PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
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Three Months Ended March 31, 2018
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Common Stock
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Accumulated
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Additional
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Other
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Par
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Paid-in
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Retained
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Treasury
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Comprehensive
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Shares
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Value
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Capital
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Earnings
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Stock
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Income
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Total
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(Unaudited)
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(Dollars in thousands)
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Balance, December 31, 2017
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128,782,878
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$
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1,305
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$
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4,287,487
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$
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723,471
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$
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(65,836
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)
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$
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31,171
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$
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4,977,598
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Cumulative effects of changes in
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accounting principles (1)
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—
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—
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—
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(6,136
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)
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—
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6,136
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—
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Net earnings
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—
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—
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—
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118,276
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—
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—
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118,276
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Other comprehensive income - net
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unrealized gain on securities
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available-for-sale, net of tax
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—
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—
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—
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—
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—
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(49,243
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)
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(49,243
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)
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Restricted stock awarded and
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earned stock compensation,
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net of shares forfeited
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96,034
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1
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7,198
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—
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—
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—
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7,199
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Restricted stock surrendered
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(55,186
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)
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—
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—
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—
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(2,858
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)
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—
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(2,858
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)
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Common stock repurchased under
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Stock Repurchase Program
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(2,285,855
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)
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(23
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)
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(119,770
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)
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—
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—
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—
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(119,793
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)
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Cash dividends paid
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—
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—
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(63,689
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)
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—
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—
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—
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(63,689
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)
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Balance, March 31, 2018
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126,537,871
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$
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1,283
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$
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4,111,226
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$
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835,611
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$
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(68,694
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)
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$
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(11,936
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)
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$
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4,867,490
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|
________________________
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(1)
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Impact due to adoption on January 1, 2018 of ASU 2016-01, "
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
" and ASU 2018-02, "
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended
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March 31,
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2018
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2017
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(Unaudited)
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(In thousands)
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Cash flows from operating activities:
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Net earnings
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$
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118,276
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$
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78,668
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Adjustments to reconcile net earnings to net cash provided by operating activities:
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Depreciation and amortization
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8,751
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8,496
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Amortization of net premiums on securities available-for-sale
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8,432
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10,601
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Amortization of intangible assets
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6,346
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3,064
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Provision for credit losses
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4,000
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24,728
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Provision for losses on foreclosed assets
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65
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—
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Gain on sale of loans and leases
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(4,569
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)
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(712
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)
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Loss (gain) on sale of premises and equipment
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7
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(560
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)
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(Gain) loss on sale of securities
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(6,311
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)
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|
99
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Gain on BOLI death benefit
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—
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(471
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)
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Unrealized (gain) loss on derivatives and foreign currencies, net
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(605
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)
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202
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Earned stock compensation
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7,199
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6,470
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Decrease in deferred income taxes, net
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7,153
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1,091
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Decrease in other assets
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38,208
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661
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(Decrease) increase in accrued interest payable and other liabilities
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(50,969
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)
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10,852
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Net cash provided by operating activities
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135,983
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143,189
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Cash flows from investing activities:
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Net decrease (increase) in loans and leases
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382,590
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(157,244
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)
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Proceeds from sales of loans and leases
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615,376
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37,173
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Proceeds from maturities and paydowns of securities available-for-sale
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75,125
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92,612
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Proceeds from sales of securities available-for-sale
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306,253
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42,996
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Purchases of securities available-for-sale
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(487,105
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)
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(248,187
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)
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Net redemptions of Federal Home Loan Bank stock
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3,540
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3,969
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Proceeds from sales of foreclosed assets
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28
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212
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Purchases of premises and equipment, net
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(3,997
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)
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(1,944
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)
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Proceeds from sales of premises and equipment
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—
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10,290
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Proceeds from BOLI death benefit
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—
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1,192
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Net (increase) decrease in equipment leased to others under operating leases
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(1,241
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)
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114
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Net cash provided by (used in) investing activities
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890,569
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(218,817
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)
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Cash flows from financing activities:
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Net (decrease) increase in noninterest-bearing deposits
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(275,579
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)
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131,170
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Net (decrease) increase in interest-bearing deposits
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(510,844
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)
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|
329,605
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Net increase (decrease) in borrowings
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107,942
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(445,203
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)
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Net decrease in subordinated debentures
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(12,372
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)
|
|
—
|
|
Common stock repurchased and restricted stock surrendered
|
(122,651
|
)
|
|
(2,281
|
)
|
Cash dividends paid
|
(63,689
|
)
|
|
(60,833
|
)
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Net cash (used in) financing activities
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(877,193
|
)
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|
(47,542
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)
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|
|
|
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Net increase (decrease) in cash, cash equivalents, and restricted cash
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149,359
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|
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(123,170
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)
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Cash, cash equivalents, and restricted cash, beginning of period
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398,437
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|
|
419,670
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Cash, cash equivalents, and restricted cash, end of period
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$
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547,796
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$
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296,500
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See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Three Months Ended
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March 31,
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2018
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2017
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(Unaudited)
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(In thousands)
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Supplemental disclosures of cash flow information:
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|
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Cash paid for interest
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$
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17,515
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|
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$
|
14,352
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Cash paid for income taxes
|
3,790
|
|
|
2,834
|
|
Loans transferred to foreclosed assets
|
—
|
|
|
78
|
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1. ORGANIZATION
PacWest Bancorp, a Delaware corporation, is a bank holding company registered under the BHCA, with our corporate headquarters located in Beverly Hills, California. Our principal business is to serve as the holding company for our wholly-owned subsidiary, Pacific Western Bank. References to "Pacific Western" or the "Bank" refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to "we," "us," or the "Company" refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to "PacWest" or to the "holding company," we are referring to PacWest Bancorp, the parent company, on a stand-alone basis.
We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. At
March 31, 2018
, the Bank offers a broad range of loan and lease and deposit products and services through
75
full-service branches located throughout the State of California,
one
branch located in Durham, North Carolina, and several loan production offices located in cities across the country. We provide commercial banking services, including real estate, construction, and commercial loans, and comprehensive deposit and treasury management services to small and middle-market businesses. We offer additional products and services through our CapitalSource and Square 1 Bank Divisions. Our CapitalSource Division provides asset-based, equipment, real estate, security cash flow loans and treasury management services to established middle-market businesses on a national basis. Our Square 1 Bank Division offers a comprehensive suite of financial services focused on entrepreneurial businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Square 1 Asset Management, Inc., a wholly-owned subsidiary of the Bank and a SEC-registered investment adviser.
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 compensation, occupancy, general operating expenses, and the interest paid by the Bank on deposits and borrowings.
We have completed
29
acquisitions from May 1, 2000 through
March 31, 2018
. Our acquisitions have been accounted for using the acquisition method of accounting and, accordingly, the operating results of the acquired entities have been included in the consolidated financial statements from their respective acquisition dates. See Note 3.
Acquisitions,
for more information about the CUB acquisition.
Significant Accounting Policies
Our accounting policies are described in Note 1.
Nature of Operations and Summary of Significant Accounting Policies
, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended
December 31, 2017
as filed with the Securities and Exchange Commission ("Form 10-K"). Updates to our significant accounting policies described below reflect the impact of the adoption of ASU 2016-01, "
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
" and ASU 2018-03, “
Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”
Investment Securities
Our significant accounting policy for investment securities applied to both debt and equity securities in prior periods. Effective January 1, 2018, upon the adoption of ASUs 2016-01 and 2018-03, our significant accounting policy for investment securities applies only to debt securities.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Equity Investments
Investments in common or preferred stock that are not publicly traded and certain investments in limited partnerships are considered equity investments that do not have a readily determinable fair value. If we have the ability to significantly influence the operating and financial policies of the investee, the investment is accounted for pursuant to the equity method of accounting. This is generally presumed to exist when we own between 20% and 50% of a corporation, or when we own greater than 5% of a limited partnership or similarly structured entity. Our equity investment carrying values are included in other assets and our share of earnings and losses in equity method investees is included in "Noninterest income - other" on the condensed consolidated statements of earnings. Prior to January 1, 2018, if we did not have significant influence over the investee, the cost method was used to account
for the equity interest.
Effective January 1, 2018 with the adoption of ASU 2016-01, our accounting treatment for equity investments differs for those with and without readily determinable fair values. Equity investments with readily determinable fair values are recorded at fair value with changes in fair value recorded in “Noninterest income - other.” For equity investments without readily determinable fair values we have elected the “measurement alternative,” and therefore carry these investments at cost, less impairment (if any), plus or minus changes in observable prices. On a quarterly basis, we review our equity investments without readily determinable fair values for impairment. We consider a number of qualitative factors such as whether there is a significant deterioration in earnings performance, credit rating, asset quality, or business prospects of the investee in determining if impairment exists. If the investment is considered impaired, an impairment loss equal to the amount by which the carrying value exceeds its fair value is recorded through a charge to earnings. The impairment loss may be reversed in a subsequent period if there are observable transactions for the identical or similar investment of the same issuer at a higher amount than the carrying amount that was established when the impairment was recognized.
Realized gains or losses resulting from the sale of equity investments are calculated using the specific identification method and are included in "Noninterest income - other."
Comprehensive Income
Comprehensive income consists of net earnings and net unrealized gains (losses) on debt securities available‑for‑sale, net, and is presented in the consolidated statements of comprehensive income.
Accounting Standards Adopted in 2018
Effective January 1, 2018, the Company adopted ASU 2014-09, "
Revenue Recognition (Topic 606): Revenue from Contracts with Customers
." ASU 2014-09 supersedes Topic 605, "
Revenue Recognition
" and requires an entity to recognize revenue at an amount that reflects the consideration to which it expects to be entitled to in exchange for the transfer of promised goods or services to customers.
Substantially all of the Company's revenue is interest income on loans, investment securities, and deposits at other financial institutions which are specifically outside the scope of ASU 2014-09. ASU 2014-09 applies primarily to certain noninterest income items in the Company's condensed consolidated statement of earnings. The Company adopted ASU 2014-09 as of January 1, 2018 using the cumulative effect transition method, which resulted in no adjustment to retained earnings and no material impact on the Company's consolidated financial position, results of operations, or cash flows. The Company did make minor changes to accounting operations and internal controls as part of adopting this new standard. See Note 13.
Revenue From Contracts With Customers
for further details.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Effective January 1, 2018, the Company adopted ASU 2016-01, "
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
" and ASU 2018-03, “
Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”
ASU 2016-01 contained a number of changes which are applicable to the Company including the following: (1) requires equity investments to be measured at fair value with changes in fair value recognized in net income; (2) allows equity investments without readily determinable fair values to be measured at cost less impairment, if any, plus or minus changes in observable prices (referred to as the "measurement alternative"); and (3) changes certain presentation and disclosure requirements for financial instruments, including using the exit price notion when measuring the fair value of financial instruments (see Note 11.
Fair Value Measurements)
. ASU 2018-03 also clarified certain aspects of the guidance issued in ASU 2016-01, including requiring a prospective transition approach for equity investments without readily determinable fair value in which the measurement alternative is applied.
ASU 2016-01 does not apply to investments accounted for using the equity method, investments in consolidated subsidiaries, FHLB stock, and investments in low income housing tax credit projects. Upon adoption of ASU 2016-01, the Company recorded a transition adjustment to reclassify
$529,000
in net unrealized gains from accumulated other comprehensive income ("AOCI") to retained earnings. The ASU also eliminated the requirement to classify equity investments into different categories such as “Available-for-Sale.” The adoption of this ASU may result in more earnings volatility as changes in fair value of certain equity investments will now be recorded in the statement of earnings as opposed to AOCI.
Effective January 1, 2018, the Company adopted ASU 2016-15, "
Classification of Certain Cash Receipts and Cash Payments."
Upon adoption
,
the Company applied the retrospective transition method to each period presented. ASU 2016-15 addressed eight issues related to the statement of cash flows, the most relevant to the Company being the classification of proceeds from the settlement of BOLI policies. As the Company classified proceeds from the settlement of BOLI policies in the manner required by ASU 2016-15 in the prior periods presented, there was no change to the Company's consolidated financial position, results of operations, or cash flows for both current and prior periods upon adoption.
Effective January 1, 2018, the Company adopted ASU 2016-18, "
Statement of Cash Flows (Topic 230): Restricted Cash
." Upon adoption, the Company applied the retrospective transition method to each period presented. As the Company does not present restricted cash as a separate line in the statement of financial position, there is no change to the presentation of cash on the statement of cash flows. The nature and amount of our restricted cash is shown in Note 2.
Restricted Cash Balances
.
Effective January 1, 2018, the Company adopted ASU 2017-01, "
Business Combinations (Topic 805): Clarifying the Definition of a Business."
ASU 2017-01 provides a new framework for determining whether transactions should be accounted for as acquisitions of assets or businesses.
The Company had no acquisitions or purchases of components of a business in the first quarter of 2018, thus, the impact of adopting the new standard had no impact on the Company's consolidated financial position, results of operations, or cash flows.
Effective January 1, 2018, the Company adopted ASU 2017-09, "
Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting."
ASU 2017-09 provided clarification of what constitutes a modification of a share-based payment award. The Company did not modify any share-based payment awards in the first quarter of 2018, thus, the impact of adopting the new standard had no impact on the Company's consolidated financial position, results of operations, or cash flows.
Effective January 1, 2018, the Company early-adopted ASU 2018-02, "
Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."
The TCJA required deferred tax assets and liabilities to be re-measured at its enactment date for the effect of the change in the federal corporate tax rate. This process resulted in "stranded tax effects" in AOCI for deferred tax asset or liabilities which were established with an offsetting amount in AOCI. ASU 2018-02 allows for a reclassification of the stranded tax effects resulting from the enactment of the TCJA from AOCI to retained earnings. The Company elected to reclassify its stranded tax effects of
$6.665 million
from AOCI to retained earnings effective January 1, 2018, while no other income tax effects related to the application of the TCJA were reclassified.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Basis of Presentation
Our interim condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K.
Use of Estimates
We have made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these condensed 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 allowance for credit losses, the carrying value of intangible assets, the realization of deferred tax assets, and the fair value estimates of assets acquired and liabilities assumed in acquisitions. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s presentation format. In our loan and allowance tables, we realigned our commercial loan portfolio classes and subclasses to better reflect and report our lending, especially in light of the fourth quarter of 2017 cash flow loan sale and the exiting of the origination operations related to general, technology, and healthcare cash flow loans. Prior to the realignment, our commercial portfolio classes were: (1) asset-based, (2) venture capital, (3) cash flow, and (4) equipment finance. After the realignment, our commercial portfolio classes are (1) asset-based (which includes equipment finance), (2) venture capital, and (3) other commercial (which includes retained cash flow). All of the loan and allowance tables, both current period and prior periods, reflect this realignment.
In prior periods, our credit quality disclosures were only for Non-PCI loans and leases. As our gross PCI loan portfolio reduced to less than 0.4% of total loans as of the end of 2017, beginning in 2018 the credit quality disclosures reflect our entire loan and lease portfolio. Accordingly, for the credit quality tables in Note 6.
Loans and Leases,
amounts related to the 2018 period are for total loans and leases, while amounts related to the 2017 period are for Non-PCI loans and leases only.
NOTE 2. RESTRICTED 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 three months ended
March 31, 2018
and year ended December 31,
2017
were
$80.7 million
and
$77.6 million
. As of
March 31, 2018
and December 31,
2017
, we pledged cash collateral for our derivative contracts of
$3.7 million
and
$2.7 million
.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 3. ACQUISITIONS
CUB Acquisition
On
October 20, 2017
, we completed the acquisition of CUB. As part of the acquisition, CU Bank, a wholly-owned subsidiary of CUB, was merged with and into PacWest's wholly-owned banking subsidiary, Pacific Western Bank.
We completed the acquisition to, among other things, enhance our Southern California community bank franchise by adding a
$2.1 billion
loan portfolio and
$2.7 billion
of core deposits.
The CUB acquisition has been accounted for under the acquisition method of accounting. We acquired
$3.5 billion
of assets and assumed
$2.8 billion
of liabilities upon closing of the acquisition. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date.
We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and liabilities. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. The application of the acquisition method of accounting resulted in goodwill of
$374.7 million
. All of the recognized goodwill is
non-deductible fo
r tax purposes.
NOTE 4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds its implied fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the condensed consolidated statements of earnings.
Our other intangible assets with definite lives include CDI and CRI. CDI and CRI are amortized over their respective estimated useful lives and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or loan and lease customers acquired. The aggregate amortization expense is expected to be
$22.5 million
for
2018
. The estimated aggregate amortization expense related to these intangible assets for each of the next five years is
$18.7 million
for
2019
,
$14.6 million
for
2020
,
$10.8 million
for
2021
,
$7.5 million
for
2022
, and
$1.4 million
for
2023
.
The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
2018
|
|
2017
|
|
2017
|
|
(In thousands)
|
Gross Amount of CDI and CRI:
|
|
|
|
|
|
Balance, beginning of period
|
$
|
119,497
|
|
|
$
|
61,997
|
|
|
$
|
64,187
|
|
Addition from CUB acquisition
|
—
|
|
|
57,500
|
|
|
—
|
|
Balance, end of period
|
119,497
|
|
|
119,497
|
|
|
64,187
|
|
Accumulated Amortization:
|
|
|
|
|
|
Balance, beginning of period
|
(39,871
|
)
|
|
(34,809
|
)
|
|
(27,821
|
)
|
Amortization
|
(6,346
|
)
|
|
(5,062
|
)
|
|
(3,064
|
)
|
Balance, end of period
|
(46,217
|
)
|
|
(39,871
|
)
|
|
(30,885
|
)
|
Net CDI and CRI, end of period
|
$
|
73,280
|
|
|
$
|
79,626
|
|
|
$
|
33,302
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 5. INVESTMENT SECURITIES
Securities Available-for-Sale
The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
Security Type
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Value
|
|
(In thousands)
|
Residential MBS and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency MBS
|
$
|
251,585
|
|
|
$
|
2,748
|
|
|
$
|
(2,557
|
)
|
|
$
|
251,776
|
|
|
$
|
243,375
|
|
|
$
|
3,743
|
|
|
$
|
(844
|
)
|
|
$
|
246,274
|
|
Agency CMOs
|
551,021
|
|
|
840
|
|
|
(5,916
|
)
|
|
545,945
|
|
|
277,638
|
|
|
968
|
|
|
(2,897
|
)
|
|
275,709
|
|
Private label CMOs
|
114,386
|
|
|
3,071
|
|
|
(1,212
|
)
|
|
116,245
|
|
|
122,816
|
|
|
3,813
|
|
|
(642
|
)
|
|
125,987
|
|
Municipal securities
|
1,392,261
|
|
|
19,389
|
|
|
(8,064
|
)
|
|
1,403,586
|
|
|
1,627,707
|
|
|
53,700
|
|
|
(1,339
|
)
|
|
1,680,068
|
|
Agency commercial MBS
|
1,114,430
|
|
|
121
|
|
|
(25,057
|
)
|
|
1,089,494
|
|
|
1,169,969
|
|
|
2,758
|
|
|
(8,758
|
)
|
|
1,163,969
|
|
U.S. Treasury securities
|
148,217
|
|
|
365
|
|
|
—
|
|
|
148,582
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
SBA securities
|
148,787
|
|
|
706
|
|
|
(1,229
|
)
|
|
148,264
|
|
|
160,214
|
|
|
695
|
|
|
(575
|
)
|
|
160,334
|
|
Asset-backed securities
|
81,022
|
|
|
11
|
|
|
(1,299
|
)
|
|
79,734
|
|
|
89,425
|
|
|
159
|
|
|
(874
|
)
|
|
88,710
|
|
Corporate debt securities
|
17,000
|
|
|
1,360
|
|
|
—
|
|
|
18,360
|
|
|
17,000
|
|
|
2,295
|
|
|
—
|
|
|
19,295
|
|
Collateralized loan obligations
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,960
|
|
|
55
|
|
|
—
|
|
|
7,015
|
|
Equity investments
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,421
|
|
|
779
|
|
|
(130
|
)
|
|
7,070
|
|
Total
|
$
|
3,818,709
|
|
|
$
|
28,611
|
|
|
$
|
(45,334
|
)
|
|
$
|
3,801,986
|
|
|
$
|
3,721,525
|
|
|
$
|
68,965
|
|
|
$
|
(16,059
|
)
|
|
$
|
3,774,431
|
|
In connection with our adoption of ASU 2016-01 and ASU 2018-03 on January 1, 2018, we reclassified
$7.1 million
of equity investments from securities available-for-sale to other assets in the first quarter of 2018. The reclassification was applied prospectively without prior period amounts being restated.
As of
March 31, 2018
, securities available-for-sale with a fair value of
$433.3 million
were pledged as collateral for borrowings, public deposits and other purposes as required by various statutes and agreements.
During the three months ended
March 31, 2018
, we sold
$299.9 million
of securities available-for-sale for a gross realized gain of
$6.8 million
and a gross realized loss of
$515,000
. During the three months ended
March 31, 2017
, we sold
$43.1 million
of securities available-for-sale for a gross realized gain of
$204,000
and a gross realized loss of
$303,000
.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Unrealized Losses on Securities Available-for-Sale
The following tables present the gross unrealized losses and fair values of securities available-for-sale that were in unrealized loss positions, for which other-than-temporary impairments have not been recognized in earnings, as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
Security Type
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
(In thousands)
|
Residential MBS and CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
Agency MBS
|
$
|
104,277
|
|
|
$
|
(1,649
|
)
|
|
$
|
24,518
|
|
|
$
|
(908
|
)
|
|
$
|
128,795
|
|
|
$
|
(2,557
|
)
|
Agency CMOs
|
251,805
|
|
|
(5,359
|
)
|
|
18,377
|
|
|
(557
|
)
|
|
270,182
|
|
|
(5,916
|
)
|
Private label CMOs
|
92,396
|
|
|
(1,105
|
)
|
|
4,446
|
|
|
(107
|
)
|
|
96,842
|
|
|
(1,212
|
)
|
Municipal securities
|
364,270
|
|
|
(6,320
|
)
|
|
30,973
|
|
|
(1,744
|
)
|
|
395,243
|
|
|
(8,064
|
)
|
Agency commercial MBS
|
1,006,897
|
|
|
(21,302
|
)
|
|
67,387
|
|
|
(3,755
|
)
|
|
1,074,284
|
|
|
(25,057
|
)
|
SBA securities
|
87,303
|
|
|
(1,229
|
)
|
|
—
|
|
|
—
|
|
|
87,303
|
|
|
(1,229
|
)
|
Asset-backed securities
|
64,382
|
|
|
(1,199
|
)
|
|
7,630
|
|
|
(100
|
)
|
|
72,012
|
|
|
(1,299
|
)
|
Total
|
$
|
1,971,330
|
|
|
$
|
(38,163
|
)
|
|
$
|
153,331
|
|
|
$
|
(7,171
|
)
|
|
$
|
2,124,661
|
|
|
$
|
(45,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
Gross
|
|
|
|
Gross
|
|
|
|
Gross
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
Security Type
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
(In thousands)
|
Residential MBS and CMOs:
|
|
|
|
|
|
|
|
|
|
|
Agency MBS
|
$
|
44,795
|
|
|
$
|
(311
|
)
|
|
$
|
26,010
|
|
|
$
|
(533
|
)
|
|
$
|
70,805
|
|
|
$
|
(844
|
)
|
Agency CMOs
|
163,014
|
|
|
(2,452
|
)
|
|
20,928
|
|
|
(445
|
)
|
|
183,942
|
|
|
(2,897
|
)
|
Private label CMOs
|
50,521
|
|
|
(500
|
)
|
|
5,035
|
|
|
(142
|
)
|
|
55,556
|
|
|
(642
|
)
|
Municipal securities
|
67,936
|
|
|
(365
|
)
|
|
32,326
|
|
|
(974
|
)
|
|
100,262
|
|
|
(1,339
|
)
|
Agency commercial MBS
|
579,373
|
|
|
(3,777
|
)
|
|
129,060
|
|
|
(4,981
|
)
|
|
708,433
|
|
|
(8,758
|
)
|
SBA securities
|
74,904
|
|
|
(575
|
)
|
|
—
|
|
|
—
|
|
|
74,904
|
|
|
(575
|
)
|
Asset-backed securities
|
45,198
|
|
|
(818
|
)
|
|
10,473
|
|
|
(56
|
)
|
|
55,671
|
|
|
(874
|
)
|
Equity investments
|
1,039
|
|
|
(130
|
)
|
|
—
|
|
|
—
|
|
|
1,039
|
|
|
(130
|
)
|
Total
|
$
|
1,026,780
|
|
|
$
|
(8,928
|
)
|
|
$
|
223,832
|
|
|
$
|
(7,131
|
)
|
|
$
|
1,250,612
|
|
|
$
|
(16,059
|
)
|
We reviewed the securities that were in an unrealized loss position at
March 31, 2018
, and concluded their unrealized losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. Accordingly, we determined the securities were temporarily impaired and we did not recognize such impairment in the condensed consolidated statements of earnings. Although we periodically sell securities for portfolio management purposes, we do not foresee having to sell any temporarily impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any temporarily impaired securities before recovery of their amortized cost.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Contractual Maturities of Securities Available-for-Sale
The following table presents the contractual maturities of our securities available-for-sale portfolio based on amortized cost and carrying value as of the date indicated:
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Amortized
|
|
Fair
|
Maturity
|
Cost
|
|
Value
|
|
(In thousands)
|
Due in one year or less
|
$
|
10,384
|
|
|
$
|
10,517
|
|
Due after one year through five years
|
486,326
|
|
|
483,913
|
|
Due after five years through ten years
|
1,053,610
|
|
|
1,035,714
|
|
Due after ten years
|
2,268,389
|
|
|
2,271,842
|
|
Total securities available-for-sale
|
$
|
3,818,709
|
|
|
$
|
3,801,986
|
|
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.
Interest Income on Investment Securities
The following table presents the composition of our interest income on investment securities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
2018
|
|
2017
|
|
2017
|
|
(In thousands)
|
Taxable interest
|
$
|
14,599
|
|
|
$
|
13,724
|
|
|
$
|
12,166
|
|
Non-taxable interest
|
11,107
|
|
|
11,429
|
|
|
10,381
|
|
Dividend income
|
432
|
|
|
559
|
|
|
492
|
|
Total interest income on investment securities
|
$
|
26,138
|
|
|
$
|
25,712
|
|
|
$
|
23,039
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 6. LOANS AND LEASES
Our loans are carried at the principal amount outstanding, net of deferred fees and costs, and in the case of acquired loans, net of purchase discounts and premiums. Deferred fees and costs and purchase discounts and premiums on acquired non-impaired loans are recognized as an adjustment to interest income over the contractual life of the loans primarily using the effective interest method or taken into income when the related loans are paid off or included in the carrying amount of loans that are sold.
Prior to January 1, 2018, our loan and lease portfolio consisted of Non-PCI loans and leases and PCI loans. Non-PCI loans and leases were those we originated or those we acquired that were not credit impaired at the dates of acquisition. PCI loans were purchased loans for which there was, at the acquisition date, evidence of credit deterioration since their origination and for which it was probable that collection of all contractually required payments was unlikely. As our gross PCI loan portfolio represented less than 0.4% of total loans as of the end of 2017, beginning in 2018 the PCI loans were accounted for as Non-PCI loans. Accordingly, in the credit quality tables below under "
Loans and leases held for investment,
" amounts related to the 2018 period are for total loans and leases, and amounts related to the 2017 period are for Non-PCI loans and leases.
Loans Held for Sale
In the fourth quarter of 2017, we sold
$1.5 billion
of cash flow loans and exited our CapitalSource Division origination operations related to general, technology, and healthcare cash flow loans. As of December 31, 2017,
$1.0 billion
of the loans sold had settled, while
$481.1 million
were classified as held for sale. In connection with the loan sale and transfer of loans to held for sale, we recognized
$2.2 million
in charge-offs during the fourth quarter of 2017 to record the loans at the lower of cost or fair value. The loans held for sale at December 31, 2017 settled in the first quarter of 2018 and we recorded a gain of
$1.3 million
.
Loans and Leases Held for Investment
The following table summarizes the composition of our loans and leases held for investment as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Total
|
|
Non-PCI
|
|
|
|
Total
|
|
Loans
|
|
Loans
|
|
PCI
|
|
Loans
|
|
and Leases
|
|
and Leases
|
|
Loans
|
|
and Leases
|
|
(In thousands)
|
Real estate mortgage
|
$
|
7,570,526
|
|
|
$
|
7,815,355
|
|
|
$
|
53,658
|
|
|
$
|
7,869,013
|
|
Real estate construction and land
|
1,699,630
|
|
|
1,611,287
|
|
|
—
|
|
|
1,611,287
|
|
Commercial
|
6,848,576
|
|
|
7,137,978
|
|
|
4,158
|
|
|
7,142,136
|
|
Consumer
|
397,895
|
|
|
409,551
|
|
|
234
|
|
|
409,785
|
|
Gross loans and leases held for investment
|
16,516,627
|
|
|
16,974,171
|
|
|
58,050
|
|
|
17,032,221
|
|
Deferred fees, net
|
(61,342
|
)
|
|
(59,464
|
)
|
|
(14
|
)
|
|
(59,478
|
)
|
Loans and leases held for investment,
|
|
|
|
|
|
|
|
net of deferred fees
|
16,455,285
|
|
|
16,914,707
|
|
|
58,036
|
|
|
16,972,743
|
|
Allowance for loan and lease losses
|
(134,275
|
)
|
|
(133,012
|
)
|
|
(6,444
|
)
|
|
(139,456
|
)
|
Total loans and leases held for
|
|
|
|
|
|
|
|
investment, net
|
$
|
16,321,010
|
|
|
$
|
16,781,695
|
|
|
$
|
51,592
|
|
|
$
|
16,833,287
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables present an aging analysis of our loans and leases held for investment, net of deferred fees, by portfolio segment and class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
30 - 89
|
|
90 or More
|
|
|
|
|
|
|
|
Days
|
|
Days
|
|
Total
|
|
|
|
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Current
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
26,262
|
|
|
$
|
6,849
|
|
|
$
|
33,111
|
|
|
$
|
4,999,895
|
|
|
$
|
5,033,006
|
|
Residential
|
1,512
|
|
|
1,976
|
|
|
3,488
|
|
|
2,517,749
|
|
|
2,521,237
|
|
Total real estate mortgage
|
27,774
|
|
|
8,825
|
|
|
36,599
|
|
|
7,517,644
|
|
|
7,554,243
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
—
|
|
|
—
|
|
|
789,892
|
|
|
789,892
|
|
Residential
|
2,605
|
|
|
—
|
|
|
2,605
|
|
|
884,505
|
|
|
887,110
|
|
Total real estate construction and land
|
2,605
|
|
|
—
|
|
|
2,605
|
|
|
1,674,397
|
|
|
1,677,002
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Asset-based
|
—
|
|
|
680
|
|
|
680
|
|
|
2,957,210
|
|
|
2,957,890
|
|
Venture capital
|
737
|
|
|
1,492
|
|
|
2,229
|
|
|
1,918,414
|
|
|
1,920,643
|
|
Other commercial
|
5,133
|
|
|
1,388
|
|
|
6,521
|
|
|
1,941,069
|
|
|
1,947,590
|
|
Total commercial
|
5,870
|
|
|
3,560
|
|
|
9,430
|
|
|
6,816,693
|
|
|
6,826,123
|
|
Consumer
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|
396,917
|
|
|
397,917
|
|
Total
|
$
|
37,249
|
|
|
$
|
12,385
|
|
|
$
|
49,634
|
|
|
$
|
16,405,651
|
|
|
$
|
16,455,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
30 - 89
|
|
90 or More
|
|
|
|
|
|
|
|
Days
|
|
Days
|
|
Total
|
|
|
|
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Current
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
29,070
|
|
|
$
|
9,107
|
|
|
$
|
38,177
|
|
|
$
|
5,323,310
|
|
|
$
|
5,361,487
|
|
Residential
|
6,999
|
|
|
2,022
|
|
|
9,021
|
|
|
2,428,483
|
|
|
2,437,504
|
|
Total real estate mortgage
|
36,069
|
|
|
11,129
|
|
|
47,198
|
|
|
7,751,793
|
|
|
7,798,991
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
—
|
|
|
—
|
|
|
769,075
|
|
|
769,075
|
|
Residential
|
2,081
|
|
|
—
|
|
|
2,081
|
|
|
820,073
|
|
|
822,154
|
|
Total real estate construction and land
|
2,081
|
|
|
—
|
|
|
2,081
|
|
|
1,589,148
|
|
|
1,591,229
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Asset-based
|
344
|
|
|
690
|
|
|
1,034
|
|
|
2,923,837
|
|
|
2,924,871
|
|
Venture capital
|
6,533
|
|
|
760
|
|
|
7,293
|
|
|
2,115,418
|
|
|
2,122,711
|
|
Other commercial
|
2,846
|
|
|
1,586
|
|
|
4,432
|
|
|
2,062,906
|
|
|
2,067,338
|
|
Total commercial
|
9,723
|
|
|
3,036
|
|
|
12,759
|
|
|
7,102,161
|
|
|
7,114,920
|
|
Consumer
|
562
|
|
|
—
|
|
|
562
|
|
|
409,005
|
|
|
409,567
|
|
Total
(1)
|
$
|
48,435
|
|
|
$
|
14,165
|
|
|
$
|
62,600
|
|
|
$
|
16,852,107
|
|
|
$
|
16,914,707
|
|
________________________
|
|
(1)
|
Excludes loans held for sale carried at lower of cost or fair value and PCI loans.
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
It is our policy to discontinue accruing interest when principal or interest payments are past due 90 days or more (unless the loan is both well secured and in the process of collection) or when, in the opinion of management, there is a reasonable doubt as to the collectability of a loan or lease in the normal course of business. Interest income on nonaccrual loans is recognized only to the extent cash is received and the principal balance of the loan is deemed collectable.
The following table presents our nonaccrual and performing loans and leases held for investment, net of deferred fees, by portfolio segment and class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
(1)
|
|
Nonaccrual
|
|
Performing
|
|
Total
|
|
Nonaccrual
|
|
Performing
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
19,116
|
|
|
$
|
5,013,890
|
|
|
$
|
5,033,006
|
|
|
$
|
65,563
|
|
|
$
|
5,295,924
|
|
|
$
|
5,361,487
|
|
Residential
|
5,225
|
|
|
2,516,012
|
|
|
2,521,237
|
|
|
3,350
|
|
|
2,434,154
|
|
|
2,437,504
|
|
Total real estate mortgage
|
24,341
|
|
|
7,529,902
|
|
|
7,554,243
|
|
|
68,913
|
|
|
7,730,078
|
|
|
7,798,991
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
789,892
|
|
|
789,892
|
|
|
—
|
|
|
769,075
|
|
|
769,075
|
|
Residential
|
—
|
|
|
887,110
|
|
|
887,110
|
|
|
—
|
|
|
822,154
|
|
|
822,154
|
|
Total real estate construction and land
|
—
|
|
|
1,677,002
|
|
|
1,677,002
|
|
|
—
|
|
|
1,591,229
|
|
|
1,591,229
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
32,838
|
|
|
2,925,052
|
|
|
2,957,890
|
|
|
33,553
|
|
|
2,891,318
|
|
|
2,924,871
|
|
Venture capital
|
21,861
|
|
|
1,898,782
|
|
|
1,920,643
|
|
|
29,424
|
|
|
2,093,287
|
|
|
2,122,711
|
|
Other commercial
|
24,434
|
|
|
1,923,156
|
|
|
1,947,590
|
|
|
23,874
|
|
|
2,043,464
|
|
|
2,067,338
|
|
Total commercial
|
79,133
|
|
|
6,746,990
|
|
|
6,826,123
|
|
|
86,851
|
|
|
7,028,069
|
|
|
7,114,920
|
|
Consumer
|
251
|
|
|
397,666
|
|
|
397,917
|
|
|
20
|
|
|
409,547
|
|
|
409,567
|
|
Total
|
$
|
103,725
|
|
|
$
|
16,351,560
|
|
|
$
|
16,455,285
|
|
|
$
|
155,784
|
|
|
$
|
16,758,923
|
|
|
$
|
16,914,707
|
|
________________________
(1)
Excludes loans held for sale carried at lower of cost or fair value and PCI loans.
At
March 31, 2018
, nonaccrual loans and leases totaled
$103.7 million
and included
$11.9 million
of loans and leases 90 or more days past due,
$8.7 million
of loans and leases 30 to 89 days past due, and
$83.1 million
of loans and leases current with respect to contractual payments that were placed on nonaccrual status based on management’s judgment regarding their collectability. Nonaccrual loans and leases totaled
$155.8 million
at
December 31, 2017
, including
$14.2 million
of the loans and leases 90 or more days past due,
$3.2 million
of loans and leases 30 to 89 days past due, and
$138.4 million
of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.
As of
March 31, 2018
, our ten largest loan relationships on nonaccrual status had an aggregate carrying value of
$68.8 million
and represented
66.3%
of total nonaccrual loans and leases.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the credit risk rating categories for loans and leases held for investment, net of deferred fees, by portfolio segment and class as of the dates indicated. Classified loans and leases are those with a credit risk rating of either substandard or doubtful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Classified
|
|
Special Mention
|
|
Pass
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
Commercial
|
$
|
44,635
|
|
|
$
|
158,496
|
|
|
$
|
4,829,875
|
|
|
$
|
5,033,006
|
|
Residential
|
12,436
|
|
|
1,672
|
|
|
2,507,129
|
|
|
2,521,237
|
|
Total real estate mortgage
|
57,071
|
|
|
160,168
|
|
|
7,337,004
|
|
|
7,554,243
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
Commercial
|
453
|
|
|
—
|
|
|
789,439
|
|
|
789,892
|
|
Residential
|
—
|
|
|
30,626
|
|
|
856,484
|
|
|
887,110
|
|
Total real estate construction and land
|
453
|
|
|
30,626
|
|
|
1,645,923
|
|
|
1,677,002
|
|
Commercial:
|
|
|
|
|
|
|
|
Asset-based
|
49,913
|
|
|
54,882
|
|
|
2,853,095
|
|
|
2,957,890
|
|
Venture capital
|
31,364
|
|
|
124,303
|
|
|
1,764,976
|
|
|
1,920,643
|
|
Other commercial
|
68,813
|
|
|
43,681
|
|
|
1,835,096
|
|
|
1,947,590
|
|
Total commercial
|
150,090
|
|
|
222,866
|
|
|
6,453,167
|
|
|
6,826,123
|
|
Consumer
|
428
|
|
|
1,456
|
|
|
396,033
|
|
|
397,917
|
|
Total
|
$
|
208,042
|
|
|
$
|
415,116
|
|
|
$
|
15,832,127
|
|
|
$
|
16,455,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
(1)
|
|
Classified
|
|
Special Mention
|
|
Pass
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
Commercial
|
$
|
93,795
|
|
|
$
|
122,488
|
|
|
$
|
5,145,204
|
|
|
$
|
5,361,487
|
|
Residential
|
8,425
|
|
|
4,582
|
|
|
2,424,497
|
|
|
2,437,504
|
|
Total real estate mortgage
|
102,220
|
|
|
127,070
|
|
|
7,569,701
|
|
|
7,798,991
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
—
|
|
|
769,075
|
|
|
769,075
|
|
Residential
|
—
|
|
|
619
|
|
|
821,535
|
|
|
822,154
|
|
Total real estate construction and land
|
—
|
|
|
619
|
|
|
1,590,610
|
|
|
1,591,229
|
|
Commercial:
|
|
|
|
|
|
|
|
Asset-based
|
51,000
|
|
|
37,256
|
|
|
2,836,615
|
|
|
2,924,871
|
|
Venture capital
|
49,671
|
|
|
114,210
|
|
|
1,958,830
|
|
|
2,122,711
|
|
Other commercial
|
75,251
|
|
|
21,883
|
|
|
1,970,204
|
|
|
2,067,338
|
|
Total commercial
|
175,922
|
|
|
173,349
|
|
|
6,765,649
|
|
|
7,114,920
|
|
Consumer
|
263
|
|
|
1,130
|
|
|
408,174
|
|
|
409,567
|
|
Total
|
$
|
278,405
|
|
|
$
|
302,168
|
|
|
$
|
16,334,134
|
|
|
$
|
16,914,707
|
|
________________________
(1)
Excludes loans held for sale carried at lower of cost or fair value and PCI loans.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
In addition to our internal risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company’s loan and lease 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 increases in the provisions for credit losses and the allowance for credit losses.
Nonaccrual loans and leases and performing troubled debt restructured loans are considered impaired for reporting purposes. Troubled debt restructurings are a result of rate reductions, term extensions, fee concessions, and debt forgiveness, or a combination thereof.
The following table presents the composition of our impaired loans and leases held for investment, net of deferred fees, by portfolio segment as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
(1)
|
|
|
|
Performing
|
|
Total
|
|
|
|
Performing
|
|
Total
|
|
Nonaccrual
|
|
Troubled
|
|
Impaired
|
|
Nonaccrual
|
|
Troubled
|
|
Impaired
|
|
Loans
|
|
Debt
|
|
Loans
|
|
Loans
|
|
Debt
|
|
Loans
|
|
and
|
|
Restructured
|
|
and
|
|
and
|
|
Restructured
|
|
and
|
|
Leases
|
|
Loans
|
|
Leases
|
|
Leases
|
|
Loans
|
|
Leases
|
|
(In thousands)
|
Real estate mortgage
|
$
|
24,341
|
|
|
$
|
51,031
|
|
|
$
|
75,372
|
|
|
$
|
68,913
|
|
|
$
|
47,560
|
|
|
$
|
116,473
|
|
Real estate construction and land
|
—
|
|
|
5,670
|
|
|
5,670
|
|
|
—
|
|
|
5,690
|
|
|
5,690
|
|
Commercial
|
79,133
|
|
|
3,349
|
|
|
82,482
|
|
|
86,851
|
|
|
3,488
|
|
|
90,339
|
|
Consumer
|
251
|
|
|
123
|
|
|
374
|
|
|
20
|
|
|
100
|
|
|
120
|
|
Total
|
$
|
103,725
|
|
|
$
|
60,173
|
|
|
$
|
163,898
|
|
|
$
|
155,784
|
|
|
$
|
56,838
|
|
|
$
|
212,622
|
|
________________________
(1)
Excludes loans held for sale carried at lower of cost or fair value and PCI loans.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables present information regarding our impaired loans and leases held for investment, net of deferred fees, by portfolio segment and class as of and for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
(1)
|
|
|
|
Unpaid
|
|
|
|
|
|
Unpaid
|
|
|
|
Recorded
|
|
Principal
|
|
Related
|
|
Recorded
|
|
Principal
|
|
Related
|
Impaired Loans and Leases
|
Investment
|
|
Balance
|
|
Allowance
|
|
Investment
|
|
Balance
|
|
Allowance
|
|
(In thousands)
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
13,884
|
|
|
$
|
14,690
|
|
|
$
|
576
|
|
|
$
|
15,750
|
|
|
$
|
16,548
|
|
|
$
|
628
|
|
Residential
|
4,295
|
|
|
4,926
|
|
|
512
|
|
|
2,787
|
|
|
2,957
|
|
|
342
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Venture capital
|
17,367
|
|
|
18,312
|
|
|
4,970
|
|
|
16,565
|
|
|
17,203
|
|
|
4,267
|
|
Other commercial
|
18,048
|
|
|
31,672
|
|
|
8,171
|
|
|
20,404
|
|
|
29,951
|
|
|
8,368
|
|
Consumer
|
295
|
|
|
355
|
|
|
16
|
|
|
100
|
|
|
100
|
|
|
16
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
48,729
|
|
|
$
|
63,283
|
|
|
|
|
$
|
93,827
|
|
|
$
|
105,923
|
|
|
|
Residential
|
8,464
|
|
|
10,674
|
|
|
|
|
4,109
|
|
|
4,481
|
|
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
5,670
|
|
|
5,670
|
|
|
|
|
5,690
|
|
|
5,689
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
32,838
|
|
|
55,890
|
|
|
|
|
33,553
|
|
|
54,911
|
|
|
|
Venture capital
|
6,129
|
|
|
29,786
|
|
|
|
|
14,534
|
|
|
40,029
|
|
|
|
Other commercial
|
8,100
|
|
|
27,819
|
|
|
|
|
5,283
|
|
|
9,351
|
|
|
|
Consumer
|
79
|
|
|
179
|
|
|
|
|
20
|
|
|
93
|
|
|
|
Total Loans and Leases With
|
|
|
|
|
|
|
|
|
|
|
|
and Without an Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
$
|
75,372
|
|
|
$
|
93,573
|
|
|
$
|
1,088
|
|
|
$
|
116,473
|
|
|
$
|
129,909
|
|
|
$
|
970
|
|
Real estate construction and land
|
5,670
|
|
|
5,670
|
|
|
—
|
|
|
5,690
|
|
|
5,689
|
|
|
—
|
|
Commercial
|
82,482
|
|
|
163,479
|
|
|
13,141
|
|
|
90,339
|
|
|
151,445
|
|
|
12,635
|
|
Consumer
|
374
|
|
|
534
|
|
|
16
|
|
|
120
|
|
|
193
|
|
|
16
|
|
Total
|
$
|
163,898
|
|
|
$
|
263,256
|
|
|
$
|
14,245
|
|
|
$
|
212,622
|
|
|
$
|
287,236
|
|
|
$
|
13,621
|
|
________________________
(1)
Excludes loans held for sale carried at lower of cost or fair value and PCI loans.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
|
Weighted
|
|
Interest
|
|
Weighted
|
|
Interest
|
|
Average
|
|
Income
|
|
Average
|
|
Income
|
Impaired Loans and Leases
|
Balance
(1)
|
|
Recognized
|
|
Balance
(1)
|
|
Recognized
|
|
(In thousands)
|
With An Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
Commercial
|
$
|
13,884
|
|
|
$
|
201
|
|
|
$
|
14,350
|
|
|
$
|
206
|
|
Residential
|
4,295
|
|
|
23
|
|
|
3,501
|
|
|
12
|
|
Commercial:
|
|
|
|
|
|
|
|
Venture capital
|
14,598
|
|
|
—
|
|
|
4,693
|
|
|
—
|
|
Other commercial
|
16,851
|
|
|
15
|
|
|
44,333
|
|
|
15
|
|
Consumer
|
295
|
|
|
2
|
|
|
187
|
|
|
—
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
Commercial
|
$
|
46,782
|
|
|
$
|
765
|
|
|
$
|
92,753
|
|
|
$
|
560
|
|
Residential
|
8,464
|
|
|
45
|
|
|
5,216
|
|
|
15
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
Commercial
|
5,670
|
|
|
89
|
|
|
6,111
|
|
|
67
|
|
Residential
|
—
|
|
|
—
|
|
|
572
|
|
|
2
|
|
Commercial:
|
|
|
|
|
|
|
|
Asset-based
|
32,838
|
|
|
—
|
|
|
30,739
|
|
|
—
|
|
Venture capital
|
4,474
|
|
|
—
|
|
|
2,429
|
|
|
—
|
|
Other commercial
|
7,859
|
|
|
1,147
|
|
|
4,750
|
|
|
30
|
|
Consumer
|
79
|
|
|
—
|
|
|
127
|
|
|
2
|
|
Total Loans and Leases With
|
|
|
|
|
|
|
|
and Without an Allowance Recorded:
|
|
|
|
|
|
|
|
Real estate mortgage
|
$
|
73,425
|
|
|
$
|
1,034
|
|
|
$
|
115,820
|
|
|
$
|
793
|
|
Real estate construction and land
|
5,670
|
|
|
89
|
|
|
6,683
|
|
|
69
|
|
Commercial
|
76,620
|
|
|
1,162
|
|
|
86,944
|
|
|
45
|
|
Consumer
|
374
|
|
|
2
|
|
|
314
|
|
|
2
|
|
Total
|
$
|
156,089
|
|
|
$
|
2,287
|
|
|
$
|
209,761
|
|
|
$
|
909
|
|
_________________________
|
|
(1)
|
For loans and leases reported as impaired at
March 31, 2018
and
2017
, amounts were calculated based on the period of time such loans and leases were impaired during the reported period.
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents our troubled debt restructurings of loans held for investment by portfolio segment and class for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
|
|
|
Pre-
|
|
Post-
|
|
|
|
Pre-
|
|
Post-
|
|
|
|
Modification
|
|
Modification
|
|
|
|
Modification
|
|
Modification
|
|
|
|
Outstanding
|
|
Outstanding
|
|
|
|
Outstanding
|
|
Outstanding
|
|
Number
|
|
Recorded
|
|
Recorded
|
|
Number
|
|
Recorded
|
|
Recorded
|
Troubled Debt Restructurings
|
of Loans
|
|
Investment
|
|
Investment
|
|
of Loans
|
|
Investment
|
|
Investment
|
|
(Dollars in thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
1
|
|
|
$
|
64
|
|
|
$
|
—
|
|
Residential
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
42
|
|
|
42
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Venture capital
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
13,065
|
|
|
13,065
|
|
Other commercial
|
2
|
|
|
11,783
|
|
|
11,783
|
|
|
4
|
|
|
719
|
|
|
719
|
|
Consumer
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
97
|
|
|
97
|
|
Total
|
2
|
|
|
$
|
11,783
|
|
|
$
|
11,783
|
|
|
11
|
|
|
$
|
13,987
|
|
|
$
|
13,923
|
|
The following table presents troubled debt restructurings of loans held for investment by portfolio segment and class that subsequently defaulted for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2018
|
|
2017
|
|
Troubled Debt Restructurings
|
Number
|
|
Recorded
|
|
Number
|
|
Recorded
|
|
That Subsequently Defaulted
|
of Loans
|
|
Investment
(1)
|
|
of Loans
|
|
Investment
(1)
|
|
|
(Dollars in thousands)
|
|
Commercial:
|
|
|
|
|
|
|
|
|
Other commercial
|
1
|
|
|
$
|
2,250
|
|
|
—
|
|
|
$
|
—
|
|
|
Consumer
|
—
|
|
|
—
|
|
|
1
|
|
|
28
|
|
|
Total
|
1
|
|
|
$
|
2,250
|
|
(2)
|
1
|
|
|
$
|
28
|
|
(3)
|
_________________________
|
|
(1)
|
The population of defaulted restructured loans for the period indicated includes only those loans restructured during the preceding 12-month period. For example, for the 12-month period ended
March 31, 2018
, the population of defaulted restructured loans includes only those loans restructured after
March 31, 2017
. The table excludes defaulted troubled debt restructurings in those classes for which the recorded investment was zero at the end of the period.
|
|
|
(2)
|
Represents the balance at
March 31, 2018
, and there were
no
charge-offs.
|
|
|
(3)
|
Represents the balance at
March 31, 2017
, and there were
no
charge-offs.
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for Loan and Lease Losses
The following tables present a summary of the activity in the allowance for loan and lease losses on loans and leases held for investment by portfolio segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
Real Estate
|
|
Construction
|
|
|
|
|
|
|
|
Mortgage
|
|
and Land
|
|
Commercial
|
|
Consumer
|
|
Total
|
|
(In thousands)
|
Allowance for Loan and Lease Losses:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
40,051
|
|
|
$
|
13,055
|
|
|
$
|
84,022
|
|
|
$
|
2,328
|
|
|
$
|
139,456
|
|
Charge-offs
|
(2,598
|
)
|
|
—
|
|
|
(9,524
|
)
|
|
(31
|
)
|
|
(12,153
|
)
|
Recoveries
|
1,657
|
|
|
9
|
|
|
5,487
|
|
|
45
|
|
|
7,198
|
|
Provision (negative provision)
|
1,048
|
|
|
5,126
|
|
|
(6,205
|
)
|
|
(195
|
)
|
|
(226
|
)
|
Balance, end of period
|
$
|
40,158
|
|
|
$
|
18,190
|
|
|
$
|
73,780
|
|
|
$
|
2,147
|
|
|
$
|
134,275
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance by
|
|
|
|
|
|
|
|
|
|
Impairment Methodology:
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
1,088
|
|
|
$
|
—
|
|
|
$
|
13,141
|
|
|
$
|
16
|
|
|
$
|
14,245
|
|
Collectively evaluated for impairment
|
$
|
39,070
|
|
|
$
|
18,190
|
|
|
$
|
60,639
|
|
|
$
|
2,131
|
|
|
$
|
120,030
|
|
|
|
|
|
|
|
|
|
|
|
Ending Loans and Leases by
|
|
|
|
|
|
|
|
|
|
Impairment Methodology:
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
74,390
|
|
|
$
|
5,670
|
|
|
$
|
82,434
|
|
|
$
|
324
|
|
|
$
|
162,818
|
|
Collectively evaluated for impairment
|
7,479,853
|
|
|
1,671,332
|
|
|
6,743,689
|
|
|
397,593
|
|
|
16,292,467
|
|
Ending balance
|
$
|
7,554,243
|
|
|
$
|
1,677,002
|
|
|
$
|
6,826,123
|
|
|
$
|
397,917
|
|
|
$
|
16,455,285
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
Construction
|
|
|
|
|
|
Total
|
|
Total
|
|
|
|
Mortgage
|
|
and Land
|
|
Commercial
|
|
Consumer
|
|
Non-PCI
|
|
PCI
|
|
Total
|
|
(In thousands)
|
Allowance for Loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Lease Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
37,765
|
|
|
$
|
10,045
|
|
|
$
|
93,853
|
|
|
$
|
2,092
|
|
|
$
|
143,755
|
|
|
$
|
13,483
|
|
|
$
|
157,238
|
|
Charge-offs
|
(1,544
|
)
|
|
—
|
|
|
(19,285
|
)
|
|
(99
|
)
|
|
(20,928
|
)
|
|
(2,230
|
)
|
|
(23,158
|
)
|
Recoveries
|
230
|
|
|
8
|
|
|
2,448
|
|
|
53
|
|
|
2,739
|
|
|
—
|
|
|
2,739
|
|
Provision (negative provision)
|
(1,083
|
)
|
|
423
|
|
|
25,118
|
|
|
(198
|
)
|
|
24,260
|
|
|
228
|
|
|
24,488
|
|
Balance, end of period
|
$
|
35,368
|
|
|
$
|
10,476
|
|
|
$
|
102,134
|
|
|
$
|
1,848
|
|
|
$
|
149,826
|
|
|
$
|
11,481
|
|
|
$
|
161,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment
|
$
|
1,070
|
|
|
$
|
—
|
|
|
$
|
12,267
|
|
|
$
|
90
|
|
|
$
|
13,427
|
|
|
|
|
|
Collectively evaluated for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment
|
$
|
34,298
|
|
|
$
|
10,476
|
|
|
$
|
89,867
|
|
|
$
|
1,758
|
|
|
$
|
136,399
|
|
|
|
|
|
Acquired loans with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
$
|
11,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Loans and Leases by
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Methodology:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment
|
$
|
118,275
|
|
|
$
|
6,683
|
|
|
$
|
103,221
|
|
|
$
|
281
|
|
|
$
|
228,460
|
|
|
|
|
|
Collectively evaluated for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment
|
5,768,694
|
|
|
1,101,553
|
|
|
7,979,457
|
|
|
382,190
|
|
|
15,231,894
|
|
|
|
|
|
Acquired loans with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
deteriorated credit quality
|
|
|
|
|
|
|
|
|
|
|
$
|
96,335
|
|
|
|
Ending balance
|
$
|
5,886,969
|
|
|
$
|
1,108,236
|
|
|
$
|
8,082,678
|
|
|
$
|
382,471
|
|
|
$
|
15,460,354
|
|
|
$
|
96,335
|
|
|
$
|
15,556,689
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Allowance for Credit Losses
The allowance for credit losses is the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments. The reserve for unfunded loan commitments is included within "Accrued interest payable and other liabilities" on the condensed consolidated balance sheets. The following tables present a summary of the activity in the allowance for loan and lease losses, reserve for unfunded loan commitments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Allowance for
|
|
Reserve for
|
|
Total
|
|
Loan and
|
|
Unfunded Loan
|
|
Allowance for
|
|
Lease Losses
|
|
Commitments
|
|
Credit Losses
|
|
(In thousands)
|
Balance, beginning of period
|
$
|
139,456
|
|
|
$
|
28,635
|
|
|
$
|
168,091
|
|
Charge-offs
|
(12,153
|
)
|
|
—
|
|
|
(12,153
|
)
|
Recoveries
|
7,198
|
|
|
—
|
|
|
7,198
|
|
Net charge-offs
|
(4,955
|
)
|
|
—
|
|
|
(4,955
|
)
|
Provision (negative provision)
|
(226
|
)
|
|
4,226
|
|
|
4,000
|
|
Balance, end of period
|
$
|
134,275
|
|
|
$
|
32,861
|
|
|
$
|
167,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Non-PCI
|
|
|
|
|
|
Allowance for
|
|
Reserve for
|
|
|
|
PCI
|
|
Total
|
|
Loan and
|
|
Unfunded Loan
|
|
Allowance for
|
|
Allowance for
|
|
Allowance for
|
|
Lease Losses
|
|
Commitments
|
|
Credit Losses
|
|
Loan Losses
|
|
Credit Losses
|
|
(In thousands)
|
Balance, beginning of period
|
$
|
143,755
|
|
|
$
|
17,523
|
|
|
$
|
161,278
|
|
|
$
|
13,483
|
|
|
$
|
174,761
|
|
Charge-offs
|
(20,928
|
)
|
|
—
|
|
|
(20,928
|
)
|
|
(2,230
|
)
|
|
(23,158
|
)
|
Recoveries
|
2,739
|
|
|
—
|
|
|
2,739
|
|
|
—
|
|
|
2,739
|
|
Net charge-offs
|
(18,189
|
)
|
|
—
|
|
|
(18,189
|
)
|
|
(2,230
|
)
|
|
(20,419
|
)
|
Provision
|
24,260
|
|
|
240
|
|
|
24,500
|
|
|
228
|
|
|
24,728
|
|
Balance, end of period
|
$
|
149,826
|
|
|
$
|
17,763
|
|
|
$
|
167,589
|
|
|
$
|
11,481
|
|
|
$
|
179,070
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 7. FORECLOSED ASSETS
The following table summarizes foreclosed assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Property Type
|
2018
|
|
2017
|
|
(In thousands)
|
Construction and land development
|
$
|
219
|
|
|
$
|
219
|
|
Commercial real estate
|
64
|
|
|
64
|
|
Single family residence
|
953
|
|
|
1,019
|
|
Total other real estate owned, net
|
1,236
|
|
|
1,302
|
|
Other foreclosed assets
|
—
|
|
|
27
|
|
Total foreclosed assets, net
|
$
|
1,236
|
|
|
$
|
1,329
|
|
The following table presents the changes in foreclosed assets, net of the valuation allowance, for the period indicated:
|
|
|
|
|
|
Foreclosed
|
|
Assets
|
|
(In thousands)
|
Balance, December 31, 2017
|
$
|
1,329
|
|
Provision for losses
|
(65
|
)
|
Reductions related to sales
|
(28
|
)
|
Balance, March 31, 2018
|
$
|
1,236
|
|
NOTE 8. OTHER ASSETS
The following table presents the detail of our other assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Other Assets
|
2018
|
|
2017
|
|
(In thousands)
|
Cash surrender value of BOLI
|
$
|
195,163
|
|
|
$
|
193,917
|
|
Interest receivable
|
78,822
|
|
|
82,935
|
|
Taxes receivable
|
64,739
|
|
|
98,998
|
|
CRA investments
|
53,838
|
|
|
49,432
|
|
Low income housing tax credit ("LIHTC") investments
|
43,793
|
|
|
39,235
|
|
Equity investments without readily determinable fair values
|
15,642
|
|
|
14,856
|
|
Equity investments with readily determinable fair values
|
5,028
|
|
|
—
|
|
Other assets
|
54,159
|
|
|
61,350
|
|
Total other assets
|
$
|
511,184
|
|
|
$
|
540,723
|
|
The Company has purchased life insurance policies on certain employees and has also acquired life insurance policies through acquisitions. BOLI is recorded at the amount that can be realized under the insurance contract, which is the cash surrender value. The increase in the cash surrender value each period is recorded to
"
Noninterest income - other."
The Company makes various investments for CRA investment purposes including, but not limited to, CRA-related loan pool investments, CRA-related equity investments and investments in LIHTC partnerships. The loan pool and other CRA equity investments primarily consist of investments in partnerships which provide affordable housing and participations in loan pools which provide low-cost loans to low and moderate income applicants.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company invests as a limited partner in LIHTC partnerships that operate qualified affordable housing projects and generate tax benefits for investors, including federal low income housing tax credits. The partnerships are deemed to be VIEs because they do not have sufficient equity investment at risk and are structured with non-substantive voting rights. We are not the primary beneficiary of the VIEs and do not consolidate them. As a practical expedient, we amortize the investment in proportion to the allocated tax benefits using the proportional amortization method of accounting and record such benefits net of investment amortization in income tax expense.
Our equity investments without readily determinable fair values include investments in privately held companies and limited partnerships as well as investments in entities from which we issued trust preferred securities. On January 1, 2018, we adopted ASU 2016-01 and ASU 2018-03 which changed the way we account for equity investments without readily determinable fair values previously accounted for using the cost method. Upon adoption, we have elected to measure our equity investments without readily determinable fair values using the measurement alternative.
The Company reclassified
$1.2 million
of equity securities without readily determinable fair values previously included in securities available-for-sale to other assets on our condensed consolidated balance sheet in the first quarter of 2018. The reclassification was applied prospectively without prior period amounts being restated.
Carrying values of these investments are adjusted to fair value upon observable transactions for identical or similar investments of the same issuer. We did not identify any observable transactions for our equity investments without readily determinable fair values during the three months ended
March 31, 2018
that would require us to adjust the carrying value of these investments held as of
March 31, 2018
. Beginning January 1, 2018, unrealized and realized gains and losses on equity investments without readily determinable fair values are recorded in "Noninterest income - other."
Our equity investments with readily determinable fair values include investments in public companies and publicly-traded mutual funds. The Company reclassified
$5.9 million
of equity securities with readily determinable fair values previously included in securities available-for-sale to other assets on our condensed consolidated balance sheet in the first quarter of 2018. The reclassification was applied prospectively without prior period amounts being restated. Beginning January 1, 2018, unrealized and realized gains and losses on equity investments with readily determinable fair values are recorded in "Noninterest income - other."
The remaining other assets balance of
$54.2 million
at
March 31, 2018
consists of, among other things, prepaid expenses, other receivables, equity warrants, and derivative assets.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 9. BORROWINGS AND SUBORDINATED DEBENTURES
Borrowings
The following table summarizes our borrowings as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Average
|
|
|
|
Average
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
(Dollars in thousands)
|
Non‑recourse debt
|
$
|
284
|
|
|
6.94
|
%
|
|
$
|
342
|
|
|
6.87
|
%
|
FHLB secured advances
|
340,000
|
|
|
1.87
|
%
|
|
332,000
|
|
|
1.41
|
%
|
FHLB unsecured overnight advance
|
135,000
|
|
|
1.85
|
%
|
|
135,000
|
|
|
1.34
|
%
|
AFX borrowings
|
100,000
|
|
|
1.82
|
%
|
|
—
|
|
|
—
|
%
|
Total borrowings
|
$
|
575,284
|
|
|
|
|
$
|
467,342
|
|
|
|
The non‑recourse debt represents the payment stream of certain equipment leases sold to third parties. The debt is secured by the leased equipment and all interest rates are fixed. As of
March 31, 2018
, this debt had a weighted average remaining maturity of
1.7
years.
The Bank has established secured and unsecured lines of credit under which it may borrow funds from time to time on a term or overnight basis from the FHLB, the FRBSF, and other financial institutions.
FHLB Secured Line of Credit.
The Bank had secured financing capacity with the FHLB as of
March 31, 2018
of
$3.9 billion
, collateralized by a blanket lien on
$5.7 billion
of certain qualifying loans. As of
March 31, 2018
, the balance outstanding was a
$340.0 million
overnight advance. As of
December 31, 2017
, the balance outstanding was a
$332.0 million
overnight advance.
FRBSF Secured Line of Credit.
The Bank has a secured line of credit with the FRBSF. As of
March 31, 2018
, the Bank had secured borrowing capacity of
$1.7 billion
collateralized by liens covering
$2.1 billion
of certain qualifying loans. As of
March 31, 2018
and
December 31, 2017
, there were
no
balances outstanding.
FHLB Unsecured Line of Credit.
The Bank has a
$135.0 million
unsecured line of credit with the FHLB for the purchase of overnight funds, of which
$135.0 million
was outstanding at
March 31, 2018
. At
December 31, 2017
, the balance outstanding was
$135.0 million
.
Federal Funds Arrangements with Commercial Banks.
As of
March 31, 2018
, the Bank had unsecured lines of credit of
$75.0 million
with correspondent banks for the purchase of overnight funds, subject to availability of funds. These lines are renewable annually and have
no
unused commitment fees. As of
March 31, 2018
and
December 31, 2017
, there were
no
balances outstanding. The Bank is a member of the AFX, through which it may either borrow or lend funds on an overnight or short-term basis with a group of pre-approved commercial banks. The availability of funds changes daily. As of
March 31, 2018
the balance outstanding was
$100.0 million
in overnight borrowings. As of
December 31, 2017
, there were
no
balances outstanding.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Subordinated Debentures
The following table summarizes the terms of each issuance of subordinated debentures outstanding as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
|
Date
|
|
Maturity
|
|
Rate Index
|
Series
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Issued
|
|
Date
|
|
(Quarterly Reset)
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Trust V
|
$
|
10,310
|
|
|
5.28
|
%
|
|
$
|
10,310
|
|
|
4.70
|
%
|
|
8/15/2003
|
|
9/17/2033
|
|
3 month LIBOR + 3.10
|
Trust VI
|
10,310
|
|
|
5.17
|
%
|
|
10,310
|
|
|
4.64
|
%
|
|
9/3/2003
|
|
9/15/2033
|
|
3 month LIBOR + 3.05
|
Trust CII
|
5,155
|
|
|
5.13
|
%
|
|
5,155
|
|
|
4.55
|
%
|
|
9/17/2003
|
|
9/17/2033
|
|
3 month LIBOR + 2.95
|
Trust VII
|
61,856
|
|
|
4.52
|
%
|
|
61,856
|
|
|
4.13
|
%
|
|
2/5/2004
|
|
4/23/2034
|
|
3 month LIBOR + 2.75
|
Trust CIII
|
20,619
|
|
|
3.81
|
%
|
|
20,619
|
|
|
3.28
|
%
|
|
8/15/2005
|
|
9/15/2035
|
|
3 month LIBOR + 1.69
|
Trust FCCI
|
16,495
|
|
|
3.72
|
%
|
|
16,495
|
|
|
3.19
|
%
|
|
1/25/2007
|
|
3/15/2037
|
|
3 month LIBOR + 1.60
|
Trust FCBI
|
10,310
|
|
|
3.67
|
%
|
|
10,310
|
|
|
3.14
|
%
|
|
9/30/2005
|
|
12/15/2035
|
|
3 month LIBOR + 1.55
|
Trust CS 2005-1
|
82,475
|
|
|
4.07
|
%
|
|
82,475
|
|
|
3.54
|
%
|
|
11/21/2005
|
|
12/15/2035
|
|
3 month LIBOR + 1.95
|
Trust CS 2005-2
|
128,866
|
|
|
3.72
|
%
|
|
128,866
|
|
|
3.33
|
%
|
|
12/14/2005
|
|
1/30/2036
|
|
3 month LIBOR + 1.95
|
Trust CS 2006-1
|
51,545
|
|
|
3.72
|
%
|
|
51,545
|
|
|
3.33
|
%
|
|
2/22/2006
|
|
4/30/2036
|
|
3 month LIBOR + 1.95
|
Trust CS 2006-2
|
51,550
|
|
|
3.72
|
%
|
|
51,550
|
|
|
3.33
|
%
|
|
9/27/2006
|
|
10/30/2036
|
|
3 month LIBOR + 1.95
|
Trust CS 2006-3
(1)
|
31,773
|
|
|
1.72
|
%
|
|
30,986
|
|
|
1.72
|
%
|
|
9/29/2006
|
|
10/30/2036
|
|
3 month EURIBOR + 2.05
|
Trust CS 2006-4
|
16,470
|
|
|
3.72
|
%
|
|
16,470
|
|
|
3.33
|
%
|
|
12/5/2006
|
|
1/30/2037
|
|
3 month LIBOR + 1.95
|
Trust CS 2006-5
|
6,650
|
|
|
3.72
|
%
|
|
6,650
|
|
|
3.33
|
%
|
|
12/19/2006
|
|
1/30/2037
|
|
3 month LIBOR + 1.95
|
Trust CS 2007-2
|
39,177
|
|
|
3.72
|
%
|
|
39,177
|
|
|
3.33
|
%
|
|
6/13/2007
|
|
7/30/2037
|
|
3 month LIBOR + 1.95
|
Trust I
(2)
|
—
|
|
|
—
|
%
|
|
6,186
|
|
|
3.64
|
%
|
|
12/10/2004
|
|
3/15/2035
|
|
3 month LIBOR + 2.05
|
Trust II
(2)
|
—
|
|
|
—
|
%
|
|
3,093
|
|
|
3.34
|
%
|
|
12/23/2005
|
|
3/15/2036
|
|
3 month LIBOR + 1.75
|
Trust III
(2)
|
—
|
|
|
—
|
%
|
|
3,093
|
|
|
3.44
|
%
|
|
6/30/2006
|
|
9/18/2036
|
|
3 month LIBOR + 1.85
|
Gross subordinated debentures
|
543,561
|
|
|
|
|
555,146
|
|
|
|
|
|
|
|
|
|
Unamortized discount
(3)
|
(91,338
|
)
|
|
|
|
(92,709
|
)
|
|
|
|
|
|
|
|
|
Net subordinated debentures
|
$
|
452,223
|
|
|
|
|
$
|
462,437
|
|
|
|
|
|
|
|
|
|
___________________
|
|
(1)
|
Denomination is in Euros with a value of
€25.8 million
.
|
|
|
(2)
|
Acquired in the CUB acquisition on October 20, 2017 and redeemed in the first quarter of 2018.
|
|
|
(3)
|
Amount represents the fair value adjustment on trust preferred securities assumed in acquisitions.
|
Interest payments made by the Company on subordinated debentures are considered dividend payments under FRB regulations. Bank holding companies, such as PacWest, are required to notify the FRB prior to declaring and paying a dividend during any period in which quarterly and/or cumulative twelve‑month net earnings are insufficient to fund the dividend amount, among other requirements.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 10. COMMITMENTS AND CONTINGENCIES
Lending Commitments
The Company 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 condensed consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
The following table presents a summary of the financial instruments described above as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2018
|
|
2017
|
|
(In thousands)
|
Loan commitments to extend credit
|
$
|
6,352,803
|
|
|
$
|
6,234,061
|
|
Standby letters of credit
|
337,678
|
|
|
320,063
|
|
Total
|
$
|
6,690,481
|
|
|
$
|
6,554,124
|
|
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. The increase in loan commitments to extend credit is primarily a result of the continued growth of our construction and venture capital portfolios.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. We provide standby letters of credit in conjunction with several of our lending arrangements and property lease obligations. Most guarantees expire within one year from the date of issuance. If a borrower defaults on its commitments subject to any letter of credit issued under these arrangements, we would be required to meet the borrower's financial obligation but would seek repayment of that financial obligation from the borrower. In some cases, borrowers have pledged cash and investment securities as collateral with us under these arrangements.
In addition, the Company invests in low income housing project partnerships, which provide income tax credits, and in small business investment companies that call for capital contributions up to an amount specified in the partnership agreements. As of
March 31, 2018
and
December 31, 2017
, we had commitments to contribute capital to these entities totaling
$79.4 million
and
$62.6 million
. We also had commitments to contribute up to an additional
$2.5 million
to private equity funds at
March 31, 2018
and
December 31, 2017
.
Legal Matters
In the ordinary course of our business, the Company is 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 currently available information, any resulting liability, in addition to amounts already accrued, and taking into consideration insurance which may be applicable, would not have a material adverse effect on the Company’s financial statements or operations.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 11. FAIR 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 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 municipal securities, agency residential and commercial MBS, collateralized loan obligations, registered publicly rated private label CMOs, and asset-backed securitizations.
|
|
|
•
|
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 non-rated private label CMOs, non-rated private label asset-backed securities, and equity warrants.
|
The Company uses fair value to measure certain assets and liabilities on a recurring basis, primarily securities available‑for‑sale and derivatives. For assets 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, CDI, and other long‑lived assets.
The following tables present information on the assets and liabilities measured and recorded at fair value on a recurring basis as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
March 31, 2018
|
Measured on a Recurring Basis
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Securities available‑for‑sale:
|
|
|
|
|
|
|
|
Residential MBS and CMOs:
|
|
|
|
|
|
|
|
Agency MBS
|
$
|
251,776
|
|
|
$
|
—
|
|
|
$
|
251,776
|
|
|
$
|
—
|
|
Agency CMOs
|
545,945
|
|
|
—
|
|
|
545,945
|
|
|
—
|
|
Private label CMOs
|
116,245
|
|
|
—
|
|
|
94,164
|
|
|
22,081
|
|
Municipal securities
|
1,403,586
|
|
|
—
|
|
|
1,403,586
|
|
|
—
|
|
Agency commercial MBS
|
1,089,494
|
|
|
—
|
|
|
1,089,494
|
|
|
—
|
|
U.S. Treasury securities
|
148,582
|
|
|
148,582
|
|
|
—
|
|
|
—
|
|
SBA securities
|
148,264
|
|
|
—
|
|
|
148,264
|
|
|
—
|
|
Asset-backed securities
|
79,734
|
|
|
—
|
|
|
43,316
|
|
|
36,418
|
|
Corporate debt securities
|
18,360
|
|
|
—
|
|
|
18,360
|
|
|
—
|
|
Total securities available-for-sale
|
3,801,986
|
|
|
148,582
|
|
|
3,594,905
|
|
|
58,499
|
|
Equity warrants
|
5,284
|
|
|
—
|
|
|
—
|
|
|
5,284
|
|
Other derivative assets
|
3,327
|
|
|
—
|
|
|
3,327
|
|
|
—
|
|
Equity investments with readily determinable fair values
|
5,028
|
|
|
5,028
|
|
|
—
|
|
|
—
|
|
Total recurring assets
|
$
|
3,815,625
|
|
|
$
|
153,610
|
|
|
$
|
3,598,232
|
|
|
$
|
63,783
|
|
Derivative liabilities
|
$
|
642
|
|
|
$
|
—
|
|
|
$
|
642
|
|
|
$
|
—
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
December 31, 2017
|
Measured on a Recurring Basis
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Securities available‑for‑sale:
|
|
|
|
|
|
|
|
Residential MBS and CMOs:
|
|
|
|
|
|
|
|
Agency MBS
|
$
|
246,274
|
|
|
$
|
—
|
|
|
$
|
246,274
|
|
|
$
|
—
|
|
Agency CMOs
|
275,709
|
|
|
—
|
|
|
275,709
|
|
|
—
|
|
Private label CMOs
|
125,987
|
|
|
—
|
|
|
103,113
|
|
|
22,874
|
|
Municipal securities
|
1,680,068
|
|
|
—
|
|
|
1,680,068
|
|
|
—
|
|
Agency commercial MBS
|
1,163,969
|
|
|
—
|
|
|
1,163,969
|
|
|
—
|
|
SBA securities
|
160,334
|
|
|
—
|
|
|
160,334
|
|
|
—
|
|
Asset-backed securities
|
88,710
|
|
|
—
|
|
|
46,601
|
|
|
42,109
|
|
Corporate debt securities
|
19,295
|
|
|
—
|
|
|
19,295
|
|
|
—
|
|
Collateralized loan obligations
|
7,015
|
|
|
—
|
|
|
7,015
|
|
|
—
|
|
Equity investments
|
7,070
|
|
|
5,922
|
|
|
1,148
|
|
|
—
|
|
Total securities available-for-sale
|
3,774,431
|
|
|
5,922
|
|
|
3,703,526
|
|
|
64,983
|
|
Equity warrants
|
5,161
|
|
|
—
|
|
|
—
|
|
|
5,161
|
|
Other derivative assets
|
1,873
|
|
|
—
|
|
|
1,873
|
|
|
—
|
|
Total recurring assets
|
$
|
3,781,465
|
|
|
$
|
5,922
|
|
|
$
|
3,705,399
|
|
|
$
|
70,144
|
|
Derivative liabilities
|
$
|
1,379
|
|
|
$
|
—
|
|
|
$
|
1,379
|
|
|
$
|
—
|
|
During the
three months ended
March 31, 2018
, there were
no
transfers of assets between Level 1 and Level 2, and there was a
$13,000
transfer of private label CMOs from Level 3 to Level 2 of the fair value hierarchy for assets measured on a recurring basis.
The following table presents information about quantitative inputs and assumptions used to determine the fair values provided by our third party pricing service for our Level 3 private label CMOs and asset-backed securities available-for-sale measured at fair value on a recurring basis as of the date indicated:
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Private Label CMOs
|
|
Asset-Backed Securities
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
Range
|
|
Average
|
|
Range
|
|
Average
|
Unobservable Inputs
|
of Inputs
|
|
Input
|
|
of Inputs
|
|
Input
|
Voluntary annual prepayment speeds
|
3.8% - 52.7%
|
|
8.3%
|
|
5% - 15%
|
|
14.0%
|
Annual default rates
|
0.1% - 16.5%
|
|
2.5%
|
|
1% - 2%
|
|
1.9%
|
Loss severity rates
|
3.2% - 105.7%
|
|
46.3%
|
|
10% - 60%
|
|
55.2%
|
Discount rates
|
2.0% - 10.3%
|
|
5.3%
|
|
3.2% - 4.3%
|
|
3.6%
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents information about quantitative inputs and assumptions used in the modified Black-Scholes option pricing model to determine the fair value for our Level 3 equity warrants measured at fair value on a recurring basis as of the date indicated:
|
|
|
|
March 31, 2018
|
|
Equity Warrants
|
|
Weighted
|
|
Average
|
Unobservable Inputs
|
Input
|
Volatility
|
16.8%
|
Risk-free interest rate
|
2.4%
|
Remaining life assumption (in years)
|
3.7
|
The following table summarizes activity for our Level 3 private label CMOs available-for-sale, asset-backed securities available-for-sale, and equity warrants measured at fair value on a recurring basis for the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
|
|
Asset-Backed
|
|
Equity
|
|
|
Label CMOs
|
|
Securities
|
|
Warrants
|
|
|
(In thousands)
|
Balance, December 31, 2017
|
|
$
|
22,874
|
|
|
$
|
42,109
|
|
|
$
|
5,161
|
|
Total included in earnings
|
|
165
|
|
|
(10
|
)
|
|
248
|
|
Total included in other comprehensive income
|
|
(141
|
)
|
|
(228
|
)
|
|
—
|
|
Issuances
|
|
—
|
|
|
—
|
|
|
206
|
|
Sales
|
|
—
|
|
|
—
|
|
|
(331
|
)
|
Transfer to Level 2
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
Net settlements
|
|
(804
|
)
|
|
(5,453
|
)
|
|
—
|
|
Balance, March 31, 2018
|
|
$
|
22,081
|
|
|
$
|
36,418
|
|
|
$
|
5,284
|
|
The following tables present assets measured at fair value on a non‑recurring basis as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of
|
|
March 31, 2018
|
Measured on a Non‑Recurring Basis
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Impaired loans
|
$
|
45,557
|
|
|
$
|
—
|
|
|
$
|
1,128
|
|
|
$
|
44,429
|
|
OREO
|
953
|
|
|
—
|
|
|
953
|
|
|
—
|
|
Total non-recurring
|
$
|
46,510
|
|
|
$
|
—
|
|
|
$
|
2,081
|
|
|
$
|
44,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of
|
|
December 31, 2017
|
Measured on a Non‑Recurring Basis
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Impaired Non‑PCI loans
|
$
|
61,095
|
|
|
$
|
—
|
|
|
$
|
5,143
|
|
|
$
|
55,952
|
|
Loans held for sale
|
483,563
|
|
|
—
|
|
|
483,563
|
|
|
—
|
|
Total non-recurring
|
$
|
544,658
|
|
|
$
|
—
|
|
|
$
|
488,706
|
|
|
$
|
55,952
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents losses recognized on assets measured on a nonrecurring basis for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Losses on Assets
|
March 31,
|
Measured on a Non‑Recurring Basis
|
2018
|
|
2017
|
|
(In thousands)
|
Impaired loans
(1)
|
$
|
7,816
|
|
|
$
|
13,617
|
|
OREO
|
65
|
|
|
—
|
|
Total losses
|
$
|
7,881
|
|
|
$
|
13,617
|
|
__________________________
|
|
(1)
|
Loss for 2018 period relates to total loans. Loss for 2017 period relates to Non-PCI loans.
|
The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of the date indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
Valuation
|
|
Unobservable
|
|
|
|
Weighted
|
Asset
|
|
Fair Value
|
|
Technique
|
|
Inputs
|
|
Range
|
|
Average
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
32,638
|
|
|
Discounted cash flows
|
|
Discount rates
|
|
2.00% - 10.20%
|
|
7.33%
|
Impaired loans
|
|
11,791
|
|
|
Third party appraisals
|
|
No discounts
|
|
|
|
|
Total non-recurring Level 3
|
|
$
|
44,429
|
|
|
|
|
|
|
|
|
|
ASC Topic 825, “
Financial Instruments,
” (as amended by ASU 2016-01 and ASU 2018-03) 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.
On January 1, 2018, we adopted ASU 2016-01 and ASU 2018-03 which requires the use of the exit price notion when measuring the fair values of financial instruments for disclosure purposes. Starting in the first quarter of 2018, we updated our methodology used to estimate fair values for our loan portfolios to conform to the new requirements.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Carrying
|
|
Estimated Fair Value
|
|
Amount
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(
In thousands
)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
235,061
|
|
|
$
|
235,061
|
|
|
$
|
235,061
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest‑earning deposits in financial institutions
|
312,735
|
|
|
312,735
|
|
|
312,735
|
|
|
—
|
|
|
—
|
|
Securities available‑for‑sale
|
3,801,986
|
|
|
3,801,986
|
|
|
148,582
|
|
|
3,594,905
|
|
|
58,499
|
|
Investment in FHLB stock
|
17,250
|
|
|
17,250
|
|
|
—
|
|
|
17,250
|
|
|
—
|
|
Loans and leases held for investment, net
|
16,321,010
|
|
|
16,247,325
|
|
|
—
|
|
|
1,128
|
|
|
16,246,197
|
|
Equity warrants
|
5,284
|
|
|
5,284
|
|
|
—
|
|
|
—
|
|
|
5,284
|
|
Other derivative assets
|
3,327
|
|
|
3,327
|
|
|
—
|
|
|
3,327
|
|
|
—
|
|
Equity investments with readily determinable fair values
|
5,028
|
|
|
5,028
|
|
|
5,028
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Core deposits
|
15,661,529
|
|
|
15,661,529
|
|
|
—
|
|
|
15,661,529
|
|
|
—
|
|
Non-core non-maturity deposits
|
585,399
|
|
|
585,399
|
|
|
—
|
|
|
585,399
|
|
|
—
|
|
Time deposits
|
1,831,860
|
|
|
1,820,330
|
|
|
—
|
|
|
1,820,330
|
|
|
—
|
|
Borrowings
|
575,284
|
|
|
575,285
|
|
|
575,000
|
|
|
285
|
|
|
—
|
|
Subordinated debentures
|
452,223
|
|
|
435,985
|
|
|
—
|
|
|
435,985
|
|
|
—
|
|
Derivative liabilities
|
642
|
|
|
642
|
|
|
—
|
|
|
642
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Carrying
|
|
Estimated Fair Value
|
|
Amount
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(
In thousands
)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
233,215
|
|
|
$
|
233,215
|
|
|
$
|
233,215
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest‑earning deposits in financial institutions
|
165,222
|
|
|
165,222
|
|
|
165,222
|
|
|
—
|
|
|
—
|
|
Securities available‑for‑sale
|
3,774,431
|
|
|
3,774,431
|
|
|
5,922
|
|
|
3,703,526
|
|
|
64,983
|
|
Investment in FHLB stock
|
20,790
|
|
|
20,790
|
|
|
—
|
|
|
20,790
|
|
|
—
|
|
Loans held for sale
|
481,100
|
|
|
483,563
|
|
|
—
|
|
|
483,563
|
|
|
—
|
|
Loans and leases held for investment, net
|
16,833,287
|
|
|
17,023,098
|
|
|
—
|
|
|
5,143
|
|
|
17,017,955
|
|
Equity warrants
|
5,161
|
|
|
5,161
|
|
|
—
|
|
|
—
|
|
|
5,161
|
|
Other derivative assets
|
1,873
|
|
|
1,873
|
|
|
—
|
|
|
1,873
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Core deposits
|
15,937,012
|
|
|
15,937,012
|
|
|
—
|
|
|
15,937,012
|
|
|
—
|
|
Non-core non-maturity deposits
|
863,202
|
|
|
863,202
|
|
|
—
|
|
|
863,202
|
|
|
—
|
|
Time deposits
|
2,065,322
|
|
|
2,055,104
|
|
|
—
|
|
|
2,055,104
|
|
|
—
|
|
Borrowings
|
467,342
|
|
|
467,342
|
|
|
467,000
|
|
|
342
|
|
|
—
|
|
Subordinated debentures
|
462,437
|
|
|
444,383
|
|
|
—
|
|
|
444,383
|
|
|
—
|
|
Derivative liabilities
|
1,379
|
|
|
1,379
|
|
|
—
|
|
|
1,379
|
|
|
—
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
For information regarding 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, as amended by ASU 2016-01 and ASU 2018-03), see Note 1.
Nature of Operations and Summary of Significant Accounting Policies,
and Note 12.
Fair Value
Measurements,
to the Consolidated Financial Statements of the Company's
2017
Annual Report on Form 10-K.
Limitations
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 reasonable 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
March 31, 2018
, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.
NOTE 12. EARNINGS PER SHARE
The following table presents the computations of basic and diluted net earnings per share for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
December 31,
|
|
March 31,
|
|
2018
|
|
2017
|
|
2017
|
|
(Dollars in thousands, except per share data)
|
Basic Earnings Per Share:
|
|
|
|
|
|
Net earnings
|
$
|
118,276
|
|
|
$
|
84,037
|
|
|
$
|
78,668
|
|
Less: Earnings allocated to unvested restricted stock
(1)
|
(1,115
|
)
|
|
(951
|
)
|
|
(999
|
)
|
Net earnings allocated to common shares
|
$
|
117,161
|
|
|
$
|
83,086
|
|
|
$
|
77,669
|
|
|
|
|
|
|
|
Weighted-average basic shares and unvested restricted
|
|
|
|
|
|
stock outstanding
|
127,487
|
|
|
127,971
|
|
|
121,346
|
|
Less: Weighted-average unvested restricted stock
|
|
|
|
|
|
outstanding
|
(1,413
|
)
|
|
(1,440
|
)
|
|
(1,503
|
)
|
Weighted-average basic shares outstanding
|
126,074
|
|
|
126,531
|
|
|
119,843
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.93
|
|
|
$
|
0.66
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
Net earnings allocated to common shares
|
$
|
117,161
|
|
|
$
|
83,086
|
|
|
$
|
77,669
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
126,074
|
|
|
126,531
|
|
|
119,843
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.93
|
|
|
$
|
0.66
|
|
|
$
|
0.65
|
|
________________________
|
|
(1)
|
Represents cash dividends paid to holders of unvested restricted stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 13. REVENUE FROM CONTRACTS WITH CUSTOMERS
The Company adopted Topic 606
Revenue from Contracts with Customers
effective as of January 1, 2018 and has applied the guidance to all contracts within the scope of Topic 606 as of that date. Revenue from contracts with customers in the scope of Topic 606 is measured based on the consideration specified in the contract with a customer, and excludes amounts collected on behalf of third parties. The Company recognizes revenue from contracts with customers when it satisfies its performance obligations. The Company's performance obligations are typically satisfied as services are rendered and payment is generally collected at the time services are rendered, or on a monthly, quarterly or annual basis. The Company had no material unsatisfied performance obligations as of March 31, 2018.
In certain cases, other parties are involved with providing products and services to our customers. If the Company is a principal in the transaction (providing goods or services itself), revenues are reported based on the gross consideration received from the customer and any related expenses are reported gross in noninterest expense. If the Company is an agent in the transaction (arranging for another party to provide goods or services), the Company reports its net fee or commission retained as revenue. Rebates, waivers, and reversals are recorded as a reduction of revenue either when the revenue is recognized by the Company or at the time the rebate, waiver, or reversal is earned by the customer.
The Company has elected the following practical expedients: (1) we do not disclose information about remaining performance obligations that have original expected durations of one year or less; and (2) we do not adjust the consideration from customers for the effects of a significant financing component if at contract inception the period between when the Company transfers the goods or services and when the customer pays for that good or service will be one year or less.
Nature of Goods and Service
s
Substantially all of the Company's revenue, such as interest income on loans, investment securities, and interest-earning deposits in financial institutions, is specifically out-of-scope of Topic 606. For the revenue that is in-scope, the following is a description of principal activities, separated by the timing of revenue recognition, from which the Company generates its revenue from contracts with customers:
|
|
•
|
Revenue earned at a point in time.
Examples of revenue earned at a point in time are ATM transaction fees, wire transfer fees, NSF fees, and credit and debit card interchange fees. Revenue is generally derived from transactional information accumulated by our systems and is recognized as revenue immediately as the transactions occur or upon providing the service to complete the customer's transaction. The Company is the principal in each of these contracts with the exception of credit and debit card interchange fees, in which case the Company is acting as the agent and records revenue net of expenses paid to the principal.
|
|
|
•
|
Revenue earned over time.
The Company earns certain revenue from contracts with customers monthly. Examples of this type of revenue are deposit account service fees, investment management fees, merchant referral services, MasterCard marketing incentives and safe deposit box fees. Account service charges, management fees and referral fees are recognized on a monthly basis while any transaction-based revenue is recorded as the activity occurs. Revenue is primarily based on the number and type of transactions and is generally derived from transactional information accumulated by our systems. Revenue is recorded in the same period as the related transactions occur or services are rendered to the customer.
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Disaggregation of Revenue
The following table presents interest income and noninterest income, the components of total revenue, as disclosed in the condensed consolidated statements of earnings and the related amounts which are from contracts with customers within the scope of Topic 606. As illustrated here, substantially all of our revenue is specifically excluded from the scope of Topic 606.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Total
|
|
Revenue from
|
|
Recorded
|
|
Contracts With
|
|
Revenue
|
|
Customers
|
|
(In thousands)
|
Total interest income
|
$
|
277,775
|
|
|
$
|
—
|
|
Noninterest income:
|
|
|
|
Service charges on deposit accounts
|
4,174
|
|
|
4,174
|
|
Other commissions and fees
|
10,265
|
|
|
4,651
|
|
Leased equipment income
|
9,587
|
|
|
—
|
|
Gain on sale of loans
|
4,569
|
|
|
—
|
|
Gain on sale of securities
|
6,311
|
|
|
—
|
|
Other income
|
3,653
|
|
|
461
|
|
Total noninterest income
|
38,559
|
|
|
9,286
|
|
Total revenue
|
$
|
316,334
|
|
|
$
|
9,286
|
|
The following table presents revenue from contracts with customers based on the timing of revenue recognition for the period indicated:
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2018
|
|
(In thousands)
|
Products and services transferred at a point in time
|
$
|
4,661
|
|
Products and services transferred over time
|
4,625
|
|
Total revenue from contracts with customers
|
$
|
9,286
|
|
Contract Balances
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:
|
|
|
|
|
|
March 31, 2018
|
|
(In thousands)
|
Receivables, which are included in "Other assets"
|
$
|
1,438
|
|
Contract assets, which are included in "Other assets"
|
$
|
—
|
|
Contract liabilities, which are included in "Interest payable and other liabilities"
|
$
|
719
|
|
Contract liabilities relate to advance consideration received from customers for which revenue is recognized over the life of the contract. The change in contract liabilities for the
three months ended
March 31, 2018
due to revenue recognized that was included in the contract liability balance at the beginning of the period was
$33,000
.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 14. STOCK-BASED COMPENSATION
The Company’s 2017 Stock Incentive Plan, or the 2017 Plan, permits stock-based compensation awards to officers, directors, employees, and consultants. As of
March 31, 2018
, the 2017 Plan authorized grants of stock‑based compensation instruments to purchase or issue up to
4,000,000
shares of Company common stock. As of
March 31, 2018
, there were
3,537,972
shares available for grant under the 2017 Plan. Though frozen for new issuances, certain awards issued under the 2003 Stock Incentive Plan, or the 2003 Plan, remain outstanding.
Restricted Stock
Restricted stock amortization totaled
$7.2 million
,
$5.4 million
, and
$6.5 million
for the
three months ended
March 31, 2018
,
December 31, 2017
and
March 31, 2017
. Such amounts are included in "Compensation expense" on the condensed consolidated statements of earnings. The amount of unrecognized compensation expense related to unvested TRSAs and PRSUs as of
March 31, 2018
totaled
$52.1 million
.
Time-Based Restricted Stock Awards
At
March 31, 2018
, there were
1,383,914
shares of unvested TRSAs outstanding pursuant to the Company's 2003 and 2017 Stock Incentive Plans (the "Plans"). The TRSAs generally vest ratably over a service period of
three
or
four
years from the date of the grant or immediately upon death of an employee. Compensation expense related to TRSAs 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.
Performance-Based Restricted Stock Units
At
March 31, 2018
, there were
325,741
unvested PRSUs granted. The PRSUs will vest only if performance goals with respect to certain financial metrics are met over a
three
-year performance period. The PRSUs are not considered issued and outstanding under either the 2017 Plan or the 2003 Plan until they vest. PRSUs are granted and initially expensed based on a target number. The number of shares that will ultimately vest based on actual performance will range from
zero
to a maximum of either
150%
or
200%
of target. Compensation expense related to PRSUs is based on the fair value of the underlying stock on the award date and is amortized over the vesting period using the straight-line method unless it is determined that: (1) attainment of the financial metrics is less than probable, in which case a portion of the amortization is suspended, or (2) attainment of the financial metrics is improbable, in which case a portion of the previously recognized amortization is reversed and also suspended. If it is determined that attainment of a financial measure higher than target is probable, the amortization will increase to up to
150%
or
200%
of the target amortization amount. Annual PRSU expense may vary during the
three
-year performance period based upon changes in management's estimate of the number of shares that may ultimately vest. In the case where the performance target for the PRSU is based on a market condition (such as total shareholder return), the amortization is neither reversed nor suspended if it is subsequently determined that the attainment of the performance target is less than probable or improbable.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 15. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 2016, the FASB issued ASU 2016-02, "
Leases (Topic 842)
," which, among other things, requires lessees to recognize most leases on-balance sheet, which will result in an increase in their reported assets and liabilities. Lessor accounting remains substantially similar to current U.S. GAAP. ASU 2016-02 supersedes Topic 840,
Leases,
and is effective for annual and interim periods in fiscal years beginning after December 15, 2018. There have been further amendments, including practical expedients, with the issuance of ASU 2018-01, “
Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842”
in January 2018.
The FASB has also approved an optional transition method when adopting Topic 842, which would allow companies to elect not to adjust their comparative period financial information, and effectively apply the requirements of the new standard prospectively. The Company will adopt the standard effective January 1, 2019. The Company has reviewed its current lessee portfolio and is assessing the impact of the new standard on its financial statements, related disclosures, systems, and internal controls. The accounting changes are expected to relate primarily to its leased branches and office space which are currently accounted for as operating leases. The Company is on track with its implementation plan which includes a new software solution and procedures. The Company has not yet determined the quantitative effect ASU 2016-02 will have on its consolidated financial position and results of operations. For information on the Company's future minimum lease payments refer to Note 8.
Premises and Equipment, Net
in our Annual Report on Form 10-K for the year ended
December 31, 2017
.
In June 2016, the FASB issued ASU 2016-13, "
Measurement of Credit Losses on Financial Instruments,"
which significantly changes the way entities recognize credit losses and impairment of financial assets recorded at amortized cost. Currently, the credit loss and impairment model for loans and leases is based on incurred losses, and investments are recognized as impaired when there is no longer an assumption that future cash flows will be collected in full under the originally contracted terms. Under the new current expected credit loss ("CECL") model, the standard requires immediate recognition of estimated credit losses expected to occur over the remaining life of the asset. The forward-looking concept of CECL to estimate future credit losses will broaden the range of data to consider including, but not limited to, past and current events and conditions along with reasonable and supportable forecasts that affect expected collectability. The new standard will also add new disclosure requirements.
The Company has established a multidisciplinary project team, developed an implementation plan, selected a software solution, completed the readiness assessment, and is engaged in the implementation phase of the project. The Company, with the assistance of a third party adviser, is working on: (1) developing a new expected loss model with supportable assumptions, (2) identifying data, reporting, and disclosure gaps, (3) assessing updates to accounting policies, and (4) documenting new processes and controls. ASU 2016-13 is effective for interim and annual periods in fiscal years beginning after December 15, 2019, with earlier adoption permitted. The Company plans to adopt this standard on January 1, 2020. Entities are required to use a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted (modified-retrospective approach). A prospective transition approach is required for debt securities for which an other-than-temporary impairment had been recognized before the adoption date. The new standard will be significant to the policies, processes, and methodology used to determine credit losses, however the Company has not yet determined the quantitative effect ASU 2016-13 will have on its consolidated financial position and results of operations.
In January 2017, the FASB issued ASU 2017-04, "
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,"
which intends to simplify goodwill impairment testing by eliminating the second step of the analysis under which the implied fair value of goodwill is determined as if the reporting unit were being acquired in a business combination. ASU 2017-04 instead requires entities to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for any amount by which the carrying amount exceeds the reporting unit's fair value, to the extent that the loss recognized does not exceed the amount of goodwill allocated to that reporting unit. ASU 2017-04 must be applied prospectively and is effective for the Company on January 1, 2020. Early adoption is permitted. The Company does not expect ASU 2017-04 to have a material impact on its consolidated financial position or results of operations.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 16. SUBSEQUENT EVENTS
Common Stock Dividends
On
April 24, 2018
, the Company announced that the Board of Directors had declared a quarterly cash dividend of
$0.60
per common share. The cash dividend is payable on
May 31, 2018
to stockholders of record at the close of business on
May 21, 2018
.
The Company has evaluated events that have occurred subsequent to
March 31, 2018
and have concluded there are
no
other subsequent events that would require recognition in the accompanying consolidated financial statements.