PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (Unaudited) |
| (Dollars in thousands, except par value amounts) |
ASSETS: | | | |
Cash and due from banks | $ | 205,446 | | | $ | 112,548 | |
Interest-earning deposits in financial institutions | 1,865,235 | | | 3,944,686 | |
Total cash, cash equivalents, and restricted cash | 2,070,681 | | | 4,057,234 | |
Securities available-for-sale, at fair value | 9,975,109 | | | 10,694,458 | |
Federal Home Loan Bank stock, at cost | 17,250 | | | 17,250 | |
Total investment securities | 9,992,359 | | | 10,711,708 | |
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Gross loans and leases held for investment | 24,439,749 | | | 23,026,308 | |
Deferred fees, net | (87,677) | | | (84,760) | |
Allowance for loan and lease losses | (197,398) | | | (200,564) | |
Total loans and leases held for investment, net | 24,154,674 | | | 22,740,984 | |
Equipment leased to others under operating leases | 325,305 | | | 339,150 | |
Premises and equipment, net | 51,011 | | | 46,740 | |
Foreclosed assets, net | 304 | | | 12,843 | |
Goodwill | 1,405,736 | | | 1,405,736 | |
Core deposit and customer relationship intangibles, net | 41,308 | | | 44,957 | |
Other assets | 1,208,261 | | | 1,083,992 | |
Total assets | $ | 39,249,639 | | | $ | 40,443,344 | |
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LIABILITIES: | | | |
Noninterest-bearing deposits | $ | 14,057,051 | | | $ | 14,543,133 | |
Interest-bearing deposits | 19,167,844 | | | 20,454,624 | |
Total deposits | 33,224,895 | | | 34,997,757 | |
Borrowings | 991,000 | | | — | |
Subordinated debt | 863,880 | | | 863,283 | |
Accrued interest payable and other liabilities | 519,269 | | | 582,674 | |
Total liabilities | 35,599,044 | | | 36,443,714 | |
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Commitments and contingencies | | | |
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STOCKHOLDERS' EQUITY: | | | |
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding) | — | | | — | |
Common stock ($0.01 par value, 200,000,000 shares authorized at March 31, 2022 and | | | |
December 31, 2021; 122,215,319 and 122,105,853 shares issued, respectively, includes | | | |
2,154,646 and 2,312,080 shares of unvested restricted stock, respectively) | 1,222 | | | 1,221 | |
Additional paid-in capital | 2,991,159 | | | 3,013,399 | |
Retained earnings | 1,136,478 | | | 1,016,350 | |
Treasury stock, at cost (2,613,553 and 2,520,999 shares at March 31, 2022 and | | | |
December 31, 2021) | (101,789) | | | (97,308) | |
Accumulated other comprehensive (loss) income, net | (376,475) | | | 65,968 | |
Total stockholders' equity | 3,650,595 | | | 3,999,630 | |
Total liabilities and stockholders' equity | $ | 39,249,639 | | | $ | 40,443,344 | |
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| (Unaudited) |
| (In thousands, except per share amounts) |
Interest income: | | | | | | | |
Loans and leases | $ | 267,759 | | | $ | 241,544 | | | | | |
Investment securities | 53,422 | | | 30,265 | | | | | |
Deposits in financial institutions | 1,723 | | | 1,528 | | | | | |
Total interest income | 322,904 | | | 273,337 | | | | | |
Interest expense: | | | | | | | |
Deposits | 6,208 | | | 7,500 | | | | | |
Borrowings | 161 | | | 193 | | | | | |
Subordinated debt | 7,818 | | | 4,375 | | | | | |
Total interest expense | 14,187 | | | 12,068 | | | | | |
Net interest income | 308,717 | | | 261,269 | | | | | |
Provision for credit losses | — | | | (48,000) | | | | | |
Net interest income after provision for credit losses | 308,717 | | | 309,269 | | | | | |
Noninterest income: | | | | | | | |
Leased equipment income | 13,094 | | | 11,354 | | | | | |
Other commissions and fees | 11,580 | | | 9,158 | | | | | |
Service charges on deposit accounts | 3,571 | | | 2,934 | | | | | |
Gain on sale of loans and leases | 60 | | | 139 | | | | | |
Gain on sale of securities | 104 | | | 101 | | | | | |
Dividends and (losses) gains on equity investments | (11,375) | | | 10,904 | | | | | |
Warrant income | 629 | | | 6,123 | | | | | |
Other income | 3,155 | | | 4,116 | | | | | |
Total noninterest income | 20,818 | | | 44,829 | | | | | |
Noninterest expense: | | | | | | | |
Compensation | 92,240 | | | 79,882 | | | | | |
Occupancy | 15,200 | | | 14,054 | | | | | |
Leased equipment depreciation | 9,189 | | | 8,969 | | | | | |
Data processing | 9,629 | | | 6,957 | | | | | |
Other professional services | 5,954 | | | 5,126 | | | | | |
Insurance and assessments | 5,490 | | | 4,903 | | | | | |
Customer related expense | 12,655 | | | 4,818 | | | | | |
Loan expense | 5,157 | | | 3,193 | | | | | |
Intangible asset amortization | 3,649 | | | 3,079 | | | | | |
Acquisition, integration and reorganization costs | — | | | 3,425 | | | | | |
Foreclosed assets (income) expense, net | (3,353) | | | 1 | | | | | |
Other expense | 11,616 | | | 15,729 | | | | | |
Total noninterest expense | 167,426 | | | 150,136 | | | | | |
Earnings before income taxes | 162,109 | | | 203,962 | | | | | |
Income tax expense | 41,981 | | | 53,556 | | | | | |
Net earnings | $ | 120,128 | | | $ | 150,406 | | | | | |
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Earnings per share: | | | | | | | |
Basic | $ | 1.01 | | | $ | 1.27 | | | | | |
Diluted | $ | 1.01 | | | $ | 1.27 | | | | | |
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| (Unaudited) |
| (In thousands) |
Net earnings | $ | 120,128 | | | $ | 150,406 | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Unrealized net holding (losses) gains on securities available-for-sale arising during the period | (609,826) | | | (91,523) | | | | | |
Income tax benefit (expense) related to net unrealized holding (losses) gains | | | | | | | |
arising during the period | 167,458 | | | 25,454 | | | | | |
Unrealized net holding (losses) gains on securities available-for-sale, net of tax | (442,368) | | | (66,069) | | | | | |
Reclassification adjustment for net gains included in net earnings (1) | (104) | | | (101) | | | | | |
Income tax expense related to reclassification adjustment | 29 | | | 28 | | | | | |
Reclassification adjustment for net gains included in net earnings, net of tax | (75) | | | (73) | | | | | |
Other comprehensive (loss) income, net of tax | (442,443) | | | (66,142) | | | | | |
Comprehensive (loss) income | $ | (322,315) | | | $ | 84,264 | | | | | |
___________________________________
(1) Entire amounts are recognized in "Gain on sale of securities" on the Condensed Consolidated Statements of Earnings.
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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| Three Months Ended March 31, 2022 |
| Common Stock | | | | | | Accumulated | | |
| | | | | Additional | | | | | | Other | | |
| | | Par | | Paid-in | | Retained | | Treasury | | Comprehensive | | |
| Shares | | Value | | Capital | | Earnings | | Stock | | Income (Loss) | | Total |
| (Unaudited) |
| (In thousands, except per share amount) |
Balance, December 31, 2021 | 119,584,854 | | | $ | 1,221 | | | $ | 3,013,399 | | | $ | 1,016,350 | | | $ | (97,308) | | | $ | 65,968 | | | $ | 3,999,630 | |
Net earnings | — | | | — | | | — | | | 120,128 | | | — | | | — | | | 120,128 | |
Other comprehensive loss - net | | | | | | | | | | | | | |
unrealized loss on securities | | | | | | | | | | | | | |
available-for-sale, net of tax | — | | | — | | | — | | | — | | | — | | | (442,443) | | | (442,443) | |
Restricted stock awarded and | | | | | | | | | | | | | |
earned stock compensation, | | | | | | | | | | | | | |
net of shares forfeited | 109,466 | | | 1 | | | 7,556 | | | — | | | — | | | — | | | 7,557 | |
Restricted stock surrendered | (92,554) | | | — | | | — | | | — | | | (4,481) | | | — | | | (4,481) | |
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Cash dividends paid: | | | | | | | | | | | | | |
Common stock, $0.25/share | — | | | — | | | (29,796) | | | — | | | — | | | — | | | (29,796) | |
Balance, March 31, 2022 | 119,601,766 | | | $ | 1,222 | | | $ | 2,991,159 | | | $ | 1,136,478 | | | $ | (101,789) | | | $ | (376,475) | | | $ | 3,650,595 | |
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| Three Months Ended March 31, 2021 |
| Common Stock | | | | | | Accumulated | | |
| | | | | Additional | | | | | | Other | | |
| | | Par | | Paid-in | | Retained | | Treasury | | Comprehensive | | |
| Shares | | Value | | Capital | | Earnings | | Stock | | Income | | Total |
| (Unaudited) |
| (In thousands, except per share amount) |
Balance, December 31, 2020 | 118,414,853 | | | $ | 1,207 | | | $ | 3,100,633 | | | $ | 409,391 | | | $ | (88,803) | | | $ | 172,523 | | | $ | 3,594,951 | |
Net earnings | — | | | — | | | — | | | 150,406 | | | — | | | — | | | 150,406 | |
Other comprehensive loss - net | | | | | | | | | | | | | |
unrealized loss on securities | | | | | | | | | | | | | |
available-for-sale, net of tax | — | | | — | | | — | | | — | | | — | | | (66,142) | | | (66,142) | |
Restricted stock awarded and | | | | | | | | | | | | | |
earned stock compensation, | | | | | | | | | | | | | |
net of shares forfeited | 743,444 | | | 8 | | | 6,409 | | | — | | | — | | | — | | | 6,417 | |
Restricted stock surrendered | (52,655) | | | — | | | — | | | — | | | (1,908) | | | — | | | (1,908) | |
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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 | |
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See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2022 | | 2021 |
| (Unaudited) |
| (In thousands) |
Cash flows from operating activities: | | | |
Net earnings | $ | 120,128 | | | $ | 150,406 | |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
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Depreciation and amortization | 13,577 | | | 12,924 | |
Amortization of net premiums on securities available-for-sale | 15,606 | | | 7,575 | |
Amortization of intangible assets | 3,649 | | | 3,079 | |
Amortization of operating lease ROU assets | 7,443 | | | 7,548 | |
Provision for credit losses | — | | | (48,000) | |
Gain on sale of foreclosed assets | (3,177) | | | (73) | |
Provision for losses on foreclosed assets | — | | | 14 | |
Gain on sale of loans and leases | (60) | | | (139) | |
Gain on sale of premises and equipment | (2) | | | (28) | |
Gain on sale of securities | (104) | | | (101) | |
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Unrealized gain on derivatives and foreign currencies, net | (1,176) | | | (546) | |
Earned stock compensation | 7,557 | | | 6,417 | |
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Decrease in other assets | 29,162 | | | 60,160 | |
Decrease in accrued interest payable and other liabilities | (58,397) | | | (52,533) | |
Net cash provided by operating activities | 134,206 | | | 146,703 | |
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Cash flows from investing activities: | | | |
Cash paid for acquisition, net | — | | | (121,909) | |
Net (increase) decrease in loans and leases | (1,448,692) | | | 68,916 | |
Proceeds from sales of loans and leases | 36,758 | | | 72,780 | |
Proceeds from maturities and paydowns of securities available-for-sale | 243,921 | | | 200,367 | |
Proceeds from sales of securities available-for-sale | 206,192 | | | 44,652 | |
Purchases of securities available-for-sale | (356,196) | | | (1,050,217) | |
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Proceeds from sales of foreclosed assets | 16,020 | | | 435 | |
Purchases of premises and equipment, net | (7,287) | | | (1,936) | |
Proceeds from sales of premises and equipment | 3 | | | 64 | |
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Net decrease (increase) in equipment leased to others under operating leases | 4,661 | | | (4,289) | |
Net cash used in investing activities | (1,304,620) | | | (791,137) | |
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Cash flows from financing activities: | | | |
Net (decrease) increase in noninterest-bearing deposits | (486,082) | | | 1,786,655 | |
Net (decrease) increase in interest-bearing deposits | (1,286,780) | | | 1,458,939 | |
Net increase (decrease) in borrowings | 991,000 | | | (35,460) | |
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Common stock repurchased and restricted stock surrendered | (4,481) | | | (1,908) | |
Cash dividends paid | (29,796) | | | (29,587) | |
Net cash (used in) provided by financing activities | (816,139) | | | 3,178,639 | |
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Net (decrease) increase in cash, cash equivalents, and restricted cash | (1,986,553) | | | 2,534,205 | |
Cash, cash equivalents, and restricted cash, beginning of period | 4,057,234 | | | 3,160,661 | |
Cash, cash equivalents, and restricted cash, end of period | $ | 2,070,681 | | | $ | 5,694,866 | |
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See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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| Three Months Ended |
| March 31, |
| 2022 | | 2021 |
| (Unaudited) |
| (In thousands) |
Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | 10,635 | | | $ | 12,421 | |
Cash paid for income taxes | 2,138 | | | 2,706 | |
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Loans transferred to foreclosed assets | 304 | | | 647 | |
Transfers from loans held for investment to loans held for sale | — | | | 25,554 | |
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Effective February 1, 2021, the Company acquired Civic | | | |
in a transaction summarized as follows: | | | |
Fair value of assets acquired | | | $ | 308,019 | |
Cash paid | | | (159,237) | |
Liabilities assumed | | | $ | 148,782 | |
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See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1. ORGANIZATION
PacWest Bancorp, a Delaware corporation, is a bank holding company registered under the BHCA, with our corporate headquarters located in Beverly Hills, California. Our principal business is to serve as the holding company for our wholly-owned subsidiary, Pacific Western Bank. References to "Pacific Western" or the "Bank" refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to "we," "us," or the "Company" refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to "PacWest" or to the "holding company," we are referring to PacWest Bancorp, the parent company, on a stand-alone basis.
We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 69 full-service branches located in California, one branch located in Durham, North Carolina, one branch located in Denver, Colorado, and numerous loan production offices across the country. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank provides venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. The Bank also offers financing of business-purpose, non-owner-occupied investor properties through Civic, a wholly-owned subsidiary. The Bank also provides a specialized suite of services for the HOA industry. In addition, we provide investment advisory and asset management services to select clients through Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and an SEC-registered investment adviser.
We generate our revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities, and fees received in connection with deposit services, extending credit and other services offered, including treasury management and investment management services. Our major operating expenses are interest paid by the Bank on deposits and borrowings, compensation, occupancy, and general operating expenses.
Significant Accounting Policies
Our accounting policies are described in Note 1. Nature of Operations and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission ("Form 10-K").
Accounting Standards Adopted in 2022
Effective January 1, 2022, the Company partially adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326),” specifically the amendment related to the vintage disclosures, which requires creditors that are public entities to disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20, “Financial Instruments – Credit Losses – Measured at Amortized Cost.” The amendment also eliminates the disclosure of gross recoveries by year of origination previously presented in Example 15 in ASC 326-20-50-79, since it is not required under the guidance in ASC 326-20-50-6. The Company updated the vintage table disclosure in Note 4. Loans and Leases to present only current-period gross charge-offs by year of origination. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.
Basis of Presentation
Our interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Use of Estimates
We have made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses (the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments), the carrying value of goodwill and other intangible assets, and the realization of deferred tax assets. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s presentation format. On the consolidated statements of earnings, new lines are presented for "Dividends and gains (losses) on equity investments" and "Warrant income," as those categories exceeded the disclosure materiality threshold in the fourth quarter of 2021, which previously had been included as part of "Other income."
NOTE 2. RESTRICTED CASH BALANCES
The FRBSF establishes cash reserve requirements that its member banks must maintain based on a percentage of deposit liabilities. There were no average reserves required to be held at the FRBSF for the three months ended March 31, 2022 and 2021. As of March 31, 2022 and December 31, 2021, we pledged cash collateral for our derivative contracts of $2.0 million.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 3. INVESTMENT SECURITIES
Securities Available-for-Sale
The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:
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| March 31, 2022 | | December 31, 2021 |
| | | Gross | | Gross | | | | | | Gross | | Gross | | |
| Amortized | | Unrealized | | Unrealized | | Fair | | Amortized | | Unrealized | | Unrealized | | Fair |
Security Type | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value |
| (In thousands) |
Agency residential MBS | $ | 2,982,056 | | | $ | 3,461 | | | $ | (196,703) | | | $ | 2,788,814 | | | $ | 2,921,993 | | | $ | 8,866 | | | $ | (32,649) | | | $ | 2,898,210 | |
Municipal securities | 2,234,457 | | | 15,158 | | | (124,454) | | | 2,125,161 | | | 2,248,749 | | | 75,192 | | | (7,973) | | | 2,315,968 | |
Agency commercial MBS | 1,627,516 | | | 3,968 | | | (69,147) | | | 1,562,337 | | | 1,660,516 | | | 37,664 | | | (9,213) | | | 1,688,967 | |
Agency residential CMOs | 962,218 | | | 2,181 | | | (23,685) | | | 940,714 | | | 1,021,716 | | | 22,288 | | | (5,870) | | | 1,038,134 | |
U.S. Treasury securities | 973,803 | | | 57 | | | (66,117) | | | 907,743 | | | 973,555 | | | 1,641 | | | (8,298) | | | 966,898 | |
Corporate debt securities | 513,981 | | | 2,619 | | | (7,444) | | | 509,156 | | | 514,077 | | | 13,774 | | | (757) | | | 527,094 | |
Private label commercial MBS | 439,909 | | | — | | | (38,617) | | | 401,292 | | | 453,314 | | | 147 | | | (3,244) | | | 450,217 | |
Collateralized loan obligations | 365,355 | | | 236 | | | (1,785) | | | 363,806 | | | 385,410 | | | 396 | | | (444) | | | 385,362 | |
Private label residential CMOs | 256,274 | | | 88 | | | (18,202) | | | 238,160 | | | 265,851 | | | 1,857 | | | (3,291) | | | 264,417 | |
Asset-backed securities | 112,875 | | | 375 | | | (373) | | | 112,877 | | | 129,387 | | | 484 | | | (324) | | | 129,547 | |
SBA securities | 25,655 | | | — | | | (606) | | | 25,049 | | | 28,950 | | | 726 | | | (32) | | | 29,644 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total | $ | 10,494,099 | | | $ | 28,143 | | | $ | (547,133) | | | $ | 9,975,109 | | | $ | 10,603,518 | | | $ | 163,035 | | | $ | (72,095) | | | $ | 10,694,458 | |
As of March 31, 2022, the Company had not recorded an allowance for credit losses on securities available-for-sale. The Company does not consider unrealized losses on such securities to be attributable to credit-related factors, as the unrealized losses have occurred as a result of changes in non-credit related factors such as interest rates, market spreads, and market conditions subsequent to purchase.
As of March 31, 2022, securities available-for-sale with a fair value of $558.0 million were pledged as collateral for public deposits and other purposes as required by various statutes and agreements.
Realized Gains and Losses on Securities Available-for-Sale
The following table presents the amortized cost of securities sold with related gross realized gains, gross realized losses, and net realized gains for the years indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
Sales of Securities Available-for-Sale | 2022 | | 2021 | | | | |
| (In thousands) |
Amortized cost of securities sold | $ | 206,088 | | | $ | 44,551 | | | | | |
| | | | | | | |
Gross realized gains | $ | 1,190 | | | $ | 101 | | | | | |
Gross realized losses | (1,086) | | | — | | | | | |
Net realized gains | $ | 104 | | | $ | 101 | | | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Unrealized Losses on Securities Available-for-Sale
The following tables present the gross unrealized losses and fair values of securities available-for-sale that were in unrealized loss positions as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Less Than 12 Months | | 12 Months or More | | Total |
| | | Gross | | | | Gross | | | | Gross |
| Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
Security Type | Value | | Losses | | Value | | Losses | | Value | | Losses |
| (In thousands) |
Agency residential MBS | $ | 2,559,148 | | | $ | (189,302) | | | $ | 98,722 | | | $ | (7,401) | | | $ | 2,657,870 | | | $ | (196,703) | |
Municipal securities | 1,584,374 | | | (120,665) | | | 31,483 | | | (3,789) | | | 1,615,857 | | | (124,454) | |
Agency commercial MBS | 993,615 | | | (57,209) | | | 102,398 | | | (11,938) | | | 1,096,013 | | | (69,147) | |
Agency residential CMOs | 441,966 | | | (14,558) | | | 96,639 | | | (9,127) | | | 538,605 | | | (23,685) | |
U.S. Treasury securities | 902,691 | | | (66,117) | | | — | | | — | | | 902,691 | | | (66,117) | |
Corporate debt securities | 276,481 | | | (7,444) | | | — | | | — | | | 276,481 | | | (7,444) | |
Private label commercial MBS | 390,858 | | | (38,033) | | | 10,433 | | | (584) | | | 401,291 | | | (38,617) | |
Collateralized loan obligations | 189,361 | | | (1,036) | | | 78,503 | | | (749) | | | 267,864 | | | (1,785) | |
Private label residential CMOs | 214,766 | | | (18,202) | | | — | | | — | | | 214,766 | | | (18,202) | |
Asset-backed securities | 51,934 | | | (373) | | | — | | | — | | | 51,934 | | | (373) | |
SBA securities | 23,249 | | | (531) | | | 1,800 | | | (75) | | | 25,049 | | | (606) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 7,628,443 | | | $ | (513,470) | | | $ | 419,978 | | | $ | (33,663) | | | $ | 8,048,421 | | | $ | (547,133) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Less Than 12 Months | | 12 Months or More | | Total |
| | | Gross | | | | Gross | | | | Gross |
| Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
Security Type | Value | | Losses | | Value | | Losses | | Value | | Losses |
| (In thousands) |
Agency residential MBS | $ | 2,502,536 | | | $ | (31,670) | | | $ | 57,329 | | | $ | (979) | | | $ | 2,559,865 | | | $ | (32,649) | |
Municipal securities | 505,080 | | | (6,965) | | | 29,726 | | | (1,008) | | | 534,806 | | | (7,973) | |
Agency commercial MBS | 440,938 | | | (5,066) | | | 106,745 | | | (4,147) | | | 547,683 | | | (9,213) | |
Agency residential CMOs | 216,445 | | | (3,757) | | | 67,340 | | | (2,113) | | | 283,785 | | | (5,870) | |
U.S. Treasury securities | 628,767 | | | (8,298) | | | — | | | — | | | 628,767 | | | (8,298) | |
Corporate debt securities | 32,761 | | | (757) | | | — | | | — | | | 32,761 | | | (757) | |
Private label commercial MBS | 397,619 | | | (3,244) | | | — | | | — | | | 397,619 | | | (3,244) | |
Collateralized loan obligations | 137,619 | | | (374) | | | 43,730 | | | (70) | | | 181,349 | | | (444) | |
Private label residential CMOs | 201,988 | | | (3,291) | | | — | | | — | | | 201,988 | | | (3,291) | |
Asset-backed securities | 38,742 | | | (137) | | | 15,762 | | | (187) | | | 54,504 | | | (324) | |
SBA securities | — | | | — | | | 1,864 | | | (32) | | | 1,864 | | | (32) | |
Total | $ | 5,102,495 | | | $ | (63,559) | | | $ | 322,496 | | | $ | (8,536) | | | $ | 5,424,991 | | | $ | (72,095) | |
The securities that were in an unrealized loss position at March 31, 2022, were considered impaired and required further review to determine if the unrealized losses were credit-related. We concluded the unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. We also considered the seniority of the tranches and U.S. government agency guarantees, if any, to assess whether an unrealized loss was credit-related. Accordingly, we determined the unrealized losses were not credit-related and recognized the unrealized losses in "other comprehensive income (loss)" in stockholders' equity. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any impaired securities before recovery of their amortized cost.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Contractual Maturities of Securities Available-for-Sale
The following table presents the contractual maturities of our securities available-for-sale portfolio based on amortized cost and carrying value as of the date indicated:
| | | | | | | | | | | |
| March 31, 2022 |
| Amortized | | Fair |
Maturities | Cost | | Value |
| (In thousands) |
Due in one year or less | $ | 43,600 | | | $ | 43,705 | |
Due after one year through five years | 667,668 | | | 670,477 | |
Due after five years through ten years | 3,547,627 | | | 3,354,275 | |
Due after ten years | 6,235,204 | | | 5,906,652 | |
Total securities available-for-sale | $ | 10,494,099 | | | $ | 9,975,109 | |
CMBS, CMOs, and MBS have contractual maturity dates, but require periodic payments based upon scheduled amortization terms. Actual principal collections on these securities usually occur more rapidly than the scheduled amortization terms because of prepayments made by obligors of the underlying loan collateral.
Interest Income on Investment Securities
The following table presents the composition of our interest income on investment securities for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| (In thousands) |
Taxable interest | $ | 44,642 | | | $ | 21,970 | | | | | |
Non-taxable interest | 8,519 | | | 8,078 | | | | | |
Dividend income | 261 | | | 217 | | | | | |
Total interest income on investment securities | $ | 53,422 | | | $ | 30,265 | | | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 4. LOANS AND LEASES
Our loans are carried at the principal amount outstanding, net of deferred fees and costs, and in the case of acquired and purchased loans, net of purchase discounts and premiums. Deferred fees and costs and purchase discounts and premiums on acquired loans are recognized as an adjustment to interest income over the contractual life of the loans primarily using the effective interest method or taken into income when the related loans are paid off or included in the carrying amount of loans that are sold.
Loans and Leases Held for Investment
The following table summarizes the composition of our loans and leases held for investment as of the dates indicated:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (In thousands) |
Real estate mortgage | $ | 12,052,868 | | | $ | 11,189,278 | |
Real estate construction and land | 3,748,539 | | | 3,491,340 | |
Commercial | 8,133,779 | | | 7,888,068 | |
Consumer | 504,563 | | | 457,622 | |
Total gross loans and leases held for investment | 24,439,749 | | | 23,026,308 | |
Deferred fees, net | (87,677) | | | (84,760) | |
Total loans and leases held for investment, net of deferred fees | 24,352,072 | | | 22,941,548 | |
Allowance for loan and lease losses | (197,398) | | | (200,564) | |
Total loans and leases held for investment, net (1) | $ | 24,154,674 | | | $ | 22,740,984 | |
____________________
(1) Excludes accrued interest receivable of $82.7 million and $80.3 million at March 31, 2022 and December 31, 2021, respectively, which is recorded in "Other assets" on the condensed consolidated balance sheets.
The following tables present an aging analysis of our loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| 30 - 89 | | 90 or More | | | | | | |
| Days | | Days | | Total | | | | |
| Past Due | | Past Due | | Past Due | | Current | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | |
Commercial | $ | 3,777 | | | $ | 2,323 | | | $ | 6,100 | | | $ | 3,663,641 | | | $ | 3,669,741 | |
Residential | 36,703 | | | 8,547 | | | 45,250 | | | 8,324,300 | | | 8,369,550 | |
Total real estate mortgage | 40,480 | | | 10,870 | | | 51,350 | | | 11,987,941 | | | 12,039,291 | |
Real estate construction and land: | | | | | | | | | |
Commercial | — | | | — | | | — | | | 802,022 | | | 802,022 | |
Residential | 21,413 | | | 5,818 | | | 27,231 | | | 2,864,236 | | | 2,891,467 | |
Total real estate construction and land | 21,413 | | | 5,818 | | | 27,231 | | | 3,666,258 | | | 3,693,489 | |
Commercial: | | | | | | | | | |
Asset-based | — | | | 449 | | | 449 | | | 4,738,771 | | | 4,739,220 | |
Venture capital | — | | | — | | | — | | | 2,077,339 | | | 2,077,339 | |
Other commercial | 167 | | | 549 | | | 716 | | | 1,297,420 | | | 1,298,136 | |
Total commercial | 167 | | | 998 | | | 1,165 | | | 8,113,530 | | | 8,114,695 | |
Consumer | 995 | | | 369 | | | 1,364 | | | 503,233 | | | 504,597 | |
Total | $ | 63,055 | | | $ | 18,055 | | | $ | 81,110 | | | $ | 24,270,962 | | | $ | 24,352,072 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| 30 - 89 | | 90 or More | | | | | | |
| Days | | Days | | Total | | | | |
| Past Due | | Past Due | | Past Due | | Current | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | |
Commercial | $ | 5,307 | | | $ | 2,236 | | | $ | 7,543 | | | $ | 3,754,756 | | | $ | 3,762,299 | |
Residential | 40,505 | | | 9,666 | | | 50,171 | | | 7,366,250 | | | 7,416,421 | |
Total real estate mortgage | 45,812 | | | 11,902 | | | 57,714 | | | 11,121,006 | | | 11,178,720 | |
Real estate construction and land: | | | | | | | | | |
Commercial | — | | | — | | | — | | | 832,591 | | | 832,591 | |
Residential | 7,271 | | | 2,223 | | | 9,494 | | | 2,595,042 | | | 2,604,536 | |
Total real estate construction and land | 7,271 | | | 2,223 | | | 9,494 | | | 3,427,633 | | | 3,437,127 | |
Commercial: | | | | | | | | | |
Asset-based | — | | | 464 | | | 464 | | | 4,075,013 | | | 4,075,477 | |
Venture capital | — | | | — | | | — | | | 2,320,593 | | | 2,320,593 | |
Other commercial | 955 | | | 3,601 | | | 4,556 | | | 1,467,425 | | | 1,471,981 | |
Total commercial | 955 | | | 4,065 | | | 5,020 | | | 7,863,031 | | | 7,868,051 | |
Consumer | 1,004 | | | 276 | | | 1,280 | | | 456,370 | | | 457,650 | |
Total | $ | 55,042 | | | $ | 18,466 | | | $ | 73,508 | | | $ | 22,868,040 | | | $ | 22,941,548 | |
It is our policy to discontinue accruing interest when principal or interest payments are past due 90 days or more (unless the loan is both well secured and in the process of collection) or when, in the opinion of management, there is a reasonable doubt as to the collectability of a loan or lease in the normal course of business. Interest income on nonaccrual loans is recognized only to the extent cash is received and the principal balance of the loan is deemed collectable.
The following table presents our nonaccrual and performing loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Nonaccrual | | Performing | | Total | | Nonaccrual | | Performing | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | | | |
Commercial | $ | 32,071 | | | $ | 3,637,670 | | | $ | 3,669,741 | | | $ | 27,540 | | | $ | 3,734,759 | | | $ | 3,762,299 | |
Residential | 17,463 | | | 8,352,087 | | | 8,369,550 | | | 12,292 | | | 7,404,129 | | | 7,416,421 | |
Total real estate mortgage | 49,534 | | | 11,989,757 | | | 12,039,291 | | | 39,832 | | | 11,138,888 | | | 11,178,720 | |
Real estate construction and land: | | | | | | | | | | | |
Commercial | — | | | 802,022 | | | 802,022 | | | — | | | 832,591 | | | 832,591 | |
Residential | 6,215 | | | 2,885,252 | | | 2,891,467 | | | 4,715 | | | 2,599,821 | | | 2,604,536 | |
Total real estate construction and land | 6,215 | | | 3,687,274 | | | 3,693,489 | | | 4,715 | | | 3,432,412 | | | 3,437,127 | |
Commercial: | | | | | | | | | | | |
Asset-based | 1,323 | | | 4,737,897 | | | 4,739,220 | | | 1,464 | | | 4,074,013 | | | 4,075,477 | |
Venture capital | 3,659 | | | 2,073,680 | | | 2,077,339 | | | 2,799 | | | 2,317,794 | | | 2,320,593 | |
Other commercial | 5,420 | | | 1,292,716 | | | 1,298,136 | | | 11,950 | | | 1,460,031 | | | 1,471,981 | |
Total commercial | 10,402 | | | 8,104,293 | | | 8,114,695 | | | 16,213 | | | 7,851,838 | | | 7,868,051 | |
Consumer | 387 | | | 504,210 | | | 504,597 | | | 414 | | | 457,236 | | | 457,650 | |
Total | $ | 66,538 | | | $ | 24,285,534 | | | $ | 24,352,072 | | | $ | 61,174 | | | $ | 22,880,374 | | | $ | 22,941,548 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
At March 31, 2022, nonaccrual loans and leases included $18.1 million of loans and leases 90 or more days past due, $7.4 million of loans and leases 30 to 89 days past due, and $41.1 million of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. At December 31, 2021, nonaccrual loans and leases included $18.5 million of loans and leases 90 or more days past due, $6.3 million of loans and leases 30 to 89 days past due, and $36.4 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.
As of March 31, 2022, our three largest loan relationships on nonaccrual status had an aggregate carrying value of $21.6 million and represented 32% of total nonaccrual loans and leases.
The following tables present the credit risk rating categories for loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated. Classified loans and leases are those with a credit risk rating of either substandard or doubtful.
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Classified | | Special Mention | | Pass | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | |
Commercial | $ | 35,463 | | | $ | 168,240 | | | $ | 3,466,038 | | | $ | 3,669,741 | |
Residential | 22,844 | | | 13,450 | | | 8,333,256 | | | 8,369,550 | |
Total real estate mortgage | 58,307 | | | 181,690 | | | 11,799,294 | | | 12,039,291 | |
Real estate construction and land: | | | | | | | |
Commercial | — | | | 68,864 | | | 733,158 | | | 802,022 | |
Residential | 6,215 | | | 15,780 | | | 2,869,472 | | | 2,891,467 | |
Total real estate construction and land | 6,215 | | | 84,644 | | | 3,602,630 | | | 3,693,489 | |
Commercial: | | | | | | | |
Asset-based | 4,449 | | | 60,367 | | | 4,674,404 | | | 4,739,220 | |
Venture capital | 3,722 | | | 37,083 | | | 2,036,534 | | | 2,077,339 | |
Other commercial | 8,911 | | | 10,914 | | | 1,278,311 | | | 1,298,136 | |
Total commercial | 17,082 | | | 108,364 | | | 7,989,249 | | | 8,114,695 | |
Consumer | 464 | | | 2,617 | | | 501,516 | | | 504,597 | |
Total | $ | 82,068 | | | $ | 377,315 | | | $ | 23,892,689 | | | $ | 24,352,072 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Classified | | Special Mention | | Pass | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | |
Commercial | $ | 62,206 | | | $ | 191,809 | | | $ | 3,508,284 | | | $ | 3,762,299 | |
Residential | 17,700 | | | 19,848 | | | 7,378,873 | | | 7,416,421 | |
Total real estate mortgage | 79,906 | | | 211,657 | | | 10,887,157 | | | 11,178,720 | |
Real estate construction and land: | | | | | | | |
Commercial | — | | | 67,727 | | | 764,864 | | | 832,591 | |
Residential | 4,715 | | | 1,720 | | | 2,598,101 | | | 2,604,536 | |
Total real estate construction and land | 4,715 | | | 69,447 | | | 3,362,965 | | | 3,437,127 | |
Commercial: | | | | | | | |
Asset-based | 4,591 | | | 78,305 | | | 3,992,581 | | | 4,075,477 | |
Venture capital | 4,794 | | | 14,833 | | | 2,300,966 | | | 2,320,593 | |
Other commercial | 21,659 | | | 15,528 | | | 1,434,794 | | | 1,471,981 | |
Total commercial | 31,044 | | | 108,666 | | | 7,728,341 | | | 7,868,051 | |
Consumer | 439 | | | 1,841 | | | 455,370 | | | 457,650 | |
Total | $ | 116,104 | | | $ | 391,611 | | | $ | 22,433,833 | | | $ | 22,941,548 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents our nonaccrual loans and leases by loan portfolio segment and class and by with and without an allowance recorded as of the date indicated and interest income recognized on nonaccrual loans and leases for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months | | | | | | Three Months | | |
| | | Ended | | | | | | Ended | | |
| March 31, | | March 31, | | | | March 31, | | March 31, | | |
| 2022 | | 2022 | | | | 2021 | | 2021 | | |
| Nonaccrual | | Interest | | | | Nonaccrual | | Interest | | |
| Recorded | | Income | | | | Recorded | | Income | | |
| Investment | | Recognized | | | | Investment | | Recognized | | |
| (In thousands) |
With An Allowance Recorded: | | | | | | | | | | | |
Real estate mortgage: | | | | | | | | | | | |
Commercial | $ | 68 | | | $ | — | | | | | $ | 76 | | | $ | — | | | |
Residential | 4,003 | | | — | | | | | 1,883 | | | — | | | |
Real estate construction and land: | | | | | | | | | | | |
Commercial | — | | | — | | | | | — | | | — | | | |
Residential | 600 | | | — | | | | | 116 | | | — | | | |
Commercial: | | | | | | | | | | | |
Asset based | 874 | | | — | | | | | 1,880 | | | — | | | |
Venture capital | 3,659 | | | — | | | | | 2,432 | | | — | | | |
Other commercial | 1,274 | | | — | | | | | 1,655 | | | — | | | |
Consumer | 387 | | | — | | | | | 556 | | | — | | | |
With No Related Allowance Recorded: | | | | | | | | | | | |
Real estate mortgage: | | | | | | | | | | | |
Commercial | $ | 32,003 | | | $ | 17 | | | | | $ | 46,360 | | | $ | 287 | | | |
Residential | 13,460 | | | — | | | | | 588 | | | — | | | |
Real estate construction and land: | | | | | | | | | | | |
Commercial | — | | | — | | | | | 302 | | | — | | | |
Residential | 5,615 | | | — | | | | | 300 | | | — | | | |
Commercial: | | | | | | | | | | | |
Asset based | 449 | | | — | | | | | 500 | | | — | | | |
Venture capital | — | | | — | | | | | — | | | — | | | |
Other commercial | 4,146 | | | 354 | | | | | 11,004 | | | 1,830 | | | |
Consumer | — | | | — | | | | | — | | | — | | | |
Total Loans and Leases With and | | | | | | | | | | | |
Without an Allowance Recorded: | | | | | | | | | | | |
Real estate mortgage | $ | 49,534 | | | $ | 17 | | | | | $ | 48,907 | | | $ | 287 | | | |
Real estate construction and land | 6,215 | | | — | | | | | 718 | | | — | | | |
Commercial | 10,402 | | | 354 | | | | | 17,471 | | | 1,830 | | | |
Consumer | 387 | | | — | | | | | 556 | | | — | | | |
Total | $ | 66,538 | | | $ | 371 | | | | | $ | 67,652 | | | $ | 2,117 | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables present our loans held for investment by loan portfolio segment and class, by credit quality indicator (internal risk ratings), and by year of origination (vintage year) as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Revolving | | |
| | | | | | | | | | | | | | | Converted | | |
Amortized Cost Basis (1) | Term Loans by Origination Year | | Revolving | | to Term | | |
March 31, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 3,047 | | | $ | 9,084 | | | $ | 33,387 | | | $ | 5,171 | | | $ | 36,008 | | | $ | 27,646 | | | $ | — | | | $ | 114,343 | |
3-4 Pass | 81,116 | | | 497,356 | | | 544,479 | | | 307,947 | | | 500,197 | | | 1,332,409 | | | 77,592 | | | 10,599 | | | 3,351,695 | |
5 Special mention | — | | | — | | | 4,783 | | | 73,552 | | | 50,681 | | | 39,224 | | | — | | | — | | | 168,240 | |
6-8 Classified | — | | | — | | | 482 | | | 2,158 | | | 14,404 | | | 18,419 | | | — | | | — | | | 35,463 | |
Total | $ | 81,116 | | | $ | 500,403 | | | $ | 558,828 | | | $ | 417,044 | | | $ | 570,453 | | | $ | 1,426,060 | | | $ | 105,238 | | | $ | 10,599 | | | $ | 3,669,741 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 168 | | | $ | — | | | $ | — | | | $ | 168 | |
| | | | | | | | | | | | | | | | | |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Residential | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 94,641 | | | $ | 23,097 | | | $ | 52,848 | | | $ | 50,593 | | | $ | 45,650 | | | $ | 1,000 | | | $ | — | | | $ | 267,829 | |
3-4 Pass | 1,346,363 | | | 4,241,531 | | | 559,766 | | | 559,016 | | | 531,570 | | | 686,935 | | | 140,148 | | | 98 | | | 8,065,427 | |
5 Special mention | — | | | — | | | 315 | | | 13,007 | | | — | | | 128 | | | — | | | — | | | 13,450 | |
6-8 Classified | — | | | 9,751 | | | 6,695 | | | — | | | 2,791 | | | 3,370 | | | — | | | 237 | | | 22,844 | |
Total | $ | 1,346,363 | | | $ | 4,345,923 | | | $ | 589,873 | | | $ | 624,871 | | | $ | 584,954 | | | $ | 736,083 | | | $ | 141,148 | | | $ | 335 | | | $ | 8,369,550 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Real Estate Construction | | | | | | | | | | | | | | | | | |
and Land: Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
3-4 Pass | 22,136 | | | 105,608 | | | 93,720 | | | 341,314 | | | 155,658 | | | 14,722 | | | — | | | — | | | 733,158 | |
5 Special mention | — | | | — | | | — | | | — | | | — | | | 68,864 | | | — | | | — | | | 68,864 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 22,136 | | | $ | 105,608 | | | $ | 93,720 | | | $ | 341,314 | | | $ | 155,658 | | | $ | 83,586 | | | $ | — | | | $ | — | | | $ | 802,022 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Revolving | | |
| | | | | | | | | | | | | | | Converted | | |
Amortized Cost Basis (1) | Term Loans by Origination Year | | Revolving | | to Term | | |
March 31, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Real Estate Construction | | | | | | | | | | | | | | | | | |
and Land: Residential | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
3-4 Pass | 182,292 | | | 872,932 | | | 789,164 | | | 807,854 | | | 169,889 | | | 15,040 | | | 21,516 | | | 10,785 | | | 2,869,472 | |
5 Special mention | 14,796 | | | — | | | 984 | | | — | | | — | | | — | | | — | | | — | | | 15,780 | |
6-8 Classified | (356) | | | 799 | | | 4,925 | | | 588 | | | — | | | 259 | | | — | | | — | | | 6,215 | |
Total | $ | 196,732 | | | $ | 873,731 | | | $ | 795,073 | | | $ | 808,442 | | | $ | 169,889 | | | $ | 15,299 | | | $ | 21,516 | | | $ | 10,785 | | | $ | 2,891,467 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Commercial: Asset-Based | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 68,608 | | | $ | 151,162 | | | $ | 57,290 | | | $ | 187,578 | | | $ | 127,761 | | | $ | 248,433 | | | $ | 781,457 | | | $ | 25,004 | | | $ | 1,647,293 | |
3-4 Pass | 255,030 | | | 243,085 | | | 69,827 | | | 57,963 | | | 41,262 | | | 39,438 | | | 2,320,506 | | | — | | | 3,027,111 | |
5 Special mention | — | | | — | | | — | | | 33,826 | | | 11,118 | | | 3,857 | | | 11,566 | | | — | | | 60,367 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | (451) | | | 4,026 | | | 874 | | | 4,449 | |
Total | $ | 323,638 | | | $ | 394,247 | | | $ | 127,117 | | | $ | 279,367 | | | $ | 180,141 | | | $ | 291,277 | | | $ | 3,117,555 | | | $ | 25,878 | | | $ | 4,739,220 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Commercial: Venture | | | | | | | | | | | | | | | | | |
Capital | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | (17) | | | $ | — | | | $ | 1,999 | | | $ | — | | | $ | — | | | $ | 6 | | | $ | 137,784 | | | $ | — | | | $ | 139,772 | |
3-4 Pass | 14,765 | | | 165,342 | | | 44,015 | | | 41,113 | | | 5,745 | | | 5,155 | | | 1,617,921 | | | 2,706 | | | 1,896,762 | |
5 Special mention | — | | | 26,956 | | | 2,445 | | | 4,538 | | | — | | | 1,481 | | | 1,663 | | | — | | | 37,083 | |
6-8 Classified | — | | | 492 | | | — | | | — | | | 1,500 | | | — | | | 63 | | | 1,667 | | | 3,722 | |
Total | $ | 14,748 | | | $ | 192,790 | | | $ | 48,459 | | | $ | 45,651 | | | $ | 7,245 | | | $ | 6,642 | | | $ | 1,757,431 | | | $ | 4,373 | | | $ | 2,077,339 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
____________________
(1) Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Revolving | | |
| | | | | | | | | | | | | | | Converted | | |
Amortized Cost Basis (1) | Term Loans by Origination Year | | Revolving | | to Term | | |
March 31, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Commercial: Other | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 62,070 | | | $ | 9,051 | | | $ | 240 | | | $ | 4 | | | $ | 246 | | | $ | 20,646 | | | $ | — | | | $ | 92,257 | |
3-4 Pass | 23,414 | | | 301,454 | | | 71,590 | | | 49,401 | | | 55,452 | | | 117,879 | | | 558,276 | | | 8,588 | | | 1,186,054 | |
5 Special mention | — | | | — | | | — | | | — | | | 1,564 | | | 9,204 | | | 47 | | | 99 | | | 10,914 | |
6-8 Classified | — | | | 2 | | | 1 | | | 376 | | | (3) | | | 3,369 | | | 3,994 | | | 1,172 | | | 8,911 | |
Total | $ | 23,414 | | | $ | 363,526 | | | $ | 80,642 | | | $ | 50,017 | | | $ | 57,017 | | | $ | 130,698 | | | $ | 582,963 | | | $ | 9,859 | | | $ | 1,298,136 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,010 | | | $ | 1,775 | | | $ | 48 | | | $ | 2,833 | |
| | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 35 | | | $ | 10 | | | $ | — | | | $ | 4 | | | $ | 1 | | | $ | 626 | | | $ | — | | | $ | 676 | |
3-4 Pass | 86,309 | | | 243,928 | | | 21,440 | | | 65,561 | | | 31,735 | | | 47,998 | | | 3,869 | | | — | | | 500,840 | |
5 Special mention | 145 | | | 1,496 | | | 51 | | | 519 | | | — | | | 406 | | | — | | | — | | | 2,617 | |
6-8 Classified | — | | | 170 | | | — | | | 199 | | | — | | | 76 | | | 1 | | | 18 | | | 464 | |
Total | $ | 86,454 | | | $ | 245,629 | | | $ | 21,501 | | | $ | 66,279 | | | $ | 31,739 | | | $ | 48,481 | | | $ | 4,496 | | | $ | 18 | | | $ | 504,597 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | 22 | | | $ | 120 | | | $ | — | | | $ | 91 | | | $ | — | | | $ | — | | | $ | 233 | |
| | | | | | | | | | | | | | | | | |
Total Loans and Leases | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 68,591 | | | $ | 310,955 | | | $ | 100,531 | | | $ | 274,053 | | | $ | 183,533 | | | $ | 330,344 | | | $ | 969,159 | | | $ | 25,004 | | | $ | 2,262,170 | |
3-4 Pass | 2,011,425 | | | 6,671,236 | | | 2,194,001 | | | 2,230,169 | | | 1,491,508 | | | 2,259,576 | | | 4,739,828 | | | 32,776 | | | 21,630,519 | |
5 Special mention | 14,941 | | | 28,452 | | | 8,578 | | | 125,442 | | | 63,363 | | | 123,164 | | | 13,276 | | | 99 | | | 377,315 | |
6-8 Classified | (356) | | | 11,214 | | | 12,103 | | | 3,321 | | | 18,692 | | | 25,042 | | | 8,084 | | | 3,968 | | | 82,068 | |
Total | $ | 2,094,601 | | | $ | 7,021,857 | | | $ | 2,315,213 | | | $ | 2,632,985 | | | $ | 1,757,096 | | | $ | 2,738,126 | | | $ | 5,730,347 | | | $ | 61,847 | | | $ | 24,352,072 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | 22 | | | $ | 120 | | | $ | — | | | $ | 1,269 | | | $ | 1,775 | | | $ | 48 | | | $ | 3,234 | |
______________________
(1) Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Revolving | | |
| | | | | | | | | | | | | | | Converted | | |
Amortized Cost Basis (1) | Term Loans by Origination Year | | Revolving | | to Term | | |
December 31, 2021 | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 561 | | | $ | 9,148 | | | $ | 32,304 | | | $ | 8,289 | | | $ | 6,248 | | | $ | 33,493 | | | $ | 3 | | | $ | — | | | $ | 90,046 | |
3-4 Pass | 499,626 | | | 531,989 | | | 321,728 | | | 578,436 | | | 489,727 | | | 932,950 | | | 51,805 | | | 11,977 | | | 3,418,238 | |
5 Special mention | — | | | 4,811 | | | 63,381 | | | 76,372 | | | 6,533 | | | 40,712 | | | — | | | — | | | 191,809 | |
6-8 Classified | — | | | 488 | | | 17,037 | | | 5,340 | | | 6,278 | | | 33,063 | | | — | | | — | | | 62,206 | |
Total | $ | 500,187 | | | $ | 546,436 | | | $ | 434,450 | | | $ | 668,437 | | | $ | 508,786 | | | $ | 1,040,218 | | | $ | 51,808 | | | $ | 11,977 | | | $ | 3,762,299 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | 189 | | | $ | 168 | | | $ | 344 | | | $ | 264 | | | $ | — | | | $ | — | | | $ | 965 | |
Gross recoveries | — | | | — | | | — | | | — | | | (8) | | | (6,073) | | | — | | | — | | | (6,081) | |
Net | $ | — | | | $ | — | | | $ | 189 | | | $ | 168 | | | $ | 336 | | | $ | (5,809) | | | $ | — | | | $ | — | | | $ | (5,116) | |
| | | | | | | | | | | | | | | | | |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Residential | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 95,016 | | | $ | 29,339 | | | $ | 57,874 | | | $ | 47,688 | | | $ | 11,776 | | | $ | 16,703 | | | $ | 28,115 | | | $ | — | | | $ | 286,511 | |
3-4 Pass | 4,405,055 | | | 623,207 | | | 573,718 | | | 616,515 | | | 547,531 | | | 234,525 | | | 91,655 | | | 156 | | | 7,092,362 | |
5 Special mention | 2,871 | | | 3,810 | | | 13,007 | | | — | | | — | | | — | | | 160 | | | — | | | 19,848 | |
6-8 Classified | 5,161 | | | 5,217 | | | — | | | 3,323 | | | 304 | | | 3,424 | | | — | | | 271 | | | 17,700 | |
Total | $ | 4,508,103 | | | $ | 661,573 | | | $ | 644,599 | | | $ | 667,526 | | | $ | 559,611 | | | $ | 254,652 | | | $ | 119,930 | | | $ | 427 | | | $ | 7,416,421 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | 28 | | | $ | 80 | | | $ | — | | | $ | — | | | $ | — | | | $ | 55 | | | $ | — | | | $ | — | | | $ | 163 | |
Gross recoveries | (28) | | | — | | | — | | | — | | | — | | | (357) | | | — | | | (301) | | | (686) | |
Net | $ | — | | | $ | 80 | | | $ | — | | | $ | — | | | $ | — | | | $ | (302) | | | $ | — | | | $ | (301) | | | $ | (523) | |
| | | | | | | | | | | | | | | | | |
Real Estate Construction | | | | | | | | | | | | | | | | | |
and Land: Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
3-4 Pass | 96,108 | | | 96,448 | | | 386,832 | | | 152,444 | | | 720 | | | 14,122 | | | 18,190 | | | — | | | 764,864 | |
5 Special mention | — | | | — | | | — | | | — | | | 67,727 | | | — | | | — | | | — | | | 67,727 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 96,108 | | | $ | 96,448 | | | $ | 386,832 | | | $ | 152,444 | | | $ | 68,447 | | | $ | 14,122 | | | $ | 18,190 | | | $ | — | | | $ | 832,591 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | 775 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 775 | |
Gross recoveries | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net | $ | — | | | $ | — | | | $ | — | | | $ | 775 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 775 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Revolving | | |
| | | | | | | | | | | | | | | Converted | | |
Amortized Cost Basis (1) | Term Loans by Origination Year | | Revolving | | to Term | | |
December 31, 2021 | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Real Estate Construction | | | | | | | | | | | | | | | | | |
and Land: Residential | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
3-4 Pass | 849,188 | | | 672,864 | | | 851,127 | | | 163,950 | | | 17,526 | | | 3,970 | | | 28,804 | | | 10,672 | | | 2,598,101 | |
5 Special mention | 276 | | | 1,185 | | | — | | | — | | | 259 | | | — | | | — | | | — | | | 1,720 | |
6-8 Classified | 849 | | | 3,278 | | | 588 | | | — | | | — | | | — | | | — | | | — | | | 4,715 | |
Total | $ | 850,313 | | | $ | 677,327 | | | $ | 851,715 | | | $ | 163,950 | | | $ | 17,785 | | | $ | 3,970 | | | $ | 28,804 | | | $ | 10,672 | | | $ | 2,604,536 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | 7 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 7 | |
Gross recoveries | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Net | $ | 7 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 7 | |
| | | | | | | | | | | | | | | | | |
Commercial: Asset-Based | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 138,836 | | | $ | 72,725 | | | $ | 178,291 | | | $ | 123,947 | | | $ | 71,940 | | | $ | 188,411 | | | $ | 706,656 | | | $ | 50,495 | | | $ | 1,531,301 | |
3-4 Pass | 242,209 | | | 71,930 | | | 59,748 | | | 45,375 | | | 8,350 | | | 34,833 | | | 1,992,677 | | | 6,158 | | | 2,461,280 | |
5 Special mention | — | | | — | | | 48,796 | | | 13,138 | | | — | | | — | | | 12,393 | | | 3,978 | | | 78,305 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | 464 | | | 4,027 | | | 100 | | | 4,591 | |
Total | $ | 381,045 | | | $ | 144,655 | | | $ | 286,835 | | | $ | 182,460 | | | $ | 80,290 | | | $ | 223,708 | | | $ | 2,715,753 | | | $ | 60,731 | | | $ | 4,075,477 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 232 | | | $ | 232 | |
Gross recoveries | — | | | — | | | — | | | — | | | — | | | (691) | | | (28) | | | — | | | (719) | |
Net | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (691) | | | $ | (28) | | | $ | 232 | | | $ | (487) | |
| | | | | | | | | | | | | | | | | |
Commercial: Venture | | | | | | | | | | | | | | | | | |
Capital | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 1,999 | | | $ | — | | | $ | — | | | $ | (4) | | | $ | 14 | | | $ | 228,820 | | | $ | — | | | $ | 230,829 | |
3-4 Pass | 229,567 | | | 58,283 | | | 46,007 | | | 7,241 | | | 1,614 | | | 4,166 | | | 1,715,057 | | | 8,202 | | | 2,070,137 | |
5 Special mention | 8,980 | | | 2,778 | | | 499 | | | — | | | — | | | 2,593 | | | (17) | | | — | | | 14,833 | |
6-8 Classified | 500 | | | — | | | — | | | 2,000 | | | — | | | — | | | (6) | | | 2,300 | | | 4,794 | |
Total | $ | 239,047 | | | $ | 63,060 | | | $ | 46,506 | | | $ | 9,241 | | | $ | 1,610 | | | $ | 6,773 | | | $ | 1,943,854 | | | $ | 10,502 | | | $ | 2,320,593 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 620 | | | $ | — | | | $ | — | | | $ | 620 | |
Gross recoveries | — | | | — | | | (127) | | | (37) | | | (158) | | | (82) | | | — | | | — | | | (404) | |
Net | $ | — | | | $ | — | | | $ | (127) | | | $ | (37) | | | $ | (158) | | | $ | 538 | | | $ | — | | | $ | — | | | $ | 216 | |
____________________
(1) Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Revolving | | |
| | | | | | | | | | | | | | | Converted | | |
Amortized Cost Basis (1) | Term Loans by Origination Year | | Revolving | | to Term | | |
December 31, 2021 | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Commercial: Other | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 134,825 | | | $ | 22,556 | | | $ | 261 | | | $ | 4 | | | $ | 246 | | | $ | (50) | | | $ | 18,206 | | | $ | 693 | | | $ | 176,741 | |
3-4 Pass | 286,281 | | | 73,328 | | | 77,487 | | | 67,591 | | | 46,939 | | | 89,408 | | | 607,197 | | | 9,822 | | | 1,258,053 | |
5 Special mention | — | | | 291 | | | 1 | | | 2,088 | | | 115 | | | 11,911 | | | 1,061 | | | 61 | | | 15,528 | |
6-8 Classified | 53 | | | 1 | | | 395 | | | (3) | | | 223 | | | 4,212 | | | 15,731 | | | 1,047 | | | 21,659 | |
Total | $ | 421,159 | | | $ | 96,176 | | | $ | 78,144 | | | $ | 69,680 | | | $ | 47,523 | | | $ | 105,481 | | | $ | 642,195 | | | $ | 11,623 | | | $ | 1,471,981 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | 1,992 | | | $ | — | | | $ | 122 | | | $ | 47 | | | $ | 139 | | | $ | 797 | | | $ | 985 | | | $ | 2,364 | | | $ | 6,446 | |
Gross recoveries | — | | | — | | | (42) | | | — | | | (268) | | | (4,076) | | | (57) | | | (145) | | | (4,588) | |
Net | $ | 1,992 | | | $ | — | | | $ | 80 | | | $ | 47 | | | $ | (129) | | | $ | (3,279) | | | $ | 928 | | | $ | 2,219 | | | $ | 1,858 | |
| | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 36 | | | $ | 11 | | | $ | — | | | $ | 5 | | | $ | 4 | | | $ | — | | | $ | 646 | | | $ | — | | | $ | 702 | |
3-4 Pass | 261,678 | | | 24,195 | | | 73,860 | | | 35,623 | | | 21,707 | | | 31,916 | | | 5,689 | | | — | | | 454,668 | |
5 Special mention | 797 | | | 363 | | | 496 | | | — | | | 50 | | | 135 | | | — | | | — | | | 1,841 | |
6-8 Classified | — | | | 22 | | | 123 | | | 111 | | | 21 | | | 143 | | | — | | | 19 | | | 439 | |
Total | $ | 262,511 | | | $ | 24,591 | | | $ | 74,479 | | | $ | 35,739 | | | $ | 21,782 | | | $ | 32,194 | | | $ | 6,335 | | | $ | 19 | | | $ | 457,650 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | 185 | | | $ | 654 | | | $ | 156 | | | $ | 270 | | | $ | 188 | | | $ | — | | | $ | 54 | | | $ | 1,507 | |
Gross recoveries | — | | | — | | | — | | | (27) | | | (13) | | | (79) | | | (1) | | | — | | | (120) | |
Net | $ | — | | | $ | 185 | | | $ | 654 | | | $ | 129 | | | $ | 257 | | | $ | 109 | | | $ | (1) | | | $ | 54 | | | $ | 1,387 | |
| | | | | | | | | | | | | | | | | |
Total Loans and Leases | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 369,274 | | | $ | 135,778 | | | $ | 268,730 | | | $ | 179,933 | | | $ | 90,210 | | | $ | 238,571 | | | $ | 982,446 | | | $ | 51,188 | | | $ | 2,316,130 | |
3-4 Pass | 6,869,712 | | | 2,152,244 | | | 2,390,507 | | | 1,667,175 | | | 1,134,114 | | | 1,345,890 | | | 4,511,074 | | | 46,987 | | | 20,117,703 | |
5 Special mention | 12,924 | | | 13,238 | | | 126,180 | | | 91,598 | | | 74,684 | | | 55,351 | | | 13,597 | | | 4,039 | | | 391,611 | |
6-8 Classified | 6,563 | | | 9,006 | | | 18,143 | | | 10,771 | | | 6,826 | | | 41,306 | | | 19,752 | | | 3,737 | | | 116,104 | |
Total | $ | 7,258,473 | | | $ | 2,310,266 | | | $ | 2,803,560 | | | $ | 1,949,477 | | | $ | 1,305,834 | | | $ | 1,681,118 | | | $ | 5,526,869 | | | $ | 105,951 | | | $ | 22,941,548 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | 2,027 | | | $ | 265 | | | $ | 965 | | | $ | 1,146 | | | $ | 753 | | | $ | 1,924 | | | $ | 985 | | | $ | 2,650 | | | $ | 10,715 | |
Gross recoveries | (28) | | | — | | | (169) | | | (64) | | | (447) | | | (11,358) | | | (86) | | | (446) | | | (12,598) | |
Net | $ | 1,999 | | | $ | 265 | | | $ | 796 | | | $ | 1,082 | | | $ | 306 | | | $ | (9,434) | | | $ | 899 | | | $ | 2,204 | | | $ | (1,883) | |
____________________
(1) Amounts with negative balances are loans with zero principal balances and deferred loan origination fees.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
TDRs are a result of rate reductions, term extensions, fee concessions, transfers to foreclosed assets, discounted loan payoffs, and debt forgiveness, or a combination thereof. The Company granted various commercial and consumer loan modifications to provide borrowers relief from the economic impacts of COVID-19. In accordance with the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, the Company elected to not apply TDR classification to COVID-19 related loan modifications that met all of the requisite criteria as stipulated in the CARES Act during its applicable period beginning on March 1, 2020 and ending on January 1, 2022. The following table presents our troubled debt restructurings of loans held for investment by loan portfolio segment and class for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| | | Pre- | | Post- | | | | Pre- | | Post- |
| | | Modification | | Modification | | | | Modification | | Modification |
| Number | | Outstanding | | Outstanding | | Number | | Outstanding | | Outstanding |
| of | | Recorded | | Recorded | | of | | Recorded | | Recorded |
Troubled Debt Restructurings | Loans | | Investment | | Investment | | Loans | | Investment | | Investment |
| (Dollars in thousands) |
Real estate mortgage: | | | | | | | | | | | |
Commercial | — | | | $ | — | | | $ | — | | | 1 | | | $ | 647 | | | $ | — | |
Residential | 1 | | | 304 | | | — | | | 2 | | | 266 | | | 266 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Commercial: | | | | | | | | | | | |
Asset-based | — | | | — | | | — | | | 1 | | | 503 | | | 503 | |
Venture capital | — | | | — | | | — | | | 3 | | | 4,502 | | | 2,529 | |
Other commercial | 13 | | | 1,074 | | | 1,074 | | | 12 | | | 32,250 | | | 14,276 | |
Consumer | — | | | — | | | — | | | 1 | | | 20 | | | 20 | |
Total | 14 | | | $ | 1,378 | | | $ | 1,074 | | | 20 | | | $ | 38,188 | | | $ | 17,594 | |
During the three months ended March 31, 2022, there were two other commercial loans for $78,000 restructured in the preceding 12-month period that subsequently defaulted. During the three months ended March 31, 2021, there was one residential real estate mortgage loan for $163,000 and one other commercial loan for $87,000 restructured in the preceding 12-month period that subsequently defaulted.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Leases Receivable
We provide equipment financing to our customers primarily with operating and direct financing leases. For direct financing leases, lease receivables are recorded on the balance sheet but the leased equipment is not, although we generally retain legal title to the leased equipment until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Direct financing leases are subject to our accounting for allowance for loan and lease losses. See Note 8. Leases for information regarding operating leases where we are the lessor.
The following table provides the components of leases receivable income for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| (In thousands) |
Component of leases receivable income: | | | | | | | |
Interest income on net investments in leases | $ | 2,388 | | | $ | 2,080 | | | | | |
The following table presents the components of leases receivable as of the dates indicated:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (In thousands) |
Net investment in direct financing leases: | | | |
Lease payments receivable | $ | 189,992 | | | $ | 190,025 | |
Unguaranteed residual assets | 22,146 | | | 21,487 | |
Deferred costs and other | 1,352 | | | 1,373 | |
Aggregate net investment in leases | $ | 213,490 | | | $ | 212,885 | |
| | | |
The following table presents maturities of leases receivable as of the date indicated:
| | | | | |
| March 31, 2022 |
| (In thousands) |
Period ending December 31, | |
2022 | $ | 43,028 | |
2023 | 49,649 | |
2024 | 45,301 | |
2025 | 29,371 | |
2026 | 18,268 | |
Thereafter | 26,760 | |
Total undiscounted cash flows | 212,377 | |
Less: Unearned income | (22,385) | |
Present value of lease payments | $ | 189,992 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for Loan and Lease Losses
The following tables present a summary of the activity in the allowance for loan and lease losses on loans and leases held for investment by loan portfolio segment for the periods indicated:
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| Three Months Ended March 31, 2022 |
| | | Real Estate | | | | | | |
| Real Estate | | Construction | | | | | | |
| Mortgage | | and Land | | Commercial | | Consumer | | Total |
| (In thousands) |
Allowance for Loan and Lease Losses: | | | | | | | | | |
Balance, beginning of period | $ | 98,053 | | | $ | 45,079 | | | $ | 48,718 | | | $ | 8,714 | | | $ | 200,564 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Charge-offs | (168) | | | — | | | (2,833) | | | (233) | | | (3,234) | |
Recoveries | 163 | | | 149 | | | 1,735 | | | 21 | | | 2,068 | |
Net (charge-offs) recoveries | (5) | | | 149 | | | (1,098) | | | (212) | | | (1,166) | |
Provision | (11,333) | | | (1,067) | | | 9,436 | | | 964 | | | (2,000) | |
Balance, end of period | $ | 86,715 | | | $ | 44,161 | | | $ | 57,056 | | | $ | 9,466 | | | $ | 197,398 | |
| | | | | | | | | |
Ending Allowance by | | | | | | | | | |
Evaluation Methodology: | | | | | | | | | |
Individually evaluated | $ | 156 | | | $ | — | | | $ | 1,023 | | | $ | — | | | $ | 1,179 | |
Collectively evaluated | $ | 86,559 | | | $ | 44,161 | | | $ | 56,033 | | | $ | 9,466 | | | $ | 196,219 | |
| | | | | | | | | |
Ending Loans and Leases by | | | | | | | | | |
Evaluation Methodology: | | | | | | | | | |
Individually evaluated | $ | 44,392 | | | $ | 13,403 | | | $ | 17,813 | | | $ | — | | | $ | 75,608 | |
Collectively evaluated | 11,994,899 | | | 3,680,086 | | | 8,096,882 | | | 504,597 | | | 24,276,464 | |
Ending balance | $ | 12,039,291 | | | $ | 3,693,489 | | | $ | 8,114,695 | | | $ | 504,597 | | | $ | 24,352,072 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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| Three Months Ended March 31, 2021 |
| | | Real Estate | | | | | | |
| Real Estate | | Construction | | | | | | |
| Mortgage | | and Land | | Commercial | | Consumer | | Total |
| (In thousands) |
Allowance for Loan and Lease Losses: | | | | | | | | | |
Balance, beginning of period | $ | 138,342 | | | $ | 78,356 | | | $ | 126,403 | | | $ | 5,080 | | | $ | 348,181 | |
Charge-offs | (368) | | | (700) | | | (2,574) | | | (346) | | | (3,988) | |
Recoveries | 545 | | | — | | | 697 | | | 10 | | | 1,252 | |
Net (charge-offs) recoveries | 177 | | | (700) | | | (1,877) | | | (336) | | | (2,736) | |
Provision | 2,603 | | | (10,881) | | | (45,810) | | | 1,088 | | | (53,000) | |
Balance, end of period | $ | 141,122 | | | $ | 66,775 | | | $ | 78,716 | | | $ | 5,832 | | | $ | 292,445 | |
| | | | | | | | | |
Ending Allowance by | | | | | | | | | |
Evaluation Methodology: | | | | | | | | | |
Individually evaluated | $ | 220 | | | $ | — | | | $ | 1,581 | | | $ | — | | | $ | 1,801 | |
Collectively evaluated | $ | 140,902 | | | $ | 66,775 | | | $ | 77,135 | | | $ | 5,832 | | | $ | 290,644 | |
| | | | | | | | | |
Ending Loans and Leases by | | | | | | | | | |
Evaluation Methodology: | | | | | | | | | |
Individually evaluated | $ | 52,823 | | | $ | 2,047 | | | $ | 35,285 | | | $ | — | | | $ | 90,155 | |
Collectively evaluated | 7,934,390 | | | 3,563,776 | | | 7,050,555 | | | 340,352 | | | 18,889,073 | |
Ending balance | $ | 7,987,213 | | | $ | 3,565,823 | | | $ | 7,085,840 | | | $ | 340,352 | | | $ | 18,979,228 | |
The allowance for loan and lease losses decreased by $3.2 million in the first quarter of 2022 to $197.4 million due primarily to a provision for loan and lease losses benefit of $2.0 million driven by improvement in loan portfolio credit quality metrics combined with changes in our loan portfolio composition, offset partially by increased provisions for unfunded commitments and loan growth.
We actively participated in both rounds of the Paycheck Protection Program ("PPP"), under the provisions of the CARES Act during 2020 and 2021, originating $1.65 billion of such loans. As of March 31, 2022, PPP loans totaled $70.4 million, net of deferred fees. The loans have two or five year terms, are fully guaranteed by the SBA, and do not carry an allowance.
A loan is considered collateral-dependent, and is individually evaluated for reserve purposes, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table summarizes collateral-dependent loans held for investment by collateral type as of the following dates:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Real | | Business | | | | Real | | Business | | |
| Property | | Assets | | Total | | Property | | Assets | | Total |
| (In thousands) |
Real estate mortgage | $ | 44,662 | | | $ | — | | | $ | 44,662 | | | $ | 30,817 | | | $ | — | | | $ | 30,817 | |
Real estate construction and land | 7,578 | | | — | | | 7,578 | | | 10,421 | | | — | | | 10,421 | |
Commercial | — | | | 1,986 | | | 1,986 | | | — | | | 7,586 | | | 7,586 | |
Total | $ | 52,240 | | | $ | 1,986 | | | $ | 54,226 | | | $ | 41,238 | | | $ | 7,586 | | | $ | 48,824 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for Credit Losses
The allowance for credit losses is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets.
The following tables present a summary of the activity in the allowance for loan and lease losses and reserve for unfunded loan commitments for the periods indicated:
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| Three Months Ended | | |
| March 31, 2022 | | |
| Allowance for | | Reserve for | | Total | | | | | | |
| Loan and | | Unfunded Loan | | Allowance for | | | | | | |
| Lease Losses | | Commitments | | Credit Losses | | | | | | |
| (In thousands) | | | | | | |
Balance, beginning of period | $ | 200,564 | | | $ | 73,071 | | | $ | 273,635 | | | | | | | |
Charge-offs | (3,234) | | | — | | | (3,234) | | | | | | | |
Recoveries | 2,068 | | | — | | | 2,068 | | | | | | | |
Net charge-offs | (1,166) | | | — | | | (1,166) | | | | | | | |
Provision | (2,000) | | | 2,000 | | | — | | | | | | | |
Balance, end of period | $ | 197,398 | | | $ | 75,071 | | | $ | 272,469 | | | | | | | |
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| Three Months Ended | | |
| March 31, 2021 | | |
| Allowance for | | Reserve for | | Total | | | | | | |
| Loan and | | Unfunded Loan | | Allowance for | | | | | | |
| Lease Losses | | Commitments | | Credit Losses | | | | | | |
| (In thousands) | | | | | | |
Balance, beginning of period | $ | 348,181 | | | $ | 85,571 | | | $ | 433,752 | | | | | | | |
Charge-offs | (3,988) | | | — | | | (3,988) | | | | | | | |
Recoveries | 1,252 | | | — | | | 1,252 | | | | | | | |
Net charge-offs | (2,736) | | | — | | | (2,736) | | | | | | | |
Provision | (53,000) | | | 5,000 | | | (48,000) | | | | | | | |
Balance, end of period | $ | 292,445 | | | $ | 90,571 | | | $ | 383,016 | | | | | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 5. FORECLOSED ASSETS, NET
The following table summarizes foreclosed assets, net of the valuation allowance, as of the dates indicated:
| | | | | | | | | | | |
| March 31, | | December 31, |
Property Type | 2022 | | 2021 |
| (In thousands) |
Commercial real estate | $ | — | | | $ | 12,594 | |
| | | |
| | | |
Multi‑family | 304 | | | — | |
Total other real estate owned, net | 304 | | | 12,594 | |
Other foreclosed assets | — | | | 249 | |
Total foreclosed assets, net | $ | 304 | | | $ | 12,843 | |
The following table presents the changes in foreclosed assets, net of the valuation allowance, for the period indicated:
| | | | | |
| Foreclosed |
| Assets, Net |
| (In thousands) |
Balance, December 31, 2021 | $ | 12,843 | |
| |
Transfers to foreclosed assets from loans | 304 | |
| |
| |
Reductions related to sales | (12,843) | |
Balance, March 31, 2022 | $ | 304 | |
NOTE 6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment annually unless a triggering event occurs thereby requiring an updated assessment. Our regular annual impairment assessment occurs in the fourth quarter. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds its fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the condensed consolidated statements of earnings.
Our other intangible assets with definite lives are CDI and CRI. CDI and CRI are amortized over their respective estimated useful lives and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or customer relationships acquired.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| (In thousands) |
Gross Amount of CDI and CRI: | | | | | | | |
Balance, beginning of period | $ | 133,850 | | | $ | 109,646 | | | | | |
Addition from Civic acquisition | — | | | 750 | | | | | |
Fully amortized portion | — | | | (9,846) | | | | | |
| | | | | | | |
Balance, end of period | 133,850 | | | 100,550 | | | | | |
Accumulated Amortization: | | | | | | | |
Balance, beginning of period | (88,893) | | | (86,005) | | | | | |
Amortization expense | (3,649) | | | (3,079) | | | | | |
Fully amortized portion | — | | | 9,846 | | | | | |
| | | | | | | |
Balance, end of period | (92,542) | | | (79,238) | | | | | |
Net CDI and CRI, end of period | $ | 41,308 | | | $ | 21,312 | | | | | |
The following table presents the estimated aggregate future amortization expense for our current CDI and CRI as of the date indicated:
| | | | | |
| March 31, 2022 |
| (In thousands) |
Period ending December 31, | |
2022 | $ | 9,926 | |
2023 | 9,085 | |
2024 | 6,404 | |
2025 | 4,087 | |
2026 | 3,482 | |
Thereafter | 8,324 | |
Net CDI and CRI | $ | 41,308 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 7. OTHER ASSETS
The following table presents the detail of our other assets as of the dates indicated:
| | | | | | | | | | | |
| March 31, | | December 31, |
Other Assets | 2022 | | 2021 |
| (In thousands) |
LIHTC investments | $ | 298,233 | | | $ | 297,746 | |
Cash surrender value of BOLI | 204,938 | | | 203,836 | |
Deferred tax asset, net (1) | 141,008 | | | — | |
Operating lease ROU assets, net (2) | 130,267 | | | 123,225 | |
Interest receivable | 120,997 | | | 120,329 | |
Equity investments without readily determinable fair values | 63,279 | | | 62,975 | |
SBIC investments | 50,558 | | | 46,861 | |
Prepaid expenses | 26,502 | | | 27,632 | |
Taxes receivable | 10,591 | | | 36,011 | |
Equity investments with readily determinable fair values | 8,814 | | | 28,578 | |
Equity warrants (3) | 3,771 | | | 3,555 | |
| | | |
Other receivables/assets | 149,303 | | | 133,244 | |
Total other assets | $ | 1,208,261 | | | $ | 1,083,992 | |
____________________
(1) At December 31, 2021, this was a net deferred tax liability of $19.6 million.
(2) See Note 8. Leases for further details regarding the operating lease ROU assets.
(3) See Note 10. Derivatives for information regarding equity warrants.
NOTE 8. LEASES
Operating Leases as a Lessee
Our lease expense is a component of "Occupancy expense" on our condensed consolidated statements of earnings. The following table presents the components of lease expense for the periods indicated: | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| (In thousands) |
Operating lease expense: | | | | | | | |
Fixed costs | $ | 8,479 | | | $ | 8,496 | | | | | |
Variable costs | 23 | | | 15 | | | | | |
Short-term lease costs | 364 | | | 256 | | | | | |
Sublease income | (1,076) | | | (1,099) | | | | | |
Net lease expense | $ | 7,790 | | | $ | 7,668 | | | | | |
The following table presents supplemental cash flow information related to leases for the periods indicated: | | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2022 | | 2021 |
| (In thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 8,839 | | | $ | 9,278 | |
ROU assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 17,301 | | | $ | 10,482 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents supplemental balance sheet and other information related to operating leases as of the dates indicated: | | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (Dollars in thousands) |
Operating leases: | | | |
Operating lease right-of-use assets, net | $ | 130,267 | | | $ | 123,225 | |
Operating lease liabilities | $ | 151,459 | | | $ | 142,117 | |
| | | |
Weighted average remaining lease term (in years) | 6.0 | | 5.6 |
Weighted average discount rate | 2.23 | % | | 2.23 | % |
The following table presents the maturities of operating lease liabilities as of the date indicated: | | | | | |
| March 31, 2022 |
| (In thousands) |
Period ending December 31, | |
2022 | $ | 27,467 | |
2023 | 34,955 | |
2024 | 27,881 | |
2025 | 21,023 | |
2026 | 15,889 | |
Thereafter | 35,547 | |
Total operating lease liabilities | 162,762 | |
Less: Imputed interest | (11,303) | |
Present value of operating lease liabilities | $ | 151,459 | |
Operating Leases as a Lessor
We provide equipment financing to our customers through operating leases where we facilitate the purchase of equipment leased to our customers. The equipment is shown on the condensed consolidated balance sheets as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the condensed consolidated statements of earnings, according to our fixed asset accounting policy. We receive periodic rental income payments under the leases, which are recorded as "Noninterest Income" in the condensed consolidated statements of earnings. The equipment is tested periodically for impairment. No impairment was recorded on "Equipment leased to others under operating leases" in the three months ended March 31, 2022 and 2021.
The following table presents the rental payments to be received on operating leases as of the date indicated: | | | | | |
| March 31, 2022 |
| (In thousands) |
Period ending December 31, | |
2022 | $ | 35,552 | |
2023 | 39,743 | |
2024 | 34,753 | |
2025 | 27,428 | |
2026 | 21,670 | |
Thereafter | 43,191 | |
Total undiscounted cash flows | $ | 202,337 | |
| |
| |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 9. BORROWINGS AND SUBORDINATED DEBT
Borrowings
The following table summarizes our borrowings as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| | | Weighted | | | | Weighted |
| | | Average | | | | Average |
| Balance | | Rate | | Balance | | Rate |
| (Dollars in thousands) |
FHLB secured advances | $ | 629,000 | | | 0.43 | % | | $ | — | | | — | % |
FHLB unsecured overnight advance | 112,000 | | | 0.34 | % | | — | | | — | % |
AFX short-term borrowings | 250,000 | | | 0.36 | % | | — | | | — | % |
| | | | | | | |
Total borrowings | $ | 991,000 | | | 0.40 | % | | $ | — | | | — | % |
The Bank has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, the FRBSF, and other financial institutions.
FHLB Secured Line of Credit. The Bank had secured financing capacity with the FHLB as of March 31, 2022 of $3.6 billion, collateralized by a blanket lien on $5.6 billion of qualifying loans. As of March 31, 2022, the balance outstanding was $629.0 million, which consisted of a $629.0 million overnight advance. As of December 31, 2021, there was no balance outstanding.
FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of March 31, 2022, the Bank had secured borrowing capacity of $2.4 billion collateralized by liens covering $2.9 billion of qualifying loans. As of March 31, 2022 and December 31, 2021, there were no balances outstanding.
FHLB Unsecured Line of Credit. The Bank has a $112.0 million unsecured line of credit with the FHLB for the purchase of overnight funds, of which there was a $112.0 million balance outstanding at March 31, 2022 and no balance outstanding at December 31, 2021.
Federal Funds Arrangements with Commercial Banks. As of March 31, 2022, the Bank had unsecured lines of credit of $180.0 million in the aggregate with several correspondent banks for the purchase of overnight funds, subject to availability of funds. These lines are renewable annually and have no unused commitment fees. As of March 31, 2022 and December 31, 2021, there were no balances outstanding. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of March 31, 2022, the balance outstanding was $250.0 million, which consisted of $250.0 million in overnight borrowings. As of December 31, 2021, there was no balance outstanding.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Subordinated Debt
The following table summarizes the terms of each issuance of subordinated debt outstanding as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | Date | | Maturity | | Rate Index |
Series | Balance | | Rate (1) | | Balance | | Rate (1) | | Issued | | Date | | (Quarterly Reset) (6) |
| (Dollars in thousands) | | | | | | |
Subordinated notes, net (2) | $ | 394,758 | | | 3.25 | % | | $ | 394,634 | | | 3.25 | % | | 4/30/2021 | | 5/1/2031 | | Fixed rate (3) |
Trust V | 10,310 | | | 4.02 | % | | 10,310 | | | 3.32 | % | | 8/15/2003 | | 9/17/2033 | | 3-month LIBOR + 3.10 |
Trust VI | 10,310 | | | 3.88 | % | | 10,310 | | | 3.25 | % | | 9/3/2003 | | 9/15/2033 | | 3-month LIBOR + 3.05 |
Trust CII | 5,155 | | | 3.87 | % | | 5,155 | | | 3.17 | % | | 9/17/2003 | | 9/17/2033 | | 3-month LIBOR + 2.95 |
Trust VII | 61,856 | | | 3.05 | % | | 61,856 | | | 2.88 | % | | 2/5/2004 | | 4/23/2034 | | 3-month LIBOR + 2.75 |
Trust CIII | 20,619 | | | 2.52 | % | | 20,619 | | | 1.89 | % | | 8/15/2005 | | 9/15/2035 | | 3-month LIBOR + 1.69 |
Trust FCCI | 16,495 | | | 2.43 | % | | 16,495 | | | 1.80 | % | | 1/25/2007 | | 3/15/2037 | | 3-month LIBOR + 1.60 |
Trust FCBI | 10,310 | | | 2.38 | % | | 10,310 | | | 1.75 | % | | 9/30/2005 | | 12/15/2035 | | 3-month LIBOR + 1.55 |
Trust CS 2005-1 | 82,475 | | | 2.78 | % | | 82,475 | | | 2.15 | % | | 11/21/2005 | | 12/15/2035 | | 3-month LIBOR + 1.95 |
Trust CS 2005-2 | 128,866 | | | 2.25 | % | | 128,866 | | | 2.08 | % | | 12/14/2005 | | 1/30/2036 | | 3-month LIBOR + 1.95 |
Trust CS 2006-1 | 51,545 | | | 2.25 | % | | 51,545 | | | 2.08 | % | | 2/22/2006 | | 4/30/2036 | | 3-month LIBOR + 1.95 |
Trust CS 2006-2 | 51,550 | | | 2.25 | % | | 51,550 | | | 2.08 | % | | 9/27/2006 | | 10/30/2036 | | 3-month LIBOR + 1.95 |
Trust CS 2006-3 (4) | 28,525 | | | 1.50 | % | | 29,306 | | | 1.49 | % | | 9/29/2006 | | 10/30/2036 | | 3-month EURIBOR + 2.05 |
Trust CS 2006-4 | 16,470 | | | 2.25 | % | | 16,470 | | | 2.08 | % | | 12/5/2006 | | 1/30/2037 | | 3-month LIBOR + 1.95 |
Trust CS 2006-5 | 6,650 | | | 2.25 | % | | 6,650 | | | 2.08 | % | | 12/19/2006 | | 1/30/2037 | | 3-month LIBOR + 1.95 |
Trust CS 2007-2 | 39,177 | | | 2.25 | % | | 39,177 | | | 2.08 | % | | 6/13/2007 | | 7/30/2037 | | 3-month LIBOR + 1.95 |
Total subordinated debt | 935,071 | | | 2.81 | % | | 935,728 | | | 2.64 | % | | | | | | |
Acquisition discount (5) | (71,191) | | | | | (72,445) | | | | | | | | | |
Net subordinated debt | $ | 863,880 | | | | | $ | 863,283 | | | | | | | | | |
___________________
(1) Rates do not include the effects of discounts and issuance costs.
(2) Net of unamortized issuance costs of $5.2 million.
(3) Interest rate is fixed until May 1, 2026, when it changes to a floating rate and resets quarterly at a benchmark rate plus 252 basis points.
(4) Denomination is in Euros with a value of €25.8 million.
(5) Amount represents the fair value adjustment on trust preferred securities assumed in acquisitions.
(6) Interest rate will default to the last published or determined rate of LIBOR, and for Trust CS 2006-4, the Base Rate, defined as the greater of Prime and the federal funds rate, upon cessation of LIBOR and effectively converting these instruments to fixed rate, if not modified prior to June 30, 2023.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 10. DERIVATIVES
The following table presents the U.S. dollar notional amounts and fair values of our derivative instruments included in the condensed consolidated balance sheets as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| Notional | | Fair | | Notional | | Fair |
Derivatives Not Designated As Hedging Instruments | Amount | | Value | | Amount | | Value |
| (In thousands) |
Derivative Assets: | | | | | | | |
Interest rate contracts | $ | 87,003 | | | $ | 2,620 | | | $ | 87,470 | | | $ | 992 | |
Foreign exchange contracts | 28,463 | | | 1,936 | | | 28,463 | | | 1,517 | |
Interest rate and economic contracts | 115,466 | | | 4,556 | | | 115,933 | | | 2,509 | |
Equity warrant assets | 18,602 | | | 3,771 | | | 18,539 | | | 3,555 | |
Total | $ | 134,068 | | | $ | 8,327 | | | $ | 134,472 | | | $ | 6,064 | |
| | | | | | | |
Derivative Liabilities: | | | | | | | |
Interest rate contracts | $ | 87,003 | | | $ | 2,500 | | | $ | 87,470 | | | $ | 931 | |
Foreign exchange contracts | 28,463 | | | — | | | 28,463 | | | — | |
Total | $ | 115,466 | | | $ | 2,500 | | | $ | 115,933 | | | $ | 931 | |
| | | | | | | |
For further information regarding our derivatives, see Note 1. Nature of Operations and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data" of the Form 10-K.
NOTE 11. COMMITMENTS AND CONTINGENCIES
The following table presents a summary of commitments described below as of the dates indicated:
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (In thousands) |
Loan commitments to extend credit | $ | 9,899,345 | | | $ | 9,006,350 | |
Standby letters of credit | 321,742 | | | 345,769 | |
Total | $ | 10,221,087 | | | $ | 9,352,119 | |
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the condensed consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement that the Company has in particular classes of financial instruments.
Commitments to extend credit are contractual agreements to lend to our customers when customers are in compliance with their contractual credit agreements and when customers have contractual availability to borrow under such agreements. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The estimated exposure to loss from these commitments is included in the reserve for unfunded loan commitments, which amounted to $75.1 million at March 31, 2022 and $73.1 million at December 31, 2021.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. Most guarantees expire within one year from the date of issuance. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation but would seek repayment of that financial obligation from the borrower. In some cases, borrowers have pledged cash and investment securities as collateral under these arrangements.
In addition, we invest in SBICs that call for capital contributions up to an amount specified in the partnership agreements, and in CRA-related loan pools. As of March 31, 2022 and December 31, 2021, we had commitments to contribute capital to these entities totaling $84.8 million and $85.9 million.
The following table presents the years in which commitments are expected to be paid for our commitments to contribute capital to SBICs and CRA-related loan pools as of the date indicated:
| | | | | |
| March 31, 2022 |
| (In thousands) |
Period ending December 31, | |
2022 | $ | 38,496 | |
2023 | 46,276 | |
| |
| |
| |
| |
Total | $ | 84,772 | |
Legal Matters
In the ordinary course of our business, the Company is party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon currently available information, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations. The range of any reasonably possible liabilities is also not significant.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 12. FAIR VALUE MEASUREMENTS
The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale and derivatives. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered “nonrecurring” for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for individually evaluated loans and leases and other real estate owned and also to record impairment on certain assets, such as goodwill, CDI, and other long-lived assets.
For information regarding the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820), and for estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825, as amended by ASU 2016-01 and ASU 2018-03), see Note 1. Nature of Operations and Summary of Significant Accounting Policies, and Note 15. Fair Value Measurements, to the Consolidated Financial Statements of the Company's Form 10-K.
The Company also holds SBIC investments measured at fair value using the NAV per share practical expedient that are not required to be classified in the fair value hierarchy. At March 31, 2022, the fair value of these investments was $50.6 million.
The following tables present information on the assets and liabilities measured and recorded at fair value on a recurring basis as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| March 31, 2022 |
Measured on a Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Securities available-for-sale: | | | | | | | |
Agency residential MBS | $ | 2,788,814 | | | $ | — | | | $ | 2,788,814 | | | $ | — | |
Municipal securities | 2,125,161 | | | — | | | 2,125,161 | | | — | |
Agency commercial MBS | 1,562,337 | | | — | | | 1,562,337 | | | — | |
Agency residential CMOs | 940,714 | | | — | | | 940,714 | | | — | |
U.S. Treasury securities | 907,743 | | | 907,743 | | | — | | | — | |
Corporate debt securities | 509,156 | | | — | | | 509,156 | | | — | |
Private label commercial MBS | 401,292 | | | — | | | 395,716 | | | 5,576 | |
Collateralized loan obligations | 363,806 | | | — | | | 363,806 | | | — | |
Private label residential CMOs | 238,160 | | | — | | | 238,160 | | | — | |
Asset-backed securities | 112,877 | | | — | | | 112,877 | | | — | |
SBA securities | 25,049 | | | — | | | 25,049 | | | — | |
Total securities available-for-sale | $ | 9,975,109 | | | $ | 907,743 | | | $ | 9,061,790 | | | $ | 5,576 | |
Equity investments with readily determinable fair values | $ | 8,814 | | | $ | 8,814 | | | $ | — | | | $ | — | |
Derivatives (1): | | | | | | | |
Equity warrants | 3,771 | | | — | | | — | | | 3,771 | |
Interest rate and economic contracts | 4,556 | | | — | | | 4,556 | | | — | |
Derivative liabilities | 2,500 | | | — | | | 2,500 | | | — | |
| | | | | | | |
| | | | | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| December 31, 2021 |
Measured on a Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Securities available-for-sale: | | | | | | | |
Agency residential MBS | $ | 2,898,210 | | | $ | — | | | $ | 2,898,210 | | | $ | — | |
Municipal securities | 2,315,968 | | | — | | | 2,315,968 | | | — | |
Agency commercial MBS | 1,688,967 | | | — | | | 1,688,967 | | | — | |
Agency residential CMOs | 1,038,134 | | | — | | | 1,038,134 | | | — | |
U.S. Treasury securities | 966,898 | | | 966,898 | | | — | | | — | |
Corporate debt securities | 527,094 | | | — | | | 527,094 | | | — | |
Private label commercial MBS | 450,217 | | | — | | | 435,216 | | | 15,001 | |
Collateralized loan obligations | 385,362 | | | — | | | 385,362 | | | — | |
Private label residential CMOs | 264,417 | | | — | | | 264,417 | | | — | |
Asset-backed securities | 129,547 | | | — | | | 129,547 | | | — | |
SBA securities | 29,644 | | | — | | | 29,644 | | | — | |
Total securities available-for-sale | $ | 10,694,458 | | | $ | 966,898 | | | $ | 9,712,559 | | | $ | 15,001 | |
Equity investments with readily determinable fair values | $ | 28,578 | | | $ | 28,578 | | | $ | — | | | $ | — | |
Derivatives (1): | | | | | | | |
Equity warrants | 3,555 | | | — | | | — | | | 3,555 | |
Interest rate and economic contracts | 2,509 | | | — | | | 2,509 | | | — | |
Derivative liabilities | 931 | | | — | | | 931 | | | — | |
| | | | | | | |
| | | | | | | |
____________________
(1) For information regarding derivative instruments, see Note 10. Derivatives.
During the three months ended March 31, 2022, there was a $7,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis.
The following table presents information about quantitative inputs and assumptions used to determine the fair values provided by our third party pricing service for our Level 3 private label commercial MBS available-for-sale measured at fair value on a recurring basis as of the date indicated:
| | | | | | | | | | | | | | | |
| | | | | March 31, 2022 |
| | | Private Label Commercial MBS |
| | | | | Input or | | Weighted |
| | | | | Range | | Average |
Unobservable Inputs | | | | | of Inputs | | Input (1) |
Voluntary annual prepayment speeds (2) | | | | | 15.0% | | 15.0% |
Annual default rates (2) | | | | | 2.0% | | 2.0% |
Loss severity rates (2) | | | | | 60.0% | | 60.0% |
Discount rates | | | | | 4.6% - 4.8% | | 4.8% |
____________________
(1) Discount rates for private label commercial MBS were weighted by the relative fair values of the instruments.
(2) Voluntary annual prepayment speeds, annual default rates, and loss severity rates were the same for all of the private label commercial MBS.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents information about quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:
| | | | | | | | | | | |
| March 31, 2022 |
| Equity Warrants |
| | | Weighted |
| Range | | Average |
Unobservable Inputs | of Inputs | | Input (1) |
Volatility | 22.6% - 124.9% | | 28.2% |
Risk-free interest rate | 0.2% - 2.5% | | 2.3% |
Remaining life assumption (in years) | 0.08 - 4.98 | | 3.07 |
____________________
(1) Unobservable inputs for equity warrants were weighted by the relative fair values of the instruments.
The following table summarizes activity for our Level 3 private label commercial MBS available-for-sale and equity warrants measured at fair value on a recurring basis for the period indicated:
| | | | | | | | | | | | | |
| | | Private Label | | Equity |
| | | Commercial MBS | | Warrants |
| | | (In thousands) |
Balance, December 31, 2021 | | | $ | 15,001 | | | $ | 3,555 | |
Total included in earnings | | | (4) | | | 629 | |
Total included in other comprehensive income (loss) | | | (94) | | | — | |
| | | | | |
Issuances | | | — | | | 178 | |
| | | | | |
| | | | | |
| | | | | |
Net settlements | | | (9,327) | | | — | |
Exercises and settlements | | | — | | | (584) | |
Transfers to Level 1 (equity investments with readily | | | | | |
determinable fair values) | | | — | | | (7) | |
Balance, March 31, 2022 | | | $ | 5,576 | | | $ | 3,771 | |
| | | | | |
Unrealized net gains (losses) for the period included in other | | | | | |
comprehensive income for securities held at quarter-end | | | $ | (53) | | | |
| | | | | |
The following tables present assets measured at fair value on a non-recurring basis as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement as of |
| March 31, 2022 |
Measured on a Non-Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Individually evaluated loans and leases | $ | 13,243 | | | $ | — | | | $ | — | | | $ | 13,243 | |
| | | | | | | |
| | | | | | | |
Total non-recurring | $ | 13,243 | | | $ | — | | | $ | — | | | $ | 13,243 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement as of |
| December 31, 2021 |
Measured on a Non-Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Individually evaluated loans and leases | $ | 30,882 | | | $ | — | | | $ | 2,915 | | | $ | 27,967 | |
| | | | | | | |
Total non-recurring | $ | 30,882 | | | $ | — | | | $ | 2,915 | | | $ | 27,967 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents losses recognized on assets measured on a nonrecurring basis for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
Losses on Assets | March 31, | | |
Measured on a Non-Recurring Basis | 2022 | | 2021 | | | | |
| (In thousands) |
Individually evaluated loans and leases | $ | 434 | | | $ | 702 | | | | | |
| | | | | | | |
OREO | — | | | 14 | | | | | |
Total losses | $ | 434 | | | $ | 716 | | | | | |
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | | | Valuation | | Unobservable | | Input or | | Weighted |
Asset | | Fair Value | | Technique | | Inputs | | Range | | Average |
| | (Dollars in thousands) |
Individually evaluated | | | | | | | | | | |
loans and leases | | $ | 9,609 | | Discounted cash flows | | Discount rates | | 5.50% - 9.25% | | 6.82% |
| | | | | | | | | | |
| | | | | | | | | | |
Individually evaluated | | | | | | | | | | |
loans and leases | | 3,634 | | Third party appraisals | | No discounts | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total non-recurring Level 3 | | $ | 13,243 | | | | | | | | |
The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Financial Assets: | | | | | | | | | |
Cash and due from banks | $ | 205,446 | | | $ | 205,446 | | | $ | 205,446 | | | $ | — | | | $ | — | |
Interest-earning deposits in financial institutions | 1,865,235 | | | 1,865,235 | | | 1,865,235 | | | — | | | — | |
Securities available-for-sale | 9,975,109 | | | 9,975,109 | | | 907,743 | | | 9,061,790 | | | 5,576 | |
Investment in FHLB stock | 17,250 | | | 17,250 | | | — | | | 17,250 | | | — | |
| | | | | | | | | |
Loans and leases held for investment, net | 24,154,674 | | | 23,922,460 | | | — | | | — | | | 23,922,460 | |
Equity investments with readily determinable fair values | 8,814 | | | 8,814 | | | 8,814 | | | — | | | — | |
Equity warrants | 3,771 | | | 3,771 | | | — | | | — | | | 3,771 | |
Interest rate and economic contracts | 4,556 | | | 4,556 | | | — | | | 4,556 | | | — | |
Servicing rights | 1,002 | | | 1,002 | | | — | | | — | | | 1,002 | |
| | | | | | | | | |
Financial Liabilities: | | | | | | | | | |
Core deposits | 31,676,404 | | | 31,676,404 | | | — | | | 31,676,404 | | | — | |
Non-core non-maturity deposits | 322,732 | | | 322,732 | | | — | | | 322,732 | | | — | |
Time deposits | 1,225,759 | | | 1,216,711 | | | — | | | 1,216,711 | | | — | |
Borrowings | 991,000 | | | 991,000 | | | 991,000 | | | — | | | — | |
Subordinated debt | 863,880 | | | 883,960 | | | — | | | 883,960 | | | — | |
Derivative liabilities | 2,500 | | | 2,500 | | | — | | | 2,500 | | | — | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Financial Assets: | | | | | | | | | |
Cash and due from banks | $ | 112,548 | | | $ | 112,548 | | | $ | 112,548 | | | $ | — | | | $ | — | |
Interest-earning deposits in financial institutions | 3,944,686 | | | 3,944,686 | | | 3,944,686 | | | — | | | — | |
Securities available-for-sale | 10,694,458 | | | 10,694,458 | | | 966,898 | | | 9,712,559 | | | 15,001 | |
Investment in FHLB stock | 17,250 | | | 17,250 | | | — | | | 17,250 | | | — | |
Loans and leases held for investment, net | 22,740,984 | | | 23,461,156 | | | — | | | 2,915 | | | 23,458,241 | |
Equity investments with readily determinable fair values | 28,578 | | | 28,578 | | | 28,578 | | | — | | | — | |
Equity warrants | 3,555 | | | 3,555 | | | — | | | — | | | 3,555 | |
Interest rate and economic contracts | 2,509 | | | 2,509 | | | — | | | 2,509 | | | — | |
Servicing rights | 1,228 | | | 1,228 | | | — | | | — | | | 1,228 | |
| | | | | | | | | |
Financial Liabilities: | | | | | | | | | |
Core deposits | 32,734,949 | | | 32,734,949 | | | — | | | 32,734,949 | | | — | |
Non-core non-maturity deposits | 889,976 | | | 889,976 | | | — | | | 889,976 | | | — | |
Time deposits | 1,372,832 | | | 1,371,527 | | | — | | | 1,371,527 | | | — | |
Borrowings | — | | | — | | | — | | | — | | | — | |
Subordinated debt | 863,283 | | | 917,342 | | | — | | | 917,342 | | | — | |
Derivative liabilities | 931 | | | 931 | | | — | | | 931 | | | — | |
Limitations
Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a portion of the Company’s financial instruments, fair value estimates are based on what management believes to be reasonable judgments regarding expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been estimated as of March 31, 2022, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 13. EARNINGS PER SHARE
The following table presents the computations of basic and diluted net earnings per share for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2022 | | 2021 | | | | |
| (Dollars in thousands, except per share data) |
Basic Earnings Per Share: | | | | | | | |
Net earnings | $ | 120,128 | | | $ | 150,406 | | | | | |
Less: Earnings allocated to unvested restricted stock(1) | (2,037) | | | (2,355) | | | | | |
Net earnings allocated to common shares | $ | 118,091 | | | $ | 148,051 | | | | | |
| | | | | | | |
Weighted-average basic shares and unvested restricted | | | | | | | |
stock outstanding | 119,595 | | | 118,852 | | | | | |
Less: Weighted-average unvested restricted stock | | | | | | | |
outstanding | (2,246) | | | (2,003) | | | | | |
Weighted-average basic shares outstanding | 117,349 | | | 116,849 | | | | | |
| | | | | | | |
Basic earnings per share | $ | 1.01 | | | $ | 1.27 | | | | | |
| | | | | | | |
Diluted Earnings Per Share: | | | | | | | |
Net earnings allocated to common shares | $ | 118,091 | | | $ | 148,051 | | | | | |
| | | | | | | |
Weighted-average diluted shares outstanding | 117,349 | | | 116,849 | | | | | |
| | | | | | | |
Diluted earnings per share | $ | 1.01 | | | $ | 1.27 | | | | | |
________________________
(1) Represents cash dividends paid to holders of unvested restricted stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 14. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following table presents interest income and noninterest income, the components of total revenue, as disclosed in the condensed consolidated statements of earnings and the related amounts which are from contracts with customers within the scope of ASC Topic 606, "Revenue from Contracts with Customers," for the periods indicated. As illustrated here, substantially all of our revenue is specifically excluded from the scope of ASC Topic 606.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
| Total | | Revenue from | | Total | | Revenue from |
| Recorded | | Contracts with | | Recorded | | Contracts with |
| Revenue | | Customers | | Revenue | | Customers |
| (In thousands) |
Total interest income | $ | 322,904 | | | $ | — | | | $ | 273,337 | | | $ | — | |
Noninterest income: | | | | | | | |
Service charges on deposit accounts | 3,571 | | | 3,571 | | | 2,934 | | | 2,934 | |
Other commissions and fees | 11,580 | | | 3,773 | | | 9,158 | | | 2,857 | |
Leased equipment income | 13,094 | | | — | | | 11,354 | | | — | |
Gain on sale of loans | 60 | | | — | | | 139 | | | — | |
Gain on sale of securities | 104 | | | — | | | 101 | | | — | |
Dividends and (losses) gains on equity securities | (11,375) | | | — | | | 10,904 | | | — | |
Warrant income | 629 | | | — | | | 6,123 | | | — | |
Other income | 3,155 | | | (2) | | | 4,116 | | | 180 | |
Total noninterest income | 20,818 | | | 7,342 | | | 44,829 | | | 5,971 | |
Total revenue | $ | 343,722 | | | $ | 7,342 | | | $ | 318,166 | | | $ | 5,971 | |
The following table presents revenue from contracts with customers based on the timing of revenue recognition for the periods indicated: | | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2022 | | 2021 |
| (In thousands) |
Products and services transferred at a point in time | $ | 3,926 | | | $ | 2,997 | |
Products and services transferred over time | 3,416 | | | 2,974 | |
Total revenue from contracts with customers | $ | 7,342 | | | $ | 5,971 | |
Contract Balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers as of the dates indicated: | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (In thousands) |
Receivables, which are included in "Other assets" | $ | 1,152 | | | $ | 1,066 | |
Contract assets, which are included in "Other assets" | $ | — | | | $ | — | |
Contract liabilities, which are included in "Accrued interest payable and other liabilities" | $ | 196 | | | $ | 229 | |
Contract liabilities relate to advance consideration received from customers for which revenue is recognized over the life of the contract. The change in contract liabilities for the three months ended March 31, 2022 due to revenue recognized that was included in the contract liability balance at the beginning of the period was $33,000.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 15. STOCK-BASED COMPENSATION
At the annual meeting of stockholders held on May 11, 2021, the Company's stockholders approved the Amended and Restated PacWest Bancorp 2017 Stock Incentive Plan (the “Amended and Restated 2017 Plan”). The Company’s Amended and Restated 2017 Plan permits stock-based compensation awards to officers, directors, employees, and consultants and will remain in effect until December 31, 2026. The Amended and Restated 2017 Plan authorizes grants of stock-based compensation instruments to issue up to 6,650,000 shares. As of March 31, 2022, there were 2,905,529 shares available for grant under the Amended and Restated 2017 Plan.
Restricted Stock
Restricted stock amortization totaled $7.6 million and $6.4 million for the three months ended March 31, 2022 and 2021. Such amounts are included in "Compensation expense" on the condensed consolidated statements of earnings. The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of March 31, 2022 totaled $67.3 million.
Time-Based Restricted Stock Awards
At March 31, 2022, there were 2,154,646 shares of unvested TRSAs outstanding. TRSAs generally vest ratably over a service period of three or four years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs is based on the fair value of the underlying award on the grant date and is recognized over the vesting period using the straight-line method.
Performance-Based Restricted Stock Units
At March 31, 2022, there were 505,647 units of unvested PRSUs that have been granted. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a three-year performance period. The shares underlying the PRSUs are not considered issued and outstanding until they vest. PRSUs are granted and initially expensed based on a target number. The number of shares that will ultimately vest based on actual performance will range from zero to a maximum of either 150% or 200% of target.
Compensation expense related to PRSUs is based on the fair value of the underlying award on the grant date and is amortized over the vesting period using the straight-line method unless it is determined that: (1) attainment of the financial metrics is less than probable, in which case a portion or all of the amortization is suspended, or (2) attainment of the financial metrics is improbable, in which case a portion or all of the previously recognized amortization is reversed and also suspended. If it is determined that attainment of a financial measure higher than target is probable, the amortization will increase to up to 150% or 200% of the target amortization amount. Annual PRSU expense may vary during the three-year performance period based upon changes in management's estimate of the number of shares that may ultimately vest. In the case where the performance target for the PRSU is based on a market condition (such as total shareholder return), the amortization is neither reversed nor suspended if it is subsequently determined that the attainment of the performance target is less than probable or improbable and the employee continues to meet the service requirement of the award.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 16. RECENTLY ISSUED ACCOUNTING STANDARDS
| | | | | | | | | | | | | | | | | | | | |
| | | | Effective | | Effect on the Financial Statements |
Standard | | Description | | Date | | or Other Significant Matters |
ASU 2020-04, "Reference Rate Reform (Topic 848)" and ASU 2021-01, “Reference Rate Reform (Topic 848): Scope)" | | This standard provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other agreements affected by the anticipated transition away from LIBOR toward new interest reference rates. For agreements that are modified because of reference rate reform and that meet certain scope guidance: (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered “minor” so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. Additionally, the amendments in ASU 2021-01 clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. ASU 2020-04 is effective immediately, as of March 12, 2020, and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. ASU 2021-01 is also effective immediately. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021 and up to December 31, 2022.
| | Effective upon the issuance date of March 12, 2020, and once adopted, will apply to contract modifications made and hedging relationships entered into on or before December 31, 2022. | | The Company has established a cross-functional project team and implementation plan to facilitate the LIBOR transition. As of December 31, 2021, the Company permanently ceased originating any new loans or entering into any transaction that would increase its LIBOR-based exposure. For all new variable-rate and hybrid loans, the Company primarily offers Prime and SOFR as the variable-rate index, but may consider alternate rates such as the American Interbank Offered Rate (“Ameribor”) and others based on market conditions and/or the type of loan or financial instrument. The Company has completed its readiness efforts to identify loans and other financial instruments that are impacted by the discontinuance of LIBOR. The Company has also completed its review for fallback language contained in contracts for LIBOR-based loans and other financial instruments and has begun to execute a transition plan to amend those legacy contracts maturing after June 30, 2023 that do not have or have inadequate fallback language by adding fallback language or to convert the base rate of the contract to a SOFR-based rate or another rate or index offered by the Company. The Company will also continue to assess impacts to its operations, financial models, data and technology as part of our transition plan. The Company is currently evaluating the impact of this Update on its consolidated financial statements but does not expect it to have a material impact. |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | Effective | | Effect on the Financial Statements |
Standard | | Description | | Date | | or Other Significant Matters |
ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers | | This standard requires that an entity (acquirer) recognizes and measures contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At acquisition date, an acquirer should account for the related revenue contracts with customers in accordance with Topic 606 as if it had originated the contracts. The acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception or contract modification to determine what should be recorded at the acquisition date. The amendments improve comparability by providing consistent recognition and measurement guidance for revenue contracts with customers whether they are acquired and not acquired in a business combination. The amendments should be applied prospectively to business combinations occurring on or after the effective date. Additionally, early adoption is permitted.
| | January 1, 2023 | | The Company will apply the amendments prospectively to business combinations occurring on or after the effective date. This standard is not expected to have a material impact on the Company’s consolidated financial statements. |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| | | | Effective | | Effect on the Financial Statements |
Standard | | Description | | Date | | or Other Significant Matters |
ASU 2022-02, Financial Instruments – Credit Losses (Topic 326) | | This standard eliminates the accounting guidance for troubled debt restructurings (TDRs) by creditors, in ASC 310-40, Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for restructurings involving borrowers that are experiencing financial difficulty. Additionally, the amendments in this standard eliminate inconsistency in previous guidance by requiring creditors that are public business entities to disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases, but eliminates the disclosure of gross recoveries by year of origination previously presented in Example 15 in ASC 326-20-50-79. An entity may elect to adopt the amendments on TDRs and related disclosure enhancements separately from the amendments relating to vintage disclosures. The amendments should be applied prospectively except as provided in the next sentence. For amendments related to the recognition and measurement of TDRs, an entity has the option to apply the amendments either prospectively or through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption using the modified retrospective transition method. Additionally, early adoption is permitted.
| | January 1, 2023 | | The Company has elected to adopt the amendments on TDRs and related disclosure enhancements separately from the amendments relating to vintage disclosures, which we early adopted on January 1, 2022. The Company is currently evaluating the impact the TDR amendments will have on its consolidated financial statements and related disclosures upon adoption. |
NOTE 17. RELATED PARTY TRANSACTIONS
In February 2022, the Company purchased $133.1 million in unpaid principal balances of single-family residential mortgage loans from a privately owned non-affiliated bank holding company. In addition, the Company entered into a subservicing agreement with the bank holding company pursuant to which it would service the purchased loans on an ongoing basis and the Company could outsource servicing of loans purchased from third parties to it. The Company’s Chairman of the Board of Directors is a director of the non-affiliated bank holding company.
The transactions described above were approved by the Audit Committee of the Board of Directors in accordance with our related party transactions policy.
NOTE 18. SUBSEQUENT EVENTS
Common Stock Dividends
On May 2, 2022, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.25 per common share. The cash dividend is payable on May 31, 2022 to stockholders of record at the close of business on May 16, 2022.
The Company has evaluated events that have occurred subsequent to March 31, 2022 and have concluded there are no other subsequent events that would require recognition in the accompanying condensed consolidated financial statements.