UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current
Report
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
August 20, 2010
PACWEST BANCORP
(Exact name of registrant as specified in its charter)
Delaware
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|
00-30747
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33-0885320
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(State or Other Jurisdiction of
Incorporation)
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(Commission File Number)
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(I.R.S. Employer Identification
No.)
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401 West A Street
San Diego, California 92101
(Address of principal executive offices and zip code)
(619) 233-5588
(Registrants telephone number, including area code)
Check
the appropriate box below if the Form 8-K is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
o
Written communications pursuant to
Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to
Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CRF 240.13e-4(c))
EXPLANATORY NOTE
On
August 26, 2010, PacWest Bancorp (the Company) filed a Current Report on
Form 8-K to report that its wholly owned subsidiary, Pacific Western Bank
(Pacific Western or the Bank), had entered into a definitive agreement with
the Federal Deposit Insurance Corporation (the FDIC) on August 20,
2010, pursuant to which Pacific Western
Bank acquired certain assets, including
all loans, and assumed substantially all liabilities, including all deposits,
of Los Padres Bank, FSB (Los Padres or Los Padres Bank), a federally
chartered savings bank headquartered in Solvang, California (the Los Padres
Acquisition). In that filing, the
Company indicated that it would amend the Form 8-K at a later date to
provide financial information required by Item 9.01 of Form 8-K. This
amendment is being filed to update the disclosures in Item 2.01 and to provide
the financial information required by Item 9.01. In accordance with the guidance provided in
Staff Accounting Bulletin Topic 1:K,
Financial Statements of
Acquired Troubled Financial Institutions
(SAB 1:K), the Company has omitted certain
financial information of Los Padres required by Rule 3-05 of Regulation
S-X. SAB 1:K provides relief from the requirements of Rule 3-05 of Regulation
S-X under certain circumstances, including a transaction such as the Los Padres
Acquisition, in which the registrant engages in an acquisition of a troubled
financial institution for which historical financial statements are not
reasonably available and in which federal assistance is an essential and
significant part of the transaction.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.
Effective
August 20, 2010, Pacific Western assumed all deposits and certain
liabilities and acquired certain assets of Los Padres from the Federal Deposit
Insurance Corporation (FDIC) as receiver for Los Padres Bank, pursuant to the
terms of a purchase and assumption agreement entered into by the Bank and the
FDIC on August 20, 2010 (the Agreement). On August 23, 2010,
the 14 former Los Padres branches, including 11 California branches (three in
Ventura County, four in Santa Barbara County, and four in San Luis Obispo
County) and three Arizona branches (in Maricopa County), opened as Pacific Western
Bank branches.
Under
the terms of the Agreement, the Bank acquired certain assets of Los Padres
Bank, including all loans, and assumed substantially all of its liabilities,
including all deposits. As of August 20, 2010, the Bank
(a) acquired the following assets at fair value: $440.2 million in loans,
$33.4 million in other real estate owned, $33.6 million in U.S. government and
agency securities, $10.6 million in Federal Home Loan Bank (FHLB) stock,
$27.4 million in cash and cash equivalents, $144.0 million in cash from the
FDIC, a $2.4 million core deposit intangible, a $69.2 million FDIC loss sharing
asset, $46.2 million in goodwill, and $17.0 million of other assets, and
(b) assumed the following liabilities at fair value: $752.2 million in deposits,
$70.0 million in FHLB advances, and $1.9 million in other liabilities. In
connection with the Los Padres Acquisition, the FDIC made a cash payment to the
Bank of $144.0 million. The foregoing
amounts are estimates and subject to adjustment based upon final settlement
with the FDIC. The terms of the Agreement provide for the FDIC to
indemnify the Bank against claims with respect to liabilities of Los Padres not
assumed by the Bank and certain other types of claims listed in the Agreement.
Other
than a deposit premium of approximately $3.3 million, the Bank paid no cash or
other consideration to acquire Los Padres Bank. As part of the Los Padres
Acquisition, the Bank and the FDIC entered into a loss sharing agreement
whereby the FDIC will share in the losses on the acquired loans, with the
exception of consumer loans, and foreclosed loan collateral as specified in
such loss sharing agreement. We refer to
the assets subject to the loss sharing agreement collectively as covered
assets. The acquired loans and other real estate owned covered by the loss
sharing agreement totaled $577.5 million, before fair value adjustments, at August 20,
2010. Pursuant to the terms of the loss
sharing agreement, the FDIC is obligated to reimburse the Bank for 80% of losses
with respect to the covered assets. The Bank will reimburse the FDIC for
80% of recoveries with respect to losses for which the FDIC paid the Bank 80%
reimbursement under the loss sharing agreement.
While
the Agreement contains two loss sharing agreements: (1) a single family
loss sharing agreement and (2) a commercial loss sharing agreement, we
refer to these agreements collectively as the loss sharing agreement. Under
the single family loss sharing agreement, the FDIC absorbs 80% of losses on acquired
single family loans and foreclosed loan collateral for a period of ten years
starting from the acquisition date and shares in 80% of loss recoveries on
these assets also for a period of ten years from the acquisition date. Under the commercial loss sharing agreement,
the FDIC absorbs 80% of losses on acquired non-single family loans and
foreclosed loan collateral for a period of five years starting from the
acquisition date and shares in 80% of loss recoveries on these assets for a
period of eight years from the acquisition date.
2
The
foregoing summary of the Agreement is not complete and is qualified in its
entirety by reference to the full text of the Agreement and certain exhibits
attached thereto, a copy of which, including the loss sharing agreement, was
previously filed as Exhibit 2.1 to this report and is incorporated by
reference into this Item 2.01.
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
Discussion
As set forth in Item 2.01 above, on August 20, 2010, the Bank
acquired certain assets and assumed certain liabilities of Los Padres Bank from
the FDIC pursuant to the Agreement. A significant
element of the Los Padres Acquisition is the loss sharing agreement between the
Bank and the FDIC. Under the loss sharing agreement with the FDIC, the FDIC
will reimburse the Bank for a substantial portion of any future losses on
loans, with the exception of certain consumer loans, and other real estate owned.
We refer to the acquired assets subject to the loss sharing agreement
collectively as covered assets. Under the terms of such loss sharing
agreement, the FDIC will absorb 80% of losses and share in 80% of loss
recoveries on the covered assets. The
single family loss sharing agreement is in effect for ten years since the
acquisition date for the loss sharing arrangement and ten years for the loss
recovery provisions. The commercial loss
sharing agreement is in effect for five years since the acquisition date for
the loss sharing arrangement and eight years for the loss recovery provisions.
The Los Padres Acquisition has been accounted for under the acquisition
method of accounting. The assets and liabilities, both tangible and intangible,
were recorded at their estimated fair values as of the August 20, 2010
acquisition date. Such fair values are preliminary estimates and are subject to
adjustment as additional information relative to closing date fair values
becomes available for up to a period of one year after the closing date of the
Los Padres Acquisition or when such additional information is considered final,
whichever is earlier. The amounts are
also subject to adjustment based upon final settlement with the FDIC.
The application of the acquisition method of accounting resulted in
goodwill of $46.2 million. Such goodwill
includes $9.5 million related to the FDICs settlement accounting for a Los
Padres Bank wholly-owned subsidiary. We
disagree with the FDICs accounting for this item and are in process of
negotiating with the FDIC for resolution of this matter. Should we be successful in our negotiations,
goodwill would be reduced by a cash payment to us from the FDIC of $9.5
million. No assurance can be given,
however, that we will be successful in our efforts.
3
Financial Condition
The transaction resulted in significant increases in the Companys
assets and liabilities. The following
table presents the estimated fair values of assets acquired and liabilities
assumed as of August 20, 2010:
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August 20,
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2010
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(In thousands)
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Assets
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Cash and cash equivalents
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$
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171,366
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Investment securities
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44,251
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Loans
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440,219
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Other real estate owned
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33,394
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Core deposit intangible
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2,427
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Goodwill
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46,228
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FDIC loss sharing asset
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69,244
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Other assets
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16,954
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Total assets acquired at fair value
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$
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824,083
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Liabilities
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Deposits
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$
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752,185
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FHLB advances
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70,013
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Other liabilities
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1,885
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Total liabilities assumed at fair value
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$
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824,083
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Investment Securities
We acquired $44.3 million of investment securities at estimated fair
market value in the Los Padres Acquisition, none of which are covered by a loss
sharing agreement with the FDIC. The
acquired investment securities consisted of $33.6 million in government and
government-sponsored entity pass through securities and collateralized mortgage
obligations (CMOs) and $10.6 million in Federal Home Loan Bank of San
Francisco (FHLB) stock.
The following table presents the composition of the investment
portfolio acquired at August 20, 2010:
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August 20,
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2010
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(In thousands)
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Residential mortgage-backed securities:
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Government and government-sponsored entity:
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Pass through securities
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$
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26,720
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CMOs
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6,884
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Total securities available-for-sale
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33,604
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Federal Home Loan Bank Stock
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10,647
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Total investment securities
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$
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44,251
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4
The following table presents a summary of yields and contractual
maturities of the investment securities acquired at August 20, 2010:
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One Year
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Five Years
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Through
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Through
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Over
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Five Years
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Ten Years
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Ten Years
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Total
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Amount
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Yield
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Amount
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Yield
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Amount
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Yield
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Amount
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Yield
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(Dollars in thousands)
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Residential mortgage-backed securities:
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Government and government-sponsored entity:
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Pass through securities
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$
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1,075
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7.63
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%
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$
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857
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3.70
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%
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$
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24,788
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3.47
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%
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$
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26,720
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3.65
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%
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CMOs
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%
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%
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6,884
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4.44
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%
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6,884
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4.44
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%
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Total securities available-for-sale
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$
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1,075
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7.63
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%
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$
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857
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3.70
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%
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$
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31,672
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3.69
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%
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$
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33,604
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3.81
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%
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Covered Loans
The following table presents the balances of major categories of loans
acquired in the Los Padres Acquisition as of August 20, 2010:
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August 20, 2010
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Loan Category
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Amount
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% of
Loans
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(In thousands)
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Commercial real estate
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$
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233,560
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43
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%
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Single family
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113,371
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21
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%
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Multi-family
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65,835
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12
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%
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Construction and land
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55,217
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10
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%
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Commercial
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43,988
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8
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%
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Home equity lines of credit
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26,220
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5
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%
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Consumer
(1)
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1,360
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%
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Total gross loans
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539,551
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100
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%
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Discount resulting from acquisition date fair
value adjustment
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(99,332
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)
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Total net loans
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$
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440,219
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|
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|
(1)
Includes
$828,000 of loans not covered by loss sharing agreement.
We refer to the loans
acquired in the Los Padres Acquisition as covered loans as we will be
reimbursed for a substantial portion of any future losses on them under the
terms of the FDIC loss sharing agreement. We account for loans under ASC 310-30
(acquired impaired loan accounting) when (a) we acquire loans deemed to be
impaired when there is evidence of credit deterioration since the origination
and it is probable at the date of acquisition that we would be unable to
collect all contractually required payments and (b) as a general policy
election for non-impaired loans that we acquire. We may refer to acquired loans
accounted for under ASC 310-30 as acquired impaired loans. Revolving credit
agreements such as home equity lines and credit card loans are excluded from acquired
impaired loan accounting requirements. We acquired $34.5 million, at fair value,
of revolving credit agreements, mainly home equity loans and commercial
asset-based lines of credit, where the borrower had revolving privileges on the
acquisition date; we account for such revolving covered loans in accordance
with the accounting requirements for purchased non-impaired loans.
The acquired covered loans
were recorded at their estimated fair value at the time of acquisition. Fair
value of acquired loans is determined using a discounted cash flow model based
on assumptions about the amount and timing of principal and interest payments,
estimated prepayments, estimated default rates, estimated loss severity in the
event of defaults, and current market rates. Estimated credit losses are
included in the determination of fair value; therefore, an allowance for loan
losses is not recorded on the acquisition date.
For acquired impaired loans,
we (a) calculated the contractual amount and timing of undiscounted principal
and interest payments (the undiscounted contractual cash flows) and (b) estimated
the amount and timing of undiscounted expected principal and interest payments
(the undiscounted expected cash flows).
Under acquired impaired loan accounting,
the difference
between the undiscounted contractual cash flows and the undiscounted expected
cash flows is the nonaccretable difference. The nonaccretable difference
represents an estimate of the loss exposure of principal and interest related
to the covered acquired impaired loans portfolio and such amount is subject to
change over time based on the performance of such covered loans. The carrying
value of covered acquired impaired loans is reduced by payments received, both
principal and interest, and increased by the portion of the accretable yield
recognized as interest income.
The excess of expected cash
flows at acquisition over the initial fair value of acquired impaired loans is
referred to as the accretable yield and is recorded as interest income over
the estimated life of the loans using the effective yield method if the timing
and amount of the future cash flows is reasonably estimable. Subsequent to
acquisition, the Company aggregates loans into pools of loans with common
credit risk characteristics such as loan type and risk rating. Increases in
expected cash flows over those originally estimated increase the accretable
yield and are recognized as interest income prospectively. Decreases in
the amount and changes in the timing of
expected cash
flows compared to those originally estimated decrease the accretable yield and usually
result in a provision for loan losses and the establishment of an allowance for
loan losses.
At the August 20, 2010 acquisition
date, we estimated the fair value of the Los Padres loan portfolio at $440.2
million.
The carrying value of
covered loans purchased in the Los Padres Acquisition, where we applied
acquired impaired loan accounting, was $405.7 million at August 20, 2010. The
undiscounted contractual cash flows for such covered acquired impaired loans was
$681.9 million and the undiscounted estimated cash flows not expected to be
collected was $129.9 million on the acquisition date.
The accretable yield
represents the amount by which the undiscounted expected cash flows exceed the
estimated fair value. The accretable yield is measured at each financial
reporting date and represents the difference between the remaining undiscounted
expected cash flows and the current carrying value of the acquired impaired
loans.
5
The following table summarizes the accretable yield on the covered
loans purchased in the Los Padres Acquisition and accounted for under acquired
impaired loan accounting as of August 20, 2010:
|
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Accretable
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Yield
|
|
|
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(In thousands)
|
|
|
|
|
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Undiscounted contractual cash flows
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|
$
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681,936
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Undiscounted cash flows not expected to be
collected (nonaccretable difference)
|
|
(129,866
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)
|
Undiscounted cash flows expected to be collected
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|
552,070
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Estimated fair value of loans acquired
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(405,656
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)
|
Acquired accrued interest receivable
|
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(2,436
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)
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Accretable yield
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|
$
|
143,978
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|
Acquired revolving lines of credit were recorded at fair value. The
carrying amount of covered revolving lines of credit was $34.5 million, net of
a $12.2 million discount, at August 20, 2010. The difference between the loan
balances and fair value will be accreted to interest income over the life of
the loans on a straight-line basis. The estimated life of the purchased
revolving lines of credit agreements is 6 years. Such loans will be subject to
our allowance for credit loss methodology, and a provision for credit losses
will be recorded when the required allowance exceeds the remaining credit
discount.
As part of the loan portfolio fair value estimation, we established the
FDIC loss sharing asset of $69.2 million, which represents the present value of
the estimated losses on covered assets to be reimbursed by the FDIC. The FDIC loss sharing asset will be reduced
as losses are recognized on covered assets and loss sharing payments are
received from the FDIC. Realized losses
in excess of acquisition date estimates will increase the FDIC loss sharing
asset. Conversely, if realized losses
are less than acquisition date estimates, the FDIC loss sharing asset will be
reduced by a charge to earnings.
Covered loans under loss sharing agreements with the FDIC are reported
in loans exclusive of the estimated FDIC loss sharing asset. The covered loans acquired in the Los Padres
transaction are and will continue to be subject to our internal and external
credit review. If credit deterioration is noted in the acquired impaired loans subsequent
to the August 20, 2010 acquisition date, such deterioration in the expected
cash flows will be measured and usually a provision for credit losses will be
charged to earnings and a reserve will be established; further, a partial
offset of such amount will be credited to FDIC loss sharing noninterest income
reflecting the increase to the FDIC loss sharing asset.
Loan Interest Rate Sensitivity
The following table presents the interest rate sensitivity analysis
with respect to certain categories of acquired loans and provides separate
analyses with respect to fixed rate loans and floating rate loans as of August 20,
2010. The amounts shown in the table are
unpaid balances.
|
|
Repricing or Maturing In
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Loan Category
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One Year
Or Less
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Over
One to
Five Years
|
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Over
Five Years
|
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Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate mortgage
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|
$
|
127,840
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|
$
|
129,029
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|
$
|
182,114
|
|
$
|
438,983
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|
Real estate construction
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|
47,417
|
|
2,069
|
|
5,731
|
|
55,217
|
|
Commercial
|
|
26,334
|
|
1,857
|
|
15,797
|
|
43,988
|
|
Total
|
|
$
|
201,591
|
|
$
|
132,955
|
|
$
|
203,642
|
|
$
|
538,188
|
|
|
|
Due After One Year
|
|
Loan Category
|
|
Fixed
Rate
|
|
Floating
Rate
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate mortgage
|
|
$
|
187,829
|
|
$
|
123,314
|
|
$
|
311,143
|
|
Real estate construction
|
|
7,390
|
|
410
|
|
7,800
|
|
Commercial
|
|
15,318
|
|
2,336
|
|
17,654
|
|
Total
|
|
$
|
210,537
|
|
$
|
126,060
|
|
$
|
336,597
|
|
The loan portfolio
has a weighted average contractual maturity of 8.0 years and a weighted average
coupon interest rate of 6.03%. The
expected life may be shorter or longer depending on loan prepayments and the
timing of resolution of credit-impaired loans.
The average yield rate is expected to be higher than the weighted
average coupon interest rate due to accretion of discount.
6
Nonperforming Assets
The following table presents loans that would normally be considered
nonaccrual, except for the accounting requirements regarding purchased impaired
loans, and other real estate owned (OREO) covered by the loss sharing
agreement at September 30, 2010:
|
|
September 30,
|
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Covered nonaccrual loans
|
|
$
|
18,312
|
|
Covered OREO
|
|
33,383
|
|
Total covered nonperforming assets
|
|
$
|
51,695
|
|
Under the terms of the loss sharing agreement with the FDIC, the FDIC
will absorb 80% of losses and share in 80% of loss recoveries on the covered
assets. The single family loss sharing
agreement is in effect for ten years since the acquisition date for the loss
sharing arrangement and ten years for the loss recovery provisions. The commercial loss sharing agreement is in
effect for five years since the acquisition date for the loss sharing
arrangement and eight years for the loss recovery provisions. The loss sharing agreement significantly
reduces our exposure to credit loss.
Deposits
The Los Padres Acquisition increased our deposits by $752.2 million at August 20,
2010. The following table presents a
summary of the deposits acquired and the interest rates in effect at the
acquisition date:
|
|
August 20, 2010
|
|
|
|
Amount
|
|
Interest
Rate
|
|
|
|
(Dollars in thousands)
|
|
Noninterest bearing deposits
|
|
$
|
34,549
|
|
|
|
Interest-bearing deposits:
|
|
|
|
|
|
Interest checking
|
|
41,655
|
|
0.31
|
%
|
Money market
|
|
61,948
|
|
0.67
|
%
|
Savings
|
|
17,923
|
|
0.26
|
%
|
Time deposits:
|
|
|
|
|
|
Under $100,000
|
|
194,571
|
|
1.49
|
%
|
Over $100,000
|
|
401,072
|
|
1.67
|
%
|
Total time deposits
|
|
595,643
|
|
1.61
|
%
|
Total interest-bearing deposits
|
|
717,169
|
|
1.42
|
%
|
Total gross deposits
|
|
751,718
|
|
1.36
|
%
|
Time deposits fair value adjustment
|
|
467
|
|
|
|
Total net deposits
|
|
$
|
752,185
|
|
|
|
Time deposit maturities at August 20, 2010 were as follows:
Maturities
|
|
August 20,
2010
|
|
|
|
(In thousands)
|
|
3 months or less
|
|
$
|
127,190
|
|
Over 3 months through 6 months
|
|
170,976
|
|
Over 6 months through 12 months
|
|
146,019
|
|
Over 12 months
|
|
151,458
|
|
Total time deposits
|
|
$
|
595,643
|
|
7
The weighted average maturity and cost of
time deposits at August 20, 2010 were 7.7 months and 1.61%,
respectively.
Effective September 1,
2010, we changed the rates on Los Padres deposit products to be consistent
with those offered on Pacific Westerns deposits. As a result of this change, the deposits we
acquired declined by $259.4 million to $492.8 million at September 30,
2010. The deposit run-off was funded
with the cash that we received from the FDIC in connection with this
acquisition and other excess liquidity.
Borrowings
The Company assumed $70.0 million in FHLB advances on August 20,
2010 as a result of the Los Padres Acquisition as summarized in the table
below. All of the FHLB advances were
paid off in August 2010 subsequent to the acquisition.
|
|
August 20, 2010
|
|
Year of Maturity
|
|
Amount
|
|
Interest
Rate
|
|
|
|
(Dollars in thousands)
|
|
2010
|
|
$
|
50,000
|
|
0.24
|
%
|
2011
|
|
20,000
|
|
0.36
|
%
|
Total gross FHLB advances
|
|
70,000
|
|
0.28
|
%
|
Fair value adjustment
|
|
13
|
|
|
|
Total net FHLB advances
|
|
$
|
70,013
|
|
|
|
Goodwill
The Los Padres Acquisition has been accounted for under the acquisition
method of accounting. The assets and liabilities, both tangible and intangible,
were recorded at their estimated fair values as of the August 20, 2010
acquisition date. Such fair values are preliminary estimates and are subject to
adjustment for up to one year after the acquisition date or when additional
information relative to closing date fair values becomes available and such
information is considered final, whichever is earlier. The application of the
acquisition method of accounting resulted in goodwill of $46.2 million. Such goodwill includes $9.5 million related
to the FDICs settlement accounting for Los Padres wholly-owned
subsidiary. We disagree with the FDICs
accounting for this item and are in process of negotiating with the FDIC to
resolve this matter. Should we be
successful in our negotiations, goodwill would be reduced by a cash payment to
us from the FDIC of $9.5 million. No
assurance can be given, however, that we will be successful in our efforts.
In the Los Padres Acquisition, the estimated fair value of the
liabilities assumed exceeded the estimated fair value of the assets
acquired. The excess of the fair value
of the liabilities assumed over the fair value of the assets acquired is
goodwill. All of the recognized goodwill
is expected to be deductible for tax purposes. The determination of goodwill is
influenced significantly by the FDIC-assisted transaction process. Under the FDIC-assisted transaction process,
only certain assets and liabilities are transferred to the acquirer and,
depending on the nature and amount of the acquirers bid, the FDIC may be
required to make a cash payment to the acquirer. In the Los Padres Acquisition,
we acquired net liabilities with cost basis of $160.8 million, received $144.0
million in a cash payment, and established a $13.4 million receivable from the
FDIC that is net of the $3.4 million deposit premium we paid. The receivable
from the FDIC is due at final settlement.
8
The following table presents the summary of goodwill based on fair
value adjustments:
|
|
August 20,
|
|
|
|
2010
|
|
|
|
(In thousands)
|
|
Los Padres cost basis net liabilities on
August 20, 2010
|
|
$
|
(160,794
|
)
|
Cash received and due from the FDIC
|
|
160,794
|
|
Fair value adjustments -
|
|
|
|
Net increase (decrease) in acquired assets:
|
|
|
|
Loans
|
|
(99,332
|
)
|
Other real estate owned
|
|
(4,507
|
)
|
FDIC loss sharing asset
|
|
69,244
|
|
Core deposit intangible
|
|
2,427
|
|
Receivable from subsidiary
|
|
(9,513
|
)
|
Miscellaneous
|
|
(674
|
)
|
Net (increase) decrease in assumed liabilities:
|
|
|
|
Time deposits
|
|
(467
|
)
|
FHLB advances
|
|
(13
|
)
|
Total fair value adjustments
|
|
(42,835
|
)
|
Deposit premium paid
|
|
(3,393
|
)
|
Goodwill resulting from the Los Padres Acquisition
|
|
$
|
46,228
|
|
Regulatory Capital
The regulatory capital guidelines and the actual capital ratios for
Pacific Western and the Company as of September 30, 2010, are as follows:
|
|
September 30, 2010
|
|
|
|
Well
Capitalized
Requirement
|
|
Pacific
Western
Bank
|
|
PacWest
Bancorp
Consolidated
|
|
Tier 1 leverage capital ratio
|
|
5.00
|
%
|
9.04
|
%
|
9.17
|
%
|
Tier 1 risk-based capital ratio
|
|
6.00
|
%
|
12.44
|
%
|
12.54
|
%
|
Total risk-based capital ratio
|
|
10.00
|
%
|
13.72
|
%
|
13.82
|
%
|
Operating Results and Cash Flow
The operations of Los Padres
Bank are included in our operating results from August 20, 2010, and added
revenue of $2.8 million, non-interest expense of $2.1 million, and net
after-tax earnings of $0.4 million for the third quarter of 2010. Such operating results are not necessarily
indicative of future operating results.
The discount related to the covered loans will be accreted to interest
income. However, the amount and timing
of such discount accretion is dependent on the performance of the acquired
impaired loans, whereas the discount on the acquired non-impaired loans will be
accreted over the life of the loans on a straight-line basis.
The covered loans acquired in the Los Padres transaction are and will
continue to be subject to our internal and external credit review. If and when
credit deterioration is noted in the covered acquired impaired loans subsequent
to the August 20, 2010 acquisition date, such deterioration in expected
cash flows will be measured and usually a provision for credit losses will be
charged to earnings and a reserve will be established; further, a partial
offset of such amount will be credited to FDIC loss sharing noninterest income
reflecting the increase to the FDIC loss sharing asset.
9
The loss sharing agreement with the FDIC significantly reduces our
exposure to credit loss on covered loans and other real estate owned. Under the terms of the loss sharing agreement
with the FDIC, the FDIC will absorb 80% of losses and share in 80% of loss
recoveries on the covered assets. The
single family loss sharing agreement is in effect for ten years since the
acquisition date for the loss sharing arrangement and ten years for the loss
recovery provisions. The commercial loss
sharing agreement is in effect for five years since the acquisition date for
the loss sharing arrangement and eight years for the loss recovery provisions.
Our
cash flows will be impacted by the Los Padres Acquisition and the related loss
sharing agreement. It is likely that a
significant amount of covered loans will (a) experience inadequate
collateral values to support loan repayment and/or (b) default. In such situations, our interest income will
be reduced causing a lower level of cash flow.
In addition, we may charge off all or portions of such loans further
reducing our cash flow. As indicated
above, however, the loss sharing agreement with the FDIC extends up to ten
years. During this time period, changing
economic conditions along with our efforts to collect and resolve covered loans
will cause cash flows from the covered loan portfolio to be uneven and
difficult to estimate.
Liquidity
At the August 20, 2010
acquisition date, we acquired $171.4 million in cash and cash equivalents,
which included a $144.0 million cash payment from the FDIC, and $33.6 million
in U.S. government and agency securities.
The acquired cash, together with the Banks excess cash, was used to
manage deposit outflows and repay FHLB advances. The Bank has sufficient on-balance sheet
liquidity to manage known and unknown deposit flows. Additionally, the Bank receives principal and
interest payments from its borrowers on outstanding loans and mortgage-backed investment
securities which produce cash for the Bank.
The investment securities will be available either to be pledged to the
FHLB to secure advances or for other borrowings or to be kept for on-balance
sheet liquidity purposes.
Pacific Western has a secured
line of credit with the FHLB of San Francisco in the amount of $1.2 billion, of
which $925.8 million was available as of September 30, 2010. This line of credit does not yet reflect
certain assets acquired from Los Padres which may be eligible to be pledged and
which we believe will increase the Banks borrowing capacity.
Forward-Looking Information
This Report on Form 8-K contains certain forward-looking
information about the Company and its subsidiaries, which statements are
intended to be covered by the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact are forward-looking
statements. Such statements involve inherent risks and uncertainties, many of
which are difficult to predict and are generally beyond the control of the
Company. We caution readers that a number of important factors could cause
actual results to differ materially from those expressed in, implied or
projected by, such forward-looking statements.
A discussion of risks, uncertainties and other factors that could cause
actual results to differ materially from managements expectations is set forth
under (a) Item 1A. Risk Factors in Part I and Managements
Discussion and Analysis of Financial Condition and Results of Operations in
the Companys Annual Report on Form 10-K for the year ended
December 31, 2009 and (b) Item 1A. Risk Factors in Part II,
Other Information in the Companys quarterly report on Form 10-Q for the
quarter ended September 30, 2010.
10
Financial Statements
The
following financial statements are attached hereto as Exhibit 99.1 and
incorporated by reference into this Item 9.01(a):
Report
of Independent Registered Public Accounting Firm
Statement
of Assets Acquired and Liabilities Assumed at August 20, 2010
Notes
to Statement of Assets Acquired and Liabilities Assumed
(d) Exhibits.
Exhibit No.
|
|
Description
|
|
|
|
99.1
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
Statement
of Assets Acquired and Liabilities Assumed at August 20, 2010
|
|
|
Notes
to Statement of Assets Acquired and Liabilities Assumed
|
11
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
|
PACWEST BANCORP
|
|
|
Date:
November 5, 2010
|
|
|
By:
|
/s/
Victor R. Santoro
|
|
|
Victor
R. Santoro
|
|
|
Executive
Vice President and Chief Financial Officer
|
12
EXHIBIT INDEX
Exhibit No.
|
|
Description
|
|
|
|
99.1
|
|
Audited
statement of assets acquired and liabilities assumed at August 20, 2010.
|
13
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