,662 
Gain on sale of loans and leases 1,422  139  346  1,561  433 
Gain on sale of securities —  101  7,715  101  7,897 
Other income 13,946  21,143  6,645  35,089  10,846 
Total noninterest income 40,371  44,829  38,858  85,200  67,958 
Noninterest expense:
Compensation 90,807  79,882  61,910  170,689  123,192 
Occupancy 14,784  14,054  14,494  28,838  28,701 
Leased equipment depreciation 8,614  8,969  7,102  17,583  14,307 
Data processing 7,758  6,957  7,102  14,715  13,556 
Other professional services 5,256  5,126  4,146  10,382  8,404 
Insurance and assessments 3,745  4,903  9,373  8,648  13,622 
Customer related expense 4,973  4,818  4,408  9,791  8,340 
Loan expense 4,031  3,193  3,379  7,224  6,029 
Intangible asset amortization 2,889  3,079  3,882  5,968  7,830 
Acquisition, integration and reorganization costs 200  3,425  —  3,625  — 
Foreclosed assets (income) expense, net (119) (146) (118) (80)
Goodwill impairment —  —  —  —  1,470,000 
Other expense 8,812  15,729  11,315  24,541  21,034 
Total noninterest expense 151,750  150,136  126,965  301,886  1,714,935 
Earnings (loss) before income taxes 242,929  203,962  46,172  446,891  (1,374,951)
Income tax expense 62,417  53,556  12,968  115,973  24,956 
Net earnings (loss) $ 180,512  $ 150,406  $ 33,204  $ 330,918  $ (1,399,907)
Earnings (loss) per share:
Basic $ 1.52  $ 1.27  $ 0.28  $ 2.78  $ (11.98)
Diluted $ 1.52  $ 1.27  $ 0.28  $ 2.78  $ (11.98)
See Notes to Condensed Consolidated Financial Statements.
5


` PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2021 2021 2020 2021 2020
(Unaudited)
(In thousands)
Net earnings (loss) $ 180,512  $ 150,406  $ 33,204  $ 330,918  $ (1,399,907)
Other comprehensive income (loss), net of tax:
Unrealized net holding gains (losses) on securities
available-for-sale arising during the period 54,076  (91,523) 82,780  (37,447) 99,963 
Income tax (expense) benefit related to net unrealized
holding gains (losses) arising during the period (14,941) 25,454  (23,095) 10,513  (27,889)
Unrealized net holding gains (losses) on securities
available-for-sale, net of tax 39,135  (66,069) 59,685  (26,934) 72,074 
Reclassification adjustment for net gains
included in net earnings (1)
—  (101) (7,715) (101) (7,897)
Income tax expense related to reclassification
adjustment —  28  2,152  28  2,203 
Reclassification adjustment for net gains
included in net earnings, net of tax —  (73) (5,563) (73) (5,694)
Other comprehensive income (loss), net of tax 39,135  (66,142) 54,122  (27,007) 66,380 
Comprehensive income (loss) $ 219,647  $ 84,264  $ 87,326  $ 303,911  $ (1,333,527)
___________________________________
(1)    Entire amounts are recognized in "Gain on sale of securities" on the Condensed Consolidated Statements of Earnings (Loss).
See Notes to Condensed Consolidated Financial Statements.

6


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 2021
Common Stock Accumulated
Additional Other
Par Paid-in Retained Treasury Comprehensive
  Shares Value Capital Earnings Stock Income Total
(Unaudited)
  (Dollars in thousands)
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  6,409  —  —  —  6,417 
Restricted stock surrendered (52,655) —  —  —  (1,908) —  (1,908)
Cash dividends paid:
Common stock, $0.25/share
—  —  (29,587) —  —  —  (29,587)
Balance, March 31, 2021 119,105,642  $ 1,215  $ 3,077,455  $ 559,797  $ (90,711) $ 106,381  $ 3,654,137 
Net earnings —  —  —  180,512  —  —  180,512 
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax —  —  —  —  —  39,135  39,135 
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 586,271  8,983  —  —  —  8,989 
Restricted stock surrendered (136,811) —  —  —  (6,176) —  (6,176)
Cash dividends paid:
Common stock, $0.25/share
—  —  (29,916) —  —  —  (29,916)
Balance, June 30, 2021 119,555,102  $ 1,221  $ 3,056,522  $ 740,309  $ (96,887) $ 145,516  $ 3,846,681 

See Notes to Condensed Consolidated Financial Statements.














7



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

Six Months Ended June 30, 2020
Common Stock Accumulated
Additional Other
Par Paid-in Retained Treasury Comprehensive
  Shares Value Capital Earnings Stock Income Total
(Unaudited)
  (Dollars in thousands)
Balance, December 31, 2019 119,781,605  $ 1,219  $ 3,306,006  $ 1,652,248  $ (83,434) $ 78,658  $ 4,954,697 
Cumulative effect of change in
accounting principle (1)
—  —  —  (5,283) —  —  (5,283)
Net loss —  —  —  (1,433,111) —  —  (1,433,111)
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax —  —  —  —  —  12,258  12,258 
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 194,916  6,492  —  —  —  6,494 
Restricted stock surrendered (106,021) —  —  —  (3,460) —  (3,460)
Common stock repurchased under
Stock Repurchase Program (1,953,711) (20) (69,980) —  —  —  (70,000)
Cash dividends paid:
Common stock, $0.60/share
—  —  (71,206) —  —  —  (71,206)
Balance, March 31, 2020 117,916,789  $ 1,201  $ 3,171,312  $ 213,854  $ (86,894) $ 90,916  $ 3,390,389 
Net earnings —  —  —  33,204  —  —  33,204 
Other comprehensive income - net
unrealized gain on securities
available-for-sale, net of tax —  —  —  —  —  54,122  54,122 
Restricted stock awarded and
earned stock compensation,
net of shares forfeited 550,738  6,283  —  —  —  6,289 
Restricted stock surrendered (92,924) —  —  —  (1,601) —  (1,601)
Cash dividends paid:
Common stock, $0.25/share
—  —  (29,505) —  —  —  (29,505)
Balance, June 30, 2020 118,374,603  $ 1,207  $ 3,148,090  $ 247,058  $ (88,495) $ 145,038  $ 3,452,898 
________________________
(1)    Impact due to adoption on January 1, 2020 of ASU 2016-13, "Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments," and the related amendments, commonly referred to as CECL.

See Notes to Condensed Consolidated Financial Statements.
8


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
  June 30,
  2021 2020
(Unaudited)
  (In thousands)
Cash flows from operating activities:    
Net earnings (loss) $ 330,918  $ (1,399,907)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Goodwill impairment —  1,470,000 
Depreciation and amortization 25,564  22,124 
Amortization of net premiums on securities available-for-sale 16,561  5,591 
Amortization of intangible assets 5,968  7,830 
Amortization of operating lease ROU assets 15,215  14,662 
Provision for credit losses (136,000) 232,000 
Gain on sale of foreclosed assets (214) (112)
Provision for losses on foreclosed assets 14  110 
Gain on sale of loans and leases (1,561) (433)
(Gain) loss on sale of premises and equipment (58) 187 
Gain on sale of securities (101) (7,897)
Gain on BOLI death benefit (51) — 
Unrealized (gain) loss on derivatives and foreign currencies, net (995) 564 
Earned stock compensation 15,406  12,783 
Decrease in other assets 22,808  8,393 
Decrease in accrued interest payable and other liabilities (62,869) (91,873)
Net cash provided by operating activities 230,605  274,022 
Cash flows from investing activities:
Cash paid for acquisition, net (123,090) — 
Net increase in loans and leases (477,874) (887,247)
Proceeds from sales of loans and leases 126,366  3,522 
Proceeds from maturities and paydowns of securities available-for-sale 435,761  170,245 
Proceeds from sales of securities available-for-sale 44,652  144,997 
Purchases of securities available-for-sale (2,497,439) (274,824)
Net purchases of Federal Home Loan Bank stock —  23,674 
Proceeds from sales of foreclosed assets 1,647  769 
Purchases of premises and equipment, net (4,547) (9,772)
Proceeds from sales of premises and equipment 95 
Proceeds from BOLI death benefit 1,188  761 
Net decrease in equipment leased to others under operating leases 12,953  15,147 
Net cash used in investing activities (2,480,288) (812,726)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits 2,021,120  1,387,698 
Net increase in interest-bearing deposits 2,647,858  2,309,298 
Net decrease in borrowings (48,585) (1,699,008)
Proceeds from subordinated notes offering 394,308  — 
Common stock repurchased and restricted stock surrendered (8,084) (75,061)
Cash dividends paid (59,503) (100,711)
Net cash provided by financing activities 4,947,114  1,822,216 
Net increase in cash, cash equivalents, and restricted cash 2,697,431  1,283,512 
Cash, cash equivalents, and restricted cash, beginning of period 3,160,661  637,624 
Cash, cash equivalents, and restricted cash, end of period $ 5,858,092  $ 1,921,136 
See Notes to Condensed Consolidated Financial Statements.
9


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
  June 30,
  2021 2020
(Unaudited)
  (In thousands)
Supplemental disclosures of cash flow information:
Cash paid for interest $ 24,683  $ 68,390 
Cash paid for income taxes 74,147  3,850 
Loans transferred to foreclosed assets 647  1,776 
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 $ 307,997  — 
Cash paid (160,420) — 
Liabilities assumed $ 147,577  — 
See Notes to Condensed Consolidated Financial Statements.

10



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

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

11



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

Effective January 1, 2021, the Company adopted ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs” which clarifies the Company should reevaluate whether a callable debt security that has multiple call dates is within the scope of ASC 310-20-35-33 at each reporting period. ASC 310-20-35-33 requires that, to the extent the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess should be amortized to the earliest call date. As the Company’s accounting policy to amortize premiums on investments in callable debt securities to the earliest call date is consistent with the manner required by ASU 2020-08, the adoption of this standard had no impact on the Company’s condensed consolidated financial statements.
Basis of Presentation    
Our interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K.
Use of Estimates
We have made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses, the carrying value of goodwill and other intangible assets, and the realization of deferred tax assets. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s presentation format. In our loan and allowance tables, we realigned our venture capital subclasses to better reflect and report our lending. Prior to the realignment, our venture capital subclasses were: (1) equity fund loans, (2) early stage, (3) expansion stage, and (4) late stage. After the realignment, our venture capital subclasses are: (1) equity fund loans and (2) venture lending (which includes early stage, expansion stage, and late stage). Additionally, we realigned our other commercial subclasses by moving our cash flow subclass into the other lending subclass. All of the loan and allowance tables, both current period and prior periods, reflect these realignments. In our securities available-for-sale tables, we are presenting a new line for private label commercial MBS, which had previously been included with the asset-backed securities line. All of the securities available-for-sale tables, both current period and prior periods, reflect this new presentation.
12



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

NOTE 2. ACQUISITIONS
The following assets acquired and liabilities assumed, both tangible and intangible, of the acquired entity are presented at estimated fair value as of the acquisition date:
Acquisition and
Date Acquired
Civic Financial
Services
February 1, 2021
(In thousands)
Assets Acquired:
Cash and due from banks $ 37,331 
Loans and leases 67,294 
Premises and equipment 1,197 
Goodwill 125,448 
Customer relationship intangible 750 
Other assets 75,977 
Total assets acquired $ 307,997 
Liabilities Assumed:
Noninterest-bearing demand deposits $ 37,339 
Borrowings 50,210 
Accrued interest payable and other liabilities 60,028 
Total liabilities assumed $ 147,577 
Total consideration - paid in cash $ 160,420 
Acquisition of Civic
On February 1, 2021, the Bank completed the acquisition of Civic in an all-cash transaction. Civic, located in Redondo Beach, California, is one of the leading lenders in the United States specializing in residential non-owner-occupied investment properties. The acquisition of Civic advances the Bank’s strategy to diversify and expand its lending portfolio, diversify its revenue streams, and deploy excess liquidity into higher-yielding assets. Civic operates as a subsidiary of the Bank and at June 30, 2021 had $662.1 million of loans outstanding. The loans are categorized as either income producing and other residential real estate mortgage or residential real estate construction and land based on their purpose.
The Civic acquisition has been accounted for under the acquisition method of accounting. We acquired $308.0 million of assets and assumed $147.6 million of liabilities upon closing of the acquisition. We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and assumed liabilities. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. The application of the acquisition method of accounting resulted in the recognition of goodwill of $125.4 million. All of the recognized goodwill is expected to be deductible for tax purposes.
13



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

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



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

NOTE 4. INVESTMENT SECURITIES     
Securities Available-for-Sale
The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:
  June 30, 2021 December 31, 2020
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Security Type Cost Gains Losses Value Cost Gains Losses Value
  (In thousands)
Municipal securities $ 1,735,937  $ 83,607  $ (2,045) $ 1,817,499  $ 1,438,004  $ 93,631  $ (18) $ 1,531,617 
Agency commercial MBS 1,203,537  56,261  (2,170) 1,257,628  1,207,676  74,238  (37) 1,281,877 
Agency residential CMOs 1,108,587  36,736  (2,925) 1,142,398  1,172,166  47,994  (280) 1,219,880 
U.S. Treasury securities 873,480  4,266  (593) 877,153  4,989  313  —  5,302 
Agency residential MBS 544,762  11,208  (3,559) 552,411  329,488  12,483  (897) 341,074 
Corporate debt securities 496,749  12,457  (498) 508,708  308,803  3,490  (404) 311,889 
Collateralized loan obligations 382,935  260  (1,152) 382,043  136,777  23  (924) 135,876 
Private label commercial MBS 375,184  3,126  (75) 378,235  81,878  1,089  (10) 82,957 
Asset-backed securities 148,965  961  (343) 149,583  166,861  445  (760) 166,546 
Private label residential CMOs 93,011  4,141  (230) 96,922  110,891  6,076  (21) 116,946 
SBA securities 34,388  1,659  (19) 36,028  39,437  2,217  (27) 41,627 
Total $ 6,997,535  $ 214,682  $ (13,609) $ 7,198,608  $ 4,996,970  $ 241,999  $ (3,378) $ 5,235,591 
As of June 30, 2021, securities available-for-sale with a fair value of $490.0 million were pledged as collateral for public deposits and other purposes as required by various statutes and agreements.
Realized Gains and Losses on Securities Available-for-Sale
The following table presents the amortized cost of securities sold with related gross realized gains, gross realized losses, and net realized gains for the years indicated:
Three Months Ended Six Months Ended
June 30, June 30,
Sales of Securities Available-for-Sale 2021 2020 2021 2020
(In thousands)
Amortized cost of securities sold $ —  $ 122,334  $ 44,551  $ 137,100 
Gross realized gains $ —  $ 7,747  $ 101  $ 7,929 
Gross realized losses —  (32) —  (32)
Net realized gains $ —  $ 7,715  $ 101  $ 7,897 


15



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

Unrealized Losses on Securities Available-for-Sale
The following tables present the gross unrealized losses and fair values of securities available-for-sale that were in unrealized loss positions as of the dates indicated:
June 30, 2021
  Less Than 12 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)
Municipal securities $ 203,261  $ (2,045) $ —  $ —  $ 203,261  $ (2,045)
Agency commercial MBS 126,899  (2,170) —  —  126,899  (2,170)
Agency residential CMOs 125,880  (2,925) —  —  125,880  (2,925)
U.S. Treasury securities 374,149  (593) —  —  374,149  (593)
Agency residential MBS 303,546  (3,551) 687  (8) 304,233  (3,559)
Corporate debt securities 57,401  (498) —  —  57,401  (498)
Collateralized loan obligations 201,170  (995) 43,854  (157) 245,024  (1,152)
Private label commercial MBS 13,476  (67) 2,196  (8) 15,672  (75)
Asset-backed securities —  —  16,381  (343) 16,381  (343)
Private label residential CMOs 24,957  (216) 624  (14) 25,581  (230)
SBA securities —  —  1,914  (19) 1,914  (19)
Total $ 1,430,739  $ (13,060) $ 65,656  $ (549) $ 1,496,395  $ (13,609)
December 31, 2020
  Less Than 12 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)
Municipal securities $ 5,919  $ (18) $ —  $ —  $ 5,919  $ (18)
Agency commercial MBS 58,408  (37) —  —  58,408  (37)
Agency residential CMOs 97,863  (280) —  —  97,863  (280)
Agency residential MBS 90,722  (897) —  —  90,722  (897)
Asset-backed securities 14,636  (53) 61,031  (707) 75,667  (760)
Corporate debt securities 87,596  (404) —  —  87,596  (404)
Collateralized loan obligations 96,442  (729) 28,972  (195) 125,414  (924)
Private label commercial MBS 3,058  (10) —  —  3,058  (10)
Private label residential CMOs 788  (19) 74  (2) 862  (21)
SBA securities 2,127  (27) —  —  2,127  (27)
Total $ 457,559  $ (2,474) $ 90,077  $ (904) $ 547,636  $ (3,378)
The securities that were in an unrealized loss position at June 30, 2021, were considered impaired and required further review to determine if the unrealized losses were credit-related. We concluded the unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. We also considered the seniority of the tranches and U.S. government agency guarantees, if any, to assess whether an unrealized loss was credit-related. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive income" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.
16



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

Contractual Maturities of Securities Available-for-Sale
The following table presents the contractual maturities of our securities available-for-sale portfolio based on amortized cost and carrying value as of the date indicated:
June 30, 2021
Amortized Fair
Maturities Cost Value
  (In thousands)
Due in one year or less $ 27,259  $ 27,267 
Due after one year through five years 579,444  608,063 
Due after five years through ten years 2,657,145  2,713,777 
Due after ten years 3,733,687  3,849,501 
Total securities available-for-sale $ 6,997,535  $ 7,198,608 
CMBS, CMOs, and MBS have contractual maturity dates, but require periodic payments based upon scheduled amortization terms. Actual principal collections on these securities usually occur more rapidly than the scheduled amortization terms because of prepayments made by obligors of the underlying loan collateral.
Interest Income on Investment Securities
The following table presents the composition of our interest income on investment securities for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
Taxable interest $ 25,206  $ 19,836  $ 47,176  $ 41,622 
Non-taxable interest 8,493  5,612  16,571  10,841 
Dividend income 255  590  472  1,021 
Total interest income on investment securities $ 33,954  $ 26,038  $ 64,219  $ 53,484 
17



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

NOTE 5.  LOANS AND LEASES
Our loans are carried at the principal amount outstanding, net of deferred fees and costs, and in the case of acquired and purchased loans, net of purchase discounts and premiums. Deferred fees and costs and purchase discounts and premiums on acquired loans are recognized as an adjustment to interest income over the contractual life of the loans primarily using the effective interest method or taken into income when the related loans are paid off or included in the carrying amount of loans that are sold.
Loans and Leases Held for Investment
The following table summarizes the composition of our loans and leases held for investment as of the dates indicated:
June 30, December 31,
2021 2020
(In thousands)
Real estate mortgage $ 8,420,546  $ 7,905,193 
Real estate construction and land 3,544,890  3,393,145 
Commercial 7,249,917  7,534,801 
Consumer 365,378  320,218 
Total gross loans and leases held for investment 19,580,731  19,153,357 
Deferred fees, net (74,474) (69,980)
Total loans and leases held for investment, net of deferred fees 19,506,257  19,083,377 
Allowance for loan and lease losses (225,600) (348,181)
Total loans and leases held for investment, net (1)
$ 19,280,657  $ 18,735,196 
____________________
(1)    Excludes accrued interest receivable of $73.5 million and $79.7 million at June 30, 2021 and December 31, 2020, respectively, which is recorded in "Other assets" on the condensed consolidated balance sheets.
The following tables present an aging analysis of our loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:
June 30, 2021
30 - 89 90 or More
Days Days Total
Past Due Past Due Past Due Current Total
  (In thousands)
Real estate mortgage:
Commercial $ 445  $ 2,955  $ 3,400  $ 3,788,798  $ 3,792,198 
Income producing and other residential 2,179  4,957  7,136  4,613,686  4,620,822 
Total real estate mortgage 2,624  7,912  10,536  8,402,484  8,413,020 
Real estate construction and land:
Commercial —  —  —  930,785  930,785 
Residential 22,714  1,934  24,648  2,550,151  2,574,799 
Total real estate construction and land 22,714  1,934  24,648  3,480,936  3,505,584 
Commercial:
Asset-based —  1,484  1,484  3,549,419  3,550,903 
Venture capital —  335  335  1,749,097  1,749,432 
Other commercial 320  1,740  2,060  1,919,849  1,921,909 
Total commercial 320  3,559  3,879  7,218,365  7,222,244 
Consumer 1,454  287  1,741  363,668  365,409 
Total $ 27,112  $ 13,692  $ 40,804  $ 19,465,453  $ 19,506,257 
18



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

December 31, 2020
30 - 89 90 or More
Days Days Total
Past Due Past Due Past Due Current Total
  (In thousands)
Real estate mortgage:
Commercial $ 6,750  $ 29,145  $ 35,895  $ 4,060,776  $ 4,096,671 
Income producing and other residential 600  373  973  3,802,292  3,803,265 
Total real estate mortgage 7,350  29,518  36,868  7,863,068  7,899,936 
Real estate construction and land:
Commercial —  —  —  1,117,121  1,117,121 
Residential 759  —  759  2,242,401  2,243,160 
Total real estate construction and land 759  —  759  3,359,522  3,360,281 
Commercial:
Asset-based —  2,128  2,128  3,427,155  3,429,283 
Venture capital 540  —  540  1,697,968  1,698,508 
Other commercial 2,323  4,766  7,089  2,368,025  2,375,114 
Total commercial 2,863  6,894  9,757  7,493,148  7,502,905 
Consumer 1,260  111  1,371  318,884  320,255 
Total $ 12,232  $ 36,523  $ 48,755  $ 19,034,622  $ 19,083,377 
It is our policy to discontinue accruing interest when principal or interest payments are past due 90 days or more (unless the loan is both well secured and in the process of collection) or when, in the opinion of management, there is a reasonable doubt as to the collectability of a loan or lease in the normal course of business. Interest income on nonaccrual loans is recognized only to the extent cash is received and the principal balance of the loan is deemed collectable.
The following table presents our nonaccrual and performing loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:  
  June 30, 2021 December 31, 2020
Nonaccrual Performing Total Nonaccrual Performing Total
  (In thousands)
Real estate mortgage:
Commercial $ 32,065  $ 3,760,133  $ 3,792,198  $ 43,731  $ 4,052,940  $ 4,096,671 
Income producing and other residential 6,133  4,614,689  4,620,822  1,826  3,801,439  3,803,265 
Total real estate mortgage 38,198  8,374,822  8,413,020  45,557  7,854,379  7,899,936 
Real estate construction and land:
Commercial 284  930,501  930,785  315  1,116,806  1,117,121 
Residential 1,934  2,572,865  2,574,799  —  2,243,160  2,243,160 
Total real estate construction and land 2,218  3,503,366  3,505,584  315  3,359,966  3,360,281 
Commercial:
Asset-based 1,973  3,548,930  3,550,903  2,679  3,426,604  3,429,283 
Venture capital 2,717  1,746,715  1,749,432  1,980  1,696,528  1,698,508 
Other commercial 11,337  1,910,572  1,921,909  40,243  2,334,871  2,375,114 
Total commercial 16,027  7,206,217  7,222,244  44,902  7,458,003  7,502,905 
Consumer 360  365,049  365,409  389  319,866  320,255 
Total $ 56,803  $ 19,449,454  $ 19,506,257  $ 91,163  $ 18,992,214  $ 19,083,377 
19



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

At June 30, 2021, nonaccrual loans and leases included $13.7 million of loans and leases 90 or more days past due, $0.5 million of loans and leases 30 to 89 days past due, and $42.6 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, 2020, nonaccrual loans and leases included $36.5 million of loans and leases 90 or more days past due, $3.4 million of loans and leases 30 to 89 days past due, and $51.3 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.
As of June 30, 2021, our three largest loan relationships on nonaccrual status had an aggregate carrying value of $12.9 million and represented 23% of total nonaccrual loans and leases.
The following tables present the credit risk rating categories for loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated. Classified loans and leases are those with a credit risk rating of either substandard or doubtful.
June 30, 2021
Classified Special Mention Pass Total
(In thousands)
Real estate mortgage:
Commercial $ 62,827  $ 242,159  $ 3,487,212  $ 3,792,198 
Income producing and other residential 12,681  60,843  4,547,298  4,620,822 
Total real estate mortgage 75,508  303,002  8,034,510  8,413,020 
Real estate construction and land:
Commercial 284  67,292  863,209  930,785 
Residential 1,934  8,234  2,564,631  2,574,799 
Total real estate construction and land 2,218  75,526  3,427,840  3,505,584 
Commercial:
Asset-based 24,351  102,734  3,423,818  3,550,903 
Venture capital 5,708  33,910  1,709,814  1,749,432 
Other commercial 39,005  18,340  1,864,564  1,921,909 
Total commercial 69,064  154,984  6,998,196  7,222,244 
Consumer 477  2,540  362,392  365,409 
Total $ 147,267  $ 536,052  $ 18,822,938  $ 19,506,257 

December 31, 2020
Classified Special Mention Pass Total
(In thousands)
Real estate mortgage:
Commercial $ 91,543  $ 262,462  $ 3,742,666  $ 4,096,671 
Income producing and other residential 8,767  61,384  3,733,114  3,803,265 
Total real estate mortgage 100,310  323,846  7,475,780  7,899,936 
Real estate construction and land:
Commercial 42,558  107,592  966,971  1,117,121 
Residential —  759  2,242,401  2,243,160 
Total real estate construction and land 42,558  108,351  3,209,372  3,360,281 
Commercial:
Asset-based 27,867  153,301  3,248,115  3,429,283 
Venture capital 6,508  118,125  1,573,875  1,698,508 
Other commercial 87,557  14,930  2,272,627  2,375,114 
Total commercial 121,932  286,356  7,094,617  7,502,905 
Consumer 462  2,732  317,061  320,255 
Total $ 265,262  $ 721,285  $ 18,096,830  $ 19,083,377 
20



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

The following table presents our nonaccrual loans and leases by loan portfolio segment and class and by with and without an allowance recorded as of the date indicated and interest income recognized on nonaccrual loans and leases for the periods indicated:
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30, June 30, June 30,
  2021 2021 2021 2020 2020 2020
Nonaccrual Interest Interest Nonaccrual Interest Interest
Recorded Income Income Recorded Income Income
Investment Recognized Recognized Investment Recognized Recognized
  (In thousands)
With An Allowance Recorded:    
Real estate mortgage:
Commercial $ 74  $ —  $ —  $ 304  $   $ — 
Income producing and other residential 2,806  —  —  1,445    — 
Real estate construction and land:
Residential 403  —  —  —    — 
Commercial:
Asset based 1,484  —  —  2,458    — 
Venture capital 2,717  —  —  8,270    — 
Other commercial 1,472  —  —  45,569    — 
Consumer 360  —  —  520    — 
With No Related Allowance Recorded:
Real estate mortgage:
Commercial $ 31,991  $ 140  $ 430  $ 61,467  $ 62  $ 130 
Income producing and other residential 3,327  —  —  762  —  — 
Real estate construction and land:
Commercial 284  —  —  337  —  — 
Residential 1,531  —  —  —  —  — 
Commercial:
Asset based 489  —  —  16,555  —  — 
Other commercial 9,865  1,814  3,644  28,426  1,196  1,220 
Total Loans and Leases With and
Without an Allowance Recorded:
Real estate mortgage $ 38,198  $ 140  $ 430  $ 63,978  $ 62  $ 130 
Real estate construction and land 2,218  —  —  337  —  — 
Commercial 16,027  1,814  3,644  101,278  1,196  1,220 
Consumer 360  —  —  520  —  — 
Total $ 56,803  $ 1,954  $ 4,074  $ 166,113  $ 1,258  $ 1,350 










21



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

The following tables present our loans held for investment by loan portfolio segment and class, by credit quality indicator (internal risk ratings), and by year of origination (vintage year) as of the dates indicated:
Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
June 30, 2021 2021 2020 2019 2018 2017 Prior Loans Loans Total
(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass $ —  $ 3,604  $ 53,211  $ 5,853  $ 9,062  $ 38,846  $ $ —  $ 110,579 
3-4 Pass 171,826  541,881  352,574  532,213  622,252  1,079,673  61,007  15,207  3,376,633 
5 Special mention —  2,596  80,292  94,499  8,158  56,614  —  —  242,159 
6-8 Classified —  500  3,967  7,665  12,648  38,047  —  —  62,827 
Total $ 171,826  $ 548,581  $ 490,044  $ 640,230  $ 652,120  $ 1,213,180  $ 61,010  $ 15,207  $ 3,792,198 
Current YTD period:
Gross charge-offs $ —  $ —  $ 190  $ 168  $ 53  $ 168  $ —  $ —  $ 579 
Gross recoveries —  —  —  —  —  (5,421) —  —  (5,421)
Net $ —  $ —  $ 190  $ 168  $ 53  $ (5,253) $ —  $ —  $ (4,842)
Real Estate Mortgage:
Income Producing and
Other Residential
Internal risk rating:
1-2 High pass $ 7,474  $ 40,341  $ 65,881  $ 30,001  $ 12,927  $ 27,593  $ —  $ —  $ 184,217 
3-4 Pass 632,881  634,036  794,568  1,037,846  644,016  343,522  276,013  199  4,363,081 
5 Special mention 358  12,595  4,207  42,581  947  —  155  —  60,843 
6-8 Classified —  2,727  —  3,059  117  6,018  —  760  12,681 
Total $ 640,713  $ 689,699  $ 864,656  $ 1,113,487  $ 658,007  $ 377,133  $ 276,168  $ 959  $ 4,620,822 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ —  $ —  $ 55  $ —  $ —  $ 55 
Gross recoveries —  —  —  —  —  (5) (1) —  (6)
Net $ —  $ —  $ —  $ —  $ —  $ 50  $ (1) $ —  $ 49 
Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
3-4 Pass 12,713  88,977  359,970  384,692  730  16,127  —  —  863,209 
5 Special mention —  —  —  —  67,292  —  —  —  67,292 
6-8 Classified —  —  —  —  —  284  —  —  284 
Total $ 12,713  $ 88,977  $ 359,970  $ 384,692  $ 68,022  $ 16,411  $ —  $ —  $ 930,785 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ 775  $ —  $ —  $ —  $ —  $ 775 
Gross recoveries —  —  —  —  —  —  —  —  — 
Net $ —  $ —  $ —  $ 775  $ —  $ —  $ —  $ —  $ 775 


22



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

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
June 30, 2021 2021 2020 2019 2018 2017 Prior Loans Loans Total
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
3-4 Pass 562,843  487,332  935,712  388,440  111,140  23,121  —  56,043  2,564,631 
5 Special mention 3,679  4,555  —  —  —  —  —  —  8,234 
6-8 Classified 547  974  413  —  —  —  —  —  1,934 
Total $ 567,069  $ 492,861  $ 936,125  $ 388,440  $ 111,140  $ 23,121  $ —  $ 56,043  $ 2,574,799 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Gross recoveries —  —  —  —  —  —  —  —  — 
Net $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Commercial: Asset-Based
Internal risk rating:
1-2 High pass $ 58,134  $ 82,132  $ 165,284  $ 113,965  $ 72,924  $ 203,548  $ 480,376  $ 73,966  $ 1,250,329 
3-4 Pass 66,807  104,947  67,780  56,499  20,667  42,132  1,802,197  12,460  2,173,489 
5 Special mention —  —  53,097  31,720  —  —  13,601  4,316  102,734 
6-8 Classified —  —  —  —  —  19,738  5,513  (900) 24,351 
Total $ 124,941  $ 187,079  $ 286,161  $ 202,184  $ 93,591  $ 265,418  $ 2,301,687  $ 89,842  $ 3,550,903 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Gross recoveries —  —  —  —  —  (359) (14) —  (373)
Net $ —  $ —  $ —  $ —  $ —  $ (359) $ (14) $ —  $ (373)
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$ —  $ 1,999  $ —  $ —  $ (5) $ 22  $ 227,411  $ —  $ 229,427 
3-4 Pass 54,712  63,937  74,756  18,347  2,256  18,158  1,238,948  9,273  1,480,387 
5 Special mention —  8,380  20,625  —  4,986  —  (81) —  33,910 
6-8 Classified —  —  —  3,000  —  —  326  2,382  5,708 
Total $ 54,712  $ 74,316  $ 95,381  $ 21,347  $ 7,237  $ 18,180  $ 1,466,604  $ 11,655  $ 1,749,432 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ —  $ —  $ 620  $ —  $ —  $ 620 
Gross recoveries —  —  —  (13) (70) (18) —  —  (101)
Net $ —  $ —  $ —  $ (13) $ (70) $ 602  $ —  $ —  $ 519 
____________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.

23



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

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
June 30, 2021 2021 2020 2019 2018 2017 Prior Loans Loans Total
(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass $ 357,890  $ 252,019  $ 310  $ $ 302  $ 375  $ 77,917  $ 695  $ 689,517 
3-4 Pass 198,420  90,403  79,878  82,235  65,037  95,808  552,735  10,531  1,175,047 
5 Special mention —  1,639  3,364  2,546  115  10,231  445  —  18,340 
6-8 Classified 2,042  593  23  16  4,611  26,405  5,314  39,005 
Total $ 558,352  $ 344,062  $ 84,145  $ 84,813  $ 65,470  $ 111,025  $ 657,502  $ 16,540  $ 1,921,909 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ 47  $ $ 359  $ 53  $ 1,771  $ 2,231 
Gross recoveries —  —  (18) —  (34) (1,127) —  (73) (1,252)
Net $ —  $ —  $ (18) $ 47  $ (33) $ (768) $ 53  $ 1,698  $ 979 
Consumer
Internal risk rating:
1-2 High pass $ —  $ 12  $ —  $ $ $ —  $ 666  $ —  $ 693 
3-4 Pass 115,446  34,877  83,346  50,146  27,398  41,878  8,573  35  361,699 
5 Special mention 331  602  966  318  54  269  —  —  2,540 
6-8 Classified —  55  262  —  15  121  21  477 
Total $ 115,777  $ 35,546  $ 84,574  $ 50,470  $ 27,476  $ 42,268  $ 9,242  $ 56  $ 365,409 
Current YTD period:
Gross charge-offs $ —  $ —  $ 209  $ 156  $ 108  $ 71  $ —  $ —  $ 544 
Gross recoveries —  —  —  (26) (5) (38) (1) —  (70)
Net $ —  $ —  $ 209  $ 130  $ 103  $ 33  $ (1) $ —  $ 474 
Total Loans and Leases
Internal risk rating:
1-2 High pass $ 423,498  $ 380,107  $ 284,686  $ 149,834  $ 95,219  $ 270,384  $ 786,373  $ 74,661  $ 2,464,762 
3-4 Pass 1,815,648  2,046,390  2,748,584  2,550,418  1,493,496  1,660,419  3,939,473  103,748  16,358,176 
5 Special mention 4,368  30,367  162,551  171,664  81,552  67,114  14,120  4,316  536,052 
6-8 Classified 2,589  4,257  5,235  13,747  12,796  68,819  32,247  7,577  147,267 
Total $ 2,246,103  $ 2,461,121  $ 3,201,056  $ 2,885,663  $ 1,683,063  $ 2,066,736  $ 4,772,213  $ 190,302  $ 19,506,257 
Current YTD period:
Gross charge-offs $ —  $ —  $ 399  $ 1,146  $ 162  $ 1,273  $ 53  $ 1,771  $ 4,804 
Gross recoveries —  —  (18) (39) (109) (6,968) (16) (73) (7,223)
Net $ —  $ —  $ 381  $ 1,107  $ 53  $ (5,695) $ 37  $ 1,698  $ (2,419)
______________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
24



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

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
December 31, 2020 2020 2019 2018 2017 2016 Prior Loans Loans Total
(In thousands)
Real Estate Mortgage:
Commercial
Internal risk rating:
1-2 High pass $ —  $ 28,304  $ 4,848  $ 13,184  $ 12,241  $ 41,222  $ —  $ —  $ 99,799 
3-4 Pass 554,143  413,785  574,497  725,503  405,367  893,008  62,586  13,978  3,642,867 
5 Special mention 2,622  78,484  99,397  14,625  9,967  57,367  —  —  262,462 
6-8 Classified 504  1,255  7,489  7,869  16,797  57,629  —  —  91,543 
Total $ 557,269  $ 521,828  $ 686,231  $ 761,181  $ 444,372  $ 1,049,226  $ 62,586  $ 13,978  $ 4,096,671 
Current YTD period:
Gross charge-offs $ —  $ —  $ 154  $ 3,330  $ —  $ 6,694  $ —  $ —  $ 10,178 
Gross recoveries —  —  —  (9) —  (280) —  —  (289)
Net $ —  $ —  $ 154  $ 3,321  $ —  $ 6,414  $ —  $ —  $ 9,889 
Real Estate Mortgage:
Income Producing and
Other Residential
Internal risk rating:
1-2 High pass $ 58,714  $ 55,826  $ 28,831  $ 33,017  $ 18,991  $ 9,265  $ —  $ —  $ 204,644 
3-4 Pass 491,504  850,978  1,067,109  577,906  238,499  187,959  113,987  528  3,528,470 
5 Special mention 12,307  4,207  42,455  1,554  —  —  861  —  61,384 
6-8 Classified —  —  2,862  —  —  4,950  118  837  8,767 
Total $ 562,525  $ 911,011  $ 1,141,257  $ 612,477  $ 257,490  $ 202,174  $ 114,966  $ 1,365  $ 3,803,265 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ —  $ —  $ 51  $ —  $ 457  $ 508 
Gross recoveries —  —  —  —  —  (327) (1) —  (328)
Net $ —  $ —  $ —  $ —  $ —  $ (276) $ (1) $ 457  $ 180 
Real Estate Construction
and Land: Commercial
Internal risk rating:
1-2 High pass $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
3-4 Pass 66,114  369,588  357,295  118,586  36,027  11,778  7,583  —  966,971 
5 Special mention —  —  40,396  67,196  —  —  —  —  107,592 
6-8 Classified —  —  —  —  42,243  315  —  —  42,558 
Total $ 66,114  $ 369,588  $ 397,691  $ 185,782  $ 78,270  $ 12,093  $ 7,583  $ —  $ 1,117,121 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Gross recoveries —  —  —  —  —  —  —  —  — 
Net $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
25



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

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
December 31, 2020 2020 2019 2018 2017 2016 Prior Loans Loans Total
(In thousands)
Real Estate Construction
and Land: Residential
Internal risk rating:
1-2 High pass $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
3-4 Pass 345,134  670,894  849,819  285,072  28,725  688  9,034  53,035  2,242,401 
5 Special mention 759  —  —  —  —  —  —  —  759 
6-8 Classified —  —  —  —  —  —  —  —  — 
Total $ 345,893  $ 670,894  $ 849,819  $ 285,072  $ 28,725  $ 688  $ 9,034  $ 53,035  $ 2,243,160 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Gross recoveries —  —  —  —  —  (21) —  —  (21)
Net $ —  $ —  $ —  $ —  $ —  $ (21) $ —  $ —  $ (21)
Commercial: Asset-Based
Internal risk rating:
1-2 High pass $ 116,247  $ 173,457  $ 111,630  $ 69,244  $ 121,838  $ 88,201  $ 275,093  $ 72,017  $ 1,027,727 
3-4 Pass 155,221  84,798  85,539  42,928  8,227  46,663  1,750,934  46,078  2,220,388 
5 Special mention —  59,822  41,789  9,022  14,274  482  23,257  4,655  153,301 
6-8 Classified —  —  —  —  19,417  551  8,799  (900) 27,867 
Total $ 271,468  $ 318,077  $ 238,958  $ 121,194  $ 163,756  $ 135,897  $ 2,058,083  $ 121,850  $ 3,429,283 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ —  $ —  $ 11,817  $ —  $ —  $ 11,817 
Gross recoveries (52) —  —  —  —  (420) (236) —  (708)
Net $ (52) $ —  $ —  $ —  $ —  $ 11,397  $ (236) $ —  $ 11,109 
Commercial: Venture
Capital
Internal risk rating:
1-2 High pass
$ 1,999  $ 4,797  $ —  $ (4) $ (4) $ 52  $ 167,296  $ —  $ 174,136 
3-4 Pass 48,132  103,437  37,818  7,789  29,738  5,494  1,161,606  5,725  1,399,739 
5 Special mention 21,645  42,499  2,202  —  —  —  46,765  5,014  118,125 
6-8 Classified —  (1,710) 4,000  —  —  3,690  528  —  6,508 
Total $ 71,776  $ 149,023  $ 44,020  $ 7,785  $ 29,734  $ 9,236  $ 1,376,195  $ 10,739  $ 1,698,508 
Current YTD period:
Gross charge-offs $ —  $ —  $ 6,533  $ —  $ (8) $ 150  $ 144  $ —  $ 6,819 
Gross recoveries —  —  (478) (176) (154) (3) (450) —  (1,261)
Net $ —  $ —  $ 6,055  $ (176) $ (162) $ 147  $ (306) $ —  $ 5,558 

26



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

Revolving
Converted
Amortized Cost Basis (1)
Term Loans by Origination Year Revolving to Term
December 31, 2020 2020 2019 2018 2017 2016 Prior Loans Loans Total
(In thousands)
Commercial: Other
Commercial
Internal risk rating:
1-2 High pass $ 1,057,405  $ 380  $ $ 366  $ 69  $ 1,350  $ 74,206  $ 80  $ 1,133,860 
3-4 Pass 88,875  95,110  99,434  77,557  23,305  89,865  657,088  7,533  1,138,767 
5 Special mention —  40  2,145  564  484  10,440  335  922  14,930 
6-8 Classified 564  80  230  755  3,813  75,046  7,067  87,557 
Total $ 1,146,282  $ 96,094  $ 101,663  $ 78,717  $ 24,613  $ 105,468  $ 806,675  $ 15,602  $ 2,375,114 
Current YTD period:
Gross charge-offs $ —  $ —  $ —  $ 506  $ 239  $ 33,521  $ 27,332  $ 1,871  $ 63,469 
Gross recoveries —  (18) (8) (34) (226) (3,155) (100) (19) (3,560)
Net $ —  $ (18) $ (8) $ 472  $ 13  $ 30,366  $ 27,232  $ 1,852  $ 59,909 
Consumer
Internal risk rating:
1-2 High pass $ 15  $ —  $ $ 14  $ —  $ —  $ 509  $ —  $ 546 
3-4 Pass 40,585  110,993  62,833  39,036  41,623  12,831  8,536  78  316,515 
5 Special mention 45  137  1,628  261  422  239  —  —  2,732 
6-8 Classified —  35  —  36  56  306  27  462 
Total $ 40,645  $ 111,165  $ 64,469  $ 39,347  $ 42,101  $ 13,376  $ 9,047  $ 105  $ 320,255 
Current YTD period:
Gross charge-offs $ —  $ 97  $ 86  $ 177  $ 363  $ 44  $ 22  $ $ 798 
Gross recoveries —  —  (1) (10) (16) (174) —  —  (201)
Net $ —  $ 97  $ 85  $ 167  $ 347  $ (130) $ 22  $ $ 597 
Total Loans and Leases
Internal risk rating:
1-2 High pass $ 1,234,380  $ 262,764  $ 145,321  $ 115,821  $ 153,135  $ 140,090  $ 517,104  $ 72,097  $ 2,640,712 
3-4 Pass 1,789,708  2,699,583  3,134,344  1,874,377  811,511  1,248,286  3,771,354  126,955  15,456,118 
5 Special mention 37,378  185,189  230,012  93,222  25,147  68,528  71,218  10,591  721,285 
6-8 Classified 506  144  14,431  8,135  79,268  71,254  84,493  7,031  265,262 
Total $ 3,061,972  $ 3,147,680  $ 3,524,108  $ 2,091,555  $ 1,069,061  $ 1,528,158  $ 4,444,169  $ 216,674  $ 19,083,377 
Current YTD period:
Gross charge-offs $ —  $ 97  $ 6,773  $ 4,013  $ 594  $ 52,277  $ 27,498  $ 2,337  $ 93,589 
Gross recoveries (52) (18) (487) (229) (396) (4,380) (787) (19) (6,368)
Net $ (52) $ 79  $ 6,286  $ 3,784  $ 198  $ 47,897  $ 26,711  $ 2,318  $ 87,221 
______________________
(1)    Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
27



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

TDRs are a result of rate reductions, term extensions, fee concessions, transfers to foreclosed assets, discounted loan payoffs, and debt forgiveness, or a combination thereof. The Company has granted various commercial and consumer loan modifications to provide borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company has elected to not apply TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act. The following table presents our troubled debt restructurings of loans held for investment by loan portfolio segment and class for the periods indicated:
Three Months Ended June 30,
  2021 2020
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 $ —  $ —  $ 3,745  $ 3,745 
Income producing and other residential —  —  —  787  787 
Real estate construction and land:
Residential 208  208  —  —  — 
Commercial:
Asset-based —  —  —  1,234  1,234 
Venture capital 2,408  2,408  —  —  — 
Other commercial 25  16,358  16,358  19  18,840  15,726 
Consumer —  —  —  212  212 
Total 28  $ 18,974  $ 18,974  40  $ 24,818  $ 21,704 
Six Months Ended June 30,
  2021 2020
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 $ 647  $ —  $ 3,745  $ 3,745 
Income producing and other residential 266  266  787  787 
Real estate construction and land:
Residential 208  208  —  —  — 
Commercial:
Asset-based 503  503  1,741  1,741 
Venture capital 4,502  2,529  2,047  2,047 
Other commercial 35  48,608  30,634  30  23,219  21,444 
Consumer 20  20  212  212 
Total 45  $ 54,754  $ 34,160  55  $ 31,751  $ 29,976 



28



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

During the three and six months ended June 30, 2021, there were two other commercial loans totaling $134,000 restructured in the preceding 12-month period that subsequently defaulted. During the three months ended June 30, 2020, there was one $2.0 million venture capital loan restructured in the preceding 12-month period that subsequently defaulted. During the six months ended June 30, 2020, there was one $2.0 million venture capital loan and one $7,000 other commercial loan restructured in the preceding 12-month period that subsequently defaulted.
Leases Receivable
We provide equipment financing to our customers primarily with operating and direct financing leases. For direct financing leases, lease receivables are recorded on the balance sheet but the leased equipment is not, although we generally retain legal title to the leased equipment until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Direct financing leases are subject to our accounting for allowance for loan and lease losses. See Note 9. Leases for information regarding operating leases where we are the lessor.
The following table provides the components of leases receivable income for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
Component of leases receivable income:
Interest income on net investments in leases $ 2,278  $ 2,103  $ 4,358  $ 4,355 
The following table presents the components of leases receivable as of the dates indicated:
June 30, 2021 December 31, 2020
(In thousands)
Net investment in direct financing leases:
Lease payments receivable $ 173,058  $ 158,740 
Unguaranteed residual assets 21,831  19,303 
Deferred costs and other 1,285  996 
Aggregate net investment in leases $ 196,174  $ 179,039 
The following table presents maturities of leases receivable as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021 $ 39,885 
2022 49,531 
2023 36,807 
2024 31,357 
2025 17,956 
Thereafter 16,335 
Total undiscounted cash flows 191,871 
Less: Unearned income (18,813)
Present value of lease payments $ 173,058 

29



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

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


30



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

Three Months Ended June 30, 2020
Real Estate
Real Estate Construction
Mortgage and Land Commercial Consumer Total
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $ 91,372  $ 40,173  $ 87,570  $ 2,177  $ 221,292 
Charge-offs (4,182) —  (11,439) (165) (15,786)
Recoveries 127  —  2,392  25  2,544 
Net charge-offs (4,055) —  (9,047) (140) (13,242)
Provision 43,407  29,940  19,424  229  93,000 
Balance, end of period $ 130,724  $ 70,113  $ 97,947  $ 2,266  $ 301,050 
Six Months Ended June 30, 2020
Real Estate
Real Estate Construction
Mortgage and Land Commercial Consumer Total
(In thousands)
Allowance for Loan and Lease Losses:
Balance, beginning of period $ 44,575  $ 30,544  $ 61,528  $ 2,138  $ 138,785 
Cumulative effect of change in accounting
principle - CECL 5,308  (8,592) 6,860  41  3,617 
Balance, January 1, 2020 49,883  21,952  68,388  2,179  142,402 
Charge-offs (4,682) —  (30,671) (638) (35,991)
Recoveries 251  —  3,347  41  3,639 
Net charge-offs (4,431) —  (27,324) (597) (32,352)
Provision 85,272  48,161  56,883  684  191,000 
Balance, end of period $ 130,724  $ 70,113  $ 97,947  $ 2,266  $ 301,050 
Ending Allowance by
Evaluation Methodology:
Individually evaluated $ 211  $ —  $ 8,282  $ —  $ 8,493 
Collectively evaluated $ 130,513  $ 70,113  $ 89,665  $ 2,266  $ 292,557 
Ending Loans and Leases by
Evaluation Methodology:
Individually evaluated $ 68,240  $ 1,799  $ 105,661  $ —  $ 175,700 
Collectively evaluated 7,887,494  3,338,729  7,881,389  411,319  19,518,931 
Ending balance $ 7,955,734  $ 3,340,528  $ 7,987,050  $ 411,319  $ 19,694,631 
The allowance for loan and lease losses decreased by $66.8 million in the second quarter of 2021 to $225.6 million due primarily to a provision for loan and lease losses benefit of $72.0 million driven by improvement in both key macro-economic variables and loan portfolio credit quality metrics along with decreased provisions for individually evaluated loans and leases.
We actively participated in both rounds of the Paycheck Protection Program ("PPP") under the provisions of the CARES Act during 2020 and 2021. As of June 30, 2021, PPP loans had an outstanding balance of approximately $624.8 million. The loans are fully guaranteed by the SBA, and do not carry an allowance.
31



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

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

32



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

Three Months Ended
June 30, 2020
Allowance for Reserve for Total
Loan and Unfunded Loan Allowance for
Lease Losses Commitments Credit Losses
(In thousands)
Balance, beginning of period $ 221,292  $ 53,571  $ 274,863 
Charge-offs (15,786) —  (15,786)
Recoveries 2,544  —  2,544 
Net charge-offs (13,242) —  (13,242)
Provision 93,000  27,000  120,000 
Balance, end of period $ 301,050  $ 80,571  $ 381,621 
Six Months Ended
June 30, 2020
Allowance for Reserve for Total
Loan and Unfunded Loan Allowance for
Lease Losses Commitments Credit Losses
(In thousands)
Balance, beginning of period $ 138,785  $ 35,861  $ 174,646 
Cumulative effect of change in accounting
principle - CECL 3,617  3,710  7,327 
Balance, January 1, 2020 142,402  39,571  181,973 
Charge-offs (35,991) —  (35,991)
Recoveries 3,639  —  3,639 
Net charge-offs (32,352) —  (32,352)
Provision 191,000  41,000  232,000 
Balance, end of period $ 301,050  $ 80,571  $ 381,621 
33



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

NOTE 6.  FORECLOSED ASSETS, NET
The following table summarizes foreclosed assets, net of the valuation allowance, as of the dates indicated:
June 30,
December 31,
Property Type 2021 2020
(In thousands)
Commercial real estate $ 12,594  $ 12,979 
Construction and land development 219  219 
Total other real estate owned, net 12,813  13,198 
Other foreclosed assets 414  829 
Total foreclosed assets, net $ 13,227  $ 14,027 
The following table presents the changes in foreclosed assets, net of the valuation allowance, for the period indicated:
Foreclosed
Assets
(In thousands)
Balance, December 31, 2020 $ 14,027 
Transfers to foreclosed assets from loans 647 
Provision for losses (14)
Reductions related to sales (1,433)
Balance, June 30, 2021 $ 13,227 
NOTE 7.  GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment annually unless a triggering event occurs thereby requiring an updated assessment. Our regular annual impairment assessment occurs in the fourth quarter. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds its fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the condensed consolidated statements of earnings (loss).
The following table presents the changes in the carrying amount of goodwill for the period indicated:
  Goodwill
  (In thousands)
Balance, December 31, 2020 $ 1,078,670 
Addition from the Civic acquisition 125,448 
Balance, June 30, 2021 $ 1,204,118 
34



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

Our other intangible assets with definite lives are CDI and CRI. CDI and CRI are amortized over their respective estimated useful lives and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or customer relationships acquired.
The following table presents the estimated aggregate future amortization expense for our current intangible assets as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021 $ 5,252 
2022 7,672 
2023 3,788 
2024 1,711 
Net CDI and CRI $ 18,423 
The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:
  Three Months Ended Six Months Ended
June 30, June 30,
  2021 2020 2021 2020
  (In thousands)
Gross Amount of CDI and CRI:        
Balance, beginning of period $ 100,550  $ 117,573  $ 109,646  $ 117,573 
Addition from Civic acquisition —  —  750  — 
Fully amortized portion —  (7,927) (9,846) (7,927)
Balance, end of period 100,550  109,646  100,550  109,646 
Accumulated Amortization:
Balance, beginning of period (79,238) (83,127) (86,005) (79,179)
Amortization expense (2,889) (3,882) (5,968) (7,830)
Fully amortized portion —  7,927  9,846  7,927 
Balance, end of period (82,127) (79,082) (82,127) (79,082)
Net CDI and CRI, end of period $ 18,423  $ 30,564  $ 18,423  $ 30,564 
35



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

NOTE 8.  OTHER ASSETS
The following table presents the detail of our other assets as of the dates indicated:
June 30,
December 31,
Other Assets 2021 2020
(In thousands)
LIHTC investments $ 251,570  $ 213,034 
Cash surrender value of BOLI 204,146  203,031 
Operating lease ROU assets, net (1)
120,595  119,787 
Interest receivable 103,758  101,596 
SBIC investments 36,816  32,327 
Equity investments without readily determinable fair values 35,321  34,304 
Taxes receivable 27,900  59,565 
Prepaid expenses 25,409  22,999 
Equity investments with readily determinable fair values 13,063  6,147 
Equity warrants (2)
4,391  4,520 
Other receivables/assets 101,528  63,016 
Total other assets $ 924,497  $ 860,326 
____________________
(1)    See Note 9. Leases for further details regarding the operating lease ROU assets.
(2)    See Note 11. Derivatives for information regarding equity warrants.
NOTE 9. LEASES
Operating Leases as a Lessee
Our lease expense is a component of "Occupancy expense" on our condensed consolidated statements of earnings (loss). The following table presents the components of lease expense for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In thousands)
Operating lease expense:
Fixed costs $ 8,776  $ 8,832  $ 17,272  $ 17,077 
Variable costs 12  24  25 
Short-term lease costs 429  102  685  194 
Sublease income (1,084) (1,003) (2,183) (2,019)
Net lease expense $ 8,130  $ 7,943  $ 15,798  $ 15,277 
The following table presents supplemental cash flow information related to leases for the periods indicated:
Six Months Ended
June 30,
2021 2020
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 18,450  $ 16,519 
ROU assets obtained in exchange for lease obligations:
Operating leases $ 16,649  $ 14,542 
36



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

The following table presents supplemental balance sheet and other information related to operating leases as of the dates indicated:
June 30, December 31,
2021 2020
(Dollars in thousands)
Operating leases:
Operating lease right-of-use assets, net $ 120,595  $ 119,787 
Operating lease liabilities $ 139,435  $ 139,501 
Weighted average remaining lease term (in years) 5.8 5.8
Weighted average discount rate 2.38  % 2.54  %
The following table presents the maturities of operating lease liabilities as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021 $ 17,733 
2022 32,298 
2023 29,411 
2024 22,099 
2025 15,293 
Thereafter 33,447 
Total operating lease liabilities 150,281 
Less: Imputed interest (10,846)
Present value of operating lease liabilities $ 139,435 
Operating Leases as a Lessor
We provide equipment financing to our customers through operating leases where we facilitate the purchase of equipment leased to our customers. The equipment is shown on the condensed consolidated balance sheets as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the condensed consolidated statements of earnings (loss), according to our fixed asset accounting policy. We receive periodic rental income payments under the leases, which are recorded as "Noninterest Income" in the condensed consolidated statements of earnings (loss). The equipment is tested periodically for impairment. No impairment was recorded on "Equipment leased to others under operating leases" in the three or six months ended June 30, 2021 and 2020.
The following table presents the rental payments to be received on operating leases as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021 $ 20,687 
2022 41,447 
2023 32,252 
2024 26,567 
2025 19,197 
Thereafter 42,492 
Total undiscounted cash flows $ 182,642 
37



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

NOTE 10.  BORROWINGS AND SUBORDINATED DEBT
Borrowings
The following table summarizes our borrowings as of the dates indicated:
June 30, 2021 December 31, 2020
Weighted Weighted
Average Average
Balance Rate Balance Rate
(Dollars in thousands)
FHLB secured advances $ —  —  % $ 5,000  —  %
Other borrowings 6,625  6.50  % —  —  %
Total borrowings $ 6,625  6.50  % $ 5,000  —  %
The other borrowings were assumed in connection with the Civic acquisition and have a weighted average remaining term of 3.1 months.
The Bank has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, the FRBSF, and other financial institutions.
FHLB Secured Line of Credit. The Bank had secured financing capacity with the FHLB as of June 30, 2021 of $3.3 billion, collateralized by a blanket lien on $5.5 billion of qualifying loans.
The following table presents the interest rates and maturity dates of FHLB secured advances as of the dates indicated:
June 30, 2021 December 31, 2020
Maturity Maturity
Balance Rate Date Balance Rate Date
(Dollars in thousands)
FHLB term advance $ —  —  % $ 5,000  —  % 5/6/2021
Other borrowing 6,625  6.50  % 10/1/2021 —  —  %
Total $ 6,625  6.50  % $ 5,000  —  %
FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of June 30, 2021, the Bank had secured borrowing capacity of $1.4 billion collateralized by liens covering $1.9 billion of qualifying loans. As of June 30, 2021 and December 31, 2020, there were no balances outstanding.
FHLB Unsecured Line of Credit. The Bank has a $112.0 million unsecured line of credit with the FHLB for the purchase of overnight funds, of which there were no balances outstanding at June 30, 2021 and December 31, 2020.
Federal Funds Arrangements with Commercial Banks. As of June 30, 2021, the Bank had unsecured lines of credit of $180.0 million in the aggregate with several correspondent banks for the purchase of overnight funds, subject to availability of funds. These lines are renewable annually and have no unused commitment fees. As of June 30, 2021 and December 31, 2020, there were no balances outstanding. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of June 30, 2021 and December 31, 2020, there were no borrowings outstanding.
38



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

Subordinated Debt
The following table summarizes the terms of each issuance of subordinated debt outstanding as of the dates indicated:
June 30, 2021 December 31, 2020 Date Maturity Rate Index
Series Balance
Rate (1)
Balance
Rate (1)
Issued Date (Quarterly Reset)
(Dollars in thousands)
Subordinated notes, net (2)
$ 394,390  3.25  % $ —  —  % 4/30/2021 5/1/2031
Fixed rate (3)
Trust V 10,310  3.22  % 10,310  3.33  % 8/15/2003 9/17/2033
3-month LIBOR + 3.10
Trust VI 10,310  3.17  % 10,310  3.27  % 9/3/2003 9/15/2033
3-month LIBOR + 3.05
Trust CII 5,155  3.07  % 5,155  3.18  % 9/17/2003 9/17/2033
3-month LIBOR + 2.95
Trust VII 61,856  2.94  % 61,856  2.96  % 2/5/2004 4/23/2034
3-month LIBOR + 2.75
Trust CIII 20,619  1.81  % 20,619  1.91  % 8/15/2005 9/15/2035
3-month LIBOR + 1.69
Trust FCCI 16,495  1.72  % 16,495  1.82  % 1/25/2007 3/15/2037
3-month LIBOR + 1.60
Trust FCBI 10,310  1.67  % 10,310  1.77  % 9/30/2005 12/15/2035
3-month LIBOR + 1.55
Trust CS 2005-1 82,475  2.07  % 82,475  2.17  % 11/21/2005 12/15/2035
3-month LIBOR + 1.95
Trust CS 2005-2 128,866  2.14  % 128,866  2.16  % 12/14/2005 1/30/2036
3-month LIBOR + 1.95
Trust CS 2006-1 51,545  2.14  % 51,545  2.16  % 2/22/2006 4/30/2036
3-month LIBOR + 1.95
Trust CS 2006-2 51,550  2.14  % 51,550  2.16  % 9/27/2006 10/30/2036
3-month LIBOR + 1.95
Trust CS 2006-3 (4)
30,564  1.52  % 31,487  1.54  % 9/29/2006 10/30/2036
3-month EURIBOR + 2.05
Trust CS 2006-4 16,470  2.14  % 16,470  2.16  % 12/5/2006 1/30/2037
3-month LIBOR + 1.95
Trust CS 2006-5 6,650  2.14  % 6,650  2.16  % 12/19/2006 1/30/2037
3-month LIBOR + 1.95
Trust CS 2007-2 39,177  2.14  % 39,177  2.16  % 6/13/2007 7/30/2037
3-month LIBOR + 1.95
Total subordinated debt 936,742  2.65  % 543,275  2.24  %
Acquisition discount (5)
(74,954) (77,463)
Net subordinated debt $ 861,788  $ 465,812 
___________________
(1)    Rates do not include the effects of discounts and issuance costs.
(2)    Net of issuance costs of $5.6 million.
(3)    Interest rate is fixed until May 1, 2026, when it changes to a floating rate and resets quarterly at a benchmark rate plus 252 basis points.
(4)    Denomination is in Euros with a value of €25.8 million.
(5)    Amount represents the fair value adjustment on trust preferred securities assumed in acquisitions.

Subordinated Notes Offering
On April 30, 2021, the Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due May 1, 2031 (the “Maturity Date”). Subject to any redemption prior to the Maturity Date, the Notes will bear interest from and including the original issue date to, but excluding, May 1, 2026 (the “Reset Date”), at a fixed rate of 3.25% per annum and from and including the Reset Date, but excluding the Maturity Date, the Notes will bear interest at a floating per annum rate equal to a benchmark rate (which is expected to be the Three-Month Term SOFR) plus 252 basis points.
Interest on the Notes will be payable on May 1 and November 1 of each year through, but not including, the Reset Date, and quarterly thereafter on February 1, May 1, August 1, and November 1 of each year to, but not including, the Maturity Date or earlier redemption date. The first interest payment will be made on November 1, 2021. The Bank may, at its option, beginning with the interest payment date of May 1, 2026, and on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part, from time to time, subject to any required regulatory approval to the extent such approval is then required, at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption, subject to certain conditions. The costs incurred in connection with the Notes offering amortize to interest expense over the term of the Notes. The Notes qualify as Tier 2 capital for regulatory capital purposes.
39



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

NOTE 11.  DERIVATIVES
The following table presents the U.S. dollar notional amounts and fair values of our derivative instruments included in the condensed consolidated balance sheets as of the dates indicated:
June 30, 2021 December 31, 2020
Notional Fair Notional Fair
Derivatives Not Designated As Hedging Instruments Amount Value Amount Value
(In thousands)
Derivative Assets:
Interest rate contracts $ 88,381  $ 916  $ 59,867  $ 1,028 
Foreign exchange contracts 28,463  2,411  73,108  3,202 
Interest rate and economic contracts 116,844  3,327  132,975  4,230 
Equity warrant assets 22,345  4,391  24,081  4,520 
Total $ 139,189  $ 7,718  $ 157,056  $ 8,750 
Derivative Liabilities:
Interest rate contracts $ 88,381  $ 844  $ 59,867  $ 1,004 
Foreign exchange contracts 28,463  —  73,108  146 
Total $ 116,844  $ 844  $ 132,975  $ 1,150 
For further information regarding our derivatives, see Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data" of the Form 10-K.
NOTE 12.  COMMITMENTS AND CONTINGENCIES
The following table presents a summary of commitments described below as of the dates indicated:
June 30,
December 31,
2021 2020
(In thousands)
Loan commitments to extend credit $ 7,891,875  $ 7,601,390 
Standby letters of credit 343,719  337,336 
Commitments to contribute capital to SBICs
and CRA-related loan pools 55,906  55,499 
Total $ 8,291,500  $ 7,994,225 
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement that the Company has in particular classes of financial instruments.
Commitments to extend credit are contractual agreements to lend to our customers when customers are in compliance with their contractual credit agreements and when customers have contractual availability to borrow under such agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The estimated exposure to loss from these commitments is included in the reserve for unfunded loan commitments, which amounted to $74.6 million at June 30, 2021 and $85.6 million at December 31, 2020.
40



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

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. Most guarantees expire within one year from the date of issuance. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation but would seek repayment of that financial obligation from the borrower. In some cases, borrowers have pledged cash and investment securities as collateral under these arrangements.
In addition, we invest in SBICs that call for capital contributions up to an amount specified in the partnership agreements, and in CRA-related loan pools. As of June 30, 2021 and December 31, 2020, we had commitments to contribute capital to these entities totaling $55.9 million and $55.5 million.
The following table presents the years in which commitments are expected to be paid for our commitments to contribute capital to small business investment companies and CRA-related loan pools as of the date indicated:
June 30, 2021
(In thousands)
Period ending December 31,
2021 $ 27,953 
2022 27,953 
Total $ 55,906 
Legal Matters
In the ordinary course of our business, the Company is party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon currently available information, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations. The range of any reasonably possible liabilities is also not significant.
41



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

NOTE 13.  FAIR VALUE MEASUREMENTS
The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and leases and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets.
For information regarding the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03), see Note 1. Nature of Operations and Summary of Significant Accounting Policies, and Note 13. Fair Value Measurements, to the Consolidated Financial Statements of the Company's Form 10-K.
The Company also holds SBIC investments measured at fair value using the NAV per share practical expedient that are not required to be classified in the fair value hierarchy. At June 30, 2021, the fair value of these investments was $36.8 million.
The following tables present information on the assets and liabilities measured and recorded at fair value on a recurring basis as of the dates indicated:
Fair Value Measurements as of
June 30, 2021
Measured on a Recurring Basis Total Level 1 Level 2 Level 3
(In thousands)
Securities available-for-sale:
Municipal securities $ 1,817,499  $ —  $ 1,817,499  $ — 
Agency commercial MBS 1,257,628  —  1,257,628  — 
Agency residential CMOs 1,142,398  —  1,142,398  — 
U.S. Treasury securities 877,153  877,153  —  — 
Agency residential MBS 552,411  —  552,411  — 
Corporate debt securities 508,708  —  508,708  — 
Collateralized loan obligations 382,043  —  382,043  — 
Private label commercial MBS 378,235  —  356,392  21,843 
Asset-backed securities 149,583  —  149,583  — 
Private label residential CMOs 96,922  —  92,778  4,144 
SBA securities 36,028  —  36,028  — 
Total securities available-for-sale $ 7,198,608  $ 877,153  $ 6,295,468  $ 25,987 
Equity investments with readily determinable fair values $ 13,063  $ 13,063  $ —  $ — 
Derivatives (1):
Equity warrants 4,391  —  —  4,391 
Interest rate and economic contracts 3,327  —  3,327  — 
Derivative liabilities 844  —  844  — 
42



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

Fair Value Measurements as of
December 31, 2020
Measured on a Recurring Basis Total Level 1 Level 2 Level 3
(In thousands)
Securities available-for-sale:
Municipal securities $ 1,531,617  $ —  $ 1,531,617  $ — 
Agency commercial MBS 1,281,877  —  1,281,877  — 
Agency residential CMOs 1,219,880  —  1,219,880  — 
Agency residential MBS 341,074  —  341,074  — 
Corporate debt securities 311,889  —  311,889  — 
Asset-backed securities 166,546  —  166,546  — 
Collateralized loan obligations 135,876  —  135,876  — 
Private label residential CMOs 116,946  —  112,299  4,647 
Private label commercial MBS 82,957  —  57,232  25,725 
SBA securities 41,627  —  41,627  — 
U.S. Treasury securities 5,302  5,302  —  — 
Total securities available-for-sale $ 5,235,591  $ 5,302  $ 5,199,917  $ 30,372 
Equity investments with readily determinable fair values $ 6,147  $ 6,147  $ —  $ — 
Derivatives (1):
Equity warrants 4,520  —  —  4,520 
Interest rate and economic contracts 4,230  —  4,230  — 
Derivative liabilities 1,150  —  1,150  — 
____________________
(1)    For information regarding derivative instruments, see Note 11. Derivatives.
During the six months ended June 30, 2021, there was a $131,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis.
The following table presents information about quantitative inputs and assumptions used to determine the fair values provided by our third party pricing service for our Level 3 private label residential CMOs and private label commercial MBS available-for-sale measured at fair value on a recurring basis as of the date indicated:
June 30, 2021
Private Label Residential CMOs Private Label Commercial MBS
Weighted
Input or
Weighted
Range
Average
Range
Average
Unobservable Inputs of Inputs
Input (1)
of Inputs
Input (2)
Voluntary annual prepayment speeds
4.3% - 20.6%
11.8%
10.0% - 15.0%
12.2%
Annual default rates (3)
0.9% - 10.3%
2.3% 2.0% 2.0%
Loss severity rates (3)
22.7% - 122.5%
55.1% 60.0% 60.0%
Discount rates
1.6% - 10.4%
6.9%
2.6% - 3.8%
2.8%
____________________
(1)    Unobservable inputs for private label residential CMOs were weighted by the relative fair values of the instruments.
(2)    Voluntary annual prepayment speeds and discount rates for private label commercial MBS were weighted by the relative fair values of the instruments.
(3)    Annual default rates and loss severity rates were the same for all of the private label commercial MBS.
43



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

The following table presents information about quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:
June 30, 2021
Equity Warrants
Weighted
Range Average
Unobservable Inputs of Inputs
Input (1)
Volatility
18.4% - 166.3%
30.1%
Risk-free interest rate
0.1% - 0.9%
0.4%
Remaining life assumption (in years)
0.08 - 4.99
2.90
____________________
(1)    Unobservable inputs for equity warrants were weighted by the relative fair values of the instruments.
The following table summarizes activity for our Level 3 private label residential CMOs available-for-sale, private label commercial MBS available-for-sale, and equity warrants measured at fair value on a recurring basis for the period indicated:
Private Label Private Label Equity
Residential CMOs Commercial MBS Warrants
(In thousands)
Balance, December 31, 2020 $ 4,647  $ 25,725  $ 4,520 
Total included in earnings 166  (42) 11,773 
Total included in other comprehensive income (155) 28  — 
Issuances —  —  173 
Sales
—  —  (11,944)
Net settlements (514) (3,868) — 
Transfers to Level 1 (equity investments with readily
determinable fair values) —  —  (131)
Balance, June 30, 2021 $ 4,144  $ 21,843  $ 4,391 
Unrealized net gains (losses) for the period included in other
comprehensive income for securities held at quarter-end $ 939  $ 183 
The following tables present assets measured at fair value on a non-recurring basis as of the dates indicated:
Fair Value Measurement as of
June 30, 2021
Measured on a Non-Recurring Basis Total Level 1 Level 2 Level 3
(In thousands)
Individually evaluated loans and leases (1)
$ 39,538  $ —  $ —  $ 39,538 
Total non-recurring $ 39,538  $ —  $ —  $ 39,538 
______________________
(1)    Includes nonaccrual loans and leases and performing TDRs with balances greater than $250,000.






44



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

Fair Value Measurement as of
December 31, 2020
Measured on a Non-Recurring Basis Total Level 1 Level 2 Level 3
(In thousands)
Individually evaluated loans and leases (1)
$ 102,274  $ —  $ 4,160  $ 98,114 
Total non-recurring $ 102,274  $ —  $ 4,160  $ 98,114 
_____________________
(1)    Includes nonaccrual loans and leases and performing TDRs with balances greater than $250,000.
The following table presents losses recognized on assets measured on a nonrecurring basis for the periods indicated:
Three Months Ended Six Months Ended
Losses on Assets June 30, June 30,
Measured on a Non-Recurring Basis 2021 2020 2021 2020
(In thousands)
Individually evaluated loans and leases $ 1,951  $ 9,483  $ 2,653  $ 29,317 
OREO —  14  110 
Total losses $ 1,951  $ 9,488  $ 2,667  $ 29,427 
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:
June 30, 2021
Valuation Unobservable Input or
Weighted
Asset
Fair Value
Technique Inputs Range
Average
(In thousands)
Individually evaluated
loans and leases $ 33,413 Discounted cash flows Discount rates
3.75% - 7.75%
6.20%
Individually evaluated
loans and leases 6,125 Third party appraisals No discounts
Total non-recurring Level 3 $ 39,538






45



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

The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:
June 30, 2021
Carrying
Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(In thousands)
Financial Assets:
Cash and due from banks $ 179,505  $ 179,505  $ 179,505  $ —  $ — 
Interest-earning deposits in financial institutions 5,678,587  5,678,587  5,678,587  —  — 
Securities available-for-sale 7,198,608  7,198,608  877,153  6,295,468  25,987 
Investment in FHLB stock 17,250  17,250  —  17,250  — 
Loans and leases held for investment, net 19,280,657  19,844,500  —  —  19,844,500 
Equity warrants 4,391  4,391  —  —  4,391 
Interest rate and economic contracts 3,327  3,327  —  3,327  — 
Equity investments with readily determinable fair values 13,063  13,063  13,063  —  — 
Servicing rights 2,628  2,628  —  —  2,628 
Financial Liabilities:
Core deposits 27,038,161  27,038,161  —  27,038,161  — 
Non-core non-maturity deposits 1,122,971  1,122,971  —  1,122,971  — 
Time deposits 1,485,902  1,487,302  —  1,487,302  — 
Borrowings 6,625  6,734  —  6,734  — 
Subordinated debt 861,788  916,612  —  916,612  — 
Derivative liabilities 844  844  —  844  — 

December 31, 2020
Carrying
Estimated Fair Value
Amount Total Level 1 Level 2 Level 3
(In thousands)
Financial Assets:
Cash and due from banks $ 150,464  $ 150,464  $ 150,464  $ —  $ — 
Interest-earning deposits in financial institutions 3,010,197  3,010,197  3,010,197  —  — 
Securities available-for-sale 5,235,591  5,235,591  5,302  5,199,917  30,372 
Investment in FHLB stock 17,250  17,250  —  17,250  — 
Loans and leases held for investment, net 18,735,196  19,305,998  —  4,160  19,301,838 
Equity warrants 4,520  4,520  —  —  4,520 
Interest rate and economic contracts 4,230  4,230  —  4,230  — 
Equity investments with readily determinable fair values 6,147  6,147  6,147  —  — 
Financial Liabilities:
Core deposits 22,264,480  22,264,480  —  22,264,480  — 
Non-core non-maturity deposits 1,149,467  1,149,467  —  1,149,467  — 
Time deposits 1,526,770  1,527,639  —  1,527,639  — 
Borrowings 5,000  4,995  —  4,995  — 
Subordinated debt 465,812  448,036  —  448,036  — 
Derivative liabilities 1,150  1,150  —  1,150  — 
46



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

Limitations
Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of June 30, 2021, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.
NOTE 14.  EARNINGS (LOSS) PER SHARE
The following table presents the computations of basic and diluted net earnings (loss) per share for the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Dollars in thousands, except per share data)
Basic Earnings (Loss) Per Share:
Net earnings (loss) $ 180,512  $ 33,204  $ 330,918  $ (1,399,907)
Less: Earnings allocated to unvested restricted stock(1)
(3,172) (362) (5,495) (1,251)
Net earnings (loss) allocated to common shares $ 177,340  $ 32,842  $ 325,423  $ (1,401,158)
Weighted-average basic shares and unvested restricted
stock outstanding 119,386  118,192  119,121  118,484 
Less: Weighted-average unvested restricted stock
outstanding (2,356) (1,606) (2,181) (1,551)
Weighted-average basic shares outstanding 117,030  116,586  116,940  116,933 
Basic earnings (loss) per share $ 1.52  $ 0.28  $ 2.78  $ (11.98)
Diluted Earnings (Loss) Per Share:
Net earnings (loss) allocated to common shares $ 177,340  $ 32,842  $ 325,423  $ (1,401,158)
Weighted-average diluted shares outstanding 117,030  116,586  116,940  116,933 
Diluted earnings (loss) per share $ 1.52  $ 0.28  $ 2.78  $ (11.98)
________________________
(1)    Represents cash dividends paid to holders of unvested restricted stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 15. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following table presents interest income and noninterest income, the components of total revenue, as disclosed in the condensed consolidated statements of earnings (loss) and the related amounts which are from contracts with customers within the scope of ASC Topic 606, "Revenue from Contracts with Customers," for the periods indicated. As illustrated here, substantially all of our revenue is specifically excluded from the scope of ASC Topic 606.
Three Months Ended June 30,
2021 2020
Total Revenue from Total Revenue from
Recorded Contracts with Recorded Contracts with
Revenue Customers Revenue Customers
(In thousands)
Total interest income $ 280,505  $ —  $ 274,075  $ — 
Noninterest income:
   Service charges on deposit accounts 3,452  3,452  2,004  2,004 
   Other commissions and fees 10,704  2,603  10,111  3,006 
   Leased equipment income 10,847  —  12,037  — 
   Gain on sale of loans 1,422  —  346  — 
   Gain on sale of securities —  —  7,715  — 
   Other income 13,946  394  6,645  336 
      Total noninterest income 40,371  6,449  38,858  5,346 
Total revenue $ 320,876  $ 6,449  $ 312,933  $ 5,346 
The following table presents revenue from contracts with customers based on the timing of revenue recognition for the periods indicated:
Three Months Ended
June 30,
2021 2020
(In thousands)
Products and services transferred at a point in time $ 3,068  $ 2,727 
Products and services transferred over time 3,381  2,619 
Total revenue from contracts with customers $ 6,449  $ 5,346 
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Six Months Ended June 30,
2021 2020
Total Revenue from Total Revenue from
Recorded Contracts with Recorded Contracts with
Revenue Customers Revenue Customers
(In thousands)
Total interest income $ 553,842  $ —  $ 565,407  $ — 
Noninterest income:
   Service charges on deposit accounts 6,386  6,386  4,662  4,662 
   Other commissions and fees 19,862  5,460  19,832  7,160 
   Leased equipment income 22,201  —  24,288  — 
   Gain on sale of loans 1,561  —  433  — 
   Gain on sale of securities 101  —  7,897  — 
   Other income 35,089  574  10,846  672 
      Total noninterest income 85,200  12,420  67,958  12,494 
Total revenue $ 639,042  $ 12,420  $ 633,365  $ 12,494 
The following table presents revenue from contracts with customers based on the timing of revenue recognition for the periods indicated:
Six Months Ended
June 30,
2021 2020
(In thousands)
Products and services transferred at a point in time $ 6,065  $ 6,963 
Products and services transferred over time 6,355  5,531 
Total revenue from contracts with customers $ 12,420  $ 12,494 
Contract Balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of the dates indicated:
June 30, 2021 December 31, 2020
(In thousands)
Receivables, which are included in "Other assets" $ 1,296  $ 1,046 
Contract assets, which are included in "Other assets" $ —  $ — 
Contract liabilities, which are included in "Accrued interest payable and other liabilities" $ 294  $ 359 
Contract liabilities relate to advance consideration received from customers for which revenue is recognized over the life of the contract. The change in contract liabilities for the six months ended June 30, 2021 due to revenue recognized that was included in the contract liability balance at the beginning of the period was $65,000.
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 16.  STOCK-BASED COMPENSATION
At the annual meeting of stockholders held on May 11, 2021, the Company's stockholders approved the Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (the “Amended and Restated 2017 Plan”). The Company’s Amended and Restated 2017 Plan permits stock-based compensation awards to officers, directors, employees, and consultants and will remain in effect until December 31, 2026.
The Amended and Restated 2017 Plan authorizes grants of stock-based compensation instruments to purchase or issue up to 6,650,000 shares, representing 4,000,000 shares originally approved for grant under the Original 2017 Stock Incentive Plan plus 2,650,000 shares added as result of the approval of the Amended and Restated 2017 Plan. As of June 30, 2021, there were 3,054,299 shares available for grant under the Amended and Restated 2017 Plan.
Restricted Stock
Restricted stock amortization totaled $8.2 million and $5.7 million for the three months ended June 30, 2021 and 2020 and $14.6 million and $12.2 million for the six months ended June 30, 2021 and 2020. Such amounts are included in "Compensation expense" on the condensed consolidated statements of earnings (loss). The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of June 30, 2021 totaled $83.7 million.
Time-Based Restricted Stock Awards
At June 30, 2021, there were 2,341,548 shares of unvested TRSAs outstanding. RSAs generally vest ratably over a service period of three or four years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs is based on the fair value of the underlying award on the grant date and is recognized over the vesting period using the straight-line method.
Performance-Based Restricted Stock Units
At June 30, 2021, there were 512,863 units of unvested PRSUs that have been granted. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a three-year performance period. The shares underlying the PRSUs are not considered issued and outstanding until they vest. PRSUs are granted and initially expensed based on a target number. The number of shares that will ultimately vest based on actual performance will range from zero to a maximum of either 150% or 200% of target.
Compensation expense related to PRSUs is based on the fair value of the underlying award on the grant date and is amortized over the vesting period using the straight-line method unless it is determined that: (1) attainment of the financial metrics is less than probable, in which case a portion or all of the amortization is suspended, or (2) attainment of the financial metrics is improbable, in which case a portion or all of the previously recognized amortization is reversed and also suspended. If it is determined that attainment of a financial measure higher than target is probable, the amortization will increase to up to 150% or 200% of the target amortization amount. Annual PRSU expense may vary during the three-year performance period based upon changes in management's estimate of the number of shares that may ultimately vest. In the case where the performance target for the PRSU is based on a market condition (such as total shareholder return), the amortization is neither reversed nor suspended if it is subsequently determined that the attainment of the performance target is less than probable or improbable and the employee continues to meet the service requirement of the award.
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

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


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

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

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Information
This Form 10-Q contains certain “forward-looking statements” about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, strategies, goals, and projections and including statements about our expectations regarding our operating expenses, profitability, allowance for loan and lease losses, net interest margin, net interest income, deposit growth, loan and lease portfolio growth and production, acquisitions, maintaining capital adequacy, liquidity, goodwill, and interest rate risk management. All statements contained in this Form 10-Q that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:
the COVID-19 pandemic continues to affect the Company, its employees, customers and third-party service providers, and the ultimate extent of the impacts of the pandemic and related government stimulus programs on its business, financial position, results of operations, liquidity and prospects is still uncertain, due in part to the Delta variant of COVID-19. Weaker than expected improvement in general business and economic conditions could adversely affect the Company’s revenues, the values of its assets and liabilities and continue to negatively impact loan growth;
our ability to complete pending and future acquisitions, and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;
our ability to compete effectively against other financial service providers in our markets;
the impact of changes in interest rates or levels of market activity, especially on the fair value of our loan and investment portfolios;
deterioration, weaker than expected improvement, or other changes in the state of the economy or the markets in which we conduct business (including the levels of IPOs and mergers and acquisitions), which may affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;
changes in credit quality and the effect of credit quality and the CECL accounting standard on our provision for credit losses and allowance for credit losses;
our ability to attract deposits and other sources of funding or liquidity;
our ability to efficiently deploy excess liquidity;
the need to retain capital for strategic or regulatory reasons;
compression of the net interest margin due to changes in the interest rate environment, forward yield curves, loan products offered, spreads on newly originated loans and leases, changes in our asset or liability mix, and/or changes to the cost of deposits and borrowings;
uncertainty regarding the future of LIBOR and the transition away from LIBOR toward new reference rates by the end of 2021;
reduced demand for our services due to strategic or regulatory reasons or reduced demand for our products due to legislative changes such as new rent control laws;
our ability to successfully execute on initiatives relating to enhancements of our technology infrastructure, including client-facing systems and applications;
legislative or regulatory requirements or changes, including an increase of capital requirements, and increased political and regulatory uncertainty;
the impact on our reputation and business from our interactions with business partners, counterparties, service providers and other third parties;
higher than anticipated increases in operating expenses;
lower than expected dividends paid from the Bank to the holding company;
the amount and exact timing of any common stock repurchases will depend upon market conditions and other factors;
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a deterioration in the overall macroeconomic conditions or the state of the banking industry that could warrant further analysis of the carrying value of goodwill and could result in an adjustment to its carrying value resulting in a non-cash charge;
the effectiveness of our risk management framework and quantitative models;
the costs and effects of legal, compliance, and regulatory actions, changes and developments, including the impact of adverse judgments or settlements in litigation, the initiation and resolution of regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews;
the impact of changes made to tax laws or regulations affecting our business, including the disallowance of tax benefits by tax authorities and/or changes in tax filing jurisdictions or entity classifications; and
our success at managing risks involved in the foregoing items and all other risk factors described in our audited consolidated financial statements, and other risk factors described in this Form 10-Q and other documents filed or furnished by PacWest with the SEC.
All forward-looking statements included in this Form 10-Q are based on information available at the time the statement is made. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise except as required by law.
Overview
PacWest Bancorp, a Delaware corporation, is a bank holding company registered under the BHCA, with our corporate headquarters located in Beverly Hills, California. Our principal business is to serve as the holding company for our wholly-owned subsidiary, Pacific Western Bank. References to "Pacific Western" or the "Bank" refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to "we," "us," or the "Company" refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to "PacWest" or to the "holding company," we are referring to PacWest Bancorp, the parent company, on a stand-alone basis.
The Bank is focused on relationship-based business banking to small, middle-market, and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 70 full-service branches located in California, one branch located in Durham, North Carolina, one branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.
In managing the top line of our business, we focus on loan growth, loan yield, deposit cost, and net interest margin. Net interest income, on a year-to-date basis in 2021, accounted for 86.1% of net revenue (net interest income plus noninterest income).
At June 30, 2021, the Company had total assets of $34.9 billion, including $19.5 billion of total loans and leases, net of deferred fees, $7.2 billion of securities available-for-sale, and $5.7 billion of interest-earning deposits in financial institutions compared to $29.5 billion of total assets, including $19.1 billion of total loans and leases, net of deferred fees, $5.2 billion of securities available-for-sale, and $3.0 billion of interest-earning deposits in financial institutions at December 31, 2020. The $5.4 billion increase in total assets since year-end was due primarily to a $2.7 billion increase in interest-earning deposits in financial institutions, a $2.0 billion increase in securities available-for-sale, and a $422.9 million increase in loans and leases, net of deferred fees.
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At June 30, 2021, the Company had total liabilities of $31.0 billion, including total deposits of $29.6 billion and subordinated debt of $861.8 million, compared to $25.9 billion of total liabilities, including $24.9 billion of total deposits and $465.8 million of subordinated debt at December 31, 2020. The $5.1 billion increase in total liabilities since year-end was due mainly to increases of $4.8 billion in core deposits and $396.0 million in subordinated debt. The increase in core deposits was due primarily to continued strong deposit growth from our venture banking clients. At June 30, 2021, core deposits totaled $27.0 billion, or 91% of total deposits, including $11.3 billion of noninterest-bearing demand deposits, or 38% of total deposits. The increase in subordinated debt was due to the $400 million of subordinated notes issued by the Bank on April 30, 2021. The subordinated notes qualify as Tier 2 capital for regulatory capital purposes.
At June 30, 2021, the Company had total stockholders' equity of $3.8 billion compared to $3.6 billion at December 31, 2020. The $251.7 million increase in stockholders' equity since year-end was due mainly to $330.9 million in net earnings, offset partially by a $27.0 million decrease in accumulated other comprehensive income and $59.5 million of cash dividends paid. Consolidated capital ratios remained strong with Tier 1 capital and total capital ratios of 10.41% and 14.99% at June 30, 2021.
Recent Events
Acquisition of Civic
On February 1, 2021, the Bank completed the acquisition of Civic in an all-cash transaction. Civic, located in Redondo Beach, California, is one of the leading lenders in the United States specializing in residential non-owner-occupied investment properties. The acquisition of Civic advances the Bank’s strategy to diversify and expand its lending portfolio, diversify its revenue streams, and deploy excess liquidity into higher-yielding assets. Civic operates as a subsidiary of the Bank and at June 30, 2021 had $662.1 million of loans outstanding.
The Civic acquisition has been accounted for under the acquisition method of accounting which resulted in the recognition of goodwill of $125.4 million. All of the recognized goodwill is expected to be deductible for tax purposes. For further information, see Note 2. Acquisitions in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
Homeowners Association Services Division Acquisition Announcement
On April 1, 2021, PacWest announced that the Bank entered into a definitive agreement to acquire MUFG Union Bank, N.A.’s (“Union Bank”) Homeowners Association (“HOA”) Services Division. The Bank will acquire certain assets and assume certain liabilities related to the HOA Services Division for a premium of 5.9% on deposits plus the net book values of certain assumed assets and liabilities for aggregate cash consideration of approximately $250 million. The final amount of consideration to be paid will be based on balances at closing, which is expected to occur in the fourth quarter of 2021 subject to customary closing conditions. For further information, see Note 2. Acquisitions in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
Subordinated Notes Offering
On April 30, 2021, the Bank issued $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes (the “Notes”) due May 1, 2031 (the “Maturity Date”), if not previously redeemed. Subject to any redemption prior to the Maturity Date, the Notes will bear interest from and including the original issue date to, but excluding, May 1, 2026 (the “Reset Date”), at a fixed rate of 3.25% per annum and from and including the Reset Date to, but excluding the Maturity Date, the Notes will bear interest at a floating per annum rate equal to a benchmark rate (which is expected to be the Three-Month Term SOFR) plus 252 basis points. For further information, see Note 10. Borrowings and Subordinated Debt in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."



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COVID-19 Pandemic - Impact to Our Business
From a business perspective, the impact in 2021 from the COVID-19 pandemic has decreased, however, new variants may continue to impact key macro-economic indicators such as unemployment and GDP and we will continue to closely monitor our loan portfolio. In the early stages of the COVID-19 pandemic, we experienced an increase in customers seeking loan modifications through payment deferrals and extension of terms. Most of the modifications were for payment deferrals for three months, while some deferrals were up to six months. Some loans were subsequently modified with deferrals of three to twelve months. As of June 30, 2021, there were 29 loans with a balance of $48.4 million on deferral. The Company did not apply a TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act.
We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act. As of June 30, 2021, PPP loans had an outstanding balance of approximately $624.8 million. In the second quarter of 2021, we originated approximately $31.0 million in PPP loans with a five-year term, while loans forgiven under the PPP program totaled approximately $505.5 million. The loans have origination fees that are recognized over the life of the loan with the fee recognition accelerated upon forgiveness or repayment of the loan. Fees recognized in the second quarter of 2021 were $8.8 million. As of June 30, 2021, the remaining unamortized fees, net of deferred costs, totaled $15.6 million. The PPP loans are fully guaranteed by the SBA and do not carry an allowance. Our participation in the PPP contributed to the increase in core deposits beginning in the second quarter of 2020 due to PPP loan proceeds being deposited into customers' accounts.
As the COVID-19 pandemic unfolded in March 2020, we immediately enhanced the monitoring of our loan and lease portfolio with particular emphasis on certain loan and lease portfolios that we expected to be most impacted by the COVID-19 pandemic, such as the hotel, retail, commercial aviation, restaurant, and oil services loan and lease portfolios. We continue to closely monitor all of our portfolios, although with the increase in oil prices, the credit risk in the oil services portfolio has diminished. The hotel portfolio as of June 30, 2021 is comprised of hotel CRE loans of $521.9 million, hotel construction loans of $482.9 million, and hotel SBA loans of $29.5 million. In July 2021, our single classified commercial aviation loan paid off.
The table below shows our exposure to these loan and lease portfolios, which includes equipment leased to others under operating leases, as of the date indicated:
June 30, 2021
% of
Special Total Loans
Loan and Lease Portfolio Classified Mention Pass Total and Leases
(Dollars in thousands)
Hotel $ 16,678  $ 224,812  $ 792,773  $ 1,034,263  5.3  %
Retail CRE 233  1,449  432,533  434,215  2.2  %
Commercial aviation 19,248  77,236  89,410  185,894  1.0  %
Restaurant 5,090  28,883  121,672  155,645  0.8  %
Total $ 41,249  $ 332,380  $ 1,436,388  $ 1,810,017  9.3  %
From a credit perspective, most of our credit metrics improved during the second quarter of 2021 as economic conditions and economic forecasts continued to improve. This improvement led to a provision for credit losses benefit of $88.0 million for the second quarter of 2021 compared to a provision for credit losses benefit of $48.0 million for the first quarter of 2021 compared to a provision for credit losses of $120.0 million for the second quarter of 2020. For further details on CECL and the impacts to our process, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.
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Key Performance Indicators
Among other factors, our operating results generally depend on the following key performance indicators:
The Level of Net Interest Income
Net interest income is the excess of interest earned on our interest-earning assets over the interest paid on our interest-bearing liabilities. Net interest margin is net interest income (annualized if related to a quarterly period) expressed as a percentage of average interest-earning assets. Tax equivalent net interest income is net interest income increased by an adjustment for tax-exempt interest on certain loans and investment securities based on a 21% federal statutory tax rate. Tax equivalent net interest margin is calculated as tax equivalent net interest income divided by average interest-earning assets.
Net interest income is affected by changes in both interest rates and the volume of average interest-earning assets and interest-bearing liabilities. Our primary interest-earning assets are loans and investment securities, and our primary interest-bearing liabilities are deposits and borrowings. Contributing to our high net interest margin is our high yield on loans and leases and competitive cost of deposits. While our deposit balances will fluctuate depending on deposit holders’ perceptions of alternative yields available in the market, we seek to minimize the impact of these variances by attracting a high percentage of noninterest-bearing deposits.
Loan and Lease Growth
We actively seek new lending opportunities under an array of lending products. Our lending activities include real estate mortgage loans, real estate construction and land loans, commercial loans and leases, and a small amount of consumer lending. Our commercial real estate loans and real estate construction loans are secured by a range of property types. Our commercial loans and leases portfolio is diverse and generally includes various asset-secured loans, equipment-secured loans and leases, venture capital loans to support venture capital firms’ operations and the operations of entrepreneurial and venture-backed companies during the various phases of their early life cycles, and secured business loans.
Our loan origination process emphasizes credit quality. To augment our internal loan production, we have historically purchased multi-family loans from other banks and private student loans from third-party lenders. These loan purchases help us manage the concentrations in our portfolio as they diversify the geographic, interest-rate risk, credit risk, and product composition of our loan portfolio. Achieving net loan growth is subject to many factors, including maintaining strict credit standards, competition from other lenders, and borrowers that opt to prepay loans.
The Magnitude of Credit Losses
We emphasize credit quality in originating and monitoring our loans and leases, and we measure our success by the levels of our classified loans and leases, nonaccrual loans and leases, and net charge-offs. We maintain an allowance for credit losses on loans and leases, which is the sum of the allowance for loan and lease losses and the reserve for unfunded loan commitments. Provisions for credit losses are charged to operations as and when needed for both on and off-balance sheet credit exposures. Loans and leases that are deemed uncollectable are charged off and deducted from the allowance for loan and lease losses. Recoveries on loans and leases previously charged off are added to the allowance for loan and lease losses. The provision for credit losses on the loan and lease portfolio is based on our allowance methodology, which considers the impact of assumptions and is reflective of historical experience, economic forecasts viewed to be reasonable and supportable by management, the current loan and lease composition, and relative credit risks known as of the balance sheet date. For originated and acquired credit-deteriorated loans, a provision for credit losses may be recorded to reflect credit deterioration after the origination date or after the acquisition date, respectively.
We regularly review loans and leases to determine whether there has been any deterioration in credit quality resulting from borrower operations or changes in collateral value or other factors which may affect collectability of our loans and leases. Changes in economic conditions, such as the rate of economic growth, the unemployment rate, rate of inflation, increases in the general level of interest rates, declines in real estate values, changes in commodity prices, and adverse conditions in borrowers’ businesses, could negatively impact our borrowers and cause us to adversely classify loans and leases. An increase in classified loans and leases generally results in increased provisions for credit losses and an increased allowance for credit losses. Any deterioration in the commercial real estate market may lead to increased provisions for credit losses because our loans are concentrated in commercial real estate loans.

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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 Six Months Ended
June 30, March 31, June 30, June 30,
Efficiency Ratio 2021 2021 2020 2021 2020
(Dollars in thousands)
Noninterest expense $ 151,750  $ 150,136  $ 126,965  $ 301,886  $ 1,714,935 
Less: Intangible asset amortization 2,889  3,079  3,882  5,968  7,830 
Foreclosed assets (income) expense, net (119) (146) (118) (80)
Goodwill impairment —  —  —  —  1,470,000 
Acquisition, integration and reorganization costs 200  3,425  —  3,625  — 
Noninterest expense used for efficiency ratio $ 148,780  $ 143,631  $ 123,229  $ 292,411  $ 237,185 
Net interest income (tax equivalent) $ 270,083  $ 264,635  $ 256,294  $ 534,718  $ 507,722 
Noninterest income 40,371  44,829  38,858  85,200  67,958 
Net revenues 310,454  309,464  295,152  619,918  575,680 
Less: Gain on sale of securities —  101  7,715  101  7,897 
Net revenues used for efficiency ratio $ 310,454  $ 309,363  $ 287,437  $ 619,817  $ 567,783 
Efficiency ratio 47.9  % 46.4  % 42.9  % 47.2  % 41.8  %
Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. We identify critical policies and estimates as those that require management to make particularly difficult, subjective, and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates relate to the allowance for credit losses on loans and leases held for investment, the carrying value of goodwill and other intangible assets, and the realization of deferred income tax assets and liabilities.
Our critical accounting policies and estimates are described in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K.

58


Non-GAAP Measurements
We use certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. We used the following non-GAAP measures in this Form 10-Q:
Return on average tangible equity, tangible common equity ratio, and tangible book value per share: Given that the use of these measures is prevalent among banking regulators, investors, and analysts, we disclose them in addition to the related GAAP measures of return on average equity, equity to assets ratio, and book value per share, respectively. The reconciliations of these non-GAAP measurements to the GAAP measurements are presented in the following tables for and as of the periods presented.
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
Return on Average Tangible Equity
2021 2021 2020 2021 2020
(Dollars in thousands)
Net earnings (loss) $ 180,512  $ 150,406  $ 33,204  $ 330,918  $ (1,399,907)
Add: Intangible asset amortization 2,889  3,079  3,882  5,968  7,830 
Goodwill impairment —  —  —  —  1,470,000 
Adjusted net earnings used for return on
average tangible equity $ 183,401  $ 153,485  $ 37,086  $ 336,886  $ 77,923 
Average stockholders' equity $ 3,739,042  $ 3,617,248  $ 3,446,850  $ 3,678,481  $ 4,201,814 
Less: Average intangible assets 1,224,208  1,192,780  1,111,302  1,208,581  1,840,246 
Average tangible common equity $ 2,514,834  $ 2,424,468  $ 2,335,548  $ 2,469,900  $ 2,361,568 
Return on average equity (1)
19.36  % 16.86  % 3.87  % 18.14  % (67.00) %
Return on average tangible equity (2)
29.25  % 25.67  % 6.39  % 27.51  % 6.64  %
___________________________________
(1)     Annualized net earnings (loss) divided by average stockholders' equity.
(2)     Annualized adjusted net earnings divided by average tangible common equity.

Tangible Common Equity Ratio and June 30, December 31,
Tangible Book Value Per Share 2021 2020
(Dollars in thousands, except per share data)
Stockholders’ equity $ 3,846,681  $ 3,594,951 
Less: Intangible assets 1,222,541  1,102,311 
Tangible common equity $ 2,624,140  $ 2,492,640 
Total assets $ 34,867,987  $ 29,498,442 
Less: Intangible assets 1,222,541  1,102,311 
Tangible assets $ 33,645,446  $ 28,396,131 
Equity to assets ratio 11.03  % 12.19  %
Tangible common equity ratio (1)
7.80  % 8.78  %
Book value per share $ 32.17  $ 30.36 
Tangible book value per share (2)
$ 21.95  $ 21.05 
Shares outstanding 119,555,102  118,414,853 
_______________________________________ 
(1)    Tangible common equity divided by tangible assets.
(2)    Tangible common equity divided by shares outstanding.


59


Adjusted net earnings and adjusted earnings per share: These non-GAAP measurements are presented in the following tables for the periods presented. See Note 14. Earnings (Loss) Per Share for the GAAP calculation of earnings per share.
Three Months Ended Six Months Ended
Adjusted Net Earnings and
June 30, March 31, June 30, June 30,
Adjusted Earnings Per Share 2021 2021 2020 2021 2020
(Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss) $ 180,512  $ 150,406  $ 33,204  $ 330,918  $ (1,399,907)
Add: Goodwill impairment —  —  —  —  1,470,000 
Adjusted net earnings $ 180,512  $ 150,406  $ 33,204  $ 330,918  $ 70,093 
Adjusted Basic Earnings Per Share:
Adjusted net earnings $ 180,512  $ 150,406  $ 33,204  $ 330,918  $ 70,093 
Less: Earnings allocated to unvested restricted stock (3,172) (2,355) (362) (5,495) (1,251)
Adjusted net earnings allocated to
common shares $ 177,340  $ 148,051  $ 32,842  $ 325,423  $ 68,842 
Weighted-average basic shares and unvested restricted
stock outstanding 119,386  118,852  118,192  119,121  118,484 
Less: Weighted-average unvested restricted stock
outstanding (2,356) (2,003) (1,606) (2,181) (1,551)
Weighted-average basic shares outstanding 117,030  116,849  116,586  116,940  116,933 
Adjusted basic earnings per share $ 1.52  $ 1.27  $ 0.28  $ 2.78  $ 0.59 
Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares $ 177,340  $ 148,051  $ 32,842  $ 325,423  $ 68,842 
Weighted-average diluted shares outstanding 117,030  116,849  116,586  116,940  116,933 
Adjusted diluted earnings per share $ 1.52  $ 1.27  $ 0.28  $ 2.78  $ 0.59 





60


Results of Operations
Earnings Performance
The following table presents performance metrics for the periods indicated:
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2021 2021 2020 2021 2020
(Dollars in thousands, except per share data)
Earnings Summary:
Interest income $ 280,505  $ 273,337  $ 274,075  $ 553,842  $ 565,407 
Interest expense (14,197) (12,068) (19,796) (26,265) (61,381)
Net interest income 266,308  261,269  254,279  527,577  504,026 
Provision for credit losses 88,000  48,000  (120,000) 136,000  (232,000)
Noninterest income 40,371  44,829  38,858  85,200  67,958 
Operating expense (151,750) (150,136) (126,965) (301,886) (244,935)
Goodwill impairment —  —  —  —  (1,470,000)
Earnings (loss) before income taxes 242,929  203,962  46,172  446,891  (1,374,951)
Income tax expense (62,417) (53,556) (12,968) (115,973) (24,956)
Net earnings (loss) $ 180,512  $ 150,406  $ 33,204  $ 330,918  $ (1,399,907)
Per Common Share Data:
Diluted earnings (loss) per share $ 1.52  $ 1.27  $ 0.28  $ 2.78  $ (11.98)
Book value per share $ 32.17  $ 30.68  $ 29.17 
Tangible book value per share (1)
$ 21.95  $ 20.39  $ 19.80 
Performance Ratios:
Return on average assets 2.11  % 1.94  % 0.50  % 2.03  % (10.48) %
Return on average tangible equity (1)
29.25  % 25.67  % 6.39  % 27.51  % 6.64  %
Net interest margin (tax equivalent) 3.40  % 3.69  % 4.20  % 3.53  % 4.26  %
Yield on average loans and leases (tax equivalent) 5.18  % 5.20  % 5.01  % 5.19  % 5.27  %
Cost of average total deposits 0.10  % 0.11  % 0.25  % 0.11  % 0.41  %
Efficiency ratio 47.9  % 46.4  % 42.9  % 47.2  % 41.8  %
Capital Ratios (consolidated):
Common equity tier 1 capital ratio 10.41  % 10.39  % 9.97  %
Total capital ratio 14.99  % 13.60  % 13.18  %
_____________________________
(1)    See "- Non-GAAP Measurements."















61


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


Net Interest Income
The following tables summarize the distribution of average assets, liabilities, and stockholders’ equity, as well as interest income and yields earned on average interest-earning assets and interest expense and rates paid on average interest-bearing liabilities, presented on a tax equivalent basis, for the periods indicated:
Three Months Ended
June 30, 2021 March 31, 2021 June 30, 2020
Interest
Yields
Interest
Yields
Interest
Yields
Average
Income/
and
Average
Income/
and
Average
Income/
and
Balance
Expense
Rates
Balance
Expense
Rates
Balance
Expense
Rates
(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)
$ 19,057,420  $ 246,147  5.18  % $ 18,927,314  $ 242,846  5.20  % $ 19,951,603  $ 248,474  5.01  %
Investment securities (2)(4)
6,492,721  36,111  2.23  % 5,383,140  32,329  2.44  % 3,846,459  27,430  2.87  %
Deposits in financial institutions 6,347,764  2,022  0.13  % 4,790,231  1,528  0.13  % 733,142  186  0.10  %
Total interest‑earning assets (2)
31,897,905  284,280  3.57  % 29,100,685  276,703  3.86  % 24,531,204  276,090  4.53  %
Other assets 2,428,207  2,315,197  2,090,023 
Total assets $ 34,326,112  $ 31,415,882  $ 26,621,227 
LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking $ 7,235,726  2,394  0.13  % $ 6,401,869  2,232  0.14  % $ 4,001,750  1,573  0.16  %
Money market 8,484,933  3,318  0.16  % 7,975,996  3,278  0.17  % 6,114,354  2,856  0.19  %
Savings 598,225  36  0.02  % 572,959  35  0.02  % 524,335  33  0.03  %
Time 1,498,169  1,521  0.41  % 1,493,267  1,955  0.53  % 2,475,858  8,613  1.40  %
Total interest‑bearing deposits 17,817,053  7,269  0.16  % 16,444,091  7,500  0.18  % 13,116,297  13,075  0.40  %
Borrowings 225,446  265  0.47  % 226,053  193  0.35  % 871,110  1,319  0.61  %
Subordinated debt 735,725  6,663  3.63  % 466,101  4,375  3.81  % 459,466  5,402  4.73  %
Total interest‑bearing liabilities 18,778,224  14,197  0.30  % 17,136,245  12,068  0.29  % 14,446,873  19,796  0.55  %
Noninterest‑bearing demand deposits
11,304,757  10,173,459  8,292,151 
Other liabilities 504,089  488,930  435,353 
Total liabilities 30,587,070  27,798,634  23,174,377 
Stockholders’ equity 3,739,042  3,617,248  3,446,850 
Total liabilities and
stockholders' equity $ 34,326,112  $ 31,415,882  $ 26,621,227 
Net interest income (2)
$ 270,083  $ 264,635  $ 256,294 
Net interest rate spread (2)
3.27  % 3.57  % 3.98  %
Net interest margin (2)
3.40  % 3.69  % 4.20  %
Total deposits (5)
$ 29,121,810  $ 7,269  0.10  % $ 26,617,550  $ 7,500  0.11  % $ 21,408,448  $ 13,075  0.25  %
_____________________
(1)    Includes nonaccrual loans and leases and loan fees. Includes tax-equivalent adjustments related to tax-exempt interest on loans.
(2)    Tax equivalent.
(3)    Includes net loan premium amortization of $1.5 million and $1.2 million and net loan discount accretion of $1.2 million for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively.
(4)    Includes tax-equivalent adjustments of $2.2 million, $2.1 million, and $1.4 million for the three months ended June 30, 2021, March 31, 2021, and June 30, 2020, respectively, related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.
(5)    Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.
63


Six Months Ended
June 30, 2021 June 30, 2020
Interest
Yields
Interest
Yields
Average
Income/
and
Average
Income/
and
Balance
Expense
Rates
Balance
Expense
Rates
(Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)
$ 18,992,727  $ 488,993  5.19  % $ 19,508,319  $ 511,238  5.27  %
Investment securities (2)(4)
5,940,995  68,440  2.32  % 3,849,838  56,071  2.93  %
Deposits in financial institutions 5,573,300  3,550  0.13  % 635,263  1,794  0.57  %
Total interest-earning assets (2)
30,507,022  560,983  3.71  % 23,993,420  569,103  4.77  %
Other assets 2,372,015  2,866,713 
Total assets $ 32,879,037  $ 26,860,133 
LIABILITIES AND
STOCKHOLDERS’ EQUITY:
Interest checking $ 6,821,101  4,626  0.14  % $ 3,734,281  8,708  0.47  %
Money market 8,231,870  6,596  0.16  % 5,681,110  12,872  0.46  %
Savings 585,662  71  0.02  % 511,147  193  0.08  %
Time 1,495,731  3,476  0.47  % 2,580,001  19,549  1.52  %
Total interest-bearing deposits 17,134,364  14,769  0.17  % 12,506,539  41,322  0.66  %
Borrowings 225,748  458  0.41  % 1,448,929  8,097  1.12  %
Subordinated debt 601,658  11,038  3.70  % 458,932  11,962  5.24  %
Total interest-bearing liabilities 17,961,770  26,265  0.29  % 14,414,400  61,381  0.86  %
Noninterest-bearing demand deposits
10,742,233  7,824,934 
Other liabilities 496,553  418,985 
Total liabilities 29,200,556  22,658,319 
Stockholders’ equity 3,678,481  4,201,814 
Total liabilities and
stockholders' equity $ 32,879,037  $ 26,860,133 
Net interest income (2)
$ 534,718  $ 507,722 
Net interest rate spread (2)
3.42  % 3.91  %
Net interest margin (2)
3.53  % 4.26  %
Total deposits (5)
$ 27,876,597  $ 14,769  0.11  % $ 20,331,473  $ 41,322  0.41  %
_____________________
(1)    Includes nonaccrual loans and leases and loan fees. Includes tax-equivalent adjustments related to tax-exempt interest on loans.
(2)    Tax equivalent.
(3)    Includes net loan premium amortization of $2.7 million and net loan discount accretion of $4.4 million for the six months ended June 30, 2021 and 2020, respectively.
(4)    Includes tax-equivalent adjustments of $4.2 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively, related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.
(5)    Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.











64


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


The tax equivalent NIM was 3.53% for the six months ended June 30, 2021 compared to 4.26% for the same period last year. The decrease in the tax equivalent NIM was due mostly to the change in the mix of average interest-earning assets, offset partially by lower deposit and borrowing costs. The change in mix of average interest-earning assets was due to a $4.9 billion increase in average deposits in financial institutions, a $2.1 billion increase in average investment securities, and a $515.6 million decrease in average loans and leases. Average loans and leases as a percentage of average interest-earning assets was 62% for the six months ended June 30, 2021 compared to 81% for the six months ended June 30, 2020.
The cost of average total deposits decreased to 0.11% for the six months ended June 30, 2021 from 0.41% for the same period last year due mainly to lower rates paid on deposits in conjunction with decreased market rates.
Provision for Credit Losses
The following table sets forth the details of the provision for credit losses on loans and leases held for investment and information regarding credit quality metrics for the periods indicated:
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2021 2021 2020 2021 2020
(Dollars in thousands)
Provision For Credit Losses:
(Reduction in) addition to allowance for loan and lease losses $ (72,000) $ (53,000) $ 93,000  $ (125,000) $ 191,000 
(Reduction in) addition to reserve for unfunded
loan commitments (16,000) 5,000  27,000  (11,000) 41,000 
Total provision for credit losses $ (88,000) $ (48,000) $ 120,000  $ (136,000) $ 232,000 
Credit Quality Metrics:
Net (recoveries) charge-offs on loans and leases
held for investment (1)
$ (5,155) $ 2,736  $ 13,242  $ (2,419) $ 32,352 
Annualized net charge-offs to average loans and leases (0.11) % 0.06  % 0.27  % (0.03) % 0.33  %
At quarter-end:
Allowance for credit losses $ 300,171  $ 383,016  $ 381,621 
Allowance for credit losses to loans and leases
held for investment 1.54  % 2.02  % 1.94  %
Allowance for credit losses to nonaccrual
loans and leases held for investment 528.4  % 566.2  % 229.7  %
Nonaccrual loans and leases held for investment $ 56,803  $ 67,652  $ 166,113 
Performing TDRs held for investment $ 40,129  $ 27,999  $ 15,037 
Classified loans and leases held for investment
$ 147,267  $ 163,117  $ 293,230 
______________________
(1)    See "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment" for detail of charge-offs and recoveries by loan portfolio segment, class, and subclass for the periods presented.
Provisions for credit losses are charged to earnings for both the allowance for loan and lease losses and the reserve for unfunded loan commitments (collectively, the allowance for credit losses). The provision for credit losses on our loans and leases held for investment is based on our allowance methodology and is an expense that, in our judgment, is required to maintain an adequate allowance for credit losses. For further details on our allowance for credit losses methodology, see “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.
66


The provision for credit losses decreased by $40.0 million to a benefit of $88.0 million for the second quarter of 2021 compared to a benefit of $48.0 million for the first quarter of 2021 as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics along with decreased provisions for individually evaluated loans and leases and for unfunded commitments.
The provision for credit losses decreased by $208.0 million to a benefit of $88.0 million for the second quarter of 2021 compared to a provision of $120.0 million for the second quarter of 2020 as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics.
The provision for credit losses decreased by $368.0 million to a benefit of $136.0 million for the six months ended June 30, 2021 compared to a provision of $232.0 million for the six months ended June 30, 2020 as a result of improvement in both macro-economic forecast variables and loan portfolio credit quality metrics.
Certain circumstances may lead to increased provisions for credit losses in the future. Examples of such circumstances include deterioration in economic conditions and forecasts, an increased amount of classified and/or criticized loans and leases, and net loan and lease and unfunded commitment growth. Deterioration in economic conditions and forecasts include the rate of economic growth, the unemployment rate, the rate of inflation, changes in the general level of interest rates, changes in real estate values, and adverse conditions in borrowers’ businesses. See further discussion in “- Balance Sheet Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment” contained herein.
Noninterest Income
The following table summarizes noninterest income by category for the periods indicated:
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
Noninterest Income 2021 2021 2020 2021 2020
(In thousands)
Leased equipment income $ 10,847  $ 11,354  $ 12,037  $ 22,201  $ 24,288 
Other commissions and fees 10,704  9,158  10,111  19,862  19,832 
Service charges on deposit accounts 3,452  2,934  2,004  6,386  4,662 
Gain on sale of loans and leases 1,422  139  346  1,561  433 
Gain on sale of securities —  101  7,715  101  7,897 
Other income:
Dividends and gains (losses) on equity investments 5,394  10,904  2,947  16,298  2,975 
Warrant income 5,650  6,123  1,973  11,773  2,810 
Other 2,902  4,116  1,725  7,018  5,061 
Total noninterest income $ 40,371  $ 44,829  $ 38,858  $ 85,200  $ 67,958 
Second Quarter of 2021 Compared to First Quarter of 2021
Noninterest income decreased by $4.5 million to $40.4 million for the second quarter of 2021 compared to $44.8 million for the first quarter of 2021 due mostly to a decrease of $5.5 million in dividends and gains on equity investments and a $1.2 million decrease in other income, offset partially by increases of $1.5 million in other commissions and fees and $1.3 million in gain on sale of loans and leases. The decrease in dividends and gains on equity investments was due primarily to a $10.1 million gain on one equity investment in the first quarter of 2021, offset partially by higher net fair value gains on equity investments still held. The decrease in other income was due primarily to lower foreign currency translation gains and negative fair value adjustments related to servicing assets. The increase in gain on sale of loans and leases resulted from the sales of $52.2 million of loans for gains of $1.4 million in the second quarter of 2021 compared to sales of $72.6 million for gains of $0.1 million in the first quarter of 2021. The decrease in warrant income was primarily attributable to lower gains from exercised warrants due to elevated gains in the first quarter of 2021.
67


Second Quarter of 2021 Compared to Second Quarter of 2020
Noninterest income increased by $1.5 million to $40.4 million for the second quarter of 2021 compared to $38.9 million for the second quarter of 2020 due mainly to increases of $3.7 million in warrant income, $2.4 million in dividends and gains on equity investments, $1.2 million in other income, and $1.1 million in gain on sale of loans, offset partially by a $7.7 million decrease in gain on sale of securities. Warrant income increased due principally to higher gains from exercised warrants, driven by the active capital markets. The increase in dividends and gains on equity investments was due primarily to higher gains on sales and higher fair value gains on equity investments still held. The increase in gain on sale of loans was primarily due to a $1.4 million gain on one loan sold in the second quarter of 2021. The decrease in gain on sale of securities was due to no sales in the second quarter of 2021.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Noninterest income increased by $17.2 million to $85.2 million for the six months ended June 30, 2021 compared to $68.0 million for the six months ended June 30, 2020 due mainly to increases of $13.3 million in dividends and gains on equity investments, $9.0 million in warrant income, and $1.7 million in service charges on deposit accounts, offset partially by a $7.8 million decrease in gain on sale of securities. The increase in dividends and gains on equity investments was due primarily to higher gains on sales and higher fair value gains on equity investments still held. Warrant income increased due principally to higher gains from exercised warrants, driven by the active capital markets. The increase in service charges on deposit accounts was due primarily to fee waivers we granted customers in 2020 during the COVID pandemic. The decrease in gain on sale of securities was due to minimal sales in the 2021 period.
Noninterest Expense
The following table summarizes noninterest expense by category for the periods indicated:
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
Noninterest Expense 2021 2021 2020 2021 2020
(In thousands)
Compensation $ 90,807  $ 79,882  $ 61,910  $ 170,689  $ 123,192 
Occupancy 14,784  14,054  14,494  28,838  28,701 
Leased equipment depreciation 8,614  8,969  7,102  17,583  14,307 
Data processing 7,758  6,957  7,102  14,715  13,556 
Other professional services 5,256  5,126  4,146  10,382  8,404 
Customer related expense 4,973  4,818  4,408  9,791  8,340 
Loan expense 4,031  3,193  3,379  7,224  6,029 
Insurance and assessments 3,745  4,903  9,373  8,648  13,622 
Intangible asset amortization 2,889  3,079  3,882  5,968  7,830 
Acquisition, integration and reorganization costs 200  3,425  —  3,625  — 
Foreclosed assets (income) expense, net (119) (146) (118) (80)
Other 8,812  15,729  11,315  24,541  21,034 
Total operating expense 151,750  150,136  126,965  301,886  244,935 
Goodwill impairment —  —  —  —  1,470,000 
Total noninterest expense $ 151,750  $ 150,136  $ 126,965  $ 301,886  $ 1,714,935 
68


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


Balance Sheet Analysis
Securities Available-for-Sale
The following table presents the composition and durations of our securities available-for-sale as of the dates indicated:
  June 30, 2021 March 31, 2021 December 31, 2020
Fair
% of
Duration Fair
% of
Duration Fair
% of
Duration
Security Type Value
Total
(in years) Value
Total
(in years) Value
Total
(in years)
  (Dollars in thousands)
Municipal securities $ 1,817,499  25  % 8.2  $ 1,646,054  28  % 8.5  $ 1,531,617  29  % 8.2 
Agency commercial MBS 1,257,628  18  % 3.6  1,273,402  22  % 3.8  1,281,877  24  % 3.2 
Agency residential CMOs 1,142,398  16  % 3.0  1,108,828  19  % 2.8  1,219,880  23  % 2.7 
U.S. Treasury securities 877,153  12  % 7.7  491,358  % 7.4  5,302  —  % 1.3 
Agency residential MBS 552,411  % 3.3  433,100  % 2.5  341,074  % 1.9 
Corporate debt securities 508,708  % 3.8  380,407  % 3.9  311,889  % 3.7 
Collateralized loan obligations 382,043  % —  244,240  % —  135,876  % — 
Private label commercial MBS 378,235  % 7.4  71,033  % 2.2  82,957  % 1.8 
Asset-backed securities 149,583  % 0.1  152,982  % 0.1  166,546  % 0.1 
Private label residential CMOs 96,922  % 2.5  103,376  % 2.6  116,946  % 2.1 
SBA securities 36,028  % 3.7  36,910  —  % 3.7  41,627  % 3.2 
Total securities available-
   for-sale $ 7,198,608  100  % 5.1  $ 5,941,690  100  % 4.8  $ 5,235,591  100  % 4.3 
The following table shows the geographic composition of the majority of our municipal securities portfolio as of the date indicated:
June 30, 2021
Fair
% of
Municipal Securities by State
Value
Total
(Dollars in thousands)
 California $ 471,398  26  %
 Texas 325,433  18  %
 Washington 284,026  15  %
 Maryland 74,684  %
 Oregon 71,513  %
 Georgia 68,952  %
 New York 67,159  %
 Colorado 58,954  %
 Ohio 39,666  %
 Tennessee 35,617  %
Total of ten largest states 1,497,402  82  %
 All other states 320,097  18  %
Total municipal securities $ 1,817,499  100  %
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Loans and Leases Held for Investment
The following table presents the composition of our loans and leases held for investment, net of deferred fees, by loan portfolio segment, class, and subclass as of the dates indicated:
June 30, 2021 March 31, 2021 December 31, 2020
% of
% of
% of
Loan and Lease Portfolio
Balance
Total
Balance
Total
Balance
Total
(Dollars in thousands)
Real estate mortgage:
Other commercial real estate $ 2,483,856  13  % $ 2,617,227  14  % $ 2,747,526  14  %
SBA program 625,023  % 610,086  % 599,788  %
Hotel 521,869  % 539,139  % 571,917  %
Healthcare real estate 161,450  % 175,158  % 177,440  %
Total commercial real estate mortgage 3,792,198  19  % 3,941,610  21  % 4,096,671  21  %
Income producing and other residential 4,378,932  23  % 3,823,179  20  % 3,718,457  20  %
Other residential real estate 241,890  % 222,424  % 84,808  —  %
Total income producing and other
residential real estate mortgage 4,620,822  24  % 4,045,603  21  % 3,803,265  20  %
Total real estate mortgage 8,413,020  43  % 7,987,213  42  % 7,899,936  41  %
Real estate construction and land:
Commercial 930,785  % 990,035  % 1,117,121  %
Residential 2,574,799  13  % 2,575,788  14  % 2,243,160  12  %
Total real estate construction and land (1)
3,505,584  18  % 3,565,823  19  % 3,360,281  18  %
Total real estate 11,918,604  61  % 11,553,036  61  % 11,260,217  59  %
Commercial:
Lender finance 2,256,828  12  % 2,113,395  11  % 2,095,963  11  %
Equipment finance 638,898  % 647,423  % 700,042  %
Premium finance 482,822  % 449,440  % 438,761  %
Other asset-based 172,355  % 173,145  % 194,517  %
Total asset-based 3,550,903  18  % 3,383,403  18  % 3,429,283  18  %
Equity fund loans 1,245,283  % 889,828  % 1,032,718  %
Venture lending 504,149  % 605,970  % 665,790  %
Total venture capital 1,749,432  % 1,495,798  % 1,698,508  %
Paycheck Protection Program 609,200  % 1,079,258  % 1,057,422  %
Secured business loans 434,032  % 397,558  % 430,263  %
Security monitoring 207,232  % 205,798  % 329,312  %
Other lending 671,445  % 524,025  % 558,117  %
Total other commercial 1,921,909  10  % 2,206,639  11  % 2,375,114  12  %
Total commercial 7,222,244  37  % 7,085,840  37  % 7,502,905  39  %
Consumer 365,409  % 340,352  % 320,255  %
Total loans and leases held for investment,
net of deferred fees $ 19,506,257  100  % $ 18,979,228  100  % $ 19,083,377  100  %
 ________________________________
(1)    Includes land and acquisition and development loans of $153.1 million at June 30, 2021, $148.1 million at March 31, 2021 and $167.1 million at December 31, 2020.
71


The following table presents the geographic composition of our real estate loans held for investment, net of deferred fees, by the top 10 states and all other states combined (in the order presented for the current quarter-end) as of the dates indicated:
June 30, 2021 December 31, 2020
% of
% of
Real Estate Loans by State Balance
Total
Balance
Total
(Dollars in thousands)
California $ 7,238,094  61  % $ 6,942,768  62  %
New York 728,125  % 716,329  %
Florida 715,790  % 598,167  %
Colorado 560,049  % 386,480  %
Washington 408,010  % 413,014  %
Oregon 299,084  % 269,600  %
Texas 243,830  % 263,731  %
Arizona 197,542  % 171,533  %
Nevada 185,716  % 195,663  %
Georgia 172,794  % 116,444  %
Total of 10 largest states 10,749,034  90  % 10,073,729  89  %
All other states 1,169,570  10  % 1,186,488  11  %
Total real estate loans held for investment, net of deferred fees $ 11,918,604  100  % $ 11,260,217  100  %
The following table presents a roll forward of loans and leases held for investment, net of deferred fees, for the periods indicated:
Three Months Ended Six Months Ended
Roll Forward of Loans and Leases Held for Investment, Net of Deferred Fees (1)
June 30, 2021 June 30, 2021
(Dollars in thousands)
Balance, beginning of period $ 18,979,228  $ 19,083,377 
Additions:
Production 1,663,151  3,275,928 
Disbursements 1,662,644  2,685,630 
Total production and disbursements 3,325,795  5,961,558 
Reductions:
Payoffs (1,969,118) (3,604,382)
Paydowns (802,222) (1,869,640)
Total payoffs and paydowns (2,771,340) (5,474,022)
Sales (26,610) (99,251)
Transfers to foreclosed assets —  (647)
Charge-offs (816) (4,804)
Transfers to loans held for sale —  (25,554)
Total reductions (2,798,766) (5,604,278)
Loans and leases acquired through acquisition —  65,600 
Net increase 527,029  422,880 
Balance, end of period $ 19,506,257  $ 19,506,257 
Weighted average rate on production (2)
4.55  % 4.46  %
_______________________________________ 
(1)    Includes direct financing leases but excludes equipment leased to others under operating leases.
(2)    The weighted average rate on production presents contractual rates on a tax equivalent basis and does not include amortized fees. Amortized fees added approximately 41 basis points to loan yields for the six months ended June 30, 2021.

72


Allowance for Credit Losses on Loans and Leases Held for Investment
The allowance for credit losses on loans and leases held for investment is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The allowance for loan and lease losses is reported as a reduction of the amortized cost basis of loans and leases, while the reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets. The amortized cost basis of loans and leases does not include interest receivable, which is included in "Other assets" on the condensed consolidated balance sheets. The "Provision for credit losses" on the condensed consolidated statement of earnings (loss) is a combination of the provision for loan and lease losses and the provision for unfunded loan commitments.
Under the CECL methodology, expected credit losses reflect losses over the remaining contractual life of an asset, considering the effect of prepayments and available information about the collectability of cash flows, including information about relevant historical experience, current conditions, and reasonable and supportable forecasts of future events and circumstances. Thus, the CECL methodology incorporates a broad range of information in developing credit loss estimates.
For further information regarding the calculation of the allowance for credit losses on loans and leases held for investment using the CECL methodology, see Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data" of our Form 10-K.
In calculating our allowance for credit losses, we continued to consider the impacts of the ongoing COVID-19 pandemic on our estimation of expected credit losses given the changes in economic forecasts and assumptions along with the uncertainty related to the severity and duration of the economic consequences of the COVID-19 pandemic. Our methodology and framework along with the 4-quarter reasonable and supportable forecast period and 2-quarter reversion period have remained consistent since the implementation of CECL on January 1, 2020. Certain management assumptions are reassessed every quarter based on current expectations for credit losses, while other assumptions are assessed and updated on at least an annual basis.
In the second quarter of 2021, we used the Moody’s Consensus Forecast dated June 9, 2021 for the calculation of our quantitative component, which is consistent with the first quarter of 2021 when the Moody's Consensus Forecast dated March 20, 2021 was used. The key macro-economic variables used improved from previous economic forecasts which, when combined with improvements in other credit quality metrics such as a decline in classified and special mention loans, drove the decrease in the quantitative calculation of the allowance for credit losses in the second quarter. During the first quarter of 2021, we added qualitative components that were based on management’s assessment of various qualitative factors such as economic conditions and collateral dependency. These qualitative components were primarily related to certain loan portfolios including hotels, retail, and office properties that may react more slowly to the improvements in the general economic conditions. These sectors may see a slower economic recovery to pre-pandemic levels due to changes in consumer behavior such as less business travel due to more virtual meetings, more online shopping versus in person shopping, or the potential for more permanent shifts to remote or hybrid working arrangements. Additionally, small businesses in these sectors may face greater challenges once debt relief and PPP funding is exhausted. During the second quarter of 2021, these qualitative adjustments were updated resulting in a decrease in the qualitative component, primarily to reflect an improved forecast for hotel properties, compared to the first quarter of 2021.
The determination of the allowance for credit losses is complex and highly dependent on numerous models, assumptions, and judgments made by management. Management's current expectation for credit losses as quantified in the allowance for credit losses considers the impact of assumptions and is reflective of historical credit experience, economic forecasts viewed to be reasonable and supportable, current loan and lease composition, and relative credit risks known as of the balance sheet date.
Management believes the allowance for credit losses is appropriate for the current expected credit losses in our loan and lease portfolio and associated unfunded commitments, and the credit risk ratings and inherent loss rates currently assigned are reasonable and appropriate as of the reporting date. It is possible that others, given the same information, may at any point in time reach different conclusions that could result in a significant impact to the Company's financial statements.
73


The following table presents information regarding the allowance for credit losses on loans and leases held for investment as of the dates indicated:
June 30, March 31,
December 31,
June 30,
Allowance for Credit Losses Data
2021 2021 2020 2020
(Dollars in thousands)
Allowance for loan and lease losses $ 225,600  $ 292,445  $ 348,181  $ 301,050 
Reserve for unfunded loan commitments 74,571  90,571  85,571  80,571 
Total allowance for credit losses $ 300,171  $ 383,016  $ 433,752  $ 381,621 
Allowance for loan and lease losses to loans and leases held for investment 1.16  % 1.54  % 1.82  % 1.53  %
Allowance for loan and lease losses to loans and leases held for investment,
excluding PPP loans 1.19  % 1.63  % 1.93  % 1.63  %
Allowance for credit losses to loans and leases held for investment 1.54  % 2.02  % 2.27  % 1.94  %
Allowance for credit losses to loans and leases held for investment,
 excluding PPP loans 1.59  % 2.14  % 2.41  % 2.06  %
The following table presents the changes in our allowance for credit losses on loans and leases held for investment for the periods indicated:
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
Allowance for Credit Losses Roll Forward
2021 2021 2020 2021 2020
(Dollars in thousands)
Balance, beginning of period $ 383,016  $ 433,752  $ 274,863  $ 433,752  $ 174,646 
Cumulative effect of change in accounting
principle - CECL, as of January 1, 2020:
Allowance for loan and lease losses —  —  —  —  3,617 
Reserve for unfunded loan commitments —  —  —  —  3,710 
Total cumulative effect —  —  —  —  7,327 
Provision for credit losses:
(Reduction in) addition to allowance for loan and lease losses (72,000) (53,000) 93,000  (125,000) 191,000 
Addition to (reduction in) reserve for unfunded
loan commitments (16,000) 5,000  27,000  (11,000) 41,000 
Total provision for credit losses (88,000) (48,000) 120,000  (136,000) 232,000 
Loans and leases charged off:
Real estate mortgage (266) (368) (4,182) (634) (4,682)
Real estate construction and land (75) (700) —  (775) — 
Commercial (277) (2,574) (11,439) (2,851) (30,671)
Consumer (198) (346) (165) (544) (638)
Total loans and leases charged off (816) (3,988) (15,786) (4,804) (35,991)
Recoveries on loans charged off:
Real estate mortgage 4,882  545  127  5,427  251 
Real estate construction and land —  —  —  —  — 
Commercial 1,029  697  2,392  1,726  3,347 
Consumer 60  10  25  70  41 
Total recoveries on loans charged off 5,971  1,252  2,544  7,223  3,639 
Net recoveries (charge-offs) 5,155  (2,736) (13,242) 2,419  (32,352)
Balance, end of period $ 300,171  $ 383,016  $ 381,621  $ 300,171  $ 381,621 
Annualized net (recoveries) charge-offs to
average loans and leases (0.11) % 0.06  % 0.27  % (0.03) % 0.33  %
74


The following table presents charge-offs by loan portfolio segment, class, and subclass for the periods indicated:
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
Allowance for Credit Losses Charge-offs
2021 2021 2020 2021 2020
(In thousands)
Real estate mortgage:
Healthcare real estate $ —  $ —  $ —  $ —  $ — 
Hotel —  343  —  343  — 
SBA program 211  25  76  236  274 
Other commercial real estate —  —  4,106  —  4,233 
Total commercial real estate mortgage 211  368  4,182  579  4,507 
Income producing and other residential 55  —  —  55  — 
Other residential real estate —  —  —  —  175 
Total income producing and other residential
real estate mortgage 55  —  —  55  175 
Total real estate mortgage 266  368  4,182  634  4,682 
Real estate construction and land:
Commercial 75  700  —  775  — 
Residential —  —  —  —  — 
Total real estate construction and land 75  700  —  775  — 
Commercial:
Lender finance —  —  —  —  — 
Equipment finance —  —  —  —  11,550 
Premium finance —  —  —  —  — 
Other asset-based —  —  —  —  — 
Total asset-based —  —  —  —  11,550 
Equity fund loans —  —  —  —  — 
Venture lending —  620  6,470  620  6,813 
Total venture capital —  620  6,470  620  6,813 
Paycheck Protection Program   —  —    — 
Security monitoring —  —  4,180  —  10,236 
Secured business loans —  47  —  47  2,072 
Other lending 277  1,907  789  2,184  — 
Total other commercial 277  1,954  4,969  2,231  12,308 
Total commercial 277  2,574  11,439  2,851  30,671 
Consumer 198  346  165  544  638 
Total charge-offs $ 816  $ 3,988  $ 15,786  $ 4,804  $ 35,991 


75


The following table presents recoveries by portfolio segment, class, and subclass for the periods indicated:
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
Allowance for Credit Losses Recoveries 2021 2021 2020 2021 2020
(In thousands)
Real estate mortgage:
Healthcare real estate $ —  $ —  $ —  $ —  $ — 
Hotel —  —  —  —  — 
SBA program 20  17  15  37  122 
Other commercial real estate 4,860  524  103  5,384  115 
Total commercial real estate mortgage 4,880  541  118  5,421  237 
Income producing and other residential —  —  —  —  — 
Other residential real estate 14 
Total income producing and other
residential real estate mortgage 14 
Total real estate mortgage 4,882  545  127  5,427  251 
Real estate construction and land:
Commercial —  —  —  —  — 
Residential —  —  —  —  — 
Total real estate construction and land —  —  —  —  — 
Commercial:
Lender finance —  —  —  —  — 
Equipment finance 107  114  238 
Premium finance —  —  —  —  — 
Other asset-based 98  161  14  259  149 
Total asset-based 105  268  22  373  387 
Equity fund loans —  —  —  —  — 
Venture lending 44  57  114  101  299 
Total venture capital 44  57  114  101  299 
Paycheck Protection Program —  —  —  —  — 
Security monitoring —  —  —  —  — 
Secured business loans 73  126  139  199  217 
Other lending 807  246  2,117  1,053  2,444 
Total other commercial 880  372  2,256  1,252  2,661 
Total commercial 1,029  697  2,392  1,726  3,347 
Consumer 60  10  25  70  41 
Total recoveries $ 5,971  $ 1,252  $ 2,544  $ 7,223  $ 3,639 
The increase in recoveries during the second quarter of 2021 was due mainly to a single commercial real estate loan related to a lifestyle retail center which paid off in full during the second quarter.
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Deposits
The following table presents the balance of each major category of deposits as of the dates indicated:
June 30, 2021 March 31, 2021 December 31, 2020
% of
% of
% of
Deposit Composition Balance
Total
Balance
Total
Balance
Total
(Dollars in thousands)
Noninterest-bearing demand $ 11,252,286  38  % $ 11,017,462  39  % $ 9,193,827  37  %
Interest checking 7,394,472  25  % 6,862,398  25  % 5,974,910  24  %
Money market 7,777,199  26  % 7,112,610  25  % 6,532,917  26  %
Savings 614,204  % 583,878  % 562,826  %
Total core deposits 27,038,161  91  % 25,576,348  91  % 22,264,480  89  %
Non-core non-maturity deposits 1,122,971  % 1,162,590  % 1,149,467  %
Total non-maturity deposits 28,161,132  95  % 26,738,938  95  % 23,413,947  94  %
Time deposits $250,000 and under 913,371  % 940,340  % 994,197  %
Time deposits over $250,000 572,531  % 544,013  % 532,573  %
Total time deposits 1,485,902  % 1,484,353  % 1,526,770  %
Total deposits $ 29,647,034  100  % $ 28,223,291  100  % $ 24,940,717  100  %
During the second quarter of 2021, total deposits increased by $1.4 billion to $29.6 billion, due primarily to an increase of $1.5 billion in core deposits. The increase in core deposits in the second quarter of 2021 was driven primarily by continued strong deposit growth from our venture banking customers. At June 30, 2021, core deposits totaled $27.0 billion, or 91% of total deposits, including $11.3 billion of noninterest-bearing demand deposits, or 38% of total deposits.
The following table summarizes the maturities of time deposits as of the date indicated:
Time Deposits
$250,000
Over
June 30, 2021
and Under
$250,000
Total
(In thousands)
Maturities:
Due in three months or less $ 247,102  $ 94,967  $ 342,069 
Due in over three months through six months 198,239  129,168  327,407 
Due in over six months through twelve months 231,172  337,799  568,971 
Total due within twelve months 676,513  561,934  1,238,447 
Due in over 12 months through 24 months 101,988  8,296  110,284 
Due in over 24 months 134,870  2,301  137,171 
Total $ 913,371  $ 572,531  $ 1,485,902 
Client Investment Funds
In addition to deposit products, we also offer select clients non-depository cash investment options through PWAM, our registered investment adviser subsidiary, and third-party money market sweep products. PWAM provides customized investment advisory and asset management solutions. At June 30, 2021, total off-balance sheet client investment funds were $1.3 billion, of which $1.0 billion was managed by PWAM. At December 31, 2020, total off-balance sheet client investment funds were $1.3 billion, of which $1.0 billion was managed by PWAM.
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Credit Quality
Nonperforming Assets, Performing TDRs, and Classified Loans and Leases
The following table presents information on our nonperforming assets, performing TDRs, and classified loans and leases as of the dates indicated:
June 30, March 31,
December 31,
June 30,
2021 2021 2020 2020
(Dollars in thousands)
Nonaccrual loans and leases held for investment $ 56,803  $ 67,652  $ 91,163  $ 166,113 
Foreclosed assets, net 13,227  14,298  14,027  1,449 
Total nonperforming assets $ 70,030  $ 81,950  $ 105,190  $ 167,562 
Performing TDRs held for investment $ 40,129  $ 27,999  $ 14,254  $ 15,037 
Classified loans and leases held for investment $ 147,267  $ 163,117  $ 265,262  $ 293,230 
Nonaccrual loans and leases held for investment to
loans and leases held for investment 0.29  % 0.36  % 0.48  % 0.84  %
Nonperforming assets to loans and leases held for investment
and foreclosed assets, net 0.36  % 0.43  % 0.55  % 0.85  %
Allowance for credit losses to nonaccrual loans and leases
held for investment 528.4  % 566.2  % 475.8  % 229.7  %
Classified loans and leases held for investment
to loans and leases held for investment 0.75  % 0.86  % 1.39  % 1.49  %
Nonaccrual Loans and Leases Held for Investment
The following table presents our nonaccrual loans and leases held for investment and accruing loans and leases past due between 30 and 89 days by loan portfolio segment and class as of the dates indicated:
June 30, 2021 March 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
(Dollars in thousands)
Real estate mortgage:
Commercial $ 32,065  $ —  $ 46,436  $ $ (14,371) $ (5)
Income producing and other residential 6,133  2,179  2,471  6,339  3,662  (4,160)
Total real estate mortgage 38,198  2,179  48,907  6,344  (10,709) (4,165)
Real estate construction and land:
Commercial 284  —  302  —  (18) — 
Residential 1,934  22,714  416  1,241  1,518  21,473 
Total real estate construction and land 2,218  22,714  718  1,241  1,500  21,473 
Commercial:
Asset-based 1,973  —  2,379  —  (406) — 
Venture capital 2,717  —  2,432  6,750  285  (6,750)
Other commercial 11,337  270  12,660  1,251  (1,323) (981)
Total commercial 16,027  270  17,471  8,001  (1,444) (7,731)
Consumer 360  1,454  556  954  (196) 500 
Total held for investment $ 56,803  $ 26,617  $ 67,652  $ 16,540  $ (10,849) $ 10,077 
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The increase in 30-89 days delinquent residential construction loans in the second quarter of 2021 is due to an increase in delinquent short-term, single-family renovation loans. With this product, it is common for the borrower to let the loan become delinquent once they enter escrow to sell the renovated home as the loan will be paid off through the close of escrow.
During the second quarter of 2021, nonaccrual loan and leases held for investment decreased by $10.8 million to $56.8 million at June 30, 2021 due mainly to charge-offs of $0.5 million and principal payments and other reductions of $26.7 million, offset partially by additions of $16.3 million. Included in principal payments and other reductions was the payoff of one nonaccrual commercial real estate mortgage loan for $22.6 million. As of June 30, 2021, the Company's three largest loan relationships on nonaccrual status had an aggregate carrying value of $12.9 million and represented 23% of total nonaccrual loans and leases.
Foreclosed Assets
The following table presents foreclosed assets (primarily OREO), net of the valuation allowance, by property type as of the dates indicated:
June 30, March 31,
December 31,
June 30,
Property Type 2021 2021 2020 2020
(In thousands)
Commercial real estate $ 12,594  $ 13,612  $ 12,979  $ 28 
Single-family residence —  —  —  — 
Construction and land development 219  219  219  219 
Total OREO, net 12,813  13,831  13,198  247 
Other foreclosed assets 414  467  829  1,202 
Total foreclosed assets, net $ 13,227  $ 14,298  $ 14,027  $ 1,449 
During the second quarter of 2021, foreclosed assets decreased by $1.1 million to $13.2 million at June 30, 2021 due to sales of $1.1 million.
Performing TDRs Held for Investment
The following table presents our performing TDRs held for investment by loan portfolio segment as of the dates indicated:
June 30, 2021 March 31, 2021 December 31, 2020
Number Number Number
of of of
Performing TDRs
Balance Loans Balance Loans Balance Loans
(Dollars in thousands)
Real estate mortgage $ 6,415  19  $ 6,584  20  $ 6,631  20 
Real estate construction and land 1,439  1,445  1,451 
Commercial 32,250  20  19,944  23  6,146  21 
Consumer 25  26  26 
Total performing TDRs held for investment $ 40,129  41  $ 27,999  45  $ 14,254  43 
During the second quarter of 2021, performing TDRs held for investment increased by $12.1 million to $40.1 million at June 30, 2021 attributable primarily to the addition of a $13.2 million security monitoring loan, offset by principal payments and other reductions of $1.1 million.
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Classified and Special Mention Loans and Leases Held for Investment
The following table presents the credit risk ratings of our loans and leases held for investment, net of deferred fees, as of the dates indicated:
June 30, March 31, December 31, June 30,
Loan and Lease Credit Risk Ratings
2021 2021 2020 2020
(Dollars in thousands)
Pass $ 18,822,938  $ 18,183,114  $ 18,096,830  $ 18,635,004 
Special mention 536,052  632,997  721,285  766,397 
Classified 147,267  163,117  265,262  293,230 
Total loans and leases held for investment, net of deferred fees $ 19,506,257  $ 18,979,228  $ 19,083,377  $ 19,694,631 
Classified and special mention loans and leases fluctuate from period to period as a result of loan repayments and downgrades or upgrades from our ongoing active portfolio management.
During the second quarter of 2021, classified loans and leases decreased by $15.9 million to $147.3 million at June 30, 2021 due mostly to a decrease of $14.6 million in commercial real estate mortgage loans. Classified loans and leases peaked in the second quarter of 2020 at $293.2 million.
During the second quarter of 2021, special mention loans and leases decreased by $96.9 million to $536.1 million at June 30, 2021 due mainly to decreases of $55.5 million in venture capital loans and $39.4 million in asset-based loans. Special mention loans and leases peaked in the first quarter of 2020 at $898.7 million, as we proactively downgraded certain loans at the onset of the COVID-19 pandemic.
The following table presents the classified and special mention credit risk rating categories for loans and leases held for investment, net of deferred fees, by loan portfolio segment and class and the related net changes as of the dates indicated:
June 30, 2021 March 31, 2021 Increase (Decrease)
Special Special Special
Classified Mention Classified Mention Classified Mention
(In thousands)
Real estate mortgage:
Commercial $ 62,827  $ 242,159  $ 77,444  $ 254,463  $ (14,617) $ (12,304)
Income producing and other residential 12,681  60,843  9,064  63,231  3,617  (2,388)
Total real estate mortgage 75,508  303,002  86,508  317,694  (11,000) (14,692)
Real estate construction and land:
Commercial 284  67,292  302  66,790  (18) 502 
Residential 1,934  8,234  416  602  1,518  7,632 
Total real estate construction and land 2,218  75,526  718  67,392  1,500  8,134 
Commercial:
Asset-based 24,351  102,734  24,941  142,122  (590) (39,388)
Venture capital 5,708  33,910  8,727  89,423  (3,019) (55,513)
Other commercial 39,005  18,340  41,597  13,535  (2,592) 4,805 
Total commercial 69,064  154,984  75,265  245,080  (6,201) (90,096)
Consumer 477  2,540  626  2,831  (149) (291)
Total $ 147,267  $ 536,052  $ 163,117  $ 632,997  $ (15,850) $ (96,945)

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Regulatory Matters
Capital
Bank regulatory agencies measure capital adequacy through standardized risk-based capital guidelines that compare different levels of capital (as defined by such guidelines) to risk-weighted assets and off-balance sheet obligations. At June 30, 2021, banks considered to be “well capitalized” must maintain a minimum Tier 1 leverage ratio of 5.00%, a minimum common equity Tier 1 risk-based capital ratio of 6.50%, a minimum Tier 1 risk-based capital ratio of 8.00%, and a minimum total risk-based capital ratio of 10.00%.
Basel III currently requires all banking organizations to maintain a 2.50% capital conservation buffer above the minimum risk-based capital requirements to avoid certain limitations on capital distributions, stock repurchases and discretionary bonus payments to executive officers. The capital conservation buffer is exclusively comprised of common equity tier 1 capital, and it applies to each of the three risk-based capital ratios but not to the leverage ratio. Effective January 1, 2019, the common equity tier 1, tier 1, and total capital ratio minimums inclusive of the capital conservation buffer were 7.00%, 8.50%, and 10.50%. At June 30, 2021, the Company and Bank were in compliance with the capital conservation buffer requirement.
The Company and Bank elected the CECL 5-year regulatory transition guidance for calculating regulatory capital ratios and the June 30, 2021 ratios include this election. This regulatory guidance allows an entity to add back to capital 100% of the capital impact from the day one CECL transition adjustment and 25% of subsequent increases to the allowance for credit losses through December 31, 2022. This cumulative amount will then be phased out of regulatory capital over the next three years from 2023 to 2025. The add-back as of June 30, 2021 ranged from 0 basis points to 14 basis points for the capital ratios below.
The following tables present a comparison of our actual capital ratios to the minimum required ratios and well capitalized ratios as of the dates indicated:
Minimum Required
For Capital For Capital For Well
Adequacy Conservation Capitalized
Actual Purposes Buffer Classification
June 30, 2021
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio 7.67% 4.00% 4.00% N/A
CET1 capital ratio 10.41% 4.50% 7.00% N/A
Tier 1 capital ratio 10.41% 6.00% 8.50% N/A
Total capital ratio 14.99% 8.00% 10.50% N/A
Pacific Western Bank
Tier 1 leverage capital ratio 8.47% 4.00% 4.00% 5.00%
CET1 capital ratio 11.51% 4.50% 7.00% 6.50%
Tier 1 capital ratio 11.51% 6.00% 8.50% 8.00%
Total capital ratio 14.22% 8.00% 10.50% 10.00%
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Minimum Required
For Capital For Capital For Well
Adequacy Conservation Capitalized
Actual Purposes Buffer Classification
December 31, 2020
PacWest Bancorp Consolidated
Tier 1 leverage capital ratio 8.55% 4.00% 4.00% N/A
CET1 capital ratio 10.53% 4.50% 7.00% N/A
Tier 1 capital ratio 10.53% 6.00% 8.50% N/A
Total capital ratio 13.76% 8.00% 10.50% N/A
Pacific Western Bank
Tier 1 leverage capital ratio 9.53% 4.00% 4.00% 5.00%
CET1 capital ratio 11.73% 4.50% 7.00% 6.50%
Tier 1 capital ratio 11.73% 6.00% 8.50% 8.00%
Total capital ratio 12.99% 8.00% 10.50% 10.00%
Subordinated Debt
We issued or assumed through mergers subordinated debt to trusts that were established by us or entities we acquired, which, in turn, issued trust preferred securities. On April 30, 2021, the Bank completed the sale of $400 million aggregate principal amount of 3.25% Fixed-to-Floating Rate Subordinated Notes due May 1, 2031. For further information, see Note 10. Borrowings and Subordinated Debt in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
The carrying value of subordinated debt totaled $861.8 million at June 30, 2021. At June 30, 2021, none of the trust preferred securities was included in the Company's Tier I capital under the phase-out limitations of Basel III, and $847.8 million were included in Tier II capital.
Dividends on Common Stock and Interest on Subordinated Debt
As a bank holding company, PacWest is required to notify and receive approval from the FRB prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. Interest payments made on subordinated debt are considered dividend payments under FRB regulations. We may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. Given the impact of the goodwill impairment charge on net earnings in the first quarter of 2020, we were required to receive approval from the FRB prior to declaring a dividend from March 31, 2020 through March 31, 2021, but are no longer required to obtain such approval.
Liquidity
Liquidity Management
The goals of our liquidity management are to ensure the ability of the Company to meet its financial commitments when contractually due and to respond to other demands for funds such as the ability to meet the cash flow requirements of customers who may be either depositors wanting to withdraw funds or borrowers who have unfunded commitments. We have an Executive Management Asset/Liability Management Committee ("Executive ALM Committee") that is comprised of members of senior management and is responsible for managing commitments to meet the needs of customers while achieving our financial objectives. Our Executive ALM Committee meets regularly to review funding capacities, current and forecasted loan demand, and investment opportunities.



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We manage our liquidity by maintaining pools of liquid assets on-balance sheet, consisting of cash and due from banks, interest-earning deposits in other financial institutions, and unpledged securities available-for-sale, which we refer to as our primary liquidity. We also maintain available borrowing capacity under secured credit lines with the FHLB and the FRBSF, which we refer to as our secondary liquidity.
As a member of the FHLB, the Bank had secured borrowing capacity with the FHLB of $3.3 billion at June 30, 2021, of which all was available on that date. The FHLB secured credit line was collateralized by a blanket lien on $5.5 billion of certain qualifying loans. The Bank also had secured borrowing capacity with the FRBSF of $1.4 billion at June 30, 2021, all of which was available on that date. The FRBSF secured credit line was collateralized by liens on $1.9 billion of qualifying loans.
In addition to its secured lines of credit, the Bank also maintains unsecured lines of credit for the purpose of borrowing overnight funds, subject to availability, of $112.0 million with the FHLB and $180.0 million in the aggregate with several correspondent banks. As of June 30, 2021, there was no balance outstanding related to the FHLB unsecured line of credit. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of June 30, 2021, the Bank had borrowed nothing through the AFX.
    The following tables provide a summary of the Bank’s primary and secondary liquidity levels at the dates indicated:
June 30, March 31,
December 31,
Primary Liquidity - On-Balance Sheet 2021 2021 2020
(Dollars in thousands)
Cash and due from banks $ 179,505  $ 177,199  $ 150,464 
Interest-earning deposits in financial institutions 5,678,587  5,517,667  3,010,197 
Securities available-for-sale 7,198,608  5,941,690  5,235,591 
Less: pledged securities (489,976) (488,047) (449,330)
Total primary liquidity $ 12,566,724  $ 11,148,509  $ 7,946,922 
Ratio of primary liquidity to total deposits 42.4  % 39.5  % 31.9  %

Secondary Liquidity - Off-Balance Sheet June 30, March 31,
December 31,
Available Secured Borrowing Capacity 2021 2021 2020
(In thousands)
Secured borrowing capacity with the FHLB $ 3,307,329  $ 3,459,294  $ 3,330,715 
Less: secured advances outstanding —  (5,000) (5,000)
Available secured borrowing capacity with the FHLB 3,307,329  3,454,294  3,325,715 
Available secured borrowing capacity with the FRBSF 1,436,648  1,413,182  1,409,452 
Total secondary liquidity $ 4,743,977  $ 4,867,476  $ 4,735,167 
During the three months ended June 30, 2021, the Company's primary liquidity increased by $1.4 billion to $12.6 billion at June 30, 2021 due mainly to a $1.3 billion increase in securities available-for-sale and a $160.9 million increase in interest-earning deposits in financial institutions. During the second quarter of 2021, the Company's secondary liquidity decreased by $123.5 million to $4.7 billion at June 30, 2021 due primarily to a $147.0 million decrease in secured borrowing capacity with the FHLB, offset partially by a $23.5 million increase in secured borrowing capacity with the FRBSF.
In addition to our primary liquidity, we generate liquidity from cash flows from our loan and securities portfolios and from our large base of core deposits, defined as noninterest-bearing demand, interest checking, savings, and non-brokered money market accounts. At June 30, 2021, core deposits totaled $27.0 billion and represented 91% of the Company's total deposits. Core deposits are normally less volatile, often with customer relationships tied to other products offered by the Bank promoting long-standing relationships and stable funding sources. See "- Balance Sheet Analysis - Deposits" for additional information and detail of our core deposits.
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Our deposit balances may decrease if customers withdraw funds from the Bank. In order to address the Bank’s liquidity risk from fluctuating deposit balances, the Bank maintains adequate levels of available liquidity on and off the balance sheet.
We use brokered deposits, the availability of which is uncertain and subject to competitive market forces and regulation, for liquidity management purposes. At June 30, 2021, brokered deposits totaled $1.3 billion, consisting primarily of $1.1 billion of non-maturity brokered accounts and $195.7 million of brokered time deposits. At December 31, 2020, brokered deposits totaled $1.3 billion, consisting mainly of $1.1 billion of non-maturity brokered accounts and $195.7 million of brokered time deposits.
Our liquidity policy includes guidelines for On-Balance Sheet Liquidity (a measurement of primary liquidity to total deposits plus borrowings), Liquidity Buffer Coverage Ratio (the ratio of cash and unpledged securities to the estimated 30 day cash outflow in a defined stress scenario), Liquidity Stress Test Survival Horizon (the number of days that the Bank’s liquidity buffer plus available secured borrowing capacity is sufficient to offset cumulative cash outflow in a defined stress scenario), Loan to Funding Ratio (measurement of gross loans net of fees divided by deposits plus borrowings), Wholesale Funding Ratio (measurement of wholesale funding divided by interest-earning assets), and other guidelines developed for measuring and maintaining liquidity. At June 30, 2021, the Bank was in compliance with all established liquidity guidelines.
Holding Company Liquidity
PacWest acts a source of financial strength for the Bank which can also include being a source of liquidity. The primary sources of liquidity for the holding company include dividends from the Bank, intercompany tax payments from the Bank, and PacWest's ability to raise capital, issue subordinated debt, and secure outside borrowings. PacWest's ability to obtain funds for the payment of dividends to our stockholders, the repurchase of shares of common stock, and other cash requirements is largely dependent upon the Bank’s earnings. The Bank is subject to restrictions under certain federal and state laws and regulations that limit its ability to transfer funds to the holding company through intercompany loans, advances, or cash dividends. PacWest's ability to pay dividends is also subject to the restrictions set forth in Delaware law, by the FRB, and by certain covenants contained in our subordinated debt. Approval by the FRB is required prior to our declaring and paying a cash dividend during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. PacWest may not pay a dividend if the FRB objects or until such time as we receive approval from the FRB or we no longer need to provide notice under applicable regulations. In addition, we may be restricted by applicable law or regulation or actions taken by our regulators, now or in the future, from paying dividends. Due to the impact of the goodwill impairment charge on net earnings in the first quarter of 2020, we were required to receive approval from the FRB, as described above, prior to declaring a dividend, for the period of March 31, 2020 to March 31, 2021, but are no longer required to obtain such approval.
Dividends paid by California state-chartered banks are regulated by the FDIC for non-member banks and the DFPI under their general supervisory authority. The Bank may declare a dividend without the approval of the DFPI and FDIC as long as the total dividends declared in a calendar year do not exceed either the retained earnings or the total of net earnings for the three previous fiscal years less any dividends paid during such period. The Bank had a net loss of $256.7 million during the three fiscal years of 2020, 2019, and 2018, compared to dividends of $1.3 billion paid by the Bank during that same period. During the three and six months ended June 30, 2021, PacWest received $33.0 million and $66.0 million in dividends from the Bank. Since the Bank had an accumulated deficit of $1.7 billion at June 30, 2021, for the foreseeable future any dividends from the Bank to PacWest will continue to require DFPI and FDIC approval consistent with what has been required since 2008 when Bank first had an accumulated deficit triggered by goodwill impairment write-downs during the financial crisis of 2007-2008.
At June 30, 2021, PacWest had $133.4 million in cash and cash equivalents, of which substantially all is on deposit at the Bank. We believe this amount of cash, along with anticipated future dividends from the Bank, will be sufficient to fund the holding company’s cash flow needs over the next 12 months.
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Contractual Obligations
The following table summarizes the known contractual obligations of the Company as of the date indicated:
Due After Due After
Due One Year Three Years Due
Within Through Through After
June 30, 2021 One Year Three Years Five Years Five Years Total
(In thousands)
Time deposits $ 1,238,447  $ 168,107  $ 79,348  $ —  $ 1,485,902 
Short-term borrowings 6,625  —  —  —  6,625 
Long-term debt obligations (1)
—  —  —  942,352  942,352 
Contractual interest (2)
14,891  28,153  25,558  —  68,602 
Operating lease obligations 35,231  59,113  31,109  28,309  153,762 
Other contractual obligations 76,958  113,426  11,150  25,822  227,356 
Total $ 1,372,152  $ 368,799  $ 147,165  $ 996,483  $ 2,884,599 
_______________________________________ 
(1)    Excludes issuance costs and purchase accounting fair value adjustments.
(2)    Excludes interest on variable rate subordinated debt instruments.
Long-term debt obligations include subordinated debt. Debt obligations are also discussed in Note 10. Borrowings and Subordinated Debt, in the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in “Item 1. Condensed Consolidated Financial Statements (Unaudited).” Operating lease obligations are discussed in the Notes to Consolidated Financial Statements included in our Form 10-K. The other contractual obligations relate to our minimum liability associated with our data and item processing contract with a third-party provider, commitments to contribute capital to investments in low income housing project partnerships and private equity funds, and commitments under deferred compensation arrangements.
We believe that we will be able to meet our contractual obligations as they come due through the maintenance of adequate liquidity levels. We expect to maintain adequate liquidity levels through profitability, loan and lease payoffs, securities repayments and maturities, and continued deposit gathering activities. We also have in place various borrowing mechanisms for both short-term and long-term liquidity needs.
Off-Balance Sheet Arrangements
Our obligations also include off-balance sheet arrangements consisting of loan commitments, of which only a portion is expected to be funded, and standby letters of credit. At June 30, 2021, our loan commitments and standby letters of credit were $7.9 billion and $343.7 million. The loan commitments, a portion of which will eventually result in funded loans, increase our profitability through net interest income when drawn and unused commitment fees prior to being drawn. We manage our overall liquidity taking into consideration funded and unfunded commitments as a percentage of our liquidity sources. Our liquidity sources, as described in "- Liquidity - Liquidity Management," have been and are expected to be sufficient to meet the cash requirements of our lending activities. For further information on loan commitments, see Note 12. Commitments and Contingencies, of the Notes to Condensed Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This analysis should be read in conjunction with text under the caption "Quantitative and Qualitative Disclosures About Market Risk" in our Form 10-K, which text is incorporated herein by reference. Our analysis of market risk and market-sensitive financial information contains forward-looking statements and is subject to the disclosure at the beginning of Item 2 regarding such forward-looking information.
Market Risk - Foreign Currency Exposure
We enter into foreign exchange contracts with our clients and counterparty banks primarily for the purpose of offsetting or hedging clients' foreign currency exposures arising out of commercial transactions, and we enter into cross currency swaps to hedge exposures to debt instruments denominated in foreign currencies. We have experienced and will continue to experience fluctuations in our net earnings as a result of transaction gains or losses related to revaluing certain asset and liability balances that are denominated in currencies other than the U.S. Dollar, and the derivatives that hedge those exposures. As of June 30, 2021, the U.S. Dollar notional amounts of subordinated debt payable denominated in foreign currencies was $30.6 million, and the U.S. Dollar notional amounts of derivatives outstanding to hedge these foreign currency exposures was $28.5 million. We recognized a foreign currency translation net gain of $218,000 for the six months ended June 30, 2021 and a foreign currency translation net loss of $614,000 for the six months ended June 30, 2020.
Asset/Liability Management and Interest Rate Sensitivity
Interest Rate Risk
We measure our IRR position on a monthly basis using two methods: (i) NII simulation analysis; and (ii) MVE modeling. The Executive ALM Committee and the Board Asset/Liability Management Committee review the results of these analyses quarterly. If hypothetical changes to interest rates cause changes to our simulated net present value of equity and/or net interest income outside our pre-established limits, we may adjust our asset and liability mix in an effort to bring our interest rate risk exposure within our established limits.
We evaluated the results of our NII simulation model and MVE model prepared as of June 30, 2021, the results of which are presented below. Our NII simulation and MVE model indicate that our balance sheet is asset-sensitive. An asset-sensitive profile would suggest that a sudden sustained increase in rates would result in an increase in our estimated NII and MVE, while a liability-sensitive profile would suggest that these amounts would decrease.
Net Interest Income Simulation
We used a NII simulation model to measure the estimated changes in NII that would result over the next 12 months from immediate and sustained changes in interest rates as of June 30, 2021. This model is an interest rate risk management tool and the results are not necessarily an indication of our future net interest income. This model has inherent limitations and these results are based on a given set of rate changes and assumptions at one point in time. We have assumed no growth or changes in the product mix of either our total interest-sensitive assets or liabilities over the next 12 months, therefore the results reflect an interest rate shock to a static balance sheet.
This analysis calculates the difference between NII forecasted using both increasing and decreasing interest rate scenarios using the forward yield curve at June 30, 2021. In order to arrive at the base case, we extend our balance sheet at June 30, 2021 one year and reprice any assets and liabilities that would contractually reprice or mature during that period using the products’ pricing as of June 30, 2021. Based on such repricing, we calculate an estimated NII and NIM for each rate scenario.
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The NII simulation model is dependent upon numerous assumptions. For example, the majority of our loans are variable rate that are assumed to reprice in accordance with their contractual terms. Some loans and investment securities include the opportunity of prepayment (embedded options) and the simulation model uses prepayment assumptions to estimate these accelerated cash flows and reinvest these proceeds at current simulated yields. Our interest-bearing deposits reprice at our discretion and are assumed to reprice at a rate less than the change in market rates. The 12-month NII simulation model as of June 30, 2021 assumes interest-bearing deposits reprice at 28% of the change in market rates in a rising interest rate scenario, depending on the amount of the rate change (this is commonly referred to as the "deposit beta"). The effects of certain balance sheet attributes, such as fixed-rate loans, variable-rate loans that have reached their floors, and the volume of noninterest-bearing deposits as a percentage of earning assets, impact our assumptions and consequently the results of our NII simulation model. Additionally, we assume that all market interest rates have an interest rate floor of 0%. Changes that could vary significantly from our assumptions include loan and deposit growth or contraction, loan and deposit pricing, changes in the mix of earning assets or funding sources, and future asset/liability management decisions, all of which may have significant effects on our net interest income.
The following table presents forecasted net interest income and net interest margin for the next 12 months using the static balance sheet and forward yield curve as the base scenario, with immediate and sustained parallel upward movements in interest rates of 100, 200, and 300 basis points and sustained parallel downward movements in interest rates of 25, 50, and 100 basis points as of the date indicated:
Forecasted Forecasted Forecasted
Net Interest Percentage Net Interest Net Interest
Income Change Margin Margin Change
June 30, 2021 (Tax Equivalent) From Base (Tax Equivalent) From Base
(Dollars in millions)
Interest Rate Scenario:
Up 300 basis points $ 1,296.5  25.1% 4.08% 0.82%
Up 200 basis points $ 1,192.6  15.1% 3.75% 0.49%
Up 100 basis points $ 1,101.1  6.3% 3.47% 0.21%
BASE CASE $ 1,036.1  3.26%
Down 25 basis points $ 1,033.3  (0.3)% 3.25% (0.01)%
Down 50 basis points $ 1,026.4  (0.9)% 3.23% (0.03)%
Down 100 basis points $ 1,022.0  (1.4)% 3.22% (0.04)%

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








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The following table shows the projected change in the market value of equity for the rate scenarios presented as of the date indicated:
Ratio of
Projected
Dollar
Percentage
Percentage
Projected
Market Value
Change
Change
of Total
Market Value
June 30, 2021
of Equity
From Base
From Base
Assets
to Book Value
(Dollars in millions)
Interest Rate Scenario:
Up 300 basis points $ 6,927.4  $ 882.7  14.6  % 19.9  % 180.1  %
Up 200 basis points $ 6,661.4  $ 616.7  10.2  % 19.1  % 173.2  %
Up 100 basis points $ 6,361.2  $ 316.5  5.2  % 18.2  % 165.4  %
BASE CASE $ 6,044.7  $ —  —  % 17.3  % 157.1  %
Down 50 basis points $ 5,885.1  $ (159.6) (2.6) % 16.9  % 153.0  %
Down 100 basis points $ 5,771.4  $ (273.3) (4.5) % 16.6  % 150.0  %
During the second quarter of 2021, total base case projected market value of equity increased by $45.3 million to $6.0 billion. This increase in base case projected MVE was due mostly to: (1) a $192.5 million increase in the book value of stockholders' equity due mainly to $180.5 million of net earnings and a $39.1 million increase in accumulated other comprehensive income, offset partially by $29.9 of cash dividends paid; offset partially by (2) a $62.2 million decrease in the mark-to-market adjustment for loans and leases; (3) a $16.3 million increase in the mark-to-market adjustment for total deposits; and (4) a $72.4 million increase in the mark-to-market adjustment for subordinated debt due primarily to the updated tighter credit spreads used for the valuation of holding company TRUPS.
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ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was carried out by the Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, these disclosure controls and procedures were effective.
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 12. Commitments and Contingencies in the Notes to Condensed Consolidated Financial Statements (Unaudited) is incorporated herein by reference.
In addition, in the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations.
ITEM 1A. RISK FACTORS
For information regarding factors that could affect the Company's results of operations, financial condition and liquidity, see the risk factors disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2020. See also "Forward-Looking Information" disclosed in Part I, Item 2 of this quarterly report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents stock purchases made during the second quarter of 2021:
Total Number of Maximum Dollar
Shares Purchased Value of Shares
Total as Part of That May Yet
Number of Average Publicly Be Purchased
Shares Price Paid Announced Under the
Purchase Dates
Purchased (1)
Per Share
Program (2)
Program (2)
(In thousands)
April 1 - April 30, 2021
—  $ —  —  $ — 
May 1 - May 31, 2021
135,663  $ 45.17  —  $ — 
June 1 - June 30, 2021
1,148  $ 41.16  —  $ — 
Total 136,811  $ 45.14  — 
__________________________
(1)    Shares repurchased pursuant to net settlement by employees in satisfaction of income tax withholding obligations incurred through the vesting of Company stock awards.
(2)    On February 12, 2020, PacWest's Board authorized a new Stock Repurchase Program to purchase shares of its common stock for an aggregate purchase price not to exceed $200 million, effective February 29, 2020. No shares were repurchased under the new Stock Repurchase Program prior to expiration on February 28, 2021.
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ITEM 6. INDEX TO EXHIBITS
Exhibit Number Description
2.1
3.1
3.2
3.3
4.1
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
31.1
31.2
32.1
32.2

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


  PACWEST BANCORP
Date: August 6, 2021
/s/ Bart R. Olson
 
Bart R. Olson
  Chief Financial Officer and Principal Financial Officer
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PACWEST BANCORP
STOCK INCENTIVE PLAN
NOTICE OF STOCK AWARD GRANT

This Notice of Stock Award Grant is part of the Stock Award Agreement between Grantee and the Company dated _____________ and is of no force and effect until the Stock Award Agreement is signed by Grantee and the Company's representative, this Notice of Stock Award Grant is signed by Grantee.
You have been granted the following Stock Award:

Name of Grantee:
 
 

Total Number of Shares Granted:
("Granted Stock")
 
 

Type of Stock Award:
 
Restricted Stock Award

Date of Grant:
 

Vesting Schedule:
  The Granted Stock shall vest in full over 4 years. The first one-fourth of the Granted Stock shall vest on the date the Grantee completes one year of continuous Service after the Vesting Commencement Date. An additional one-fourth of the Granted Stock shall vest on the date the Grantee completes each year of continuous Service thereafter until Grantee is100% vested in the Restricted Stock on the 4th year anniversary of the Vesting Commencement Date.

Vesting Commencement Date:
  The date that is the last day of the month in which the Grant is made.


Please sign below to acknowledge the terms and conditions of this Stock Award.

ACKNOWLEDGED BY GRANTEE:

By:

 
 
Name:    
 





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PACWEST BANCORP
STOCK INCENTIVE PLAN
STOCK AWARD AGREEMENT


1. Definitions. Unless otherwise defined herein, the terms defined in the Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (the “Plan”) shall have the same defined meanings in this Stock Award Agreement (“Agreement”) and the Notice of Stock Award Grant attached hereto as Appendix A.

2. Grant of Stock Award. Pursuant to the terms and conditions set forth in the Notice of Stock Award Grant, this Agreement, and the Plan, PacWest Bancorp (the “Company”) grants to the grantee named in the Notice of Stock Award Grant (“Grantee”) on the date of grant set forth in the Notice of Stock Award Grant (“Date of Grant”) the number of Shares set forth in the Notice of Stock Award Grant. This Stock Award is intended to be a Restricted Stock Award or a Performance Stock Award, as provided in the Notice of Stock Award Grant.

3. Retirement. Notwithstanding Section 2, solely with respect to Restricted Stock Awards that were granted at least twelve months prior to the date of the Grantee’s Retirement, upon the Grantee’s Retirement, unvested Granted Stock will vest pro rata (as described below) based on the length of the Grantee’s Service from the Grant Date through the Grantee’s Retirement relative to the full vesting period covered by the Award, less any previously vested Granted Stock For example, if the Grantee’s Retirement occurs 18 months after the Grant Date and the Award vests ratably over four years, the Grantee will vest in 37.5% of the Granted Stock relating to the Award (having served 18 out of 48 months covered by the Award), less 25% of previously vested Granted Stock. For purposes of this Award, “Retirement” means (A) the Grantee’s voluntary termination of Service on or after meeting the Rule of 70, where the Grantee is at least 60 years old and has been employed by or in the service of the Company for a period of at least five full consecutive years (if the employee joined the Company through an acquisition or merger, years of service at the predecessor company and years of service of the Company are included in the Grantee’s years of service); and (B) the Grantee provides the Company with at least six months’ prior written notice of his or her intent to retire and the Grantee is employed or in the service of the Company through the end of such six month period. “Rule of 70” means the sum of the Grantee’s age plus the Grantee’s years of service with the Company is at least 70 (if the employee joined the Company through an acquisition or merger, years of service at the predecessor company and years of service of the Company are included in the Grantee’s years of service), in each case measured at the time of Grantee’s termination of employment. The notice period could be shortened by the Company if mutually agreed upon.

4. Vesting. The Grantee shall vest in the Granted Stock in accordance with the vesting schedule provided for in the Notice of Stock Award Grant; provided, however, that the Grantee shall cease vesting in the Granted Stock on the Grantee's Termination Date or the date on which the Compensation Committee of the Company’s Board of Directors (the “Administrator”) determines that the performance goals, if any, provided for in the Notice of Stock Award Grant were not satisfied during the designated period of time. Notwithstanding the foregoing, upon the occurrence of a Vesting Event, the Grantee shall become 100% vested in those shares of Granted Stock that are outstanding on the date of the Vesting Event.

5. Risk of Forfeiture.
(a) General Rule. The Granted Stock shall initially be subject to a Risk of Forfeiture. The Shares subject to a Risk of Forfeiture shall be referred to herein as “Restricted Shares”.

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(b) Lapse of Risk of Forfeiture. The Risk of Forfeiture shall lapse as the Grantee vests in the Granted Stock.

(c) Forfeiture of Granted Stock; Clawback. The Restricted Shares shall automatically be forfeited and immediately returned to the Company on the Grantee's Termination Date or the date on which the Administrator determines that the performance goals, if any, provided for in the Notice of Stock Award Grant were not satisfied during the designated period of time. In consideration of the grant of this Stock Award, the Grantee agrees that this Stock Award and any Restricted Shares and Granted Stock hereunder (and/or other consideration awarded in settlement of this Stock Award) will be subject to forfeiture and/or repayment to the extent provided for in the PacWest Bancorp Clawback Policy, as in effect from time to time, if it is determined in accordance with the policy that a Clawback Event (as defined in such policy) has occurred.

(d) Additional Shares or Substituted Securities. In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination or reclassification of the Common Stock or any other increase or decrease in the number of issued and outstanding Shares effected without receipt of consideration by the Company, any new, substituted or additional securities or other property (including money paid other than as an ordinary cash dividend) which are by reason of such transaction distributed with respect to any Restricted Shares or into which such Restricted Shares thereby become convertible shall immediately be subject to a Risk of Forfeiture, which Risk of Forfeiture shall lapse at the same time and in the same manner as the Risk of Forfeiture to which the corresponding Restricted Share is subject.
(e) Escrow. Upon issuance, the stock certificates for Granted Stock shall be deposited in escrow with the Company to be held in accordance with the provisions of this Agreement. Any new, substituted or additional securities or other property described in Subsection (d) above shall immediately be delivered to the Company to be held in escrow, but only to the extent the shares of Granted Stock are at the time Restricted Shares. All regular cash dividends on Restricted Shares (or other securities at the time held in escrow) shall be paid directly to the Grantee and shall not be held in escrow (such distributions may, however, be delivered to an address at the Company for delivery to the Grantee). Restricted Shares, together with any other assets or securities held in escrow hereunder, shall be (i) surrendered to the Company for cancellation upon forfeiture of the Restricted Shares; or (ii) released to the Grantee upon the Grantee’s request to the Administrator on or after the date the shares of Granted Stock are no longer Restricted Shares. Grantee agrees not to make a request to the Company’s transfer agent for delivery of any share certificates representing any shares of Granted Stock so long as such shares are Restricted Shares.

6. Rights as a Stockholder. The Grantee shall have the rights of a stockholder with respect to the dividends paid by the Company. Grantee shall not be entitled to vote any unvested shares of Granted Stock. Upon the vesting of any portion of the Stock Award, the Grantee shall have the voting rights with respect to any such vested shares of Granted Stock.

7. Non-transferability of Stock Award. Except as otherwise provided for in the Plan, this Stock Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent and distribution and may be exercised, during the lifetime of the Grantee, only by the Grantee. If the Grantee transfers all or part of this Stock Award pursuant to the previous sentence, then the terms of this Agreement, the Plan and the Notice of Stock Award shall apply to the transferee to the same extent as to the Grantee.

3




8. Regulatory Compliance. The issuance of Common Stock pursuant to this Agreement shall be subject to full compliance with all then applicable requirements of law and the requirements of any stock exchange or interdealer quotation system upon which the Common Stock may be listed or traded.

9. Modification and Termination. The rights of the Grantee are subject to modification and termination in certain events, as provided in the Plan.

10. Withholding Tax. The Company's obligation to deliver Shares or remove any restrictive legends upon vesting of such Shares under the Plan shall be subject to the satisfaction of all applicable federal, state and local income and employment tax withholding requirements. The Grantee shall pay to the Company an amount equal to the withholding amount (or the Company may withhold such amount from the Grantee's salary) in cash or, to the extent permitted under Section 402 of the Sarbanes-Oxley Act of 2002 and the regulations adopted pursuant thereto, with Shares (including previously vested Granted Stock) with an aggregate fair market value equal to the withholding amount calculated using the maximum statutory withholding amount permitted to be withheld under applicable tax rules.

11. Nondisclosure. Grantee acknowledges that the grant and terms of this Stock Award are confidential and may not be disclosed by Grantee to any other person, including other employees of the Company and other participants in the Plan, without the express written consent of the Company's Chief Executive Officer. Notwithstanding the foregoing, the Grantee may disclose the grant and terms of this Stock Award to the Grantee's family member, financial advisor, and attorney and as may be required by law or regulation. Any breach of this provision will be deemed to be a material breach of this Agreement.

12. Governing Law. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of California without regard to principles of conflict of laws.

13. Successors. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their legal representatives, heirs, and permitted transferees, successors and assigns.

14. Plan. This Agreement and the Notice of Stock Award Grant are subject to all of the terms and provisions of the Plan, receipt of a copy of which is hereby acknowledged by the Grantee. The Grantee hereby agrees to accept as binding, conclusive, and final all decisions and interpretations of the Administrator upon any questions arising under the Plan, this Agreement, and the Notice of Stock Award Grant.

15. Rights to Future Employment. This Stock Award does not confer upon the Grantee any right to continue in the Service of the Company or any Affiliate, nor does it limit the right of the Company to terminate the Service of the Grantee at any time.

16. Restrictive Covenants. The Grantee hereby agrees to be bound by the restrictive covenants set forth in Annex A.
17. Entire Agreement. The Notice of Stock Award Grant, this Agreement, and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof. They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) between the parties which relate to the subject matter hereof. 



4




By your signature and the signature of the Company's representative below, you and the Company agree that this Stock Award is granted under and governed by the terms and conditions of this Agreement and the Plan and the Notice of Stock Award Grant, both of which are attached and incorporated herein by reference. This Stock Award is of no force and effect until this Agreement is signed by you and the Company’s representative, the Notice of Stock Award Grant is signed by you.

GRANTEE:   PACWEST BANCORP
By:     By:  
Name:   Name:

5




ANNEX A
RESTRICTIVE COVENANTS

    The Restrictive Covenants set forth in this Annex A to the Restricted Stock Award Agreement (the “Agreement”) limit the ability of the Grantee to engage in certain practices during and following employment with the Company and is an integral part of the Agreement, without which the Company would not have granted the opportunity to earn the Restricted Stock Award.
1. Confidential Information. During your employment and thereafter, you shall hold in a fiduciary capacity for the benefit of the Company all trade secrets and Confidential Information relating to the Company and its businesses and investments, which will have been obtained by you during your employment by the Company and which is not generally available public knowledge (other than by acts by you in violation of this Agreement). Except as may be required or appropriate in connection with your carrying out your duties as an employee, you will not, without the prior written consent of the Company or as may otherwise be required by law or any legal process, any statutory obligation or order of any court or statutory tribunal of competent jurisdiction, or as is necessary in connection with any adversarial proceeding against the Company (in which case you will use your reasonable best efforts in cooperating with the Company in obtaining a protective order against disclosure by a court of competent jurisdiction), communicate or divulge any such trade secrets or Confidential Information to anyone other than the Company and those designated by the Company or on behalf of the Company in the furtherance of its business or to perform duties hereunder. Notwithstanding anything to the contrary in this Agreement or otherwise, nothing shall limit your rights under applicable law to provide truthful information to any governmental entity or to file a charge with or participate in an investigation conducted by any governmental entity. You are hereby notified that the immunity provisions in Section 1833 of title 18 of the United States Code provide that an individual cannot be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made (1) in confidence to federal, state or local government officials, either directly or indirectly, or to an attorney, and is solely for the purpose of reporting or investigating a suspected violation of the law, (2) under seal in a complaint or other document filed in a lawsuit or other proceeding, or (3) to your attorney in connection with a lawsuit for retaliation for reporting a suspected violation of law (and the trade secret may be used in the court proceedings for such lawsuit) as long as any document containing the trade secret is filed under seal and the trade secret is not disclosed except pursuant to court order.
2. Non-Solicitation of Employees. You agree that during your employment, and for a six month period following the termination of your employment for any reason, you will not take any action, directly or indirectly (without the prior written consent of the Company), that causes or could reasonably be expected to cause any person who is then an employee of the Company or its Affiliates to resign from the Company or its Affiliates or to apply for or accept employment with any other business or enterprise.
3. Non-Solicitation of Customers. You agree that during your employment, and for a six month period following the termination of your employment for any reason, you will not, in any manner, directly or indirectly (without the prior written consent of the Company): (1) take any action that causes or could reasonably be expected to cause any customer or prospective customer of the Company or its Affiliates to whom you provided services or with whom you otherwise had contact to become a customer of or transact any business with a Competitive Business or reduce or refrain from doing any business with the Company or its Affiliates, (2) transact business with any customer or prospective customer that would cause you to be a Competitive Business, or (3) interfere with or damage any relationship between the Company and a customer or prospective customer.
6




4. Reasonableness of Covenant. You agree that the covenants contained herein are reasonable and necessary to protect the confidentiality of the customer lists, the terms, conditions and nature of customer relationships, and other trade secrets and Confidential Information concerning the Company and its Affiliates, acquired by you and to avoid actual or apparent conflicts of interest.
5. Validity. The terms and provisions of this Annex A are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision set forth herein thereby be affected. If for any reason any court of competent jurisdiction will find any provisions of this Annex A unreasonable in duration or geographic scope or otherwise, you and the Company agree that the restrictions and prohibitions contained herein will be effective to the fullest extent allowed under applicable law in such jurisdiction
6. Injunctive Relief. Without limiting any remedies available to the Company, you acknowledge and agree that a breach of the covenants contained in Sections 1 through 3 of this Annex A will result in injury to the Company and its Affiliates for which there is no adequate remedy at law and that it will not be possible to measure damages for such injuries precisely. Therefore, you agree that, in the event of such a breach or threat thereof, the Company will be entitled to seek a temporary restraining order and a preliminary and permanent injunction, without bond or other security, restraining you from engaging in activities prohibited by Sections 1 through 3 of this Annex A or such other relief as may be required specifically to enforce any of the covenants in Sections 1 through 3 of this Annex A.
7. Definitions. For purposes of these covenants, the following terms will have the following meanings:
(a)Competitive Business” means any business enterprise that either (i) engages in any activity that competes with the business of the Company or its Affiliates or (ii) holds a 5% or greater equity, voting or profit participation interest in any enterprise that engages in such a competitive activity.
(b)Confidential Information” means any information concerning the business or affairs of the Company or any of its Affiliates which is not generally known to the public and includes, but is not limited to, any file, document, book, account, list (including without limitation customer lists), process, patent, specification, drawing, design, computer program or file, computer disk, method of operation, recommendation, report, plan, survey, data, manual, strategy, financial data, client information or data (including the terms and conditions of any business relationships between clients and the Company or its Affiliates), or contract which comes to your knowledge in the course of your employment or which is generated by you in the course of performing your obligations to the Company whether alone or with others.


7



Exhibit 31.1
Certification
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Matthew P. Wagner, certify that:
1.    I have reviewed this report on Form 10-Q for the quarterly period ended June 30, 2021 of PacWest Bancorp;
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 6, 2021
/s/ Matthew P. Wagner
Matthew P. Wagner
Chief Executive Officer




Exhibit 31.2
Certification
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Bart R. Olson, certify that:
1.    I have reviewed this report on Form 10-Q for the for the quarterly period ended June 30, 2021 of PacWest Bancorp;
2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 6, 2021
/s/ Bart R. Olson
Bart R. Olson
Executive Vice President and Chief Financial Officer



Exhibit 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned officer of PacWest Bancorp (the “Company”) hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 6, 2021
/s/ Matthew P. Wagner
Matthew P. Wagner
Chief Executive Officer
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and is not being filed as part of the Report or as a separate disclosure document.


Exhibit 32.2
Certification of Deputy Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350), the undersigned officer of PacWest Bancorp (the “Company”) hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 6, 2021
/s/ Bart R. Olson
Bart R. Olson
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350) and is not being filed as part of the Report or as a separate disclosure document.