PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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|
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|
|
|
|
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|
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|
|
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Three Months Ended March 31, 2019
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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 (Loss)
|
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Total
|
|
(Unaudited)
|
|
(Dollars in thousands)
|
Balance, December 31, 2018
|
123,189,833
|
|
|
$
|
1,251
|
|
|
$
|
3,722,723
|
|
|
$
|
1,182,674
|
|
|
$
|
(74,985
|
)
|
|
$
|
(6,075
|
)
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|
$
|
4,825,588
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Cumulative effect of change in
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accounting principle
(1)
|
—
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|
|
—
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|
|
—
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|
|
938
|
|
|
—
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|
|
—
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|
|
938
|
|
Net earnings
|
—
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|
|
—
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|
|
—
|
|
|
112,604
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|
|
—
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|
|
—
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|
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112,604
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Other comprehensive income - net
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|
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|
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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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|
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—
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|
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—
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|
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43,333
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43,333
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Restricted stock awarded and
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earned stock compensation,
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|
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net of shares forfeited
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195,536
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|
2
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|
|
5,806
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|
|
—
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|
|
—
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|
|
—
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|
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5,808
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Restricted stock surrendered
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(113,544
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)
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|
—
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|
|
—
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|
|
—
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|
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(4,522
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)
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|
—
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(4,522
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)
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Common stock repurchased under
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|
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Stock Repurchase Program
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(3,070,676
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)
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|
(31
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)
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(119,556
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)
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|
—
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|
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—
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|
|
—
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|
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(119,587
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)
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Cash dividends paid:
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|
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|
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|
|
|
|
|
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|
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Common stock, $0.60/share
|
—
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|
|
—
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|
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(73,180
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)
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|
—
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|
|
—
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|
|
—
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|
|
(73,180
|
)
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Balance, March 31, 2019
|
120,201,149
|
|
|
$
|
1,222
|
|
|
$
|
3,535,793
|
|
|
$
|
1,296,216
|
|
|
$
|
(79,507
|
)
|
|
$
|
37,258
|
|
|
$
|
4,790,982
|
|
________________________
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|
(1)
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Impact due to adoption on January 1, 2019 of ASU 2016-02, "
Leases
(Topic 842),"
and the related amendments.
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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
|
|
Retained
|
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Treasury
|
|
Comprehensive
|
|
|
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Shares
|
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Value
|
|
Capital
|
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Earnings
|
|
Stock
|
|
Income (Loss)
|
|
Total
|
|
(Unaudited)
|
|
(Dollars in thousands)
|
Balance, December 31, 2017
|
128,782,878
|
|
|
$
|
1,305
|
|
|
$
|
4,287,487
|
|
|
$
|
723,471
|
|
|
$
|
(65,836
|
)
|
|
$
|
31,171
|
|
|
$
|
4,977,598
|
|
Cumulative effect of changes in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounting principles
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,136
|
)
|
|
—
|
|
|
6,136
|
|
|
—
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
118,276
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|
|
—
|
|
|
—
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|
|
118,276
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Other comprehensive loss - net
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unrealized loss 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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|
|
—
|
|
|
(49,243
|
)
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|
(49,243
|
)
|
Restricted stock awarded and
|
|
|
|
|
|
|
|
|
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earned stock compensation,
|
|
|
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|
|
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|
net of shares forfeited
|
96,034
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|
|
1
|
|
|
7,198
|
|
|
—
|
|
|
—
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|
|
—
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|
|
7,199
|
|
Restricted stock surrendered
|
(55,186
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,858
|
)
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|
—
|
|
|
(2,858
|
)
|
Common stock repurchased under
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Repurchase Program
|
(2,285,855
|
)
|
|
(23
|
)
|
|
(119,770
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(119,793
|
)
|
Cash dividends paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.50/share
|
—
|
|
|
—
|
|
|
(63,689
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(63,689
|
)
|
Balance, March 31, 2018
|
126,537,871
|
|
|
$
|
1,283
|
|
|
$
|
4,111,226
|
|
|
$
|
835,611
|
|
|
$
|
(68,694
|
)
|
|
$
|
(11,936
|
)
|
|
$
|
4,867,490
|
|
________________________
|
|
(2)
|
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
|
|
March 31,
|
|
2019
|
|
2018
|
|
(Unaudited)
|
|
(In thousands)
|
Cash flows from operating activities:
|
|
|
|
Net earnings
|
$
|
112,604
|
|
|
$
|
118,276
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
Depreciation and amortization
|
9,287
|
|
|
8,751
|
|
Amortization of net premiums on securities available-for-sale
|
4,142
|
|
|
8,432
|
|
Amortization of intangible assets
|
4,870
|
|
|
6,346
|
|
Amortization of ROU assets
|
7,608
|
|
|
—
|
|
Provision for credit losses
|
4,000
|
|
|
4,000
|
|
Gain on sale of foreclosed assets
|
(191
|
)
|
|
—
|
|
Provision for losses on foreclosed assets
|
—
|
|
|
65
|
|
Gain on sale of loans and leases
|
—
|
|
|
(4,569
|
)
|
Loss on sale of premises and equipment
|
3
|
|
|
7
|
|
Gain on sale of securities
|
(2,161
|
)
|
|
(6,311
|
)
|
Unrealized loss (gain) on derivatives and foreign currencies, net
|
16
|
|
|
(605
|
)
|
Earned stock compensation
|
5,808
|
|
|
7,199
|
|
Decrease in deferred income taxes, net
|
14,714
|
|
|
7,153
|
|
Decrease in other assets
|
37,434
|
|
|
38,208
|
|
Decrease in accrued interest payable and other liabilities
|
(46,241
|
)
|
|
(50,969
|
)
|
Net cash provided by operating activities
|
151,893
|
|
|
135,983
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
Net (increase) decrease in loans and leases
|
(391,621
|
)
|
|
382,590
|
|
Proceeds from sales of loans and leases
|
16,937
|
|
|
615,376
|
|
Proceeds from maturities and paydowns of securities available-for-sale
|
67,325
|
|
|
75,125
|
|
Proceeds from sales of securities available-for-sale
|
407,926
|
|
|
306,253
|
|
Purchases of securities available-for-sale
|
(402,030
|
)
|
|
(487,105
|
)
|
Net redemptions of Federal Home Loan Bank stock
|
2,673
|
|
|
3,540
|
|
Proceeds from sales of foreclosed assets
|
2,236
|
|
|
28
|
|
Purchases of premises and equipment, net
|
(5,625
|
)
|
|
(3,997
|
)
|
Net decrease in equipment leased to others under operating leases
|
(6,709
|
)
|
|
(1,241
|
)
|
Net cash (used in) provided by investing activities
|
(308,888
|
)
|
|
890,569
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
Net decrease in noninterest-bearing deposits
|
(176,506
|
)
|
|
(275,579
|
)
|
Net increase (decrease) in interest-bearing deposits
|
591,932
|
|
|
(510,844
|
)
|
Net increase in borrowings
|
109,973
|
|
|
107,942
|
|
Net decrease in subordinated debentures
|
—
|
|
|
(12,372
|
)
|
Common stock repurchased and restricted stock surrendered
|
(124,109
|
)
|
|
(122,651
|
)
|
Cash dividends paid
|
(73,180
|
)
|
|
(63,689
|
)
|
Net cash provided by (used in) financing activities
|
328,110
|
|
|
(877,193
|
)
|
|
|
|
|
Net increase in cash, cash equivalents, and restricted cash
|
171,115
|
|
|
149,359
|
|
Cash, cash equivalents, and restricted cash, beginning of period
|
385,767
|
|
|
398,437
|
|
Cash, cash equivalents, and restricted cash, end of period
|
$
|
556,882
|
|
|
$
|
547,796
|
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
|
(Unaudited)
|
|
(In thousands)
|
Supplemental disclosures of cash flow information:
|
|
|
|
Cash paid for interest
|
$
|
46,197
|
|
|
$
|
17,515
|
|
Cash paid for income taxes
|
2,778
|
|
|
3,790
|
|
Loans transferred to foreclosed assets
|
37
|
|
|
—
|
|
Transfers from loans held for investment to loans held for sale
|
25,124
|
|
|
—
|
|
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. The Bank offers a broad range of loan and lease and deposit products and services through
74
full-service branches located throughout the State of California,
one
branch located in Durham, North Carolina, and numerous loan production offices across the country through its Community Banking, National Lending and Venture Banking groups. Community Banking provides real estate loans, commercial loans, and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices. National Lending provides asset-based, equipment, real estate, and security cash flow loans and treasury management services to established middle-market businesses on a national basis. Venture Banking 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 Pacific Western 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 interest paid by the Bank on deposits and borrowings, compensation, occupancy, and general operating expenses.
We have completed
29
acquisitions from May 1, 2000 through
March 31, 2019
. 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.
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, 2018
as filed with the Securities and Exchange Commission ("Form 10-K").
Accounting Standards Adopted in 2019
Effective January 1, 2019, the Company adopted ASU 2016-02, "
Leases (Topic 842),
" and the related amendments to this new standard issued in 2018. ASU 2016-02 supersedes Topic 840, “
Leases,”
and is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Company adopted the new standard using the optional transition method under ASU 2018-11, “
Leases (Topic 842): Targeted Improvements,
” and recognized a cumulative effect adjustment to increase retained earnings by
$938,000
, net of taxes, without restating prior periods and applying the requirements of the new standard prospectively. The Company has elected the following practical expedients: (1) to not separate lease and non-lease components for facilities leases; (2) to not reassess whether any expired or existing contracts are or contain leases and to maintain existing lease classifications; (3) to not record short-term leases (initial term less than 12 months) on the balance sheet; and (4) to elect to present sales tax on a net basis for those transactions in which the Company's the lessor.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The standard had a significant impact on our condensed consolidated balance sheet, but did not have a significant impact on our condensed consolidated statement of earnings. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for leases as a lessor remained substantially unchanged. The ROU asset is included within "Other assets," while the ROU liability is included within "Accrued interest payable and other liabilities". See Note 8.
Leases
and Note 7.
Other Assets
for further details.
Effective January 1, 2019, the Company early-adopted any removed or modified disclosures as permitted by ASU 2018-13, “
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurements,”
but will defer adoption of the additional disclosures until the effective date of January 1, 2020 as permitted in the transition guidance in ASU 2018-13.
Effective January 1, 2019, the Company early-adopted ASU 2018-15, “
Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (a consensus of the FASB Emerging Issues Task Force),"
which aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. The new guidance also prescribes the balance sheet, income statement, and cash flow classification of the capitalized implementation costs and related amortization expense, and requires additional quantitative and qualitative disclosures. The Company opted to apply ASU 2018-15 prospectively. The primary effect of the provisions is to capitalize eligible implementation costs during the application development phase and to amortize those costs over the life of the agreement. There was no significant impact to our condensed consolidated financial statements from the adoption of this new standard.
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 combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments), 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
None.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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, 2019
and year ended
December 31, 2018
were
$92.2 million
and
$77.0 million
. As of
March 31, 2019
and
December 31, 2018
, we pledged cash collateral for our derivative contracts of
$2.3 million
and
$2.6 million
.
NOTE 3. 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, 2019
|
|
December 31, 2018
|
|
|
|
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
|
$
|
340,184
|
|
|
$
|
3,990
|
|
|
$
|
(998
|
)
|
|
$
|
343,176
|
|
|
$
|
281,486
|
|
|
$
|
1,902
|
|
|
$
|
(2,300
|
)
|
|
$
|
281,088
|
|
Agency CMOs
|
712,090
|
|
|
8,625
|
|
|
(2,939
|
)
|
|
717,776
|
|
|
634,774
|
|
|
3,448
|
|
|
(5,372
|
)
|
|
632,850
|
|
Private label CMOs
|
121,981
|
|
|
2,205
|
|
|
(939
|
)
|
|
123,247
|
|
|
101,313
|
|
|
1,985
|
|
|
(2,093
|
)
|
|
101,205
|
|
Municipal securities
|
1,145,963
|
|
|
40,748
|
|
|
(1,710
|
)
|
|
1,185,001
|
|
|
1,298,514
|
|
|
21,000
|
|
|
(7,320
|
)
|
|
1,312,194
|
|
Agency commercial MBS
|
1,079,816
|
|
|
4,460
|
|
|
(5,365
|
)
|
|
1,078,911
|
|
|
1,133,846
|
|
|
383
|
|
|
(21,525
|
)
|
|
1,112,704
|
|
U.S. Treasury securities
|
287,721
|
|
|
2,996
|
|
|
—
|
|
|
290,717
|
|
|
401,056
|
|
|
2,437
|
|
|
(88
|
)
|
|
403,405
|
|
Asset-backed securities
|
185,592
|
|
|
80
|
|
|
(516
|
)
|
|
185,156
|
|
|
81,762
|
|
|
104
|
|
|
(481
|
)
|
|
81,385
|
|
SBA securities
|
52,361
|
|
|
2
|
|
|
(339
|
)
|
|
52,024
|
|
|
68,158
|
|
|
—
|
|
|
(1,111
|
)
|
|
67,047
|
|
Corporate debt securities
|
17,000
|
|
|
1,700
|
|
|
—
|
|
|
18,700
|
|
|
17,000
|
|
|
553
|
|
|
—
|
|
|
17,553
|
|
Total
|
$
|
3,942,708
|
|
|
$
|
64,806
|
|
|
$
|
(12,806
|
)
|
|
$
|
3,994,708
|
|
|
$
|
4,017,909
|
|
|
$
|
31,812
|
|
|
$
|
(40,290
|
)
|
|
$
|
4,009,431
|
|
See Note 11.
Fair Value Measurements
for information on fair value measurements and methodology.
As of
March 31, 2019
, securities available-for-sale with a fair value of
$495.4 million
were pledged as collateral for borrowings, public deposits, and other purposes as required by various statutes and agreements.
Realized Gains and Losses on Securities Available-for-Sale
During the three months ended
March 31, 2019
, we sold
$405.8 million
of securities available-for-sale for a gross realized gain of
$4.1 million
and a gross realized loss of
$1.9 million
. 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
.
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, 2019
|
|
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
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
80,472
|
|
|
$
|
(998
|
)
|
|
$
|
80,472
|
|
|
$
|
(998
|
)
|
Agency CMOs
|
—
|
|
|
—
|
|
|
148,729
|
|
|
(2,939
|
)
|
|
148,729
|
|
|
(2,939
|
)
|
Private label CMOs
|
10,003
|
|
|
(6
|
)
|
|
74,242
|
|
|
(933
|
)
|
|
84,245
|
|
|
(939
|
)
|
Municipal securities
|
—
|
|
|
—
|
|
|
119,130
|
|
|
(1,710
|
)
|
|
119,130
|
|
|
(1,710
|
)
|
Agency commercial MBS
|
—
|
|
|
—
|
|
|
611,315
|
|
|
(5,365
|
)
|
|
611,315
|
|
|
(5,365
|
)
|
Asset-backed securities
|
80,287
|
|
|
(321
|
)
|
|
19,136
|
|
|
(195
|
)
|
|
99,423
|
|
|
(516
|
)
|
SBA securities
|
—
|
|
|
—
|
|
|
50,239
|
|
|
(339
|
)
|
|
50,239
|
|
|
(339
|
)
|
Total
|
$
|
90,290
|
|
|
$
|
(327
|
)
|
|
$
|
1,103,263
|
|
|
$
|
(12,479
|
)
|
|
$
|
1,193,553
|
|
|
$
|
(12,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 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
|
$
|
60,164
|
|
|
$
|
(169
|
)
|
|
$
|
85,245
|
|
|
$
|
(2,131
|
)
|
|
$
|
145,409
|
|
|
$
|
(2,300
|
)
|
Agency CMOs
|
69,859
|
|
|
(326
|
)
|
|
164,097
|
|
|
(5,046
|
)
|
|
233,956
|
|
|
(5,372
|
)
|
Private label CMOs
|
32,170
|
|
|
(831
|
)
|
|
49,237
|
|
|
(1,262
|
)
|
|
81,407
|
|
|
(2,093
|
)
|
Municipal securities
|
52,386
|
|
|
(238
|
)
|
|
284,915
|
|
|
(7,082
|
)
|
|
337,301
|
|
|
(7,320
|
)
|
Agency commercial MBS
|
40,641
|
|
|
(341
|
)
|
|
1,020,684
|
|
|
(21,184
|
)
|
|
1,061,325
|
|
|
(21,525
|
)
|
U.S. Treasury securities
|
49,729
|
|
|
(88
|
)
|
|
—
|
|
|
—
|
|
|
49,729
|
|
|
(88
|
)
|
Asset-backed securities
|
11,548
|
|
|
(38
|
)
|
|
35,859
|
|
|
(443
|
)
|
|
47,407
|
|
|
(481
|
)
|
SBA securities
|
249
|
|
|
(1
|
)
|
|
66,798
|
|
|
(1,110
|
)
|
|
67,047
|
|
|
(1,111
|
)
|
Total
|
$
|
316,746
|
|
|
$
|
(2,032
|
)
|
|
$
|
1,706,835
|
|
|
$
|
(38,258
|
)
|
|
$
|
2,023,581
|
|
|
$
|
(40,290
|
)
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
We reviewed the securities that were in an unrealized loss position at
March 31, 2019
, 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.
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, 2019
|
|
Amortized
|
|
Fair
|
Maturities
|
Cost
|
|
Value
|
|
(In thousands)
|
Due in one year or less
|
$
|
28,716
|
|
|
$
|
28,703
|
|
Due after one year through five years
|
539,423
|
|
|
543,189
|
|
Due after five years through ten years
|
1,010,453
|
|
|
1,013,236
|
|
Due after ten years
|
2,364,116
|
|
|
2,409,580
|
|
Total securities available-for-sale
|
$
|
3,942,708
|
|
|
$
|
3,994,708
|
|
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,
|
|
2019
|
|
2018
|
|
2018
|
|
(In thousands)
|
Taxable interest
|
$
|
19,742
|
|
|
$
|
19,181
|
|
|
$
|
14,599
|
|
Non-taxable interest
|
9,593
|
|
|
9,866
|
|
|
11,107
|
|
Dividend income
|
345
|
|
|
643
|
|
|
432
|
|
Total interest income on investment securities
|
$
|
29,680
|
|
|
$
|
29,690
|
|
|
$
|
26,138
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 4. 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.
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,
|
|
December 31,
|
|
2019
|
|
2018
|
|
(In thousands)
|
Real estate mortgage
|
$
|
8,172,992
|
|
|
$
|
7,933,859
|
|
Real estate construction and land
|
2,379,560
|
|
|
2,262,710
|
|
Commercial
|
7,446,612
|
|
|
7,428,500
|
|
Consumer
|
372,131
|
|
|
401,296
|
|
Total gross loans and leases held for investment
|
18,371,295
|
|
|
18,026,365
|
|
Deferred fees, net
|
(63,598
|
)
|
|
(68,652
|
)
|
Total loans and leases held for investment,
|
|
|
|
net of deferred fees
|
18,307,697
|
|
|
17,957,713
|
|
Allowance for loan and lease losses
|
(136,281
|
)
|
|
(132,472
|
)
|
Total loans and leases held for investment, net
|
$
|
18,171,416
|
|
|
$
|
17,825,241
|
|
The following tables present an aging analysis of our loans and leases held for investment, net of deferred fees, by loan portfolio segment and class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
30 - 89
|
|
90 or More
|
|
|
|
|
|
|
|
Days
|
|
Days
|
|
Total
|
|
|
|
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Current
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
7,266
|
|
|
$
|
6,464
|
|
|
$
|
13,730
|
|
|
$
|
4,626,780
|
|
|
$
|
4,640,510
|
|
Income producing and other residential
|
1,853
|
|
|
309
|
|
|
2,162
|
|
|
3,516,786
|
|
|
3,518,948
|
|
Total real estate mortgage
|
9,119
|
|
|
6,773
|
|
|
15,892
|
|
|
8,143,566
|
|
|
8,159,458
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
430
|
|
|
430
|
|
|
943,166
|
|
|
943,596
|
|
Residential
|
8,949
|
|
|
—
|
|
|
8,949
|
|
|
1,399,179
|
|
|
1,408,128
|
|
Total real estate construction and land
|
8,949
|
|
|
430
|
|
|
9,379
|
|
|
2,342,345
|
|
|
2,351,724
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Asset-based
|
3,750
|
|
|
—
|
|
|
3,750
|
|
|
3,418,452
|
|
|
3,422,202
|
|
Venture capital
|
4,500
|
|
|
1,194
|
|
|
5,694
|
|
|
2,021,756
|
|
|
2,027,450
|
|
Other commercial
|
3,655
|
|
|
3,339
|
|
|
6,994
|
|
|
1,967,708
|
|
|
1,974,702
|
|
Total commercial
|
11,905
|
|
|
4,533
|
|
|
16,438
|
|
|
7,407,916
|
|
|
7,424,354
|
|
Consumer
|
614
|
|
|
208
|
|
|
822
|
|
|
371,339
|
|
|
372,161
|
|
Total
|
$
|
30,587
|
|
|
$
|
11,944
|
|
|
$
|
42,531
|
|
|
$
|
18,265,166
|
|
|
$
|
18,307,697
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
30 - 89
|
|
90 or More
|
|
|
|
|
|
|
|
Days
|
|
Days
|
|
Total
|
|
|
|
|
|
Past Due
|
|
Past Due
|
|
Past Due
|
|
Current
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
3,487
|
|
|
$
|
7,541
|
|
|
$
|
11,028
|
|
|
$
|
4,813,270
|
|
|
$
|
4,824,298
|
|
Income producing and other residential
|
1,557
|
|
|
476
|
|
|
2,033
|
|
|
3,091,810
|
|
|
3,093,843
|
|
Total real estate mortgage
|
5,044
|
|
|
8,017
|
|
|
13,061
|
|
|
7,905,080
|
|
|
7,918,141
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
|
|
Commercial
|
—
|
|
|
442
|
|
|
442
|
|
|
912,141
|
|
|
912,583
|
|
Residential
|
1,527
|
|
|
—
|
|
|
1,527
|
|
|
1,319,546
|
|
|
1,321,073
|
|
Total real estate construction and land
|
1,527
|
|
|
442
|
|
|
1,969
|
|
|
2,231,687
|
|
|
2,233,656
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
Asset-based
|
47
|
|
|
646
|
|
|
693
|
|
|
3,304,728
|
|
|
3,305,421
|
|
Venture capital
|
4,705
|
|
|
—
|
|
|
4,705
|
|
|
2,034,043
|
|
|
2,038,748
|
|
Other commercial
|
5,181
|
|
|
1,285
|
|
|
6,466
|
|
|
2,053,960
|
|
|
2,060,426
|
|
Total commercial
|
9,933
|
|
|
1,931
|
|
|
11,864
|
|
|
7,392,731
|
|
|
7,404,595
|
|
Consumer
|
581
|
|
|
333
|
|
|
914
|
|
|
400,407
|
|
|
401,321
|
|
Total
|
$
|
17,085
|
|
|
$
|
10,723
|
|
|
$
|
27,808
|
|
|
$
|
17,929,905
|
|
|
$
|
17,957,713
|
|
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 loan portfolio segment and class as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Nonaccrual
|
|
Performing
|
|
Total
|
|
Nonaccrual
|
|
Performing
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
12,750
|
|
|
$
|
4,627,760
|
|
|
$
|
4,640,510
|
|
|
$
|
15,321
|
|
|
$
|
4,808,977
|
|
|
$
|
4,824,298
|
|
Income producing and other residential
|
2,444
|
|
|
3,516,504
|
|
|
3,518,948
|
|
|
2,524
|
|
|
3,091,319
|
|
|
3,093,843
|
|
Total real estate mortgage
|
15,194
|
|
|
8,144,264
|
|
|
8,159,458
|
|
|
17,845
|
|
|
7,900,296
|
|
|
7,918,141
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
430
|
|
|
943,166
|
|
|
943,596
|
|
|
442
|
|
|
912,141
|
|
|
912,583
|
|
Residential
|
—
|
|
|
1,408,128
|
|
|
1,408,128
|
|
|
—
|
|
|
1,321,073
|
|
|
1,321,073
|
|
Total real estate construction and land
|
430
|
|
|
2,351,294
|
|
|
2,351,724
|
|
|
442
|
|
|
2,233,214
|
|
|
2,233,656
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
43,406
|
|
|
3,378,796
|
|
|
3,422,202
|
|
|
32,324
|
|
|
3,273,097
|
|
|
3,305,421
|
|
Venture capital
|
20,437
|
|
|
2,007,013
|
|
|
2,027,450
|
|
|
20,299
|
|
|
2,018,449
|
|
|
2,038,748
|
|
Other commercial
|
8,633
|
|
|
1,966,069
|
|
|
1,974,702
|
|
|
7,380
|
|
|
2,053,046
|
|
|
2,060,426
|
|
Total commercial
|
72,476
|
|
|
7,351,878
|
|
|
7,424,354
|
|
|
60,003
|
|
|
7,344,592
|
|
|
7,404,595
|
|
Consumer
|
427
|
|
|
371,734
|
|
|
372,161
|
|
|
1,043
|
|
|
400,278
|
|
|
401,321
|
|
Total
|
$
|
88,527
|
|
|
$
|
18,219,170
|
|
|
$
|
18,307,697
|
|
|
$
|
79,333
|
|
|
$
|
17,878,380
|
|
|
$
|
17,957,713
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
At
March 31, 2019
, nonaccrual loans and leases totaled
$88.5 million
and included
$11.9 million
of loans and leases 90 or more days past due,
$2.4 million
of loans and leases 30 to 89 days past due, and
$74.2 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
$79.3 million
at
December 31, 2018
, including
$10.7 million
of loans and leases 90 or more days past due,
$6.6 million
of loans and leases 30 to 89 days past due, and
$62.0 million
of current loans and leases that were placed on nonaccrual status based on management’s judgment regarding their collectability.
As of
March 31, 2019
, our three largest loan relationships on nonaccrual status had an aggregate carrying value of
$52.4 million
and represented
59%
of total nonaccrual loans and leases.
The following tables present the credit risk rating categories for loans and leases held for investment, net of deferred fees, by loan 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, 2019
|
|
Classified
|
|
Special Mention
|
|
Pass
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
Commercial
|
$
|
24,542
|
|
|
$
|
67,115
|
|
|
$
|
4,548,853
|
|
|
$
|
4,640,510
|
|
Income producing and other residential
|
9,131
|
|
|
452
|
|
|
3,509,365
|
|
|
3,518,948
|
|
Total real estate mortgage
|
33,673
|
|
|
67,567
|
|
|
8,058,218
|
|
|
8,159,458
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
Commercial
|
430
|
|
|
—
|
|
|
943,166
|
|
|
943,596
|
|
Residential
|
—
|
|
|
2,485
|
|
|
1,405,643
|
|
|
1,408,128
|
|
Total real estate construction and land
|
430
|
|
|
2,485
|
|
|
2,348,809
|
|
|
2,351,724
|
|
Commercial:
|
|
|
|
|
|
|
|
Asset-based
|
52,586
|
|
|
85,060
|
|
|
3,284,556
|
|
|
3,422,202
|
|
Venture capital
|
43,128
|
|
|
62,514
|
|
|
1,921,808
|
|
|
2,027,450
|
|
Other commercial
|
59,690
|
|
|
74,517
|
|
|
1,840,495
|
|
|
1,974,702
|
|
Total commercial
|
155,404
|
|
|
222,091
|
|
|
7,046,859
|
|
|
7,424,354
|
|
Consumer
|
798
|
|
|
637
|
|
|
370,726
|
|
|
372,161
|
|
Total
|
$
|
190,305
|
|
|
$
|
292,780
|
|
|
$
|
17,824,612
|
|
|
$
|
18,307,697
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Classified
|
|
Special Mention
|
|
Pass
|
|
Total
|
|
(In thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
Commercial
|
$
|
57,734
|
|
|
$
|
74,785
|
|
|
$
|
4,691,779
|
|
|
$
|
4,824,298
|
|
Income producing and other residential
|
10,521
|
|
|
968
|
|
|
3,082,354
|
|
|
3,093,843
|
|
Total real estate mortgage
|
68,255
|
|
|
75,753
|
|
|
7,774,133
|
|
|
7,918,141
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
Commercial
|
442
|
|
|
7,041
|
|
|
905,100
|
|
|
912,583
|
|
Residential
|
—
|
|
|
1,527
|
|
|
1,319,546
|
|
|
1,321,073
|
|
Total real estate construction and land
|
442
|
|
|
8,568
|
|
|
2,224,646
|
|
|
2,233,656
|
|
Commercial:
|
|
|
|
|
|
|
|
Asset-based
|
45,957
|
|
|
48,338
|
|
|
3,211,126
|
|
|
3,305,421
|
|
Venture capital
|
28,731
|
|
|
77,588
|
|
|
1,932,429
|
|
|
2,038,748
|
|
Other commercial
|
92,526
|
|
|
50,136
|
|
|
1,917,764
|
|
|
2,060,426
|
|
Total commercial
|
167,214
|
|
|
176,062
|
|
|
7,061,319
|
|
|
7,404,595
|
|
Consumer
|
1,199
|
|
|
1,015
|
|
|
399,107
|
|
|
401,321
|
|
Total
|
$
|
237,110
|
|
|
$
|
261,398
|
|
|
$
|
17,459,205
|
|
|
$
|
17,957,713
|
|
Nonaccrual loans and leases and performing TDRs are considered impaired for reporting purposes. TDRs 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 loan portfolio segment as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total
|
|
Nonaccrual
|
|
|
|
Impaired
|
|
Nonaccrual
|
|
|
|
Impaired
|
|
Loans
|
|
|
|
Loans
|
|
Loans
|
|
|
|
Loans
|
|
and
|
|
Performing
|
|
and
|
|
and
|
|
Performing
|
|
and
|
|
Leases
|
|
TDRs
|
|
Leases
|
|
Leases
|
|
TDRs
|
|
Leases
|
|
(In thousands)
|
Real estate mortgage
|
$
|
15,194
|
|
|
$
|
11,355
|
|
|
$
|
26,549
|
|
|
$
|
17,845
|
|
|
$
|
11,484
|
|
|
$
|
29,329
|
|
Real estate construction and land
|
430
|
|
|
5,002
|
|
|
5,432
|
|
|
442
|
|
|
5,420
|
|
|
5,862
|
|
Commercial
|
72,476
|
|
|
573
|
|
|
73,049
|
|
|
60,003
|
|
|
692
|
|
|
60,695
|
|
Consumer
|
427
|
|
|
97
|
|
|
524
|
|
|
1,043
|
|
|
105
|
|
|
1,148
|
|
Total
|
$
|
88,527
|
|
|
$
|
17,027
|
|
|
$
|
105,554
|
|
|
$
|
79,333
|
|
|
$
|
17,701
|
|
|
$
|
97,034
|
|
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 loan portfolio segment and class as of and for the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
|
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
|
$
|
1,139
|
|
|
$
|
1,139
|
|
|
$
|
68
|
|
|
$
|
1,736
|
|
|
$
|
1,648
|
|
|
$
|
170
|
|
Income producing and other residential
|
2,090
|
|
|
2,084
|
|
|
202
|
|
|
2,569
|
|
|
2,563
|
|
|
247
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Asset based
|
10,335
|
|
|
10,335
|
|
|
2,735
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Venture capital
|
19,243
|
|
|
21,029
|
|
|
3,196
|
|
|
11,621
|
|
|
13,255
|
|
|
3,141
|
|
Other commercial
|
—
|
|
|
—
|
|
|
—
|
|
|
473
|
|
|
482
|
|
|
473
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
$
|
15,727
|
|
|
$
|
29,962
|
|
|
|
|
$
|
17,783
|
|
|
$
|
32,035
|
|
|
|
Income producing and other residential
|
7,593
|
|
|
9,775
|
|
|
|
|
7,241
|
|
|
9,425
|
|
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
5,432
|
|
|
5,449
|
|
|
|
|
5,862
|
|
|
5,870
|
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based
|
33,071
|
|
|
38,401
|
|
|
|
|
32,324
|
|
|
38,100
|
|
|
|
Venture capital
|
1,194
|
|
|
31,632
|
|
|
|
|
8,678
|
|
|
41,335
|
|
|
|
Other commercial
|
9,206
|
|
|
27,642
|
|
|
|
|
7,599
|
|
|
25,740
|
|
|
|
Consumer
|
524
|
|
|
693
|
|
|
|
|
1,148
|
|
|
1,470
|
|
|
|
Total Loans and Leases With and
|
|
|
|
|
|
|
|
|
|
|
|
Without an Allowance Recorded:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate mortgage
|
$
|
26,549
|
|
|
$
|
42,960
|
|
|
$
|
270
|
|
|
$
|
29,329
|
|
|
$
|
45,671
|
|
|
$
|
417
|
|
Real estate construction and land
|
5,432
|
|
|
5,449
|
|
|
—
|
|
|
5,862
|
|
|
5,870
|
|
|
—
|
|
Commercial
|
73,049
|
|
|
129,039
|
|
|
5,931
|
|
|
60,695
|
|
|
118,912
|
|
|
3,614
|
|
Consumer
|
524
|
|
|
693
|
|
|
—
|
|
|
1,148
|
|
|
1,470
|
|
|
—
|
|
Total
|
$
|
105,554
|
|
|
$
|
178,141
|
|
|
$
|
6,201
|
|
|
$
|
97,034
|
|
|
$
|
171,923
|
|
|
$
|
4,031
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
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
|
$
|
1,139
|
|
|
$
|
17
|
|
|
$
|
13,884
|
|
|
$
|
201
|
|
Income producing and other residential
|
2,090
|
|
|
16
|
|
|
4,295
|
|
|
23
|
|
Commercial:
|
|
|
|
|
|
|
|
Asset-based
|
3,560
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Venture capital
|
12,906
|
|
|
—
|
|
|
14,598
|
|
|
—
|
|
Other commercial
|
—
|
|
|
—
|
|
|
16,851
|
|
|
15
|
|
Consumer
|
—
|
|
|
—
|
|
|
295
|
|
|
2
|
|
With No Related Allowance Recorded:
|
|
|
|
|
|
|
|
Real estate mortgage:
|
|
|
|
|
|
|
|
Commercial
|
$
|
15,538
|
|
|
$
|
53
|
|
|
$
|
46,782
|
|
|
$
|
765
|
|
Income producing and other residential
|
7,516
|
|
|
53
|
|
|
8,464
|
|
|
45
|
|
Real estate construction and land:
|
|
|
|
|
|
|
|
Commercial
|
5,432
|
|
|
101
|
|
|
5,670
|
|
|
89
|
|
Commercial:
|
|
|
|
|
|
|
|
Asset-based
|
31,979
|
|
|
—
|
|
|
32,838
|
|
|
—
|
|
Venture capital
|
1,194
|
|
|
—
|
|
|
4,474
|
|
|
—
|
|
Other commercial
|
7,767
|
|
|
17
|
|
|
7,859
|
|
|
1,147
|
|
Consumer
|
524
|
|
|
2
|
|
|
79
|
|
|
—
|
|
Total Loans and Leases With and
|
|
|
|
|
|
|
|
Without an Allowance Recorded:
|
|
|
|
|
|
|
|
Real estate mortgage
|
$
|
26,283
|
|
|
$
|
139
|
|
|
$
|
73,425
|
|
|
$
|
1,034
|
|
Real estate construction and land
|
5,432
|
|
|
101
|
|
|
5,670
|
|
|
89
|
|
Commercial
|
57,406
|
|
|
17
|
|
|
76,620
|
|
|
1,162
|
|
Consumer
|
524
|
|
|
2
|
|
|
374
|
|
|
2
|
|
Total
|
$
|
89,645
|
|
|
$
|
259
|
|
|
$
|
156,089
|
|
|
$
|
2,287
|
|
_________________________
|
|
(1)
|
For loans and leases reported as impaired at
March 31, 2019
and
2018
, 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 loan portfolio segment and class for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
|
|
Pre-
|
|
Post-
|
|
|
|
Pre-
|
|
Post-
|
|
|
|
Modification
|
|
Modification
|
|
|
|
Modification
|
|
Modification
|
|
Number
|
|
Outstanding
|
|
Outstanding
|
|
Number
|
|
Outstanding
|
|
Outstanding
|
|
of
|
|
Recorded
|
|
Recorded
|
|
of
|
|
Recorded
|
|
Recorded
|
Troubled Debt Restructurings
|
Loans
|
|
Investment
|
|
Investment
|
|
Loans
|
|
Investment
|
|
Investment
|
|
(Dollars in thousands)
|
Real estate mortgage:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
1
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Income producing and other residential
|
3
|
|
|
789
|
|
|
789
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commercial:
|
|
|
|
|
|
|
|
|
|
|
|
Venture capital
|
6
|
|
|
2,105
|
|
|
1,242
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other commercial
|
8
|
|
|
585
|
|
|
585
|
|
|
2
|
|
|
11,783
|
|
|
11,783
|
|
Total
|
18
|
|
|
$
|
3,516
|
|
|
$
|
2,616
|
|
|
2
|
|
|
$
|
11,783
|
|
|
$
|
11,783
|
|
During the
three
months ended
March 31, 2019
,
two
other commercial loans totaling
$64,000
were restructured in the preceding 12-month period and subsequently defaulted after being restructured. During the
three
months ended
March 31, 2018
,
one
other commercial loan of
$2.3 million
was restructured in the preceding 12-month period and subsequently defaulted after being restructured.
Leases Receivable
We provide equipment financing to our customers primarily with direct financing leases. Lease receivables are recorded on the balance sheet but the leased equipment is not, although we generally retain legal title to the leased equipment until the end of each lease. Direct financing leases are stated at the net amount of minimum lease payments receivable, plus any unguaranteed residual value, less the amount of unearned income and net acquisition discount at the reporting date. Direct lease origination costs are amortized using the effective interest method over the life of the leases. Direct financing leases are subject to our allowance for loans and leases.
The following table provides the components of leases receivable income for the period indicated:
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2019
|
|
(In thousands)
|
Component of leases receivable income:
|
|
Interest income on net investments in leases
|
$
|
3,140
|
|
The following table presents the components of leases receivable as of the date indicated:
|
|
|
|
|
|
March 31, 2019
|
|
(Dollars in thousands)
|
Net investment in sales type and direct financing leases:
|
|
Lease payments receivable
|
$
|
195,018
|
|
Unguaranteed residual assets
|
25,895
|
|
Deferred fees and other
|
962
|
|
Aggregate net investment in leases
|
$
|
221,875
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents maturities of leases receivable as of the date indicated:
|
|
|
|
|
|
March 31, 2019
|
|
(In thousands)
|
Twelve Months Ending March 31,
|
|
2020
|
$
|
77,413
|
|
2021
|
63,321
|
|
2022
|
42,112
|
|
2023
|
15,386
|
|
2024
|
8,998
|
|
Thereafter
|
7,348
|
|
Total undiscounted cash flows
|
214,578
|
|
Less: Unearned income
|
(19,560
|
)
|
Present value of lease payments
|
$
|
195,018
|
|
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 loan portfolio segment for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
Real Estate
|
|
|
|
|
|
|
|
Real Estate
|
|
Construction
|
|
|
|
|
|
|
|
Mortgage
|
|
and Land
|
|
Commercial
|
|
Consumer
|
|
Total
|
|
(In thousands)
|
Allowance for Loan and Lease Losses:
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
$
|
46,021
|
|
|
$
|
28,209
|
|
|
$
|
56,360
|
|
|
$
|
1,882
|
|
|
$
|
132,472
|
|
Charge-offs
|
(196
|
)
|
|
—
|
|
|
(3,003
|
)
|
|
(266
|
)
|
|
(3,465
|
)
|
Recoveries
|
143
|
|
|
—
|
|
|
3,106
|
|
|
25
|
|
|
3,274
|
|
Net (charge-offs) recoveries
|
(53
|
)
|
|
—
|
|
|
103
|
|
|
(241
|
)
|
|
(191
|
)
|
Provision (negative provision)
|
(214
|
)
|
|
(1,001
|
)
|
|
5,033
|
|
|
182
|
|
|
4,000
|
|
Balance, end of period
|
$
|
45,754
|
|
|
$
|
27,208
|
|
|
$
|
61,496
|
|
|
$
|
1,823
|
|
|
$
|
136,281
|
|
|
|
|
|
|
|
|
|
|
|
Ending Allowance by
|
|
|
|
|
|
|
|
|
|
Impairment Methodology:
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
270
|
|
|
$
|
—
|
|
|
$
|
5,931
|
|
|
$
|
—
|
|
|
$
|
6,201
|
|
Collectively evaluated for impairment
|
$
|
45,484
|
|
|
$
|
27,208
|
|
|
$
|
55,565
|
|
|
$
|
1,823
|
|
|
$
|
130,080
|
|
|
|
|
|
|
|
|
|
|
|
Ending Loans and Leases by
|
|
|
|
|
|
|
|
|
|
Impairment Methodology:
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment
|
$
|
23,908
|
|
|
$
|
5,432
|
|
|
$
|
71,660
|
|
|
$
|
—
|
|
|
$
|
101,000
|
|
Collectively evaluated for impairment
|
8,135,550
|
|
|
2,346,292
|
|
|
7,352,694
|
|
|
372,161
|
|
|
18,206,697
|
|
Ending balance
|
$
|
8,159,458
|
|
|
$
|
2,351,724
|
|
|
$
|
7,424,354
|
|
|
$
|
372,161
|
|
|
$
|
18,307,697
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
(1)
|
$
|
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
|
|
Net (charge-offs) recoveries
|
(941
|
)
|
|
9
|
|
|
(4,037
|
)
|
|
14
|
|
|
(4,955
|
)
|
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
|
|
_______________________________________
|
|
(1)
|
The allowance for loan losses related to PCI loans of
$6.4 million
as of December 31, 2017 is reflected in the beginning balance of the allowance for loan and lease losses for the three months ended
March 31, 2018
.
|
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 and reserve for unfunded loan commitments for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Allowance for
|
|
Reserve for
|
|
Total
|
|
Loan and
|
|
Unfunded Loan
|
|
Allowance for
|
|
Lease Losses
|
|
Commitments
|
|
Credit Losses
|
|
(In thousands)
|
Balance, beginning of period
|
$
|
132,472
|
|
|
$
|
36,861
|
|
|
$
|
169,333
|
|
Charge-offs
|
(3,465
|
)
|
|
—
|
|
|
(3,465
|
)
|
Recoveries
|
3,274
|
|
|
—
|
|
|
3,274
|
|
Net charge-offs
|
(191
|
)
|
|
—
|
|
|
(191
|
)
|
Provision
|
4,000
|
|
|
—
|
|
|
4,000
|
|
Balance, end of period
|
$
|
136,281
|
|
|
$
|
36,861
|
|
|
$
|
173,142
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
(1)
|
$
|
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
|
|
_______________________________________
|
|
(1)
|
The allowance for loan losses related to PCI loans of
$6.4 million
as of December 31, 2017 is reflected in the beginning balance of the allowance for loan and lease losses for the three months ended
March 31, 2018
.
|
NOTE 5. FORECLOSED ASSETS
The following table summarizes foreclosed assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Property Type
|
2019
|
|
2018
|
|
(In thousands)
|
Commercial real estate
|
$
|
2,041
|
|
|
$
|
2,004
|
|
Single-family residence
|
953
|
|
|
953
|
|
Construction and land development
|
219
|
|
|
219
|
|
Multi‑family
|
—
|
|
|
1,059
|
|
Total other real estate owned, net
|
3,213
|
|
|
4,235
|
|
Other foreclosed assets
|
78
|
|
|
1,064
|
|
Total foreclosed assets, net
|
$
|
3,291
|
|
|
$
|
5,299
|
|
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, 2018
|
$
|
5,299
|
|
Transfers to foreclosed assets from loans
|
37
|
|
Provision for losses
|
—
|
|
Reductions related to sales
|
(2,045
|
)
|
Balance, March 31, 2019
|
$
|
3,291
|
|
NOTE 6. 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.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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
$18.7 million
for
2019
. The estimated aggregate amortization expense related to our current intangible assets for each of the next five years is
$14.6 million
for
2020
,
$10.8 million
for
2021
,
$7.5 million
for
2022
,
$3.8 million
for
2023
, and
$1.7 million
for
2024
.
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,
|
|
2019
|
|
2018
|
|
2018
|
|
(In thousands)
|
Gross Amount of CDI and CRI:
|
|
|
|
|
|
Balance, beginning of period
|
$
|
119,497
|
|
|
$
|
119,497
|
|
|
$
|
119,497
|
|
Balance, end of period
|
119,497
|
|
|
119,497
|
|
|
119,497
|
|
Accumulated Amortization:
|
|
|
|
|
|
Balance, beginning of period
|
(62,377
|
)
|
|
(57,391
|
)
|
|
(39,871
|
)
|
Amortization
|
(4,870
|
)
|
|
(4,986
|
)
|
|
(6,346
|
)
|
Balance, end of period
|
(67,247
|
)
|
|
(62,377
|
)
|
|
(46,217
|
)
|
Net CDI and CRI, end of period
|
$
|
52,250
|
|
|
$
|
57,120
|
|
|
$
|
73,280
|
|
NOTE 7. OTHER ASSETS
The following table presents the detail of our other assets as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
Other Assets
|
2019
|
|
2018
|
|
(In thousands)
|
Cash surrender value of BOLI
|
$
|
196,161
|
|
|
$
|
194,897
|
|
Operating lease ROU assets, net
|
125,402
|
|
|
—
|
|
Interest receivable
|
89,727
|
|
|
88,754
|
|
LIHTC investments
|
59,948
|
|
|
59,507
|
|
CRA investments
(1)
|
59,824
|
|
|
59,062
|
|
Taxes receivable
|
17,289
|
|
|
39,096
|
|
Prepaid expenses
|
16,319
|
|
|
18,006
|
|
Equity investments without readily determinable fair values
|
14,777
|
|
|
14,758
|
|
Equity warrants
|
4,438
|
|
|
4,793
|
|
Equity investments with readily determinable fair values
|
3,848
|
|
|
4,891
|
|
Other receivables/assets
|
22,998
|
|
|
39,132
|
|
Total other assets
|
$
|
610,731
|
|
|
$
|
522,896
|
|
________________________
|
|
(1)
|
Includes equity investments without readily determinable fair values of
$13.1 million
and
$12.5 million
at
March 31, 2019
and
December 31, 2018
.
|
The increase in the operating lease ROU assets in the first quarter of 2019 was due to the adoption of ASU 2016-02 effective January 1, 2019. See Note 8.
Leases
for further details.
Regarding our equity investments without readily determinable fair values, there were
no
impairments and
no
upward adjustments during the
three months ended
March 31, 2019
. On a cumulative basis since January 1, 2018 and through
March 31, 2019
, we recorded impairments of
$278,000
and upward adjustments of
$286,000
to our equity investments without readily determinable fair values.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 8. LEASES
The Company adopted ASU 2016-02, "
Leases (Topic 842),
" effective January 1, 2019 and applied the guidance to all leases within the scope of Topic 842 as of that date. We have adopted the guidance using the optional transition method under ASU 2018-11, “
Leases (Topic 842): Targeted Improvements,
” and recognized a cumulative effect adjustment to retained earnings without prior periods restated, effectively applying the requirements of the new standard prospectively.
We determine if an arrangement is a lease at inception by assessing whether there is an identified asset, and whether the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. Topic 842 also requires a lessee to classify a lease as either finance or operating. The Company only has operating leases related to our facilities as of
March 31, 2019
, which consists of
75
full-service branch offices and
76
other offices.
ROU assets represent a lessee's right to use an underlying asset for the lease term and lease liabilities represent a lessee's obligation to make lease payments arising from the lease. On January 1, 2019, ROU assets and operating lease liabilities were initially recognized based on the present value of future minimum lease payments over the remaining lease terms. We used our incremental borrowing rates on January 1, 2019 to determine the present value of future payments. The ROU assets also include any prepaid lease payments and initial direct costs incurred less any lease incentives received. We amortize the operating lease ROU assets and record interest expense on the operating lease liabilities over the lease terms.
Our leases have remaining terms ranging from
1
to
28 years
. Short-term leases (initial term of less than 12 months) are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component. Most leases include one or more options to renew, with renewal terms that can extend the lease from
one
to
ten years
. The exercise of lease renewal options is at our sole discretion. Some of our leases also include termination options. We have determined that we do not meet the reasonably certain threshold to exercise any renewal or termination options, therefore our lease terms do not reflect any optional periods. We rent or sublease certain office space to third parties. Our subleases consist of operating leases for offices that we have fully or partially vacated.
Certain of our lease agreements also include rental payments that adjust periodically based on changes in the CPI. We initially measured our lease payments using the index at the lease commencement date. Subsequent increases in the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. The ROU assets and lease liabilities are not re-measured as a result of changes in the CPI. Our lease agreements do not contain any purchase options, residual value guarantees, or restrictive covenants.
Operating Leases as a Lessee
Our lease expense is a component of "Occupancy expense" on our condensed consolidated statements of earnings. The following table presents the components of lease expense for the period indicated:
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2019
|
|
(In thousands)
|
Operating lease expense:
|
|
Fixed costs
|
$
|
8,302
|
|
Variable costs
|
24
|
|
Short-term lease costs
|
520
|
|
Sublease income
|
(1,126
|
)
|
Net lease expense
|
$
|
7,720
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents supplemental cash flow information related to leases for the period indicated:
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2019
|
|
(In thousands)
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
8,242
|
|
ROU assets obtained in exchange for lease obligations:
|
|
Operating leases
|
$
|
147,972
|
|
The following table presents supplemental balance sheet and other information related to operating leases as of the date indicated:
|
|
|
|
|
|
March 31, 2019
|
|
(Dollars in thousands)
|
Operating leases:
|
|
Operating lease right-of-use assets, net
|
$
|
125,402
|
|
Operating lease liabilities
|
$
|
140,392
|
|
|
|
Weighted average remaining lease term (in years)
|
6
|
|
Weighted average discount rate
|
2.92
|
%
|
The following table presents maturities of operating lease liabilities as of the date indicated:
|
|
|
|
|
|
March 31, 2019
|
|
(In thousands)
|
Twelve Months Ending March 31,
|
|
2020
|
$
|
32,749
|
|
2021
|
30,238
|
|
2022
|
25,928
|
|
2023
|
20,533
|
|
2024
|
17,600
|
|
Thereafter
|
26,875
|
|
Total operating lease liabilities
|
153,923
|
|
Less: Imputed interest
|
(13,531
|
)
|
Present value of operating lease liabilities
|
$
|
140,392
|
|
Operating Leases as a Lessor
We provide equipment financing through operating leases where we facilitate the purchase of equipment leased to our customers. The equipment is on our balance sheet as "Equipment leased to others under operating leases" and is depreciated to its estimated residual value at the end of the lease term, shown as "Leased equipment depreciation" in the condensed consolidated statements of earnings, according to our fixed asset accounting policy. We receive periodic rental income payments under the leases, which are recorded as "Noninterest Income" in the condensed consolidated statements of earnings.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table presents the rental payments to be received on operating leases as of the date indicated:
|
|
|
|
|
|
March 31, 2019
|
|
(In thousands)
|
Twelve Months Ending March 31,
|
|
2020
|
$
|
34,368
|
|
2021
|
31,432
|
|
2022
|
23,162
|
|
2023
|
17,838
|
|
2024
|
16,104
|
|
Thereafter
|
41,444
|
|
Total undiscounted cash flows
|
$
|
164,348
|
|
NOTE 9. BORROWINGS AND SUBORDINATED DEBENTURES
Borrowings
The following table summarizes our borrowings as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Average
|
|
|
|
Average
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
(Dollars in thousands)
|
Non‑recourse debt
|
$
|
87
|
|
|
7.50
|
%
|
|
$
|
114
|
|
|
7.50
|
%
|
FHLB secured advances
|
1,090,000
|
|
|
2.60
|
%
|
|
1,040,000
|
|
|
2.56
|
%
|
FHLB unsecured overnight advance
|
141,000
|
|
|
2.57
|
%
|
|
141,000
|
|
|
2.53
|
%
|
AFX borrowings
|
250,000
|
|
|
2.52
|
%
|
|
190,000
|
|
|
2.56
|
%
|
Total borrowings
|
$
|
1,481,087
|
|
|
2.58
|
%
|
|
$
|
1,371,114
|
|
|
2.56
|
%
|
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, 2019
, this debt had a weighted average remaining maturity of
0.8
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, 2019
of
$4.0 billion
, collateralized by a blanket lien on
$5.7 billion
of qualifying loans. As of
March 31, 2019
, the balance outstanding was a
$1.1 billion
overnight advance. As of
December 31, 2018
, the balance outstanding was a
$1.0 billion
overnight advance.
FRBSF Secured Line of Credit.
The Bank has a secured line of credit with the FRBSF. As of
March 31, 2019
, the Bank had secured borrowing capacity of
$2.2 billion
collateralized by liens covering
$3.0 billion
of qualifying loans. As of
March 31, 2019
and
December 31, 2018
, there were
no
balances outstanding.
FHLB Unsecured Line of Credit.
The Bank has a
$141.0 million
unsecured line of credit with the FHLB for the purchase of overnight funds, of which
$141.0 million
was outstanding at
March 31, 2019
. At
December 31, 2018
, the balance outstanding was
$141.0 million
.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Federal Funds Arrangements with Commercial Banks.
As of
March 31, 2019
, the Bank had unsecured lines of credit of
$180.0 million
in the aggregate with several 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, 2019
and
December 31, 2018
, 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, 2019
, the balance outstanding was
$250.0 million
, which consisted of
$240.0 million
in overnight borrowings and a
$10.0 million
one-month borrowing with a maturity date of
April 17, 2019
. As of
December 31, 2018
, there was a
$190.0 million
overnight borrowing outstanding.
Subordinated Debentures
The following table summarizes the terms of each issuance of subordinated debentures outstanding as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Date
|
|
Maturity
|
|
Rate Index
|
Series
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
Issued
|
|
Date
|
|
(Quarterly Reset)
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
Trust V
|
$
|
10,310
|
|
|
5.71
|
%
|
|
$
|
10,310
|
|
|
5.89
|
%
|
|
8/15/2003
|
|
9/17/2033
|
|
3-month LIBOR + 3.10
|
Trust VI
|
10,310
|
|
|
5.66
|
%
|
|
10,310
|
|
|
5.84
|
%
|
|
9/3/2003
|
|
9/15/2033
|
|
3-month LIBOR + 3.05
|
Trust CII
|
5,155
|
|
|
5.56
|
%
|
|
5,155
|
|
|
5.74
|
%
|
|
9/17/2003
|
|
9/17/2033
|
|
3-month LIBOR + 2.95
|
Trust VII
|
61,856
|
|
|
5.50
|
%
|
|
61,856
|
|
|
5.27
|
%
|
|
2/5/2004
|
|
4/23/2034
|
|
3-month LIBOR + 2.75
|
Trust CIII
|
20,619
|
|
|
4.30
|
%
|
|
20,619
|
|
|
4.48
|
%
|
|
8/15/2005
|
|
9/15/2035
|
|
3-month LIBOR + 1.69
|
Trust FCCI
|
16,495
|
|
|
4.21
|
%
|
|
16,495
|
|
|
4.39
|
%
|
|
1/25/2007
|
|
3/15/2037
|
|
3-month LIBOR + 1.60
|
Trust FCBI
|
10,310
|
|
|
4.16
|
%
|
|
10,310
|
|
|
4.34
|
%
|
|
9/30/2005
|
|
12/15/2035
|
|
3-month LIBOR + 1.55
|
Trust CS 2005-1
|
82,475
|
|
|
4.56
|
%
|
|
82,475
|
|
|
4.74
|
%
|
|
11/21/2005
|
|
12/15/2035
|
|
3-month LIBOR + 1.95
|
Trust CS 2005-2
|
128,866
|
|
|
4.70
|
%
|
|
128,866
|
|
|
4.47
|
%
|
|
12/14/2005
|
|
1/30/2036
|
|
3-month LIBOR + 1.95
|
Trust CS 2006-1
|
51,545
|
|
|
4.70
|
%
|
|
51,545
|
|
|
4.47
|
%
|
|
2/22/2006
|
|
4/30/2036
|
|
3-month LIBOR + 1.95
|
Trust CS 2006-2
|
51,550
|
|
|
4.70
|
%
|
|
51,550
|
|
|
4.47
|
%
|
|
9/27/2006
|
|
10/30/2036
|
|
3-month LIBOR + 1.95
|
Trust CS 2006-3
(1)
|
28,914
|
|
|
1.74
|
%
|
|
29,556
|
|
|
1.73
|
%
|
|
9/29/2006
|
|
10/30/2036
|
|
3-month EURIBOR + 2.05
|
Trust CS 2006-4
|
16,470
|
|
|
4.70
|
%
|
|
16,470
|
|
|
4.47
|
%
|
|
12/5/2006
|
|
1/30/2037
|
|
3-month LIBOR + 1.95
|
Trust CS 2006-5
|
6,650
|
|
|
4.70
|
%
|
|
6,650
|
|
|
4.47
|
%
|
|
12/19/2006
|
|
1/30/2037
|
|
3-month LIBOR + 1.95
|
Trust CS 2007-2
|
39,177
|
|
|
4.70
|
%
|
|
39,177
|
|
|
4.47
|
%
|
|
6/13/2007
|
|
7/30/2037
|
|
3-month LIBOR + 1.95
|
Gross subordinated debentures
|
540,702
|
|
|
4.62
|
%
|
|
541,344
|
|
|
4.51
|
%
|
|
|
|
|
|
|
Unamortized discount
(2)
|
(86,244
|
)
|
|
|
|
(87,498
|
)
|
|
|
|
|
|
|
|
|
Net subordinated debentures
|
$
|
454,458
|
|
|
|
|
$
|
453,846
|
|
|
|
|
|
|
|
|
|
___________________
|
|
(1)
|
Denomination is in Euros with a value of
€25.8 million
.
|
|
|
(2)
|
Amount represents the fair value adjustment on trust preferred securities assumed in acquisitions.
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 10. COMMITMENTS AND CONTINGENCIES
The following table presents a summary of commitments described below as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
2019
|
|
2018
|
|
(In thousands)
|
Loan commitments to extend credit
|
$
|
7,465,392
|
|
|
$
|
7,528,248
|
|
Standby letters of credit
|
335,534
|
|
|
364,210
|
|
Commitments to contribute capital to low income housing project partnerships
|
|
|
|
and small business investment companies
|
101,280
|
|
|
101,991
|
|
Commitments to contribute capital to private equity funds
|
50
|
|
|
50
|
|
Total
|
$
|
7,902,256
|
|
|
$
|
7,994,499
|
|
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 that the Company has in particular classes of financial instruments.
Commitments to extend credit are contractual agreements to lend to our customers when customers are in compliance with their contractual credit agreements and when customers have contractual availability to borrow under such agreements. 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.
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, 2019
and
December 31, 2018
, we had commitments to contribute capital to these entities totaling
$101.3 million
and
$102.0 million
. We also had commitments to contribute up to an additional
$50,000
to private equity funds at
March 31, 2019
and
December 31, 2018
.
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, corporate debt securities, SBA securities, 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, 2019
|
Measured on a Recurring Basis
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Securities available‑for‑sale:
|
|
|
|
|
|
|
|
Residential MBS and CMOs:
|
|
|
|
|
|
|
|
Agency MBS
|
$
|
343,176
|
|
|
$
|
—
|
|
|
$
|
343,176
|
|
|
$
|
—
|
|
Agency CMOs
|
717,776
|
|
|
—
|
|
|
717,776
|
|
|
—
|
|
Private label CMOs
|
123,247
|
|
|
—
|
|
|
116,211
|
|
|
7,036
|
|
Municipal securities
|
1,185,001
|
|
|
—
|
|
|
1,185,001
|
|
|
—
|
|
Agency commercial MBS
|
1,078,911
|
|
|
—
|
|
|
1,078,911
|
|
|
—
|
|
U.S. Treasury securities
|
290,717
|
|
|
290,717
|
|
|
—
|
|
|
—
|
|
Asset-backed securities
|
185,156
|
|
|
—
|
|
|
149,703
|
|
|
35,453
|
|
SBA securities
|
52,024
|
|
|
—
|
|
|
52,024
|
|
|
—
|
|
Corporate debt securities
|
18,700
|
|
|
—
|
|
|
18,700
|
|
|
—
|
|
Total securities available-for-sale
|
3,994,708
|
|
|
290,717
|
|
|
3,661,502
|
|
|
42,489
|
|
Equity warrants
|
4,438
|
|
|
—
|
|
|
—
|
|
|
4,438
|
|
Other derivative assets
|
2,493
|
|
|
—
|
|
|
2,493
|
|
|
—
|
|
Equity investments with readily determinable fair values
|
3,848
|
|
|
3,848
|
|
|
—
|
|
|
—
|
|
Total recurring assets
|
$
|
4,005,487
|
|
|
$
|
294,565
|
|
|
$
|
3,663,995
|
|
|
$
|
46,927
|
|
Derivative liabilities
|
$
|
633
|
|
|
$
|
—
|
|
|
$
|
633
|
|
|
$
|
—
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of
|
|
December 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
|
$
|
281,088
|
|
|
$
|
—
|
|
|
$
|
281,088
|
|
|
$
|
—
|
|
Agency CMOs
|
632,850
|
|
|
—
|
|
|
632,850
|
|
|
—
|
|
Private label CMOs
|
101,205
|
|
|
—
|
|
|
93,917
|
|
|
7,288
|
|
Municipal securities
|
1,312,194
|
|
|
—
|
|
|
1,312,194
|
|
|
—
|
|
Agency commercial MBS
|
1,112,704
|
|
|
—
|
|
|
1,112,704
|
|
|
—
|
|
U.S. Treasury securities
|
403,405
|
|
|
403,405
|
|
|
—
|
|
|
—
|
|
Asset-backed securities
|
81,385
|
|
|
—
|
|
|
41,440
|
|
|
39,945
|
|
SBA securities
|
67,047
|
|
|
—
|
|
|
67,047
|
|
|
—
|
|
Corporate debt securities
|
17,553
|
|
|
—
|
|
|
17,553
|
|
|
—
|
|
Total securities available-for-sale
|
4,009,431
|
|
|
403,405
|
|
|
3,558,793
|
|
|
47,233
|
|
Equity warrants
|
4,793
|
|
|
—
|
|
|
—
|
|
|
4,793
|
|
Other derivative assets
|
3,292
|
|
|
—
|
|
|
3,292
|
|
|
—
|
|
Equity investments with readily determinable fair values
|
4,891
|
|
|
4,891
|
|
|
—
|
|
|
—
|
|
Total recurring assets
|
$
|
4,022,407
|
|
|
$
|
408,296
|
|
|
$
|
3,562,085
|
|
|
$
|
52,026
|
|
Derivative liabilities
|
$
|
142
|
|
|
$
|
—
|
|
|
$
|
142
|
|
|
$
|
—
|
|
During the
three months ended
March 31, 2019
, there was a
$63,000
transfer from Level 3 equity warrants to Level 1 equity investments with readily determinable fair values 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, 2019
|
|
Private Label CMOs
|
|
Asset-Backed Securities
|
|
|
|
Weighted
|
|
Input or
|
|
Weighted
|
|
Range
|
|
Average
|
|
Range
|
|
Average
|
Unobservable Inputs
|
of Inputs
|
|
Input
|
|
of Inputs
|
|
Input
|
Voluntary annual prepayment speeds
|
3.9% - 22.4%
|
|
10.8%
|
|
12.0% - 15.0%
|
|
13.8%
|
Annual default rates
(1)
|
0.3% - 82.0%
|
|
1.8%
|
|
2.0%
|
|
2.0%
|
Loss severity rates
(1)
|
5.6% - 159.5%
|
|
51.8%
|
|
60.0%
|
|
60.0%
|
Discount rates
|
2.5% - 9.6%
|
|
6.4%
|
|
3.2% - 5.2%
|
|
4.2%
|
____________________
|
|
(1)
|
The annual default rates and loss severity rates were the same for all of the asset-backed securities.
|
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, 2019
|
|
Equity Warrants
|
|
Weighted
|
|
Average
|
Unobservable Inputs
|
Input
|
Volatility
|
17.0%
|
Risk-free interest rate
|
2.2%
|
Remaining life assumption (in years)
|
3.45
|
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, 2018
|
$
|
7,288
|
|
|
$
|
39,945
|
|
|
$
|
4,793
|
|
Total included in earnings
|
137
|
|
|
(38
|
)
|
|
2,279
|
|
Total included in other comprehensive income
|
(84
|
)
|
|
62
|
|
|
—
|
|
Issuances
|
—
|
|
|
—
|
|
|
88
|
|
Sales
and dispositions
(1)
|
—
|
|
|
—
|
|
|
(2,659
|
)
|
Net settlements
|
(305
|
)
|
|
(4,516
|
)
|
|
—
|
|
Transfers to Level 1
|
—
|
|
|
—
|
|
|
(63
|
)
|
Balance, March 31, 2019
|
$
|
7,036
|
|
|
$
|
35,453
|
|
|
$
|
4,438
|
|
______________________
|
|
(1)
|
Includes the exercise of warrants that upon exercise become equity securities in public companies. These are often subject to lock-up restrictions that must be met before the equity security can be sold, during which time they are reported as equity investments with readily determinable fair values.
|
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, 2019
|
Measured on a Non‑Recurring Basis
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Impaired loans
|
$
|
27,901
|
|
|
$
|
—
|
|
|
$
|
7,886
|
|
|
$
|
20,015
|
|
Loans held for sale
|
25,124
|
|
|
—
|
|
|
25,124
|
|
|
—
|
|
Total non-recurring
|
$
|
53,025
|
|
|
$
|
—
|
|
|
$
|
33,010
|
|
|
$
|
20,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement as of
|
|
December 31, 2018
|
Measured on a Non‑Recurring Basis
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Impaired loans
|
$
|
24,432
|
|
|
$
|
—
|
|
|
$
|
1,800
|
|
|
$
|
22,632
|
|
OREO
|
1,136
|
|
|
—
|
|
|
1,136
|
|
|
—
|
|
Total non-recurring
|
$
|
25,568
|
|
|
$
|
—
|
|
|
$
|
2,936
|
|
|
$
|
22,632
|
|
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
|
2019
|
|
2018
|
|
(In thousands)
|
Impaired loans
|
$
|
3,756
|
|
|
$
|
7,816
|
|
Loans held for sale
|
1,707
|
|
|
—
|
|
OREO
|
—
|
|
|
65
|
|
Total losses
|
$
|
5,463
|
|
|
$
|
7,881
|
|
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, 2019
|
|
|
|
|
Valuation
|
|
Unobservable
|
|
|
|
Weighted
|
Asset
|
|
Fair Value
|
|
Technique
|
|
Inputs
|
|
Range
|
|
Average
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Impaired loans
|
|
$
|
19,006
|
|
|
Discounted cash flows
|
|
Discount rates
|
|
3.75% - 8.00%
|
|
6.43%
|
Impaired loans
|
|
1,009
|
|
|
Third party appraisals
|
|
No discounts
|
|
|
|
|
Total non-recurring Level 3
|
|
$
|
20,015
|
|
|
|
|
|
|
|
|
|
The following tables present carrying amounts and estimated fair values of certain financial instruments as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Carrying
|
|
Estimated Fair Value
|
|
Amount
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(
In thousands
)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
224,758
|
|
|
$
|
224,758
|
|
|
$
|
224,758
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest‑earning deposits in financial institutions
|
332,124
|
|
|
332,124
|
|
|
332,124
|
|
|
—
|
|
|
—
|
|
Securities available‑for‑sale
|
3,994,708
|
|
|
3,994,708
|
|
|
290,717
|
|
|
3,661,502
|
|
|
42,489
|
|
Investment in FHLB stock
|
29,430
|
|
|
29,430
|
|
|
—
|
|
|
29,430
|
|
|
—
|
|
Loans held for sale
|
25,124
|
|
|
25,124
|
|
|
—
|
|
|
25,124
|
|
|
—
|
|
Loans and leases held for investment, net
|
18,171,416
|
|
|
17,719,820
|
|
|
—
|
|
|
7,886
|
|
|
17,711,934
|
|
Equity warrants
|
4,438
|
|
|
4,438
|
|
|
—
|
|
|
—
|
|
|
4,438
|
|
Other derivative assets
|
2,493
|
|
|
2,493
|
|
|
—
|
|
|
2,493
|
|
|
—
|
|
Equity investments with readily determinable fair values
|
3,848
|
|
|
3,848
|
|
|
3,848
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Core deposits
|
16,127,638
|
|
|
16,127,638
|
|
|
—
|
|
|
16,127,638
|
|
|
—
|
|
Non-core non-maturity deposits
|
454,277
|
|
|
454,277
|
|
|
—
|
|
|
454,277
|
|
|
—
|
|
Time deposits
|
2,704,012
|
|
|
2,697,119
|
|
|
—
|
|
|
2,697,119
|
|
|
—
|
|
Borrowings
|
1,481,087
|
|
|
1,481,085
|
|
|
1,471,000
|
|
|
10,085
|
|
|
—
|
|
Subordinated debentures
|
454,458
|
|
|
438,207
|
|
|
—
|
|
|
438,207
|
|
|
—
|
|
Derivative liabilities
|
633
|
|
|
633
|
|
|
—
|
|
|
633
|
|
|
—
|
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Carrying
|
|
Estimated Fair Value
|
|
Amount
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(
In thousands
)
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
$
|
175,830
|
|
|
$
|
175,830
|
|
|
$
|
175,830
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest‑earning deposits in financial institutions
|
209,937
|
|
|
209,937
|
|
|
209,937
|
|
|
—
|
|
|
—
|
|
Securities available‑for‑sale
|
4,009,431
|
|
|
4,009,431
|
|
|
403,405
|
|
|
3,558,793
|
|
|
47,233
|
|
Investment in FHLB stock
|
32,103
|
|
|
32,103
|
|
|
—
|
|
|
32,103
|
|
|
—
|
|
Loans and leases held for investment, net
|
17,825,241
|
|
|
17,013,860
|
|
|
—
|
|
|
1,800
|
|
|
17,012,060
|
|
Equity warrants
|
4,793
|
|
|
4,793
|
|
|
—
|
|
|
—
|
|
|
4,793
|
|
Other derivative assets
|
3,292
|
|
|
3,292
|
|
|
—
|
|
|
3,292
|
|
|
—
|
|
Equity investments with readily determinable fair values
|
4,891
|
|
|
4,891
|
|
|
4,891
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
Core deposits
|
16,346,671
|
|
|
16,346,671
|
|
|
—
|
|
|
16,346,671
|
|
|
—
|
|
Non-core non-maturity deposits
|
518,192
|
|
|
518,192
|
|
|
—
|
|
|
518,192
|
|
|
—
|
|
Time deposits
|
2,005,638
|
|
|
2,017,137
|
|
|
—
|
|
|
2,017,137
|
|
|
—
|
|
Borrowings
|
1,371,114
|
|
|
1,371,114
|
|
|
1,371,000
|
|
|
114
|
|
|
—
|
|
Subordinated debentures
|
453,846
|
|
|
435,251
|
|
|
—
|
|
|
435,251
|
|
|
—
|
|
Derivative liabilities
|
142
|
|
|
142
|
|
|
—
|
|
|
142
|
|
|
—
|
|
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 13.
Fair Value
Measurements,
to the Consolidated Financial Statements of the Company's
2018
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, 2019
, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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,
|
|
2019
|
|
2018
|
|
2018
|
|
(Dollars in thousands, except per share data)
|
Basic Earnings Per Share:
|
|
|
|
|
|
Net earnings
|
$
|
112,604
|
|
|
$
|
115,041
|
|
|
$
|
118,276
|
|
Less: Earnings allocated to unvested restricted stock
(1)
|
(1,163
|
)
|
|
(1,219
|
)
|
|
(1,115
|
)
|
Net earnings allocated to common shares
|
$
|
111,441
|
|
|
$
|
113,822
|
|
|
$
|
117,161
|
|
|
|
|
|
|
|
Weighted-average basic shares and unvested restricted
|
|
|
|
|
|
stock outstanding
|
122,227
|
|
|
123,238
|
|
|
127,487
|
|
Less: Weighted-average unvested restricted stock
|
|
|
|
|
|
outstanding
|
(1,352
|
)
|
|
(1,426
|
)
|
|
(1,413
|
)
|
Weighted-average basic shares outstanding
|
120,875
|
|
|
121,812
|
|
|
126,074
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
0.92
|
|
|
$
|
0.93
|
|
|
$
|
0.93
|
|
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
|
|
Net earnings allocated to common shares
|
$
|
111,441
|
|
|
$
|
113,822
|
|
|
$
|
117,161
|
|
|
|
|
|
|
|
Weighted-average basic shares outstanding
|
120,875
|
|
|
121,812
|
|
|
126,074
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
0.92
|
|
|
$
|
0.93
|
|
|
$
|
0.93
|
|
________________________
|
|
(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
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, 2019
|
|
Three Months Ended March 31, 2018
|
|
Total
|
|
Revenue from
|
|
Total
|
|
Revenue from
|
|
Recorded
|
|
Contracts with
|
|
Recorded
|
|
Contracts with
|
|
Revenue
|
|
Customers
|
|
Revenue
|
|
Customers
|
|
(In thousands)
|
Total interest income
|
$
|
304,559
|
|
|
$
|
—
|
|
|
$
|
277,775
|
|
|
$
|
—
|
|
Noninterest income:
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
3,730
|
|
|
3,730
|
|
|
4,174
|
|
|
4,174
|
|
Other commissions and fees
|
11,008
|
|
|
4,538
|
|
|
10,265
|
|
|
4,651
|
|
Leased equipment income
|
9,282
|
|
|
—
|
|
|
9,587
|
|
|
—
|
|
Gain on sale of loans
|
—
|
|
|
—
|
|
|
4,569
|
|
|
—
|
|
Gain on sale of securities
|
2,161
|
|
|
—
|
|
|
6,311
|
|
|
—
|
|
Other income
|
4,883
|
|
|
371
|
|
|
3,653
|
|
|
461
|
|
Total noninterest income
|
31,064
|
|
|
8,639
|
|
|
38,559
|
|
|
9,286
|
|
Total revenue
|
$
|
335,623
|
|
|
$
|
8,639
|
|
|
$
|
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,
|
|
2019
|
|
2018
|
|
(In thousands)
|
Products and services transferred at a point in time
|
$
|
4,546
|
|
|
$
|
4,661
|
|
Products and services transferred over time
|
4,093
|
|
|
4,625
|
|
Total revenue from contracts with customers
|
$
|
8,639
|
|
|
$
|
9,286
|
|
Contract Balances
The following table provides information about receivables, contract assets, and contract liabilities from contracts with customers:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
(In thousands)
|
Receivables, which are included in "Other assets"
|
$
|
1,198
|
|
|
$
|
1,334
|
|
Contract assets, which are included in "Other assets"
|
$
|
—
|
|
|
$
|
—
|
|
Contract liabilities, which are included in "Accrued interest payable and other liabilities"
|
$
|
588
|
|
|
$
|
621
|
|
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, 2019
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. 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, 2019
, there were
3,069,009
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
$5.8 million
,
$6.9 million
, and
$7.2 million
for the three months ended
March 31, 2019
,
December 31, 2018
, and
March 31, 2018
. 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, 2019
totaled
$49.7 million
.
Time-Based Restricted Stock Awards
At
March 31, 2019
, there were
1,241,543
shares of unvested TRSAs outstanding pursuant to the Company's 2003 and 2017 Stock Incentive 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, 2019
, there were
276,386
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 and the employee continues to meet the service requirement of the award.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 15. RECENTLY ISSUED ACCOUNTING STANDARDS
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
Effect on the Financial Statements
|
Standard
|
|
Description
|
|
Date
|
|
or Other Significant Matters
|
ASU 2016-13, "
Measurement of Credit Losses on Financial Instruments,
"
and
ASU 2018-19, “
Codification Improvements to Topic 326, Financial Instruments - Credit Losses”
|
|
1. This Update changes the accounting and recognition of credit losses and impairment of financial assets recorded at amortized cost. Under the 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 requires loss estimates for the remaining estimated life of the financial assets using historical experience, current conditions and reasonable and supportable forecasts. 2. The Update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. Receivables arising from operating leases are not within the scope of the new credit losses standard. 3. The Update must be applied using the modified retrospective method with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. A prospective transition approach is required for available-for-sale debt securities for which an other-than-temporary impairment had been recognized before the adoption date. Early adoption is permitted.
|
|
January 1, 2020
|
|
1. The Company has established a multidisciplinary project team and implementation plan, selected a software solution, reached preliminary accounting decisions on various matters, developed a conceptual framework, and developed regression models for the reasonable and supportable forecast period. 2. The Company continues to test and refine the CECL models and has begun parallel calculations, testing, and sensitivity analysis on its initial modeling assumptions and results. The ultimate impact is influenced by our portfolio characteristics, of which the vast majority is comprised of short-duration commercial loans; the macroeconomic conditions and forecasts at adoption; and other management judgments. 3. We plan to adopt this new standard on January 1, 2020. 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 on its consolidated financial position and results of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
Effect on the Financial Statements
|
Standard
|
|
Description
|
|
Date
|
|
or Other Significant Matters
|
ASU 2017-04, "
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment"
|
|
1. This Update simplifies 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. 2. The goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized 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. 3. The Update must be applied prospectively and early adoption is permitted.
|
|
January 1, 2020
|
|
1. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial position or results of operations and we plan to adopt this standard on January 1, 2020.
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
Effect on the Financial Statements
|
Standard
|
|
Description
|
|
Date
|
|
or Other Significant Matters
|
ASU 2018-13, “
Fair Value Measurement (Topic 820): Disclosure Framework - Changes to Disclosure Requirements for Fair Value Measurements”
|
|
1. This Update modified the disclosure requirements in Topic 820 to add disclosures regarding changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty. 2. Certain disclosure requirements in Topic 820 are also removed or modified. Certain disclosures in ASU 2018-13 would need to be applied on a retrospective basis and others on a prospective basis and early adoption is permitted.
|
|
January 1, 2020
|
|
1. The adoption of this guidance will modify disclosures but will not have an impact on the Company’s consolidated financial position or results of operations. The Company has early adopted any removed or modified disclosures effective January 1, 2019 but will defer adoption of the additional disclosures until January 1, 2020 as permitted in the transition guidance in ASU 2018-13.
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
Effect on the Financial Statements
|
Standard
|
|
Description
|
|
Date
|
|
or Other Significant Matters
|
ASU 2019-04, "
Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
"
|
|
1. This Update made clarifications and amendments to five topics: (i) Topic A: Codification Improvements Resulting from the June and November 2018 Credit Losses Transition Resource Group ("TRG") Meetings, (ii) Topic B: Codification Improvements to ASU 2016-13, (iii) Topic C: Codification Improvements to ASU 2017-12, "
Derivatives and Hedging (Topic 815)
" and Other Hedging Items, (iv) Topic D: Codification Improvements to ASU 2016-01, "
Financial Instruments - Overall (Subtopic 825-10)
," and (v) Topic E: Codification Improvements Resulting from the November 2018 Credit Losses TRG Meeting. 2. In addition to conforming amendments that correct for errors and oversights, the Update in Topics A, B, and E, which impacts CECL implementation, amends or clarifies guidance for accrued interest; transfers between classifications or categories of loans and debt securities; recoveries; effect of prepayments in determining the effective interest rate; estimated costs to sell when foreclosure is probable; vintage disclosure presentation related to line-of-credit arrangements converted to term loans; contractual extensions or renewals; and others. 3. Transition requirements for the amendments are the same as ASU 2016-13 for the Update in Topics A, B, and E. The Update in Topic C may be applied retrospectively as of the date of initial adoption of ASU 2017-012 or prospectively. The Update in Topic D must be applied on a modified retrospective method with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption and early adoption is permitted.
|
|
January 1, 2020; except for Topic C - January 1, 2019
|
|
1. Impacts from the adoption of Topics A, B, and E within this Update will be considered in the Company's overall CECL implementation and we plan to adopt this Update concurrent with the adoption of ASU 2016-13. 2. The adoption of Topic D within this Update is not expected to have a material impact on the Company's consolidated financial position or results of operations and we plan to adopt this standard on January 1, 2020. 3. Topic C within this Update is not applicable to us and therefore there is no impact on the Company's consolidated financial position or results of operations.
|
NOTE 16. SUBSEQUENT EVENTS
Common Stock Dividends
On
May 1, 2019
, 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, 2019
to stockholders of record at the close of business on
May 20, 2019
.
The Company has evaluated events that have occurred subsequent to
March 31, 2019
and have concluded there are
no
other subsequent events that would require recognition in the accompanying consolidated financial statements.