PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
Net earnings (loss)
|
|
$
|
56,801
|
|
$
|
50,704
|
|
$
|
(62,016
|
)
|
Other comprehensive income (loss) related to unrealized gains and losses on securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains arising during the period
|
|
|
17,532
|
|
|
32,473
|
|
|
6,149
|
|
Income tax expense related to unrealized holding gains arising during the period
|
|
|
(7,363
|
)
|
|
(13,639
|
)
|
|
(2,583
|
)
|
Reclassification adjustment for net (gains) losses included in net earnings
(1)
|
|
|
(124
|
)
|
|
|
|
|
874
|
|
Income tax expense (benefit) related to reclassification adjustment
|
|
|
52
|
|
|
|
|
|
(367
|
)
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
10,097
|
|
|
18,834
|
|
|
4,073
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME (LOSS)
|
|
$
|
66,898
|
|
$
|
69,538
|
|
$
|
(57,943
|
)
|
|
|
|
|
|
|
|
|
-
(1)
-
The
2012 reclassification adjustment includes a $1.2 million gain on sale of securities, net of a $1.1 million
other-than-temporary impairment loss on a covered security. The 2010 reclassification adjustment represents an other-than-temporary impairment loss on a
covered security.
See accompanying Notes to Consolidated Financial Statements.
115
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
|
|
|
Shares
|
|
Par
Value
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Deficit
|
|
Treasury
Stock
|
|
Total
|
|
BALANCE, DECEMBER 31, 2009
|
|
|
35,015,322
|
|
$
|
351
|
|
$
|
1,053,584
|
|
$
|
(545,026
|
)
|
$
|
(2,032
|
)
|
$
|
(104
|
)
|
$
|
506,773
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
(62,016
|
)
|
|
|
|
|
|
|
|
(62,016
|
)
|
Other comprehensive incomenet unrealized gain on securities available-for-sale, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,073
|
|
|
4,073
|
|
Issuance of common stock
|
|
|
1,348,040
|
|
|
14
|
|
|
26,573
|
|
|
|
|
|
|
|
|
|
|
|
26,587
|
|
Tax effect from vesting of restricted stock
|
|
|
|
|
|
|
|
|
(1,840
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,840
|
)
|
Restricted stock awarded and earned stock compensation, net of shares forefeited
|
|
|
403,733
|
|
|
4
|
|
|
8,492
|
|
|
|
|
|
|
|
|
|
|
|
8,496
|
|
Restricted stock surrendered
|
|
|
(94,666
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,831
|
)
|
|
|
|
|
(1,831
|
)
|
Cash dividends paid ($0.04 per share)
|
|
|
|
|
|
|
|
|
(1,445
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2010
|
|
|
36,672,429
|
|
|
369
|
|
|
1,085,364
|
|
|
(607,042
|
)
|
|
(3,863
|
)
|
|
3,969
|
|
|
478,797
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
50,704
|
|
|
|
|
|
|
|
|
50,704
|
|
Other comprehensive incomenet unrealized gain on securities available-for-sale, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,834
|
|
|
18,834
|
|
Tax effect from vesting of restricted stock
|
|
|
|
|
|
|
|
|
(937
|
)
|
|
|
|
|
|
|
|
|
|
|
(937
|
)
|
Restricted stock awarded and earned stock compensation, net of shares forefeited
|
|
|
662,062
|
|
|
6
|
|
|
7,890
|
|
|
|
|
|
|
|
|
|
|
|
7,896
|
|
Restricted stock surrendered
|
|
|
(80,173
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,465
|
)
|
|
|
|
|
(1,465
|
)
|
Cash dividends paid ($0.21 per share)
|
|
|
|
|
|
|
|
|
(7,626
|
)
|
|
|
|
|
|
|
|
|
|
|
(7,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2011
|
|
|
37,254,318
|
|
|
375
|
|
|
1,084,691
|
|
|
(556,338
|
)
|
|
(5,328
|
)
|
|
22,803
|
|
|
546,203
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
56,801
|
|
|
|
|
|
|
|
|
56,801
|
|
Other comprehensive incomenet unrealized gain on securities available-for-sale, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,097
|
|
|
10,097
|
|
Tax effect from vesting of restricted stock
|
|
|
|
|
|
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
283
|
|
Restricted stock awarded and earned stock compensation, net of shares forefeited
|
|
|
230,272
|
|
|
2
|
|
|
5,997
|
|
|
|
|
|
|
|
|
|
|
|
5,999
|
|
Restricted stock surrendered
|
|
|
(63,681
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,475
|
)
|
|
|
|
|
(1,475
|
)
|
Cash dividends paid ($0.79 per share)
|
|
|
|
|
|
|
|
|
(28,787
|
)
|
|
|
|
|
|
|
|
|
|
|
(28,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, DECEMBER 31, 2012
|
|
|
37,420,909
|
|
$
|
377
|
|
$
|
1,062,184
|
|
$
|
(499,537
|
)
|
$
|
(6,803
|
)
|
$
|
32,900
|
|
$
|
589,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
116
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
56,801
|
|
$
|
50,704
|
|
$
|
(62,016
|
)
|
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
25,792
|
|
|
20,084
|
|
|
16,722
|
|
Provision (negative provision) for credit losses
|
|
|
(12,819
|
)
|
|
26,570
|
|
|
212,492
|
|
Gain on sale of other real estate owned
|
|
|
(5,786
|
)
|
|
(9,140
|
)
|
|
(5,525
|
)
|
Provision for losses and valuation adjustments on other real estate owned
|
|
|
14,333
|
|
|
16,994
|
|
|
17,660
|
|
Gain on sale of leases
|
|
|
(2,767
|
)
|
|
|
|
|
|
|
(Gain) loss on sale of premises and equipment
|
|
|
155
|
|
|
(23
|
)
|
|
(4
|
)
|
Gain on branch sale
|
|
|
(297
|
)
|
|
|
|
|
|
|
Gain on sale of securities
|
|
|
(1,239
|
)
|
|
|
|
|
|
|
Other-than-temporary impairment losses on covered securities
|
|
|
1,115
|
|
|
|
|
|
874
|
|
Earned stock compensation
|
|
|
5,999
|
|
|
7,896
|
|
|
8,496
|
|
Tax effect included in stockholders' equity of restricted stock vesting
|
|
|
(283
|
)
|
|
937
|
|
|
1,840
|
|
(Decrease) increase in accrued and deferred income taxes, net
|
|
|
(3,737
|
)
|
|
17,694
|
|
|
(42,562
|
)
|
Decrease in FDIC loss sharing asset
|
|
|
37,712
|
|
|
21,165
|
|
|
67,669
|
|
Decrease in other assets
|
|
|
18,754
|
|
|
18,053
|
|
|
27,205
|
|
Decrease in accrued interest payable and other liabilities
|
|
|
(15,753
|
)
|
|
(661
|
)
|
|
(8,553
|
)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
117,980
|
|
|
170,273
|
|
|
234,298
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Resolution of goodwill matter with FDIC
|
|
|
|
|
|
7,636
|
|
|
|
|
Net cash and cash equivalents (used) acquired in acquisitions
|
|
|
(87,098
|
)
|
|
|
|
|
171,366
|
|
Net cash used in branch sale
|
|
|
(119,756
|
)
|
|
|
|
|
|
|
Net decrease in loans and leases
|
|
|
232,549
|
|
|
450,492
|
|
|
126,813
|
|
Proceeds from sales of loans and leases
|
|
|
58,691
|
|
|
2,495
|
|
|
258,128
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
Proceeds from maturities and paydowns
|
|
|
415,854
|
|
|
231,898
|
|
|
215,113
|
|
Proceeds from sales
|
|
|
90,745
|
|
|
|
|
|
|
|
Purchases
|
|
|
(485,860
|
)
|
|
(658,310
|
)
|
|
(627,884
|
)
|
Net redemptions of Federal Home Loan Bank stock
|
|
|
10,392
|
|
|
8,934
|
|
|
6,036
|
|
Proceeds from sale of other real estate owned
|
|
|
59,614
|
|
|
61,954
|
|
|
83,141
|
|
Capitalized costs to complete other real estate owned
|
|
|
|
|
|
(125
|
)
|
|
(902
|
)
|
Purchases of premises and equipment, net
|
|
|
(4,914
|
)
|
|
(5,936
|
)
|
|
(5,271
|
)
|
Proceeds from sales of premises and equipment
|
|
|
704
|
|
|
27
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
170,921
|
|
|
99,065
|
|
|
226,567
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits:
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing
|
|
|
271,934
|
|
|
220,237
|
|
|
128,866
|
|
Interest-bearing
|
|
|
(234,608
|
)
|
|
(292,482
|
)
|
|
(325,922
|
)
|
Net decrease in borrowings
|
|
|
(228,107
|
)
|
|
|
|
|
(387,776
|
)
|
Redemption of subordinated debentures
|
|
|
(18,558
|
)
|
|
|
|
|
|
|
Repayment of acquired debt
|
|
|
(180,796
|
)
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
26,587
|
|
Tax effect included in stockholders' equity of restricted stock vesting
|
|
|
283
|
|
|
(937
|
)
|
|
(1,840
|
)
|
Restricted stock surrendered
|
|
|
(1,475
|
)
|
|
(1,465
|
)
|
|
(1,831
|
)
|
Cash dividends paid
|
|
|
(28,787
|
)
|
|
(7,626
|
)
|
|
(1,445
|
)
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(420,114
|
)
|
|
(82,273
|
)
|
|
(563,361
|
)
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(131,213
|
)
|
|
187,065
|
|
|
(102,496
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
295,617
|
|
|
108,552
|
|
|
211,048
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
164,404
|
|
$
|
295,617
|
|
$
|
108,552
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
21,614
|
|
$
|
33,000
|
|
$
|
41,844
|
|
Cash paid (received) during the year for income taxes
|
|
|
40,772
|
|
|
19,083
|
|
|
(4,193
|
)
|
Supplemental disclosure of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Transfer of loans to other real estate owned
|
|
|
40,207
|
|
|
68,683
|
|
|
68,447
|
|
See accompanying Notes to Consolidated Financial Statements.
117
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PacWest Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Our principal business is to serve as a holding company for our Los
Angeles-based wholly owned banking subsidiary, Pacific Western Bank, which we refer to as "Pacific Western" or the "Bank." When we say "we," "our" or the "Company," we mean the Company on a
consolidated basis with the Bank. When we refer to "PacWest" or to the holding company, we are referring to the parent company on a stand-alone basis.
We
have completed 25 acquisitions from May 2000 through December 31, 2012, including the merger whereby the former Rancho Santa Fe National Bank and First Community Bank of the
Desert became wholly-owned subsidiaries of the Company in a pooling-of-interests transaction. All other acquisitions have been accounted for using the acquisition method of
accounting and, accordingly, their operating results have been included in the consolidated financial statements from their respective dates of acquisition. During the three years ended
December 31, 2012, we completed the following four acquisitions: Los Padres Bank, or Los Padres, which closed on August 20, 2010; Pacific Western Equipment Finance, or EQF, which closed
on January 3, 2012; Celtic Capital Corporation, or Celtic, which closed on April 3, 2012; and American Perspective Bank, or APB, which closed on August 1, 2012; and. See
Note 3,
Acquisitions
, and Note 4,
Goodwill and Other Intangible Assets
, for more
information about these acquisitions
Pacific
Western is a full-service commercial bank offering a broad range of banking products and services including: accepting demand, money market, and time deposits;
originating loans and leases, including commercial, real estate construction, equipment finance leases, SBA guaranteed and consumer loans; and providing other business-oriented products. Our
operations are primarily located in Southern California extending from California's Central Coast to San Diego County; we also operate three banking offices in the San Francisco Bay area, a leasing
operation based in Utah, and asset-based lending operations based in Arizona as well as San Jose and Santa Monica, California. The Bank focuses on conducting business with small to medium sized
businesses in our marketplace and the owners and employees of those businesses. The majority of our loans are secured by the real estate collateral of such businesses. Our asset-based lending function
operates in Arizona, California, Texas, Colorado, Minnesota, and the Pacific Northwest. Our equipment leasing function has lease receivables in 45 states.
We
generate our revenue primarily from interest received on loans and leases and, to a lesser extent, from interest received on investment securities, and fees received in connection
with deposit services, extending credit and other services offered, including foreign exchange services. Our major operating expenses are the interest paid by the Bank on deposits and borrowings,
compensation and general operating expenses. The Bank relies on a foundation of locally generated and relationship-based deposits. The Bank has a relatively low cost of funds due to a high percentage
of noninterest-bearing and low cost deposits.
Our
operations, like those of other financial institutions operating in Southern California, are significantly influenced by economic conditions in Southern California, including local
economies, the strength of the real estate market, and the fiscal and regulatory policies of the federal and state government and the regulatory authorities that govern financial institutions. Through
our offices located in Northern California, our asset-based lending operations with production and marketing offices located in Arizona, Northern California, Texas, Colorado, Minnesota and the Pacific
Northwest, and our equipment leasing operations located in Utah, we are also subject to the economic conditions
118
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
affecting
these markets. No individual or single group of related accounts is considered material in relation to our total assets or deposits of the Bank, or in relation to the overall business of the
Company. However, 71% of our total gross non-covered and covered loan portfolio at December 31, 2012 consisted of real estate loans.
A
downturn or deterioration in the real estate market could materially and adversely affect our business because a significant portion of our loans are secured by real estate. Our
ability to recover on defaulted loans by selling the real estate collateral would then be diminished and we would be more likely to suffer losses on defaulted loans. Substantially all of our real
property collateral is located in Southern California. Consequently, the ability of our borrowers to repay their loans and our results of
operations and financial condition are dependent upon the general trends in the Southern California economies and, in particular, the residential and commercial real estate markets.
Real
estate values could be affected by, among other things, a worsening of economic conditions, an increase in foreclosures, a decline in home sale volumes, an increase in interest
rates, earthquakes and other natural disasters particular to California. Further, we may experience an increase in the number of borrowers who become delinquent, file for protection under bankruptcy
laws or default on their loans or other obligations to us given a sustained weakness or weakening in business and economic conditions generally or specifically in the principal markets in which we do
business. An increase in the number of delinquencies, bankruptcies or defaults could result in a higher level of nonperforming assets, net charge-offs and provision for credit losses.
The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles, which we may
refer to as U.S. GAAP. All significant intercompany balances and transactions have been eliminated.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these
consolidated financial statements in conformity with U.S. GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other
items, the allowances for credit losses, the carrying value of other real estate owned, the carrying value of intangible assets, the carrying value of the FDIC loss sharing asset, and the realization
of deferred tax assets.
Certain prior year amounts have been reclassified to conform to the current year's presentation.
For purposes of the consolidated statements of cash flows, cash and cash equivalents consist of cash, due from banks, interest-earning
deposits in financial institutions, and federal funds sold. Generally, federal funds are sold for one-day periods. Interest-earning assets in financial institutions
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
represent
cash held at the Federal Reserve Bank of San Francisco ("FRBSF"), the majority of which is immediately available.
We determine the classification of securities at the time of purchase. If we have the intent and the ability at the time of purchase to
hold securities until maturity, they are classified as held-to-maturity. Investment securities held-to-maturity are stated at amortized cost. Securities
to be held for indefinite periods of time, but not necessarily to be held-to-maturity or on a long-term basis, are classified as
available-for-sale and carried at estimated fair value, with unrealized gains or losses reported as a separate component of stockholders' equity in accumulated other
comprehensive income, net of applicable income taxes. Securities available-for-sale include securities that management intends to use as part of its asset/liability management
strategy and that may be sold in response to changes in interest rates, prepayment risk, and other related factors. Securities are individually evaluated for appropriate classification when acquired;
consequently, similar types of securities may be classified differently depending on factors existing at the time of purchase.
The
carrying values of all securities are adjusted for amortization of premiums and accretion of discounts over the period to maturity of the related security using the interest method.
Realized gains or losses on the sale of securities, if any, are determined using the amortized cost of the specific securities sold. If a decline in the fair value of a security below its amortized
cost is judged by management to be other than temporary, the cost basis of the security is written down to its fair value and the amount of the write-down is included in operations.
Investments
in Federal Home Loan Bank of San Francisco, or FHLB, stock are carried at cost and evaluated regularly for impairment. FHLB stock is expected to be redeemed at an amount not
to exceed par and is a required investment based on measurements of the Bank's assets and/or borrowing levels.
Loans and leases held for sale include loans and leases originated or purchased for resale. Loans and leases originated or purchased
for resale include the principal amount outstanding net of unearned income, and are carried at the lower of cost or fair value on an aggregate basis. A decline in the aggregate fair value of the loans
below their aggregate carrying amount is recognized through a charge to earnings in the period of such decline. Unearned income on these loans and leases is taken into earnings when they are sold. At
December 31, 2012 and 2011, the Company had no loans or leases held for sale.
Gains
or losses resulting from sales of loans and leases are recognized at the date of settlement and are based on the difference between the cash received and the carrying value of the
related loans or leases less related transaction costs. A transfer of financial assets in which control is surrendered is accounted for as a sale to the extent that consideration other than beneficial
interests in the transferred assets is received in the exchange. Assets, liabilities, derivative financial instruments or other retained interests issued or obtained through the sale of financial
assets are measured at estimated fair value, if practicable. Lease sales where we keep part of the lease payment stream are accounted for as non-recourse borrowings.
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The
most common retained interest related to loan sales is a servicing asset. Servicing assets are amortized in proportion to and over the period of estimated future net servicing
income. The amortization of the servicing asset and the servicing income are included in noninterest income in the consolidated statement of earnings (loss). The fair value of the servicing assets is
estimated by discounting the future cash flows using market-based discount rates and prepayment speeds. Our servicing asset is evaluated regularly for impairment. We stratify the servicing asset based
on the original term to maturity and the year of origination of the underlying loans for purposes of measuring impairment. The risk is that loans prepay faster than anticipated and the fair value of
the asset declines. If the fair value of the servicing asset is less than the amortized carrying value, the asset is considered impaired and an impairment charge will be taken against earnings.
At
December 31, 2012 and 2011, the servicing asset totaled $1.0 million and $1.3 million, respectively, and related to the servicing of approximately
$62.7 million and $70.6 million in SBA loans, respectively. The servicing asset is included in other assets on the consolidated balance sheets. All loans sold after December 31,
2008, were sold on a servicing released basis.
Originated loans.
Loans are originated by the Company with the intent to hold them for investment and are stated at the
principal amount outstanding,
net of unearned income. Unearned income includes deferred unamortized nonrefundable loan fees and direct loan origination costs. Net deferred fees or costs are recognized as an adjustment to interest
income over the contractual life of the loans using the effective interest method or taken into income when the related loans are paid off or sold. The amortization of loan fees or costs is
discontinued when a loan is placed on nonaccrual status. Interest income is recorded on an accrual basis in accordance with the terms of the respective loan and includes prepayment penalties.
Purchased loans.
Purchased loans are stated at the principal amount outstanding, net of unearned discounts or unamortized
premiums. All loans
acquired in our acquisitions are initially measured and recorded at their fair value on the acquisition date. A component of the initial fair value measurement is an estimate of the credit losses over
the life of the purchased loans. Purchased loans are also evaluated for impairment as of the acquisition date and are accounted for as "acquired non-impaired" or "acquired impaired" loans.
Acquired non-impaired loans.
Purchase discount or premium on acquired non-impaired loans is recognized as an adjustment to interest
income over the contractual life of such loans using the effective interest method or taken into income when the related loans are paid off or sold.
Acquired impaired loans.
Acquired impaired loans are accounted for in accordance with ASC Subtopic 310-30, "
Loans
and Debt Securities Acquired with Deteriorated Credit Quality."
An acquired loan is deemed to be impaired when there is evidence of credit deterioration since its
origination and it is probable at the acquisition date that we would be unable to collect all contractually required payments. We apply acquired impaired loan accounting when (i) we acquire loans
deemed to be impaired, and (ii) as a general policy election for non-impaired loans that we acquire in a distressed bank acquisition.
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
For
acquired impaired loans, at the time of acquisition we (i) calculated the contractual amount and timing of undiscounted principal and interest payments (the "undiscounted
contractual cash flows") and (ii) estimated the amount and timing of undiscounted expected principal and interest payments (the "undiscounted expected cash flows"). 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 loan portfolios; such amount is subject to change over time based on the performance of such covered loans. The carrying value of 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. If the timing of cash flows is uncertain, any cash payments
will be recognized when received.
As
part of the fair value process and the subsequent accounting, the Company aggregates impaired loans into pools having common credit risk characteristics such as type and risk rating.
Increases in expected cash flows over those previously 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 previously estimated decrease the accretable yield and usually result in a provision for loan losses and the establishment of an allowance for loan losses. As the
accretable yield increases or decreases from changes in cash flow expectations, the offset is a decrease or increase to the nonaccretable difference. The accretable yield is measured at each financial
reporting date based on information then currently available and represents the difference between the remaining undiscounted expected cash flows and the current carrying value of the loans.
Acquired
impaired loans that are contractually past due are still considered to be accruing and performing as long as there is an expectation that the estimated cash flows will be
received. If the timing and amount of cash flows is not reasonably estimable, the loans may be classified as nonaccrual with interest income recognized on either a cash basis or as a reduction of the
principal amount outstanding.
Covered loans.
We refer to loans that are covered by loss sharing agreements with the Federal Deposit Insurance Corporation
("FDIC") as covered
loans. Our covered loans include loans that we acquired in the Los Padres and Affinity acquisitions for which we will be reimbursed for a substantial portion of any future losses on them under the
terms of the FDIC loss sharing agreements. The FDIC loss sharing asset related to covered loans is reported separately in the balance sheet. See "
FDIC Loss Sharing
Asset
."
When
we refer to non-covered loans, we are referring to loans not covered by our loss sharing agreements with the FDIC.
We
apply acquired impaired loan accounting to the majority of the covered loans as such covered loans were deemed to be impaired on the acquisition date. We apply acquired
non-impaired loan accounting to covered revolving credit agreements, mainly home equity loans and commercial asset-based lines of credit, where the borrower had revolving privileges.
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leases.
Leases are recorded as direct financing (capital) leases for accounting purposes. Lease receivables are recorded on the
balance sheet but the
leased property is not, although we generally retain legal title to the leased property until the end of each lease. Leases are stated at the net amount of minimum lease payments receivable, plus any
unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized over the weighted average life of the
lease portfolio. Leases acquired in an acquisition are initially measured and recorded at their fair value on the acquisition date. Purchase discount or premium on acquired leases is recognized as an
adjustment to interest income over the contractual life of the leases using the effective interest method or taken into income when the related leases are paid off.
Leases in process.
We offer "progress funding" which works similarly to a bridge loan by financing an item to be leased during
the construction or
build phase. Lessees pay interest on the amount advanced to fund a project at an interest rate implicit in the master lease agreement; such income is deferred until the project funding is complete.
The amount of funding advanced during the progress funding period is recorded in other assets. At the end of the progress funding period, we either (i) enter into a lease agreement with the
lessee and the deferred income is accreted to interest income using an
effective yield method over the life of the lease, or (ii) sell the lease to a third party lender and recognize the deferred income as part of any gain or loss on such sale.
Delinquent or past due loans and leases.
Loans and leases are considered delinquent when principal or interest payments are past
due 30 days
or more; delinquent loans may remain on accrual status between 30 days and 89 days past due.
Nonaccrual loans and leases.
Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans.
The accrual of interest
on loans is discontinued when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal course of
business. When loans are placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Income on nonaccrual loans is subsequently
recognized only to the extent that cash is received and the loan's principal balance is deemed collectible. Loans are restored to accrual status when the loans become both well-secured and
are in the process of collection. Leases are designated as nonaccrual leases when the recognition of interest has been discontinued. The recognition of interest on leases is discontinued when a
lessee's payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability. Interest on nonaccrual leases is subsequently recognized only to
the extent that cash is received and the lease balance is deemed collectible. Leases are restored to accrual status when the leases become both well secured and are in the process of collection.
Impaired loans and leases.
A loan or lease is considered impaired when it is probable that we will be unable to collect all
amounts due according to
the contractual terms of the loan or lease agreement. Impaired loans and leases include loans and leases on nonaccrual status and performing restructured loans. Income from loans on nonaccrual status
is recognized to the extent cash is received and when the loan's principal balance is deemed collectible. Depending on a particular loan's circumstances, we measure impairment of a loan based upon
either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the fair value of the collateral less estimated costs to
sell if the loan is collateral-dependent. The impairment amount on
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
a
collateral-dependent loan is charged-off to the allowance and the impairment amount on a loan that is not collateral-dependent is set up as a specific reserve. We measure impairment of a
lease based upon the present value of the scheduled lease and residual cash flows, discounted at the lease's effective interest rate.
Troubled debt restructurings.
A loan is classified as a troubled debt restructuring when we grant a concession to a borrower
experiencing financial
difficulties. These concessions may include a reduction of the interest rate, principal or accrued interest, extension of the maturity date or other actions intended to minimize potential losses. All
loan modifications are evaluated on an individual basis to determine whether such modifications meet the criteria to be classified as a troubled debt restructuring under ASC Subtopic
310-40,
"Troubled Debt Restructurings by Creditors."
Loans restructured at a rate equal to or greater than that of a new loan with
comparable risk at the time the loan is modified may be excluded from restructured loan disclosures in years subsequent to the restructuring if the loans are in compliance with their modified terms.
A
loan that has been placed on nonaccrual status that is subsequently restructured will usually remain on nonaccrual status until the borrower is able to demonstrate repayment
performance in compliance with the restructured terms for a sustained period, typically for six months. A restructured loan may return to accrual status sooner based on other significant events or
mitigating circumstances. A loan that has not been placed on nonaccrual status may be restructured and such loan may remain on accrual status after such restructuring. In these circumstances, the
borrower has made payments before and after the restructuring. Generally, this restructuring involves a reduction in the loan interest rate and/or a change to interest-only payments for a
period of time. The restructured loan is considered impaired despite the accrual status and a specific reserve is calculated based on the present value of expected cash flows discounted at the loan's
original effective interest rate.
Allowance for credit losses on non-covered loans and leases.
The allowance for credit losses on non-covered loans and leases
is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The allowance for credit losses on non-covered loans and leases relates only to
loans which are not subject to the loss sharing agreement with the FDIC. The allowance for loan and lease losses is reported as a reduction of outstanding loan and lease balances and the reserve for
unfunded loan commitments is included within other liabilities on the consolidated balance sheets. Generally, as loans are funded, the amount of the commitment reserve applicable to such funded loans
is transferred from the reserve for unfunded loan commitments to the allowance for loan and lease losses based on our allowance methodology. The following discussion is for non-covered
loans and leases and the allowance for credit
losses thereon. Refer to "Allowance for Credit Losses on Covered Loans" for the policy on covered loans.
The
allowance for loan and lease losses is maintained at a level deemed appropriate by management to adequately provide for known and inherent risks in the loan and lease portfolio and
other extensions of credit at the balance sheet date. The allowance is based upon a continuing review of the portfolio, past loan and lease loss experience, current economic conditions which may
affect the borrowers' ability to pay, and the underlying collateral value of the loans and leases. Loans and leases which are deemed to be uncollectible are charged off and deducted from the
allowance. The provision
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
for
loan and lease losses and recoveries on loans and leases previously charged off are added to the allowance.
The
methodology we use to estimate the amount of our allowance for credit losses is based on both objective and subjective criteria. While some criteria are formula driven, other
criteria are subjective inputs included to capture environmental and general economic risk elements which may trigger losses in the loan and lease portfolio, and to account for the varying levels of
credit quality in the loan portfolios of the entities we have acquired that have not yet been captured in our objective loss factors.
Specifically,
our allowance methodology contains three key elements: (i) amounts based on specific evaluations of impaired loans and leases; (ii) amounts of estimated
losses on several pools of loans and leases categorized by risk rating and loan and lease type; and (iii) amounts for environmental and general economic factors that indicate probable losses
were incurred but were not captured through the other elements of our allowance process. In addition, for loans and leases measured at fair value on the acquisition date and deemed to be non-impaired,
our allowance methodology captures deterioration in credit quality and other inherent risks of such acquired assets experienced after the purchase date.
Impaired
loans and leases are identified at each reporting date based on certain criteria and the majority of which are individually reviewed for impairment. Non-covered
nonaccrual loans and leases with an unpaid principal balance over $250,000 and all performing restructured loans are reviewed individually for the amount of impairment, if any. Non-covered
nonaccrual loans and leases with an unpaid principal balance of $250,000 or less are evaluated for impairment collectively. A loan or lease is considered impaired when it is probable that a creditor
will be unable to collect all amounts due according to the original contractual terms of the loan or lease agreement. We measure impairment of a loan based upon the fair value of the loan's collateral
if the loan is collateral dependent or the present value of cash flows, discounted at the loan's effective interest rate, if the loan is not collateral-dependent. The impairment amount on a
collateral-dependent loan is charged-off to the allowance and the impairment amount on a loan that is not
collateral-dependent is set up as a specific reserve. We measure impairment of a lease based upon the present value of the scheduled lease and residual cash flows, discounted at the lease's effective
interest rate. Increased charge-offs or additions to specific reserves generally result in increased provisions for credit losses.
Our
loan and lease portfolio, excluding impaired loans and leases which are evaluated individually, is categorized into several pools for purposes of determining allowance amounts by
pool. The pools we currently evaluate are: commercial real estate construction, residential real estate construction, SBA real estate, hospitality real estate, real estate other, commercial
collateralized, commercial unsecured, SBA commercial, consumer, foreign, asset-based and leasing. Within these pools, we then evaluate loans and leases not adversely classified, which we refer to as
"pass" credits, separately from adversely classified loans. The adversely classified loans are further grouped into three credit risk rating categories: "special mention," "substandard," and
"doubtful," which we define as follows:
-
-
Special Mention: Loans and leases classified as special mention have a potential weakness that requires management's
attention. If not addressed, these potential weaknesses may result in further deterioration in the borrower's ability to repay the loan or lease.
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
-
-
Substandard: Loans and leases classified as substandard have a well-defined weakness or weaknesses that
jeopardize the collection of the debt. They are characterized by the possibility that we will sustain some loss if the weaknesses are not corrected.
-
-
Doubtful: Loans and leases classified as doubtful have all the weaknesses of those classified as Substandard, with the
additional trait that the weaknesses make collection or repayment in full highly questionable and improbable.
In
addition, we may refer to the loans and leases classified as "substandard" and "doubtful" together as "criticized" loans and leases. For additional information on classified loans and
leases, see Note 6,
Loans and Leases
.
The
allowance amounts for "pass" rated loans and leases and those loans and leases adversely classified, which are not reviewed individually, are determined using historical loss rates
developed through migration analysis. The migration analysis is updated quarterly based on historic losses and movement of loans between ratings.
Finally,
in order to ensure our allowance methodology is incorporating recent trends and economic conditions, we apply environmental and general economic factors to our allowance
methodology including: credit concentrations; delinquency trends; economic and business conditions; the quality of lending management and staff; lending policies and procedures; loss and recovery
trends; nature and volume of the portfolio; nonaccrual and problem loan trends; usage trends of unfunded commitments; and other adjustments for items not covered by other factors.
Management
believes that the allowance for loan and lease losses is adequate and appropriate for the known and inherent risks in our non-covered loan and lease portfolio. In
making its evaluation, management considers certain quantitative and qualitative factors including the Company's historical loss experience, the volume and type of lending conducted by the Company,
the results of our credit review process, the levels of classified and criticized loans and leases, the levels of impaired loans and leases, including nonperforming loans and leases and performing
restructured loans, regulatory policies, general economic conditions, underlying collateral values, and other factors regarding collectability and impairment. To the extent we experience, for example,
increased levels of documentation deficiencies, adverse changes in collateral values, or negative changes in economic and business conditions which adversely affect our borrowers, our classified loans
and leases may increase. Higher levels of classified loans and leases generally result in higher allowances for loan and lease losses.
We
recognize that the determination of the allowance for loan and lease losses is sensitive to the assigned credit risk ratings and inherent loss rates at any given point in time.
Therefore, we perform sensitivity analyses to provide insight regarding the impact adverse changes in credit risk ratings may have on our allowance for loan and lease losses. The sensitivity analyses
have inherent limitations and are based on various assumptions as of a point in time and, accordingly, it is not necessarily representative of the impact loan risk rating changes may have on the
allowance for loan and lease losses.
Management
also believes that the reserve for unfunded loan commitments is adequate. In making this determination, management uses the same methodology for the reserve for unfunded loan
commitments as for the allowance for loan and lease losses and considers the same quantitative and
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
qualitative
factors, as well as off-balance sheet exposures and an estimate of the probability of drawdown of loan commitments correlated to their credit risk rating.
Our
federal and state banking regulators, as an integral part of their examination process, periodically review the Company's allowance for credit losses. Our regulators may require the
Company to recognize additions to the allowance based on their judgments related to information available to them at the time of their examinations.
Allowance for credit losses on covered loans.
The covered loans are subject to our internal and external credit review. If
deterioration in the
expected cash flows results in a reserve requirement, a provision for credit losses is charged to earnings without regard to the FDIC loss sharing agreement. The portion of the estimated loss
reimbursable from the FDIC is recorded in FDIC loss sharing income and increases the FDIC loss sharing asset. For acquired impaired loans, the allowance for loan losses is measured at the end of each
financial reporting period based on expected cash flows. Decreases or (increases) in the amount and changes in the timing of expected cash flows on the acquired impaired loans as of the financial
reporting date compared to those previously estimated are usually recognized by recording a provision or a (negative provision) for credit losses on such covered loans.
The FDIC loss sharing asset relates to assets covered by the loss sharing agreements between the Bank and the FDIC arising from the
acquisitions of Los Padres Bank and Affinity Bank. The FDIC loss sharing asset was measured at its estimated fair value on the Los Padres and Affinity acquisition dates using expected future cash
flows from the FDIC and a discount rate based on a long-term risk-free interest rate plus a premium. Since the FDIC loss sharing asset was initially recorded at estimated fair
value using a discount rate, a portion of the discount is recognized as FDIC loss sharing income in each reporting period.
An
increase in the expected amount of losses on the covered assets will increase the FDIC loss sharing asset; such increase is recognized through a credit to FDIC loss sharing income.
Recoveries on previous losses paid to us by the FDIC reduce the FDIC loss sharing asset by a charge to FDIC loss sharing expense. In addition, decreases in the expected amount of losses on covered
assets will decrease the amount of funds expected to be collected from the FDIC and will therefore reduce the FDIC loss sharing asset through higher prospective amortization expense. The FDIC loss
sharing asset is being
amortized to its estimated value over the lesser of the term of the loss sharing agreements or the remaining life of the assets covered by the loss sharing agreements.
Under
the terms of the Los Padres 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. The Los Padres loss sharing provisions expire in the third
quarters of 2015 and 2020 for non-single family and single family covered assets, respectively, while the related loss recovery provisions expire in the third quarters of 2018 and 2020,
respectively.
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Under the terms of the Affinity loss sharing agreement, the FDIC will: (a) absorb 80% of losses and receive 80% of loss recoveries on the first $234 million of losses on
covered assets, and (b) absorb 95% of losses and receive 95% of loss recoveries on covered assets exceeding $234 million in aggregate. The
Affinity loss sharing provisions expire in the third quarters of 2014 and 2019 for non-single family covered assets and single family covered assets, respectively, while the related loss
recovery provisions expire in the third quarters of 2017 and 2019, respectively.
(j) Land, Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and amortization. Land is not depreciated. Depreciation and
amortization is charged to noninterest expense using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of furniture, fixtures and equipment
range from 3 to 10 years and for buildings up to 35 years. Leasehold improvements are amortized over their estimated useful lives, or the life of the lease, whichever is shorter.
Non-covered OREO.
Other real estate owned, or OREO, is initially recorded at the estimated fair value of the property, based on
current
independent appraisals obtained at the time of acquisition, less estimated costs to sell, including senior obligations such as delinquent property taxes. The excess of the recorded loan balance over
the estimated fair value of the property at the time of acquisition less estimated costs to sell is charged to the allowance for loan losses. Any subsequent write-downs are charged to noninterest
expense and recognized through an OREO valuation allowance. Subsequent increases in the fair value of the asset less selling costs reduce the OREO valuation allowance, but not below zero, and are
credited to noninterest expense. Gains and losses on the sale of foreclosed properties and operating expenses of such assets are also included in noninterest expense.
Covered OREO.
Covered OREO was initially recorded at its estimated fair value on the acquisition date based on independent
appraisals less estimated
selling costs. Any subsequent write-downs due to declines in fair value are charged to noninterest expense with a partial offset to FDIC loss sharing income for the loss reimbursement under the FDIC
loss sharing agreement. Any recoveries of previous write-downs are credited to noninterest expense with a corresponding charge to FDIC loss sharing income, net for the portion of the recovery that is
due to the FDIC.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in earnings in the period that includes the enactment date. Any interest or penalties
assessed by the taxing authorities is classified in the financial statements as income tax expense. Deferred tax assets are included in other assets on the consolidated balance sheets.
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NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
On
a quarterly basis, the Company evaluates its deferred tax assets to assess whether they are expected to be realized in the future. This determination is based on currently available
facts and circumstances, including our current and projected future tax position, the historical level of our taxable income, and estimates of our future taxable income. In most cases, the realization
of deferred tax assets is based on our future profitability. To the extent our deferred tax assets are no longer considered more likely than not to be realized, we could be required to record a
valuation allowance on our deferred tax assets by charging earnings.
Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price
over the fair value of the net assets and other identifiable intangible assets acquired. Goodwill and other intangible assets deemed to have indefinite lives generated from purchase business
combinations are not subject to amortization and are instead assessed for impairment no less than annually. Impairment exists when the carrying value of the goodwill exceeds its implied fair value.
Impairment charges are included in noninterest expense in the financial statements.
Intangible
assets with estimable useful lives are amortized over such useful lives to their estimated residual values. Core deposit intangible assets, which we refer to as CDI, and
customer relationship intangible assets, which we refer to as CRI, are recognized apart from goodwill at the time of acquisition based on market valuations prepared by independent third parties. In
preparing such valuations, the third parties consider variables such as deposit servicing costs, attrition rates, and market discount rates. CDI assets are amortized to expense over their useful
lives, which we have estimated to range from 7 to 10 years. CRI assets are amortized to expense over their useful lives, which we have estimated to range from 4 to 5 years. Both CDI and
CRI are reviewed for impairment quarterly or earlier if events or changes in circumstances indicate that their carrying values may not be recoverable. If the recoverable amount of either CDI or CRI is
determined to be less than its carrying value, we would then measure the amount of impairment based on an estimate of the intangible asset's fair value at that time. If the fair value is below the
carrying value, the intangible asset is reduced to such fair value and the impairment is recognized as noninterest expense in the financial statements.
Compensation expense related to awards of restricted stock is based on the fair value of the underlying stock on the award date and is
recognized over the vesting period using the straight-line method. The vesting of performance-based restricted stock awards and recognition of related compensation expense may occur over a
shorter vesting period if financial performance targets are achieved earlier than anticipated. Amortization of unvested performance-based restricted stock is suspended when it becomes less than
probable that the performance targets will be met. Amortization of unvested performance-based restricted stock is discontinued and previous amortization amounts are credited to earnings when it
becomes improbable that performance targets will be met. When and if it becomes probable in the future that the performance target will be met a catch up adjustment is made and amortization begins.
129
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Unvested
restricted stock participates with common stock in any dividends declared and paid. Dividends paid on unvested restricted stock awards expected to vest and the related tax
benefits are included as a net reduction to stockholders' equity. Dividends paid on unvested restricted stock not expected to vest are charged to compensation expense.
The Company's reportable segments consist of "Banking," "Asset Financing," and "Other." The Other segment consists of the PacWest
Bancorp holding company and other elimination and reconciliation entries.
The
Bank's Asset Financing segment includes the operations of the divisions and subsidiaries that provide asset-based commercial loans and equipment leases. The asset-based lending
products are offered primarily through three business units: (1) First Community Financial ("FCF"), a division of the Bank, based in Phoenix, Arizona; (2) BFI Business Finance ("BFI"), a
wholly-owned subsidiary of the Bank, based in San Jose, California; and (3) Celtic, a wholly-owned subsidiary of the Bank based in Santa Monica, California. The Bank's leasing products are
offered through EQF, a division of the Bank based in Midvale, Utah.
With
the acquisitions of EQF and Celtic, we expanded our asset-based lending operations, both in terms of size and product diversification by adding equipment leasing, and determined
that our asset financing operations met the threshold to be a reportable segment beginning with the second quarter of 2012.
Comprehensive income consists of net earnings and net unrealized gains (losses) on securities
available-for-sale, net and is presented in the consolidated statements of comprehensive income.
In accordance with ASC Topic 260, "
Earnings Per Share
," all outstanding unvested
share-based payment awards that contain rights to nonforfeitable dividends are considered participating securities and are included in the two-class method of determining basic and diluted
earnings per share. All of our unvested restricted stock participates with our common stockholders in dividends. Accordingly, earnings allocated to unvested restricted stock are deducted from net
earnings to determine that amount of earnings available to common stockholders. In the two-class method, the amount of our earnings available to common stockholders is
divided by the weighted average shares outstanding, excluding any unvested restricted stock, for both the basic and diluted earnings per share.
Business combinations are accounted for under the acquisition method of accounting in accordance with ASC Topic 805,
"
Business Combinations
." Under the acquisition method, the acquiring entity in a business combination recognizes 100 percent of the acquired
assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and
other identifiable intangible assets
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
acquired
is recorded as goodwill. To the extent the fair value of net assets acquired, including other identifiable assets, exceeds the purchase price, a bargain purchase gain is recognized. Assets
acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired
business are included in the statement of earnings from the date of acquisition. Acquisition-related costs, including conversion and restructuring charges, are expensed as incurred. We adopted this
guidance as of January 1, 2009 and applied it to the Affinity, Los Padres, EQF, Celtic, and APB acquisitions.
In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-05,
"
Comprehensive Income (Topic 220): Presentation of Comprehensive Income.
" Under ASU 2011-05, an entity will have the option to present the
components of net earnings and comprehensive income in either one or two consecutive financial statements. This standard eliminates the option in U.S. GAAP to present other comprehensive income
in the statement of changes in equity. ASU 2011-05 was to be applied retrospectively and was effective for fiscal years, and interim periods within those years, beginning after
December 15, 2011 and early adoption was permitted. Adoption of this standard did not have a material effect on our financial statements. In February 2013, the FASB issued ASU
2013-02, "
Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
." ASU
2013-02 requires entities to disclose: (1) information about reclassification adjustments out of accumulated other comprehensive income by
component, and (2) information about significant items reclassified out of accumulated other comprehensive income by the respective line items on the income statement either on the face of the
income statement or in the notes. ASU 2013-02 is effective for us on January 1, 2013 and is to be applied prospectively, although early adoption is permitted. The adoption of this
standard is not expected to have any material effect on our financial statements.
In
July 2012, the FASB issued ASU 2012-02,
"IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for
Impairment."
ASU 2012-02 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative impairment test for
indefinite-lived intangible assets. An organization that elects to perform a qualitative assessment is required to perform the quantitative impairment test for an indefinite-lived intangible asset if
it is
more likely than not
that the asset is impaired. ASU 2012-02 was effective for us on January 1, 2012. The adoption of this
standard did not have any material effect on our financial statements.
In
October 2012, the FASB issued ASU 2012-06,
"Business Combinations (Topic 805): Subsequent Accounting for an Indemnification Asset Recognized at the
Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution."
ASU 2012-06 requires that when a reporting entity recognizes an
indemnification asset as a result of a government-assisted acquisition of a financial institution, which we refer to as an FDIC loss sharing asset, and subsequently a change in the cash flows expected
to be collected on the FDIC loss sharing asset occurs, the reporting entity should account for the change in the measurement of the FDIC loss sharing asset on the same basis as the change in the
assets subject to indemnification. Changes in the value of the FDIC loss sharing asset should be amortized over the lesser of the term of the indemnification agreement or the remaining life of the
indemnified assets. ASU 2012-06 is effective for us on January 1, 2013. ASU 2012-06 is to be applied prospectively to any new FDIC loss sharing assets acquired after the
date of adoption and to
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 1NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FDIC
loss sharing assets existing as of the date of adoption. The adoption of this standard is not expected to have any material effect on our financial statements.
NOTE 2RESTRICTED CASH BALANCES
The Company is required to maintain reserve balances with the FRBSF. Such reserve requirements are based on a percentage of deposit liabilities and may be satisfied by cash on hand. The
average reserves required to be held at the FRBSF for the years ended December 31, 2012 and 2011 were $5.0 million and $2.2 million, respectively.
NOTE 3ACQUISITIONS
We completed the following acquisitions during the time period of January 1, 2010 to December 31, 2012, using the acquisition method of accounting, and, accordingly, the
operating results
132
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 3ACQUISITIONS (Continued)
of
the acquired entities have been included in our consolidated financial statements from their respective dates of acquisition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and Date Acquired
|
|
|
|
American
Perspective
Bank
|
|
Celtic
Capital
Corporation
|
|
Pacific Western
Equipment
Finance
|
|
Los
Padres
Bank
|
|
|
|
August
2012
|
|
April
2012
|
|
January
2012
|
|
August
2010
|
|
|
|
(In thousands)
|
|
Assets Acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
3,370
|
|
$
|
3,435
|
|
$
|
7,092
|
|
$
|
26,615
|
|
Interest-earning deposits in financial institutions
|
|
|
10,081
|
|
|
|
|
|
|
|
|
751
|
|
Cash received from the FDIC
|
|
|
|
|
|
|
|
|
|
|
|
144,000
|
|
Investment securities available-for-sale
|
|
|
48,887
|
|
|
|
|
|
|
|
|
33,604
|
|
FHLB stock
|
|
|
1,412
|
|
|
|
|
|
|
|
|
10,647
|
|
Loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not covered by loss-sharing
|
|
|
197,279
|
|
|
54,963
|
|
|
140,959
|
|
|
828
|
|
Covered by loss-sharing
|
|
|
|
|
|
|
|
|
|
|
|
436,291
|
|
Other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not covered by loss-sharing
|
|
|
1,561
|
|
|
|
|
|
|
|
|
|
|
Covered by loss-sharing
|
|
|
|
|
|
|
|
|
|
|
|
33,913
|
|
FDIC loss sharing asset
|
|
|
|
|
|
|
|
|
|
|
|
78,814
|
|
Goodwill
|
|
|
15,047
|
|
|
6,645
|
|
|
19,033
|
|
|
39,141
|
|
Core deposit and customer relationship intangibles
|
|
|
1,924
|
|
|
1,300
|
|
|
1,700
|
|
|
2,189
|
|
Other intangible assets
|
|
|
|
|
|
670
|
|
|
1,420
|
|
|
|
|
Leases in process
|
|
|
|
|
|
|
|
|
19,162
|
|
|
|
|
Other assets
|
|
|
4,234
|
|
|
69
|
|
|
467
|
|
|
17,290
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
283,795
|
|
$
|
67,082
|
|
$
|
189,833
|
|
$
|
824,083
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities Assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
$
|
40,673
|
|
$
|
|
|
$
|
|
|
$
|
33,722
|
|
Interest-bearing deposits
|
|
|
178,891
|
|
|
|
|
|
|
|
|
718,463
|
|
Borrowings from parent
|
|
|
|
|
|
|
|
|
128,677
|
|
|
|
|
Other borrowings
|
|
|
5,315
|
|
|
46,804
|
|
|
15,839
|
|
|
70,013
|
|
Accrued interest payable and other liabilities
|
|
|
840
|
|
|
2,278
|
|
|
10,317
|
|
|
1,885
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
$
|
225,719
|
|
$
|
49,082
|
|
$
|
154,833
|
|
$
|
824,083
|
|
|
|
|
|
|
|
|
|
|
|
Cash consideration paid
|
|
$
|
58,076
|
|
$
|
18,000
|
|
$
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit premium paid
|
|
|
|
|
|
|
|
|
|
|
$
|
3,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On August 1, 2012, Pacific Western completed the acquisition of American Perspective Bank, or APB, previously headquartered in
San Luis Obispo, California. Pacific Western acquired all of the outstanding common stock of APB for $58.1 million in cash and APB was merged with and into Pacific Western; we refer to this
transaction as the APB acquisition. APB had two operating branches located
133
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 3ACQUISITIONS (Continued)
in
San Luis Obispo and Santa Maria, California, and a loan production office located in Paso Robles, California, which has since been converted to a full-service branch. The APB
acquisition strengthens our presence in the Central Coast region. At the acquisition date, APB had $197.3 million in gross loans outstanding, $48.9 million in investment securities
available-for-sale, and $219.6 million in deposits. The application of the acquisition method of accounting resulted in goodwill of $15.0 million.
On April 3, 2012, Pacific Western completed the acquisition of Celtic Capital Corporation, or Celtic, an asset-based lending
company based in Santa Monica, California. Pacific Western acquired all of the capital stock of Celtic for $18 million in cash and Celtic became a wholly-owned subsidiary of Pacific Western; we
refer to this transaction as the Celtic acquisition. Celtic focuses on providing asset-based loans to borrowers across the United States for amounts generally up to $5 million. The Celtic
acquisition diversified our loan portfolio, expanded our product lines, and deployed excess liquidity into higher yielding assets. At the acquisition date, Celtic had $55.0 million in gross
loans outstanding and $46.8 million in outstanding debt, which was repaid on the closing date. The application of the acquisition method of accounting resulted in goodwill of
$6.6 million.
On January 3, 2012, Pacific Western completed the acquisition of Pacific Western Equipment Finance (formerly known as Marquette
Equipment Finance, which we refer to as EQF), an equipment leasing company based in Midvale, Utah. Pacific Western acquired all of the capital stock of EQF for $35 million in cash and EQF
became a division of Pacific Western; we refer to this transaction as the EQF acquisition. The EQF acquisition diversified our loan portfolio, expanded our product lines, and deployed excess liquidity
into higher yielding assets. At the acquisition date, EQF had $160.1 million in gross leases and leases in process outstanding; no acquired leases were on nonaccrual status. Pacific Western
also assumed $128.7 million of debt payable to EQF's former parent, which Pacific Western repaid on the closing date from its excess liquidity on deposit at the Federal Reserve Bank, and
$26.2 million of other outstanding debt and liabilities. The application of the acquisition method of accounting resulted in goodwill of $19.0 million.
On August 20, 2010, Pacific Western acquired certain assets of Los Padres Bank, including all loans, and assumed substantially
all of its liabilities, including all deposits, from the FDIC in an FDIC-assisted acquisition, which we refer to as the Los Padres acquisition. We entered into a loss sharing agreement
with the FDIC, whereby the FDIC agreed to cover a substantial portion of any future losses on acquired OREO and acquired loans, with the exception of acquired consumer loans. 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 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. The
loss sharing provisions for commercial (non-single family) and single family covered assets are in effect for 5 years and 10 years, respectively, from the August 20,
2010 acquisition date, and the loss recovery provisions are in effect for 8 years and 10 years, respectively, from the acquisition date. Accordingly, the loss sharing provisions expire
in the third quarters of 2015 and 2020 for
134
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 3ACQUISITIONS (Continued)
non-single
family and single family covered assets, respectively, while the related loss recovery provisions expire in the third quarters of 2018 and 2020, respectively. Through
December 31, 2012, gross losses for Los Padres covered assets totaled $65.0 million.
Los
Padres was a federally chartered savings bank headquartered in Solvang, California that operated 14 branches, including 11 branches in California (three in Ventura County, four in
Santa Barbara County, and four in San Luis Obispo County) and three branches in Arizona (Maricopa County). We continue to operate six of the former Los Padres branch offices, all of which are located
in California. We made this acquisition to expand our presence in the Central Coast of California.
The
assets acquired and liabilities assumed of Los Padres were 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. The application of the acquisition method of accounting resulted in an original goodwill amount of
$47.3 million. During 2011, we reduced goodwill by $8.2 million, to $39.1 million, due primarily to the resolution of a matter with the FDIC regarding the settlement accounting
for a wholly-owned subsidiary of Los Padres.
All of the acquisitions consummated after December 31, 2000 were completed using the acquisition method of accounting. For those
acquisitions completed prior to January 1, 2009, we recorded the estimated merger-related charges associated with each acquisition as a liability at closing when the related purchase price was
allocated. For each acquisition, we developed an integration plan for the Company that addressed, among other things, requirements for staffing, systems platforms, branch locations and other
facilities. The remaining merger-related liability totaled $1.4 million at December 31, 2012 and represented the estimated lease payments, net of estimated sublease income, for the
remaining life of leases for abandoned space. For acquisitions completed after January 1, 2009, acquisition-related costs, such as legal, accounting, valuation and other professional fees,
necessary to effect a business combination, were charged to earnings in the periods in which the costs were incurred. We incurred and charged to expense approximately $4.1 million, $600,000,
and $732,000 of such costs in 2012, 2011, and 2010, respectively.
Announcement of First California Financial Group, Inc. Acquisition
On November 6, 2012, we announced that we had entered into a definitive agreement and plan of merger whereby we will acquire
First California Financial Group, Inc. ("First California") for $8.00 per First California common share, or approximately $231 million in aggregate consideration, payable in PacWest
common stock, which we refer to as the First California acquisition.
The
number of shares of PacWest common stock deliverable for each share of First California common stock will be determined based on the weighted average price of PacWest common stock
over a 20-day measuring period, as defined in the merger agreement, and will fluctuate if such average price is between $20.00 and $27.00 and will be fixed if such average price is below
$20.00 or above $27.00. Based on PacWest's 20-day weighted average stock price measured through January 29, 2013 of $26.64, First California stockholders would have received 0.3003
of a share of PacWest common stock for each share of First California common stock, which would provide First California stockholders with aggregate ownership, on a pro forma basis, of approximately
19.3% of the common stock of the combined company.
135
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 3ACQUISITIONS (Continued)
First California, headquartered in Westlake Village, California, is the parent of First California Bank and had approximately $1.9 billion in assets and 15 branches across Los Angeles,
Orange, Riverside, San Bernardino, San Diego, San Luis Obispo and Ventura Counties at December 31, 2012. In connection with the acquisition, First California Bank will be merged into Pacific
Western.
As
of December 31, 2012, on a pro forma consolidated basis with First California, PacWest would have had approximately $7.4 billion in assets with 82 branches throughout
California. The combined institution would be the eighth largest publicly-owned bank headquartered in California, and the twelfth largest commercial bank headquartered in California.
Under
the terms of the merger agreement, two individuals currently serving on the board of directors of First California will be designated to join the board of directors of PacWest.
Such directors must be independent and mutually agreeable to both PacWest and First California. Directors of PacWest and First California unanimously approved the transaction. The transaction,
currently expected to close late in the first quarter of 2013, is subject to customary conditions, including the approval of bank regulatory authorities and the stockholders of both companies.
NOTE 4GOODWILL AND OTHER INTANGIBLE ASSETS
The following table presents the changes in the carrying amount of goodwill for the years indicated:
|
|
|
|
|
|
|
Goodwill
|
|
|
|
(In thousands)
|
|
Balance, December 31, 2009
|
|
$
|
|
|
Addition from the Los Padres acquisition
|
|
|
47,301
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
47,301
|
|
Adjustments to Los Padres goodwill, including resolution of matter with FDIC regarding settlement accounting for wholly-owned subsidiary of Los
Padres
|
|
|
(8,160
|
)
|
|
|
|
|
Balance, December 31, 2011
|
|
|
39,141
|
|
Addition from the EQF acquisition
|
|
|
19,033
|
|
Addition from the Celtic acquisition
|
|
|
6,645
|
|
Addition from the APB acquisition
|
|
|
15,047
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
79,866
|
|
|
|
|
|
The goodwill related to the Los Padres and EQF acquisitions is deductible for tax purposes, while the goodwill related to the Celtic and APB
acquisitions is not deductible.
Our
intangible assets with definite lives are core deposit and customer relationship intangibles. These intangibles are amortized over their respective estimated useful lives to their
estimated residual values and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or loan customers acquired.
The weighted average
amortization period remaining for our core deposit and customer relationship intangibles is 2.4 years. The estimated aggregate amortization expense related to these intangible assets for each
of the next five years is $4.5 million, $3.8 million, $3.5 million, $1.8 million and $587,000.
136
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 4GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
The
following table presents the changes in the gross amounts of core deposit intangibles, or CDI, and customer relationship intangibles, or CRI, and the related accumulated amortization
for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Gross amount of CDI and CRI:
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
67,100
|
|
$
|
76,319
|
|
$
|
75,911
|
|
Additions due to acquisitions
|
|
|
4,924
|
|
|
|
|
|
2,189
|
|
Fully amortized portion
|
|
|
(20,746
|
)
|
|
(9,219
|
)
|
|
(1,781
|
)
|
Removal due to branch sale
|
|
|
(5,866
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
45,412
|
|
|
67,100
|
|
|
76,319
|
|
|
|
|
|
|
|
|
|
Accumulated Amortization:
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
(49,685
|
)
|
|
(50,476
|
)
|
|
(42,615
|
)
|
Amortization
|
|
|
(6,326
|
)
|
|
(8,428
|
)
|
|
(9,642
|
)
|
Fully amortized portion
|
|
|
20,746
|
|
|
9,219
|
|
|
1,781
|
|
Removal due to branch sale
|
|
|
4,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
|
(30,689
|
)
|
|
(49,685
|
)
|
|
(50,476
|
)
|
|
|
|
|
|
|
|
|
Net CDI and CRI, end of year
|
|
$
|
14,723
|
|
$
|
17,415
|
|
$
|
25,843
|
|
|
|
|
|
|
|
|
|
The $1.3 million of CDI written off during 2012 related to previously acquired deposits that were sold in connection with the sale of
branches in September 2012. Such expense is included in "other income" in the net gain on sale of branches.
NOTE 5INVESTMENT SECURITIES
The following tables present the amortized cost, gross unrealized gains and losses, and carrying value (i.e. the estimated fair
value), of securities available-for-sale as of the dates indicated. The private label collateralized mortgage obligations ("CMOs") were acquired in the
FDIC-assisted acquisition of Affinity in August 2009 and are covered by a FDIC loss sharing agreement. Other securities primarily
137
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 5INVESTMENT SECURITIES (Continued)
consist
of equity securities and an investment in overnight money market funds at a financial institution.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Security Type
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
|
|
(In thousands)
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and government-sponsored enterprise pass through securities
|
|
$
|
774,677
|
|
$
|
33,618
|
|
$
|
(453
|
)
|
$
|
807,842
|
|
Government agency and government-sponsored enterprise collateralized mortgage obligations
|
|
|
99,956
|
|
|
1,870
|
|
|
(132
|
)
|
|
101,694
|
|
Covered private label collateralized mortgage obligations
|
|
|
36,078
|
|
|
8,729
|
|
|
(123
|
)
|
|
44,684
|
|
Municipal securities
|
|
|
339,547
|
|
|
10,445
|
|
|
(1,951
|
)
|
|
348,041
|
|
Corporate debt securities
|
|
|
42,014
|
|
|
432
|
|
|
(81
|
)
|
|
42,365
|
|
Other securities
|
|
|
6,389
|
|
|
4,370
|
|
|
|
|
|
10,759
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$
|
1,298,661
|
|
$
|
59,464
|
|
$
|
(2,740
|
)
|
$
|
1,355,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
Security Type
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
|
|
(In thousands)
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and government-sponsored enterprise pass through securities
|
|
$
|
1,011,222
|
|
$
|
31,350
|
|
$
|
(65
|
)
|
$
|
1,042,507
|
|
Government agency and government-sponsored enterprise collateralized mortgage obligations
|
|
|
80,353
|
|
|
1,710
|
|
|
(36
|
)
|
|
82,027
|
|
Covered private label collateralized mortgage obligations
|
|
|
41,426
|
|
|
5,878
|
|
|
(2,155
|
)
|
|
45,149
|
|
Municipal securities
|
|
|
124,079
|
|
|
2,774
|
|
|
(56
|
)
|
|
126,797
|
|
Corporate debt securities
|
|
|
25,077
|
|
|
77
|
|
|
(26
|
)
|
|
25,128
|
|
Other securities
|
|
|
4,885
|
|
|
|
|
|
(135
|
)
|
|
4,750
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$
|
1,287,042
|
|
$
|
41,789
|
|
$
|
(2,473
|
)
|
$
|
1,326,358
|
|
|
|
|
|
|
|
|
|
|
|
During 2012, 2011, and 2010, we made market purchases of $485.9 million, $658.3 million, and $627.9 million, of investment
securities available-for-sale, respectively, utilizing our excess liquidity. Of the $48.9 million of investment securities obtained in the APB acquisition,
$45.6 million of such securities were sold for no gain or loss. We retained APB's municipal securities portfolio. During 2010, through the Los Padres acquisition, we obtained
$33.6 million of securities available-for-sale, which were comprised primarily of government agency and GSE pass through securities. None of the acquired Los Padres
investment securities are covered by an FDIC loss sharing agreement.
138
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 5INVESTMENT SECURITIES (Continued)
In
addition to the sale of securities obtained in the APB acquisition, we sold $43.9 million of GSE pass through securities for which we realized a $1.2 million gross gain
in 2012. These securities were identified as generally having higher volatility than the broader investment securities portfolio and were sold as part of our portfolio management. There were no sales
of securities in 2011 and 2010.
At
December 31, 2012, the fair value of residential mortgage-backed securities issued by the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac") that were held in our portfolio was approximately $829.8 million. We do not own any equity securities issued by Fannie Mae or Freddie Mac. As of
December 31, 2012 and 2011, securities available-for-sale with a carrying value of $157.3 million and $69.6 million,
respectively, were pledged as security for borrowings, public deposits and other purposes as required by various statutes and agreements.
Market
valuations of our investment securities are provided by an independent third party. The fair values are determined by using several sources for valuing fixed income securities.
Their techniques include pricing models that vary based on the type of asset being valued and incorporate available trade, bid and other market information. In accordance with the hierarchy
established in ASC Topic 820, "
Fair Value Measurement
," the market valuation sources include observable market inputs for the majority of
our securities and are therefore considered Level 2 inputs for purposes of determining the fair values. The valuation techniques for the covered private label CMOs are considered
Level 3. See Note 13,
Fair Value Measurements
, for information on fair value measurements and methodology.
The
following tables present, for those securities that were in a gross unrealized loss position, the carrying values, which are the estimated fair values, and the gross unrealized
losses on securities by length of time the securities were in an unrealized loss position as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
Security Type
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
|
|
(In thousands)
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and government-sponsored enterprise pass through securities
|
|
$
|
67,299
|
|
$
|
(452
|
)
|
$
|
60
|
|
$
|
(1
|
)
|
$
|
67,359
|
|
$
|
(453
|
)
|
Government agency and government-sponsored enterprise collateralized mortgage obligations
|
|
|
18,317
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
18,317
|
|
|
(132
|
)
|
Covered private label collateralized mortgage obligations
|
|
|
|
|
|
|
|
|
1,692
|
|
|
(123
|
)
|
|
1,692
|
|
|
(123
|
)
|
Municipal securities
|
|
|
90,303
|
|
|
(1,951
|
)
|
|
|
|
|
|
|
|
90,303
|
|
|
(1,951
|
)
|
Corporate debt securities
|
|
|
16,819
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
16,819
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
192,738
|
|
$
|
(2,616
|
)
|
$
|
1,752
|
|
$
|
(124
|
)
|
$
|
194,490
|
|
$
|
(2,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 5INVESTMENT SECURITIES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
Security Type
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
Carrying
Value
|
|
Gross
Unrealized
Losses
|
|
|
|
(In thousands)
|
|
Residential mortgage-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and government-sponsored enterprise pass through securities
|
|
$
|
34,682
|
|
$
|
(64
|
)
|
$
|
22
|
|
$
|
(1
|
)
|
$
|
34,704
|
|
$
|
(65
|
)
|
Government agency and government-sponsored enterprise collateralized mortgage obligations
|
|
|
10,790
|
|
|
(21
|
)
|
|
1,530
|
|
|
(15
|
)
|
|
12,320
|
|
|
(36
|
)
|
Covered private label collateralized mortgage obligations
|
|
|
5,228
|
|
|
(595
|
)
|
|
4,427
|
|
|
(1,560
|
)
|
|
9,655
|
|
|
(2,155
|
)
|
Municipal securities
|
|
|
7,755
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
7,755
|
|
|
(56
|
)
|
Corporate debt securities
|
|
|
10,758
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
10,758
|
|
|
(26
|
)
|
Other securities
|
|
|
2,445
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
2,445
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
71,658
|
|
$
|
(897
|
)
|
$
|
5,979
|
|
$
|
(1,576
|
)
|
$
|
77,637
|
|
$
|
(2,473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We reviewed the securities that were in a continuous loss position less than 12 months and longer than 12 months at
December 31, 2012, and concluded that their losses were a result of the level of market interest rates relative to the types of securities and not a result of the underlying issuers' ability to
repay. Accordingly, we determined that the securities were temporarily impaired and we did not recognize such impairment in the consolidated statements of earnings. Additionally, we have no plans to
sell these securities and believe that it is more likely than not we would not be required to sell these securities before recovery of their amortized cost.
In
2012 and 2010, we recognized an other-than-temporary impairment loss on two different covered private label CMO securities. In each circumstance, the covered
security was impaired due to deteriorating cash flows and the depletion of the credit support from the subordinated classes of the securitization. In 2012 and 2010, the OTTI charges of
$1.1 million and $874,000, which were due to credit and recognized in the consolidated statements of earnings (loss), were offset by FDIC loss sharing income of $892,000 and $699,000 for the
respective periods. There were no such impairments or impairment-related loss sharing income in 2011.
Mortgage-backed
securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities may differ from contractual maturities
because obligors and/or issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
140
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 5INVESTMENT SECURITIES (Continued)
The
contractual maturity distribution of our securities available-for-sale portfolio based on amortized cost and carrying value is shown as of the date below:
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Maturity
|
|
Amortized
Cost
|
|
Carrying
Value
|
|
|
|
(In thousands)
|
|
Due in one year or less
|
|
$
|
11,687
|
|
$
|
16,185
|
|
Due after one year through five years
|
|
|
3,180
|
|
|
3,311
|
|
Due after five years through ten years
|
|
|
31,013
|
|
|
33,008
|
|
Due after ten years
|
|
|
1,252,781
|
|
|
1,302,881
|
|
|
|
|
|
|
|
Total securities available-for-sale
|
|
$
|
1,298,661
|
|
$
|
1,355,385
|
|
|
|
|
|
|
|
At December 31, 2012, the Company had a $37.1 million investment in FHLB stock carried at cost. We evaluated the carrying
value of our FHLB stock investment at December 31, 2012, and determined that it was not impaired. Our evaluation considered the long-term nature of the investment, the current
financial and liquidity position of the FHLB, the actions being taken by the FHLB to address its regulatory situation, repurchase activity of excess stock by the FHLB at its carrying value, and our
intent and ability to hold this investment for a period of time sufficient to recover our recorded investment.
NOTE 6LOANS AND LEASES
When we refer to non-covered loans we are referring to loans not covered by our FDIC loss sharing agreements.
The
Company funds commercial, real estate, and consumer loans to customers in the regions the Bank serves, which are mainly in Southern California. The non-covered foreign
loans are primarily to individuals and entities located in Mexico. All of our non-covered foreign loans are denominated in U.S. dollars and the majority is collateralized by assets located
in the United States or guaranteed or insured by businesses located in the United States.
141
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
The
following table presents the composition of our non-covered loans and leases as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
(In thousands)
|
|
Real estate mortgage
|
|
$
|
1,917,670
|
|
$
|
1,982,464
|
|
Real estate construction
|
|
|
129,959
|
|
|
113,059
|
|
Commercial
|
|
|
787,775
|
|
|
671,939
|
|
Leases
|
|
|
174,373
|
|
|
|
|
Consumer
|
|
|
22,487
|
|
|
23,711
|
|
Foreign
|
|
|
17,241
|
|
|
20,932
|
|
|
|
|
|
|
|
Total gross non-covered loans and leases
|
|
|
3,049,505
|
|
|
2,812,105
|
|
Less:
|
|
|
|
|
|
|
|
Unearned income
|
|
|
(2,535
|
)
|
|
(4,392
|
)
|
Allowance for loan and lease losses
|
|
|
(65,899
|
)
|
|
(85,313
|
)
|
|
|
|
|
|
|
Total net non-covered loans and leases
|
|
$
|
2,981,071
|
|
$
|
2,722,400
|
|
|
|
|
|
|
|
The following table presents a summary of the activity in the allowance for credit losses on non-covered loans and leases for the
years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Components
|
|
|
|
|
|
Total
Allowance
for
Credit
Losses
|
|
|
|
Allowance
for Loan
and Lease
Losses
|
|
Reserve for
Unfunded
Loan
Commitments
|
|
|
|
(In thousands)
|
|
Balance, December 31, 2009
|
|
$
|
118,717
|
|
$
|
5,561
|
|
$
|
124,278
|
|
Charge-offs
(1)
|
|
|
(203,222
|
)
|
|
|
|
|
(203,222
|
)
|
Recoveries
|
|
|
4,280
|
|
|
|
|
|
4,280
|
|
Provision
|
|
|
178,878
|
|
|
114
|
|
|
178,992
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
98,653
|
|
|
5,675
|
|
|
104,328
|
|
Charge-offs
|
|
|
(28,560
|
)
|
|
|
|
|
(28,560
|
)
|
Recoveries
|
|
|
4,715
|
|
|
|
|
|
4,715
|
|
Provision
|
|
|
10,505
|
|
|
2,795
|
|
|
13,300
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
85,313
|
|
|
8,470
|
|
|
93,783
|
|
Charge-offs
|
|
|
(13,070
|
)
|
|
|
|
|
(13,070
|
)
|
Recoveries
|
|
|
3,406
|
|
|
|
|
|
3,406
|
|
Negative provision
|
|
|
(9,750
|
)
|
|
(2,250
|
)
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
65,899
|
|
$
|
6,220
|
|
$
|
72,119
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Charge-offs
related to loans sold were $144.6 million in 2010.
142
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
The following tables present summaries of the activity in the allowance for loan and lease losses on non-covered loans and leases by portfolio segment for the years
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
|
|
|
Real Estate
Mortgage
|
|
Real Estate
Construction
|
|
Commercial
|
|
Leases
|
|
Consumer
|
|
Foreign
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for Loan and Lease Losses on Non-Covered Loans and Leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
50,205
|
|
$
|
8,697
|
|
$
|
23,308
|
|
$
|
|
|
$
|
2,768
|
|
$
|
335
|
|
$
|
85,313
|
|
Charge-offs
|
|
|
(7,680
|
)
|
|
(492
|
)
|
|
(4,580
|
)
|
|
(28
|
)
|
|
(290
|
)
|
|
|
|
|
(13,070
|
)
|
Recoveries
|
|
|
1,598
|
|
|
49
|
|
|
1,600
|
|
|
|
|
|
137
|
|
|
22
|
|
|
3,406
|
|
Provision (negative provision)
|
|
|
(5,423
|
)
|
|
(5,033
|
)
|
|
267
|
|
|
1,587
|
|
|
(889
|
)
|
|
(259
|
)
|
|
(9,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
38,700
|
|
$
|
3,221
|
|
$
|
20,595
|
|
$
|
1,559
|
|
$
|
1,726
|
|
$
|
98
|
|
$
|
65,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of the allowance applicable to loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
7,827
|
|
$
|
371
|
|
$
|
4,525
|
|
$
|
|
|
$
|
265
|
|
$
|
|
|
$
|
12,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
30,873
|
|
$
|
2,850
|
|
$
|
16,070
|
|
$
|
1,559
|
|
$
|
1,461
|
|
$
|
98
|
|
$
|
52,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Covered Loan and Lease Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,917,670
|
|
$
|
129,959
|
|
$
|
787,775
|
|
$
|
174,373
|
|
$
|
22,487
|
|
$
|
17,241
|
|
$
|
3,049,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The ending balance of the non-covered loan and lease portfolio is composed of loans and leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
106,542
|
|
$
|
25,450
|
|
$
|
12,708
|
|
$
|
244
|
|
$
|
628
|
|
$
|
|
|
$
|
145,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
1,811,128
|
|
$
|
104,509
|
|
$
|
775,067
|
|
$
|
174,129
|
|
$
|
21,859
|
|
$
|
17,241
|
|
$
|
2,903,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
143
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
|
|
Real Estate
Mortgage
|
|
Real Estate
Construction
|
|
Commercial
|
|
Consumer
|
|
Foreign
|
|
Total
|
|
|
|
(In thousands)
|
|
Allowance for Loan Losses on Non-Covered Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
51,657
|
|
$
|
8,766
|
|
$
|
33,229
|
|
$
|
4,652
|
|
$
|
349
|
|
$
|
98,653
|
|
Charge-offs
|
|
|
(10,180
|
)
|
|
(6,886
|
)
|
|
(10,072
|
)
|
|
(1,422
|
)
|
|
|
|
|
(28,560
|
)
|
Recoveries
|
|
|
513
|
|
|
1,025
|
|
|
1,668
|
|
|
1,394
|
|
|
115
|
|
|
4,715
|
|
Provision (negative provision)
|
|
|
8,215
|
|
|
5,792
|
|
|
(1,517
|
)
|
|
(1,856
|
)
|
|
(129
|
)
|
|
10,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
50,205
|
|
$
|
8,697
|
|
$
|
23,308
|
|
$
|
2,768
|
|
$
|
335
|
|
$
|
85,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of the allowance applicable to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
11,494
|
|
$
|
2,073
|
|
$
|
6,793
|
|
$
|
413
|
|
$
|
|
|
$
|
20,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
38,711
|
|
$
|
6,624
|
|
$
|
16,515
|
|
$
|
2,355
|
|
$
|
335
|
|
$
|
64,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Covered Loan Balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,982,464
|
|
$
|
113,059
|
|
$
|
671,939
|
|
$
|
23,711
|
|
$
|
20,932
|
|
$
|
2,812,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The ending balance of the non-covered loan portfolio is composed of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
|
$
|
118,821
|
|
$
|
31,792
|
|
$
|
23,710
|
|
$
|
728
|
|
$
|
|
|
$
|
175,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
1,863,643
|
|
$
|
81,267
|
|
$
|
648,229
|
|
$
|
22,983
|
|
$
|
20,932
|
|
$
|
2,637,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
The
following tables present the credit risk rating categories for non-covered loans and leases by portfolio segment and class as of the dates indicated. Nonclassified loans
and leases are those with a credit risk rating of either pass or special mention, while classified loans and leases are those with a credit risk rating of either substandard or doubtful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
|
|
Nonclassified
|
|
Classified
|
|
Total
|
|
Nonclassified
|
|
Classified
|
|
Total
|
|
|
|
(In thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
168,489
|
|
$
|
12,655
|
|
$
|
181,144
|
|
$
|
123,071
|
|
$
|
21,331
|
|
$
|
144,402
|
|
SBA 504
|
|
|
48,372
|
|
|
5,786
|
|
|
54,158
|
|
|
51,522
|
|
|
6,855
|
|
|
58,377
|
|
Other
|
|
|
1,633,448
|
|
|
48,920
|
|
|
1,682,368
|
|
|
1,690,830
|
|
|
88,855
|
|
|
1,779,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
1,850,309
|
|
|
67,361
|
|
|
1,917,670
|
|
|
1,865,423
|
|
|
117,041
|
|
|
1,982,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
46,591
|
|
|
2,038
|
|
|
48,629
|
|
|
14,743
|
|
|
2,926
|
|
|
17,669
|
|
Commercial
|
|
|
77,503
|
|
|
3,827
|
|
|
81,330
|
|
|
64,667
|
|
|
30,723
|
|
|
95,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
124,094
|
|
|
5,865
|
|
|
129,959
|
|
|
79,410
|
|
|
33,649
|
|
|
113,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
440,187
|
|
|
12,989
|
|
|
453,176
|
|
|
395,041
|
|
|
18,979
|
|
|
414,020
|
|
Unsecured
|
|
|
66,947
|
|
|
2,897
|
|
|
69,844
|
|
|
75,017
|
|
|
3,920
|
|
|
78,937
|
|
Asset-based
|
|
|
235,075
|
|
|
4,355
|
|
|
239,430
|
|
|
149,947
|
|
|
40
|
|
|
149,987
|
|
SBA 7(a)
|
|
|
18,888
|
|
|
6,437
|
|
|
25,325
|
|
|
18,045
|
|
|
10,950
|
|
|
28,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
761,097
|
|
|
26,678
|
|
|
787,775
|
|
|
638,050
|
|
|
33,889
|
|
|
671,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
174,129
|
|
|
244
|
|
|
174,373
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
21,616
|
|
|
871
|
|
|
22,487
|
|
|
22,730
|
|
|
981
|
|
|
23,711
|
|
Foreign
|
|
|
17,241
|
|
|
|
|
|
17,241
|
|
|
20,932
|
|
|
|
|
|
20,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-covered loans and leases
|
|
$
|
2,948,486
|
|
$
|
101,019
|
|
$
|
3,049,505
|
|
$
|
2,626,545
|
|
$
|
185,560
|
|
$
|
2,812,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition to our internal credit risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company's loan
risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations.
Risk rating downgrades generally result in higher allowances for credit losses.
145
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
The
following tables present an aging analysis of our non-covered loans and leases by portfolio segment and class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
30 - 59 Days
Past Due
|
|
60 - 89 Days
Past Due
|
|
Greater
Than
90 Days
Past Due
|
|
Total
Past Due
|
|
Current
|
|
Total
|
|
|
|
(In thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
181,144
|
|
$
|
181,144
|
|
SBA 504
|
|
|
955
|
|
|
|
|
|
1,727
|
|
|
2,682
|
|
|
51,476
|
|
|
54,158
|
|
Other
|
|
|
3,822
|
|
|
54
|
|
|
3,134
|
|
|
7,010
|
|
|
1,675,358
|
|
|
1,682,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
4,777
|
|
|
54
|
|
|
4,861
|
|
|
9,692
|
|
|
1,907,978
|
|
|
1,917,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,629
|
|
|
48,629
|
|
Commercial
|
|
|
|
|
|
|
|
|
1,245
|
|
|
1,245
|
|
|
80,085
|
|
|
81,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
|
|
|
|
|
|
1,245
|
|
|
1,245
|
|
|
128,714
|
|
|
129,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
902
|
|
|
161
|
|
|
228
|
|
|
1,291
|
|
|
451,885
|
|
|
453,176
|
|
Unsecured
|
|
|
3
|
|
|
135
|
|
|
225
|
|
|
363
|
|
|
69,481
|
|
|
69,844
|
|
Asset-based
|
|
|
|
|
|
|
|
|
176
|
|
|
176
|
|
|
239,254
|
|
|
239,430
|
|
SBA 7(a)
|
|
|
281
|
|
|
547
|
|
|
1,271
|
|
|
2,099
|
|
|
23,226
|
|
|
25,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,186
|
|
|
843
|
|
|
1,900
|
|
|
3,929
|
|
|
783,846
|
|
|
787,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
225
|
|
|
132
|
|
|
244
|
|
|
601
|
|
|
173,772
|
|
|
174,373
|
|
Consumer
|
|
|
23
|
|
|
1
|
|
|
|
|
|
24
|
|
|
22,463
|
|
|
22,487
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,241
|
|
|
17,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-covered loans and leases
|
|
$
|
6,211
|
|
$
|
1,030
|
|
$
|
8,250
|
|
$
|
15,491
|
|
$
|
3,034,014
|
|
$
|
3,049,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
December 31, 2012 and 2011, the Company had no loans or leases that were greater than 90 days past due and still accruing interest. It is the Company's policy to
discontinue accruing interest when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectability in the normal
course of business. At December 31, 2012, nonaccrual loans and leases totaled $39.3 million. Nonaccrual loans and leases included $3.9 million of
146
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
loans
and leases 30 to 89 days past due and $27.1 million of current loans and leases which were placed on nonaccrual status based on management's judgment regarding their
collectability.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
30 - 59 Days
Past Due
|
|
60 - 89 Days
Past Due
|
|
Greater
Than
90 Days
Past Due
|
|
Total
Past Due
|
|
Current
|
|
Total
|
|
|
|
(In thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
144,402
|
|
$
|
144,402
|
|
SBA 504
|
|
|
718
|
|
|
|
|
|
842
|
|
|
1,560
|
|
|
56,817
|
|
|
58,377
|
|
Other
|
|
|
12,953
|
|
|
191
|
|
|
13,205
|
|
|
26,349
|
|
|
1,753,336
|
|
|
1,779,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
13,671
|
|
|
191
|
|
|
14,047
|
|
|
27,909
|
|
|
1,954,555
|
|
|
1,982,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
475
|
|
|
|
|
|
475
|
|
|
17,194
|
|
|
17,669
|
|
Commercial
|
|
|
2,290
|
|
|
|
|
|
2,182
|
|
|
4,472
|
|
|
90,918
|
|
|
95,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
2,290
|
|
|
475
|
|
|
2,182
|
|
|
4,947
|
|
|
108,112
|
|
|
113,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
275
|
|
|
423
|
|
|
1,701
|
|
|
2,399
|
|
|
411,621
|
|
|
414,020
|
|
Unsecured
|
|
|
4
|
|
|
|
|
|
151
|
|
|
155
|
|
|
78,782
|
|
|
78,937
|
|
Asset-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,987
|
|
|
149,987
|
|
SBA 7(a)
|
|
|
996
|
|
|
646
|
|
|
274
|
|
|
1,916
|
|
|
27,079
|
|
|
28,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
1,275
|
|
|
1,069
|
|
|
2,126
|
|
|
4,470
|
|
|
667,469
|
|
|
671,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
72
|
|
|
40
|
|
|
17
|
|
|
129
|
|
|
23,582
|
|
|
23,711
|
|
Foreign
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,932
|
|
|
20,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-covered loans
|
|
$
|
17,308
|
|
$
|
1,775
|
|
$
|
18,372
|
|
$
|
37,455
|
|
$
|
2,774,650
|
|
$
|
2,812,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans totaled $58.3 million at December 31, 2011, of which $2.5 million were 30 to 89 days past due and $37.4 million were current.
147
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
The following tables present our non-covered nonaccrual and performing loans and leases by portfolio segment and class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
|
|
Nonaccrual
|
|
Performing
|
|
Total
|
|
Nonaccrual
|
|
Performing
|
|
Total
|
|
|
|
(In thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
6,908
|
|
$
|
174,236
|
|
$
|
181,144
|
|
$
|
7,251
|
|
$
|
137,151
|
|
$
|
144,402
|
|
SBA 504
|
|
|
2,982
|
|
|
51,176
|
|
|
54,158
|
|
|
2,800
|
|
|
55,577
|
|
|
58,377
|
|
Other
|
|
|
15,929
|
|
|
1,666,439
|
|
|
1,682,368
|
|
|
21,286
|
|
|
1,758,399
|
|
|
1,779,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
25,819
|
|
|
1,891,851
|
|
|
1,917,670
|
|
|
31,337
|
|
|
1,951,127
|
|
|
1,982,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1,057
|
|
|
47,572
|
|
|
48,629
|
|
|
1,086
|
|
|
16,583
|
|
|
17,669
|
|
Commercial
|
|
|
2,715
|
|
|
78,615
|
|
|
81,330
|
|
|
6,194
|
|
|
89,196
|
|
|
95,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
3,772
|
|
|
126,187
|
|
|
129,959
|
|
|
7,280
|
|
|
105,779
|
|
|
113,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
2,648
|
|
|
450,528
|
|
|
453,176
|
|
|
8,186
|
|
|
405,834
|
|
|
414,020
|
|
Unsecured
|
|
|
2,019
|
|
|
67,825
|
|
|
69,844
|
|
|
3,057
|
|
|
75,880
|
|
|
78,937
|
|
Asset-based
|
|
|
176
|
|
|
239,254
|
|
|
239,430
|
|
|
14
|
|
|
149,973
|
|
|
149,987
|
|
SBA 7(a)
|
|
|
4,181
|
|
|
21,144
|
|
|
25,325
|
|
|
7,801
|
|
|
21,194
|
|
|
28,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
9,024
|
|
|
778,751
|
|
|
787,775
|
|
|
19,058
|
|
|
652,881
|
|
|
671,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
|
|
|
244
|
|
|
174,129
|
|
|
174,373
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
425
|
|
|
22,062
|
|
|
22,487
|
|
|
585
|
|
|
23,126
|
|
|
23,711
|
|
Foreign
|
|
|
|
|
|
17,241
|
|
|
17,241
|
|
|
|
|
|
20,932
|
|
|
20,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-covered loans and leases
|
|
$
|
39,284
|
|
$
|
3,010,221
|
|
$
|
3,049,505
|
|
$
|
58,260
|
|
$
|
2,753,845
|
|
$
|
2,812,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual loans and leases and performing restructured loans are considered impaired for reporting purposes. The following table presents the
composition of our impaired loans and leases as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
|
|
Nonaccrual
Loans/Leases
|
|
Performing
Restructured
Loans
|
|
Total
Impaired
Loans/Leases
|
|
Nonaccrual
Loans
|
|
Performing
Restructured
Loans
|
|
Total
Impaired
Loans
|
|
|
|
(In thousands)
|
|
Real estate mortgage
|
|
$
|
25,819
|
|
$
|
80,723
|
|
$
|
106,542
|
|
$
|
31,337
|
|
$
|
87,484
|
|
$
|
118,821
|
|
Real estate construction
|
|
|
3,772
|
|
|
21,678
|
|
|
25,450
|
|
|
7,280
|
|
|
24,512
|
|
|
31,792
|
|
Commercial
|
|
|
9,024
|
|
|
3,684
|
|
|
12,708
|
|
|
19,058
|
|
|
4,652
|
|
|
23,710
|
|
Leases
|
|
|
244
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
425
|
|
|
203
|
|
|
628
|
|
|
585
|
|
|
143
|
|
|
728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
39,284
|
|
$
|
106,288
|
|
$
|
145,572
|
|
$
|
58,260
|
|
$
|
116,791
|
|
$
|
175,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
At December 31, 2012, we had commitments in the amount of $67,000 to lend on nonaccrual loans but are under no obligation to honor such
commitment as long as the loan is on nonaccrual. We had commitments in the amount of $23,000 to lend on performing restructured loans.
The
Company measures its impaired loans by using the estimated fair value of the collateral, less estimated costs to sell, including senior obligations such as delinquent property taxes,
if the loan is collateral-dependent and the present value of the expected future cash flows discounted at the loan's effective interest rate if the loan is not collateral-dependent. The Company
recognizes income from
non-covered impaired loans on an accrual basis unless the loan is on nonaccrual status. Income from loans on nonaccrual status is recognized to the extent cash is received and the loan's
principal balance is deemed collectible. For the years ended December 31, 2012, 2011, and 2010, no interest income was recorded on non-covered impaired loans during the time such
loans were on nonaccrual status; any interest payments received were credited to principal.
The
recorded investment in a loan reflects the contractual amount due from the borrower reduced by charge-offs and any participation amount sold to a third party. The
Company's policy is to charge-off to the allowance the impairment amount on a collateral-dependent loan and to set up as a specific reserve within the allowance the impairment amount on a
loan that is not collateral-dependent.
149
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
The
following table presents information regarding our non-covered impaired loans and leases by portfolio segment and class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
Recorded
Investment
|
|
Unpaid
Principal
Balance
|
|
Related
Allowance
|
|
|
|
(In thousands)
|
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
8,954
|
|
$
|
9,640
|
|
$
|
2,396
|
|
$
|
17,548
|
|
$
|
17,890
|
|
$
|
4,369
|
|
SBA 504
|
|
|
1,676
|
|
|
1,676
|
|
|
324
|
|
|
1,147
|
|
|
1,245
|
|
|
206
|
|
Other
|
|
|
58,364
|
|
|
60,262
|
|
|
5,107
|
|
|
78,349
|
|
|
81,921
|
|
|
6,919
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1,303
|
|
|
1,330
|
|
|
165
|
|
|
2,766
|
|
|
2,776
|
|
|
409
|
|
Other
|
|
|
6,723
|
|
|
6,723
|
|
|
206
|
|
|
12,477
|
|
|
12,520
|
|
|
1,664
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
2,477
|
|
|
2,731
|
|
|
1,865
|
|
|
5,515
|
|
|
5,741
|
|
|
3,901
|
|
Unsecured
|
|
|
2,396
|
|
|
3,121
|
|
|
2,234
|
|
|
2,864
|
|
|
3,061
|
|
|
2,513
|
|
SBA 7(a)
|
|
|
2,871
|
|
|
3,616
|
|
|
426
|
|
|
3,397
|
|
|
3,428
|
|
|
379
|
|
Consumer
|
|
|
466
|
|
|
506
|
|
|
265
|
|
|
433
|
|
|
459
|
|
|
413
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA 504
|
|
$
|
2,982
|
|
$
|
3,755
|
|
$
|
|
|
$
|
2,262
|
|
$
|
3,007
|
|
$
|
|
|
Other
|
|
|
34,566
|
|
|
38,447
|
|
|
|
|
|
19,515
|
|
|
22,999
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
|
|
611
|
|
|
611
|
|
|
|
|
Other
|
|
|
17,424
|
|
|
21,085
|
|
|
|
|
|
15,938
|
|
|
19,536
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
1,843
|
|
|
2,067
|
|
|
|
|
|
4,759
|
|
|
4,927
|
|
|
|
|
Unsecured
|
|
|
148
|
|
|
163
|
|
|
|
|
|
643
|
|
|
716
|
|
|
|
|
Asset-based
|
|
|
176
|
|
|
176
|
|
|
|
|
|
14
|
|
|
14
|
|
|
|
|
SBA 7(a)
|
|
|
2,797
|
|
|
4,057
|
|
|
|
|
|
6,518
|
|
|
8,181
|
|
|
|
|
Leases
|
|
|
244
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
162
|
|
|
233
|
|
|
|
|
|
295
|
|
|
351
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
|
$
|
106,542
|
|
$
|
113,780
|
|
$
|
7,827
|
|
$
|
118,821
|
|
$
|
127,062
|
|
$
|
11,494
|
|
Real estate construction
|
|
|
25,450
|
|
|
29,138
|
|
|
371
|
|
|
31,792
|
|
|
35,443
|
|
|
2,073
|
|
Commercial
|
|
|
12,708
|
|
|
15,931
|
|
|
4,525
|
|
|
23,710
|
|
|
26,068
|
|
|
6,793
|
|
Leases
|
|
|
244
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
628
|
|
|
739
|
|
|
265
|
|
|
728
|
|
|
810
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-covered loans and leases
|
|
$
|
145,572
|
|
$
|
159,832
|
|
$
|
12,988
|
|
$
|
175,051
|
|
$
|
189,383
|
|
$
|
20,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
Weighted
Average
Recorded
Investment
(1)
|
|
Interest
Income
Recognized
|
|
Weighted
Average
Recorded
Investment
(1)
|
|
Interest
Income
Recognized
|
|
|
|
(In thousands)
|
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
8,954
|
|
$
|
80
|
|
$
|
17,399
|
|
$
|
622
|
|
SBA 504
|
|
|
827
|
|
|
41
|
|
|
895
|
|
|
21
|
|
Other
|
|
|
51,441
|
|
|
2,070
|
|
|
42,973
|
|
|
1,623
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1,303
|
|
|
11
|
|
|
2,520
|
|
|
66
|
|
Other
|
|
|
6,723
|
|
|
231
|
|
|
5,375
|
|
|
113
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
2,219
|
|
|
48
|
|
|
4,745
|
|
|
66
|
|
Unsecured
|
|
|
2,273
|
|
|
20
|
|
|
2,767
|
|
|
24
|
|
SBA 7(a)
|
|
|
2,593
|
|
|
53
|
|
|
1,761
|
|
|
86
|
|
Consumer
|
|
|
389
|
|
|
7
|
|
|
291
|
|
|
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBA 504
|
|
$
|
1,472
|
|
$
|
|
|
$
|
1,916
|
|
$
|
|
|
Other
|
|
|
29,316
|
|
|
1,523
|
|
|
13,827
|
|
|
678
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
611
|
|
|
|
|
Other
|
|
|
17,424
|
|
|
589
|
|
|
14,904
|
|
|
375
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
1,657
|
|
|
27
|
|
|
1,584
|
|
|
|
|
Unsecured
|
|
|
148
|
|
|
|
|
|
499
|
|
|
|
|
Asset-based
|
|
|
132
|
|
|
|
|
|
14
|
|
|
|
|
SBA 7(a)
|
|
|
2,601
|
|
|
24
|
|
|
5,753
|
|
|
15
|
|
Leases
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
136
|
|
|
|
|
|
234
|
|
|
27
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
|
$
|
92,010
|
|
$
|
3,714
|
|
$
|
77,010
|
|
$
|
2,944
|
|
Real estate construction
|
|
|
25,450
|
|
|
831
|
|
|
23,410
|
|
|
554
|
|
Commercial
|
|
|
11,623
|
|
|
172
|
|
|
17,123
|
|
|
191
|
|
Leases
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
525
|
|
|
7
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-covered loans and leases
|
|
$
|
129,832
|
|
$
|
4,724
|
|
$
|
118,068
|
|
$
|
3,689
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
For
the loans and leases reported as impaired at the period-ends presented, amounts were calculated based on the period of time
such loans and leases were impaired during the reporting period.
151
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
The following tables present non-covered new troubled debt restructurings and defaulted troubled debt restructurings for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
Number
of
Loans
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
Number
of
Loans
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
|
(Dollars in thousands)
|
|
Troubled Debt Restructurings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
|
|
|
$
|
|
|
$
|
|
|
|
1
|
|
$
|
2,086
|
|
$
|
2,086
|
|
SBA 504
|
|
|
2
|
|
|
1,680
|
|
|
1,680
|
|
|
1
|
|
|
619
|
|
|
619
|
|
Other
|
|
|
8
|
|
|
14,861
|
|
|
13,840
|
|
|
35
|
|
|
56,201
|
|
|
56,008
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
3
|
|
|
6,919
|
|
|
6,919
|
|
|
6
|
|
|
14,906
|
|
|
14,906
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
7
|
|
|
1,652
|
|
|
1,652
|
|
|
15
|
|
|
2,780
|
|
|
2,780
|
|
Unsecured
|
|
|
5
|
|
|
317
|
|
|
317
|
|
|
4
|
|
|
581
|
|
|
581
|
|
SBA 7(a)
|
|
|
4
|
|
|
1,216
|
|
|
1,216
|
|
|
15
|
|
|
3,515
|
|
|
3,515
|
|
Consumer
|
|
|
1
|
|
|
206
|
|
|
206
|
|
|
1
|
|
|
144
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
30
|
|
$
|
26,851
|
|
$
|
25,830
|
|
|
78
|
|
$
|
80,832
|
|
$
|
80,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
Number
of
Loans
|
|
Recorded
Investment
(1)
|
|
Number
of
Loans
|
|
Recorded
Investment
(2)
|
|
|
|
(Dollars in thousands)
|
|
Troubled Debt Restructurings That Subsequently Defaulted
(3)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
$
|
|
|
|
3
|
|
$
|
2,914
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
1
|
|
|
1,492
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
2
|
|
|
458
|
|
|
|
|
|
|
|
SBA 7(a)
|
|
|
1
|
|
|
873
|
|
|
3
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3
|
|
$
|
1,331
|
|
|
7
|
|
$
|
4,465
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
the balance at December 31, 2012 and is net of charge-offs of $921,000.
-
(2)
-
Represents
the balance at December 31, 2011 and is net of charge-offs of $4.5 million.
-
(3)
-
The
population of defaulted restructured loans for the period indicated includes only those loans restructured during the preceeding
12-month period. The table excludes defaulted troubled restructurings in those classes for which the recorded investment was zero at the end of the period.
152
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
We refer to the loans acquired in the Los Padres and Affinity acquisitions subject to loss sharing agreements with the FDIC as "covered
loans" as we will be reimbursed for a substantial portion of any future losses on them under the terms of the agreements. At the respective acquisition dates, the estimated fair values of the Los
Padres and Affinity covered loans were $436.3 million and $675.6 million. Fair value of acquired loans is determined using a discounted cash flow model using 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.
The
following table reflects the carrying values of the covered loans as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
Amount
|
|
% of
Total
|
|
Amount
|
|
% of
Total
|
|
|
|
(Dollars in thousands)
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitality
|
|
$
|
2,888
|
|
|
|
|
$
|
2,944
|
|
|
|
|
Other
|
|
|
552,333
|
|
|
94
|
%
|
|
733,414
|
|
|
91
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate mortgage
|
|
|
555,221
|
|
|
94
|
%
|
|
736,358
|
|
|
91
|
%
|
|
|
|
|
|
|
|
|
|
|
Real estate construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
5,662
|
|
|
1
|
%
|
|
21,521
|
|
|
3
|
%
|
Commercial
|
|
|
17,558
|
|
|
3
|
%
|
|
25,397
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
Total real estate construction
|
|
|
23,220
|
|
|
4
|
%
|
|
46,918
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized
|
|
|
14,603
|
|
|
2
|
%
|
|
24,808
|
|
|
3
|
%
|
Unsecured
|
|
|
640
|
|
|
|
|
|
802
|
|
|
|
|
Asset-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commercial
|
|
|
15,243
|
|
|
2
|
%
|
|
25,610
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
594
|
|
|
|
|
|
735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross covered loans
|
|
|
594,278
|
|
|
100
|
%
|
|
809,621
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount
|
|
|
(50,951
|
)
|
|
|
|
|
(75,323
|
)
|
|
|
|
Allowance for loan losses
|
|
|
(26,069
|
)
|
|
|
|
|
(31,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covered loans, net
|
|
$
|
517,258
|
|
|
|
|
$
|
703,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
The following table summarizes the changes in the carrying amount of covered acquired impaired loans and accretable yield on those loans for the
years indicated:
|
|
|
|
|
|
|
|
|
|
Covered Acquired
Impaired Loans
|
|
|
|
Carrying
Amount
|
|
Accretable
Yield
|
|
|
|
(In thousands)
|
|
Balance, December 31, 2009
|
|
$
|
621,686
|
|
$
|
(226,446
|
)
|
Addition from the Los Padres acquisition
|
|
|
405,619
|
|
|
(144,168
|
)
|
Accretion
|
|
|
52,539
|
|
|
52,539
|
|
Payments received
|
|
|
(166,858
|
)
|
|
|
|
Decrease in expected cash flows, net
|
|
|
|
|
|
27,410
|
|
Provision for credit losses
|
|
|
(33,500
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
879,486
|
|
|
(290,665
|
)
|
Accretion
|
|
|
65,282
|
|
|
65,282
|
|
Payments received
|
|
|
(254,484
|
)
|
|
|
|
Increase in expected cash flows, net
|
|
|
|
|
|
(33,882
|
)
|
Provision for credit losses
|
|
|
(13,270
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
677,014
|
|
|
(259,265
|
)
|
Accretion
|
|
|
49,562
|
|
|
49,562
|
|
Payments received
|
|
|
(233,549
|
)
|
|
|
|
Decrease in expected cash flows, net
|
|
|
|
|
|
13,681
|
|
Negative provision for credit losses
|
|
|
819
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
493,846
|
|
$
|
(196,022
|
)
|
|
|
|
|
|
|
The table above excludes the covered loans from the Los Padres acquisition, which are accounted for as non-impaired loans and totaled
$23.4 million and $26.0 million at December 31, 2012 and 2011, respectively.
The
following table presents changes in our allowance for credit losses on the covered loans for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Allowance for credit losses on covered loans, beginning of year
|
|
$
|
31,275
|
|
$
|
33,264
|
|
$
|
18,000
|
|
Provision (negative provision)
|
|
|
(819
|
)
|
|
13,270
|
|
|
33,500
|
|
Charge-offs, net
|
|
|
(4,387
|
)
|
|
(15,259
|
)
|
|
(18,236
|
)
|
|
|
|
|
|
|
|
|
Allowance for credit losses on covered loans, end of year
|
|
$
|
26,069
|
|
$
|
31,275
|
|
$
|
33,264
|
|
|
|
|
|
|
|
|
|
The following tables present the credit risk rating categories for covered loans by portfolio segment as of the dates indicated. Nonclassified
loans are those with a credit risk rating of either pass or special
154
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 6LOANS AND LEASES (Continued)
mention,
while classified loans are those with a credit risk rating of either substandard or doubtful. It should be noted, however, that all of these loans are covered by loss sharing agreements with
the FDIC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
|
|
Nonclassified
|
|
Classified
|
|
Total
|
|
Nonclassified
|
|
Classified
|
|
Total
|
|
|
|
(In thousands)
|
|
Real estate mortgage
|
|
$
|
339,520
|
|
$
|
143,598
|
|
$
|
483,118
|
|
$
|
478,291
|
|
$
|
164,149
|
|
$
|
642,440
|
|
Real estate construction
|
|
|
4,801
|
|
|
17,590
|
|
|
22,391
|
|
|
5,762
|
|
|
35,337
|
|
|
41,099
|
|
Commercial
|
|
|
4,814
|
|
|
6,343
|
|
|
11,157
|
|
|
11,076
|
|
|
8,221
|
|
|
19,297
|
|
Consumer
|
|
|
117
|
|
|
475
|
|
|
592
|
|
|
6
|
|
|
181
|
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total covered loans, net
|
|
$
|
349,252
|
|
$
|
168,006
|
|
$
|
517,258
|
|
$
|
495,135
|
|
$
|
207,888
|
|
$
|
703,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our federal and state banking regulators, as an integral part of their examination process, periodically review the Company's loan
classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations.
NOTE 7OTHER REAL ESTATE OWNED (OREO)
The following tables summarize OREO by property type at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
December 31, 2011
|
|
Property Type
|
|
Non-Covered
OREO
|
|
Covered
OREO
|
|
Total
OREO
|
|
Non-Covered
OREO
|
|
Covered
OREO
|
|
Total
OREO
|
|
|
|
(In thousands)
|
|
Commercial real estate
|
|
$
|
1,684
|
|
$
|
11,635
|
|
$
|
13,319
|
|
$
|
23,003
|
|
$
|
15,053
|
|
$
|
38,056
|
|
Construction and land development
|
|
|
31,888
|
|
|
6,708
|
|
|
38,596
|
|
|
24,788
|
|
|
15,461
|
|
|
40,249
|
|
Multi-family
|
|
|
|
|
|
4,239
|
|
|
4,239
|
|
|
|
|
|
|
|
|
|
|
Single family residence
|
|
|
|
|
|
260
|
|
|
260
|
|
|
621
|
|
|
2,992
|
|
|
3,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total OREO, net
|
|
$
|
33,572
|
|
$
|
22,842
|
|
$
|
56,414
|
|
$
|
48,412
|
|
$
|
33,506
|
|
$
|
81,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 7OTHER REAL ESTATE OWNED (OREO) (Continued)
The following table presents a rollforward of OREO, net of the valuation allowance, for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Covered
OREO
|
|
Covered
OREO
|
|
Total
OREO
|
|
|
|
(In thousands)
|
|
OREO Activity:
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
43,255
|
|
$
|
27,688
|
|
$
|
70,943
|
|
Addition from the Los Padres acquisition
|
|
|
|
|
|
33,913
|
|
|
33,913
|
|
Foreclosures
|
|
|
34,349
|
|
|
35,001
|
|
|
69,350
|
|
Payments to third parties
(1)
|
|
|
2,484
|
|
|
|
|
|
2,484
|
|
Provision for losses
|
|
|
(12,271
|
)
|
|
(5,389
|
)
|
|
(17,660
|
)
|
Reductions related to sales
|
|
|
(42,219
|
)
|
|
(35,397
|
)
|
|
(77,616
|
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
25,598
|
|
|
55,816
|
|
|
81,414
|
|
Foreclosures
|
|
|
34,743
|
|
|
33,940
|
|
|
68,683
|
|
Payments to third parties
(1)
|
|
|
1,619
|
|
|
10
|
|
|
1,629
|
|
Provision for losses
|
|
|
(5,026
|
)
|
|
(11,968
|
)
|
|
(16,994
|
)
|
Reductions related to sales
|
|
|
(8,522
|
)
|
|
(44,292
|
)
|
|
(52,814
|
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
48,412
|
|
|
33,506
|
|
|
81,918
|
|
Addition from the APB acquisition
|
|
|
1,561
|
|
|
|
|
|
1,561
|
|
Foreclosures
|
|
|
4,223
|
|
|
35,984
|
|
|
40,207
|
|
Payments to third parties
(1)
|
|
|
889
|
|
|
|
|
|
889
|
|
Provision for losses
|
|
|
(3,820
|
)
|
|
(10,513
|
)
|
|
(14,333
|
)
|
Reductions related to sales
|
|
|
(17,693
|
)
|
|
(36,135
|
)
|
|
(53,828
|
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
33,572
|
|
$
|
22,842
|
|
$
|
56,414
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
amounts due to participants and for guarantees, property taxes or other prior lien positions.
156
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 7OTHER REAL ESTATE OWNED (OREO) (Continued)
The following table presents a rollforward of our OREO valuation allowance for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Covered
OREO
|
|
Covered
OREO
|
|
Total
OREO
|
|
|
|
(In thousands)
|
|
OREO Valuation Allowance Activity:
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
16,028
|
|
$
|
1,518
|
|
$
|
17,546
|
|
Provision for losses
|
|
|
12,271
|
|
|
5,389
|
|
|
17,660
|
|
Due from the SBA
|
|
|
823
|
|
|
|
|
|
823
|
|
Reductions related to sales
|
|
|
(15,291
|
)
|
|
(2,925
|
)
|
|
(18,216
|
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
13,831
|
|
|
3,982
|
|
|
17,813
|
|
Provision for losses
|
|
|
5,026
|
|
|
11,968
|
|
|
16,994
|
|
Selling costs
(1)
|
|
|
|
|
|
2,527
|
|
|
2,527
|
|
Due from the SBA
|
|
|
108
|
|
|
|
|
|
108
|
|
Reductions related to sales
|
|
|
(9,431
|
)
|
|
(7,436
|
)
|
|
(16,867
|
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
9,534
|
|
|
11,041
|
|
|
20,575
|
|
Provision for losses
|
|
|
3,820
|
|
|
10,513
|
|
|
14,333
|
|
Selling costs
(1)
|
|
|
|
|
|
876
|
|
|
876
|
|
Reductions related to sales
|
|
|
(7,936
|
)
|
|
(11,167
|
)
|
|
(19,103
|
)
|
|
|
|
|
|
|
|
|
Balance, December 31, 2012
|
|
$
|
5,418
|
|
$
|
11,263
|
|
$
|
16,681
|
|
|
|
|
|
|
|
|
|
-
(1)
-
During
2011, the FDIC changed its methodology such that selling costs are reimbursed at the time of sale rather than at the time of
foreclosure. Such amounts will be realized when the related OREO parcels are sold.
NOTE 8FDIC LOSS SHARING ASSET
The following table presents changes in the FDIC loss sharing asset for the years indicated:
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
(In thousands)
|
|
FDIC loss sharing asset, beginning of year
|
|
$
|
95,187
|
|
$
|
116,352
|
|
FDIC share of additional losses, net of recoveries
(1)
|
|
|
6,169
|
|
|
15,377
|
|
Cash received from FDIC
|
|
|
(33,223
|
)
|
|
(41,390
|
)
|
Net amortization
|
|
|
(10,658
|
)
|
|
(3,063
|
)
|
|
|
|
|
|
|
Subtotal
|
|
|
57,475
|
|
|
87,276
|
|
Filed claims receivable
|
|
|
|
|
|
7,911
|
|
|
|
|
|
|
|
FDIC loss sharing asset, end of year
|
|
$
|
57,475
|
|
$
|
95,187
|
|
|
|
|
|
|
|
-
(1)
-
For
2011, includes $7.6 million related to resolution of goodwill matter with the FDIC.
157
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 9PREMISES AND EQUIPMENT, NET
The following table presents the components of premises and equipment as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
(In thousands)
|
|
Land
|
|
$
|
2,027
|
|
$
|
3,537
|
|
Buildings
|
|
|
5,578
|
|
|
5,815
|
|
Furniture, fixtures and equipment
|
|
|
28,272
|
|
|
29,466
|
|
Leasehold improvements
|
|
|
23,996
|
|
|
23,630
|
|
|
|
|
|
|
|
Premises and equipment, gross
|
|
|
59,873
|
|
|
62,448
|
|
Less: accumulated depreciation and amortization
|
|
|
(40,370
|
)
|
|
(39,380
|
)
|
|
|
|
|
|
|
Premises and equipment, net
|
|
$
|
19,503
|
|
$
|
23,068
|
|
|
|
|
|
|
|
Depreciation and amortization expense was $5.4 million, $5.4 million, and $5.1 million for the years ended
December 31, 2012, 2011, and 2010, respectively.
We
have obligations under a number of noncancelable operating leases for premises and equipment. The following table presents future minimum rental payments under noncancelable operating
leases as of December 31, 2012:
|
|
|
|
|
Estimated Lease Payments for Year Ending December 31,
|
|
Amount
|
|
|
|
(In thousands)
|
|
2013
|
|
$
|
14,762
|
|
2014
|
|
|
13,671
|
|
2015
|
|
|
11,147
|
|
2016
|
|
|
8,695
|
|
2017
|
|
|
6,318
|
|
Thereafter
|
|
|
12,567
|
|
|
|
|
|
Total
|
|
$
|
67,160
|
|
|
|
|
|
Total gross rental expense for the years ended December 31, 2012, 2011, and 2010 was $16.8 million, $16.7 million, and
$16.8 million, respectively. Most of the leases provide that the Company pay maintenance, insurance and certain other operating expenses applicable to the leased premises in addition to the
monthly rental payments.
Total
rental income for the years ended December 31, 2012, 2011, and 2010, was approximately $505,000, $587,000, and $518,000, respectively. The future minimum rental payments to
be received under noncancelable subleases are $2.6 million.
158
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 10DEPOSITS
The following table presents the components of interest-bearing deposits as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Deposit Category
|
|
2012
|
|
2011
|
|
|
|
(In thousands)
|
|
Interest checking deposits
|
|
$
|
513,389
|
|
$
|
500,998
|
|
Money market deposits
|
|
|
1,282,513
|
|
|
1,265,282
|
|
Savings deposits
|
|
|
153,680
|
|
|
157,480
|
|
Time deposits under $100,000
|
|
|
274,622
|
|
|
324,521
|
|
Time deposits of $100,000 or more
|
|
|
545,705
|
|
|
643,373
|
|
|
|
|
|
|
|
Total interest-bearing deposits
|
|
$
|
2,769,909
|
|
$
|
2,891,654
|
|
|
|
|
|
|
|
Brokered time deposits totaled $37.7 million at December 31, 2012, all of which represented deposits that were subsequently
participated with other FDIC insured financial institutions through the CDARS program as a means to provide FDIC deposit insurance coverage for the full amount of our customers' deposits. Brokered
time deposits totaled $41.6 million at December 31, 2011, all of which were part of the CDARS program.
The
following table summarizes the maturities of time deposits as of the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
Year of Maturity
|
|
Time
Deposits
Under
$100,000
|
|
Time
Deposits
$100,000
or More
|
|
Total
Time
Deposits
|
|
|
|
(In thousands)
|
|
2013
|
|
$
|
212,914
|
|
$
|
424,164
|
|
$
|
637,078
|
|
2014
|
|
|
48,078
|
|
|
87,269
|
|
|
135,347
|
|
2015
|
|
|
1,746
|
|
|
6,214
|
|
|
7,960
|
|
2016
|
|
|
10,073
|
|
|
23,014
|
|
|
33,087
|
|
2017
|
|
|
1,811
|
|
|
5,044
|
|
|
6,855
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
274,622
|
|
$
|
545,705
|
|
$
|
820,327
|
|
|
|
|
|
|
|
|
|
159
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 11BORROWINGS AND SUBORDINATED DEBENTURES
In March 2012, the Company incurred $22.6 million in debt termination expense related to the repayment of $225.0 million
in fixed-rate term FHLB advances and the early redemption of $18.6 million in fixed-rate subordinated debentures. The Company used a combination of excess cash and
collateralized overnight FHLB advances to repay these debt instruments. The FHLB advances were composed of $200 million maturing in December 2017 with a fixed rate of 3.16% and
$25 million due in January 2018 with a fixed rate of 2.61%. The agreements for these FHLB advances had an early prepayment penalty or fee for payoffs before maturity. The subordinated
debentures were composed of a $10.3 million debenture, due in March 2030 and bearing a fixed rate of 11.00%, which was referred to as "Trust CI," and an $8.3 million debenture due in
September 2030 and bearing a fixed rate of 10.6%, which was referred to as "Trust I."
During
2010, the Company incurred $2.7 million in debt termination expense related to the repayment of $175.0 million in fixed-rate term FHLB advances. In April
2010, the Company elected to prepay $125.0 million in FHLB advances that were assumed in connection with the August 2009 Affinity acquisition and incurred a $726,000 prepayment penalty. In
December 2010, the Company elected to prepay $50 million in FHLB advances and incurred a $1.9 million prepayment penalty.
The Bank has established secured and unsecured lines of credit. We may borrow funds from time to time on a term or overnight basis from
the FHLB, the FRBSF, or other financial institutions.
Federal Funds Arrangements with Commercial Banks.
As of December 31, 2012, 2011, and 2010, the Bank had unsecured lines of credit
with
correspondent banks, subject to availability, in the amount of $65.0 million, $45.0 million, and $52.0 million, respectively. These lines are renewable annually and have no unused
commitment fees. As of December 31, 2012, 2011, and 2010, there were no balances outstanding.
FRBSF Secured Line of Credit.
The Bank established a secured line of credit with the FRBSF during 2008. The secured borrowing capacity
is
collateralized by liens covering $484.0 million of certain
qualifying loans. As of December 31, 2012, our secured FRBSF borrowing capacity was $385.7 million. As of December 31, 2012, 2011, and 2010, and during such periods, there were no
balances outstanding.
FHLB Secured Lines of Credit.
The borrowing arrangements with the FHLB are based on two separate FHLB programs, one collateralized by
loans and the
other by securities available-for-sale. At December 31, 2012, our FHLB lines were secured by a blanket lien on certain qualifying loans in our loan portfolio which are
not pledged to the FRBSF, in addition to securities with a carrying value of $18.9 million.
160
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 11BORROWINGS AND SUBORDINATED DEBENTURES (Continued)
The
following table summarizes our outstanding FHLB advances by their maturity dates as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
Contractual Maturity Date
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
|
|
(Dollars in thousands)
|
|
December 11, 2017
|
|
$
|
|
|
|
|
|
$
|
200,000
|
|
|
3.16
|
%
|
January 11, 2018
|
|
|
|
|
|
|
|
|
25,000
|
|
|
2.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FHLB advances
|
|
$
|
|
|
|
|
|
$
|
225,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in borrowings at December 31, 2012 were $12.6 million of non-recourse debt, relating to the payment stream of
certain leases sold to third parties. The debt is secured by the equipment in the leases and all interest rates are fixed. As of December 31, 2012, the weighted average interest rate of the
debt was 6.28% with a weighted average remaining maturity of 2.5 years. There were no such borrowings in 2011.
The Company had an aggregate of $108.3 million and $129.3 million in subordinated debentures outstanding at
December 31, 2012 and 2011, respectively. The subordinated debentures outstanding at December 31, 2012 were issued in five separate series. Each issuance had a maturity of thirty years
from its date of issue. The subordinated debentures are variable-rate instruments and are each callable at par with no prepayment penalty. The subordinated debentures were issued to trusts
established by us or entities we have acquired, which in turn issued trust preferred securities, which totaled $105.0 million at December 31, 2012. The proceeds of the subordinated
debentures were used primarily to fund several of our acquisitions and to augment regulatory capital.
The
Company includes in Tier 1 capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as
stockholders' equity less goodwill, net of any related deferred income tax liability. At December 31, 2012, the amount of trust preferred securities included in Tier I capital was
$105.0 million. While our existing trust preferred securities are currently grandfathered as Tier 1 capital under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, proposed regulatory capital guidelines would phase them out of Tier 1 capital over a period of 10 years, beginning in 2013, until they are fully-phased out on January 1,
2022. New issuances of trust preferred securities will not qualify as Tier 1 capital. If trust preferred securities are excluded from regulatory capital, we remain "well capitalized."
Interest
payments made by the Company on subordinated debentures are considered dividend payments under the Board of Governors of the Federal Reserve System ("FRB") regulations.
Notification to the FRB is required prior to our declaring and paying a dividend to our stockholders during any period in which our quarterly and/or cumulative twelve-month net earnings are
insufficient to fund the dividend amount. This notification requirement is included in regulatory guidance regarding safety and soundness surrounding capital and includes other
non-financial measures such as asset quality and credit concentrations. Should the FRB object to our dividend payments, we would be
161
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 11BORROWINGS AND SUBORDINATED DEBENTURES (Continued)
precluded
from paying interest on our subordinated debentures. Payments would not commence until approval is received or we no longer need to provide notice under applicable guidance.
The
following table summarizes the terms of each issuance of the subordinated debentures outstanding as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
Date
Issued
|
|
Maturity
Date
|
|
|
|
Next
Reset
Date
|
|
Series
|
|
Amount
|
|
Rate
(1)
|
|
Amount
|
|
Rate
(2)
|
|
Rate Index
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
Trust V
|
|
$
|
10,310
|
|
|
3.41
|
%
|
$
|
10,310
|
|
|
3.66
|
%
|
|
8/15/03
|
|
|
9/17/33
|
|
3 month LIBOR + 3.10
|
|
|
3/14/13
|
|
Trust VI
|
|
|
10,310
|
|
|
3.36
|
%
|
|
10,310
|
|
|
3.60
|
%
|
|
9/3/03
|
|
|
9/15/33
|
|
3 month LIBOR + 3.05
|
|
|
3/13/13
|
|
Trust CII
|
|
|
5,155
|
|
|
3.26
|
%
|
|
5,155
|
|
|
3.51
|
%
|
|
9/17/03
|
|
|
9/17/33
|
|
3 month LIBOR + 2.95
|
|
|
3/14/13
|
|
Trust VII
|
|
|
61,856
|
|
|
3.05
|
%
|
|
61,856
|
|
|
3.30
|
%
|
|
2/5/04
|
|
|
4/23/34
|
|
3 month LIBOR + 2.75
|
|
|
4/26/13
|
|
Trust CIII
|
|
|
20,619
|
|
|
2.00
|
%
|
|
20,619
|
|
|
2.24
|
%
|
|
8/15/05
|
|
|
9/15/35
|
|
3 month LIBOR + 1.69
|
|
|
3/13/13
|
|
Trust CI
|
|
|
|
|
|
|
|
|
10,310
|
|
|
11.00
|
%
|
|
3/23/00
|
|
|
3/8/30
|
|
N/AFixed Rate
|
|
|
N/A
|
|
Trust I
|
|
|
|
|
|
|
|
|
8,248
|
|
|
10.60
|
%
|
|
9/7/00
|
|
|
9/7/30
|
|
N/AFixed Rate
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross subordinated debentures
|
|
|
108,250
|
|
|
|
|
|
126,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized premium
(3)
|
|
|
|
|
|
|
|
|
2,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net subordinated debentures
|
|
$
|
108,250
|
|
|
|
|
$
|
129,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
As
of January 28, 2013.
-
(2)
-
As
of January 27, 2012.
-
(3)
-
Represents
the unamortized fair value adjustment on the Trust CI subordinated debenture, which was redeemed in March 2012.
NOTE 12COMMITMENTS AND CONTINGENCIES
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk
in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in those particular
classes of financial instruments.
162
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 12COMMITMENTS AND CONTINGENCIES (Continued)
The
following presents a summary of the financial instruments described above as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
(In thousands)
|
|
Commitments to extend creditfixed
|
|
$
|
71,222
|
|
$
|
74,283
|
|
Commitments to extend creditvariable
|
|
|
778,385
|
|
|
617,246
|
|
|
|
|
|
|
|
Total loan commitments
|
|
|
849,607
|
|
|
691,529
|
|
Standby letters of credit
|
|
|
27,534
|
|
|
31,956
|
|
Commitments to purchase equipment being acquired for lease to others
|
|
|
4,399
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
881,540
|
|
$
|
723,485
|
|
|
|
|
|
|
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future
cash requirements. Of the $881.5 million of commitments to extend credit at December 31, 2012, $5.7 million was related to foreign loans.
Standby
letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support
private borrowing arrangements. Most guarantees will expire within one year. The Company generally requires collateral or other security to support financial instruments with credit risk.
In
addition, the Company has investments in low income housing project partnerships, which provide the Company income tax credits, and also in several small business investment
companies. The investments call for capital contributions up to an amount specified in the partnership agreements. The Company had commitments to contribute capital to these entities totaling
$10.8 million and $7.1 million as of December 31, 2012 and 2011, respectively.
In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our
business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us,
any resulting liability, in addition to amounts already accrued, would not have a material adverse effect on the Company's financial statements or operations.
NOTE 13FAIR VALUE MEASUREMENTS
ASC Topic 820, "
Fair Value Measurement
," defines fair value, establishes a framework for measuring fair value including a three-level
valuation hierarchy, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
163
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
date
reflecting assumptions that a market participant would use when pricing an asset or liability. The hierarchy uses three levels of inputs to measure the fair value of assets and liabilities as
follows:
-
-
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets.
-
-
Level 2: Observable inputs other than Level 1, including quoted prices for similar assets and liabilities in
active markets, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data, either directly or indirectly, for substantially the full term of
the financial instrument. This category generally includes government agency and government-sponsored enterprise securities.
-
-
Level 3: Inputs to a valuation methodology that are unobservable, supported by little or no market activity, and
significant to the fair value measurement. These valuation methodologies generally include pricing models, discounted cash flow models, or a determination of fair value that requires significant
management judgment or estimation. This category also includes observable inputs from a pricing service not corroborated by observable market data, and includes our covered private label CMOs.
We
use fair value to measure certain assets on a recurring basis, primarily securities available for sale; we have no liabilities being measured at fair value. For assets and liabilities
measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered "nonrecurring" for
purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for impaired loans and other real estate owned and also to record impairment on
certain assets, such as goodwill, core deposit intangibles and other long-lived assets.
164
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
The
following tables present information on the assets measured and recorded at fair value on a recurring basis as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2012
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Measured on a Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and government-sponsored enterprise residential mortgage-backed securities
|
|
$
|
909,536
|
|
$
|
|
|
$
|
909,536
|
|
$
|
|
|
Covered private label CMOs
|
|
|
44,684
|
|
|
|
|
|
|
|
|
44,684
|
|
Municipal securities
|
|
|
348,041
|
|
|
|
|
|
348,041
|
|
|
|
|
Corporate debt securities
|
|
|
42,365
|
|
|
|
|
|
42,365
|
|
|
|
|
Other securities
|
|
|
10,759
|
|
|
8,985
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,355,385
|
|
$
|
8,985
|
|
$
|
1,301,716
|
|
$
|
44,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2011
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Measured on a Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government agency and government-sponsored enterprise residential mortgage-backed securities
|
|
$
|
1,124,534
|
|
$
|
|
|
$
|
1,124,534
|
|
$
|
|
|
Covered private label CMOs
|
|
|
45,149
|
|
|
|
|
|
|
|
|
45,149
|
|
Municipal securities
|
|
|
126,797
|
|
|
|
|
|
126,797
|
|
|
|
|
Corporate debt securities
|
|
|
25,128
|
|
|
|
|
|
25,128
|
|
|
|
|
Other securities
|
|
|
4,750
|
|
|
2,976
|
|
|
1,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,326,358
|
|
$
|
2,976
|
|
$
|
1,278,233
|
|
$
|
45,149
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers of assets either between Level 1 and Level 2 nor in or out of Level 3 of the fair value hierarchy for
assets measured on a recurring basis during 2012.
The
following table presents information about quantitative inputs and assumptions used to evaluate the fair values provided by our third party pricing service for our Level 3
covered private label CMOs measured at fair value on a recurring basis as of December 31, 2012:
|
|
|
|
|
|
|
Unobservable Inputs
|
|
Range
of
Inputs
|
|
Weighted
Average
Input
|
|
Covered Private Label CMO's:
|
|
|
|
|
|
|
Voluntary prepayment speeds
|
|
0% - 33.7%
|
|
|
10.1
|
%
|
Monthly default rates
|
|
0% - 14.2%
|
|
|
3.7
|
%
|
Loss severity rates
|
|
0% - 65.5%
|
|
|
39.7
|
%
|
Discount rates
|
|
0.8% - 17.7%
|
|
|
5.0
|
%
|
165
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
The following table presents activity for assets measured at fair value on a recurring basis that are categorized as Level 3 for the years
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Covered private label CMOs, beginning of year
|
|
$
|
45,149
|
|
$
|
50,437
|
|
$
|
52,125
|
|
Total realized in earnings
(1)
|
|
|
340
|
|
|
2,097
|
|
|
1,058
|
|
Total unrealized gain (loss) in comprehensive income
|
|
|
4,883
|
|
|
(846
|
)
|
|
5,411
|
|
Net settlements
|
|
|
(5,688
|
)
|
|
(6,539
|
)
|
|
(8,157
|
)
|
|
|
|
|
|
|
|
|
Covered private label CMOs, end of year
|
|
$
|
44,684
|
|
$
|
45,149
|
|
$
|
50,437
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Includes
other-than-temporary impairment loss of $1.1 million for 2012, none for 2011, and $874,000 for 2010.
The following tables present assets measured at fair value on a non-recurring basis as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2012
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Measured on a Non-Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-covered impaired loans
|
|
$
|
102,207
|
|
$
|
|
|
$
|
4,975
|
|
$
|
97,232
|
|
Non-covered other real estate owned
|
|
|
7,945
|
|
|
|
|
|
|
|
|
7,945
|
|
Covered other real estate owned
|
|
|
4,893
|
|
|
|
|
|
2,599
|
|
|
2,294
|
|
SBA loan servicing asset
|
|
|
1,000
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
116,045
|
|
$
|
|
|
$
|
7,574
|
|
$
|
108,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of December 31, 2011
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Measured on a Non-Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-covered impaired loans
|
|
$
|
114,353
|
|
$
|
|
|
$
|
13,803
|
|
$
|
100,550
|
|
Non-covered other real estate owned
|
|
|
44,106
|
|
|
|
|
|
3,679
|
|
|
40,427
|
|
Covered other real estate owned
|
|
|
29,490
|
|
|
|
|
|
24,729
|
|
|
4,761
|
|
SBA loan servicing asset
|
|
|
1,254
|
|
|
|
|
|
|
|
|
1,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
189,203
|
|
$
|
|
|
$
|
42,211
|
|
$
|
146,992
|
|
|
|
|
|
|
|
|
|
|
|
166
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
The following table presents gains and (losses) recognized on assets measured on a nonrecurring basis for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Gain (Loss) on Assets Measured on a Non-Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
Non-covered impaired loans
|
|
$
|
(5,582
|
)
|
$
|
(22,796
|
)
|
$
|
(30,639
|
)
|
Non-covered other real estate owned
|
|
|
(2,824
|
)
|
|
(4,381
|
)
|
|
(8,915
|
)
|
Covered other real estate owned
|
|
|
(1,096
|
)
|
|
(9,275
|
)
|
|
(3,982
|
)
|
SBA loan servicing asset
|
|
|
4
|
|
|
2
|
|
|
204
|
|
|
|
|
|
|
|
|
|
Total net loss
|
|
$
|
(9,498
|
)
|
$
|
(36,450
|
)
|
$
|
(43,332
|
)
|
|
|
|
|
|
|
|
|
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring
basis as of December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
|
|
Fair Value
|
|
Valuation
Methodology
|
|
Unobservable
Inputs
|
|
Range
|
|
Weighted
Average
|
|
|
|
(in 000's)
|
|
|
|
|
|
|
|
|
|
Impaired loans
(1)
|
|
$
|
94,038
|
|
Discounted cash flow
|
|
Discount rates
|
|
4.00% - 8.75%
|
|
|
7.69
|
%
|
|
|
$
|
1,184
|
|
Appraisals
|
|
Discount
|
|
4% - 100%
|
|
|
30
|
%
|
OREO
|
|
$
|
10,239
|
|
Appraisals
|
|
Discount, including 8% for selling costs
|
|
5% - 29%
|
|
|
8
|
%
|
SBA loan servicing asset
|
|
$
|
1,000
|
|
Discounted cash flow
|
|
Prepayment speeds
|
|
3.69% - 17.04%
|
|
|
|
(2)
|
|
|
|
|
|
|
|
Discount rates
|
|
9.68% - 12.58%
|
|
|
|
(2)
|
-
(1)
-
Excludes
$2.0 million of impaired loans with balances of $250,000 or less.
-
(2)
-
Not
readily available.
ASC Topic 825, "
Financial Instruments
," requires disclosure of the estimated fair value of certain
financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the
applicable disclosure requirements.
167
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
The
following tables present a summary of the carrying values and estimated fair values of certain financial instruments as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
|
|
Estimated Fair Value
|
|
|
|
Carrying or
Contract
Amount
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
89,011
|
|
$
|
89,011
|
|
$
|
89,011
|
|
$
|
|
|
$
|
|
|
Interest-earning deposits in financial institutions
|
|
|
75,393
|
|
|
75,393
|
|
|
75,393
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
1,355,385
|
|
|
1,355,385
|
|
|
8,985
|
|
|
1,301,716
|
|
|
44,684
|
|
Investment in FHLB stock
|
|
|
37,126
|
|
|
37,126
|
|
|
|
|
|
37,126
|
|
|
|
|
Loans and leases, net
|
|
|
3,498,329
|
|
|
3,551,674
|
|
|
|
|
|
4,975
|
|
|
3,546,699
|
|
SBA loan servicing asset
|
|
|
1,000
|
|
|
1,000
|
|
|
|
|
|
|
|
|
1,000
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, money market and savings deposits
|
|
|
3,888,794
|
|
|
3,888,794
|
|
|
|
|
|
3,888,794
|
|
|
|
|
Time deposits
|
|
|
820,327
|
|
|
823,912
|
|
|
|
|
|
823,912
|
|
|
|
|
Borrowings
|
|
|
12,591
|
|
|
12,611
|
|
|
|
|
|
12,611
|
|
|
|
|
Subordinated debentures
|
|
|
108,250
|
|
|
108,186
|
|
|
|
|
|
108,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
|
|
Estimated Fair Value
|
|
|
|
Carrying or
Contract
Amount
|
|
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(In thousands)
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
92,342
|
|
$
|
92,342
|
|
$
|
92,342
|
|
$
|
|
|
$
|
|
|
Interest-earning deposits in financial institutions
|
|
|
203,275
|
|
|
203,275
|
|
|
203,275
|
|
|
|
|
|
|
|
Securities available-for-sale
|
|
|
1,326,358
|
|
|
1,326,358
|
|
|
2,976
|
|
|
1,278,233
|
|
|
45,149
|
|
Investment in FHLB stock
|
|
|
46,106
|
|
|
46,106
|
|
|
|
|
|
46,106
|
|
|
|
|
Loans and leases, net
|
|
|
3,425,423
|
|
|
3,469,754
|
|
|
|
|
|
13,803
|
|
|
3,455,951
|
|
SBA loan servicing asset
|
|
|
1,613
|
|
|
1,613
|
|
|
|
|
|
|
|
|
1,613
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand, money market and savings deposits
|
|
|
3,609,559
|
|
|
3,609,559
|
|
|
|
|
|
3,609,559
|
|
|
|
|
Time deposits
|
|
|
967,894
|
|
|
977,589
|
|
|
|
|
|
977,589
|
|
|
|
|
Borrowings
|
|
|
225,000
|
|
|
249,000
|
|
|
|
|
|
249,000
|
|
|
|
|
Subordinated debentures
|
|
|
129,271
|
|
|
135,532
|
|
|
|
|
|
135,532
|
|
|
|
|
168
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
The following is a description of the valuation methodologies used to measure our assets recorded at fair value (under ASC Topic 820) and for
estimating fair value for financial instruments not recorded at fair value (under ASC Topic 825):
Cash and due from banks.
The carrying amount is assumed to be the fair value because of the liquidity of these instruments.
Interest-earning deposits in financial institutions.
The carrying amount is assumed to be the fair value given the short-term
nature of
these deposits.
Securities available-for-sale.
Securities available-for-sale are measured and carried at fair value
on a recurring basis. Unrealized gains and losses on available-for-sale securities are reported as a component of accumulated other comprehensive income in the consolidated
balance sheets. See Note 5,
Investment Securities
, for further information on unrealized gains and losses on securities
available-for-sale.
Fair
value for securities categorized as Level 1, which are primarily equity securities, are based on readily available quoted prices. In determining the fair value of the
securities categorized as Level 2, we obtain a report from a nationally recognized broker-dealer detailing the fair value of each investment security we hold as of each reporting date. The
broker-dealer uses observable market information to value our securities, with the primary source being a nationally recognized pricing service. We review the market prices provided by the
broker-dealer for our securities for reasonableness based on our understanding of the marketplace and we consider any credit issues related to the securities. As we have not made any adjustments to
the market quotes provided to us and they are based on observable market data, they have been categorized as Level 2 within the fair value hierarchy.
Our
covered private label CMOs are categorized as Level 3 due in part to the inactive market for such securities. There is a wide range of prices quoted for private label CMOs
among independent third party pricing services and this range reflects the significant judgment being exercised over the assumptions and variables that determine the pricing of such securities. We
consider this subjectivity to be a significant unobservable input and have concluded that the covered private label CMOs should be categorized as a Level 3 measured asset. Our fair value
estimate was based on prices provided to us by a nationally recognized pricing service, which we also use to determine the fair value of the majority of our securities portfolio. We determined the
reasonableness of the fair values by reviewing assumptions at the individual security level about prepayment, default expectations, estimated severity loss factors, and discount rates, all of which
are not directly observable in the market. Significant increases (decreases) in default expectations, severity loss factors, or discount rates, which occur all together or in isolation, would result
in lower (higher) fair value measurements.
FHLB stock.
Investments in FHLB stock are recorded at cost. Ownership of FHLB stock is restricted to member banks and the
securities do not have a
readily determinable market value. Purchases and sales of these securities are at par value with the issuer. The fair value of investments in FHLB stock is equal to the carrying amount.
Non-covered loans and leases.
As non-covered loans and leases are not measured at fair value, the following discussion
relates to estimating the fair value disclosures under ASC Topic 825. Fair values are estimated for portfolios of loans and leases with similar financial characteristics. Loans are segregated by type
and further segmented into fixed and adjustable rate interest terms and by credit
169
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
risk
categories. The fair value estimates do not take into consideration the value of the loan portfolio in the event the loans are sold outside the parameters of normal operating activities. The fair
value of performing fixed-rate loans is estimated by discounting scheduled cash flows through the estimated maturity using estimated market prepayment speeds. The fair value of equipment
leases is estimated by discounting scheduled lease and expected lease residual cash flows over their remaining term. The estimated market discount rates used for performing fixed-rate
loans and equipment leases are the Company's current offering rates for comparable instruments with similar terms. The fair value of performing adjustable-rate loans is estimated by
discounting scheduled cash flows through the next repricing date. As these loans reprice frequently at market rates and the credit risk is not considered to be greater than normal, the market value is
typically close to the carrying amount of these loans. These methods and assumptions are not based on the exit price concept of fair value.
Non-covered impaired loans.
Nonaccrual loans and performing restructured loans are considered impaired for reporting purposes
and are
measured and recorded at fair value on a non-recurring basis. Non-covered nonaccrual loans with an unpaid principal balance over $250,000 and all performing restructured loans
are reviewed individually for the amount of impairment, if any. Non-covered nonaccrual loans with an unpaid principal balance of $250,000 or less are evaluated for impairment collectively.
To
the extent a loan is collateral dependent, we measure such impaired loan based on the estimated fair value of the underlying collateral. The fair value of each loan's collateral is
generally based on estimated market prices from an independently prepared appraisal, which is then adjusted for the cost related to liquidating such collateral; such valuation inputs result in a
nonrecurring fair value measurement that is categorized as a Level 2 measurement. The Level 2 measurement is based on appraisals obtained within the last 12 months and for which a
charge-off was recognized or a change in the specific valuation allowance was made during the year ended December 31, 2012.
When
adjustments are made to an appraised value to reflect various factors such as the age of the appraisal or known changes in the market or the collateral, such valuation inputs are
considered unobservable and the fair value measurement is categorized as a Level 3 measurement. The impaired loans categorized as Level 3 also include unsecured loans and other secured
loans whose fair values are based significantly on unobservable inputs such as the strength of a guarantor, including an SBA government guarantee, cash flows discounted at the effective loan rate, and
management's judgment.
The
non-covered impaired loan balances shown above represent those nonaccrual and restructured loans for which impairment was recognized during 2012 and 2011. The amounts
shown as losses represent, for the loan balances shown, the impairment recognized during the years ended December 31, 2012, 2011, and 2010. Of the $39.3 million of nonaccrual loans at
December 31, 2012, $8.6 million were written down to their collateral fair values through charge-offs during 2012.
Other real estate owned.
The fair value of foreclosed real estate, both non-covered and covered, is generally based on estimated
market
prices from independently prepared current appraisals or negotiated sales prices with potential buyers, less estimated costs to sell; such valuation inputs result in a fair value measurement that is
categorized as a Level 2 measurement on a nonrecurring basis. As a matter of policy, appraisals are required annually and may be updated more frequently as circumstances require in the opinion
of management. The Level 2 measurement for OREO is based on
170
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
appraisals
obtained within the last 12 months and for which a write-down was recognized in 2012 and 2011.
When
a current appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value as a result of known changes in
the market or the collateral and there is no observable market price, such valuation inputs result in a fair value measurement that is categorized as a Level 3 measurement. To the extent a
negotiated sales price or reduced listing price represents a significant discount to an observable market price, such valuation input would result in a fair value measurement that is also considered a
Level 3 measurement. The OREO losses disclosed are write-downs based on either a recent appraisal obtained after foreclosure or an accepted purchase offer by an independent third party received
after foreclosure.
SBA servicing asset.
In accordance with ASC Topic 860, "
Transfers and Servicing
,"
the SBA servicing
asset, included in other assets in the consolidated balance sheets, is carried at its implied fair value. The fair value of the servicing asset is estimated by discounting future cash flows using
market-based discount rates and prepayment speeds. The discount rate is based on the current US Treasury yield curve, as published by the Department of the Treasury, plus a spread for the marketplace
risk associated with these assets. We utilize estimated prepayment vectors using SBA prepayment information provided by Bloomberg for pools of similar assets to determine the timing of the cash flows.
These nonrecurring valuation inputs are considered to be Level 3 inputs.
Deposits.
Deposits are carried at historical cost. The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits,
interest checking, money market, and savings accounts, is equal to the amount payable on demand as of the balance sheet date and considered Level 2. The fair value of time deposits is based on
the discounted value of contractual cash flows and considered Level 2. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. No value
has been separately assigned to the Company's long-term relationships with its deposit customers, such as a core deposit intangible.
Borrowings.
Borrowings are carried at amortized cost. The fair value of overnight FHLB advances is equal to the carrying value
and considered
Level 1. The fair value of fixed-rate borrowings is calculated by discounting scheduled cash flows through the estimated maturity or call dates, if applicable, using estimated
market discount rates that reflect current rates offered for borrowings with similar remaining maturities and characteristics.
Subordinated debentures.
Subordinated debentures are carried at amortized cost. The fair value of the subordinated debentures is
based on the
discounted value of contractual cash flows for fixed-rate securities. The discount rate is estimated using the rates currently offered for similar securities of similar maturity. The fair
value of subordinated debentures with variable rates is determined using a market discount rate on the expected cash flows.
Commitments to extend credit and standby letters of credit.
The majority of our commitments to extend credit carry current
market interest rates if
converted to loans. Because these commitments are generally unassignable by either the borrower or us, they only have value to the borrower and us. The estimated fair value approximates the recorded
deferred fee amounts and is excluded from the table above because it is not material.
171
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 13FAIR VALUE MEASUREMENTS (Continued)
Fair value estimates are made at a specific point in time and are based on relevant market information and information about the
financial instrument. These estimates do not reflect income taxes or any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a portion of the Company's financial instruments, fair value estimates are based on what management believes to be conservative judgments regarding
expected future cash flows, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimated fair values are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Since the fair values have been
estimated as of December 31, 2012 and 2011, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.
NOTE 14INCOME TAXES
The following table presents the components of income tax benefit (expense) for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Current Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(24,177
|
)
|
$
|
(15,129
|
)
|
$
|
7,912
|
|
State
|
|
|
(1,825
|
)
|
|
(9,562
|
)
|
|
(3,557
|
)
|
|
|
|
|
|
|
|
|
Total current income tax (expense) benefit
|
|
|
(26,002
|
)
|
|
(24,691
|
)
|
|
4,355
|
|
|
|
|
|
|
|
|
|
Deferred Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,550
|
)
|
|
(11,726
|
)
|
|
27,263
|
|
State
|
|
|
(8,143
|
)
|
|
(383
|
)
|
|
15,096
|
|
|
|
|
|
|
|
|
|
Total deferred income tax (expense) benefit
|
|
|
(10,693
|
)
|
|
(12,109
|
)
|
|
42,359
|
|
|
|
|
|
|
|
|
|
Total income tax (expense) benefit
|
|
$
|
(36,695
|
)
|
$
|
(36,800
|
)
|
$
|
46,714
|
|
|
|
|
|
|
|
|
|
172
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 14INCOME TAXES (Continued)
The following table presents a reconciliation of the recorded income tax benefit (expense) to the amount of taxes computed by applying the
applicable statutory federal income tax rate of 35% to earnings or loss before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Computed expected income tax (expense) benefit at Federal statutory rate
|
|
$
|
(32,724
|
)
|
$
|
(30,626
|
)
|
$
|
38,056
|
|
State tax (expense) benefit, net of federal tax benefit
|
|
|
(6,479
|
)
|
|
(6,464
|
)
|
|
7,500
|
|
Tax-exempt interest
|
|
|
1,847
|
|
|
406
|
|
|
37
|
|
Increase in cash surrender value of life insurance
|
|
|
442
|
|
|
504
|
|
|
486
|
|
Tax credits
|
|
|
1,313
|
|
|
556
|
|
|
523
|
|
Other, net
|
|
|
(1,094
|
)
|
|
(1,176
|
)
|
|
112
|
|
|
|
|
|
|
|
|
|
Recorded income tax (expense) benefit
|
|
$
|
(36,695
|
)
|
$
|
(36,800
|
)
|
$
|
46,714
|
|
|
|
|
|
|
|
|
|
The Company had net income taxes receivable of $30.0 million and $14.6 million at December 31, 2012 and 2011, respectively,
on its consolidated balance sheets.
The
Company had available at December 31, 2012, approximately $142,000 of unused federal net operating loss carryforwards that may be applied against future taxable income through
2022. The Company had available at December 31, 2012, approximately $6.2 million of unused state net operating loss carryforwards that may be applied against future taxable income
through 2031. Utilization of the net operating loss and other carryforwards are subject to annual limitations set forth in Section 382 of the Internal Revenue Code.
173
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 14INCOME TAXES (Continued)
The
following table presents the tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2012
|
|
2011
|
|
|
|
(In thousands)
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
Book allowance for loan losses in excess of tax specific charge-offs
|
|
$
|
31,602
|
|
$
|
39,520
|
|
Interest on nonaccrual loans
|
|
|
473
|
|
|
641
|
|
Deferred compensation
|
|
|
3,727
|
|
|
3,999
|
|
Net operating losses
|
|
|
560
|
|
|
6,467
|
|
Premises and equipment, principally due to differences in depreciation
|
|
|
2,457
|
|
|
5,526
|
|
OREO valuation allowance
|
|
|
7,398
|
|
|
9,689
|
|
Assets acquired in FDIC-assisted acquisition
|
|
|
19,170
|
|
|
23,364
|
|
State tax benefit
|
|
|
247
|
|
|
3,311
|
|
Accrued liabilities
|
|
|
10,126
|
|
|
9,550
|
|
Other
|
|
|
10,374
|
|
|
5,336
|
|
Goodwill
|
|
|
3,846
|
|
|
4,764
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
89,980
|
|
|
112,167
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
Core deposit and customer relationship intangibles
|
|
|
5,004
|
|
|
4,504
|
|
Deferred loan fees and costs
|
|
|
296
|
|
|
76
|
|
Unrealized gain on securities available-for-sale
|
|
|
23,824
|
|
|
16,513
|
|
FHLB stock and dividends
|
|
|
7,557
|
|
|
7,709
|
|
Unrealized income from FDIC-assisted acquisition
|
|
|
23,614
|
|
|
35,427
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
60,295
|
|
|
64,229
|
|
|
|
|
|
|
|
Total net deferred tax asset
|
|
$
|
29,685
|
|
$
|
47,938
|
|
|
|
|
|
|
|
Based upon our taxpaying history and estimates of taxable income over the years in which the items giving rise to the deferred tax assets are
deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences.
Our
evaluation of tax positions was performed for those tax years which remain open to audit. As of December 31, 2012, all the federal returns filed since 2008 and state returns
filed since 2008 are subject to adjustment upon audit.
174
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 14INCOME TAXES (Continued)
We had no unrecognized net tax benefit positions at December 31, 2012 and 2011, respectively. The unrecognized tax benefit of $117,000 at December 31, 2010 was reduced in
2011 due to lapse of statute. While it is expected that the amount of unrecognized tax benefits may change in the next twelve months, the Company does not expect this change to have a material impact
on the results of operations or the financial position of the Company. We may from time to time be assessed interest or
penalties by taxing authorities, although any such assessments historically have been minimal and immaterial to our financial results. In the event we are assessed for interest and/or penalties, such
amounts will be classified in the financial statements as income tax expense.
NOTE 15EARNINGS PER SHARE
The following table presents a summary of the calculation of basic and diluted net earnings (loss) per share for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
Basic Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
56,801
|
|
$
|
50,704
|
|
$
|
(62,016
|
)
|
Less: earnings allocated to unvested restricted stock
(1)
|
|
|
(1,845
|
)
|
|
(2,072
|
)
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
Net earnings (loss) allocated to common shares
|
|
$
|
54,956
|
|
$
|
48,632
|
|
$
|
(62,047
|
)
|
|
|
|
|
|
|
|
|
Weighted-average basic shares and unvested restricted stock outstanding
|
|
|
37,369.5
|
|
|
37,141.5
|
|
|
36,438.7
|
|
Less: weighted-average unvested restricted stock outstanding
|
|
|
(1,685.4
|
)
|
|
(1,650.7
|
)
|
|
(1,330.6
|
)
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
|
|
35,684.1
|
|
|
35,490.8
|
|
|
35,108.1
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
1.54
|
|
$
|
1.37
|
|
$
|
(1.77
|
)
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) allocated to common shares
|
|
$
|
54,956
|
|
$
|
48,632
|
|
$
|
(62,047
|
)
|
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
|
|
35,684.1
|
|
|
35,490.8
|
|
|
35,108.1
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
1.54
|
|
$
|
1.37
|
|
$
|
(1.77
|
)
|
|
|
|
|
|
|
|
|
-
(1)
-
Represents
cash dividends paid to holders of unvested restricted stock, net of estimated forfeitures, plus undistributed earnings amounts
available to holders of unvested restricted stock, if any.
NOTE 16STOCK COMPENSATION PLANS
The Company's 2003 Stock Incentive Plan, or the 2003 Plan, permits stock-based compensation awards to officers, directors, key employees and consultants. The 2003 Plan authorizes grants
of stock-based compensation instruments to purchase or issue up to 6,500,000 shares of authorized but unissued Company common stock, subject to adjustments provided by the 2003 Plan. In May 2012, the
Board of Directors approved the equity award of 11,850 common shares to non-employee directors of the Company. Such shares were granted outright and vested immediately with a charge to
other noninterest expense of $300,000 at that time. As of December 31, 2012, there were 1,784,093 shares available for grant under the 2003 Plan.
175
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 16STOCK COMPENSATION PLANS (Continued)
The following table presents a summary of restricted stock transactions for the year indicated:
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Fair Value
on Grant
Date
|
|
Unvested restricted stock, December 31, 2009
|
|
|
1,095,417
|
|
$
|
42.86
|
|
Granted
|
|
|
443,050
|
|
|
19.99
|
|
Shares issued by the Company upon vesting
|
|
|
(268,568
|
)
|
|
36.78
|
|
Forfeited
|
|
|
(39,317
|
)
|
|
45.82
|
|
|
|
|
|
|
|
|
Unvested restricted stock, December 31, 2010
|
|
|
1,230,582
|
|
|
35.86
|
|
Granted
|
|
|
692,900
|
|
|
20.50
|
|
Shares issued by the Company upon vesting
|
|
|
(203,174
|
)
|
|
30.13
|
|
Forfeited
|
|
|
(44,578
|
)
|
|
23.56
|
|
|
|
|
|
|
|
|
Unvested restricted stock, December 31, 2011
|
|
|
1,675,730
|
|
|
30.53
|
|
Granted
|
|
|
226,400
|
|
|
23.77
|
|
Shares issued by the Company upon vesting
|
|
|
(195,871
|
)
|
|
21.69
|
|
Forfeited
|
|
|
(7,978
|
)
|
|
22.31
|
|
|
|
|
|
|
|
|
Unvested restricted stock, December 31, 2012
|
|
|
1,698,281
|
|
$
|
30.68
|
|
|
|
|
|
|
|
|
At December 31, 2012, there were outstanding 848,281 shares of unvested time-based restricted common stock and 850,000 shares
of unvested performance-based restricted common stock. The awarded shares of time-based restricted common stock vest over a service period of three to five years from the date of the
grant. The awarded shares of performance-based restricted common stock vest in full on the date the Compensation, Nominating and Governance, or CNG, Committee of the Board of Directors, as
Administrator of the 2003 Plan, determines that the Company achieved certain financial goals established by the CNG Committee as set forth in the grant documents. Both time-based and
performance-based restricted common stock vest immediately upon a change in control of the Company as defined in the 2003 Plan and upon death of the employee. The vesting date fair values of
restricted stock awards that vested during 2012, 2011, and 2010 were $4.5 million, $3.7 million, and $5.2 million, respectively.
Compensation
expense related to time-based restricted stock awards is based on the fair value of the underlying stock on the award date and is recognized over the vesting
period using the straight-line method. Restricted stock amortization totaled $5.7 million, $7.6 million, and $8.5 million for the years ended December 31, 2012,
2011, and 2010, respectively. Such amounts are included in compensation expense on the accompanying consolidated statements of earnings (loss). The income tax benefit recognized in the consolidated
statements of earnings (loss) related to this expense was $2.2 million, $3.2 million, and $3.7 million for 2012, 2011, and 2010, respectively. As of December 31, 2012, total unrecognized
compensation cost related to unvested time-based
restricted stock was $10.7 million. This cost is expected to be recognized over a weighted average period of 1.3 years.
Currently
no compensation expense is being recognized for any performance-based restricted stock awards as management has concluded that it is improbable that the respective financial
targets for any
176
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 16STOCK COMPENSATION PLANS (Continued)
outstanding
performance-based restricted stock awards will be met. If and when the attainment of such financial targets is deemed probable in future periods, a catch-up adjustment will be
recorded and amortization of such performance-based restricted stock will begin again.
The
total amount of unrecognized compensation expense related to all performance-based restricted stock for which amortization was suspended or has not commenced totaled
$33.8 million at December 31, 2012 as presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
Outstanding
|
|
Total
Unrecognized
Compensation
Expense
|
|
Expiration
Date of
Award
|
|
|
|
(Dollars in thousands)
|
|
Performance-based restricted stock granted in:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
275,000
|
|
$
|
14,924
|
|
|
March 31, 2013
|
|
2007
|
|
|
205,000
|
|
|
11,259
|
|
|
March 31, 2017
|
|
2008
|
|
|
20,000
|
|
|
453
|
|
|
March 31, 2013
|
|
2011
|
|
|
350,000
|
|
|
7,161
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
Outstanding performance-based restricted stock awards
|
|
|
850,000
|
|
$
|
33,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 16STOCK COMPENSATION PLANS (Continued)
The
following table summarizes information about outstanding time-based and performance-based restricted stock awards at December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At Grant Date
|
|
Vested
|
|
Forfeited
|
|
Outstanding at December 31, 2012
|
|
|
|
Number
of
Shares
Grant
|
|
Weighted
Average
Fair
Value
|
|
Number
of
Shares
Vested
|
|
Weighted
Average
Fair
Value
on
Grant
Date
|
|
Number
of
Shares
Forfeited
|
|
Weighted
Average
Fair
Value
on
Grant
Date
|
|
Number
of
Shares
Outstanding
|
|
Weighted
Average
Fair
Value
on
Grant
Date
|
|
Weighted
Average
Fair
Value
(1)
(000)
|
|
Weighted
Average
Remaining
Contractual
Life
(Years)
|
|
Time-based restricted stock granted in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
577,730
|
|
$
|
29.52
|
|
|
516,639
|
|
$
|
29.12
|
|
|
33,404
|
|
$
|
31.42
|
|
|
27,687
|
|
$
|
34.57
|
|
$
|
686
|
|
|
0.1
|
|
2009
|
|
|
57,812
|
|
$
|
15.88
|
|
|
55,646
|
|
$
|
15.82
|
|
|
|
|
$
|
|
|
|
2,166
|
|
$
|
17.37
|
|
|
54
|
|
|
0.5
|
|
2010
|
|
|
443,050
|
|
$
|
19.99
|
|
|
141,022
|
|
$
|
19.88
|
|
|
22,200
|
|
$
|
22.03
|
|
|
279,828
|
|
$
|
19.88
|
|
|
6,931
|
|
|
0.7
|
|
2011
|
|
|
342,900
|
|
$
|
20.54
|
|
|
|
|
$
|
|
|
|
28,450
|
|
$
|
21.76
|
|
|
314,450
|
|
$
|
20.43
|
|
|
7,789
|
|
|
1.3
|
|
2012
|
|
|
226,400
|
|
$
|
23.77
|
|
|
|
|
$
|
|
|
|
2,250
|
|
$
|
22.23
|
|
|
224,150
|
|
$
|
23.79
|
|
|
5,552
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding time-based restricted stock awards
|
|
|
1,647,892
|
|
|
|
|
|
713,307
|
|
|
|
|
|
86,304
|
|
|
|
|
|
848,281
|
|
|
|
|
|
21,012
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance-based stock granted in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
315,000
|
|
$
|
54.27
|
|
|
|
|
$
|
|
|
|
40,000
|
|
$
|
54.21
|
|
|
275,000
|
|
$
|
54.27
|
|
|
6,812
|
|
|
0.3
|
|
2007
|
|
|
205,000
|
|
$
|
54.92
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
205,000
|
|
$
|
54.92
|
|
|
5,078
|
|
|
4.1
|
|
2008
|
|
|
20,000
|
|
$
|
22.66
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
20,000
|
|
$
|
22.66
|
|
|
495
|
|
|
0.3
|
|
2011
|
|
|
350,000
|
|
$
|
20.46
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
350,000
|
|
$
|
20.46
|
|
|
8,669
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding performance-based restricted stock awards
|
|
|
890,000
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
850,000
|
|
|
|
|
|
21,054
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total awards
|
|
|
2,537,892
|
|
|
|
|
|
713,307
|
|
|
|
|
|
126,304
|
|
|
|
|
|
1,698,281
|
|
|
|
|
$
|
42,066
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Determined
using the $24.77 closing price of PacWest common stock on December 31, 2012.
NOTE 17BENEFIT PLANS
The Company sponsors a defined contribution plan for the benefit of its employees. Participants are eligible to participate immediately
as long as they work a minimum of 1,000 hours and are at least 21 years of age. Eligible participants may contribute up to 60% of their annual compensation, not to exceed the dollar
limit imposed by the Internal Revenue Code. Employer contributions are determined annually by the Board of Directors in accordance with plan requirements and applicable tax code.
Expense
related to 401(k) contributions was $1.0 million, $433,000, and $498,000 for the years ended December 31, 2012, 2011, and 2010, respectively.
178
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 18STOCKHOLDERS' EQUITY
As a Delaware corporation, the Company records treasury shares for shares surrendered to the Company resulting from statutory payroll tax obligations arising from the vesting of
restricted stock. During 2012, the Company purchased 63,681 treasury shares at a weighted average price of $23.17 per share. During 2011, the Company purchased 80,173 treasury shares at a weighted
average price of $18.27 per share. During 2010, the Company purchased 94,666 treasury shares at a weighted average price of $19.34 per share.
NOTE 19DIVIDEND AVAILABILITY AND REGULATORY MATTERS
Holders of Company common stock are entitled to receive dividends declared by the Board of Directors out of funds legally available under state law governing the Company and certain
federal laws and regulations governing the banking and financial services business. Our ability to pay dividends to our stockholders is subject to the restrictions set forth in Delaware General
Corporation Law and certain covenants contained in the indentures governing trust preferred securities issued by us or entities that we have acquired. Notification to the FRB is also required prior to
our declaring and paying dividends on common stock during any period in which our quarterly net earnings is insufficient
to fund the dividend amount. Should the FRB object to payment of dividends on common stock, we would not be able to make the payment until approval is received or we no longer need to provide notice
under applicable regulations.
It
is possible, depending upon the financial condition of the Bank, and other factors, that the FRB, the FDIC or the California Department of Financial Institutions ("DFI"), could assert
that payment of dividends or other payments is an unsafe or unsound practice. Pacific Western is subject to restrictions under certain federal and state laws and regulations governing banks which
limit its ability to transfer funds to the holding company through intercompany loans, advances or cash dividends. Dividends paid by state banks such as Pacific Western are regulated by the DFI under
its general supervisory authority as it relates to a bank's capital requirements. A state bank may declare a dividend without the approval of the DFI as long as the total dividends declared in a
calendar year do not exceed either the retained earnings or the total of net earnings for three previous fiscal years less any dividend paid during such period. During 2012, PacWest received
$50.0 million in dividends from the Bank. For the foreseeable future, further dividends from the Bank to PacWest will require DFI approval.
PacWest,
as a bank holding company, is subject to regulation by the FRB under the Bank Holding Company Act of 1956, as amended. The Federal Deposit Insurance Corporation Improvement Act
of 1991 required that the federal regulatory agencies adopt regulations defining capital tiers for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must
meet specific capital guidelines that involve quantitative measures of the Company's and the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative
measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total and Tier I capital to
risk-weighted
179
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 19DIVIDEND AVAILABILITY AND REGULATORY MATTERS (Continued)
assets,
and of Tier I capital to average assets ("leverage ratio"). Tier 1 capital includes common stockholders' equity and trust preferred securities, less goodwill and certain other
deductions (including a portion of servicing assets and the after-tax unrealized net gains and losses on securities available-for-sale). Total risk-based capital
includes Tier 1 capital and other items such as subordinated debt and the allowance for credit losses. Both measures are stated as a percentage of risk-weighted assets, which are
measured based on their perceived credit risk and include certain off-balance sheet exposures, such as unfunded
loan commitments and letters of credit. The Company is also subject to a leverage ratio requirement, which is defined as Tier 1 capital as a percentage of average assets, adjusted for goodwill
and other non-qualifying intangible assets and other assets.
Bank
holding companies considered to be "adequately capitalized" are required to maintain a minimum total risk-based capital ratio of 8%, a minimum Tier 1
risk-based capital ratio of 4.0%, and a minimum leverage ratio of 4.0%. Bank holding companies considered to be "well capitalized" must maintain a minimum total risk-based
capital ratio of 10.0%, a minimum Tier 1 risk-based capital ratio of 6.0%, and a minimum leverage ratio of 5%. As of December 31, 2012, the most recent notification date to
the regulatory agencies, the Company and the Bank are each "well capitalized" under the regulatory framework for prompt corrective action. There are no conditions or events since that notification
that management believes have changed the Company's or any of the Bank's categories.
Management
believes, as of December 31, 2012, that we have met all capital adequacy requirements to which we are subject.
Regulatory
capital requirements limit the amount of deferred tax assets that may be included when determining the amount of regulatory capital. Deferred tax asset amounts in excess of
the calculated limit are deducted from regulatory capital. There was no limitation on our deferred tax assets at December 31, 2012. No assurance can be given that the regulatory capital
deferred tax asset limitation will not increase in the future.
180
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 19DIVIDEND AVAILABILITY AND REGULATORY MATTERS (Continued)
The
following table presents actual capital amounts and ratios for the Company and the Bank as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well Capitalized
Minimum
Requirement
|
|
|
|
|
|
Actual
|
|
|
|
|
|
Excess
Capital
Amount
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
(Dollars in thousands)
|
|
December 31, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacWest Bancorp Consolidated
|
|
$
|
570,082
|
|
|
10.53
|
%
|
$
|
270,694
|
|
|
5.00
|
%
|
$
|
299,388
|
|
Pacific Western Bank
|
|
|
528,151
|
|
|
9.78
|
|
|
269,901
|
|
|
5.00
|
|
|
258,250
|
|
Tier I capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacWest Bancorp Consolidated
|
|
|
570,082
|
|
|
15.17
|
|
|
225,541
|
|
|
6.00
|
|
|
344,541
|
|
Pacific Western Bank
|
|
|
528,151
|
|
|
14.10
|
|
|
224,778
|
|
|
6.00
|
|
|
303,373
|
|
Total capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacWest Bancorp Consolidated
|
|
|
617,702
|
|
|
16.43
|
|
|
375,901
|
|
|
10.00
|
|
|
241,801
|
|
Pacific Western Bank
|
|
|
575,614
|
|
|
15.36
|
|
|
374,630
|
|
|
10.00
|
|
|
200,984
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital (to average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacWest Bancorp Consolidated
|
|
$
|
566,908
|
|
|
10.42
|
%
|
$
|
272,142
|
|
|
5.00
|
%
|
$
|
294,766
|
|
Pacific Western Bank
|
|
|
528,782
|
|
|
9.73
|
|
|
271,721
|
|
|
5.00
|
|
|
257,061
|
|
Tier I capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacWest Bancorp Consolidated
|
|
|
566,908
|
|
|
15.97
|
|
|
213,022
|
|
|
6.00
|
|
|
353,886
|
|
Pacific Western Bank
|
|
|
528,782
|
|
|
14.95
|
|
|
212,269
|
|
|
6.00
|
|
|
316,513
|
|
Total capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PacWest Bancorp Consolidated
|
|
|
612,284
|
|
|
17.25
|
|
|
355,037
|
|
|
10.00
|
|
|
257,247
|
|
Pacific Western Bank
|
|
|
574,003
|
|
|
16.22
|
|
|
353,781
|
|
|
10.00
|
|
|
220,222
|
|
The Company issued subordinated debentures to trusts that were established by us or entities that we have acquired, which, in turn, issued trust
preferred securities, which totaled $105.0 million at December 31, 2012. The Company includes in Tier 1 capital an amount of trust preferred securities equal to no more than 25%
of the sum of all core capital elements, which is generally defined as stockholders' equity less goodwill, net of any related deferred income tax liability. At December 31, 2012, the amount of
trust preferred securities included in Tier I capital was $105.0 million. While our existing trust preferred securities are currently grandfathered as Tier 1 capital under the
Dodd-Frank Wall Street Reform and Consumer Protection Act, proposed regulatory capital guidelines would phase them out of Tier 1 capital over a period of 10 years, beginning
in 2013, until they are fully-phased out on January 1, 2022. New issuances of trust preferred securities will not qualify as Tier 1 capital. If trust preferred securities are excluded
from regulatory capital, we remain "well capitalized."
Interest
payments made by the Company on subordinated debentures are considered dividend payments under FRB regulations. Notification to the FRB is required prior to our declaring and
paying a dividend to our stockholders during any period in which our quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount. This notification requirement
is included in regulatory guidance regarding safety and soundness surrounding capital and includes other
181
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 19DIVIDEND AVAILABILITY AND REGULATORY MATTERS (Continued)
non-financial
measures such as asset quality and credit concentrations. Should the FRB object to our dividend payments, we would be precluded from paying interest on our subordinated
debentures. Payments would not commence until approval is received or we no longer need to provide notice under applicable guidance.
NOTE 20BUSINESS SEGMENTS
The Company's reportable segments consist of "Banking," "Asset Financing," and "Other." At December 31, 2012, the Other segment consisted of the PacWest Bancorp holding company
and other elimination and reconciliation entries.
The
Bank's Asset Financing segment includes the operations of the divisions and subsidiaries that provide asset-based commercial loans and equipment leases. The asset-based lending
products are offered primarily through three business units: (1) First Community Financial ("FCF"), a division of the Bank, based in Phoenix, Arizona; (2) BFI Business Finance ("BFI"), a
wholly-owned subsidiary of the Bank, based in San Jose, California; and (3) Celtic, a wholly-owned subsidiary of the Bank based in Santa Monica, California. The Bank's leasing products are
offered through EQF, a division of the Bank based in Midvale, Utah.
With
the acquisitions of EQF in January 2012 and Celtic in April 2012, we expanded our asset-based lending operations, both in terms of size and product diversification by adding
equipment leasing, and determined that our asset financing operations met the threshold to be a reportable segment beginning with the second quarter of 2012.
The
accounting policies of the reported segments are the same as those of the Company described in Note 1, "
Nature of Operations and Summary of Significant
Accounting Policies."
Transactions between segments consist primarily of borrowed funds. Intersegment interest expense is allocated to the Asset Financing segment based upon
the Bank's total cost of interest-bearing liabilities. The provision for credit losses is allocated based on actual charge-offs for the period as well as assigning a minimum reserve
requirement to the Asset Financing segment. Noninterest income and noninterest expense directly attributable to a segment are assigned to it.
182
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 20BUSINESS SEGMENTS (Continued)
The
following tables present information regarding our business segments as of and for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
|
|
Banking
|
|
Asset
Financing
|
|
Other
|
|
Consolidated
Company
|
|
|
|
(In thousands)
|
|
Non-covered loans and leases, net of unearned income
|
|
$
|
2,631,838
|
|
$
|
415,132
|
|
$
|
|
|
$
|
3,046,970
|
|
Allowance for loan and lease losses
|
|
|
(61,469
|
)
|
|
(4,430
|
)
|
|
|
|
|
(65,899
|
)
|
|
|
|
|
|
|
|
|
|
|
Non-covered loans and leases, net
|
|
|
2,570,369
|
|
|
410,702
|
|
|
|
|
|
2,981,071
|
|
Covered loans, net
|
|
|
517,258
|
|
|
|
|
|
|
|
|
517,258
|
|
|
|
|
|
|
|
|
|
|
|
Total loans and leases, net
|
|
$
|
3,087,627
|
|
$
|
410,702
|
|
$
|
|
|
$
|
3,498,329
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangibles
(1)
|
|
$
|
66,339
|
|
$
|
28,250
|
|
$
|
|
|
$
|
94,589
|
|
Total assets
|
|
|
4,991,927
|
|
|
451,557
|
|
|
20,174
|
|
|
5,463,658
|
|
Total deposits
(2)
|
|
|
4,737,593
|
|
|
|
|
|
(28,472
|
)
|
|
4,709,121
|
|
-
(1)
-
Other
intangibles include only core deposit and customer relationship intangibles. Non-compete agreements, tradenames, and
favorable lease rights intangibles of $2.2 million are included in other assets on the consolidated balance sheets.
-
(2)
-
The
negative balance in the "Other" segment represents the elimination of holding company cash held at the Bank.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
|
|
Banking
|
|
Asset
Financing
|
|
Other
|
|
Consolidated
Company
|
|
|
|
(In thousands)
|
|
Non-covered loans, net of unearned income
|
|
$
|
2,658,477
|
|
$
|
149,236
|
|
$
|
|
|
$
|
2,807,713
|
|
Allowance for loan losses
|
|
|
(82,628
|
)
|
|
(2,685
|
)
|
|
|
|
|
(85,313
|
)
|
|
|
|
|
|
|
|
|
|
|
Non-covered loans, net
|
|
|
2,575,849
|
|
|
146,551
|
|
|
|
|
|
2,722,400
|
|
Covered loans, net
|
|
|
703,023
|
|
|
|
|
|
|
|
|
703,023
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
$
|
3,278,872
|
|
$
|
146,551
|
|
$
|
|
|
$
|
3,425,423
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and other intangibles
(1)
|
|
$
|
56,556
|
|
$
|
|
|
$
|
|
|
$
|
56,556
|
|
Total assets
|
|
|
5,359,794
|
|
|
152,231
|
|
|
16,212
|
|
|
5,528,237
|
|
Total deposits
(2)
|
|
|
4,613,353
|
|
|
|
|
|
(35,900
|
)
|
|
4,577,453
|
|
-
(1)
-
Other
intangibles include only core deposit and customer relationship intangibles. Tradenames and favorable lease rights intangibles of
$1.5 million are included in other assets on the consolidated balance sheets.
-
(2)
-
The
negative balance in the "Other" segment represents the elimination of holding company cash held at the Bank.
183
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 20BUSINESS SEGMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Ended December 31, 2012
|
|
|
|
Banking
|
|
Asset
Financing
|
|
Other
|
|
Consolidated
Company
|
|
|
|
(In thousands)
|
|
Interest income
|
|
$
|
251,720
|
|
$
|
44,395
|
|
$
|
|
|
$
|
296,115
|
|
Intersegment interest expense
|
|
|
2,055
|
|
|
(2,055
|
)
|
|
|
|
|
|
|
Other interest expense
|
|
|
(15,043
|
)
|
|
(884
|
)
|
|
(3,721
|
)
|
|
(19,648
|
)
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
238,732
|
|
|
41,456
|
|
|
(3,721
|
)
|
|
276,467
|
|
|
|
|
|
|
|
|
|
|
|
Negative provision (provision) for credit losses
|
|
|
14,585
|
|
|
(1,766
|
)
|
|
|
|
|
12,819
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
11,741
|
|
|
4,017
|
|
|
114
|
|
|
15,872
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization
|
|
|
(5,898
|
)
|
|
(428
|
)
|
|
|
|
|
(6,326
|
)
|
Debt termination expense
|
|
|
(24,195
|
)
|
|
|
|
|
1,597
|
|
|
(22,598
|
)
|
Other noninterest expense
|
|
|
(153,660
|
)
|
|
(23,502
|
)
|
|
(5,576
|
)
|
|
(182,738
|
)
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
(183,753
|
)
|
|
(23,930
|
)
|
|
(3,979
|
)
|
|
(211,662
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
81,305
|
|
|
19,777
|
|
|
(7,586
|
)
|
|
93,496
|
|
Income taxes
|
|
|
(31,542
|
)
|
|
(8,327
|
)
|
|
3,174
|
|
|
(36,695
|
)
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
49,763
|
|
$
|
11,450
|
|
$
|
(4,412
|
)
|
$
|
56,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Ended December 31, 2011
|
|
|
|
Banking
|
|
Asset
Financing
|
|
Other
|
|
Consolidated
Company
|
|
|
|
(In thousands)
|
|
Interest income
|
|
$
|
276,734
|
|
$
|
18,550
|
|
$
|
|
|
$
|
295,284
|
|
Intersegment interest expense
|
|
|
1,226
|
|
|
(1,226
|
)
|
|
|
|
|
|
|
Other interest expense
|
|
|
(27,720
|
)
|
|
|
|
|
(4,923
|
)
|
|
(32,643
|
)
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
250,240
|
|
|
17,324
|
|
|
(4,923
|
)
|
|
262,641
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
(26,520
|
)
|
|
(50
|
)
|
|
|
|
|
(26,570
|
)
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
30,609
|
|
|
660
|
|
|
157
|
|
|
31,426
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization
|
|
|
(8,264
|
)
|
|
(164
|
)
|
|
|
|
|
(8,428
|
)
|
Other noninterest expense
|
|
|
(152,464
|
)
|
|
(10,846
|
)
|
|
(8,255
|
)
|
|
(171,565
|
)
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
(160,728
|
)
|
|
(11,010
|
)
|
|
(8,255
|
)
|
|
(179,993
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
93,601
|
|
|
6,924
|
|
|
(13,021
|
)
|
|
87,504
|
|
Income taxes
|
|
|
(39,554
|
)
|
|
(2,917
|
)
|
|
5,671
|
|
|
(36,800
|
)
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
54,047
|
|
$
|
4,007
|
|
$
|
(7,350
|
)
|
$
|
50,704
|
|
|
|
|
|
|
|
|
|
|
|
184
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 20BUSINESS SEGMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Ended December 31, 2010
|
|
|
|
Banking
|
|
Asset
Financing
|
|
Other
|
|
Consolidated
Company
|
|
|
|
(In thousands)
|
|
Interest income
|
|
$
|
272,411
|
|
$
|
17,873
|
|
$
|
|
|
$
|
290,284
|
|
Intersegment interest expense
|
|
|
1,284
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
Other interest expense
|
|
|
(35,363
|
)
|
|
|
|
|
(5,594
|
)
|
|
(40,957
|
)
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
238,332
|
|
|
16,589
|
|
|
(5,594
|
)
|
|
249,327
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses
|
|
|
(211,922
|
)
|
|
(570
|
)
|
|
|
|
|
(212,492
|
)
|
|
|
|
|
|
|
|
|
|
|
Noninterest income
|
|
|
42,522
|
|
|
542
|
|
|
174
|
|
|
43,238
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization
|
|
|
(9,264
|
)
|
|
(378
|
)
|
|
|
|
|
(9,642
|
)
|
Debt termination expense
|
|
|
(2,660
|
)
|
|
|
|
|
|
|
|
(2,660
|
)
|
Other noninterest expense
|
|
|
(155,997
|
)
|
|
(10,839
|
)
|
|
(9,665
|
)
|
|
(176,501
|
)
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
(167,921
|
)
|
|
(11,217
|
)
|
|
(9,665
|
)
|
|
(188,803
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
(98,989
|
)
|
|
5,344
|
|
|
(15,085
|
)
|
|
(108,730
|
)
|
Income taxes
|
|
|
42,621
|
|
|
(2,263
|
)
|
|
6,356
|
|
|
46,714
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(56,368
|
)
|
$
|
3,081
|
|
$
|
(8,729
|
)
|
$
|
(62,016
|
)
|
|
|
|
|
|
|
|
|
|
|
185
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 21CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY
The parent company only condensed balance sheets as of December 31, 2012 and 2011 and the related condensed statements of net earnings (loss) and condensed statements of cash
flows for each of the years in the three-year period ended December 31, 2012 are presented below:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Parent Company Only
Condensed Balance Sheets
|
|
2012
|
|
2011
|
|
|
|
(In thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
28,472
|
|
$
|
35,900
|
|
Investments in subsidiaries
|
|
|
649,656
|
|
|
625,494
|
|
Other assets
|
|
|
20,174
|
|
|
22,455
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
698,302
|
|
$
|
683,849
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Subordinated debentures
|
|
$
|
108,250
|
|
$
|
129,271
|
|
Other liabilities
|
|
|
931
|
|
|
8,375
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
109,181
|
|
|
137,646
|
|
Stockholders' equity
|
|
|
589,121
|
|
|
546,203
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
698,302
|
|
$
|
683,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Parent Company Only
Condensed Statements of Earnings (Loss)
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Miscellaneous income
|
|
$
|
114
|
|
$
|
157
|
|
$
|
174
|
|
Dividends from Bank subsidiary
|
|
|
50,000
|
|
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
50,114
|
|
|
25,657
|
|
|
174
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
3,721
|
|
|
4,923
|
|
|
5,594
|
|
Operating expenses
|
|
|
3,979
|
|
|
8,255
|
|
|
9,665
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
7,700
|
|
|
13,178
|
|
|
15,259
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and equity in undistributed earnings of subsidiaries
|
|
|
42,414
|
|
|
12,479
|
|
|
(15,085
|
)
|
Income tax benefit
|
|
|
3,174
|
|
|
5,671
|
|
|
6,356
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before equity in undistributed earnings (losses) of subsidiaries
|
|
|
45,588
|
|
|
18,150
|
|
|
(8,729
|
)
|
Equity in undistributed earnings (losses) of subsidiaries
|
|
|
11,213
|
|
|
32,554
|
|
|
(53,287
|
)
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
56,801
|
|
$
|
50,704
|
|
$
|
(62,016
|
)
|
|
|
|
|
|
|
|
|
186
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 21CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Parent Company Only
Condensed Statements of Cash Flows
|
|
2012
|
|
2011
|
|
2010
|
|
|
|
(In thousands)
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
56,801
|
|
$
|
50,704
|
|
$
|
(62,016
|
)
|
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
Change in other assets
|
|
|
711
|
|
|
(4,533
|
)
|
|
(6,002
|
)
|
Change in liabilities
|
|
|
(4,122
|
)
|
|
6,262
|
|
|
(2,650
|
)
|
Tax effect in stockholders' equity of restricted stock vesting
|
|
|
(102
|
)
|
|
501
|
|
|
909
|
|
Earned stock compensation
|
|
|
715
|
|
|
3,551
|
|
|
4,174
|
|
Equity in undistributed (earnings) losses of subsidiaries
|
|
|
(11,213
|
)
|
|
(32,554
|
)
|
|
53,287
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
42,790
|
|
|
23,931
|
|
|
(12,298
|
)
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Purchases of securities available-for-sale
|
|
|
(1,500
|
)
|
|
(2,580
|
)
|
|
|
|
Net increase in investment in subsidiaries
|
|
|
|
|
|
|
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,500
|
)
|
|
(2,580
|
)
|
|
(30,000
|
)
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Redemption of subordinated debentures
|
|
|
(18,558
|
)
|
|
|
|
|
|
|
Net proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
26,587
|
|
Tax effect in stockholders' equity of restricted stock vesting
|
|
|
102
|
|
|
(501
|
)
|
|
(909
|
)
|
Restricted stock surrendered
|
|
|
(1,475
|
)
|
|
(1,465
|
)
|
|
(1,831
|
)
|
Cash dividends paid
|
|
|
(28,787
|
)
|
|
(7,626
|
)
|
|
(1,445
|
)
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(48,718
|
)
|
|
(9,592
|
)
|
|
22,402
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(7,428
|
)
|
|
11,759
|
|
|
(19,896
|
)
|
Cash and cash equivalents, beginning of year
|
|
|
35,900
|
|
|
24,141
|
|
|
44,037
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
28,472
|
|
$
|
35,900
|
|
$
|
24,141
|
|
|
|
|
|
|
|
|
|
187
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 22SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following table sets forth our unaudited, quarterly results for the periods indicated. For all periods including and prior to the second quarter of 2011, we reclassified recoveries
on covered loans such that recoveries reduce the credit loss provision for covered loans rather than increase FDIC loss sharing income. Such reclassifications had no effect on reported net earnings or
losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
2012
|
|
September 30,
2012
|
|
June 30,
2012
|
|
March 31,
2012
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Interest income
|
|
$
|
73,702
|
|
$
|
75,123
|
|
$
|
72,890
|
|
$
|
74,400
|
|
Interest expense
|
|
|
(4,099
|
)
|
|
(4,352
|
)
|
|
(4,477
|
)
|
|
(6,720
|
)
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
69,603
|
|
|
70,771
|
|
|
68,413
|
|
|
67,680
|
|
|
|
|
|
|
|
|
|
|
|
Negative provision (provision) for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-covered loans
|
|
|
|
|
|
2,000
|
|
|
|
|
|
10,000
|
|
Covered loans
|
|
|
4,333
|
|
|
141
|
|
|
271
|
|
|
(3,926
|
)
|
|
|
|
|
|
|
|
|
|
|
Total negative provision for
credit losses
|
|
|
4,333
|
|
|
2,141
|
|
|
271
|
|
|
6,074
|
|
|
|
|
|
|
|
|
|
|
|
FDIC loss sharing income (expense), net
|
|
|
(6,022
|
)
|
|
(367
|
)
|
|
(102
|
)
|
|
(3,579
|
)
|
Gain on sale of securities
|
|
|
1,239
|
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment loss on covered security
|
|
|
|
|
|
|
|
|
(1,115
|
)
|
|
|
|
Other noninterest income
|
|
|
6,840
|
|
|
6,049
|
|
|
6,088
|
|
|
6,841
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
2,057
|
|
|
5,682
|
|
|
4,871
|
|
|
3,262
|
|
|
|
|
|
|
|
|
|
|
|
Non-covered OREO expense, net
|
|
|
(316
|
)
|
|
(1,883
|
)
|
|
(130
|
)
|
|
(1,821
|
)
|
Covered OREO expense, net
|
|
|
461
|
|
|
(4,290
|
)
|
|
(2,130
|
)
|
|
(822
|
)
|
Acquisition and integration costs
|
|
|
(1,092
|
)
|
|
(2,101
|
)
|
|
(871
|
)
|
|
(25
|
)
|
Debt termination expense
|
|
|
|
|
|
|
|
|
|
|
|
(22,598
|
)
|
Other noninterest expense
|
|
|
(42,578
|
)
|
|
(43,383
|
)
|
|
(44,454
|
)
|
|
(43,629
|
)
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
(43,525
|
)
|
|
(51,657
|
)
|
|
(47,585
|
)
|
|
(68,895
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
32,468
|
|
|
26,937
|
|
|
25,970
|
|
|
8,121
|
|
Income tax expense
|
|
|
(12,576
|
)
|
|
(10,849
|
)
|
|
(10,413
|
)
|
|
(2,857
|
)
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
19,892
|
|
$
|
16,088
|
|
$
|
15,557
|
|
$
|
5,264
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.54
|
|
$
|
0.43
|
|
$
|
0.42
|
|
$
|
0.14
|
|
Diluted
|
|
$
|
0.54
|
|
$
|
0.43
|
|
$
|
0.42
|
|
$
|
0.14
|
|
188
Table of Contents
PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 22SELECTED QUARTERLY FINANCIAL DATA (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
December 31,
2011
|
|
September 30,
2011
|
|
June 30,
2011
|
|
March 31,
2011
|
|
|
|
(Dollars in thousands, except per share data)
|
|
Interest income
|
|
$
|
70,913
|
|
$
|
72,518
|
|
$
|
77,196
|
|
$
|
74,657
|
|
Interest expense
|
|
|
(7,140
|
)
|
|
(8,077
|
)
|
|
(8,507
|
)
|
|
(8,919
|
)
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
63,773
|
|
|
64,441
|
|
|
68,689
|
|
|
65,738
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-covered loans
|
|
|
|
|
|
|
|
|
(5,500
|
)
|
|
(7,800
|
)
|
Covered loans
|
|
|
(4,122
|
)
|
|
(348
|
)
|
|
(5,890
|
)
|
|
(2,910
|
)
|
|
|
|
|
|
|
|
|
|
|
Total provision for credit losses
|
|
|
(4,122
|
)
|
|
(348
|
)
|
|
(11,390
|
)
|
|
(10,710
|
)
|
|
|
|
|
|
|
|
|
|
|
FDIC loss sharing income (expense), net
|
|
|
2,667
|
|
|
963
|
|
|
5,316
|
|
|
(1,170
|
)
|
Other noninterest income
|
|
|
5,587
|
|
|
6,180
|
|
|
5,924
|
|
|
5,959
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest income
|
|
|
8,254
|
|
|
7,143
|
|
|
11,240
|
|
|
4,789
|
|
|
|
|
|
|
|
|
|
|
|
Non-covered OREO expense, net
|
|
|
(1,714
|
)
|
|
(2,293
|
)
|
|
(2,300
|
)
|
|
(703
|
)
|
Covered OREO expense, net
|
|
|
(226
|
)
|
|
(4,813
|
)
|
|
(1,205
|
)
|
|
2,578
|
|
Acquisition and integration costs
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
Other noninterest expense
|
|
|
(40,929
|
)
|
|
(41,481
|
)
|
|
(43,033
|
)
|
|
(43,274
|
)
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
(43,469
|
)
|
|
(48,587
|
)
|
|
(46,538
|
)
|
|
(41,399
|
)
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
24,436
|
|
|
22,649
|
|
|
22,001
|
|
|
18,418
|
|
Income tax expense
|
|
|
(10,553
|
)
|
|
(9,345
|
)
|
|
(9,160
|
)
|
|
(7,742
|
)
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
13,883
|
|
$
|
13,304
|
|
$
|
12,841
|
|
$
|
10,676
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.38
|
|
$
|
0.36
|
|
$
|
0.35
|
|
$
|
0.29
|
|
Diluted
|
|
$
|
0.38
|
|
$
|
0.36
|
|
$
|
0.35
|
|
$
|
0.29
|
|
NOTE 23RELATED PARTY TRANSACTIONS
Castle Creek Financial, LLC, or Castle Creek Financial, serves as the exclusive financial advisor for the Company pursuant to a services agreement dated May 18, 2011,
between Castle Creek Financial and the Company. Castle Creek Financial is an affiliate of Castle Creek Capital, LLC, which is controlled by the Company's chairman. During 2012, the Bank paid an
advisory fee of $448,000 to Castle Creek Financial in connection with the APB acquisition which was completed on August 1, 2012. During 2011 and 2010, there were no amounts paid by the Company
to Castle Creek Financial.
CapGen
Capital Group II LP, or CapGen, is a significant stockholder of the Company and our top tier holding Company. One of the Company's directors is a principal with
CapGen and, pursuant to an agreement, 80% of his board service fees are remitted to CapGen Financial, LLC. In addition, in lieu of the stock awards with a value of $30,000 on the date of grant
in 2012 and 2011 for non-employee directors, 80% of such value was remitted in cash to CapGen Financial, LLC. The Company paid CapGen Financial, LLC $72,000, $72,000, and
$48,000 related to board service fees during 2012, 2011, and 2010, respectively.
189
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PACWEST BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE 23RELATED PARTY TRANSACTIONS (Continued)
As
of December 31, 2012 and 2011, there were no loans outstanding to any members of our board of directors or executive management. Such parties' deposits as of those dates
totaled $4.2 million and $4.6 million, respectively, and bear market rates and terms.
NOTE 24SUBSEQUENT EVENTS (Unaudited)
We have evaluated events that have occurred subsequent to December 31, 2012 and have concluded there are no subsequent events that would require recognition in the accompanying
consolidated financial statements.
190
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