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Jan. 19, 2022, 4:30 p.m. EST

PacWest Bancorp Announces Results for the Fourth Quarter and Full Year 2021

LOS ANGELES, Jan 19, 2022 (GLOBE NEWSWIRE via COMTEX) -- LOS ANGELES, Jan. 19, 2022 (GLOBE NEWSWIRE) -- PacWest Bancorp /zigman2/quotes/205622697/composite PACW -0.19% -

FOURTH QUARTER 2021 RESULTS

$136.0M $1.14 $181.7M 22.06%
Net Earnings Diluted Earnings
per Share
PPNR ROATE

FOURTH QUARTER 2021 HIGHLIGHTS

  • Net Earnings of $136.0 Million or $1.14 Per Diluted Share

  • Core Deposits Up $4.6 Billion or 16.3% of which $4.1 Billion Related to the Acquisition of the HOA Business in October; Represents 93% of Total Deposits

  • Loan Growth of $2.4 Billion or 11.8%

  • Civic Loan Production of $480 Million in 4Q21, Compared to $481 Million in 3Q21

  • PPNR of $181.7 Million, Up 8.3% Compared to 3Q21

  • Provision for Credit Losses Benefit of $6.0 Million in 4Q21 Compared to Benefit of $20.0 Million in 3Q21

  • Net Interest Income (TE) of $304.5 Million in 4Q21, Compared to $279.8 Million in 3Q21

  • Noninterest Income of $57.4 Million in 4Q21, Compared to $51.3 Million in 3Q21, With Continued Strength in Warrant Income

  • Noninterest Expense of $176.1 Million in 4Q21, Up 10.5% From 3Q21, Due Mainly to First Quarter of Operating Expenses Related to Acquired HOA Business plus Acquisition Costs of $5.6 Million

  • Classified and Special Mention Loans Fell $25.5 Million and $104.8 Million, Respectively, From 3Q21

  • ACL Ratio of 1.19% and ALLL Ratio of 0.87%

  • Net Charge-offs of $169 Thousand

  • Cost of Deposits Remained at 8bps

  • Loan and Lease Production of $3.4 Billion, Up From $2.4 Billion in 3Q21; WAC of 3.89% vs. 4.24% in 3Q21

  • Strong Capital Position - CET1 Ratio of 8.86% and Total Capital Ratio of 12.69% at 4Q21

  • Tangible Book Value Per Share Decreased From $22.57 at 3Q21 to $21.31 at 4Q21 Due Mainly to Cash Used for the HOA Acquisition

FULL YEAR 2021 RESULTS

$607.0M $5.10 $660.3M 24.41%
Net Earnings Diluted Earnings
per Share
PPNR ROATE

FULL YEAR 2021 HIGHLIGHTS

  • Net Earnings of $607.0 Million or $5.10 Per Diluted Share

  • Core Deposits Up $10.5 Billion or 47.0% in 2021; Venture Banking Up $4.5 Billion; HOA Acquisition Added $4.1 Billion

  • Loan Growth of $3.9 Billion or 20.2%

  • PPNR of $660.3 Million, Up 2.1% Compared to 2020

  • Provision for Credit Losses Benefit of $162.0 Million in 2021 Compared to Provision of $339.0 Million in 2020

  • Net Interest Income (TE) of $1.1 Billion in 2021, Compared to $1.0 Billion in 2020

  • Classified and Special Mention Loans Fell $149.2 Million and $329.7 Million, Respectively, From 2020

  • Net Recoveries of $1.9 Million

  • Cost of Deposits 9bps for 2021 Down From 27 bps in 2020

  • Loan and Lease Production of $9.1 Billion, Up From $4.2 Billion in 2020; WAC of 4.19% vs. 3.57% in 2020

  • Tangible Book Value Per Share Increased From $21.05 at the End of 2020 to $21.31 at the End of 2021

  • Noninterest Income of $193.9 Million in 2021, Compared to $146.1 Million in 2020, With Record Warrant Income of $49.3 Million in 2021

CEO COMMENTARY

Matt Wagner, President and CEO, commented, "We are very pleased to deliver another strong quarter. We deployed approximately $3.8 billion of excess liquidity into higher-yielding securities and loans during the fourth quarter which resulted in a $24.6 million increase in net interest income and helped drive a $13.9 million increase in our pre-tax pre-provision net revenue compared to the third quarter. Loans grew by $2.4 billion in the fourth quarter to an all-time high of $22.9 billion."

"We continued to experience strong deposit growth as core deposits increased by $4.6 billion during the fourth quarter driven by the $4.1 billion of deposits acquired with the HOA business."

"Credit quality continues the improvement seen throughout 2021 with net recoveries of $1.9 million for the year and continued decreases in special mention (down 46% in 2021) and classified loans and leases (down 56% in 2021) which resulted in a provision benefit for the fourth consecutive quarter."

"We had a strong year in 2021 and produced record net earnings of over $600 million, ended the year with record high balances for loans and deposits and crossed the $40 billion total assets milestone. We completed two strategic acquisitions with Civic Financial Services in February and the HOA business in October which expanded our product offerings and position us well for a rising rate environment. "

"Our strategy of prioritizing a strong balance sheet, followed by profitability and growth, in that order, served us well in 2021 and we are well positioned as we begin 2022."

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/be14ae62-9832-453c-9087-7d077d54bfcc

FINANCIAL HIGHLIGHTS

` At or For the At or For the
Three Months Ended Year Ended
December 31, September 30, Increase December 31, Increase
Financial Highlights (1) 2021 2021 (Decrease) 2021 2020 (Decrease)
(Dollars in thousands, except per share data)
Net earnings (loss) $ 136,045 $ 139,996 $ (3,951 ) $ 606,959 $ (1,237,574 ) $ 1,844,533
Diluted earnings (loss) per share $ 1.14 $ 1.17 $ (0.03 ) $ 5.10 $ (10.61 ) $ 15.71
Pre-provision, pre-goodwill impairment, pre-tax net revenue ("PPNR") (2) $ 181,677 $ 167,766 $ 13,911 $ 660,334 $ 646,599 $ 13,735
Return on average assets 1.34 % 1.55 % (0.21 ) 1.71 % (4.46 )% 6.17
PPNR return on average assets (2) 1.79 % 1.86 % (0.07 ) 1.86 % 2.33 % (0.47 )
Return on average tangible equity (2) 22.06 % 21.03 % 1.03 24.41 % 10.36 % 14.05
Yield on average loans and leases (tax equivalent) 4.93 % 5.01 % (0.08 ) 5.08 % 5.18 % (0.10 )
Cost of average total deposits 0.08 % 0.08 % - 0.09 % 0.27 % (0.18 )
Net interest margin ("NIM") (tax equivalent) 3.24 % 3.33 % (0.09 ) 3.40 % 4.05 % (0.65 )
Efficiency ratio 46.2 % 47.2 % (1.0 ) 46.9 % 43.1 % 3.8
Total assets $ 40,443,344 $ 35,885,676 $ 4,557,668 $ 40,443,344 $ 29,498,442 $ 10,944,902
Loans and leases held for investment, net of deferred fees $ 22,941,548 $ 20,511,020 $ 2,430,528 $ 22,941,548 $ 19,083,377 $ 3,858,171
Noninterest-bearing demand deposits $ 14,543,133 $ 12,881,806 $ 1,661,327 $ 14,543,133 $ 9,193,827 $ 5,349,306
Core deposits $ 32,734,949 $ 28,140,708 $ 4,594,241 $ 32,734,949 $ 22,264,480 $ 10,470,469
Total deposits $ 34,997,757 $ 30,559,745 $ 4,438,012 $ 34,997,757 $ 24,940,717 $ 10,057,040
As percentage of total deposits:
Noninterest-bearing demand deposits 41 % 42 % (1 ) 41 % 37 % 4
Core deposits 93 % 92 % 1 93 % 89 % 4
Equity to assets ratio 9.89 % 10.92 % (1.03 ) 9.89 % 12.19 % (2.30 )
Common equity tier 1 capital ratio 8.86 % 10.15 % (1.29 ) 8.86 % 10.53 % (1.67 )
Total capital ratio 12.69 % 14.36 % (1.67 ) 12.69 % 13.76 % (1.07 )
Tangible common equity ratio (2) 6.54 % 7.79 % (1.25 ) 6.54 % 8.78 % (2.24 )
Book value per share $ 33.45 $ 32.77 $ 0.68 $ 33.45 $ 30.36 $ 3.09
Tangible book value per share (2) $ 21.31 $ 22.57 $ (1.26 ) $ 21.31 $ 21.05 $ 0.26
(1) The operations of the Homeowners Association Services business are included from its October 8, 2021 acquisition date and the operations of Civic are included from its February 1, 2021 acquisition date.
(2) Non-GAAP measure.

INCOME STATEMENT HIGHLIGHTS

NET INTEREST INCOME

Net interest income increased by $24.6 million to $300.4 million for the fourth quarter of 2021 compared to $275.8 million for the third quarter of 2021 due mainly to higher income on investment securities and loans and leases primarily resulting from higher average balances as we deployed our excess liquidity. Income on investment securities increased by $7.7 million in the fourth quarter of 2021 due to a $1.9 billion increase in the average balance of investment securities, offset partially by a 10 basis point decrease in the yield on average investment securities. Income on loans and leases increased by $16.9 million in the fourth quarter of 2021 due to a $1.7 billion increase in the average balance of loans and leases, offset partially by an eight basis point decrease in the yield on average loans and leases. The tax equivalent yield on average loans and leases was 4.93% for the fourth quarter of 2021 compared to 5.01% for the third quarter of 2021. The decrease in the tax equivalent yield on average loans and leases was due primarily to the purchases of lower yielding single-family loans and higher loan premium amortization of $4.1 million.

The tax equivalent NIM was 3.24% for the fourth quarter of 2021 compared to 3.33% for the third quarter of 2021. The decrease in the NIM was due primarily to the change in the earning assets mix driven by the increase in the balance of average investment securities as a percentage of average earning assets and the decrease in the balance of average loans and leases as a percentage of average earning assets, as well as lower yields on average loans and leases and average investment securities. The average balance of investment securities increased by $1.9 billion to $10.0 billion, the average balance of deposits in financial institutions increased by $303.3 million to $6.0 billion, and the average balance of loans and leases increased by $1.7 billion to $21.4 billion in the fourth quarter of 2021. The increase in average balances of investment securities and loans and leases was the result of deploying some of our excess liquidity ahead of the closing of the acquisition of the HOA Services Division of MUFG Union Bank that added approximately $4.1 billion of deposits on October 8, 2021.

The cost of average total deposits was 0.08% in the fourth quarter of 2021, unchanged from 0.08% in the third quarter of 2021.

PROVISION FOR CREDIT LOSSES

The following table presents details of the provision for credit losses for the periods indicated:

Three Months Ended
December 31, September 30, Increase
Provision for Credit Losses 2021 2021 (Decrease)
(In thousands)
(Reduction in) addition to allowance for loan and lease losses $ (3,000 ) $ (21,500 ) $ 18,500
(Reduction in) addition to reserve for unfunded loan commitments (3,000 ) 1,500 (4,500 )
Total provision for credit losses $ (6,000 ) $ (20,000 ) $ 14,000

The provision for credit losses benefit was $6.0 million for the fourth quarter of 2021 compared to a benefit of $20.0 million for the third quarter of 2021. The fourth quarter benefit was primarily impacted by changes in the qualitative component and a slightly improved economic forecast offset by an increased provision for loan growth.

NONINTEREST INCOME

The following table presents details of noninterest income for the periods indicated:

Three Months Ended
December 31, September 30, Increase
Noninterest Income 2021 2021 (Decrease)
(In thousands)
Service charges on deposit accounts $ 3,476 $ 3,407 $ 69
Other commissions and fees 10,633 11,792 (1,159 )
Leased equipment income 12,602 10,943 1,659
Gain on sale of loans and leases 172 - 172
Gain on sale of securities 999 515 484
Other income:
Dividends and gains on equity investments (1,570 ) 8,387 (9,957 )
Warrant income 23,990 13,578 10,412
Other 7,080 2,723 4,357
Total noninterest income $ 57,382 $ 51,345 $ 6,037

Noninterest income increased by $6.0 million to $57.4 million for the fourth quarter of 2021 compared to $51.3 million for the third quarter of 2021 due primarily to increases of $10.4 million in warrant income, $4.4 million in other income, and $1.7 million in leased equipment income, offset partially by a $10.0 million decrease in dividends and gains on equity investments. Warrant income increased due to continued strength in the capital markets activity including our single largest warrant gain ever of $13.6 million along with a second warrant gain of $5.2 million. Other income increased due primarily to higher gains from early lease terminations of $4.5 million. Leased equipment income increased due to a higher average balance of leased equipment and the return of one large lease to accrual status in December 2021. Dividends and gains on equity investments decreased due primarily to lower gains on sales of equity investments, higher fair value losses on equity investments still held, and lower income distributions and fair value marks on SBIC investments.

NONINTEREST EXPENSE

The following table presents details of noninterest expense for the periods indicated:

Three Months Ended
December 31, September 30, Increase
Noninterest Expense 2021 2021 (Decrease)
(In thousands)
Compensation $ 99,700 $ 98,061 $ 1,639
Occupancy 14,656 14,928 (272 )
Data processing 8,171 7,391 780
Other professional services 5,946 5,164 782
Insurance and assessments 5,032 3,685 1,347
Intangible asset amortization 3,876 2,890 986
Leased equipment depreciation 9,569 8,603 966
Foreclosed assets (income) expense, net (260 ) 165 (425 )
Acquisition, integration and reorganization costs 5,590 200 5,390
Customer related expense 6,175 4,538 1,637
Loan expense 5,627 4,180 1,447
Other 12,028 9,616 2,412
Total noninterest expense $ 176,110 $ 159,421 $ 16,689

Noninterest expense increased by $16.7 million to $176.1 million for the fourth quarter of 2021 compared to $159.4 million for the third quarter of 2021 due primarily to increases in several expense categories such as compensation expense by $1.6 million, data processing by $0.8 million, insurance and assessments by $1.3 million, intangible asset amortization by $1.0 million, acquisition, integration and reorganization costs by $5.4 million, and customer related expense by $1.6 million. The increases related primarily to the acquisition of the HOA business on October 8, 2021. Total operating expenses for the quarter, excluding the acquisition, integration and reorganization costs of $5.6 million, were $170.5 million including $5.9 million of operating expenses for the acquired HOA business.

INCOME TAXES

The effective income tax rate was 27.5% in the fourth quarter of 2021 compared to 25.4% in the third quarter of 2021. The increase was due primarily to an increase in state tax rates for fiscal year 2021 caused by a shift in apportionment and a tax benefit from the release of a valuation allowance recorded in the third quarter. The effective income tax rate for the full year 2021 was 26.2%. The effective tax rate for the full year 2022 is currently estimated to be in the range of 25% to 27%.

BALANCE SHEET HIGHLIGHTS

DEPOSITS AND CLIENT INVESTMENT FUNDS

The following table presents the composition of our deposit portfolio as of the dates indicated:

December 31, 2021 September 30, 2021 December 31, 2020
% of % of % of
Deposit Composition Balance Total Balance Total Balance Total
(Dollars in thousands)
Noninterest-bearing demand $ 14,543,133 41 % $ 12,881,806 42 % $ 9,193,827 37 %
Interest checking 7,319,898 21 % 7,168,472 24 % 5,974,910 24 %
Money market 10,241,265 29 % 7,463,261 24 % 6,532,917 26 %
Savings 630,653 2 % 627,169 2 % 562,826 2 %
Total core deposits 32,734,949 93 % 28,140,708 92 % 22,264,480 89 %
Non-core non-maturity deposits 889,976 3 % 960,438 3 % 1,149,467 5 %
Total non-maturity deposits 33,624,925 96 % 29,101,146 95 % 23,413,947 94 %
Time deposits $250,000 and under 885,938 3 % 882,551 3 % 994,197 4 %
Time deposits over $250,000 486,894 1 % 576,048 2 % 532,573 2 %
Total time deposits 1,372,832 4 % 1,458,599 5 % 1,526,770 6 %
Total deposits $ 34,997,757 100 % $ 30,559,745 100 % $ 24,940,717 100 %

At December 31, 2021, core deposits totaled $32.7 billion or 93% of total deposits, including $14.5 billion of noninterest-bearing demand deposits or 41% of total deposits. Core deposits increased by $4.6 billion or 16.3% in the fourth quarter of 2021 driven primarily by the $4.1 billion of core deposits acquired with the HOA business on October 8, 2021.

In addition to deposit products, we also offer alternative, non-depository cash investment options for select clients. These alternative options include investments managed by Pacific Western Asset Management Inc. ("PWAM"), our registered investment advisor subsidiary, and third-party sweep products. Total off-balance sheet client investment funds at December 31, 2021 were $1.4 billion, of which $0.9 billion was managed by PWAM.

LOANS AND LEASES

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

Three Months Ended Year Ended
Roll Forward of Loans and Leases Held December 31, September 30, December 31,
for Investment, Net of Deferred Fees (1) 2021 2021 2021
(Dollars in thousands)
Balance, beginning of period $ 20,511,020 $ 19,506,257 $ 19,083,377
Additions:
Production 3,372,815 2,406,024 9,054,767
Disbursements 1,917,195 1,349,333 5,952,158
Total production and disbursements 5,290,010 3,755,357 15,006,925
Reductions:
Payoffs (2,000,293 ) (1,732,621 ) (7,337,296 )
Paydowns (845,443 ) (1,013,867 ) (3,728,950 )
Total payoffs and paydowns (2,845,736 ) (2,746,488 ) (11,066,246 )
Sales (15,837 ) (2,175 ) (117,263 )
Transfers to foreclosed assets - (415 ) (1,062 )
Charge-offs (4,395 ) (1,516 ) (10,715 )
Transfers to loans held for sale - - (25,554 )
Total reductions (2,865,968 ) (2,750,594 ) (11,220,840 )
Loans acquired through acquisitions 6,486 - 72,086
Net increase (decrease) 2,430,528 1,004,763 3,858,171
Balance, end of period $ 22,941,548 $ 20,511,020 $ 22,941,548
Weighted average rate on production (2) 3.89 % 4.24 % 4.19 %
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) The weighted average rate on production presents contractual rates on a tax equivalent basis and excludes amortized fees. Amortized fees added approximately 38 basis points to loan yields in 2021.

Loans and leases held for investment, net of deferred fees, increased by $2.4 billion or 11.8% in the fourth quarter of 2021 to $22.9 billion at December 31, 2021. Excluding PPP loan activity, loans grew by $2.5 billion or 12.6%. The overall increase in the loans and leases balance for the fourth quarter of 2021 was due primarily to increases in the income producing and other residential, venture capital, and asset-based portfolios, offset partially by a reduction in the commercial real estate construction portfolio. Civic loan production was $480 million in the fourth quarter of 2021 compared to $481 million in the third quarter of 2021. The total outstanding balance of the Civic loan portfolio as of December 31, 2021 was $1.4 billion. The PPP loan forgiveness in the fourth quarter of 2021 was $111 million, down from $338 million in the third quarter of 2021. Net fees for PPP loans were $3.6 million in the fourth quarter of 2021, down from the $7.9 million in the third quarter of 2021. Remaining PPP loans totaled $157 million as of December 31, 2021 with $4.2 million of net fees to amortize over the remaining life of the loans. The weighted average rate on the $3.4 billion of new production for the fourth quarter of 2021 decreased to 3.89% from 4.24% in the third quarter of 2021 due primarily to the loan mix (higher levels of single-family loan pool purchases and equity fund loans). In the fourth quarter of 2021, we purchased $1.1 billion in single-family loan pools compared to $1.0 billion in the third quarter of 2021. The total of the single-family loan pool purchase portfolio as of December 31, 2021 was $2.3 billion.

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

December 31, 2021 September 30, 2021 December 31, 2020
% of % of % of
Loan and Lease Portfolio Balance Total Balance Total Balance Total
(In thousands)
Real estate mortgage:
Commercial $ 3,762,299 17 % $ 3,694,597 18 % $ 4,096,671 21 %
Income producing and other residential 7,416,421 32 % 6,153,662 30 % 3,803,265 20 %
Total real estate mortgage 11,178,720 49 % 9,848,259 48 % 7,899,936 41 %
Real estate construction and land:
Commercial 832,591 4 % 992,003 5 % 1,117,121 6 %
Residential 2,604,536 11 % 2,392,568 12 % 2,243,160 12 %
Total real estate construction and land 3,437,127 15 % 3,384,571 17 % 3,360,281 18 %
Total real estate 14,615,847 64 % 13,232,830 65 % 11,260,217 59 %
Commercial:
Asset-based 4,075,477 18 % 3,661,769 18 % 3,429,283 18 %
Venture capital 2,320,593 10 % 1,632,861 8 % 1,698,508 9 %
Other commercial 1,471,981 6 % 1,577,592 7 % 2,375,114 12 %
Total commercial 7,868,051 34 % 6,872,222 33 % 7,502,905 39 %
Consumer 457,650 2 % 405,968 2 % 320,255 2 %
Total loans and leases held for investment, net of deferred fees $ 22,941,548 100 % $ 20,511,020 100 % $ 19,083,377 100 %
Total unfunded loan commitments $ 9,006,350 $ 8,480,599 $ 7,601,390

ALLOWANCE FOR CREDIT LOSSES

The following tables present roll forwards of the allowance for credit losses for the periods indicated:

Three Months Ended December 31, 2021
Allowance for Reserve for Total
Allowance for Credit Loan and Unfunded Loan Allowance for
Losses Rollforward Lease Losses Commitments Credit Losses
(In thousands)
Beginning balance $ 203,733 $ 76,071 $ 279,804
Charge-offs (4,395 ) - (4,395 )
Recoveries 4,226 - 4,226
Net charge-offs (169 ) - (169 )
Provision (3,000 ) (3,000 ) (6,000 )
Ending balance $ 200,564 $ 73,071 $ 273,635
Three Months Ended September 30, 2021
Allowance for Reserve for Total
Allowance for Credit Loan and Unfunded Loan Allowance for
Losses Rollforward Lease Losses Commitments Credit Losses
(In thousands)
Beginning balance $ 225,600 $ 74,571 $ 300,171
Charge-offs (1,516 ) - (1,516 )
Recoveries 1,149 - 1,149
Net charge-offs (367 ) - (367 )
Provision (21,500 ) 1,500 (20,000 )
Ending balance $ 203,733 $ 76,071 $ 279,804


Allowance for Credit Year Ended December 31,
Losses Rollforward 2021 2020
(In thousands)
Beginning balance $ 433,752 $ 174,646
Cumulative effect of change in accounting principle - CECL - 7,327
Balance, January 1 433,752 181,973
Charge-offs (10,715 ) (93,589 )
Recoveries 12,598 6,368
Net recoveries (charge-offs) 1,883 (87,221 )
Provision (162,000 ) 339,000
Ending balance $ 273,635 $ 433,752

The following table presents allowance for credit losses information as of and for the dates and periods indicated:

December 31, September 30, Increase
Allowance for Credit Losses 2021 2021 (Decrease)
(Dollars in thousands)
Allowance for loan and lease losses $ 200,564 $ 203,733 $ (3,169 )
Reserve for unfunded loan commitments 73,071 76,071 (3,000 )
Allowance for credit losses $ 273,635 $ 279,804 $ (6,169 )
Provision for credit losses (for the quarter) $ (6,000 ) $ (20,000 ) $ 14,000
Net charge-offs (recoveries) (for the quarter) $ 169 $ 367 $ (198 )
Net charge-offs (recoveries) to average loans´╗┐ and leases (for the quarter) 0.00 % 0.01 %
Allowance for loan and lease losses to loans and leases held for investment 0.87 % 0.99 %
Allowance for loan and lease losses to loans and leases held for investment, excluding PPP loans 0.88 % 1.01 %
Allowance for credit losses to loans and leases held for investment 1.19 % 1.36 %
Allowance for credit losses to loans and leases held for investment, excluding PPP loans 1.20 % 1.38 %

The allowance for credit losses decreased by $6.2 million in the fourth quarter of 2021 to $273.6 million at December 31, 2021. The decrease in the allowance for credit losses during the fourth quarter of 2021 was attributable to a provision for credit losses benefit of $6.0 million and $0.2 million in net charge-offs. The allowance for credit losses ratio, excluding PPP loans, of 1.20% remains robust and moderately higher than the pre-pandemic level of 0.97% as of the January 1, 2020 CECL adoption date.

Net charge-offs were $0.2 million for the fourth quarter of 2021 as gross charge-offs of $4.4 million were reduced by recoveries of $4.2 million.

Net charge-offs were $0.4 million for the third quarter of 2021 as gross charge-offs of $1.5 million were reduced by recoveries of $1.1 million.

On a year-to-date basis for the year ended December 31, 2021, net recoveries were $1.9 million as gross charge-offs of $10.7 million were reduced by recoveries of $12.6 million.

CREDIT QUALITY

The following table presents loan and lease credit quality metrics as of the dates indicated:

December 31, September 30, Increase
Credit Quality Metrics 2021 2021 (Decrease)
(Dollars in thousands)
NPAs and Performing TDRs:
Nonaccrual loans and leases held for investment (1) $ 61,174 $ 64,507 $ (3,333 )
Accruing loans contractually past due 90 days or more - - -
Foreclosed assets, net 12,843 13,364 (521 )
Total nonperforming assets ("NPAs") $ 74,017 $ 77,871 $ (3,854 )
Performing TDRs held for investment $ 24,430 $ 36,750 $ (12,320 )
Nonaccrual loans and leases held for investment to loans and leases held for investment 0.27 % 0.31 %
Nonperforming assets to loans and leases held for investment and foreclosed assets 0.32 % 0.38 %
Allowance for credit losses to nonaccrual loans and leases held for investment 447.3 % 433.8 %
Loan and Lease Credit Risk Ratings:
Pass $ 22,433,833 $ 19,873,050 $ 2,560,783
Special mention 391,611 496,366 (104,755 )
Classified 116,104 141,604 (25,500 )
Total loans and leases held for investment, net of deferred fees $ 22,941,548 $ 20,511,020 $ 2,430,528
Classified loans and leases held for investment to loans and leases held for investment 0.51 % 0.69 %
(1) Nonaccrual loans include SBA guaranteed amounts of $22.1 million at December 31, 2021 and $20.1 million at September 30, 2021.

Since downgrading certain loans at the onset of the pandemic in the first quarter of 2020 given all the uncertainty at the time, special mention loans and leases have decreased by $507.0 million or 56% from their peak in the first quarter of 2020, while classified loans and leases have decreased by $177.1 million or 60% from their peak in the second quarter of 2020, and each have significantly declined in the fourth quarter of 2021. Classified loans and leases are now below pre-pandemic levels while special mention loans and leases are also approaching pre-pandemic levels. Nonaccrual loans and leases decreased by $3.3 million to $61.2 million in the fourth quarter of 2021 due primarily to a decrease in nonaccrual short-term, single-family residential renovation loans as a result of payoffs during the quarter.

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

December 31, 2021 September 30, 2021 Increase (Decrease)
Accruing Accruing Accruing
and 30-89 and 30-89 and 30-89
Days Past Days Past Days Past
Nonaccrual Due Nonaccrual Due Nonaccrual Due
(Dollars in thousands)
Real estate mortgage:
Commercial $ 27,540 $ 2,165 $ 25,615 $ 676 $ 1,925 $ 1,489
Income producing and other residential 12,292 39,929 7,547 3,760 4,745 36,169
Total real estate mortgage 39,832 42,094 33,162 4,436 6,670 37,658
Real estate construction and land:
Commercial - - - - - -
Residential 4,715 5,031 19,918 12,809 (15,203 ) (7,778 )
Total real estate construction and land 4,715 5,031 19,918 12,809 (15,203 ) (7,778 )
Commercial:
Asset-based 1,464 - 1,605 - (141 ) -
Venture capital 2,799 - 2,348 1,670 451 (1,670 )
Other commercial 11,950 630 6,979 340 4,971 290
Total commercial 16,213 630 10,932 2,010 5,281 (1,380 )
Consumer 414 1,004 495 1,042 (81 ) (38 )
Total held for investment $ 61,174 $ 48,759 $ 64,507 $ 20,297 $ (3,333 ) $ 28,462

The increase in accruing and 30-89 days past due loans is primarily due to $19.3 million in past due purchased single-family loans. As of January 14, 2022, $5.9 million of these loans remained over 30 days past due. The delinquency related to these loans was attributable to delayed payment application stemming from servicing being transferred following our purchase of the loans. The increase in this category was also due to an increase of $9.1 million in single-family residential loans originated by Civic.

CAPITAL

The following table presents certain actual capital ratios and ratios excluding PPP loans:

December 31, 2021
Excluding September 30,
PPP 2021
Actual (1) Loans (1) Actual
PacWest Bancorp Consolidated:
Tier 1 leverage capital ratio 6.84 % 6.88 % (3) 8.05 %
Common equity tier 1 capital ratio 8.86 % 8.86 % 10.15 %
Tier 1 capital ratio 9.32 % 9.32 % 10.65 %
Total capital ratio 12.69 % 12.69 % 14.36 %
Risk-weighted assets $ 28,508,808 $ 28,508,808 $ 26,057,583
Tangible common equity ratio (2) 6.54 % 6.56 % (3) 7.79 %
(1) Capital information for December 31, 2021 is preliminary.
(2) Non-GAAP measure.
(3) PPP loans have been excluded from total assets in the denominator as they are zero risk-weighted.

The decreases in the capital ratios during the fourth quarter of 2021 were due primarily to the increase in goodwill related to the HOA acquisition combined with an increase in risk-weighted assets as we deployed $3.8 billion of excess liquidity into securities and loans and leases during the quarter.

ABOUT PACWEST BANCORP

PacWest Bancorp ("PacWest") is a bank holding company with over $40 billion in assets headquartered in Los Angeles, California, with an executive office in Denver, Colorado, with one wholly-owned banking subsidiary, Pacific Western Bank (the "Bank"). The Bank has 69 full-service branches located in California, one branch located in Durham, North Carolina, and one branch located in Denver, Colorado. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank provides venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovative hubs across the United States. The Bank also offers financing of non-owner-occupied investor properties through Civic Financial Services a wholly-owned subsidiary. The Bank also offers a specialized suite of services for the HOA industry. For more information about PacWest Bancorp or Pacific Western Bank, visit www.pacwest.com .

FORWARD LOOKING STATEMENTS

This communication contains certain forward-looking information about PacWest that is intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about future financial and operational results, expectations, or intentions are forward-looking statements. Such statements are based on information available at the time of the communication and are based on current beliefs and expectations of the Company's management and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control. The ongoing COVID-19 pandemic has adversely affected PacWest, its employees, customers and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity and prospects is uncertain. The risks from the COVID-19 pandemic have decreased as the pandemic subsides, however, new variants may continue to impact key macro-economic indicators such as unemployment and GDP and may have a material impact on our allowance for credit losses and related provision for credit losses. Continued deterioration in general business and economic conditions could adversely affect PacWest's revenues and the values of its assets, including goodwill, and liabilities, lead to a tightening of credit, and increase stock price volatility. In addition, PacWest's results could be adversely affected by changes in interest rates, sustained high unemployment rates, deterioration in the credit quality of its loan portfolio or in the value of the collateral securing those loans, deterioration in the value of its investment securities, the magnitude of individual loan losses on security monitoring loans, and legal and regulatory developments. Actual results may differ materially from those set forth or implied in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by PacWest with the U.S. Securities and Exchange Commission.

We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
December 31, September 30, December 31,
2021 2021 2020
(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks $ 112,548 $ 174,585 $ 150,464
Interest-earning deposits in financial institutions 3,944,686 3,524,613 3,010,197
Total cash and cash equivalents 4,057,234 3,699,198 3,160,661
Securities available-for-sale, at estimated fair value 10,694,458 9,276,926 5,235,591
Federal Home Loan Bank stock, at cost 17,250 17,250 17,250
Total investment securities 10,711,708 9,294,176 5,252,841
Loans held for sale - - -
Gross loans and leases held for investment 23,026,308 20,588,255 19,153,357
Deferred fees, net (84,760 ) (77,235 ) (69,980 )
Total loans and leases held for investment, net of deferred fees 22,941,548 20,511,020 19,083,377
Allowance for loan and lease losses (200,564 ) (203,733 ) (348,181 )
Total loans and leases held for investment, net 22,740,984 20,307,287 18,735,196
Equipment leased to others under operating leases 339,150 334,275 333,846
Premises and equipment, net 46,740 47,246 39,234
Foreclosed assets, net 12,843 13,364 14,027
Goodwill 1,405,736 1,204,118 1,078,670
Core deposit and customer relationship intangibles, net 44,957 15,533 23,641
Other assets 1,083,992 970,479 860,326
Total assets $ 40,443,344 $ 35,885,676 $ 29,498,442
LIABILITIES:
Noninterest-bearing deposits $ 14,543,133 $ 12,881,806 $ 9,193,827
Interest-bearing deposits 20,454,624 17,677,939 15,746,890
Total deposits 34,997,757 30,559,745 24,940,717
Borrowings - - 5,000
Subordinated debt 863,283 862,447 465,812
Accrued interest payable and other liabilities 582,674 545,050 491,962
Total liabilities 36,443,714 31,967,242 25,903,491
STOCKHOLDERS' EQUITY (1) 3,999,630 3,918,434 3,594,951
Total liabilities and stockholders' equity $ 40,443,344 $ 35,885,676 $ 29,498,442
Book value per share $ 33.45 $ 32.77 $ 30.36
Tangible book value per share (2) $ 21.31 $ 22.57 $ 21.05
Shares outstanding 119,584,854 119,579,566 118,414,853
(1) Includes net unrealized gain on securities available-for-sale, net $ 65,968 $ 98,859 $ 172,523
(2) Non-GAAP measure.


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
Three Months Ended Year Ended
December 31, September 30, December 31, December 31,
2021 2021 2020 2021 2020
(Dollars in thousands, except per share data)
Interest income:
Loans and leases $ 263,662 $ 246,722 $ 242,198 $ 996,457 $ 993,138
Investment securities 48,469 40,780 28,843 153,468 106,770
Deposits in financial institutions 2,674 2,580 1,135 8,804 3,583
Total interest income 314,805 290,082 272,176 1,158,729 1,103,491
Interest expense:
Deposits 6,622 6,417 8,454 27,808 59,663
Borrowings 64 101 37 623 8,161
Subordinated debt 7,714 7,722 4,477 26,474 21,109
Total interest expense 14,400 14,240 12,968 54,905 88,933
Net interest income 300,405 275,842 259,208 1,103,824 1,014,558
Provision for credit losses (6,000 ) (20,000 ) 10,000 (162,000 ) 339,000
Net interest income after provision for credit losses 306,405 295,842 249,208 1,265,824 675,558
Noninterest income:
Service charges on deposit accounts 3,476 3,407 3,119 13,269 10,351
Other commissions and fees 10,633 11,792 9,974 42,287 40,347
Leased equipment income 12,602 10,943 9,440 45,746 43,628
Gain on sale of loans and leases 172 - 1,671 1,733 2,139
Gain on sale of securities 999 515 4 1,615 13,171
Other income 29,500 24,688 15,642 89,277 36,424
Total noninterest income 57,382 51,345 39,850 193,927 146,060
Noninterest expense:
Compensation 99,700 98,061 73,171 368,450 271,494
Occupancy 14,656 14,928 14,083 58,422 57,555
Data processing 8,171 7,391 6,718 30,277 26,779
Other professional services 5,946 5,164 6,800 21,492 19,917
Insurance and assessments 5,032 3,685 5,064 17,365 22,625
Intangible asset amortization 3,876 2,890 3,172 12,734 14,753
Leased equipment depreciation 9,569 8,603 7,501 35,755 28,865
Foreclosed assets (income) expense, net (260 ) 165 (272 ) (213 ) (17 )
Acquisition, integration and reorganization costs 5,590 200 1,060 9,415 1,060
Customer related expense 6,175 4,538 4,430 20,504 17,532
Loan expense 5,627 4,180 3,926 17,031 13,454
Goodwill impairment - - - - 1,470,000
Other expense 12,028 9,616 10,029 46,185 40,002
Total noninterest expense 176,110 159,421 135,682 637,417 1,984,019
Earnings (loss) before income taxes 187,677 187,766 153,376 822,334 (1,162,401 )
Income tax expense 51,632 47,770 36,546 215,375 75,173
Net earnings (loss) $ 136,045 $ 139,996 $ 116,830 $ 606,959 $ (1,237,574 )
Basic and diluted earnings (loss) per share $ 1.14 $ 1.17 $ 0.99 $ 5.10 $ (10.61 )
Dividends declared and paid per share $ 0.25 $ 0.25 $ 0.25 $ 1.00 $ 1.35


PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS (LOSS) PER SHARE CALCULATIONS
Three Months Ended
December 31, September 30, December 31, December 31,
2021 2021 2020 2021 2020
(In thousands, except per share data)
Basic Earnings (Loss) Per Share:
Net earnings (loss) $ 136,045 $ 139,996 $ 116,830 $ 606,959 $ (1,237,574 )
Less: earnings allocated to unvested restricted stock (1) (2,311 ) (2,417 ) (1,398 ) (10,248 ) (1,782 )
Net earnings (loss) allocated to common shares $ 133,734 $ 137,579 $ 115,432 $ 596,711 $ (1,239,356 )
Weighted average basic shares and unvested restricted stock outstanding 119,577 119,569 118,446 119,349 118,463
Less: weighted average unvested restricted stock outstanding (2,314 ) (2,340 ) (1,652 ) (2,255 ) (1,610 )
Weighted average basic shares outstanding 117,263 117,229 116,794 117,094 116,853
Basic earnings (loss) per share $ 1.14 $ 1.17 $ 0.99 $ 5.10 $ (10.61 )
Diluted Earnings (Loss) Per Share:
Net earnings (loss) allocated to common shares $ 133,734 $ 137,579 $ 115,432 $ 596,711 $ (1,239,356 )
Weighted average diluted shares outstanding 117,263 117,229 116,794 117,094 116,853
Diluted earnings (loss) per share $ 1.14 $ 1.17 $ 0.99 $ 5.10 $ (10.61 )
(1) Represents cash dividends paid to holders of unvested stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.


PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
Three Months Ended
December 31, 2021 September 30, 2021 December 31, 2020
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
(Dollars in thousands)
Assets:
Loans and leases (1)(2) $ 21,367,665 $ 265,549 4.93 % $ 19,670,671 $ 248,485 5.01 % $ 18,769,214 $ 243,188 5.15 %
Investment securities (3) 9,964,568 50,710 2.02 % 8,047,098 42,952 2.12 % 4,888,993 30,757 2.50 %
Deposits in financial institutions 5,961,104 2,674 0.18 % 5,657,768 2,580 0.18 % 3,576,335 1,135 0.13 %
Total interest-earning assets (1) 37,293,337 318,933 3.39 % 33,375,537 294,017 3.50 % 27,234,542 275,080 4.02 %
Other assets 3,064,810 2,496,127 2,100,247
Total assets $ 40,358,147 $ 35,871,664 $ 29,334,789
Liabilities and Stockholders' Equity:
Interest checking $ 7,767,211 2,041 0.10 % $ 7,372,859 2,042 0.11 % $ 5,191,435 2,064 0.16 %
Money market 10,226,366 3,400 0.13 % 8,662,449 2,997 0.14 % 7,636,220 3,225 0.17 %
Savings 634,874 39 0.02 % 620,079 38 0.02 % 567,646 35 0.02 %
Time 1,421,859 1,142 0.32 % 1,475,307 1,340 0.36 % 1,650,150 3,130 0.75 %
Total interest-bearing deposits 20,050,310 6,622 0.13 % 18,130,694 6,417 0.14 % 15,045,451 8,454 0.22 %
Borrowings 234,391 64 0.11 % 238,335 101 0.17 % 237,098 37 0.06 %
Subordinated debt 862,777 7,714 3.55 % 862,272 7,722 3.55 % 463,951 4,477 3.84 %
Total interest-bearing liabilities 21,147,478 14,400 0.27 % 19,231,301 14,240 0.29 % 15,746,500 12,968 0.33 %
Noninterest-bearing demand deposits 14,713,385 12,198,313 9,589,789
Other liabilities 543,017 525,429 462,075
Total liabilities 36,403,880 31,955,043 25,798,364
Stockholders' equity 3,954,267 3,916,621 3,536,425
Total liabilities and stockholders' equity $ 40,358,147 $ 35,871,664 $ 29,334,789
Net interest income (1) $ 304,533 $ 279,777 $ 262,112
Net interest spread (1) 3.12 % 3.21 % 3.69 %
Net interest margin (1) 3.24 % 3.33 % 3.83 %
Total deposits (4) $ 34,763,695 $ 6,622 0.08 % $ 30,329,007 $ 6,417 0.08 % $ 24,635,240 $ 8,454 0.14