PACWEST BANCORP MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

Forward-Looking Information
This Form 10-Q contains certain "forward-looking statements" about the Company
and its subsidiaries within the meaning of the Private Securities Litigation
Reform Act of 1995, including certain plans, strategies, goals, and projections
and including statements about our expectations regarding our operating
expenses, profitability, allowance for loan and lease losses, net interest
margin, net interest income, deposit growth, loan and lease portfolio growth and
production, acquisitions, maintaining capital adequacy, liquidity, goodwill, and
interest rate risk management. All statements contained in this Form 10-Q that
are not clearly historical in nature are forward-looking, and the words
"anticipate," "assume," "intend," "believe," "forecast," "expect," "estimate,"
"plan," "continue," "will," "should," "look forward" and similar expressions are
generally intended to identify forward-looking statements. All forward-looking
statements (including statements regarding future financial and operating
results and future transactions and their results) involve risks, uncertainties
and contingencies, many of which are beyond our control, which may cause actual
results, performance, or achievements to differ materially from anticipated
results, performance or achievements. Actual results could differ materially
from those contained or implied by such forward-looking statements for a variety
of factors, including without limitation:
•the ongoing COVID-19 pandemic continues to affect the Company, its employees,
customers and third-party service providers, and the ultimate extent of the
impacts of the pandemic and related government stimulus programs on its
business, financial position, results of operations, liquidity and prospects is
still uncertain, due in part to the Delta variant of COVID-19. Weaker than
expected improvement in general business and economic conditions could adversely
affect the Company's revenues, the values of its assets and liabilities and
continue to negatively impact loan growth;
•our ability to complete pending and future acquisitions, and to successfully
integrate such acquired entities or achieve expected benefits, synergies and/or
operating efficiencies within expected time frames or at all;
•our ability to compete effectively against other financial service providers in
our markets;
•the impact of changes in interest rates or levels of market activity,
especially on the fair value of our loan and investment portfolios;
•deterioration, weaker than expected improvement, or other changes in the state
of the economy or the markets in which we conduct business (including the levels
of IPOs and mergers and acquisitions), which may affect the ability of borrowers
to repay their loans and the value of real property or other property held as
collateral for such loans;
•changes in credit quality and the effect of credit quality and the CECL
accounting standard on our provision for credit losses and allowance for credit
losses;
•our ability to attract deposits and other sources of funding or liquidity;
•our ability to efficiently deploy excess liquidity;
•the need to retain capital for strategic or regulatory reasons;
•compression of the net interest margin due to changes in the interest rate
environment, forward yield curves, loan products offered, spreads on newly
originated loans and leases, changes in our asset or liability mix, and/or
changes to the cost of deposits and borrowings;
•uncertainty regarding the future of LIBOR and the transition away from LIBOR
toward new reference rates by the end of 2021;
•reduced demand for our services due to strategic or regulatory reasons or
reduced demand for our products due to legislative changes such as new rent
control laws;
•our ability to successfully execute on initiatives relating to enhancements of
our technology infrastructure, including client-facing systems and applications;
•legislative or regulatory requirements or changes, including an increase of
capital requirements, and increased political and regulatory uncertainty;
•the impact on our reputation and business from our interactions with business
partners, counterparties, service providers and other third parties;
•higher than anticipated increases in operating expenses;
                                       53
--------------------------------------------------------------------------------

•lower than expected dividends paid from the Bank to the holding company;
•the amount and exact timing of any common stock repurchases will depend upon
market conditions and other factors;
•a deterioration in the overall macroeconomic conditions or the state of the
banking industry that could warrant further analysis of the carrying value of
goodwill and could result in an adjustment to its carrying value resulting in a
non-cash charge;
•the effectiveness of our risk management framework and quantitative models;
•the costs and effects of legal, compliance, and regulatory actions, changes and
developments, including the impact of adverse judgments or settlements in
litigation, the initiation and resolution of regulatory or other governmental
inquiries or investigations, and/or the results of regulatory examinations or
reviews;
•the impact of changes made to tax laws or regulations affecting our business,
including the disallowance of tax benefits by tax authorities and/or changes in
tax filing jurisdictions or entity classifications; and
•our success at managing risks involved in the foregoing items and all other
risk factors described in our audited consolidated financial statements, and
other risk factors described in this Form 10-Q and other documents filed or
furnished by PacWest with the SEC.
All forward-looking statements included in this Form 10-Q are based on
information available at the time the statement is made. We are under no
obligation to (and expressly disclaim any such obligation to) update or alter
our forward-looking statements, whether as a result of new information, future
events or otherwise except as required by law.
Overview
PacWest Bancorp, a Delaware corporation, is a bank holding company registered
under the BHCA, with our corporate headquarters located in Beverly Hills,
California. Our principal business is to serve as the holding company for our
wholly-owned subsidiary, Pacific Western Bank. References to "Pacific Western"
or the "Bank" refer to Pacific Western Bank together with its wholly-owned
subsidiaries. References to "we," "us," or the "Company" refer to PacWest
Bancorp together with its subsidiaries on a consolidated basis. When we refer to
"PacWest" or to the "holding company," we are referring to PacWest Bancorp, the
parent company, on a stand-alone basis.
The Bank is focused on relationship-based business banking to small,
middle-market, and venture-backed businesses nationwide. The Bank offers a broad
range of loan and lease and deposit products and services through 69
full-service branches located in California, one branch located in Durham, North
Carolina, one branch located in Denver, Colorado, and numerous loan production
offices across the country. The Bank provides community banking products
including lending and comprehensive deposit and treasury management services to
small and medium-sized businesses conducted primarily through our
California-based branch offices and Denver, Colorado branch office. The Bank
offers national lending products including asset-based, equipment, and real
estate loans and treasury management services to established middle-market
businesses on a national basis. The Bank provides venture banking products
including a comprehensive suite of financial services focused on entrepreneurial
and venture-backed businesses and their venture capital and private equity
investors, with offices located in key innovation hubs across the United States.
The Bank also offers financing of 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. In addition, we provide
investment advisory and asset management services to select clients through
Pacific Western Asset Management Inc., a wholly-owned subsidiary of the Bank and
an SEC-registered investment adviser.
In managing the top line of our business, we focus on loan growth, loan yield,
deposit cost, and net interest margin. Net interest income, on a year-to-date
basis in 2021, accounted for 85.5% of net revenue (net interest income plus
noninterest income).
At September 30, 2021, the Company had total assets of $35.9 billion, including
$20.5 billion of total loans and leases, net of deferred fees, $9.3 billion of
securities available-for-sale, and $3.5 billion of interest-earning deposits in
financial institutions compared to $29.5 billion of total assets, including
$19.1 billion of total loans and leases, net of deferred fees, $5.2 billion of
securities available-for-sale, and $3.0 billion of interest-earning deposits in
financial institutions at December 31, 2020. The $6.4 billion increase in total
assets since year-end was due primarily to a $4.0 billion increase in securities
available-for-sale, a $1.4 billion increase in loans and leases, net of deferred
fees, and a $514.4 million increase in interest-earning deposits in financial
institutions.
                                       54
--------------------------------------------------------------------------------

At September 30, 2021, the Company had total liabilities of $32.0 billion,
including total deposits of $30.6 billion and subordinated debt of $862.4
million, compared to $25.9 billion of total liabilities, including $24.9 billion
of total deposits and $465.8 million of subordinated debt at December 31, 2020.
The $6.1 billion increase in total liabilities since year-end was due mainly to
increases of $5.9 billion in core deposits and $396.6 million in subordinated
debt. The increase in core deposits was due primarily to continued strong
deposit growth from our venture banking and community banking clients. At
September 30, 2021, core deposits totaled $28.1 billion, or 92% of total
deposits, including $12.9 billion of noninterest-bearing demand deposits, or 42%
of total deposits. The increase in subordinated debt was due to the $400 million
of subordinated notes issued by the Bank on April 30, 2021. The subordinated
notes qualify as Tier 2 capital for regulatory capital purposes.
At September 30, 2021, the Company had total stockholders' equity of $3.9
billion compared to $3.6 billion at December 31, 2020. The $323.5 million
increase in stockholders' equity since year-end was due mainly to $470.9 million
in net earnings, offset partially by a $73.7 million decrease in accumulated
other comprehensive income and $89.5 million of cash dividends paid.
Consolidated capital ratios remained strong with Tier 1 capital and total
capital ratios of 10.65% and 14.36% at September 30, 2021.
Recent Events
Acquisition of Homeowners Association Services Division
On October 8, 2021, the Bank completed its previously announced acquisition of
the Homeowners Association ("HOA") Services Division of MUFG Union Bank, N.A.
("Union Bank") pursuant to the terms of the Purchase and Assumption Agreement
(the "Purchase Agreement"), dated March 31, 2021, between the Bank and Union
Bank.
Under the terms of the Purchase Agreement, the Bank acquired certain assets and
assumed certain liabilities related to Union Bank's HOA Services Division for
cash consideration of approximately $255 million, which represents the aggregate
of a 5.9% deposit premium and the net book value of certain acquired assets and
assumed liabilities. At closing, there were approximately $4.1 billion of
deposits related to Union Bank's HOA Services Division and approximately $6.4
million in related loans. For further information, see Note 18. Subsequent
Events in the Notes to Condensed Consolidated Financial Statements (Unaudited)
contained in "Item 1. Condensed Consolidated Financial Statements (Unaudited)."
Subordinated Notes Offering
On April 30, 2021, the Bank issued $400 million aggregate principal amount of
3.25% Fixed-to-Floating Rate Subordinated Notes (the "Notes") due May 1, 2031
(the "Maturity Date"), if not previously redeemed. Subject to any redemption
prior to the Maturity Date, the Notes will bear interest from and including the
original issue date to, but excluding, May 1, 2026 (the "Reset Date"), at a
fixed rate of 3.25% per annum and from and including the Reset Date to, but
excluding the Maturity Date, the Notes will bear interest at a floating per
annum rate equal to a benchmark rate (which is expected to be the Three-Month
Term SOFR) plus 252 basis points. For further information, see Note 10.
Borrowings and Subordinated Debt in the Notes to Condensed Consolidated
Financial Statements (Unaudited) contained in "Item 1. Condensed Consolidated
Financial Statements (Unaudited)."
Acquisition of Civic
On February 1, 2021, the Bank completed the acquisition of Civic in an all-cash
transaction. Civic, located in Redondo Beach, California, is one of the leading
lenders in the United States specializing in residential non-owner-occupied
investment properties. The acquisition of Civic advances the Bank's strategy to
diversify and expand its lending portfolio, diversify its revenue streams, and
deploy excess liquidity into higher-yielding assets. Civic operates as a
subsidiary of the Bank and at September 30, 2021 had $1.0 billion of loans
outstanding.
The Civic acquisition has been accounted for under the acquisition method of
accounting which resulted in the recognition of goodwill of $125.4 million. All
of the recognized goodwill is expected to be deductible for tax purposes. For
further information, see Note 2. Acquisitions in the Notes to Condensed
Consolidated Financial Statements (Unaudited) contained in "Item 1. Condensed
Consolidated Financial Statements (Unaudited)."
                                       55
--------------------------------------------------------------------------------

COVID-19 Pandemic - Impact to Our Business
From a business perspective, the impact in 2021 from the ongoing COVID-19
pandemic has decreased, however, new variants may continue to impact key
macro-economic indicators such as unemployment and GDP and we will continue to
closely monitor our loan portfolio. In the early stages of the COVID-19
pandemic, we experienced an increase in customers seeking loan modifications
through payment deferrals and extension of terms. Most of the modifications were
for payment deferrals for three months, while some deferrals were up to six
months. Some loans were subsequently modified with deferrals of three to twelve
months. As of September 30, 2021, there were 17 loans with a balance of $50.2
million on deferral. The Company did not apply a TDR classification to COVID-19
related loan modifications that met all of the requisite criteria as stipulated
in the CARES Act.
We actively participated in both rounds of the Paycheck Protection Program
("PPP"), under the provisions of the CARES Act. As of September 30, 2021, PPP
loans had an outstanding balance of approximately $279.4 million. In the third
quarter of 2021, we did not originate any PPP loans, while loans forgiven under
the PPP program totaled approximately $337.7 million. The loans have origination
fees that are recognized over the life of the loan with the fee recognition
accelerated upon forgiveness or repayment of the loan. Fees recognized in the
third quarter of 2021 were $7.9 million. As of September 30, 2021, the remaining
unamortized fees, net of deferred costs, totaled $7.7 million. The PPP loans are
fully guaranteed by the SBA and do not carry an allowance.
As the COVID-19 pandemic unfolded in March 2020, we immediately enhanced the
monitoring of our loan and lease portfolio with particular emphasis on certain
loan and lease portfolios that we expected to be most impacted by the COVID-19
pandemic, such as the hotel, retail, commercial aviation, restaurant, and oil
services loan and lease portfolios. We continue to closely monitor all of our
portfolios, although with the increase in oil prices, the credit risk in the oil
services portfolio has diminished. The hotel portfolio as of September 30, 2021
is comprised of hotel CRE loans of $506.4 million, hotel construction loans of
$521.8 million, and hotel SBA loans of $29.2 million.
The tables below shows our exposure to these loan and lease portfolios, which
includes equipment leased to others under operating leases, as of the dates
indicated:
                                                                                September 30, 2021
                                                                                                                                % of
                                                                Special                                                     Total Loans
Loan and Lease Portfolio                   Classified           Mention               Pass                Total              and Leases
                                                                              (Dollars in thousands)
Hotel                                    $    16,141          $ 199,346          $   841,934          $ 1,057,421                  5.2  %
Retail CRE                                       224              1,433              422,757              424,414                  2.1  %
Commercial aviation                                -             65,370               84,661              150,031                  0.7  %
Restaurant                                     4,885             26,325              118,101              149,311                  0.7  %
Total                                    $    21,250          $ 292,474          $ 1,467,453          $ 1,781,177                  8.7  %



                                                                               September 30, 2020
                                                                                                                               % of
                                                               Special                                                     Total Loans
Loan and Lease Portfolio                  Classified           Mention               Pass                Total              and Leases
                                                                             (Dollars in thousands)
Hotel                                    $   57,635          $ 281,044          $   847,960          $ 1,186,639                  6.2  %
Retail CRE                                   27,678                497              417,311              445,486                  2.3  %
Commercial aviation                          19,397            140,246               96,335              255,978                  1.3  %
Restaurant                                    8,379              8,920              131,497              148,796                  0.8  %
Oil services                             $   12,883          $   5,438          $    74,305          $    92,626                  0.5  %
Total                                    $  125,972          $ 436,145          $ 1,567,408          $ 2,129,525                 11.2  %



                                       56
--------------------------------------------------------------------------------

From a credit perspective, most of our credit metrics improved during the third
quarter of 2021 as economic conditions and economic forecasts continued to
improve. This improvement led to a provision for credit losses benefit of $20.0
million for the third quarter of 2021, compared to a provision for credit losses
benefit of $88.0 million for the second quarter of 2021 and compared to a
provision for credit losses of $97.0 million for the third quarter of 2020. For
further details on CECL and the impacts to our process, see "- Balance Sheet
Analysis - Allowance for Credit Losses on Loans and Leases Held for Investment"
contained herein.
Key Performance Indicators
Among other factors, our operating results generally depend on the following key
performance indicators:
The Level of Net Interest Income
Net interest income is the excess of interest earned on our interest-earning
assets over the interest paid on our interest-bearing liabilities. Net interest
margin is net interest income (annualized if related to a quarterly period)
expressed as a percentage of average interest-earning assets. Tax equivalent net
interest income is net interest income increased by an adjustment for tax-exempt
interest on certain loans and investment securities based on a 21% federal
statutory tax rate. Tax equivalent net interest margin is calculated as tax
equivalent net interest income divided by average interest-earning assets.
Net interest income is affected by changes in both interest rates and the volume
of average interest-earning assets and interest-bearing liabilities. Our primary
interest-earning assets are loans and investment securities, and our primary
interest-bearing liabilities are deposits and borrowings. Contributing to our
high net interest margin is our high yield on loans and leases and competitive
cost of deposits. While our deposit balances will fluctuate depending on deposit
holders' perceptions of alternative yields available in the market, we seek to
minimize the impact of these variances by attracting a high percentage of
noninterest-bearing deposits.
Loan and Lease Growth
We actively seek new lending opportunities under an array of lending products.
Our lending activities include real estate mortgage loans, real estate
construction and land loans, commercial loans and leases, and a small amount of
consumer lending. Our commercial real estate loans and real estate construction
loans are secured by a range of property types. Our commercial loans and leases
portfolio is diverse and generally includes various asset-secured loans,
equipment-secured loans and leases, venture capital loans to support venture
capital firms' operations and the operations of entrepreneurial and
venture-backed companies during the various phases of their early life cycles,
and secured business loans.
Our loan origination process emphasizes credit quality. To augment our internal
loan production, we have historically purchased multi-family loans from other
banks and private student loans from third-party lenders and recently have begun
to purchase owner-occupied, single-family residential loans from other banks as
well. These loan purchases help us manage the concentrations in our portfolio as
they diversify the geographic, interest-rate risk, credit risk, and product
composition of our loan portfolio. Achieving net loan growth is subject to many
factors, including maintaining strict credit standards, competition from other
lenders, and borrowers that opt to prepay loans.
The Magnitude of Credit Losses
We emphasize credit quality in originating and monitoring our loans and leases,
and we measure our success by the levels of our classified loans and leases,
nonaccrual loans and leases, and net charge-offs. We maintain an allowance for
credit losses on loans and leases, which is the sum of the allowance for loan
and lease losses and the reserve for unfunded loan commitments. Provisions for
credit losses are charged to operations as and when needed for both on and
off-balance sheet credit exposures. Loans and leases that are deemed
uncollectable are charged off and deducted from the allowance for loan and lease
losses. Recoveries on loans and leases previously charged off are added to the
allowance for loan and lease losses. The provision for credit losses on the loan
and lease portfolio is based on our allowance methodology, which considers the
impact of assumptions and is reflective of historical experience, economic
forecasts viewed to be reasonable and supportable by management, the current
loan and lease composition, and relative credit risks known as of the balance
sheet date. For originated and acquired credit-deteriorated loans, a provision
for credit losses may be recorded to reflect credit deterioration after the
origination date or after the acquisition date, respectively.
                                       57
--------------------------------------------------------------------------------

We regularly review loans and leases to determine whether there has been any
deterioration in credit quality resulting from borrower operations or changes in
collateral value or other factors which may affect collectability of our loans
and leases. Changes in economic conditions, such as the rate of economic growth,
the unemployment rate, rate of inflation, increases in the general level of
interest rates, declines in real estate values, changes in commodity prices, and
adverse conditions in borrowers' businesses, could negatively impact our
borrowers and cause us to adversely classify loans and leases. An increase in
classified loans and leases generally results in increased provisions for credit
losses and an increased allowance for credit losses. Any deterioration in the
commercial real estate market may lead to increased provisions for credit losses
because our loans are concentrated in commercial real estate loans.
The Level of Noninterest Expense
Our noninterest expense includes fixed and controllable overhead, the largest
components of which are compensation and occupancy expense. It also includes
costs that tend to vary based on the volume of activity, such as loan and lease
production and the number and complexity of foreclosed assets. We measure
success in controlling both fixed and variable costs through monitoring of the
efficiency ratio, which is calculated by dividing noninterest expense (less
intangible asset amortization, net foreclosed assets expense (income), goodwill
impairment, and acquisition, integration and reorganization costs) by net
revenues (the sum of tax equivalent net interest income plus noninterest income,
less gain (loss) on sale of securities and gain (loss) on sales of assets other
than loans and leases).
The following table presents the calculation of our efficiency ratio for the
periods indicated:
                                                                  Three Months Ended                                   Nine Months Ended
                                               September 30,           June 30,          September 30,                   September 30,
Efficiency Ratio                                    2021                 2021                 2020                 2021                2020
                                                                                    (Dollars in thousands)
Noninterest expense                           $     159,421          $ 151,750          $     133,402          $ 461,307          $ 1,848,337
Less:        Intangible asset amortization            2,890              2,889                  3,751              8,858               11,581
             Foreclosed assets expense
             (income), net                              165               (119)                   335                 47                  255
             Goodwill impairment                          -                  -                      -                  -            1,470,000
             Acquisition, integration and
             reorganization costs                       200                200                      -              3,825                    -
             Noninterest expense used for
             efficiency ratio                 $     156,166          $ 148,780          $     129,316          $ 448,577          $   366,501

Net interest income (tax equivalent) $ 279,777 $ 270,083 $ 253,632 $ 814,495 $ 761,354
Non-interest income

                                   51,345             40,371                 38,252            136,545              106,210
             Net revenues                           331,122            310,454                291,884            951,040              867,564
Less:        Gain on sale of securities                 515                  -                  5,270                616               13,167
             Net revenues used for efficiency
             ratio                            $     330,607          $ 310,454          $     286,614          $ 950,424          $   854,397

Efficiency ratio                                       47.2  %            47.9  %                45.1  %            47.2  %              42.9  %


The increase in the efficiency ratio was attributable primarily to higher
noninterest expense related to the Civic acquisition that closed on February 1,
2021. The level of revenues related to Civic lag the level of their noninterest
expense as we shift from a gain on loan sales model pre-acquisition to a hold
for portfolio model post-acquisition. Therefore, it will take time for the
revenues to build as the on-balance sheet loan portfolio grows.
                                       58
--------------------------------------------------------------------------------

Critical Accounting Policies and Estimates
Our accounting policies are fundamental to understanding management's discussion
and analysis of results of operations and financial condition. We identify
critical policies and estimates as those that require management to make
particularly difficult, subjective, and/or complex judgments about matters that
are inherently uncertain and because of the likelihood that materially different
amounts would be reported under different conditions or using different
assumptions. These policies and estimates relate to the allowance for credit
losses on loans and leases held for investment, the carrying value of goodwill
and other intangible assets, and the realization of deferred income tax assets
and liabilities.
Our critical accounting policies and estimates are described in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in our Form 10-K.
Non-GAAP Measurements
We use certain non-GAAP financial measures to provide meaningful supplemental
information regarding the Company's operational performance and to enhance
investors' overall understanding of such financial performance. The methodology
for determining these non-GAAP measures may differ among companies. We used the
following non-GAAP measures in this Form 10-Q:
•Return on average tangible equity, tangible common equity ratio, and tangible
book value per share: Given that the use of these measures is prevalent among
banking regulators, investors, and analysts, we disclose them in addition to the
related GAAP measures of return on average equity, equity to assets ratio, and
book value per share, respectively. The reconciliations of these non-GAAP
measurements to the GAAP measurements are presented in the following tables for
and as of the periods presented.
                                                                                 Three Months Ended                                    Nine Months Ended
                                                              September 30,           June 30,           September 30,                   September 30,
Return on Average Tangible Equity                                 2021                  2021                 2020                  2021                 2020
                                                                                                    (Dollars in thousands)
Net earnings (loss)                                          $    139,996          $   180,512          $     45,503          $   470,914          $ (1,354,404)
Add:                 Intangible asset amortization                  2,890                2,889                 3,751                8,858                11,581
                     Goodwill impairment                                -                    -                     -                    -             1,470,000
                     Adjusted net earnings used for return
                     on
                     average tangible equity                 $    142,886          $   183,401          $     49,254          $   479,772          $    127,177

Average stockholders' equity                                 $  3,916,621          $ 3,739,042          $  3,497,869          $ 3,758,733          $  3,965,453
Less:                Average intangible assets                  1,221,253            1,224,208             1,107,548            1,212,851             1,594,231
                     Average tangible common equity          $  2,695,368          $ 2,514,834          $  2,390,321          $ 2,545,882          $  2,371,222

Return on average equity (1)                                        14.18  %             19.36  %               5.18  %             16.75  %             (45.62) %
Return on average tangible equity (2)                               21.03  %             29.25  %               8.20  %             25.20  %           

7.16%

___________________________________

(1) Annualized net profit (loss) divided by average shareholders’ equity. (2) Adjusted annualized net income divided by average tangible ordinary equity.

                                       59
--------------------------------------------------------------------------------


Tangible Common Equity Ratio and                               September 30,          December 31,
Tangible Book Value Per Share                                      2021                   2020
                                                             (Dollars in thousands, except per share
                                                                              data)
Stockholders' equity                                         $   3,918,434           $  3,594,951
Less: Intangible assets                                          1,219,651              1,102,311
Tangible common equity                                       $   2,698,783           $  2,492,640

Total assets                                                 $  35,885,676           $ 29,498,442
Less: Intangible assets                                          1,219,651              1,102,311
Tangible assets                                              $  34,666,025           $ 28,396,131

Equity to assets ratio                                               10.92   %              12.19  %
Tangible common equity ratio (1)                                      7.79   %               8.78  %
Book value per share                                         $       32.77           $      30.36
Tangible book value per share (2)                            $       22.57           $      21.05
Shares outstanding                                             119,579,566            118,414,853

_______________________________________

(1) Tangible equity divided by tangible assets. (2) Tangible equity divided by shares in circulation.


•Adjusted net earnings and adjusted earnings per share: These non-GAAP
measurements are presented in the following tables for the periods presented.
See Note 14. Earnings (Loss) Per Share for the GAAP calculation of earnings per
share.
                                                                                    Three Months Ended                                    Nine Months Ended
Adjusted Net Earnings and                                        September 30,           June 30,           September 30,                   September 30,
Adjusted Earnings Per Share                                          2021                  2021                 2020                  2021                2020
                                                                                                      (Dollars in thousands)
Adjusted Net Earnings:
Net earnings (loss)                                            $      

139,996 $ 180,512 $ 45,503 $ 470,914

    $ (1,354,404)
Add:                Goodwill impairment                                     -                  -                       -                  -             1,470,000
                    Adjusted net earnings                      $      139,996          $ 180,512          $       45,503          $ 470,914      

$ 115,596

Adjusted Basic Earnings Per Share:
Adjusted net earnings                                          $      

139,996 $ 180,512 $ 45,503 $ 470,914

$ 115,596

                    Earnings allocated to unvested restricted
Less:               stock                                              (2,417)            (3,172)                   (578)            (7,930)       

(1603)

                    Adjusted net earnings allocated to
                    common shares                              $      

137,579 $ 177,340 $ 44,925 $ 462,984

$ 113,993

Weighted Average Base Shares and Unvested Restricted Shares

                    stock outstanding                                 119,569            119,386                 118,438            119,272               118,469
Less:               Weighted-average unvested restricted stock
                    outstanding                                        (2,340)            (2,356)                 (1,684)            (2,235)               (1,596)
                    Weighted-average basic shares outstanding         117,229            117,030                 116,754            117,037               116,873

Adjusted basic earnings per share                              $         

1.17 $ 1.52 $ 0.38 $ 3.96 $ 0.98

Adjusted Diluted Earnings Per Share:
Adjusted net earnings allocated to common shares               $      

137,579 $ 177,340 $ 44,925 $ 462,984

    $    113,993
Weighted-average diluted shares outstanding                           117,229            117,030                 116,754            117,037       

116,873

Adjusted diluted earnings per share                            $         1.17          $    1.52          $         0.38          $    3.96          $       0.98


                                       60
--------------------------------------------------------------------------------

Results of Operations
Earnings Performance
The following table presents performance metrics for the periods indicated:
                                                         Three Months Ended                                   Nine Months Ended
                                      September 30,           June 30,          September 30,                   September 30,
                                           2021                 2021                 2020                 2021                2020
                                                                (Dollars in thousands, except per share data)
Earnings Summary:
Interest income                      $     290,082          $ 280,505          $     265,908          $ 843,924          $    831,315
Interest expense                           (14,240)           (14,197)               (14,584)           (40,505)              (75,965)
Net interest income                        275,842            266,308                251,324            803,419               755,350
Provision for credit losses                 20,000             88,000                (97,000)           156,000              (329,000)
Noninterest income                          51,345             40,371                 38,252            136,545               106,210
Operating expense                         (159,421)          (151,750)              (133,402)          (461,307)             (378,337)
Goodwill impairment                              -                  -                      -                  -            (1,470,000)

Earnings (loss) before income taxes        187,766            242,929                 59,174            634,657            (1,315,777)
Income tax expense                         (47,770)           (62,417)               (13,671)          (163,743)              (38,627)
Net earnings (loss)                  $     139,996          $ 180,512          $      45,503          $ 470,914          $ (1,354,404)

Per Common Share Data:
Diluted earnings (loss) per share    $        1.17          $    1.52       

$ 0.38 $ 3.96 $ (11.60)
Book value per share

                 $       32.77          $   32.17          $       29.42
Tangible book value per share (1)    $       22.57          $   21.95          $       20.09

Performance Ratios:
Return on average assets                      1.55  %            2.11  %                0.65  %            1.86  %              (6.65) %
Return on average tangible equity
(1)                                          21.03  %           29.25  %                8.20  %           25.20  %               7.16  %
Net interest margin (tax equivalent)          3.33  %            3.40  %                3.90  %            3.46  %               4.13  %
Yield on average loans and leases
(tax equivalent)                              5.01  %            5.18  %                5.01  %            5.13  %               5.18  %
Cost of average total deposits                0.08  %            0.10  %                0.17  %            0.10  %               0.32  %
Efficiency ratio                              47.2  %            47.9  %                45.1  %            47.2  %               42.9  %

Capital Ratios (consolidated):
Common equity tier 1 capital ratio           10.15  %           10.41  %               10.45  %
Tier 1 capital ratio                         10.65  %           10.41  %               10.45  %
Total capital ratio                          14.36  %           14.99  %               13.74  %


_____________________________
(1)  See "- Non-GAAP Measurements."















                                       61
--------------------------------------------------------------------------------

Third Quarter of 2021 Compared to Second Quarter of 2021
Net earnings for the third quarter of 2021 were $140.0 million, or $1.17 per
diluted share, compared to net earnings for the second quarter of 2021 of $180.5
million, or $1.52 per diluted share. The $40.5 million decrease in net earnings
from the prior quarter was due to a lower provision for credit losses benefit of
$68.0 million and higher noninterest expense of $7.7 million, offset partially
by lower income tax expense of $14.6 million, higher noninterest income of $11.0
million, and higher net interest income of $9.5 million. The third quarter
provision for credit losses benefit reflected improvement in both macro-economic
forecast variables and loan portfolio credit quality metrics, offset partially
by increased provisions for unfunded commitments and loan growth in the third
quarter of 2021. Noninterest expense increased due mostly to a $7.3 million
increase in compensation expense attributable mainly to higher bonus and
incentives expense as we updated our full-year bonus estimates based on the
growth in loans and deposits in the third quarter of 2021, overall year-to-date
performance, and increased warrant income. The decrease in income tax expense
was primarily due to lower pre-tax earnings in the third quarter of 2021
compared to the second quarter of 2021. Noninterest income increased due
primarily to increases of $7.9 million in warrant income and $3.0 million in
dividends and gains on equity investments. Net interest income increased due
mainly to higher income on investment securities and loans and leases as a
result of higher average balances.
Third Quarter of 2021 Compared to Third Quarter of 2020
Net earnings for the third quarter of 2021 were $140.0 million, or $1.17 per
diluted share, compared to net earnings for the third quarter of 2020 of $45.5
million, or $0.38 per diluted share. The $94.5 million increase in net earnings
from the year-ago quarter was due mainly to a lower provision for credit losses
of $117.0 million, higher net interest income of $24.5 million, and higher
noninterest income of $13.1 million, offset partially by higher income tax
expense of $34.1 million and higher operating expense of $26.0 million. The
decrease in the provision for credit losses for the third quarter of 2021 from
the year-ago quarter reflected improvement in certain key macro-economic
forecast variables and loan portfolio credit quality metrics. Net interest
income increased due mainly to higher income on investment securities and loans
and leases as a result of higher average balances, offset partially by a lower
yield on average investment securities and the negative impact on net interest
income due to the change in the mix of average interest-earning assets.
Noninterest income increased due primarily to a $13.1 million increase in
warrant income. The increase in income tax expense was due primarily to higher
pre-tax earnings in the third quarter of 2021 compared to the year-ago quarter.
Noninterest expense increased due mostly to an increase of $22.9 million in
compensation expense, due mostly to the incremental expense of the Civic
operations in 2021 and higher bonus expense due to year-to-date performance.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30,
2020
Net earnings for the nine months ended September 30, 2021 were $470.9 million,
or $3.96 per diluted share, compared to a net loss for the nine months ended
September 30, 2020 of $1.35 billion, or $11.60 loss per diluted share. The $1.83
billion increase in net earnings from the year-ago period was due mainly to
$1.47 billion of goodwill impairment expense recognized in 2020 combined with a
decrease in the provision for credit losses of $485.0 million due to
improvements in both macro-economic forecast variables and loan portfolio credit
quality metrics.
                                       62
--------------------------------------------------------------------------------

Net Interest Income
The following tables summarize the distribution of average assets, liabilities,
and stockholders' equity, as well as interest income and yields earned on
average interest-earning assets and interest expense and rates paid on average
interest-bearing liabilities, presented on a tax equivalent basis, for the
periods indicated:
                                                                                                     Three Months Ended
                                                     September 30, 2021                                 June 30, 2021                                September 30, 2020
                                                            Interest      Yields                            Interest      Yields                            Interest      Yields
                                              Average       Income/        and                Average       Income/        and                Average       Income/        and
                                              Balance       Expense       Rates               Balance       Expense       Rates               Balance       Expense       Rates
                                                                                                   (Dollars in thousands)
ASSETS:
Loans and leases (1)(2)(3)                $ 19,670,671    $ 248,485         5.01  %       $ 19,057,420    $ 246,147         5.18  %       $ 19,195,737    $ 241,547         5.01  %
Investment securities (2)(4)                 8,047,098       42,952         2.12  %          6,492,721       36,111         2.23  %          4,107,915       26,015         2.52  %
Deposits in financial institutions           5,657,768        2,580         

0.18% 6,347,764 2,022 0.13% 2,554,349

         654         0.10  %
Total interest­earning assets (2)           33,375,537      294,017         3.50  %         31,897,905      284,280         3.57  %         25,858,001      268,216         4.13  %
Other assets                                 2,496,127                                       2,428,207                                       2,077,192
Total assets                              $ 35,871,664                                    $ 34,326,112                                    $ 27,935,193

LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest checking                         $  7,372,859        2,042         0.11  %       $  7,235,726        2,394         0.13  %       $  4,904,614        2,019         0.16  %
Money market                                 8,662,449        2,997         0.14  %          8,484,933        3,318         0.16  %          7,170,842        3,081         0.17  %
Savings                                        620,079           38         0.02  %            598,225           36         0.02  %            565,395           35         0.02  %
Time                                         1,475,307        1,340         0.36  %          1,498,169        1,521         0.41  %          1,876,072        4,752         1.01  %
Total interest­bearing deposits             18,130,694        6,417         0.14  %         17,817,053        7,269         0.16  %         14,516,923        9,887         0.27  %
Borrowings                                     238,335          101         0.17  %            225,446          265         0.47  %            181,315           27         0.06  %
Subordinated debt                              862,272        7,722         3.55  %            735,725        6,663         3.63  %            462,375        4,670         4.02  %
Total interest­bearing liabilities          19,231,301       14,240        

0.29% 18,778 224 14,197 0.30% 15,160,613

       14,584         0.38  %
Noninterest­bearing demand deposits         12,198,313                                      11,304,757                                       8,812,391
Other liabilities                              525,429                                         504,089                                         464,320
Total liabilities                           31,955,043                                      30,587,070                                      24,437,324
Stockholders' equity                         3,916,621                                       3,739,042                                       3,497,869
Total liabilities and
stockholders' equity                      $ 35,871,664                                    $ 34,326,112                                    $ 27,935,193
Net interest income (2)                                   $ 279,777                                       $ 270,083                                       $ 253,632
Net interest rate spread (2)                                                3.21  %                                         3.27  %                                         3.75  %
Net interest margin (2)                                                     3.33  %                                         3.40  %                                         3.90  %

Total deposits (5)                        $ 30,329,007    $   6,417         0.08  %       $ 29,121,810    $   7,269         0.10  %       $ 23,329,314    $   9,887         0.17  %


_____________________
(1)  Includes nonaccrual loans and leases and loan fees. Includes tax-equivalent
adjustments related to tax-exempt interest on loans.
(2)  Tax equivalent.
(3)  Includes net loan premium amortization of $2.4 million and $1.5 million and
net loan discount accretion of $35,000 for the three months ended September 30,
2021, June 30, 2021, and September 30, 2020, respectively.
(4)  Includes tax-equivalent adjustments of $2.2 million, $2.2 million, and $1.6
million for the three months ended September 30, 2021, June 30, 2021, and
September 30, 2020, respectively, related to tax-exempt income on investment
securities. The federal statutory tax rate utilized was 21%.
(5)  Total deposits is the sum of total interest-bearing deposits and
noninterest-bearing demand deposits. The cost of total deposits is calculated as
annualized interest expense on total deposits divided by average total deposits.
                                       63
--------------------------------------------------------------------------------
                                                                                          Nine Months Ended
                                                                  September 30, 2021                             September 30, 2020
                                                                         Interest     Yields                            Interest     Yields
                                                           Average       Income/        and               Average       Income/        and
                                                           Balance       Expense       Rates              Balance       Expense       Rates
                                                                                       (Dollars in thousands)

ASSETS:

Loans and leases (1)(2)(3)                             $ 19,221,192    $ 

737,478 5.13% $ 19,403,365 $ 752,785 5.18% Marketable securities (2) (4)

                              6,650,744      

111,392 2.24% 3,936,492 82,086 2.79% Deposits in financial institutions

                        5,601,765        

6,130 0.15% 1,279,628 2,448 0.26% Total remunerated assets (2)

                        31,473,701      855,000        3.63  %         24,619,485      837,319        4.54  %
Other assets                                              2,413,840                                      2,601,617
Total assets                                           $ 33,887,541                                   $ 27,221,102

LIABILITIES AND
STOCKHOLDERS' EQUITY:
Interest checking                                      $  7,007,042        6,668        0.13  %       $  4,127,239       10,727        0.35  %
Money market                                              8,376,974        9,593        0.15  %          6,181,312       15,953        0.34  %
Savings                                                     597,260          109        0.02  %            529,362          228        0.06  %
Time                                                      1,488,848       

4,816 0.43% 2,343,645 24,301 1.39% Total interest-bearing deposits

                          17,470,124       21,186        0.16  %         13,181,558       51,209        0.52  %
Borrowings                                                  229,990          559        0.32  %          1,023,307        8,124        1.06  %
Subordinated debt                                           689,484       18,760        3.64  %            460,088       16,632        4.83  %
Total interest-bearing liabilities                       18,389,598       

40,505 0.29% 14,664,953 75,965 0.69% Non-interest bearing demand deposits

                      11,232,927                                      8,157,169
Other liabilities                                           506,283                                        433,527
Total liabilities                                        30,128,808                                     23,255,649
Stockholders' equity                                      3,758,733                                      3,965,453
Total liabilities and
stockholders' equity                                   $ 33,887,541                                   $ 27,221,102
Net interest income (2)                                                $ 814,495                                      $ 761,354
Net interest rate spread (2)                                                            3.34  %                                        3.85  %
Net interest margin (2)                                                                 3.46  %                                        4.13  %

Total deposits (5)                                     $ 28,703,051    $  21,186        0.10  %       $ 21,338,727    $  51,209        0.32  %


_____________________
(1)  Includes nonaccrual loans and leases and loan fees. Includes tax-equivalent
adjustments related to tax-exempt interest on loans.
(2)  Tax equivalent.
(3)  Includes net loan premium amortization of $5.0 million and net loan
discount accretion of $4.4 million for the nine months ended September 30, 2021
and 2020, respectively.
(4)  Includes tax-equivalent adjustments of $6.4 million and $4.2 million for
the nine months ended September 30, 2021 and 2020, respectively, related to
tax-exempt income on investment securities. The federal statutory tax rate
utilized was 21%.
(5)  Total deposits is the sum of total interest-bearing deposits and
noninterest-bearing demand deposits. The cost of total deposits is calculated as
annualized interest expense on total deposits divided by average total deposits.











                                       64
--------------------------------------------------------------------------------

Third Quarter of 2021 Compared to Second Quarter of 2021
Net interest income increased by $9.5 million to $275.8 million for the third
quarter of 2021 compared to $266.3 million for the second quarter of 2021 due
mainly to higher income on investment securities and loans and leases due mostly
to higher average balances as we deployed our excess liquidity. Income on
investment securities increased by $6.8 million in the third quarter of 2021 due
to a $1.6 billion increase in the average balance of investment securities,
offset partially by an 11 basis point decrease in the yield on average
investment securities. Income on loans and leases increased by $2.2 million in
the third quarter of 2021 due to a $613.3 million increase in the average
balance of loans and leases, offset partially by a 17 basis point decrease in
the yield on average loans and leases. The tax-equivalent yield on average loans
and leases was 5.01% for the third quarter of 2021 compared to 5.18% for the
second quarter of 2021.
The tax equivalent NIM was 3.33% for the third quarter of 2021 compared to 3.40%
for the second quarter of 2021. The decrease in the tax equivalent NIM was due
primarily to the change in the earning assets mix driven by the increase in the
investment portfolio as a percentage of earning assets. The average balance of
investment securities increased by $1.6 billion to $8.0 billion, the average
balance of deposits in financial institutions decreased by $690.0 million to
$5.7 billion, and the average balance of loans and leases increased by $613.3
million in the third quarter of 2021 to $19.7 billion. The increase in average
balances of investment securities and loans and leases was the result of
prudently 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. Excess liquidity
continues to negatively impact the tax equivalent NIM, however, the impact
decreased from approximately 73 basis points in the second quarter of 2021 to
approximately 57 basis points in the third quarter of 2021. Average loans and
leases as a percentage of average interest-earning assets was 59% for the third
quarter of 2021 compared to 60% for the second quarter of 2021.
The cost of average total deposits decreased to 0.08% for the third quarter of
2021 from 0.10% for the second quarter of 2021. The lower cost of average total
deposits was due primarily to the $894 million increase in the average balance
of noninterest-bearing deposits.
Third Quarter of 2021 Compared to Third Quarter of 2020
Net interest income increased by $24.5 million to $275.8 million for the third
quarter of 2021 compared to $251.3 million for the third quarter of 2020 due
mainly to higher income on investment securities attributable to a higher
average balance offset partially by a lower yield, higher income on loans and
leases due to a higher average balance, and lower interest expense. Interest
expense declined due principally to a lower cost of average interest-bearing
deposits, offset partially by a higher balance of average subordinated debt
attributable to the $400 million of subordinated notes issued in the second
quarter of 2021. The tax equivalent yield on average loans and leases was 5.01%
for the third quarter of 2021, unchanged compared to 5.01% for the same quarter
of 2020.
The tax equivalent NIM was 3.33% for the third quarter of 2021 compared to 3.90%
for the same quarter last year. The decrease in the tax equivalent NIM was due
mostly to the change in the mix of average interest-earning assets and the lower
yield on average investment securities, offset partially by lower deposit costs.
The change in mix of average interest-earning assets was due to a $3.9 billion
increase in average investment securities, a $3.1 billion increase in average
deposits in financial institutions, and a $474.9 million increase in average
loans and leases. Average loans and leases as a percentage of average
interest-earning assets was 59% for the third quarter of 2021 compared to 74%
for the third quarter of 2020.
The cost of average total deposits decreased to 0.08% for the third quarter of
2021 from 0.17% for the third quarter of 2020 due mainly to lower rates paid on
deposits in conjunction with decreased market rates.
                                       65
--------------------------------------------------------------------------------

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30,
2020
Net interest income increased by $48.1 million to $803.4 million for the nine
months ended September 30, 2021 compared to $755.4 million for the nine months
ended September 30, 2020 due mainly to higher income on investment securities
attributable to a higher average balance offset partially by a lower yield
combined with lower interest expense due to lower rates paid on deposits,
borrowings, and subordinated debt in conjunction with decreased market rates;
the aforementioned increase in net interest income is offset partially by lower
income on loans and leases due to a lower average loans and leases balance
coupled with a lower loans and leases yield also attributable to decreased
market rates. The tax equivalent yield on average loans and leases was 5.13% for
the nine months ended September 30, 2021 compared to 5.18% for the same period
in 2020.
The tax equivalent NIM was 3.46% for the nine months ended September 30, 2021
compared to 4.13% for the same period last year. The decrease in the tax
equivalent NIM was due mostly to the change in the mix of average
interest-earning assets and the lower yields on average investment securities
and loans and leases, offset partially by lower costs of deposits, borrowings,
and subordinated debt. The change in mix of average interest-earning assets was
due to a $4.3 billion increase in average deposits in financial institutions, a
$2.7 billion increase in average investment securities, and a $182.2 million
decrease in average loans and leases. Average loans and leases as a percentage
of average interest-earning assets was 61% for the nine months ended September
30, 2021 compared to 79% for the nine months ended September 30, 2020.
The cost of average total deposits decreased to 0.10% for the nine months ended
September 30, 2021 from 0.32% for the same period last year due mainly to lower
rates paid on deposits in conjunction with decreased market rates.
Provision for Credit Losses
The following table sets forth the details of the provision for credit losses on
loans and leases held for investment and information regarding credit quality
metrics for the periods indicated:
                                                            Three Months Ended                                  Nine Months Ended
                                         September 30,           June 30,          September 30,                  September 30,
                                              2021                 2021                 2020                 2021                2020
                                                                             (Dollars in thousands)
Provision For Credit Losses:
(Reduction in) addition to allowance
for loan and lease losses               $     (21,500)         $ (72,000)         $      81,000          $ (146,500)         $ 272,000
Addition to (reduction in) reserve for
unfunded
loan commitments                                1,500            (16,000)                16,000              (9,500)            57,000

Total allowance for bad debts $ (20,000) $ (88,000)

$ 97,000 ($ 156,000) $ 329,000

Credit Quality Metrics:
Net charge-offs (recoveries) on loans
and leases
held for investment (1)                 $         367          $  (5,155)   

$ 36,084 $ (2,052) $ 68,436
Annualized net amortizations on average loans and leases

                                 0.01  %           (0.11) %                0.75  %            (0.01) %            0.47  %
At quarter-end:
Allowance for credit losses             $     279,804          $ 300,171          $     442,537
Allowance for credit losses to loans
and leases
held for investment                              1.36  %            1.54  %                2.33  %
Allowance for credit losses to
nonaccrual
loans and leases held for investment            433.8  %           528.4  %               516.9  %
Nonaccrual loans and leases held for
investment                              $      64,507          $  56,803          $      85,615
Performing TDRs held for investment     $      36,750          $  40,129          $      13,679
Classified loans and leases held for
investment                              $     141,604          $ 147,267          $     274,572


______________________
(1)  See "- Balance Sheet Analysis - Allowance for Credit Losses on Loans and
Leases Held for Investment" for detail of charge-offs and recoveries by loan
portfolio segment, class, and subclass for the periods presented.
                                       66
--------------------------------------------------------------------------------

Provisions for credit losses are charged to earnings for both the allowance for
loan and lease losses and the reserve for unfunded loan commitments
(collectively, the allowance for credit losses). The provision for credit losses
on our loans and leases held for investment is based on our allowance
methodology and is an expense that, in our judgment, is required to maintain an
adequate allowance for credit losses. For further details on our allowance for
credit losses methodology, see "- Balance Sheet Analysis - Allowance for Credit
Losses on Loans and Leases Held for Investment" contained herein.
The provision for credit losses benefit was $20.0 million for the third quarter
of 2021 compared to a benefit of $88.0 million for the second quarter of 2021.
The third quarter benefit reflected improvement in both macro-economic forecast
variables and loan portfolio credit quality metrics, offset partially by
increased provisions for unfunded commitments and loan growth.
The provision for credit losses benefit was $20.0 million for the third quarter
of 2021 compared to a provision of $97.0 million for the third quarter of 2020
as a result of improvement in both macro-economic forecast variables and loan
portfolio credit quality metrics.
The provision for credit losses benefit was $156.0 million for the nine months
ended September 30, 2021 compared to a provision of $329.0 million for the nine
months ended September 30, 2020 as a result of improvement in both
macro-economic forecast variables and loan portfolio credit quality metrics.
Certain circumstances may lead to increased provisions for credit losses in the
future. Examples of such circumstances include deterioration in economic
conditions and forecasts, an increased amount of classified and/or criticized
loans and leases, and net loan and lease and unfunded commitment growth.
Deterioration in economic conditions and forecasts include the rate of economic
growth, the unemployment rate, the rate of inflation, changes in the general
level of interest rates, changes in real estate values, and adverse conditions
in borrowers' businesses. See further discussion in "- Balance Sheet Analysis -
Allowance for Credit Losses on Loans and Leases Held for Investment" contained
herein.
Noninterest Income
The following table summarizes noninterest income by category for the periods
indicated:
                                                         Three Months Ended                                   Nine Months Ended
                                       September 30,          June 30,           September 30,                  September 30,
Noninterest Income                         2021                 2021                 2020                  2021               2020
                                                                              (In thousands)
Other commissions and fees           $       11,792          $ 10,704          $       10,541          $  31,654          $  30,373
Leased equipment income                      10,943            10,847                   9,900             33,144             34,188
Service charges on deposit accounts           3,407             3,452                   2,570              9,793              7,232
Gain on sale of loans and leases                  -             1,422                      35              1,561                468
Gain on sale of securities                      515                 -                   5,270                616             13,167
Other income:
Dividends and gains (losses) on
equity investments                            8,387             5,394                   6,945             24,685              9,920
Warrant income                               13,578             5,650                     500             25,351              3,310
Other                                         2,723             2,902                   2,491              9,741              7,552
Total noninterest income             $       51,345          $ 40,371          $       38,252          $ 136,545          $ 106,210


Third Quarter of 2021 Compared to Second Quarter of 2021
Noninterest income increased by $11.0 million to $51.3 million for the third
quarter of 2021 compared to $40.4 million for the second quarter of 2021 due
primarily to increases of $7.9 million in warrant income and $3.0 million in
dividends and gains on equity investments. Warrant income increased due to a
higher number of and dollar amount of gains on warrant exercises given the
active capital markets, including one warrant gain of approximately $8.2
million. Dividends and gains on equity investments increased due primarily to
higher gains on sales of equity investments and higher income distributions on
SBIC investments, offset partially by lower net fair value gains on equity
investments still held.
                                       67
--------------------------------------------------------------------------------

Third Quarter of 2021 Compared to Third Quarter of 2020
Noninterest income increased by $13.1 million to $51.3 million for the third
quarter of 2021 compared to $38.3 million for the third quarter of 2020 due
mainly to increases of $13.1 million in warrant income, $1.4 million in
dividends and gains on equity investments, and $1.3 million in other commissions
and fees, offset partially by a $4.8 million decrease in gain on sale of
securities. Warrant income increased due principally to higher gains from
exercised warrants, driven by the active capital markets. The increase in
dividends and gains on equity investments was due primarily to higher gains on
sales of equity investments and higher income distributions on SBIC investments,
offset partially by lower net fair value gains on equity investments still held.
The increase in other commissions and fees was primarily due to higher foreign
exchange fees and customer success fees. Gain on sale of securities decreased
due to a net gain of $0.5 million on sales of $76.2 million for the third
quarter of 2021 compared to a net gain of $5.3 million on sales of $17.0 million
for the third quarter of 2020.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30,
2020
Noninterest income increased by $30.3 million to $136.5 million for the nine
months ended September 30, 2021 compared to $106.2 million for the nine months
ended September 30, 2020 due mainly to increases of $22.0 million in warrant
income, $14.8 million in dividends and gains on equity investments, and $2.6
million in service charges on deposit accounts, offset partially by a $12.6
million decrease in gain on sale of securities. Warrant income increased due
principally to higher gains from exercised warrants, driven by the active
capital markets. The increase in dividends and gains on equity investments was
due primarily to higher gains on sales of equity investments and higher income
distributions on SBIC investments, offset partially by lower net fair value
gains on equity investments still held. The increase in service charges on
deposit accounts was due primarily to a higher volume of fee waivers that we
granted customers in 2020 during the COVID pandemic. Gain on sale of securities
decreased due to a net gain of $0.6 million on sales of $120.7 million for the
nine months ended September 30, 2021 compared to a net gain of $13.2 million on
sales of $154.1 million for the same period last year.
Noninterest Expense
The following table summarizes noninterest expense by category for the periods
indicated:
                                                          Three Months Ended                                    Nine Months Ended
                                       September 30,           June 30,           September 30,                   September 30,
Noninterest Expense                        2021                  2021                 2020                  2021                2020
                                                                                (In thousands)
Compensation                         $       98,061          $  90,807          $       75,131          $ 268,750          $   198,323
Occupancy                                    14,928             14,784                  14,771             43,766               43,472
Leased equipment depreciation                 8,603              8,614                   7,057             26,186               21,364
Data processing                               7,391              7,758                   6,505             22,106               20,061
Other professional services                   5,164              5,256                   4,713             15,546               13,117
Customer related expense                      4,538              4,973                   4,762             14,329               13,102
Loan expense                                  4,180              4,031                   3,499             11,404                9,528
Insurance and assessments                     3,685              3,745                   3,939             12,333               17,561
Intangible asset amortization                 2,890              2,889                   3,751              8,858               11,581
Acquisition, integration and
reorganization costs                            200                200                       -              3,825                    -
Foreclosed assets expense (income),
net                                             165               (119)                    335                 47                  255
Other                                         9,616              8,812                   8,939             34,157               29,973
Total operating expense                     159,421            151,750                 133,402            461,307              378,337
Goodwill impairment                               -                  -                       -                  -            1,470,000
Total noninterest expense            $      159,421          $ 151,750          $      133,402          $ 461,307          $ 1,848,337


                                       68
--------------------------------------------------------------------------------

Third Quarter of 2021 Compared to Second Quarter of 2021
Noninterest expense increased by $7.7 million to $159.4 million for the third
quarter of 2021 compared to $151.8 million for the second quarter of 2021 due
mostly to an increase of $7.3 million in compensation expense attributable
mainly to higher bonus and incentives expense as we updated our full-year bonus
estimates based on the growth in loans and deposits in the third quarter of
2021, overall year-to-date performance, and increased warrant income.
Third Quarter of 2021 Compared to Third Quarter of 2020
Noninterest expense increased by $26.0 million to $159.4 million for the third
quarter of 2021 compared to $133.4 million for the third quarter of 2020 due
primarily to increases of $22.9 million in compensation expense due mostly to
the incremental compensation expense for Civic that was acquired on February 1,
2021 and higher bonus expense due to year-to-date performance in 2021, and $1.5
million in leased equipment depreciation due to a higher balance of leased
equipment.
Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30,
2020
Noninterest expense decreased by $1.39 billion to $461.3 million for the nine
months ended September 30, 2021 compared to $1.85 billion for the nine months
ended September 30, 2020 due primarily to a $1.47 billion goodwill impairment in
the 2020 period. Excluding the goodwill impairment, noninterest expense
increased by $83.0 million in the 2021 period compared to the 2020 period. This
increase was due primarily to increases of $70.4 million increase in
compensation expense, $4.8 million in leased equipment depreciation, $4.2
million in other expense, and $3.8 million increase in acquisition, integration
and reorganization costs. The increase in compensation expense was due to the
incremental compensation expense from eight months of Civic operations in the
2021 period and higher bonus expense, given the operating results in 2021, while
the 2020 bonus amounts were below historical levels as a result of the higher
provisions for credit losses in 2020. Leased equipment depreciation increased
due to a higher balance of leased equipment. Other expense increased due mainly
to higher legal settlement costs. The increase in acquisition, integration, and
reorganization costs was due to the costs in the 2021 period related to the
closed Civic acquisition and the acquisition of MUFG Union Bank's HOA Services
Division that closed on October 8, 2021.
Income Taxes
The effective tax rate for the third quarter of 2021 was 25.4% compared to 25.7%
for the second quarter of 2021 and 23.1% for the third quarter of 2020. The
increased effective tax rate for the third quarter of 2021 compared to the third
quarter of 2020 was primarily due to higher book income in 2021. The effective
tax rate for the nine months ended September 30, 2021 was 25.8% compared to
(2.9)% for the nine months ended September 30, 2020. Excluding non-deductible
goodwill impairment, the effective income tax rate was 25.0% for the nine months
ended September 30, 2020. The Company's blended statutory tax rate for federal
and state is 27.6% and the effective tax rate for the full year 2021 is
estimated to be in the range of 25-27%.
                                       69

————————————————– ——————————

© Edgar online, source Previews

Source link

About Jonathan Bell

Check Also

Nonprofits and business groups help Latin American businesses hit hard by pandemic

PHOENIX – The walls of Salvadoreño Restaurant # 3 north of Phoenix catch your eye: …

Leave a Reply

Your email address will not be published. Required fields are marked *