PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2023 | | 2022 |
| (Unaudited) |
| (Dollars in thousands, except par value amounts) |
ASSETS: | | | |
Cash and due from banks | $ | 218,830 | | | $ | 212,273 | |
Interest-earning deposits in financial institutions | 6,461,306 | | | 2,027,949 | |
Total cash, cash equivalents, and restricted cash | 6,680,136 | | | 2,240,222 | |
Securities available-for-sale, at fair value (amortized cost of $5,591,766 and $5,654,617, respectively) | 4,848,607 | | | 4,843,487 | |
Securities held-to-maturity, at amortized cost, net of allowance for credit losses (fair value of | | | |
$2,157,056 and $2,110,472, respectively) | 2,273,650 | | | 2,269,135 | |
Federal Home Loan Bank stock, at cost | 147,150 | | | 34,290 | |
Total investment securities | 7,269,407 | | | 7,146,912 | |
Loans held for sale | 2,796,208 | | | 65,076 | |
Gross loans and leases held for investment | 25,770,912 | | | 28,726,016 | |
Deferred fees, net | (98,531) | | | (116,887) | |
Allowance for loan and lease losses | (210,055) | | | (200,732) | |
Total loans and leases held for investment, net | 25,462,326 | | | 28,408,397 | |
Equipment leased to others under operating leases | 399,972 | | | 404,245 | |
Premises and equipment, net | 60,358 | | | 54,315 | |
Foreclosed assets, net | 2,135 | | | 5,022 | |
Goodwill | — | | | 1,376,736 | |
Core deposit and customer relationship intangibles, net | 28,970 | | | 31,381 | |
Other assets | 1,603,469 | | | 1,496,630 | |
Total assets | $ | 44,302,981 | | | $ | 41,228,936 | |
| | | |
LIABILITIES: | | | |
Noninterest-bearing deposits | $ | 7,030,759 | | | $ | 11,212,357 | |
Interest-bearing deposits | 21,156,802 | | | 22,723,977 | |
Total deposits | 28,187,561 | | | 33,936,334 | |
Borrowings (including $128,375 at fair value) | 11,881,712 | | | 1,764,030 | |
Subordinated debt | 868,815 | | | 867,087 | |
Accrued interest payable and other liabilities | 593,416 | | | 710,954 | |
Total liabilities | 41,531,504 | | | 37,278,405 | |
| | | |
Commitments and contingencies | | | |
| | | |
STOCKHOLDERS' EQUITY: | | | |
Preferred stock ($0.01 par value; 5,000,000 shares authorized; 513,250 Series A shares, | | | |
$1,000 per share liquidation preference, issued and outstanding at March 31, 2023 and | | | |
December 31, 2022) | 498,516 | | | 498,516 | |
Common stock ($0.01 par value, 200,000,000 shares authorized at March 31, 2023 and | | | |
December 31, 2022; 123,169,017 and 123,000,557 shares issued, respectively, includes | | | |
2,207,618 and 2,405,878 shares of unvested restricted stock, respectively) | 1,232 | | | 1,230 | |
Additional paid-in capital | 2,903,428 | | | 2,927,903 | |
Retained earnings | 215,253 | | | 1,420,624 | |
Treasury stock, at cost (2,924,803 and 2,778,500 shares at March 31, 2023 and December 31, 2022) | (110,892) | | | (106,839) | |
Accumulated other comprehensive (loss) income, net | (736,060) | | | (790,903) | |
Total stockholders' equity | 2,771,477 | | | 3,950,531 | |
Total liabilities and stockholders' equity | $ | 44,302,981 | | | $ | 41,228,936 | |
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2022 | | | | |
| (Unaudited) |
| (In thousands, except per share amounts) |
Interest income: | | | | | | | |
Loans and leases | $ | 430,685 | | | $ | 267,759 | | | | | |
Investment securities | 44,237 | | | 53,422 | | | | | |
Deposits in financial institutions | 42,866 | | | 1,723 | | | | | |
Total interest income | 517,788 | | | 322,904 | | | | | |
Interest expense: | | | | | | | |
Deposits | 155,892 | | | 6,208 | | | | | |
Borrowings | 69,122 | | | 161 | | | | | |
Subordinated debt | 13,502 | | | 7,818 | | | | | |
Total interest expense | 238,516 | | | 14,187 | | | | | |
Net interest income | 279,272 | | | 308,717 | | | | | |
Provision for credit losses | 3,000 | | | — | | | | | |
Net interest income after provision for credit losses | 276,272 | | | 308,717 | | | | | |
Noninterest income: | | | | | | | |
Leased equipment income | 13,857 | | | 13,094 | | | | | |
Other commissions and fees | 10,344 | | | 11,580 | | | | | |
Service charges on deposit accounts | 3,573 | | | 3,571 | | | | | |
Gain on sale of loans and leases | 2,962 | | | 60 | | | | | |
Gain on sale of securities | — | | | 104 | | | | | |
Dividends and gains (losses) on equity investments | 1,098 | | | (11,375) | | | | | |
Warrant (loss) income | (333) | | | 629 | | | | | |
Other income | 4,890 | | | 3,155 | | | | | |
Total noninterest income | 36,391 | | | 20,818 | | | | | |
Noninterest expense: | | | | | | | |
Compensation | 88,476 | | | 92,240 | | | | | |
Occupancy | 15,067 | | | 15,200 | | | | | |
Customer related expense | 24,005 | | | 12,655 | | | | | |
Other professional services | 6,073 | | | 5,954 | | | | | |
Data processing | 10,938 | | | 9,629 | | | | | |
Leased equipment depreciation | 9,375 | | | 9,189 | | | | | |
Insurance and assessments | 11,717 | | | 5,490 | | | | | |
Loan expense | 6,524 | | | 5,157 | | | | | |
Intangible asset amortization | 2,411 | | | 3,649 | | | | | |
Foreclosed assets expense (income), net | 363 | | | (3,353) | | | | | |
Acquisition, integration and reorganization costs | 8,514 | | | — | | | | | |
Goodwill impairment | 1,376,736 | | | — | | | | | |
Other expense | 12,804 | | | 11,616 | | | | | |
Total noninterest expense | 1,573,003 | | | 167,426 | | | | | |
(Loss) earnings before income taxes | (1,260,340) | | | 162,109 | | | | | |
Income tax (benefit) expense | (64,916) | | | 41,981 | | | | | |
Net (loss) earnings | (1,195,424) | | | 120,128 | | | | | |
Preferred stock dividends | 9,947 | | | — | | | | | |
Net (loss) earnings available to common stockholders | $ | (1,205,371) | | | $ | 120,128 | | | | | |
| | | | | | | |
(Loss) earnings per common share: | | | | | | | |
Basic | $ | (10.22) | | | $ | 1.01 | | | | | |
Diluted | $ | (10.22) | | | $ | 1.01 | | | | | |
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2022 | | | | |
| (Unaudited) |
| (In thousands) |
Net (loss) earnings | $ | (1,195,424) | | | $ | 120,128 | | | | | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Unrealized net holding gains (losses) on securities available-for-sale arising during the period | 67,971 | | | (609,826) | | | | | |
Income tax (expense) benefit related to unrealized net holding losses arising during the period | (18,828) | | | 167,458 | | | | | |
Unrealized net holding gains (losses) on securities available-for-sale, net of tax | 49,143 | | | (442,368) | | | | | |
Reclassification adjustment for net (gains) losses included in net earnings (1) | — | | | (104) | | | | | |
Income tax expense (benefit) related to reclassification adjustment | — | | | 29 | | | | | |
Reclassification adjustment for net (gains) losses included in net earnings, net of tax | — | | | (75) | | | | | |
| | | | | | | |
Amortization of unrealized net loss on securities transferred from available-for-sale to held-to-maturity | 7,884 | | | — | | | | | |
Income tax benefit related to amortization of unrealized net loss on securities transferred from | | | | | | | |
available-for-sale to held-to-maturity | (2,184) | | | — | | | | | |
Amortization of unrealized net loss on securities transferred from available-for-sale to | | | | | | | |
held-to-maturity, net of tax | 5,700 | | | — | | | | | |
Other comprehensive income (loss), net of tax | 54,843 | | | (442,443) | | | | | |
Comprehensive loss | $ | (1,140,581) | | | $ | (322,315) | | | | | |
___________________________________
(1) Entire amounts are recognized in "Gain (loss) on sale of securities" on the Condensed Consolidated Statements of Earnings.
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| | | Common Stock | | | | | | Accumulated | | |
| | | | | | | Additional | | | | | | Other | | |
| Preferred | | | | Par | | Paid-in | | Retained | | Treasury | | Comprehensive | | |
| Stock (1) | | Shares | | Value | | Capital | | Earnings | | Stock | | (Loss) Income | | Total |
| | | (Unaudited) |
| | | (In thousands, except per share amount) |
Balance, December 31, 2022 | $ | 498,516 | | | 120,222,057 | | | $ | 1,230 | | | $ | 2,927,903 | | | $ | 1,420,624 | | | $ | (106,839) | | | $ | (790,903) | | | $ | 3,950,531 | |
Net loss | — | | | — | | | — | | | — | | | (1,195,424) | | | — | | | — | | | (1,195,424) | |
Other comprehensive income, | | | | | | | | | | | | | | | |
net of tax | — | | | — | | | — | | | — | | | — | | | — | | | 54,843 | | | 54,843 | |
Restricted stock awarded and | | | | | | | | | | | | | | | |
earned stock compensation, | | | | | | | | | | | | | | | |
net of shares forfeited | — | | | 168,460 | | | 2 | | | 4,981 | | | — | | | — | | | — | | | 4,983 | |
Restricted stock surrendered | — | | | (146,303) | | | — | | | — | | | — | | | (4,053) | | | — | | | (4,053) | |
Cash dividends paid: | | | | | | | | | | | | | | | |
Preferred stock, $0.48/share | — | | | — | | | — | | | — | | | (9,947) | | | — | | | — | | | (9,947) | |
Common stock, $0.25/share | — | | | — | | | — | | | (29,456) | | | — | | | — | | | — | | | (29,456) | |
Balance, March 31, 2023 | $ | 498,516 | | | 120,244,214 | | | $ | 1,232 | | | $ | 2,903,428 | | | $ | 215,253 | | | $ | (110,892) | | | $ | (736,060) | | | $ | 2,771,477 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
___________________________________
(1) There were 513,250 shares of Series A preferred stock issued during the 2nd quarter of 2022 that remained outstanding at March 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| | | Common Stock | | | | | | Accumulated | | |
| | | | | | | Additional | | | | | | Other | | |
| Preferred | | | | Par | | Paid-in | | Retained | | Treasury | | Comprehensive | | |
| Stock | | Shares | | Value | | Capital | | Earnings | | Stock | | (Loss) Income | | 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 of tax | — | | | — | | | — | | | — | | | — | | | — | | | (442,443) | | | (442,443) | |
Restricted stock awarded and | | | | | | | | | | | | | | | |
earned stock compensation, | | | | | | | | | | | | | | | |
net of shares forfeited | — | | | 109,466 | | | 1 | | | 7,556 | | | — | | | — | | | — | | | 7,557 | |
Restricted stock surrendered | — | | | (92,554) | | | — | | | — | | | — | | | (4,481) | | | — | | | (4,481) | |
Cash dividends paid: | | | | | | | | | | | | | | | |
Common stock, $0.25/share | — | | | — | | | — | | | (29,796) | | | — | | | — | | | — | | | (29,796) | |
Balance, March 31, 2022 | $ | — | | | 119,601,766 | | | $ | 1,222 | | | $ | 2,991,159 | | | $ | 1,136,478 | | | $ | (101,789) | | | $ | (376,475) | | | $ | 3,650,595 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| (Unaudited) |
| (In thousands) |
Cash flows from operating activities: | | | |
Net (loss) earnings | $ | (1,195,424) | | | $ | 120,128 | |
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | | | |
Goodwill impairment | 1,376,736 | | | — | |
Depreciation and amortization | 13,939 | | | 13,577 | |
Amortization of net premiums on investment securities | 9,526 | | | 15,606 | |
Amortization of intangible assets | 2,411 | | | 3,649 | |
Amortization of operating lease ROU assets | 6,655 | | | 7,443 | |
Provision for credit losses | 3,000 | | | — | |
Gain on sale of foreclosed assets | (196) | | | (3,177) | |
Provision for losses on foreclosed assets | 527 | | | — | |
Gain on sale of loans and leases | (2,962) | | | (60) | |
Gain on sale of premises and equipment | (7) | | | (2) | |
Gain on sale of securities | — | | | (104) | |
Gain on BOLI death benefit | (350) | | | — | |
Unrealized gain on derivatives, foreign currencies, and credit-linked notes, net | (1,781) | | | (1,176) | |
Earned stock compensation | 4,983 | | | 7,557 | |
| | | |
(Increase) decrease in other assets | (129,223) | | | 29,162 | |
Decrease in accrued interest payable and other liabilities | (108,825) | | | (58,397) | |
Net cash (used in) provided by operating activities | (20,991) | | | 134,206 | |
| | | |
Cash flows from investing activities: | | | |
| | | |
Net increase in loans and leases | (93,256) | | | (1,448,692) | |
Proceeds from sales of loans and leases | 290,228 | | | 36,758 | |
Proceeds from maturities and paydowns of securities available-for-sale | 56,956 | | | 243,921 | |
Proceeds from sales of securities available-for-sale | — | | | 206,192 | |
Purchases of securities available-for-sale | (550) | | | (356,196) | |
Proceeds from maturities and paydowns of securities held-to-maturity | 288 | | | — | |
Net purchases of Federal Home Loan Bank stock | (112,860) | | | — | |
Proceeds from sales of foreclosed assets | 5,124 | | | 16,020 | |
Purchases of premises and equipment, net | (9,236) | | | (7,287) | |
Proceeds from sales of premises and equipment | 13 | | | 3 | |
Proceeds from BOLI death benefit | 1,844 | | | — | |
Net (increase) decrease in equipment leased to others under operating leases | (5,097) | | | 4,661 | |
Net cash provided by (used in) investing activities | 133,454 | | | (1,304,620) | |
| | | |
Cash flows from financing activities: | | | |
Net decrease in noninterest-bearing deposits | (4,181,598) | | | (486,082) | |
Net decrease in interest-bearing deposits | (1,567,175) | | | (1,286,780) | |
Net increase in borrowings | 10,119,680 | | | 991,000 | |
| | | |
| | | |
Restricted stock surrendered | (4,053) | | | (4,481) | |
Preferred stock dividends paid | (9,947) | | | — | |
Common stock dividends paid | (29,456) | | | (29,796) | |
Net cash provided by (used in) financing activities | 4,327,451 | | | (816,139) | |
| | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 4,439,914 | | | (1,986,553) | |
Cash, cash equivalents, and restricted cash, beginning of period | 2,240,222 | | | 4,057,234 | |
Cash, cash equivalents, and restricted cash, end of period | $ | 6,680,136 | | | $ | 2,070,681 | |
| | | |
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| (Unaudited) |
| (In thousands) |
Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | 209,340 | | | $ | 10,635 | |
Cash paid for income taxes | 786 | | | 2,138 | |
Loans transferred to foreclosed assets | 2,568 | | | 304 | |
Transfers from loans held for investment to loans held for sale | 2,796,365 | | | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
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 and headquartered in Los Angeles, California, with an executive office in Denver, Colorado. Our principal business is to serve as the holding company for our wholly-owned subsidiary, Pacific Western Bank. References to "Pacific Western" or the "Bank" refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to "we," "us," or the "Company" refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to "PacWest" or to the "holding company," we are referring to PacWest Bancorp, the parent company, on a stand-alone basis.
The Bank is a relationship-based community bank focused on providing business banking and treasury management services to small, middle-market, and venture-backed businesses. The Bank offers a broad range of loan and lease and deposit products and services through full-service branches throughout California and in Durham, North Carolina and Denver, Colorado, and loan production offices around the country.
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, 2022 as filed with the Securities and Exchange Commission ("Form 10-K"). Updates to our significant accounting policies described below reflect the impact of the adoption of ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures ("ASU 2022-02")," specifically the amendment to troubled debt restructurings, and organizational changes which resulted in changes to our reportable operating segments.
Loan Modifications to Borrowers Experiencing Financial Difficulty
Loan modifications made to borrowers experiencing financial difficulty constitute modifications of receivables in the form of principal forgiveness, an interest rate reduction, an other than-insignificant payment delay, or a term extension. ASU 2022-02 eliminated the concept of troubled debt restructurings, and introduced broader modification reporting requirements. Previously, troubled debt restructurings included any type of modification that included a below market concession which was granted both to a borrower in financial difficulty and as a result of financial difficulty. Loan modifications made to borrowers experiencing financial difficulty no longer consider whether a market concession has been granted, as was required with troubled debt restructurings, but rather includes as modifications within the four listed reportable modification types to a borrower deemed to be experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of the modification. Loans reported in this classification have a rating of substandard or worse, and may include both accruing and nonaccruing loans. Loans are assessed to determine whether the modification constitutes a new loan or a continuation of the existing loan. Depending on the terms of the modification and nature of the borrower, this may result in a downgrade or placing a loan on nonaccrual status, which in turn would impact the loan's classification within the ALLL. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.
Business Segments
We regularly assess our strategic plans, operations, reporting structures and financial information provided to management to identify our reportable segments. Civic, a lending subsidiary we acquired in February 2021, has historically been identified as an operating segment. In the fourth quarter of 2022, Civic met a quantitative threshold which required it to be disclosed as a reportable operating segment. Therefore, we had two reportable operating segments as of December 31, 2022: Commercial Banking and Civic, and a third segment, Other, which was used for inter-segment eliminations. In the first quarter of 2023, we began a restructuring of Civic which included removing most of Civic's top management and transferring day-to-day management of most of Civic's operating functions to managers at the Bank. Due to the restructuring of Civic, discrete financial information is no longer prepared. Our management reporting captures the direct expenses of Civic, however, none of the expenses now being incurred to manage Civic are being directly charged or allocated to Civic. Therefore, it is no longer feasible to produce meaningful, separate full financial statements, and thus, discrete financial information for Civic is no longer prepared or distributed to our chief operating decision maker. Thus, Civic no longer meets the criteria to be considered a
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
reportable operating segment. At March 31, 2023, we operated as one reportable segment - Commercial Banking.
Accounting Standards Adopted in 2023
Effective January 1, 2023, we completed the adoption of ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures," by eliminating the accounting guidance for 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. The Company updated its disclosures in Note 4. Loans and Leases to present information regarding loan modifications to borrowers experiencing financial difficulty. There was no transition adjustment recorded to retained earnings upon adoption. 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.
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, the fair value of loans held for sale, and the realization of deferred tax assets. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period's presentation format. In our loan and allowance tables, we realigned certain of our loan portfolio classes and subclasses to better reflect and report our lending. We made the following changes: (1) moved the "Multi-family" loan subclass from the residential real estate mortgage class into its own loan class; (2) moved the "Construction - renovation" loan subclass from the residential real estate construction and land loan class to the residential real estate mortgage class and renamed it "Residential renovation;" and (3) renamed the residential real estate mortgage loan class as "Other residential." All of the loan and allowance tables, both current period and prior periods, reflect these changes and realignment.
Risks and Uncertainties
The recent bank failures involving three prominent regional banks have resulted in significant market volatility among publicly traded bank holding companies, and, in particular, regional banks like PacWest. These bank failures, and the resulting customer fear of additional bank failures, has increased the following risks and uncertainties regarding our business; (i) the loss of customer deposits which, in turn, has put pressure on our liquidity position, (ii) the decrease in our net interest margin resulting from replacing lower-cost customer deposits with higher-cost brokered deposits and borrowings, (iii) the downgrading of our credit rating by third-party rating agencies which may result in increased borrowing costs and/or trigger additional collateral or funding requirements, and (iv) the potential for operating costs to increase due to higher FDIC assessments and other costs necessary to respond to increased regulatory requirements.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
To respond to these increased risks and uncertainties we have taken the following actions to mitigate these risks; (a) we pledged additional assets as collateral for borrowings to increase our liquidity position for potential deposit outflows, (b) we have increased the number of customers enrolled in reciprocal deposit programs that increases the amount of FDIC insurance coverage on their account(s) to help retain these customers; (c) we are offering competitive promotional rates on our deposit products to attract new customer deposits, (d) we intend to complete strategic asset sales in the second quarter of 2023 to improve our liquidity position and capital ratios, and (e) we reduced our second quarter 2023 common dividend from $0.25 to $0.01 to improve our liquidity position and capital ratios.
NOTE 2. RESTRICTED CASH
The FRBSF establishes cash reserve requirements that its member banks must maintain based on a percentage of deposit liabilities. There were no reserves required to be held at the FRBSF for the three months ended March 31, 2023. As of March 31, 2023 and December 31, 2022, we pledged cash collateral for our derivative contracts of $2.4 million and $2.7 million. We have cash which is restricted based on the terms of some of our borrowing agreements that totaled $151.1 million at March 31, 2023 and $131.5 million at December 31, 2022.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 3. INVESTMENT SECURITIES
Transfer of Securities Available-for-Sale to Held-to Maturity
Effective June 1, 2022, the Company transferred $2.3 billion in fair value of municipal securities, agency commercial MBS, private label commercial MBS, U.S. Treasury securities, and corporate debt securities from available-for-sale to held-to-maturity. At the time of transfer, $218.3 million of unrealized losses, net of tax, was retained in "Accumulated other comprehensive income (loss)" on the condensed consolidated balance sheets.
Securities Available-for-Sale
The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| | | 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 | $ | 2,645,975 | | | $ | — | | | $ | (396,895) | | | $ | 2,249,080 | | | $ | 2,685,038 | | | $ | — | | | $ | (442,996) | | | $ | 2,242,042 | |
U.S. Treasury securities | 771,208 | | | — | | | (85,772) | | | 685,436 | | | 771,145 | | | — | | | (101,075) | | | 670,070 | |
Agency commercial MBS | 545,480 | | | — | | | (53,799) | | | 491,681 | | | 549,492 | | | — | | | (61,886) | | | 487,606 | |
Agency residential CMOs | 509,303 | | | — | | | (53,621) | | | 455,682 | | | 517,174 | | | — | | | (60,111) | | | 457,063 | |
Municipal securities | 395,709 | | | — | | | (50,070) | | | 345,639 | | | 399,724 | | | — | | | (60,398) | | | 339,326 | |
Corporate debt securities | 344,747 | | | — | | | (54,953) | | | 289,794 | | | 344,767 | | | 6 | | | (32,868) | | | 311,905 | |
Private label residential CMOs | 203,088 | | | — | | | (38,685) | | | 164,403 | | | 207,123 | | | — | | | (40,399) | | | 166,724 | |
Collateralized loan obligations | 109,166 | | | — | | | (6,172) | | | 102,994 | | | 109,159 | | | — | | | (6,898) | | | 102,261 | |
Private label commercial MBS | 27,331 | | | — | | | (1,796) | | | 25,535 | | | 28,903 | | | — | | | (2,076) | | | 26,827 | |
Asset-backed securities | 22,864 | | | — | | | (407) | | | 22,457 | | | 23,568 | | | — | | | (1,155) | | | 22,413 | |
SBA securities | 16,895 | | | — | | | (989) | | | 15,906 | | | 18,524 | | | — | | | (1,274) | | | 17,250 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total | $ | 5,591,766 | | | $ | — | | | $ | (743,159) | | | $ | 4,848,607 | | | $ | 5,654,617 | | | $ | 6 | | | $ | (811,136) | | | $ | 4,843,487 | |
As of March 31, 2023, 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, 2023, securities available-for-sale with a fair value of $4.6 billion were pledged as collateral primarily for the Bank Term Funding Program borrowings, FRB secured line of credit, and FHLB secured line of credit borrowings.
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 (losses) gains for the years indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
Sales of Securities Available-for-Sale | 2023 | | 2022 | | | | |
| (In thousands) |
Amortized cost of securities sold | $ | — | | | $ | 206,088 | | | | | |
| | | | | | | |
Gross realized gains | $ | — | | | $ | 1,190 | | | | | |
Gross realized losses | — | | | (1,086) | | | | | |
Net realized gains (losses) | $ | — | | | $ | 104 | | | | | |
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, 2023 |
| 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 | $ | 6,665 | | | $ | (306) | | | $ | 2,242,415 | | | $ | (396,589) | | | $ | 2,249,080 | | | $ | (396,895) | |
U.S. Treasury securities | 4,993 | | | (7) | | | 680,443 | | | (85,765) | | | 685,436 | | | (85,772) | |
Agency commercial MBS | 20,806 | | | (977) | | | 470,875 | | | (52,822) | | | 491,681 | | | (53,799) | |
Agency residential CMOs | 35,116 | | | (2,707) | | | 420,566 | | | (50,914) | | | 455,682 | | | (53,621) | |
Municipal securities | 836 | | | (44) | | | 344,803 | | | (50,026) | | | 345,639 | | | (50,070) | |
Corporate debt securities | 119,754 | | | (18,667) | | | 170,040 | | | (36,286) | | | 289,794 | | | (54,953) | |
Private label residential CMOs | 1,226 | | | (6) | | | 163,177 | | | (38,679) | | | 164,403 | | | (38,685) | |
Collateralized loan obligations | 18,690 | | | (838) | | | 84,304 | | | (5,334) | | | 102,994 | | | (6,172) | |
Private label commercial MBS | — | | | — | | | 25,534 | | | (1,796) | | | 25,534 | | | (1,796) | |
Asset-backed securities | — | | | — | | | 22,457 | | | (407) | | | 22,457 | | | (407) | |
SBA securities | — | | | — | | | 15,906 | | | (989) | | | 15,906 | | | (989) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total | $ | 208,086 | | | $ | (23,552) | | | $ | 4,640,520 | | | $ | (719,607) | | | $ | 4,848,606 | | | $ | (743,159) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 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 | $ | 52,556 | | | $ | (6,193) | | | $ | 2,189,485 | | | $ | (436,803) | | | $ | 2,242,041 | | | $ | (442,996) | |
U.S. Treasury securities | 4,972 | | | (26) | | | 665,098 | | | (101,049) | | | 670,070 | | | (101,075) | |
Agency commercial MBS | 316,892 | | | (31,139) | | | 170,714 | | | (30,747) | | | 487,606 | | | (61,886) | |
Agency residential CMOs | 245,755 | | | (22,748) | | | 211,309 | | | (37,363) | | | 457,064 | | | (60,111) | |
Municipal securities | 37,380 | | | (3,129) | | | 298,266 | | | (57,269) | | | 335,646 | | | (60,398) | |
Corporate debt securities | 302,643 | | | (32,124) | | | 4,256 | | | (744) | | | 306,899 | | | (32,868) | |
Private label residential CMOs | 19,261 | | | (1,294) | | | 147,464 | | | (39,105) | | | 166,725 | | | (40,399) | |
Collateralized loan obligations | 27,704 | | | (1,818) | | | 74,558 | | | (5,080) | | | 102,262 | | | (6,898) | |
Private label commercial MBS | 10,204 | | | (508) | | | 16,623 | | | (1,568) | | | 26,827 | | | (2,076) | |
Asset-backed securities | 22,413 | | | (1,155) | | | — | | | — | | | 22,413 | | | (1,155) | |
SBA securities | 17,250 | | | (1,274) | | | — | | | — | | | 17,250 | | | (1,274) | |
Total | $ | 1,057,030 | | | $ | (101,408) | | | $ | 3,777,773 | | | $ | (709,728) | | | $ | 4,834,803 | | | $ | (811,136) | |
The securities that were in an unrealized loss position at March 31, 2023, 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 "Accumulated other comprehensive (loss) income" of "Stockholders' equity" on the condensed consolidated balance sheets. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any impaired securities 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, 2023 |
| | | Due After | | Due After | | | | |
| Due | | One Year | | Five Years | | Due | | |
| Within | | Through | | Through | | After | | |
Security Type | One Year | | Five Years | | Ten Years | | Ten Years | | Total |
| (In thousands) |
Amortized Cost: | | | | | | | | | |
Agency residential MBS | $ | — | | | $ | — | | | $ | — | | | $ | 2,645,975 | | | $ | 2,645,975 | |
U.S. Treasury securities | 4,999 | | | 503,869 | | | 262,340 | | | — | | | 771,208 | |
Agency commercial MBS | — | | | 205,442 | | | 321,502 | | | 18,536 | | | 545,480 | |
Agency residential CMOs | — | | | — | | | 175,473 | | | 333,830 | | | 509,303 | |
Municipal securities | — | | | 53,855 | | | 319,463 | | | 22,391 | | | 395,709 | |
Corporate debt securities | — | | | 5,000 | | | 339,747 | | | — | | | 344,747 | |
Private label residential CMOs | — | | | — | | | — | | | 203,088 | | | 203,088 | |
Collateralized loan obligations | — | | | — | | | 70,329 | | | 38,837 | | | 109,166 | |
Private label commercial MBS | — | | | — | | | — | | | 27,331 | | | 27,331 | |
Asset-backed securities | — | | | — | | | — | | | 22,864 | | | 22,864 | |
SBA securities | — | | | 3,409 | | | — | | | 13,486 | | | 16,895 | |
Total | $ | 4,999 | | | $ | 771,575 | | | $ | 1,488,854 | | | $ | 3,326,338 | | | $ | 5,591,766 | |
| | | | | | | | | |
Fair Value: | | | | | | | | | |
Agency residential MBS | $ | — | | | $ | — | | | $ | — | | | $ | 2,249,080 | | | $ | 2,249,080 | |
U.S. Treasury securities | 4,993 | | | 448,478 | | | 231,965 | | | — | | | 685,436 | |
Agency commercial MBS | — | | | 191,319 | | | 282,520 | | | 17,842 | | | 491,681 | |
Agency residential CMOs | — | | | — | | | 154,603 | | | 301,079 | | | 455,682 | |
Municipal securities | — | | | 48,293 | | | 276,487 | | | 20,859 | | | 345,639 | |
Corporate debt securities | — | | | 4,957 | | | 284,837 | | | — | | | 289,794 | |
Private label residential CMOs | — | | | — | | | — | | | 164,403 | | | 164,403 | |
Collateralized loan obligations | — | | | — | | | 67,321 | | | 35,673 | | | 102,994 | |
Private label commercial MBS | — | | | — | | | — | | | 25,535 | | | 25,535 | |
Asset-backed securities | — | | | — | | | — | | | 22,457 | | | 22,457 | |
SBA securities | — | | | 3,279 | | | — | | | 12,627 | | | 15,906 | |
Total | $ | 4,993 | | | $ | 696,326 | | | $ | 1,297,733 | | | $ | 2,849,555 | | | $ | 4,848,607 | |
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.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Securities Held-to-Maturity
The following table presents amortized cost, allowance for credit losses, gross unrealized gains and losses, and fair values of securities held-to-maturity as of the date indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| | | Allowance | | | | | | | | |
| | | for | | Net | | Gross | | Gross | | |
| Amortized | | Credit | | Carrying | | Unrealized | | Unrealized | | Fair |
Security Type | Cost | | Losses | | Amount | | Gains | | Losses | | Value |
| (In thousands) |
| | | | | | | | | | | |
Municipal securities | $ | 1,244,441 | | | $ | (140) | | | $ | 1,244,301 | | | $ | 814 | | | $ | (41,203) | | | $ | 1,203,912 | |
Agency commercial MBS | 428,995 | | | — | | | 428,995 | | | — | | | (26,135) | | | 402,860 | |
Private label commercial MBS | 346,976 | | | — | | | 346,976 | | | — | | | (28,371) | | | 318,605 | |
U.S. Treasury securities | 184,862 | | | — | | | 184,862 | | | — | | | (8,233) | | | 176,629 | |
Corporate debt securities | 69,876 | | | (1,360) | | | 68,516 | | | — | | | (13,466) | | | 55,050 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total (1) | $ | 2,275,150 | | | $ | (1,500) | | | $ | 2,273,650 | | | $ | 814 | | | $ | (117,408) | | | $ | 2,157,056 | |
__________________________(1) Excludes accrued interest receivable of $11.3 million at March 31, 2023 which is recorded in "Other assets" on the condensed consolidated balance sheets.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| | | Allowance | | | | | | | | |
| | | for | | Net | | Gross | | Gross | | |
| Amortized | | Credit | | Carrying | | Unrealized | | Unrealized | | Fair |
Security Type | Cost | | Losses | | Amount | | Gains | | Losses | | Value |
| (In thousands) |
| | | | | | | | | | | |
Municipal securities | $ | 1,243,443 | | | $ | (140) | | | $ | 1,243,303 | | | $ | 8 | | | $ | (77,526) | | | $ | 1,165,785 | |
Agency commercial MBS | 427,411 | | | — | | | 427,411 | | | — | | | (34,287) | | | 393,124 | |
Private label commercial MBS | 345,825 | | | — | | | 345,825 | | | — | | | (26,027) | | | 319,798 | |
U.S. Treasury securities | 184,162 | | | — | | | 184,162 | | | — | | | (12,462) | | | 171,700 | |
Corporate debt securities | 69,794 | | | (1,360) | | | 68,434 | | | — | | | (8,369) | | | 60,065 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total (1) | $ | 2,270,635 | | | $ | (1,500) | | | $ | 2,269,135 | | | $ | 8 | | | $ | (158,671) | | | $ | 2,110,472 | |
__________________________(1) Excludes accrued interest receivable of $13.5 million at December 31, 2022 which is recorded in "Other assets" on the condensed consolidated balance sheets.
As of March 31, 2023, securities held-to-maturity with a fair value of $2.1 billion were pledged as collateral primarily for public deposits, the FRB secured line of credit, Bank Term Funding Program borrowings, and letters of credit.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for Credit Losses on Securities Held-to-Maturity
The following table presents the changes by major security type in our allowance for credit losses on securities held-to-maturity for the periods indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Allowance for | | Provision | | | | | | Allowance for |
| Credit Losses, | | for | | | | | | Credit Losses, |
| Beginning | | Credit | | | | | | End of |
Security Type | of Period | | Losses | | Charge-offs | | Recoveries | | Period |
| (In thousands) |
Three Months Ended March 31, 2023 | | | | | | | | | |
Municipal securities | $ | 140 | | | $ | — | | | $ | — | | | $ | — | | | $ | 140 | |
Corporate debt securities | 1,360 | | | — | | | — | | | — | | | 1,360 | |
Total | $ | 1,500 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,500 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Credit losses on HTM securities are recorded at the time of purchase, acquisition, or when the Company designates securities as held-to-maturity. Credit losses on HTM securities are representative of current expected credit losses that may be incurred over the life of the investment. Accrued interest receivable on HTM securities, which is included in other assets on the condensed consolidated balance sheets, is excluded from the estimate of expected credit losses. HTM U.S. treasury securities and agency-backed MBS securities are considered to have no risk of loss as they are either explicitly or implicitly guaranteed by the U.S. government. The change in fair value in the HTM private label CMBS portfolio is solely driven by changes in interest rates. The Company has no knowledge of any underlying credit issues and the cash flows underlying the debt securities have not changed and are not expected to be impacted by changes in interest rates and, thus, there is no related ACL for this portfolio. The underlying bonds in the Company’s HTM municipal securities and HTM corporate debt securities portfolios are evaluated for credit losses in conjunction with management’s estimate of the allowance for credit losses based primarily on credit ratings.
Securities Held-to-Maturity by Credit Quality Indicator
The Company uses S&P, Moody's, Fitch, Kroll, and Egan Jones ratings as the credit quality indicators for its held-to-maturity securities. The following table presents our securities held-to-maturity portfolio at amortized cost by the lowest available credit rating as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
Security Type | AAA | | AA+ | | AA | | AA- | | A | | A- | | BBB | | NR | | Total |
| (In thousands) |
Amortized Cost: | | | | | | | | | | | | | | | | | |
Municipal securities | $ | 551,978 | | | $ | 397,018 | | | $ | 174,273 | | | $ | 95,566 | | | $ | 1,898 | | | $ | — | | | $ | — | | | $ | 23,708 | | | $ | 1,244,441 | |
Agency commercial MBS | — | | | 428,995 | | | — | | | — | | | — | | | — | | | — | | | — | | | 428,995 | |
Private label commercial | | | | | | | | | | | | | | | | | |
MBS | 346,976 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 346,976 | |
U.S. Treasury securities | — | | | 184,862 | | | — | | | — | | | — | | | — | | | — | | | — | | | 184,862 | |
Corporate debt securities | — | | | — | | | — | | | — | | | — | | | 23,268 | | | 21,007 | | | 25,601 | | | 69,876 | |
Total | $ | 898,954 | | | $ | 1,010,875 | | | $ | 174,273 | | | $ | 95,566 | | | $ | 1,898 | | | $ | 23,268 | | | $ | 21,007 | | | $ | 49,309 | | | $ | 2,275,150 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
Security Type | AAA | | AA+ | | AA | | AA- | | A | | A- | | BBB | | NR | | Total |
| (In thousands) |
Amortized Cost: | | | | | | | | | | | | | | | | | |
Municipal securities | $ | 568,674 | | | $ | 385,990 | | | $ | 173,751 | | | $ | 95,471 | | | $ | 1,901 | | | $ | — | | | $ | — | | | $ | 17,656 | | | $ | 1,243,443 | |
Agency commercial MBS | — | | | 427,411 | | | — | | | — | | | — | | | — | | | — | | | — | | | 427,411 | |
Private label commercial | | | | | | | | | | | | | | | | | |
MBS | 345,825 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 345,825 | |
U.S. Treasury securities | — | | | 184,162 | | | — | | | — | | | — | | | — | | | — | | | — | | | 184,162 | |
Corporate debt securities | — | | | — | | | — | | | — | | | — | | | 23,244 | | | 20,999 | | | 25,551 | | | 69,794 | |
Total | $ | 914,499 | | | $ | 997,563 | | | $ | 173,751 | | | $ | 95,471 | | | $ | 1,901 | | | $ | 23,244 | | | $ | 20,999 | | | $ | 43,207 | | | $ | 2,270,635 | |
Contractual Maturities of Securities Held-to-Maturity
The following table presents the contractual maturities of our securities held-to-maturity portfolio based on amortized cost and fair value as of the date indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| | | Due After | | Due After | | | | |
| Due | | One Year | | Five Years | | Due | | |
| Within | | Through | | Through | | After | | |
Security Type | One Year | | Five Years | | Ten Years | | Ten Years | | Total |
| (In thousands) |
Amortized Cost: | | | | | | | | | |
| | | | | | | | | |
Municipal securities | $ | — | | | $ | — | | | $ | 350,751 | | | $ | 893,690 | | | $ | 1,244,441 | |
Agency commercial MBS | — | | | — | | | 407,855 | | | 21,140 | | | 428,995 | |
Private label commercial MBS | — | | | — | | | 36,089 | | | 310,887 | | | 346,976 | |
U.S. Treasury securities | — | | | — | | | 184,862 | | | — | | | 184,862 | |
Corporate debt securities | — | | | — | | | — | | | 69,876 | | | 69,876 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | $ | — | | | $ | — | | | $ | 979,557 | | | $ | 1,295,593 | | | $ | 2,275,150 | |
| | | | | | | | | |
Fair Value: | | | | | | | | | |
| | | | | | | | | |
Municipal securities | $ | — | | | $ | — | | | $ | 335,601 | | | $ | 868,311 | | | $ | 1,203,912 | |
Agency commercial MBS | — | | | — | | | 382,601 | | | 20,259 | | | 402,860 | |
Private label commercial MBS | — | | | — | | | 33,282 | | | 285,323 | | | 318,605 | |
U.S. Treasury securities | — | | | — | | | 176,629 | | | — | | | 176,629 | |
Corporate debt securities | — | | | — | | | — | | | 55,050 | | | 55,050 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Total | $ | — | | | $ | — | | | $ | 928,113 | | | $ | 1,228,943 | | | $ | 2,157,056 | |
CMBS 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.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Interest Income on Investment Securities
The following table presents the composition of our interest income on investment securities, including available-for-sale and held-to-maturity, for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2022 | | | | |
| (In thousands) |
Taxable interest | $ | 38,692 | | | $ | 44,642 | | | | | |
Non-taxable interest | 4,903 | | | 8,519 | | | | | |
Dividend income | 642 | | | 261 | | | | | |
Total interest income on investment securities | $ | 44,237 | | | $ | 53,422 | | | | | |
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, |
| 2023 | | 2022 |
| (In thousands) |
Real estate mortgage | $ | 15,436,731 | | | $ | 15,762,351 | |
Real estate construction and land (1) | 4,674,473 | | | 4,221,853 | |
Commercial | 5,232,521 | | | 8,297,182 | |
Consumer | 427,187 | | | 444,630 | |
Total gross loans and leases held for investment | 25,770,912 | | | 28,726,016 | |
Deferred fees, net | (98,531) | | | (116,887) | |
Total loans and leases held for investment, net of deferred fees | 25,672,381 | | | 28,609,129 | |
Allowance for loan and lease losses | (210,055) | | | (200,732) | |
Total loans and leases held for investment, net (2) | $ | 25,462,326 | | | $ | 28,408,397 | |
____________________
(1) Includes land and acquisition and development loans of $142.9 million and $153.5 million at March 31, 2023 and December 31, 2022.
(2) Excludes accrued interest receivable of $131.7 million and $124.3 million at March 31, 2023 and December 31, 2022, 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, 2023 |
| 30 - 89 | | 90 or More | | | | | | |
| Days | | Days | | Total | | | | |
| Past Due | | Past Due | | Past Due | | Current | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | |
Commercial | $ | 3,524 | | | $ | 21,578 | | | $ | 25,102 | | | $ | 3,783,649 | | | $ | 3,808,751 | |
Multi-family | — | | | — | | | — | | | 5,523,320 | | | 5,523,320 | |
Other residential | 138,372 | | | 27,080 | | | 165,452 | | | 5,910,088 | | | 6,075,540 | |
Total real estate mortgage | 141,896 | | | 48,658 | | | 190,554 | | | 15,217,057 | | | 15,407,611 | |
Real estate construction and land: | | | | | | | | | |
Commercial | — | | | — | | | — | | | 910,327 | | | 910,327 | |
Residential | — | | | — | | | — | | | 3,698,113 | | | 3,698,113 | |
Total real estate construction and land | — | | | — | | | — | | | 4,608,440 | | | 4,608,440 | |
Commercial: | | | | | | | | | |
Asset-based | — | | | 420 | | | 420 | | | 2,067,907 | | | 2,068,327 | |
Venture capital | — | | | — | | | — | | | 2,058,237 | | | 2,058,237 | |
Other commercial | 941 | | | 352 | | | 1,293 | | | 1,101,250 | | | 1,102,543 | |
Total commercial | 941 | | | 772 | | | 1,713 | | | 5,227,394 | | | 5,229,107 | |
Consumer | 1,594 | | | 506 | | | 2,100 | | | 425,123 | | | 427,223 | |
Total | $ | 144,431 | | | $ | 49,936 | | | $ | 194,367 | | | $ | 25,478,014 | | | $ | 25,672,381 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| 30 - 89 | | 90 or More | | | | | | |
| Days | | Days | | Total | | | | |
| Past Due | | Past Due | | Past Due | | Current | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | |
Commercial | $ | 1,721 | | | $ | 29,269 | | | $ | 30,990 | | | $ | 3,815,841 | | | $ | 3,846,831 | |
Multi-family | — | | | — | | | — | | | 5,607,865 | | | 5,607,865 | |
Other residential | 101,728 | | | 39,875 | | | 141,603 | | | 6,134,025 | | | 6,275,628 | |
Total real estate mortgage | 103,449 | | | 69,144 | | | 172,593 | | | 15,557,731 | | | 15,730,324 | |
Real estate construction and land: | | | | | | | | | |
Commercial | — | | | — | | | — | | | 898,592 | | | 898,592 | |
Residential | — | | | — | | | — | | | 3,253,580 | | | 3,253,580 | |
Total real estate construction and land | — | | | — | | | — | | | 4,152,172 | | | 4,152,172 | |
Commercial: | | | | | | | | | |
Asset-based | — | | | 434 | | | 434 | | | 5,139,775 | | | 5,140,209 | |
Venture capital | — | | | — | | | — | | | 2,033,302 | | | 2,033,302 | |
Other commercial | 461 | | | 1,195 | | | 1,656 | | | 1,106,795 | | | 1,108,451 | |
Total commercial | 461 | | | 1,629 | | | 2,090 | | | 8,279,872 | | | 8,281,962 | |
Consumer | 1,935 | | | 149 | | | 2,084 | | | 442,587 | | | 444,671 | |
Total | $ | 105,845 | | | $ | 70,922 | | | $ | 176,767 | | | $ | 28,432,362 | | | $ | 28,609,129 | |
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, 2023 | | December 31, 2022 |
| Nonaccrual | | Performing | | Total | | Nonaccrual | | Performing | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | | | |
Commercial | $ | 32,996 | | | $ | 3,775,755 | | | $ | 3,808,751 | | | $ | 42,509 | | | $ | 3,804,322 | | | $ | 3,846,831 | |
Multi-family | — | | | 5,523,320 | | | 5,523,320 | | | — | | | 5,607,865 | | | 5,607,865 | |
Other residential | 50,060 | | | 6,025,480 | | | 6,075,540 | | | 55,893 | | | 6,219,735 | | | 6,275,628 | |
Total real estate mortgage | 83,056 | | | 15,324,555 | | | 15,407,611 | | | 98,402 | | | 15,631,922 | | | 15,730,324 | |
Real estate construction and land: | | | | | | | | | | | |
Commercial | — | | | 910,327 | | | 910,327 | | | — | | | 898,592 | | | 898,592 | |
Residential | — | | | 3,698,113 | | | 3,698,113 | | | — | | | 3,253,580 | | | 3,253,580 | |
Total real estate construction and land | — | | | 4,608,440 | | | 4,608,440 | | | — | | | 4,152,172 | | | 4,152,172 | |
Commercial: | | | | | | | | | | | |
Asset-based | 420 | | | 2,067,907 | | | 2,068,327 | | | 865 | | | 5,139,344 | | | 5,140,209 | |
Venture capital | — | | | 2,058,237 | | | 2,058,237 | | | — | | | 2,033,302 | | | 2,033,302 | |
Other commercial | 3,123 | | | 1,099,420 | | | 1,102,543 | | | 4,345 | | | 1,104,106 | | | 1,108,451 | |
Total commercial | 3,543 | | | 5,225,564 | | | 5,229,107 | | | 5,210 | | | 8,276,752 | | | 8,281,962 | |
Consumer | 525 | | | 426,698 | | | 427,223 | | | 166 | | | 444,505 | | | 444,671 | |
Total | $ | 87,124 | | | $ | 25,585,257 | | | $ | 25,672,381 | | | $ | 103,778 | | | $ | 28,505,351 | | | $ | 28,609,129 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
At March 31, 2023, nonaccrual loans and leases included $49.9 million of loans and leases 90 or more days past due, $15.1 million of loans and leases 30 to 89 days past due, and $22.1 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, 2022, nonaccrual loans and leases included $70.9 million of loans and leases 90 or more days past due, $6.8 million of loans and leases 30 to 89 days past due, and $26.0 million of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.
As of March 31, 2023, our three largest loan relationships on nonaccrual status had an aggregate carrying value of $23.8 million and represented 27% 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, 2023 |
| Classified | | Special Mention | | Pass | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | |
Commercial | $ | 35,596 | | | $ | 109,020 | | | $ | 3,664,135 | | | $ | 3,808,751 | |
Multi-family | 3,586 | | | 116,092 | | | 5,403,642 | | | 5,523,320 | |
Other residential | 76,382 | | | 44,810 | | | 5,954,348 | | | 6,075,540 | |
Total real estate mortgage | 115,564 | | | 269,922 | | | 15,022,125 | | | 15,407,611 | |
Real estate construction and land: | | | | | | | |
Commercial | — | | | 93,641 | | | 816,686 | | | 910,327 | |
Residential | — | | | 44,997 | | | 3,653,116 | | | 3,698,113 | |
Total real estate construction and land | — | | | 138,638 | | | 4,469,802 | | | 4,608,440 | |
Commercial: | | | | | | | |
Asset-based | 420 | | | 33,133 | | | 2,034,774 | | | 2,068,327 | |
Venture capital | 2,615 | | | 126,422 | | | 1,929,200 | | | 2,058,237 | |
Other commercial | 13,126 | | | 5,036 | | | 1,084,381 | | | 1,102,543 | |
Total commercial | 16,161 | | | 164,591 | | | 5,048,355 | | | 5,229,107 | |
Consumer | 698 | | | 7,002 | | | 419,523 | | | 427,223 | |
Total | $ | 132,423 | | | $ | 580,153 | | | $ | 24,959,805 | | | $ | 25,672,381 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Classified | | Special Mention | | Pass | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | |
Commercial | $ | 43,737 | | | $ | 106,493 | | | $ | 3,696,601 | | | $ | 3,846,831 | |
Multi-family | 3,611 | | | 60,330 | | | 5,543,924 | | | 5,607,865 | |
Other residential | 60,557 | | | 58,063 | | | 6,157,008 | | | 6,275,628 | |
Total real estate mortgage | 107,905 | | | 224,886 | | | 15,397,533 | | | 15,730,324 | |
Real estate construction and land: | | | | | | | |
Commercial | — | | | 91,334 | | | 807,258 | | | 898,592 | |
Residential | — | | | 45,155 | | | 3,208,425 | | | 3,253,580 | |
Total real estate construction and land | — | | | 136,489 | | | 4,015,683 | | | 4,152,172 | |
Commercial: | | | | | | | |
Asset-based | 865 | | | 56,836 | | | 5,082,508 | | | 5,140,209 | |
Venture capital | 2,753 | | | 127,907 | | | 1,902,642 | | | 2,033,302 | |
Other commercial | 6,473 | | | 13,233 | | | 1,088,745 | | | 1,108,451 | |
Total commercial | 10,091 | | | 197,976 | | | 8,073,895 | | | 8,281,962 | |
Consumer | 275 | | | 6,908 | | | 437,488 | | | 444,671 | |
Total | $ | 118,271 | | | $ | 566,259 | | | $ | 27,924,599 | | | $ | 28,609,129 | |
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, | | |
| 2023 | | 2023 | | | | 2022 | | 2022 | | |
| Nonaccrual | | Interest | | | | Nonaccrual | | Interest | | |
| Recorded | | Income | | | | Recorded | | Income | | |
| Investment | | Recognized | | | | Investment | | Recognized | | |
| (In thousands) |
With An Allowance Recorded: | | | | | | | | | | | |
Real estate mortgage: | | | | | | | | | | | |
Commercial | $ | 60 | | | $ | — | | | | | $ | 68 | | | $ | — | | | |
Multi-family | — | | | — | | | | | — | | | — | | | |
Other residential | 364 | | | — | | | | | 4,109 | | | — | | | |
Real estate construction and land: | | | | | | | | | | | |
Commercial | — | | | — | | | | | — | | | — | | | |
Residential | — | | | — | | | | | 493 | | | — | | | |
Commercial: | | | | | | | | | | | |
Asset based | — | | | — | | | | | 874 | | | — | | | |
Venture capital | — | | | — | | | | | 3,659 | | | — | | | |
Other commercial | 927 | | | — | | | | | 1,274 | | | — | | | |
Consumer | 525 | | | — | | | | | 387 | | | — | | | |
With No Related Allowance Recorded: | | | | | | | | | | | |
Real estate mortgage: | | | | | | | | | | | |
Commercial | $ | 32,936 | | | $ | 3 | | | | | $ | 32,004 | | | $ | 17 | | | |
Multi-family | — | | | — | | | | | — | | | — | | | |
Other residential | 49,696 | | | — | | | | | 13,982 | | | — | | | |
Real estate construction and land: | | | | | | | | | | | |
Commercial | — | | | — | | | | | — | | | — | | | |
Residential | — | | | — | | | | | 5,093 | | | — | | | |
Commercial: | | | | | | | | | | | |
Asset based | 420 | | | — | | | | | 449 | | | — | | | |
Venture capital | — | | | — | | | | | — | | | — | | | |
Other commercial | 2,196 | | | 1 | | | | | 4,146 | | | 354 | | | |
Consumer | — | | | — | | | | | — | | | — | | | |
Total Loans and Leases With and | | | | | | | | | | | |
Without an Allowance Recorded: | | | | | | | | | | | |
Real estate mortgage | $ | 83,056 | | | $ | 3 | | | | | $ | 50,163 | | | $ | 17 | | | |
Real estate construction and land | — | | | — | | | | | 5,586 | | | — | | | |
Commercial | 3,543 | | | 1 | | | | | 10,402 | | | 354 | | | |
Consumer | 525 | | | — | | | | | 387 | | | — | | | |
Total | $ | 87,124 | | | $ | 4 | | | | | $ | 66,538 | | | $ | 371 | | | |
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, 2023 | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 4,935 | | | $ | 2,712 | | | $ | 10,178 | | | $ | 27,110 | | | $ | 40,532 | | | $ | 1,305 | | | $ | — | | | $ | 86,772 | |
3-4 Pass | 43,528 | | | 537,793 | | | 498,774 | | | 460,109 | | | 317,986 | | | 1,623,820 | | | 85,376 | | | 9,977 | | | 3,577,363 | |
5 Special mention | — | | | — | | | — | | | 724 | | | 14,957 | | | 93,339 | | | — | | | — | | | 109,020 | |
6-8 Classified | — | | | — | | | 552 | | | 458 | | | 1,265 | | | 33,321 | | | — | | | — | | | 35,596 | |
Total | $ | 43,528 | | | $ | 542,728 | | | $ | 502,038 | | | $ | 471,469 | | | $ | 361,318 | | | $ | 1,791,012 | | | $ | 86,681 | | | $ | 9,977 | | | $ | 3,808,751 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 6,926 | | | $ | — | | | $ | — | | | $ | 6,926 | |
| | | | | | | | | | | | | | | | | |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Multi-family | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 23,561 | | | $ | 84,153 | | | $ | 26,843 | | | $ | 55,542 | | | $ | 104,508 | | | $ | — | | | $ | — | | | $ | 294,607 | |
3-4 Pass | 1,380 | | | 1,916,440 | | | 1,084,926 | | | 441,047 | | | 672,385 | | | 936,345 | | | 56,512 | | | — | | | 5,109,035 | |
5 Special mention | — | | | — | | | — | | | 37,211 | | | 29,430 | | | 49,451 | | | — | | | — | | | 116,092 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | 3,586 | | | — | | | — | | | 3,586 | |
Total | $ | 1,380 | | | $ | 1,940,001 | | | $ | 1,169,079 | | | $ | 505,101 | | | $ | 757,357 | | | $ | 1,093,890 | | | $ | 56,512 | | | $ | — | | | $ | 5,523,320 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Other residential | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,500 | | | $ | — | | | $ | 1,500 | |
3-4 Pass | 299,234 | | | 2,432,852 | | | 3,077,525 | | | 78,709 | | | — | | | 20,047 | | | 44,380 | | | 101 | | | 5,952,848 | |
5 Special mention | — | | | 18,810 | | | 26,000 | | | — | | | — | | | — | | | — | | | — | | | 44,810 | |
6-8 Classified | (1,456) | | | 26,587 | | | 41,041 | | | 7,683 | | | — | | | 2,368 | | | — | | | 159 | | | 76,382 | |
Total | $ | 297,778 | | | $ | 2,478,249 | | | $ | 3,144,566 | | | $ | 86,392 | | | $ | — | | | $ | 22,415 | | | $ | 45,880 | | | $ | 260 | | | $ | 6,075,540 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | 1,600 | | | $ | 1,214 | | | $ | 91 | | | $ | — | | | $ | 4 | | | $ | — | | | $ | — | | | $ | 2,909 | |
____________________(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, 2023 | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Real Estate Construction | | | | | | | | | | | | | | | | | |
and Land: Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
3-4 Pass | — | | | 356,981 | | | 182,400 | | | 80,045 | | | 173,735 | | | 23,525 | | | — | | | — | | | 816,686 | |
5 Special mention | — | | | — | | | — | | | — | | | — | | | 93,641 | | | — | | | — | | | 93,641 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | — | | | $ | 356,981 | | | $ | 182,400 | | | $ | 80,045 | | | $ | 173,735 | | | $ | 117,166 | | | $ | — | | | $ | — | | | $ | 910,327 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Real Estate Construction | | | | | | | | | | | | | | | | | |
and Land: Residential | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
3-4 Pass | 10,606 | | | 810,532 | | | 1,592,751 | | | 869,174 | | | 206,942 | | | 128,373 | | | 34,738 | | | — | | | 3,653,116 | |
5 Special mention | — | | | — | | | — | | | — | | | 44,997 | | | — | | | — | | | — | | | 44,997 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 10,606 | | | $ | 810,532 | | | $ | 1,592,751 | | | $ | 869,174 | | | $ | 251,939 | | | $ | 128,373 | | | $ | 34,738 | | | $ | — | | | $ | 3,698,113 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Commercial: Asset-Based | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 1,493 | | | $ | 270,573 | | | $ | 219,771 | | | $ | 46,719 | | | $ | 148,394 | | | $ | 319,219 | | | $ | (20) | | | $ | — | | | $ | 1,006,149 | |
3-4 Pass | 30,268 | | | 351,394 | | | 170,393 | | | 47,637 | | | 33,991 | | | 44,076 | | | 349,019 | | | 1,847 | | | 1,028,625 | |
5 Special mention | — | | | 177 | | | — | | | — | | | — | | | 14,473 | | | 18,451 | | | 32 | | | 33,133 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | 420 | | | — | | | — | | | 420 | |
Total | $ | 31,761 | | | $ | 622,144 | | | $ | 390,164 | | | $ | 94,356 | | | $ | 182,385 | | | $ | 378,188 | | | $ | 367,450 | | | $ | 1,879 | | | $ | 2,068,327 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Commercial: Venture | | | | | | | | | | | | | | | | | |
Capital | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | (53) | | | $ | (16) | | | $ | — | | | $ | 1,999 | | | $ | — | | | $ | 27 | | | $ | 174,702 | | | $ | (557) | | | $ | 176,102 | |
3-4 Pass | (10) | | | 137,072 | | | 146,732 | | | 22,178 | | | 3,711 | | | 2,173 | | | 1,375,198 | | | 66,044 | | | 1,753,098 | |
5 Special mention | — | | | 14,303 | | | 42,585 | | | 4,484 | | | 22,258 | | | — | | | 37,799 | | | 4,993 | | | 126,422 | |
6-8 Classified | — | | | — | | | 2,615 | | | — | | | — | | | — | | | — | | | — | | | 2,615 | |
Total | $ | (63) | | | $ | 151,359 | | | $ | 191,932 | | | $ | 28,661 | | | $ | 25,969 | | | $ | 2,200 | | | $ | 1,587,699 | | | $ | 70,480 | | | $ | 2,058,237 | |
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, 2023 | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Commercial: Other | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 655 | | | $ | 2,328 | | | $ | 8,215 | | | $ | (20) | | | $ | 65 | | | $ | (36) | | | $ | 21,365 | | | $ | — | | | $ | 32,572 | |
3-4 Pass | 3,579 | | | 96,573 | | | 274,960 | | | 51,500 | | | 37,466 | | | 127,936 | | | 456,166 | | | 3,629 | | | 1,051,809 | |
5 Special mention | — | | | — | | | 317 | | | 151 | | | 610 | | | 2,386 | | | 1,488 | | | 84 | | | 5,036 | |
6-8 Classified | — | | | 6,702 | | | — | | | — | | | 300 | | | 2,542 | | | 2,725 | | | 857 | | | 13,126 | |
Total | $ | 4,234 | | | $ | 105,603 | | | $ | 283,492 | | | $ | 51,631 | | | $ | 38,441 | | | $ | 132,828 | | | $ | 481,744 | | | $ | 4,570 | | | $ | 1,102,543 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 47 | | | $ | 90 | | | $ | 137 | |
| | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 32 | | | $ | 28 | | | $ | 6 | | | $ | — | | | $ | — | | | $ | 1,041 | | | $ | — | | | $ | 1,107 | |
3-4 Pass | 66 | | | 61,167 | | | 217,470 | | | 19,885 | | | 45,584 | | | 64,999 | | | 9,245 | | | — | | | 418,416 | |
5 Special mention | — | | | 1,379 | | | 3,557 | | | 451 | | | 1,225 | | | 250 | | | 140 | | | — | | | 7,002 | |
6-8 Classified | — | | | — | | | 356 | | | 38 | | | 176 | | | 108 | | | 1 | | | 19 | | | 698 | |
Total | $ | 66 | | | $ | 62,578 | | | $ | 221,411 | | | $ | 20,380 | | | $ | 46,985 | | | $ | 65,357 | | | $ | 10,427 | | | $ | 19 | | | $ | 427,223 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | 79 | | | $ | 31 | | | $ | — | | | $ | 144 | | | $ | 170 | | | $ | 1 | | | $ | — | | | $ | 425 | |
| | | | | | | | | | | | | | | | | |
Total Loans and Leases | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 2,095 | | | $ | 301,413 | | | $ | 314,879 | | | $ | 85,725 | | | $ | 231,111 | | | $ | 464,250 | | | $ | 199,893 | | | $ | (557) | | | $ | 1,598,809 | |
3-4 Pass | 388,651 | | | 6,700,804 | | | 7,245,931 | | | 2,070,284 | | | 1,491,800 | | | 2,971,294 | | | 2,410,634 | | | 81,598 | | | 23,360,996 | |
5 Special mention | — | | | 34,669 | | | 72,459 | | | 43,021 | | | 113,477 | | | 253,540 | | | 57,878 | | | 5,109 | | | 580,153 | |
6-8 Classified | (1,456) | | | 33,289 | | | 44,564 | | | 8,179 | | | 1,741 | | | 42,345 | | | 2,726 | | | 1,035 | | | 132,423 | |
Total | $ | 389,290 | | | $ | 7,070,175 | | | $ | 7,677,833 | | | $ | 2,207,209 | | | $ | 1,838,129 | | | $ | 3,731,429 | | | $ | 2,671,131 | | | $ | 87,185 | | | $ | 25,672,381 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | 1,679 | | | $ | 1,245 | | | $ | 91 | | | $ | 144 | | | $ | 7,100 | | | $ | 48 | | | $ | 90 | | | $ | 10,397 | |
______________________
(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, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 4,957 | | | $ | 3,791 | | | $ | 7,215 | | | $ | 26,132 | | | $ | 4,690 | | | $ | 35,343 | | | $ | 1,290 | | | $ | — | | | $ | 83,418 | |
3-4 Pass | 537,931 | | | 501,576 | | | 467,792 | | | 322,448 | | | 539,701 | | | 1,148,386 | | | 85,284 | | | 10,065 | | | 3,613,183 | |
5 Special mention | — | | | — | | | 728 | | | 16,394 | | | 2,294 | | | 87,077 | | | — | | | — | | | 106,493 | |
6-8 Classified | — | | | 559 | | | 464 | | | 1,310 | | | 27,396 | | | 14,008 | | | — | | | — | | | 43,737 | |
Total | $ | 542,888 | | | $ | 505,926 | | | $ | 476,199 | | | $ | 366,284 | | | $ | 574,081 | | | $ | 1,284,814 | | | $ | 86,574 | | | $ | 10,065 | | | $ | 3,846,831 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | 67 | | | $ | — | | | $ | 79 | | | $ | 2,258 | | | $ | 326 | | | $ | — | | | $ | — | | | $ | 2,730 | |
| | | | | | | | | | | | | | | | | |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Multi-family | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | 89,251 | | | $ | 19,945 | | | $ | 58,275 | | | $ | 66,219 | | | $ | 69,805 | | | $ | — | | | $ | — | | | $ | 303,495 | |
3-4 Pass | 1,940,337 | | | 1,084,467 | | | 523,645 | | | 676,169 | | | 446,987 | | | 511,185 | | | 57,639 | | | — | | | 5,240,429 | |
5 Special mention | — | | | — | | | 4,944 | | | 16,974 | | | 7,003 | | | 31,409 | | | — | | | — | | | 60,330 | |
6-8 Classified | — | | | — | | | — | | | — | | | 2,750 | | | 861 | | | — | | | — | | | 3,611 | |
Total | $ | 1,940,337 | | | $ | 1,173,718 | | | $ | 548,534 | | | $ | 751,418 | | | $ | 522,959 | | | $ | 613,260 | | | $ | 57,639 | | | $ | — | | | $ | 5,607,865 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Real Estate Mortgage: | | | | | | | | | | | | | | | | | |
Other residential | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,000 | | | $ | — | | | $ | 1,000 | |
3-4 Pass | 2,805,533 | | | 3,200,013 | | | 83,580 | | | — | | | 237 | | | 20,394 | | | 46,155 | | | 96 | | | 6,156,008 | |
5 Special mention | 27,272 | | | 25,766 | | | 4,916 | | | — | | | 109 | | | — | | | — | | | — | | | 58,063 | |
6-8 Classified | 19,248 | | | 33,218 | | | 5,333 | | | — | | | — | | | 2,555 | | | — | | | 203 | | | 60,557 | |
Total | $ | 2,852,053 | | | $ | 3,258,997 | | | $ | 93,829 | | | $ | — | | | $ | 346 | | | $ | 22,949 | | | $ | 47,155 | | | $ | 299 | | | $ | 6,275,628 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | 249 | | | $ | 1,084 | | | $ | 912 | | | $ | — | | | $ | — | | | $ | 81 | | | $ | — | | | $ | — | | | $ | 2,326 | |
____________________
(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, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Real Estate Construction | | | | | | | | | | | | | | | | | |
and Land: Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
3-4 Pass | 299,538 | | | 170,397 | | | 74,634 | | | 237,294 | | | 17,763 | | | 7,632 | | | — | | | — | | | 807,258 | |
5 Special mention | — | | | — | | | — | | | — | | | 91,334 | | | — | | | — | | | — | | | 91,334 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 299,538 | | | $ | 170,397 | | | $ | 74,634 | | | $ | 237,294 | | | $ | 109,097 | | | $ | 7,632 | | | $ | — | | | $ | — | | | $ | 898,592 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Real Estate Construction | | | | | | | | | | | | | | | | | |
and Land: Residential | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
3-4 Pass | 605,683 | | | 1,302,061 | | | 844,041 | | | 282,076 | | | 125,805 | | | 204 | | | 48,555 | | | — | | | 3,208,425 | |
5 Special mention | — | | | — | | | — | | | 45,155 | | | — | | | — | | | — | | | — | | | 45,155 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total | $ | 605,683 | | | $ | 1,302,061 | | | $ | 844,041 | | | $ | 327,231 | | | $ | 125,805 | | | $ | 204 | | | $ | 48,555 | | | $ | — | | | $ | 3,253,580 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | |
Commercial: Asset-Based | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 225,140 | | | $ | 209,272 | | | $ | 57,727 | | | $ | 202,063 | | | $ | 121,600 | | | $ | 208,542 | | | $ | 850,031 | | | $ | — | | | $ | 1,874,375 | |
3-4 Pass | 547,675 | | | 188,269 | | | 52,711 | | | 35,811 | | | 33,426 | | | 40,714 | | | 2,239,785 | | | 69,742 | | | 3,208,133 | |
5 Special mention | — | | | — | | | — | | | 43,409 | | | — | | | 3,505 | | | 9,922 | | | — | | | 56,836 | |
6-8 Classified | — | | | — | | | — | | | — | | | — | | | 434 | | | — | | | 431 | | | 865 | |
Total | $ | 772,815 | | | $ | 397,541 | | | $ | 110,438 | | | $ | 281,283 | | | $ | 155,026 | | | $ | 253,195 | | | $ | 3,099,738 | | | $ | 70,173 | | | $ | 5,140,209 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 750 | | | $ | — | | | $ | 750 | |
| | | | | | | | | | | | | | | | | |
Commercial: Venture | | | | | | | | | | | | | | | | | |
Capital | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | (40) | | | $ | — | | | $ | 2,000 | | | $ | — | | | $ | 134 | | | $ | 3 | | | $ | 216,535 | | | $ | 503 | | | $ | 219,135 | |
3-4 Pass | 92,015 | | | 136,296 | | | 18,075 | | | 3,705 | | | 1,833 | | | 910 | | | 1,365,101 | | | 65,572 | | | 1,683,507 | |
5 Special mention | 13,970 | | | 40,924 | | | 4,483 | | | 23,202 | | | — | | | — | | | 40,335 | | | 4,993 | | | 127,907 | |
6-8 Classified | — | | | 2,753 | | | — | | | — | | | — | | | — | | | — | | | — | | | 2,753 | |
Total | $ | 105,945 | | | $ | 179,973 | | | $ | 24,558 | | | $ | 26,907 | | | $ | 1,967 | | | $ | 913 | | | $ | 1,621,971 | | | $ | 71,068 | | | $ | 2,033,302 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 940 | | | $ | — | | | $ | 940 | |
____________________
(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, 2022 | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Loans | | Loans | | Total |
| (In thousands) |
Commercial: Other | | | | | | | | | | | | | | | | | |
Commercial | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 3,591 | | | $ | 10,880 | | | $ | 12 | | | $ | 161 | | | $ | 3 | | | $ | 14 | | | $ | 20,958 | | | $ | — | | | $ | 35,619 | |
3-4 Pass | 84,930 | | | 278,208 | | | 54,542 | | | 41,908 | | | 47,771 | | | 87,645 | | | 454,438 | | | 3,684 | | | 1,053,126 | |
5 Special mention | 7,038 | | | 796 | | | 184 | | | 695 | | | 1,526 | | | 2,858 | | | 47 | | | 89 | | | 13,233 | |
6-8 Classified | — | | | 806 | | | — | | | 319 | | | (3) | | | 2,653 | | | 1,600 | | | 1,098 | | | 6,473 | |
Total | $ | 95,559 | | | $ | 290,690 | | | $ | 54,738 | | | $ | 43,083 | | | $ | 49,297 | | | $ | 93,170 | | | $ | 477,043 | | | $ | 4,871 | | | $ | 1,108,451 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | — | | | $ | 209 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 2,537 | | | $ | 1,906 | | | $ | 474 | | | $ | 5,127 | |
| | | | | | | | | | | | | | | | | |
Consumer | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 34 | | | $ | 30 | | | $ | 7 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | 854 | | | $ | — | | | $ | 926 | |
3-4 Pass | 62,868 | | | 226,084 | | | 20,798 | | | 48,542 | | | 31,693 | | | 37,838 | | | 8,739 | | | — | | | 436,562 | |
5 Special mention | 1,252 | | | 3,490 | | | 464 | | | 1,126 | | | 278 | | | 238 | | | 60 | | | — | | | 6,908 | |
6-8 Classified | 47 | | | — | | | — | | | 59 | | | 79 | | | 74 | | | — | | | 16 | | | 275 | |
Total | $ | 64,201 | | | $ | 229,604 | | | $ | 21,269 | | | $ | 49,727 | | | $ | 32,051 | | | $ | 38,150 | | | $ | 9,653 | | | $ | 16 | | | $ | 444,671 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | 309 | | | $ | 529 | | | $ | 237 | | | $ | 728 | | | $ | — | | | $ | 354 | | | $ | — | | | $ | 7 | | | $ | 2,164 | |
| | | | | | | | | | | | | | | | | |
Total Loans and Leases | | | | | | | | | | | | | | | | | |
Internal risk rating: | | | | | | | | | | | | | | | | | |
1-2 High pass | $ | 233,682 | | | $ | 313,224 | | | $ | 86,906 | | | $ | 286,631 | | | $ | 192,647 | | | $ | 313,707 | | | $ | 1,090,668 | | | $ | 503 | | | $ | 2,517,968 | |
3-4 Pass | 6,976,510 | | | 7,087,371 | | | 2,139,818 | | | 1,647,953 | | | 1,245,216 | | | 1,854,908 | | | 4,305,696 | | | 149,159 | | | 25,406,631 | |
5 Special mention | 49,532 | | | 70,976 | | | 15,719 | | | 146,955 | | | 102,544 | | | 125,087 | | | 50,364 | | | 5,082 | | | 566,259 | |
6-8 Classified | 19,295 | | | 37,336 | | | 5,797 | | | 1,688 | | | 30,222 | | | 20,585 | | | 1,600 | | | 1,748 | | | 118,271 | |
Total | $ | 7,279,019 | | | $ | 7,508,907 | | | $ | 2,248,240 | | | $ | 2,083,227 | | | $ | 1,570,629 | | | $ | 2,314,287 | | | $ | 5,448,328 | | | $ | 156,492 | | | $ | 28,609,129 | |
Current YTD period: | | | | | | | | | | | | | | | | | |
Gross charge-offs | $ | 558 | | | $ | 1,889 | | | $ | 1,149 | | | $ | 808 | | | $ | 2,258 | | | $ | 3,298 | | | $ | 3,596 | | | $ | 481 | | | $ | 14,037 | |
____________________
(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)
On January 1, 2023, the Company adopted ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures", which eliminated the accounting guidance for troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. The following table presents our loan modifications made to borrowers experiencing financial difficulty by type of modification for the period indicated with related amortized cost balances as of the date indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | | | |
| Loan Modifications | | | | |
| Balances (Amortized Cost Basis) at | | | | |
| March 31, 2023 | | | | |
| | | | | | | | | Combination - Term | | | | | | | | | | |
| | | | | | | | | Extension and | | Combination - Term | | | | | | | | |
| | | | | | | | | Interest Rate | | Extension and | | Total Loan | | | | |
| Term Extension | | Payment Delay | | Reduction | | Payment Delay | | Modifications | | | | |
| | | % of | | | | % of | | | | % of | | | | % of | | | | % of | | | | |
| | | Loan | | | | Loan | | | | Loan | | | | Loan | | | | Loan | | | | |
| | | Portfolio | | | | Portfolio | | | | Portfolio | | | | Portfolio | | | | Portfolio | | | | |
| Balance | | Class | | Balance | | Class | | Balance | | Class | | Balance | | Class | | Balance | | Class | | | | |
| (Dollars in thousands) | | | | | | | | | | | | |
Real estate | | | | | | | | | | | | | | | | | | | | | | | |
mortgage: | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | |
residential | $ | 12,716 | | | 0.2 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 12,716 | | | 0.2 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Venture | | | | | | | | | | | | | | | | | | | | | | | |
capital | — | | | — | % | | — | | | — | % | | — | | | — | % | | 613 | | | — | % | | 613 | | | — | % | | | | |
Other | | | | | | | | | | | | | | | | | | | | | | | |
commercial | 2,057 | | | 0.2 | % | | 45 | | | — | % | | — | | | — | % | | — | | | — | % | | 2,102 | | | 0.2 | % | | | | |
Consumer | — | | | — | % | | — | | | — | % | | 3 | | | — | % | | — | | | — | % | | 3 | | | — | % | | | | |
Total | $ | 14,773 | | | | | $ | 45 | | | | | $ | 3 | | | | | $ | 613 | | | | | $ | 15,434 | | | | | | | |
The following tables present the financial effect of our loan modifications made to borrowers experiencing financial difficulty by type of modification for the period indicated:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Term Extension - Financial Effect |
Real estate mortgage: | |
| |
| |
Other residential | Extended maturity by a weighted average seven months. |
| | | | | | |
| |
| |
Commercial: | | | | | | |
| |
| |
Other commercial | Extended maturity by a weighted average 12 months. |
| |
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2023 |
| | Payment Delay - Financial Effect |
| | |
| | |
| | |
| | |
| | | | | | | |
| | |
| | |
Commercial: | | | | | | | |
| | |
| | |
Other commercial | | Provided six months of reduced payments to borrowers without extending the loan term. |
| | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Combination - Term Extension and Interest Rate Reduction |
| |
| |
| |
| |
| | | | | | |
| |
| |
| | | | | | |
| |
| |
| |
Consumer | Extended maturity by a weighted average 2 years and reduced weighted average contractual interest rate from 9.5% to 2.0%. |
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Combination - Term Extension and Payment Delay |
| |
| |
| |
| |
| | | | | | |
| |
| |
Commercial: | | | | | | |
| |
Venture capital | Extended maturity by a weighted average 11 months and provided 11 months of interest only payments to borrowers. |
| |
| |
The following table presents the payment status of our loan modifications made during the period indicated with related amortized cost balances as of the date indicated: | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Loan Modifications |
| Payment Status (Amortized Cost Basis) at |
| March 31, 2023 |
| | | 30-89 Days | | 90 or More Days | | |
| Current | | Past Due | | Past Due | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | |
Commercial | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Multi-family | — | | | — | | | — | | | — | |
Other residential | 8,780 | | | 3,936 | | | — | | | 12,716 | |
Real estate construction and land: | | | | | | | |
Commercial | — | | | — | | | — | | | — | |
Residential | — | | | — | | | — | | | — | |
Commercial: | | | | | | | |
Asset-based | — | | | — | | | — | | | — | |
Venture capital | 613 | | | — | | | — | | | 613 | |
Other commercial | 2,102 | | | — | | | — | | | 2,102 | |
Consumer | 3 | | | — | | | — | | | 3 | |
Total | $ | 11,498 | | | $ | 3,936 | | | $ | — | | | $ | 15,434 | |
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 following table presents our troubled debt restructurings of loans held for investment by loan portfolio segment and class for the period indicated: | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| | | Pre- | | Post- |
| | | Modification | | Modification |
| Number | | Outstanding | | Outstanding |
| of | | Recorded | | Recorded |
Troubled Debt Restructurings | Loans | | Investment | | Investment |
| (In thousands) |
Real estate mortgage: | | | | | |
| | | | | |
Multi-family | 1 | | | $ | 304 | | | $ | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Commercial: | | | | | |
| | | | | |
| | | | | |
Other commercial | 13 | | | 1,074 | | | 1,074 | |
| | | | | |
Total | 14 | | | $ | 1,378 | | | $ | 1,074 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
During the three months ended March 31, 2022, there were two other commercial loans totaling $78,000 restructured in the preceding 12-month period that subsequently defaulted.
Leases Receivable
We provide equipment financing to our customers primarily with operating and direct financing leases. For direct financing leases, lease receivables are recorded on the balance sheet but the leased equipment is not, although we generally retain legal title to the leased equipment until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Direct financing leases are subject to our accounting for allowance for loan and lease losses. See Note 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, | | |
| 2023 | | 2022 | | | | |
| (In thousands) |
Component of leases receivable income: | | | | | | | |
Interest income on net investments in leases | $ | 3,749 | | | $ | 2,388 | | | | | |
The following table presents the components of leases receivable as of the dates indicated:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| (In thousands) |
Net Investment in Direct Financing Leases: | | | |
Lease payments receivable | $ | 235,396 | | | $ | 232,909 | |
Unguaranteed residual assets | 23,866 | | | 23,561 | |
Deferred costs and other | 1,781 | | | 1,815 | |
Aggregate net investment in leases | $ | 261,043 | | | $ | 258,285 | |
| | | |
The following table presents maturities of leases receivable as of the date indicated:
| | | | | |
| March 31, 2023 |
| (In thousands) |
Period ending December 31, | |
2023 | $ | 55,009 | |
2024 | 73,615 | |
2025 | 55,299 | |
2026 | 36,835 | |
2027 | 23,704 | |
Thereafter | 18,570 | |
Total undiscounted cash flows | 263,032 | |
Less: Unearned income | (27,636) | |
Present value of lease payments | $ | 235,396 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for Loan and Lease Losses
The following tables present a summary of the activity in the allowance for loan and lease losses on loans and leases held for investment by loan portfolio segment for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Three Months Ended March 31, 2023 |
| | | Real Estate | | | | | | |
| Real Estate | | Construction | | | | | | |
| Mortgage | | and Land | | Commercial | | Consumer | | Total |
| (In thousands) |
Allowance for Loan and Lease Losses: | | | | | | | | | |
Balance, beginning of period | $ | 87,309 | | | $ | 52,320 | | | $ | 52,849 | | | $ | 8,254 | | | $ | 200,732 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Charge-offs | (9,835) | | | — | | | (137) | | | (425) | | | (10,397) | |
Recoveries | 200 | | | — | | | 975 | | | 45 | | | 1,220 | |
Net (charge-offs) recoveries | (9,635) | | | — | | | 838 | | | (380) | | | (9,177) | |
Provision | 31,809 | | | 2,714 | | | (16,492) | | | 469 | | | 18,500 | |
Balance, end of period | $ | 109,483 | | | $ | 55,034 | | | $ | 37,195 | | | $ | 8,343 | | | $ | 210,055 | |
| | | | | | | | | |
Ending Allowance by | | | | | | | | | |
Evaluation Methodology: | | | | | | | | | |
Individually evaluated | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Collectively evaluated | $ | 109,483 | | | $ | 55,034 | | | $ | 37,195 | | | $ | 8,343 | | | $ | 210,055 | |
| | | | | | | | | |
Ending Loans and Leases by | | | | | | | | | |
Evaluation Methodology: | | | | | | | | | |
Individually evaluated | $ | 82,835 | | | $ | — | | | $ | 2,616 | | | $ | — | | | $ | 85,451 | |
Collectively evaluated | 15,324,776 | | | 4,608,440 | | | 5,226,491 | | | 427,223 | | | 25,586,930 | |
Ending balance | $ | 15,407,611 | | | $ | 4,608,440 | | | $ | 5,229,107 | | | $ | 427,223 | | | $ | 25,672,381 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| 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 | $ | 98,624 | | | $ | 44,508 | | | $ | 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 | (11,391) | | | (1,009) | | | 9,436 | | | 964 | | | (2,000) | |
Balance, end of period | $ | 87,228 | | | $ | 43,648 | | | $ | 57,056 | | | $ | 9,466 | | | $ | 197,398 | |
| | | | | | | | | |
Ending Allowance by | | | | | | | | | |
Evaluation Methodology: | | | | | | | | | |
Individually evaluated | $ | 156 | | | $ | — | | | $ | 1,023 | | | $ | — | | | $ | 1,179 | |
Collectively evaluated | $ | 87,072 | | | $ | 43,648 | | | $ | 56,033 | | | $ | 9,466 | | | $ | 196,219 | |
| | | | | | | | | |
Ending Loans and Leases by | | | | | | | | | |
Evaluation Methodology: | | | | | | | | | |
Individually evaluated | $ | 51,280 | | | $ | 6,515 | | | $ | 17,813 | | | $ | — | | | $ | 75,608 | |
Collectively evaluated | 12,457,784 | | | 3,217,201 | | | 8,096,882 | | | 504,597 | | | 24,276,464 | |
Ending balance | $ | 12,509,064 | | | $ | 3,223,716 | | | $ | 8,114,695 | | | $ | 504,597 | | | $ | 24,352,072 | |
The allowance for loan and lease losses increased by $9.3 million in the first quarter of 2023 to $210.1 million due primarily to a provision for loan and lease losses of $18.5 million driven by an increase in qualitative reserves for loans secured by commercial real estate and higher net charge-offs, offset partially by a decline in the balances of loans and leases held for investment. For additional information regarding the calculation of the allowance for loan and lease losses using the CECL methodology, including discussion of forecasts used to estimate the allowance, please see Note 1(j). Nature of Operations and Summary of Significant Accounting Policies - Allowance for Credit Losses on Loans and Leases Held for Investment of the Notes to Consolidated Financial Statements contained in "Item 8. Financial Statements and Supplementary Data" of the Form 10-K.
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, 2023 | | December 31, 2022 |
| Real | | Business | | | | Real | | Business | | |
| Property | | Assets | | Total | | Property | | Assets | | Total |
| (In thousands) |
Real estate mortgage | $ | 81,541 | | | $ | — | | | $ | 81,541 | | | $ | 90,485 | | | $ | — | | | $ | 90,485 | |
Real estate construction and land | — | | | — | | | — | | | 1,402 | | | — | | | 1,402 | |
Commercial | — | | | 420 | | | 420 | | | — | | | 434 | | | 434 | |
Total | $ | 81,541 | | | $ | 420 | | | $ | 81,961 | | | $ | 91,887 | | | $ | 434 | | | $ | 92,321 | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for Credit Losses
The allowance for credit losses is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets.
The following tables present a summary of the activity in the allowance for loan and lease losses and reserve for unfunded loan commitments for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended | | |
| March 31, 2023 | | |
| Allowance for | | Reserve for | | Total | | | | | | |
| Loan and | | Unfunded Loan | | Allowance for | | | | | | |
| Lease Losses | | Commitments | | Credit Losses | | | | | | |
| (In thousands) | | | | | | |
Balance, beginning of period | $ | 200,732 | | | $ | 91,071 | | | $ | 291,803 | | | | | | | |
Charge-offs | (10,397) | | | — | | | (10,397) | | | | | | | |
Recoveries | 1,220 | | | — | | | 1,220 | | | | | | | |
Net charge-offs | (9,177) | | | — | | | (9,177) | | | | | | | |
Provision | 18,500 | | | (15,500) | | | 3,000 | | | | | | | |
Balance, end of period | $ | 210,055 | | | $ | 75,571 | | | $ | 285,626 | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| 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 | | | | | | | |
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 | 2023 | | 2022 |
| (In thousands) |
Commercial real estate | $ | — | | | $ | — | |
| | | |
Single-family residence | 2,135 | | | 5,022 | |
| | | |
Total other real estate owned, net | 2,135 | | | 5,022 | |
Other foreclosed assets | — | | | — | |
Total foreclosed assets, net | $ | 2,135 | | | $ | 5,022 | |
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, 2022 | $ | 5,022 | |
| |
Transfers to foreclosed assets from loans | 2,568 | |
| |
Provision for losses | (527) | |
Reductions related to sales | (4,928) | |
Balance, March 31, 2023 | $ | 2,135 | |
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 at the reporting unit level 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 the fair value of the reporting unit. 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.
The impact to banks triggered by the closure of two well-known regional banks caused a significant decline in bank stock prices in March 2023, including our stock price. These triggering events indicated that goodwill related to our single reporting unit may be impaired and resulted in us performing a goodwill impairment assessment in the first quarter of 2023. We applied the market approach using an average share price of the Company's stock and a control premium to determine the estimated fair value of the reporting unit. The control premium was based upon management's judgment using historical information of control premiums for completed bank acquisitions. As a result, we recorded a goodwill impairment charge of our entire goodwill balance of $1.4 billion in the first quarter of 2023 as the estimated fair value of equity was less than book value. This was a non-cash charge to earnings and had no impact on our regulatory capital ratios, cash flows, or liquidity position.
The following table presents the changes in the carrying amount of goodwill for the period indicated:
| | | | | |
| Goodwill |
| (In thousands) |
Balance, December 31, 2022 | $ | 1,376,736 | |
Impairment | (1,376,736) | |
Balance, March 31, 2023 | $ | — | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Our other intangible assets with definite lives are CDI and CRI. CDI and CRI are amortized over their respective estimated useful lives and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or customer relationships acquired.
The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2022 | | | | |
| (In thousands) |
Gross Amount of CDI and CRI: | | | | | | | |
Balance, beginning of period | $ | 91,550 | | | $ | 133,850 | | | | | |
| | | | | | | |
Fully amortized portion | (750) | | | — | | | | | |
| | | | | | | |
Balance, end of period | 90,800 | | | 133,850 | | | | | |
Accumulated Amortization: | | | | | | | |
Balance, beginning of period | (60,169) | | | (88,893) | | | | | |
Amortization expense | (2,411) | | | (3,649) | | | | | |
Fully amortized portion | 750 | | | — | | | | | |
| | | | | | | |
Balance, end of period | (61,830) | | | (92,542) | | | | | |
Net CDI and CRI, end of period | $ | 28,970 | | | $ | 41,308 | | | | | |
The following table presents the estimated aggregate future amortization expense for our current CDI and CRI as of the date indicated:
| | | | | |
| March 31, 2023 |
| (In thousands) |
Period ending December 31, | |
2023 | $ | 6,674 | |
2024 | 6,404 | |
2025 | 4,087 | |
2026 | 3,481 | |
2027 | 2,876 | |
Thereafter | 5,448 | |
Net CDI and CRI | $ | 28,970 | |
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 | 2023 | | 2022 |
| (In thousands) |
Deferred tax asset, net | $ | 342,557 | | | $ | 281,848 | |
LIHTC investments | 329,216 | | | 328,555 | |
Cash surrender value of BOLI | 207,402 | | | 207,797 | |
Interest receivable | 173,209 | | | 157,109 | |
Operating lease ROU assets, net (1) | 120,828 | | | 126,255 | |
Taxes receivable | 83,327 | | | 89,924 | |
SBIC investments | 65,301 | | | 62,227 | |
Equity investments without readily determinable fair values | 64,387 | | | 63,280 | |
Prepaid expenses | 36,730 | | | 26,752 | |
Equity warrants (2) | 3,978 | | | 4,048 | |
Equity investments with readily determinable fair values | 1 | | | 1 | |
Other receivables/assets | 176,533 | | | 148,834 | |
Total other assets | $ | 1,603,469 | | | $ | 1,496,630 | |
____________________
(1) See Note 8. Leases for further details regarding the operating lease ROU assets.
(2) 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, | | |
| 2023 | | 2022 | | | | |
| (In thousands) |
Operating lease expense: | | | | | | | |
Fixed costs | $ | 7,748 | | | $ | 8,479 | | | | | |
Variable costs | 35 | | | 23 | | | | | |
Short-term lease costs | 357 | | | 364 | | | | | |
Sublease income | (712) | | | (1,076) | | | | | |
Net lease expense | $ | 7,428 | | | $ | 7,790 | | | | | |
The following table presents supplemental cash flow information related to leases for the periods indicated: | | | | | | | | | | | |
| Three Months Ended |
| March 31, |
| 2023 | | 2022 |
| (In thousands) |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | $ | 8,963 | | | $ | 8,839 | |
ROU assets obtained in exchange for lease obligations: | | | |
Operating leases | $ | 2,196 | | | $ | 17,301 | |
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, |
| 2023 | | 2022 |
| (Dollars in thousands) |
Operating leases: | | | |
Operating lease right-of-use assets, net | $ | 120,828 | | | $ | 126,255 | |
Operating lease liabilities | $ | 142,027 | | | $ | 148,401 | |
| | | |
Weighted average remaining lease term (in years) | 6.4 | | 6.6 |
Weighted average discount rate | 2.54 | % | | 2.64 | % |
The following table presents the maturities of operating lease liabilities as of the date indicated: | | | | | |
| March 31, 2023 |
| (In thousands) |
Period ending December 31, | |
2023 | $ | 24,867 | |
2024 | 30,594 | |
2025 | 26,922 | |
2026 | 21,950 | |
2027 | 15,802 | |
Thereafter | 52,415 | |
Total operating lease liabilities | 172,550 | |
Less: Imputed interest | (30,523) | |
Present value of operating lease liabilities | $ | 142,027 | |
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" during the three months ended March 31, 2023 and 2022.
The following table presents the rental payments to be received on operating leases as of the date indicated: | | | | | |
| March 31, 2023 |
| (In thousands) |
Period ending December 31, | |
2023 | $ | 39,565 | |
2024 | 50,938 | |
2025 | 40,715 | |
2026 | 34,486 | |
2027 | 26,154 | |
Thereafter | 79,739 | |
Total undiscounted cash flows | $ | 271,597 | |
| |
| |
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, 2023 | | December 31, 2022 |
| | | Weighted | | | | Weighted |
| | | Average | | | | Average |
| Balance | | Rate | | Balance | | Rate |
| (Dollars in thousands) |
FHLB secured advances | $ | 5,450,000 | | | 5.07 | % | | $ | 1,270,000 | | | 4.62 | % |
Bank Term Funding Program | 4,910,000 | | | 4.38 | % | | — | | | — | % |
Repurchase agreement (1) | 1,393,337 | | | 8.50 | % | | — | | | — | % |
Credit-linked notes | 128,375 | | | 15.24 | % | | 132,030 | | | 14.56 | % |
AFX short-term borrowings | — | | | — | % | | 250,000 | | | 4.68 | % |
FHLB unsecured overnight advance | — | | | — | % | | 112,000 | | | 4.37 | % |
| | | | | | | |
Total borrowings | $ | 11,881,712 | | | 5.30 | % | | $ | 1,764,030 | | | 5.36 | % |
___________________
(1) Balance is net of unamortized issuance costs of $17.9 million and $0.4 million of accrued exit fees. Rate calculation does not include the effects of issuance costs and exit fees.
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, 2023 of $5.7 billion, collateralized by a blanket lien on $9.7 billion of qualifying loans and $133.4 million of securities. As of March 31, 2023, the balance outstanding was $5.5 billion, which consisted of various term advances with maturity dates ranging from April 2023 to August 2023. As of December 31, 2022, the balance outstanding was $1.3 billion, which consisted of an overnight advance and two term advances with maturity dates of January 2023 and February 2023.
FRBSF Secured Line of Credit. The Bank has a secured line of credit with the FRBSF. As of March 31, 2023, the Bank had secured borrowing capacity of $5.6 billion collateralized by liens covering $5.6 billion of qualifying loans and $1.4 billion of securities. As of March 31, 2023 and December 31, 2022, there were no balances outstanding.
FRBSF Bank Term Funding Program. In March of 2023, the Bank participated in the FRBSF Bank Term Funding Program. As of March 31, 2023, the Bank had secured borrowing capacity of $4.9 billion collateralized by the par value of pledged securities totaling $4.9 billion. As of March 31, 2023, the balance outstanding was $4.9 billion consisting of two term advances maturing in March 2024.
Repurchase Agreement. In March of 2023, the Bank entered into a repurchase agreement through which it borrowed $1.4 billion that was collateralized by loans with a principal balance of $2.1 billion. In connection with this borrowing, the Bank incurred $17.9 million of issuance costs and accrued $0.4 million in exit fees. The repurchase agreement is to be repaid with collections on the underlying loans. The repurchase agreement has a term of 18 months, under which the interest rate is 8.50% for amounts outstanding during the first nine months and 8.75% for amounts outstanding during the last nine months. The Bank has the option to pay off the repurchase agreement after the first nine months. Per the terms of the agreement, a reserve account equal to 1.5% of the facility commitment amount was deposited with a third-party bank to be used for certain purposes. Any remaining funds will be returned to PacWest at the time of payoff or maturity of the facility.
Credit-Linked Notes. The notes were issued in five classes, each with an interest rate of SOFR plus a spread that ranges from 8.00% to 13.25%, with a weighted average spread of 10.68% at March 31, 2023. The notes are linked to the credit risk of an approximately $2.59 billion reference pool of previously purchased single-family residential mortgage loans at March 31, 2023. The notes are due June 27, 2052. Principal payments on the notes are based only on scheduled and unscheduled principal that is actually collected on these loans. The notes are reported at fair value of $128.4 million at March 31, 2023. See Note 12. Fair Value Option for additional information.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Federal Funds Arrangements with Commercial Banks. As of March 31, 2023, the Bank had unsecured lines of credit of $130.0 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, 2023 and December 31, 2022, 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, 2023, there was no balance outstanding. As of December 31, 2022, the balance outstanding was $250.0 million, which consisted of $250.0 million in overnight borrowings.
Subordinated Debt
The following table summarizes the terms of each issuance of subordinated debt outstanding as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 | | Date | | Maturity | | Rate Index |
Series | Balance | | Rate (1) | | Balance | | Rate (1) | | Issued | | Date | | (Quarterly Reset) (6) |
| (Dollars in thousands) | | | | | | |
Subordinated notes, net (2) | $ | 395,262 | | | 3.25 | % | | $ | 395,134 | | | 3.25 | % | | 4/30/2021 | | 5/1/2031 | | Fixed rate (3) |
Trust V | 10,310 | | | 8.01 | % | | 10,310 | | | 7.84 | % | | 8/15/2003 | | 9/17/2033 | | 3-month LIBOR + 3.10 |
Trust VI | 10,310 | | | 7.92 | % | | 10,310 | | | 7.82 | % | | 9/3/2003 | | 9/15/2033 | | 3-month LIBOR + 3.05 |
Trust CII | 5,155 | | | 7.86 | % | | 5,155 | | | 7.69 | % | | 9/17/2003 | | 9/17/2033 | | 3-month LIBOR + 2.95 |
Trust VII | 61,856 | | | 7.55 | % | | 61,856 | | | 7.16 | % | | 2/5/2004 | | 4/23/2034 | | 3-month LIBOR + 2.75 |
Trust CIII | 20,619 | | | 6.56 | % | | 20,619 | | | 6.46 | % | | 8/15/2005 | | 9/15/2035 | | 3-month LIBOR + 1.69 |
Trust FCCI | 16,495 | | | 6.47 | % | | 16,495 | | | 6.37 | % | | 1/25/2007 | | 3/15/2037 | | 3-month LIBOR + 1.60 |
Trust FCBI | 10,310 | | | 6.42 | % | | 10,310 | | | 6.32 | % | | 9/30/2005 | | 12/15/2035 | | 3-month LIBOR + 1.55 |
Trust CS 2005-1 | 82,475 | | | 6.82 | % | | 82,475 | | | 6.72 | % | | 11/21/2005 | | 12/15/2035 | | 3-month LIBOR + 1.95 |
Trust CS 2005-2 | 128,866 | | | 6.75 | % | | 128,866 | | | 6.36 | % | | 12/14/2005 | | 1/30/2036 | | 3-month LIBOR + 1.95 |
Trust CS 2006-1 | 51,545 | | | 6.75 | % | | 51,545 | | | 6.36 | % | | 2/22/2006 | | 4/30/2036 | | 3-month LIBOR + 1.95 |
Trust CS 2006-2 | 51,550 | | | 6.75 | % | | 51,550 | | | 6.36 | % | | 9/27/2006 | | 10/30/2036 | | 3-month LIBOR + 1.95 |
Trust CS 2006-3 (4) | 27,938 | | | 4.52 | % | | 27,592 | | | 3.66 | % | | 9/29/2006 | | 10/30/2036 | | 3-month EURIBOR + 2.05 |
Trust CS 2006-4 | 16,470 | | | 6.75 | % | | 16,470 | | | 6.36 | % | | 12/5/2006 | | 1/30/2037 | | 3-month LIBOR + 1.95 |
Trust CS 2006-5 | 6,650 | | | 6.75 | % | | 6,650 | | | 6.36 | % | | 12/19/2006 | | 1/30/2037 | | 3-month LIBOR + 1.95 |
Trust CS 2007-2 | 39,177 | | | 6.75 | % | | 39,177 | | | 6.36 | % | | 6/13/2007 | | 7/30/2037 | | 3-month LIBOR + 1.95 |
Total subordinated debt | 934,988 | | | 5.27 | % | | 934,514 | | | 5.08 | % | | | | | | |
Acquisition discount (5) | (66,173) | | | | | (67,427) | | | | | | | | | |
Net subordinated debt | $ | 868,815 | | | | | $ | 867,087 | | | | | | | | | |
___________________
(1) Rates do not include the effects of discounts and issuance costs.
(2) Net of unamortized issuance costs of $4.7 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 transition to term SOFR plus the relevant spread adjustment as the applicable benchmark upon the cessation of LIBOR on 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, 2023 | | December 31, 2022 |
| Notional | | Fair | | Notional | | Fair |
Derivatives Not Designated As Hedging Instruments | Amount | | Value | | Amount | | Value |
| (In thousands) |
Derivative Assets: | | | | | | | |
Interest rate contracts | $ | 107,894 | | | $ | 5,174 | | | $ | 108,451 | | | $ | 6,013 | |
Foreign exchange contracts | 37,029 | | | 1,851 | | | 37,029 | | | 1,801 | |
Interest rate and economic contracts | 144,923 | | | 7,025 | | | 145,480 | | | 7,814 | |
Equity warrant assets | 18,120 | | | 3,978 | | | 18,209 | | | 4,048 | |
Total | $ | 163,043 | | | $ | 11,003 | | | $ | 163,689 | | | $ | 11,862 | |
| | | | | | | |
Derivative Liabilities: | | | | | | | |
Interest rate contracts | $ | 107,894 | | | $ | 5,026 | | | $ | 108,451 | | | $ | 5,825 | |
Foreign exchange contracts | 37,029 | | | 152 | | | 37,029 | | | 81 | |
Total | $ | 144,923 | | | $ | 5,178 | | | $ | 145,480 | | | $ | 5,906 | |
| | | | | | | |
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, |
| 2023 | | 2022 |
| (In thousands) |
Loan commitments to extend credit | $ | 9,776,789 | | | $ | 11,110,264 | |
Standby letters of credit | 321,651 | | | 320,886 | |
Total | $ | 10,098,440 | | | $ | 11,431,150 | |
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 $75.6 million at March 31, 2023 and $91.1 million at December 31, 2022.
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, 2023 and December 31, 2022, we had commitments to contribute capital to these entities totaling $75.4 million and $76.9 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, 2023 |
| (In thousands) |
Period ending December 31, | |
2023 | $ | 42,043 | |
2024 | 33,383 | |
| |
| |
| |
| |
Total | $ | 75,426 | |
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.
NOTE 12. FAIR VALUE OPTION
The Company may elect to report financial instruments and certain other items at fair value on an instrument-by-instrument basis with changes in fair value reported in earnings. The election is made upon the initial recognition of an eligible financial asset, financial liability, or firm commitment or when certain specified reconsideration events occur. The fair value election may not otherwise be revoked once an election is made. The changes in fair value are recorded in "Noninterest income" on the condensed consolidated statements of earnings. However, movements in debt valuation adjustments are reported as a component of "Accumulated other comprehensive (loss) income" on the condensed consolidated balance sheets. Debt valuation adjustments represent the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk.
Fair Value Option for Certain Debt Liabilities
The Company has elected the fair value option for the credit-linked notes issued in September 2022. The Company elected the fair value option because these exposures are considered to be structured notes, which are financial instruments that contain embedded derivatives. The notes are linked to the credit risk of an approximately $2.59 billion reference pool of previously purchased single-family residential mortgage loans. The principal balance of the credit-linked notes was $129.5 million at March 31, 2023. The carrying value of the credit-linked notes at March 31, 2023 was the estimated fair value of $128.4 million. The changes in fair value are reported in "Noninterest income" on the condensed consolidated statements of earnings.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the changes in fair value of the credit-linked notes for which the fair value option has been elected for the periods indicated:
| | | | | | | | | | | | | |
| Three Months Ended |
| March 31, | | |
Credit-Linked Notes | 2023 | | 2022 | | |
| (In thousands) |
| | | | | |
Changes in fair value - gains (losses) | $ | 1,998 | | | $ | — | | | |
| | | | | |
The following table provides information about the credit-linked notes carried at fair value as of the dates indicated:
| | | | | | | | | | | |
| March 31, | | December 31, |
Credit-Linked Notes | 2023 | | 2022 |
| (In thousands) |
| | | |
Carrying value reported on the consolidated balance sheets | $ | 128,375 | | | $ | 132,030 | |
Aggregate unpaid principal balance in excess of (less than) fair value | 1,087 | | | (911) | |
| | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 13. FAIR VALUE MEASUREMENTS
The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available-for-sale, derivatives, and certain debt liabilities. 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, 2023, the fair value of these investments was $65.3 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, 2023 |
Measured on a Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Securities available-for-sale: | | | | | | | |
Agency residential MBS | $ | 2,249,080 | | | $ | — | | | $ | 2,249,080 | | | $ | — | |
U.S. Treasury securities | 685,436 | | | 685,436 | | | — | | | — | |
Agency commercial MBS | 491,681 | | | — | | | 491,681 | | | — | |
Agency residential CMOs | 455,682 | | | — | | | 455,682 | | | — | |
Municipal securities | 345,639 | | | — | | | 345,639 | | | — | |
Corporate debt securities | 289,794 | | | — | | | 275,015 | | | 14,779 | |
Private label residential CMOs | 164,403 | | | — | | | 164,403 | | | — | |
Collateralized loan obligations | 102,994 | | | — | | | 102,994 | | | — | |
Private label commercial MBS | 25,535 | | | — | | | 25,535 | | | — | |
Asset-backed securities | 22,457 | | | — | | | 22,457 | | | — | |
SBA securities | 15,906 | | | — | | | 15,906 | | | — | |
Total securities available-for-sale | $ | 4,848,607 | | | $ | 685,436 | | | $ | 4,148,392 | | | $ | 14,779 | |
Equity investments with readily determinable fair values | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | |
Derivatives (1): | | | | | | | |
Equity warrants | 3,978 | | | — | | | — | | | 3,978 | |
Interest rate and economic contracts | 7,025 | | | — | | | 7,025 | | | — | |
Derivative liabilities | 5,178 | | | — | | | 5,178 | | | — | |
Credit-linked notes | 128,375 | | | — | | | — | | | 128,375 | |
| | | | | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurements as of |
| December 31, 2022 |
Measured on a Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Securities available-for-sale: | | | | | | | |
Agency residential MBS | $ | 2,242,042 | | | $ | — | | | $ | 2,242,042 | | | $ | — | |
U.S. Treasury securities | 670,070 | | | 670,070 | | | — | | | — | |
Agency commercial MBS | 487,606 | | | — | | | 487,606 | | | — | |
Agency residential CMOs | 457,063 | | | — | | | 457,063 | | | — | |
Municipal securities | 339,326 | | | — | | | 339,326 | | | — | |
Corporate debt securities | 311,905 | | | — | | | 311,905 | | | — | |
Private label residential CMOs | 166,724 | | | — | | | 166,724 | | | — | |
Collateralized loan obligations | 102,261 | | | — | | | 102,261 | | | — | |
Private label commercial MBS | 26,827 | | | — | | | 26,827 | | | — | |
Asset-backed securities | 22,413 | | | — | | | 22,413 | | | — | |
SBA securities | 17,250 | | | — | | | 17,250 | | | — | |
Total securities available-for-sale | $ | 4,843,487 | | | $ | 670,070 | | | $ | 4,173,417 | | | $ | — | |
Equity investments with readily determinable fair values | $ | 1 | | | $ | 1 | | | $ | — | | | $ | — | |
Derivatives (1): | | | | | | | |
Equity warrants | 4,048 | | | — | | | — | | | 4,048 | |
Interest rate and economic contracts | 7,814 | | | — | | | 7,814 | | | — | |
Derivative liabilities | 5,906 | | | — | | | 5,906 | | | — | |
Credit-linked notes | 132,030 | | | — | | | — | | | 132,030 | |
| | | | | | | |
____________________
(1) For information regarding derivative instruments, see Note 10. Derivatives.
During the three months ended March 31, 2023, there was a $1,000 transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values measured on a recurring basis. There was also an $18.0 million transfer of corporate debt securities from Level 2 to Level 3 during the three months ended March 31, 2023.
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 corporate debt securities available-for-sale measured at fair value on a recurring basis as of the date indicated:
| | | | | | | | | | | | | | | |
| | | | | March 31, 2023 |
| | | Corporate Debt Securities |
| | | | | Input or | | Weighted |
| | | | | Range | | Average |
Unobservable Inputs | | | | | of Inputs | | Input (1) |
Spread to 10 Year Treasury | | | | | 4.2% - 7.7% | | 5.9% |
Discount rates | | | | | 7.7% - 11.2% | | 9.4% |
| | | | | | | |
| | | | | | | |
____________________(1) Unobservable inputs for corporate debt securities were weighted by the relative fair values of the instruments.
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, 2023 |
| Equity Warrants |
| | | Weighted |
| Range | | Average |
Unobservable Inputs | of Inputs | | Input (1) |
Volatility | 22.7% - 104.0% | | 27.9% |
Risk-free interest rate | 3.6% - 4.9% | | 3.9% |
Remaining life assumption (in years) | 0.08 - 5.00 | | 3.27 |
____________________
(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 and credit-linked notes measured at fair value on a recurring basis for the period indicated:
| | | | | | | | | | | | | | | | | | | |
| | | Corporate | | Equity | | Credit-Linked |
| | | Debt Securities | | Warrants | | Notes |
| | | (In thousands) | | |
Balance, December 31, 2022 | | | $ | — | | | $ | 4,048 | | | $ | 132,030 | |
Total included in earnings | | | — | | | (333) | | | (1,998) | |
Total included in other comprehensive income (loss) | | | (3,221) | | | — | | | — | |
| | | | | | | |
Issuances | | | — | | | 283 | | | — | |
Principal payments | | | — | | | — | | | (1,657) | |
| | | | | | | |
Transfer from Level 2 | | | 18,000 | | | — | | | |
| | | | | | | |
| | | | | | | |
Exercises and settlements | | | — | | | (19) | | | — | |
Transfers to Level 1 (equity investments with readily | | | | | | | |
determinable fair values) | | | — | | | (1) | | | — | |
Balance, March 31, 2023 | | | $ | 14,779 | | | $ | 3,978 | | | $ | 128,375 | |
| | | | | | | |
Unrealized net gains (losses) for the period included in other | | | | | | | |
comprehensive income for securities held at quarter-end | | | $ | (3,221) | | | | | |
| | | | | | | |
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, 2023 |
Measured on a Non-Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Individually evaluated loans and leases | $ | 23,673 | | | $ | — | | | $ | 23,152 | | | $ | 521 | |
| | | | | | | |
| | | | | | | |
Total non-recurring | $ | 23,673 | | | $ | — | | | $ | 23,152 | | | $ | 521 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Measurement as of |
| December 31, 2022 |
Measured on a Non-Recurring Basis | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Individually evaluated loans and leases | $ | 34,077 | | | $ | — | | | $ | 28,065 | | | $ | 6,012 | |
OREO | 47 | | | — | | | 47 | | | — | |
Total non-recurring | $ | 34,124 | | | $ | — | | | $ | 28,112 | | | $ | 6,012 | |
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 | 2023 | | 2022 | | | | |
| (In thousands) |
Individually evaluated loans and leases | $ | 4,911 | | | $ | 434 | | | | | |
| | | | | | | |
| | | | | | | |
Total losses | $ | 4,911 | | | $ | 434 | | | | | |
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, 2023 |
| | | | Valuation | | Unobservable | | Input or | | Weighted |
Asset | | Fair Value | | Technique | | Inputs | | Range | | Average |
| | (Dollars in thousands) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Individually evaluated | | | | | | | | | | |
loans and leases | | 521 | | Third party appraisals | | No discounts | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total non-recurring Level 3 | | $ | 521 | | | | | | | | |
The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Financial Assets: | | | | | | | | | |
Cash and due from banks | $ | 218,830 | | | $ | 218,830 | | | $ | 218,830 | | | $ | — | | | $ | — | |
Interest-earning deposits in financial institutions | 6,461,306 | | | 6,461,306 | | | 6,461,306 | | | — | | | — | |
Securities available-for-sale | 4,848,607 | | | 4,848,607 | | | 685,436 | | | 4,148,392 | | | 14,779 | |
Securities held-to-maturity | 2,273,650 | | | 2,157,056 | | | 176,629 | | | 1,945,900 | | | 34,527 | |
Investment in FHLB stock | 147,150 | | | 147,150 | | | — | | | 147,150 | | | — | |
Loans held for sale | 2,796,208 | | | 2,807,699 | | | — | | | 2,807,699 | | | — | |
Loans and leases held for investment, net | 25,462,326 | | | 24,138,162 | | | — | | | 23,152 | | | 24,115,010 | |
Equity investments with readily determinable fair values | 1 | | | 1 | | | 1 | | | — | | | — | |
Equity warrants | 3,978 | | | 3,978 | | | — | | | — | | | 3,978 | |
Interest rate and economic contracts | 7,025 | | | 7,025 | | | — | | | 7,025 | | | — | |
Servicing rights | 1,409 | | | 1,409 | | | — | | | — | | | 1,409 | |
| | | | | | | | | |
Financial Liabilities: | | | | | | | | | |
Retail non-maturity deposits | 19,230,293 | | | 19,230,293 | | | — | | | 19,230,293 | | | — | |
Wholesale non-maturity deposits | 2,028,676 | | | 2,028,676 | | | — | | | 2,028,676 | | | — | |
Time deposits | 6,928,592 | | | 6,945,479 | | | — | | | 6,945,479 | | | — | |
Borrowings | 11,881,712 | | | 11,899,375 | | | 4,910,000 | | | 5,450,000 | | | 1,539,375 | |
Subordinated debt | 868,815 | | | 823,002 | | | — | | | 823,002 | | | — | |
Derivative liabilities | 5,178 | | | 5,178 | | | — | | | 5,178 | | | — | |
| | | | | | | | | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Carrying | | Estimated Fair Value |
| Amount | | Total | | Level 1 | | Level 2 | | Level 3 |
| (In thousands) |
Financial Assets: | | | | | | | | | |
Cash and due from banks | $ | 212,273 | | | $ | 212,273 | | | $ | 212,273 | | | $ | — | | | $ | — | |
Interest-earning deposits in financial institutions | 2,027,949 | | | 2,027,949 | | | 2,027,949 | | | — | | | — | |
Securities available-for-sale | 4,843,487 | | | 4,843,487 | | | 670,070 | | | 4,173,417 | | | — | |
Securities held-to-maturity | 2,269,135 | | | 2,110,472 | | | 171,700 | | | 1,938,772 | | | — | |
Investment in FHLB stock | 34,290 | | | 34,290 | | | — | | | 34,290 | | | — | |
Loans held for sale | 65,076 | | | 65,501 | | | — | | | 65,501 | | | — | |
Loans and leases held for investment, net | 28,408,397 | | | 26,627,985 | | | — | | | 28,065 | | | 26,599,920 | |
Equity investments with readily determinable fair values | 1 | | | 1 | | | 1 | | | — | | | — | |
Equity warrants | 4,048 | | | 4,048 | | | — | | | — | | | 4,048 | |
Interest rate and economic contracts | 7,814 | | | 7,814 | | | — | | | 7,814 | | | — | |
Servicing rights | 633 | | | 633 | | | — | | | — | | | 633 | |
| | | | | | | | | |
Financial Liabilities: | | | | | | | | | |
Retail non-maturity deposits | 26,561,129 | | | 26,561,129 | | | — | | | 26,561,129 | | | — | |
Wholesale non-maturity deposits | 2,637,362 | | | 2,637,362 | | | — | | | 2,637,362 | | | — | |
Time deposits | 4,737,843 | | | 4,700,054 | | | — | | | 4,700,054 | | | — | |
Borrowings | 1,764,030 | | | 1,764,037 | | | 882,000 | | | 750,007 | | | 132,030 | |
Subordinated debt | 867,087 | | | 870,534 | | | — | | | 870,534 | | | — | |
Derivative liabilities | 5,906 | | | 5,906 | | | — | | | 5,906 | | | — | |
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, 2023, 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 14. EARNINGS PER COMMON SHARE
The following table presents the computations of basic and diluted net earnings per common share for the periods indicated:
| | | | | | | | | | | | | | | |
| Three Months Ended | | |
| March 31, | | |
| 2023 | | 2022 | | | | |
| (Dollars in thousands, except per share data) |
Basic Earnings Per Common Share: | | | | | | | |
Net (loss) earnings | $ | (1,195,424) | | | $ | 120,128 | | | | | |
Less: Preferred stock dividends | (9,947) | | | — | | | | | |
Net (loss) earnings available to common stockholders | (1,205,371) | | | 120,128 | | | | | |
Less: Earnings allocated to unvested restricted stock(1) | (319) | | | (2,037) | | | | | |
Net (loss) earnings allocated to common shares | $ | (1,205,690) | | | $ | 118,091 | | | | | |
| | | | | | | |
Weighted-average basic shares and unvested restricted | | | | | | | |
stock outstanding | 120,239 | | | 119,595 | | | | | |
Less: Weighted-average unvested restricted stock | | | | | | | |
outstanding | (2,309) | | | (2,246) | | | | | |
Weighted-average basic shares outstanding | 117,930 | | | 117,349 | | | | | |
| | | | | | | |
Basic (loss) earnings per common share | $ | (10.22) | | | $ | 1.01 | | | | | |
| | | | | | | |
Diluted Earnings Per Common Share: | | | | | | | |
Net (loss) earnings allocated to common shares | $ | (1,205,690) | | | $ | 118,091 | | | | | |
| | | | | | | |
Weighted-average diluted shares outstanding | 117,930 | | | 117,349 | | | | | |
| | | | | | | |
Diluted (loss) earnings per common share | $ | (10.22) | | | $ | 1.01 | | | | | |
________________________
(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 15. REVENUE FROM CONTRACTS WITH CUSTOMERS
Disaggregation of Revenue
The following table presents interest income and noninterest income, the components of total revenue, as disclosed in the condensed consolidated statements of earnings 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, |
| 2023 | | 2022 |
| Total | | Revenue from | | Total | | Revenue from |
| Recorded | | Contracts with | | Recorded | | Contracts with |
| Revenue | | Customers | | Revenue | | Customers |
| (In thousands) |
Total Interest Income | $ | 517,788 | | | $ | — | | | $ | 322,904 | | | $ | — | |
Noninterest Income: | | | | | | | |
Service charges on deposit accounts | 3,573 | | | 3,573 | | | 3,571 | | | 3,571 | |
Other commissions and fees | 10,344 | | | 4,432 | | | 11,580 | | | 3,773 | |
Leased equipment income | 13,857 | | | — | | | 13,094 | | | — | |
Gain on sale of loans | 2,962 | | | — | | | 60 | | | — | |
(Loss) gain on sale of securities | — | | | — | | | 104 | | | — | |
Dividends and (losses) gains on equity securities | 1,098 | | | — | | | (11,375) | | | — | |
Warrant income | (333) | | | — | | | 629 | | | — | |
Other income | 4,890 | | | 269 | | | 3,155 | | | (2) | |
Total noninterest income | 36,391 | | | 8,274 | | | 20,818 | | | 7,342 | |
Total Revenue | $ | 554,179 | | | $ | 8,274 | | | $ | 343,722 | | | $ | 7,342 | |
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, |
| 2023 | | 2022 |
| (In thousands) |
Products and services transferred at a point in time | $ | 4,352 | | | $ | 3,926 | |
Products and services transferred over time | 3,922 | | | 3,416 | |
Total revenue from contracts with customers | $ | 8,274 | | | $ | 7,342 | |
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, 2023 | | December 31, 2022 |
| (In thousands) |
Receivables, which are included in "Other assets" | $ | 1,278 | | | $ | 1,403 | |
| | | |
Contract liabilities, which are included in "Accrued interest payable and other liabilities" | $ | 470 | | | $ | 488 | |
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, 2023 due to revenue recognized that was included in the contract liability balance at the beginning of the period was $18,000.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 16. STOCKHOLDERS' EQUITY
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, 2023, there were 1,951,831 shares available for grant under the Amended and Restated 2017 Plan.
Restricted Stock
Restricted stock amortization totaled $5.0 million and $7.6 million for the three months ended March 31, 2023 and 2022. 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, 2023 totaled $67.4 million.
Time-Based Restricted Stock Awards
At March 31, 2023, there were 2,207,618 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, 2023, there were 656,049 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.
Preferred Stock
At March 31, 2023, our preferred stock of $498.5 million represents 20,530,000 depositary shares (the “Depositary Shares”), each representing a 1/40th ownership interest in a share of the Company’s 7.75% fixed rate reset non-cumulative, non-convertible, perpetual preferred stock, Series A, par value $0.01 per share (the “Series A preferred stock”), with a liquidation preference of $1,000 per share of Series A preferred stock (equivalent to $25.00 per Depositary Share). The Series A preferred stock qualifies as Tier 1 capital for purposes of regulatory capital calculations. The Series A preferred stock is perpetual and has no maturity date.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Dividends on the Series A preferred stock are not cumulative or mandatory. If the Company’s Board of Directors does not declare a dividend on the Series A preferred stock in respect of a dividend period, then no dividend shall be deemed to be payable for such dividend period or be cumulative, and the Company will have no obligation to pay any dividend for that dividend period, whether or not the Board of Directors declares a dividend on the Series A preferred stock or any other class or series of its capital stock for any future dividend period. Additionally, so long as any share of Series A preferred stock remains outstanding, unless dividends on all outstanding shares of Series A preferred stock for the most recently completed dividend period have been paid in full or declared and a sum sufficient for the payment thereof has been set aside for payment, no dividend shall be declared or paid or set aside for payment and no distribution shall be declared or made or set aside for payment on the Company’s common stock.
NOTE 17. RECENTLY ISSUED ACCOUNTING STANDARDS
| | | | | | | | | | | | | | | | | | | | |
| | | | Effective | | Effect on the Financial Statements |
Standard | | Description | | Date | | or Other Significant Matters |
ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions | | This standard clarifies that a contractual sale restriction is not considered in measuring an equity security at fair value. The standard also clarifies that an entity cannot recognize a contractual sale restriction as a separate unit of account, such as a contra-asset or liability. The standard requires new disclosures for all entities with equity securities subject to contractual sales restrictions. Additionally, early adoption is permitted.
| | January 1, 2024 | | The Company does not take into account contractual sale restrictions in determining the fair value of its equity securities. The Company expects that this standard will not have a material impact on its consolidated financial statements. |
| | | | | | | | | | | | | | | | | | | | |
| | | | Effective | | Effect on the Financial Statements |
Standard | | Description | | Date | | or Other Significant Matters |
ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the Emerging Issues Task Force) | | This standard expands the proportional amortization method to account for investments in all tax credit structures. That accounting method was previously allowed only for low-income housing tax credit ("LIHTC") investments, but now is available, by election, to all community development tax credit investment reporting that meets five conditions. Under the new guidance, reporting entities can make accounting policy elections on a tax-credit-program-by-tax-credit-program basis, rather than for individual investments or at the reporting entity level. Additionally, early adoption is permitted.
| | January 1, 2024 | | The Company is evaluating the impact of this standard on its consolidated financial statements. |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 18. SUBSEQUENT EVENTS
Common Stock Dividends
On May 5, 2023, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.01 per common share. The cash dividend is payable on May 31, 2023 to stockholders of record at the close of business on May 15, 2023.
Preferred Stock Dividends
On May 5, 2023, the Company announced that the Board of Directors had declared a quarterly cash dividend of $0.4845 per Depositary Share. The cash dividend is payable on June 1, 2023 to stockholders of record at the close of business on May 15, 2023.
Loans Transferred to Held For Sale and Loan Sales
Through May 5, 2023, we transferred $384 million of loans to held for sale and recognized charge-offs of $12.2 million to record these loans at the lower of cost or their estimated market value. We completed sales of $431 million of loans through May 5, 2023, and recorded net gains on these sales of $0.1 million.
Loans Pledged as Collateral
On May 10, 2023, the Company pledged an additional $5.1 billion of loans to the FRB which resulted in additional borrowing capacity of $3.9 billion under our existing discount window borrowing facility, and results in immediately-available liquidity (on-balance sheet liquidity and unused borrowing capacity) of $15.0 billion. Borrowings under the discount window program can range in length from overnight to up to 90 days.
The Company has evaluated events that have occurred subsequent to March 31, 2023 and have concluded there are no other subsequent events that would require recognition in the accompanying condensed consolidated financial statements.