All other schedules are omitted because
they are not required or applicable pursuant to the Employee Retirement Income Security Act of 1974 and Department of Labor regulations.
Notes to Financial Statements
December 31, 2019 and 2018
(1) Description of the Plan
The following description of the PacWest
Bancorp 401(k) Plan (the “Plan”) provides only general information. Participants should refer to the Plan agreement
for a complete description of the Plan’s provisions.
(a) General
The Plan is a defined contribution plan
which provides retirement benefits for eligible employees of PacWest Bancorp and its subsidiaries (the “Company”) that
have agreed to participate in the Plan. The Plan is administered by PacWest Bancorp (the “Sponsoring Employer”) who
acts by and through its administrative committee, (the “401(k) Plan Committee”). The 401(k) Plan Committee
is presently comprised of seven officers of Pacific Western Bank, a subsidiary of the Sponsoring Employer. The Plan is subject
to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). The trustee for the Plan is Fidelity
Management Trust Company (“Trustee”).
(b) Contributions
and Eligibility
Employees of the Company who are at least
18 years of age are eligible to participate in the Plan beginning the first day of the month following their hire date. Participants
may contribute, under a salary reduction agreement, up to 60% of their eligible compensation, as defined, but not to exceed the
dollar amount allowed by law, which was $19,000 for 2019. The Company funds matching contributions based on the calculation of
annual compensation and deferrals. For the 2019 plan year, the matching contribution was determined to be a maximum amount
of 50% of the first 6% of covered compensation. In addition, participants may contribute amounts representing distributions (rollovers)
from other tax favored plans, and participants age 50 and over may also make “catch-up” contributions up to $6,000
in accordance with Internal Revenue Code (“IRC”) regulations and limitations.
Participants direct the investment of their
contributions into various investment options offered by the Plan. Company matching contributions are invested at the participant’s
discretion in the same manner as the salary reduction contributions.
(c) Participant
Accounts
Each participant account is credited with
the participant’s contributions, allocations of the Company’s matching contribution, and earnings or losses. Earnings of the various funds are allocated to the participant balances according to the ratio
that a participant’s account balance or shares held in a given fund bears to the total of all account balances or shares
held in the fund.
(d) Vesting
Participant contributions are immediately
fully vested. Participants vest in the Company’s matching contribution in accordance with the following schedule:
Years of service
|
|
Vesting
percentage
|
|
Less than 1 year
|
|
|
0
|
%
|
1
|
|
|
20
|
%
|
2
|
|
|
40
|
%
|
3
|
|
|
60
|
%
|
4
|
|
|
80
|
%
|
5
|
|
|
100
|
%
|
All nonvested amounts in a terminated participant’s
account are forfeited in accordance with Plan provisions, which allows for forfeited amounts to be utilized to pay Plan expenses
or to offset employer contributions. At December 31, 2019 and 2018, the forfeited balances within the Plan totaled $236,006
and $124,363, respectively, and during the year ended December 31, 2019, $164,380 of forfeited amounts were used to offset
employer contributions.
(e) Benefit Payments
A participant may receive a distribution
of his or her entire vested accrued benefit only upon the participant’s termination of employment. While employed, a participant
may receive a distribution of his or her rollover account and employee contribution deferrals for reason of financial hardship,
in accordance with Plan provisions.
For distributions other than due to financial
hardship, the method of payment shall be based on the participant’s election and may be made in one or a combination of the
following methods: a single lump sum; installments (if eligible as defined by the Plan); or direct transfer to an Individual Retirement
Account (“IRA”) or tax favored plan that accepts the transfer. Distributions shall be made in cash or in-kind, in accordance
with the participant’s election and Plan provisions.
(f) Notes Receivable
from Participants
Participants may borrow from their
account a minimum of $1,000 up to the lesser of 50% of the participant’s vested account balance or $50,000, reduced by
the highest outstanding loan balance in the participant’s account during the prior 12-month period. Participants may
only have one loan outstanding at a time. Such loans are collateralized by the participant’s vested balance in the Plan
and bear the prevailing interest rate used by lending institutions for loans made under similar circumstances. Interest rates
at December 31, 2019 and 2018 ranged from 3.25% to 7.50% and 3.25% to 7.25%, respectively and the loans mature
through September 2029. The terms of these loans cannot exceed five years, except if the loan is used to purchase the principal
residence of the participant, in which case the loan term may be extended for up to a period of 10 years. Principal and
interest are paid ratably through participant payroll deductions. If a participant defaults on the loan, it is generally
treated as a taxable distribution from the Plan (a “Deemed Distribution”).
(g) Plan Termination
Although it has not expressed any intent
to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject
to the provisions of ERISA. In the event of Plan termination, participants would become 100% vested in their employer contributions.
(h) Investment
Options
All accounts are invested in
accordance with terms of the Plan document and investment options elected by participants. Participants direct the investment
of their contributions and Company’s matching contributions into various investment options offered by the Plan.
If a participant does not choose an investment fund, the contributions are invested in the age appropriate target date
fund. Participants may change their deferral percentage or investment direction at any time. Investment options
offered by the Plan include a money market fund, mutual funds, PacWest Bancorp common stock and a common collective trust
fund. Contributions or transfers into PacWest Bancorp common stock are limited to no more than 25% of either future
contributions or participant account balance.
(2) Significant Accounting Policies
(a) Basis of Accounting
The accompanying financial statements of
the Plan have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the
United States of America (“GAAP”).
(b) Use of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets in the
statements of net assets available for benefits along with the additions and deductions presented in the statement of changes in
net assets available for benefits. Actual results could differ from those estimates.
(c) Investment
Valuation and Income Recognition
The Plan’s investments are reported
at fair value. Fair value is the price that would be received to sell an asset in an orderly transaction between market participants
at the measurement date. See Note 3 Fair Value Measurements for further discussion of the fair value of Plan investments. Purchases
and sales of investments are recorded on a trade-date basis. Interest income is recorded on an accrual basis. Dividends are recorded
on the ex-dividend date. Net appreciation/depreciation includes the Plan’s gains and losses on investments purchased, sold
and held during the year.
(d) Notes Receivable
from Participants
The notes receivable from participants are
valued at cost plus any accrued but unapplied interest, which approximates fair value. If a participant ceases to make note repayments
and the Plan administrator deems the note to be in default, the participant note balance is reduced and a Deemed Distribution is
recorded.
(e) Payment of
Participant Benefits
Participant benefits are recorded when paid.
(f) Administrative
Expenses
Administrative expenses of the Plan are
paid from forfeited amounts or by the Company, except for loan fees and maintenance fees for ex-employees which are charged to
the applicable participant accounts. The Company is also a party-in-interest and the Trustee charges fees to the participant for
processing loan application transactions. See Note (4), Party-in-Interest Transactions , for additional party-in-interest
information. The administrative fees paid by the Plan in 2019 totaled $53,533.
(g) Risks and Uncertainties
Investment securities are exposed to various
risks such as interest rate, market, and credit. Due to the level of uncertainty related to changes in the value of the Plan’s
investment securities, it is at least reasonably possible that changes in the various risk factors, in the near term, could materially
affect participants’ account balances and the amounts reported in the financial statements.
(h) Concentration
of Credit Risk
Investment in PacWest Bancorp common stock
comprised approximately 3.9% and 4.0% of the Plan’s net assets available for benefits as of December 31, 2019 and
2018, respectively. Generally, participants may not allocate more than 25% of their contributions into PacWest Bancorp common stock.
(i) Subsequent
Events
Plan management has evaluated events subsequent
to December 31, 2019 and through the date that the accompanying financial statements were filed with the Securities and Exchange
Commission, and has concluded there are no subsequent events that would require recognition in the accompanying financial statements.
In March 2020, the COVID-19 outbreak was
declared a pandemic by the World Health Organization. The COVID-19 pandemic has also led to extreme volatility in financial markets
and has affected, and may continue to affect, the market price of PacWest Bancorp’s common stock and other Plan assets. While
the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic
could result in significant disruption of global financial markets. The extent to which COVID-19 impacts the financial markets
and the Plan will depend on future developments that are highly uncertain and cannot be predicted.
In April 2020, the Plan adopted the distribution
and loan repayment deferral provisions of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act that was signed
into law on March 27, 2020. A CARES Act distribution allows the Plan's participants to take a COVID-19 related distribution up
to $100,000 from the Plan beginning on or after January 1, 2020 and before December 31, 2020. The loan repayment deferral provision
of the CARES Act permits qualified Plan participants who have outstanding Plan loans to defer repayments on those loans until Januaty
2021.
(3) Fair Value Measurements
The Plan utilizes a valuation hierarchy
for disclosure of the inputs to the valuations used to measure fair value. This hierarchy prioritizes the inputs into three broad
levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2
inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3
inputs are unobservable inputs based on the Plan’s own assumptions used to measure assets and liabilities at fair value.
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is
significant to the fair value measurement.
The following tables set forth by level, within the fair value
hierarchy, the Plan’s assets at fair value:
Assets at Fair Value as of December 31,
2019
|
|
Level 1
|
|
|
Total
|
|
Mutual Funds
|
|
$
|
156,733,347
|
|
|
$
|
156,733,347
|
|
Federal Money Market Fund
|
|
|
8,658,554
|
|
|
|
8,658,554
|
|
PacWest Bancorp Common Stock
|
|
|
6,888,594
|
|
|
|
6,888,594
|
|
Total Investments at Fair Value
|
|
|
172,280,495
|
|
|
|
172,280,495
|
|
Common Collective Trust Fund measured at NAV*
|
|
|
—
|
|
|
|
3,025,467
|
|
|
|
$
|
172,280,495
|
|
|
$
|
175,305,962
|
|
Assets at Fair Value as of December 31,
2018
|
|
Level 1
|
|
|
Total
|
|
Mutual Funds
|
|
$
|
120,254,697
|
|
|
$
|
120,254,697
|
|
Federal Money Market Fund
|
|
|
7,946,356
|
|
|
|
7,946,356
|
|
PacWest Bancorp Common Stock
|
|
|
5,496,323
|
|
|
|
5,496,323
|
|
Total Investments at Fair Value
|
|
|
133,697,376
|
|
|
|
133,697,376
|
|
Common Collective Trust Fund measured at NAV*
|
|
|
—
|
|
|
|
2,613,254
|
|
|
|
$
|
133,697,376
|
|
|
$
|
136,310,630
|
|
*
Certain investments are
measured at fair value using the NAV per share (or its equivalent) as a practical expedient and have not been categorized in the
fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy
to the amounts presented in the Statements of Net Assets Available for Benefits.
The following is a description of the valuation
methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant
to the valuation hierarchy.
Mutual Funds
Valued at the daily closing price as reported
by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the U.S. Securities and Exchange
Commission. These funds are required to publish their daily net asset value and to transact at that price. The mutual funds held
by the Plan are deemed to be actively traded.
Federal Money Market Fund
The Federal Money Market fund is
valued at quoted market prices in an exchange and active markets.
PacWest Bancorp Common Stock
PacWest Bancorp common stock held in participant-directed
accounts is stated at the fair value as quoted on a recognized securities exchange and is valued at the last reported sales price
on the last business day of the Plan year.
Common Collective Trust Fund
The stable value fund is composed
primarily of fully benefit-responsive investment contracts that are valued at the NAV, an estimate of fair value. The unit
value is calculated by dividing the fund’s value on the valuation date by the number of units outstanding. The NAV is
used as a practical expedient to estimate fair value. This practical expedient would not be used if it is determined to be
probable that the fund will sell the investment for an amount different from the reported net asset value. Participant
transactions (purchases and sales) may occur daily. If the Plan initiates a full redemption of the collective trust, the
issuer reserves the right to require 12 months’ notification in order to ensure that securities liquidations will be
carried out in an orderly business manner. There are no participant redemption restrictions for these investments; the
redemption notice period is applicable only to the Plan. Full redemption notification was made by the Plan in 2019; however,
no redemption has occurred as of the filing date of the 2019 financial statements.
The following table summarizes investments
for which fair value is measured using the NAV per share (or its equivalent) practical expedient as of December 31, 2019,
and 2018, respectively.
December 31, 2019
|
|
Fair Value
|
|
|
Unfunded
Commitments
|
|
Redemption
Frequency (If
Currently Eligible)
|
|
Redemption
Notice Period
|
Wells Fargo stable return fund
|
|
$
|
3,025,467
|
|
|
n/a
|
|
Daily
|
|
12 months
|
December 31, 2018
|
|
Fair Value
|
|
|
Unfunded
Commitments
|
|
Redemption
Frequency (If
Currently Eligible)
|
|
Redemption
Notice Period
|
Wells Fargo stable return fund
|
|
$
|
2,613,254
|
|
|
n/a
|
|
Daily
|
|
12 months
|
(4) Party-in-Interest Transactions
Parties-in-interest (as defined by ERISA)
may perform services or have fiduciary responsibilities to the Plan. The party-in-interest transactions discussed below qualify
for an exemption from the party-in-interest transaction prohibitions of ERISA.
Certain Plan investments are shares of mutual
funds managed by Fidelity Management Trust Company, and therefore, these transactions qualify as party-in-interest transactions.
Certain Plan investments are shares of common stock of PacWest Bancorp company stock, and thus, these are party-in-interest transactions.
The Company paid certain administrative
expenses of the Plan for the year ended December 31, 2019 totaling $229 to Fidelity Management Trust Company. The Plan also
incurred administrative expenses in 2019 (Note 2).
(5) Income Taxes
The prototype plan adopted by the Company
received a favorable tax determination letter on March 31, 2014, as part of a volume submitter plan from the Internal Revenue
Service (“IRS”) stating that the Plan is qualified under IRC Section 401(a) and that the Plan is exempt from
federal income taxes under provisions of Section 501(a). Although the Plan has been amended and restated, the Plan administrator
believes that the Plan is designed and currently being operated in compliance with the applicable requirements of the IRC.
GAAP requires plan management to evaluate
tax positions taken by the Plan and recognize a tax liability (or asset) if the organization has taken an uncertain position that
more likely than not would not be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions
taken by the Plan, and has concluded that as of December 31, 2019, there are no uncertain positions taken or expected to be
taken that would require recognition of the liability (or asset) or disclosure in the financial statements. The Plan is subject
to routine audits by taxing jurisdictions and the Plan could be subject to income tax if certain issues were found by the IRS that
could result in the disqualification of the Plan’s tax-exempt status; however, there are currently no audits for any tax
periods in progress.
PacWest Bancorp 401(k) Plan
Form 5500 Schedule H, Line
4i—Schedule of Assets (Held at End of Year)
Employer Number 33-0885320
Plan Number: 001
December 31, 2019
(a) Party-in-interest
for which statutory exception exists.