PacWest Bancorp(PACW) - 2023 Q3 - Quarterly Report

Foreign Currency Exposure - As of September 30, 2023, the U.S. Dollar notional amounts of loans receivable and subordinated debt payable denominated in foreign currencies were $8.5 million and $27.3 million, respectively[352]. - A foreign currency translation net loss of $97,000 was recognized for the nine months ended September 30, 2023, compared to a net gain of $2.1 million for the same period in 2022[352]. Interest Rate Risk - The company's interest rate risk (IRR) limits were breached in June 2023, indicating a shift to a high-risk range due to significant deposit outflows[357]. - The company’s balance sheet is liability sensitive, suggesting that NII and market value of equity (MVE) would change in the opposite direction of a sudden sustained change in prevailing interest rates[359]. - The merger with Banc of California, Inc. is anticipated to reduce the interest rate risk of the merged institution by increasing capital and reducing the volume of fixed-rate assets[358]. Customer Deposits and Withdrawals - Approximately $9.0 billion of customer deposits were withdrawn and replaced by more rate-sensitive brokered deposits and borrowings during the banking stress event from March to May 2023[357]. - Average balance of noninterest-bearing deposits decreased by $6.0 billion, while average balance of interest-bearing deposits decreased by $1.3 billion[364]. Net Interest Income (NII) - The forecasted net interest income (NII) for the base case as of September 30, 2023, is $581.1 million, with a net interest margin of 1.67%[363]. - Total base case year 1 tax equivalent NII decreased by $694.2 million or 54% to $581.1 million at September 30, 2023 compared to December 31, 2022[364]. - Base case tax equivalent NIM decreased to 1.67% at September 30, 2023 from 3.21% at December 31, 2022[364]. - In a scenario of a 300 basis points increase in interest rates, the forecasted NII would decrease by 10.4% to $520.8 million[363]. - In the "Gradual Decrease" scenario, Year 1 tax equivalent NII is projected to increase by 3.1%[365]. - In the "Gradual Increase" scenario, Year 1 tax equivalent NII is projected to decrease by 2.7%[365]. Loan Portfolio - Total gross loans amounted to $22.1 billion, with $6.7 billion or 30% having variable interest rate terms[366]. - Variable-rate hybrid loans represented 26% of total loans, totaling $5.8 billion[367]. - The NII simulation model assumes that 30% of loans are variable-rate and 26% are hybrid adjustable-rate mortgage loans, which are expected to reprice according to their contractual terms[362]. Market Value Changes - Projected market value of equity decreased by $4.4 billion to $4.1 billion at September 30, 2023[373]. - Estimated market value of deposits, borrowings, and subordinated debt decreased by $2.8 billion[373]. - A net loss of $1.42 billion was primarily due to a $1.38 billion goodwill impairment charge[373].