Use these links to rapidly review the document
TABLE OF CONTENT

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q


ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to                       

Commission File Number: 00-30747

PACWEST BANCORP
(Exact name of registrant as specified in its charter)

DELAWARE
(State or other jurisdiction of
incorporation or organization)
  33-0885320
(I.R.S. Employer
Identification Number)

10250 Constellation Blvd., Suite 1640
Los Angeles, California

(Address of principal executive offices)

 

90067
(Zip Code)

(310) 286-1144
(Registrant's telephone number, including area code)



        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer ý   Non-accelerated filer o
(Do not check if a
smaller reporting company)
  Smaller reporting company o

        Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

        As of November 1, 2011, there were 35,495,962 shares of the registrant's common stock outstanding, excluding 1,762,870 shares of unvested restricted stock.


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

SEPTEMBER 30, 2011 FORM 10-Q

TABLE OF CONTENTS

 
   
  Page
PART I—FINANCIAL INFORMATION   3
 

ITEM 1.

 

Condensed Consolidated Financial Statements (Unaudited)

  3

 

Condensed Consolidated Balance Sheets (Unaudited)

  3

 

Condensed Consolidated Statements of Earnings (Loss) (Unaudited)

  4

 

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

  5

 

Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited)

  6

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

  7

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

  8
 

ITEM 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

  43
 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  80
 

ITEM 4.

 

Controls and Procedures

  81

PART II—OTHER INFORMATION

 
82
 

ITEM 1.

 

Legal Proceedings

  82
 

ITEM 1A.

 

Risk Factors

  82
 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

  82
 

ITEM 6.

 

Exhibits

  83

SIGNATURES

 
84

2


Table of Contents


PART I—FINANCIAL INFORMATION

ITEM 1.    Condensed Consolidated Financial Statements (Unaudited)

        


PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Par Value Data)

(Unaudited)

 
  September 30,
2011
  December 31,
2010
 

ASSETS

             

Cash and due from banks

  $ 94,112   $ 82,170  

Interest-earning deposits in financial institutions

    73,209     26,382  
           
 

Total cash and cash equivalents

    167,321     108,552  
           

Securities available-for-sale, at fair value ($47,213 and $50,437 covered by FDIC loss sharing at September 30, 2011 and December 31, 2010, respectively)

    1,261,776     874,016  

Federal Home Loan Bank stock, at cost

    48,342     55,040  
           
 

Total investment securities

    1,310,118     929,056  
           

Non-covered loans, net of unearned income

    2,893,637     3,161,055  

Allowance for loan losses

    (90,110 )   (98,653 )
           
 

Non-covered loans, net

    2,803,527     3,062,402  

Covered loans, net

    761,059     908,576  
           
 

Total loans

    3,564,586     3,970,978  
           

Other real estate owned, net ($32,301 and $55,816 covered by FDIC loss sharing at September 30, 2011 and December 31, 2010, respectively)

    80,561     81,414  

Premises and equipment, net

    22,919     22,578  

FDIC loss sharing asset

    89,197     116,352  

Cash surrender value of life insurance

    67,004     66,182  

Core deposit and customer relationship intangibles, net

    19,251     25,843  

Goodwill

    39,141     47,301  

Other assets

    133,793     160,765  
           
   

Total assets

  $ 5,493,891   $ 5,529,021  
           

LIABILITIES

             

Noninterest-bearing deposits

  $ 1,628,253   $ 1,465,562  

Interest-bearing deposits

    2,926,143     3,184,136  
           
 

Total deposits

    4,554,396     4,649,698  

Borrowings

    225,000     225,000  

Subordinated debentures

    129,347     129,572  

Accrued interest payable and other liabilities

    45,680     45,954  
           
   

Total liabilities

    4,954,423     5,050,224  
           

Commitments and contingencies (Note 8)

             

STOCKHOLDERS' EQUITY

             

Preferred stock, $0.01 par value; authorized 5,000,000 shares; none issued and outstanding

         

Common stock, $0.01 par value; authorized 75,000,000 shares; 37,489,011 shares issued at September 30, 2011 and 36,880,225 at December 31, 2010 (includes 1,762,870 and 1,230,582 shares of unvested restricted stock, respectively)

    375     369  

Additional paid-in capital

    1,090,280     1,085,364  

Accumulated deficit

    (570,221 )   (607,042 )

Treasury stock, at cost—230,179 and 207,796 shares at September 30, 2011 and December 31, 2010, respectively

    (4,290 )   (3,863 )

Accumulated other comprehensive income

    23,324     3,969  
           
   

Total stockholders' equity

    539,468     478,797  
           
   

Total liabilities and stockholders' equity

  $ 5,493,891   $ 5,529,021  
           

See "Notes to Condensed Consolidated Financial Statements."

3


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

 
  Three Months Ended   Nine Months
Ended
September 30,
 
 
  September 30,
2011
  June 30,
2011
  September 30,
2010
 
 
  2011   2010  

Interest income:

                               
 

Loans

  $ 63,347   $ 68,331   $ 68,480   $ 198,459   $ 194,539  
 

Investment securities

    9,077     8,782     6,519     25,678     17,342  
 

Deposits in financial institutions

    94     83     131     234     505  
                       
   

Total interest income

    72,518     77,196     75,130     224,371     212,386  
                       

Interest expense:

                               
 

Deposits

    5,072     5,518     6,375     16,546     20,209  
 

Borrowings

    1,782     1,763     2,129     5,289     7,013  
 

Subordinated debentures

    1,223     1,226     1,459     3,668     4,357  
                       
   

Total interest expense

    8,077     8,507     9,963     25,503     31,579  
                       
   

Net interest income

    64,441     68,689     65,167     198,868     180,807  
                       

Provision for credit losses:

                               
 

Non-covered loans

        5,500     17,050     13,300     143,677  
 

Covered loans

    348     5,890     6,500     9,148     34,600  
                       
   

Total provision for credit losses

    348     11,390     23,550     22,448     178,277  
                       
   

Net interest income after provision for credit losses

    64,093     57,299     41,617     176,420     2,530  
                       

Noninterest income:

                               
 

Service charges on deposit accounts

    3,545     3,400     2,861     10,503     8,256  
 

Other commissions and fees

    2,052     1,980     1,760     5,752     5,395  
 

Other-than-temporary impairment loss on securities

            (874 )       (874 )
 

Increase in cash surrender value of life insurance

    359     368     353     1,106     1,120  
 

FDIC loss sharing income, net

    963     5,316     5,506     5,109     27,257  
 

Other income

    224     176     279     702     632  
                       
   

Total noninterest income

    7,143     11,240     9,885     23,172     41,786  
                       

Noninterest expense:

                               
 

Compensation

    21,557     21,717     23,060     65,203     63,539  
 

Occupancy

    7,423     7,142     6,872     21,548     20,406  
 

Data processing

    2,228     2,129     2,121     6,832     5,982  
 

Other professional services

    2,239     2,505     2,694     7,040     6,734  
 

Business development

    548     595     571     1,712     1,893  
 

Communications

    678     834     811     2,371     2,410  
 

Insurance and assessments

    1,641     1,603     2,431     5,581     7,316  
 

Non-covered other real estate owned, net

    2,293     2,300     2,151     5,296     11,217  
 

Covered other real estate owned expense (income), net

    4,813     1,205     (319 )   3,440     1,761  
 

Intangible asset amortization

    1,977     2,308     2,434     6,592     7,282  
 

Other expense

    3,190     4,200     3,348     10,909     10,977  
                       
   

Total noninterest expense

    48,587     46,538     46,174     136,524     139,517  
                       

Earnings (loss) before income taxes

    22,649     22,001     5,328     63,068     (95,201 )

Income tax (expense) benefit

    (9,345 )   (9,160 )   (1,828 )   (26,247 )   40,873  
                       
 

Net earnings (loss)

  $ 13,304   $ 12,841   $ 3,500   $ 36,821   $ (54,328 )
                       

Earnings (loss) per share:

                               
 

Basic

  $ 0.36   $ 0.35   $ 0.10   $ 0.99   $ (1.55 )
 

Diluted

  $ 0.36   $ 0.35   $ 0.10   $ 0.99   $ (1.55 )

Dividends declared per share

  $ 0.01   $ 0.01   $ 0.01   $ 0.03   $ 0.03  

See "Notes to Condensed Consolidated Financial Statements."

4


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In Thousands)

(Unaudited)

 
  Three Months Ended   Nine Months Ended
September 30,
 
 
  September 30,
2011
  June 30,
2011
  September 30,
2010
 
 
  2011   2010  

Net earnings (loss)

  $ 13,304   $ 12,841   $ 3,500   $ 36,821   $ (54,328 )

Other comprehensive income, net of related income taxes:

                               
 

Unrealized holding gains on securities available-for-sale arising during the period

    12,886     5,785     2,869     19,355     11,514  
                       

Comprehensive income (loss)

  $ 26,190   $ 18,626   $ 6,369   $ 56,176   $ (42,814 )
                       

See "Notes to Condensed Consolidated Financial Statements."

5


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in Thousands, Except Share Data)

(Unaudited)

 
  Nine Months Ended September 30, 2011  
 
  Common Stock    
   
   
   
 
 
   
   
  Accumulated
Other
Comprehensive
Income
   
 
 
  Shares   Par
Value
  Additional
Paid-in
Capital
  Accumulated
Deficit
  Treasury
Stock
  Total  

Balance, January 1, 2011

    36,672,429   $ 369   $ 1,085,364   $ (607,042 ) $ (3,863 ) $ 3,969   $ 478,797  
 

Net earnings

                36,821             36,821  
 

Tax effect from vesting of restricted stock

            (497 )               (497 )
 

Restricted stock awarded and earned stock compensation, net of shares forfeited

    608,786     6     6,502                 6,508  
 

Restricted stock surrendered

    (22,383 )               (427 )       (427 )
 

Cash dividends paid ($0.03 per share)

            (1,089 )               (1,089 )
 

Other comprehensive income—increase in net unrealized gain on securities available-for-sale, net of tax effect of $14.0 million

                        19,355     19,355  
                               

Balance, September 30, 2011

    37,258,832   $ 375   $ 1,090,280   $ (570,221 ) $ (4,290 ) $ 23,324   $ 539,468  
                               

See "Notes to Condensed Consolidated Financial Statements."

6


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 
  Nine Months Ended
September 30,
 
 
  2011   2010  

Cash flows from operating activities:

             
 

Net earnings (loss)

  $ 36,821   $ (54,328 )
   

Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:

             
     

Depreciation and amortization

    13,721     4,190  
     

Provision for credit losses

    22,448     178,277  
     

Gain on sale of other real estate owned

    (8,334 )   (4,044 )
     

Provision for losses on other real estate owned

    15,011     14,777  
     

Gain on sale of premises and equipment

    (23 )   (14 )
     

Impairment loss on securities

        874  
     

Restricted stock amortization

    6,508     6,563  
     

Tax effect included in stockholders' equity of restricted stock vesting

    497     1,427  
     

Decrease in accrued and deferred income taxes, net

    (3,689 )   (41,718 )
     

Decrease in FDIC loss sharing asset

    27,155     40,470  
     

Decrease in other assets

    15,989     13,579  
     

Decrease in accrued interest payable and other liabilities

    (2,406 )   (8,991 )
           
       

Net cash provided by operating activities

    123,698     151,062  
           

Cash flows from investing activities:

             
   

Resolution of goodwill matter with FDIC

    7,636      
   

Net cash acquired in Los Padres Bank acquisition

        171,366  
   

Net decrease in loans

    324,823     26,393  
   

Proceeds from sale of loans

    2,495     204,164  
   

Securities available-for-sale:

             
     

Proceeds from maturities and paydowns

    137,622     135,295  
     

Purchases

    (495,341 )   (448,856 )
   

Net redemptions of FHLB stock

    6,698     3,744  
   

Proceeds from sales of other real estate owned

    52,823     61,560  
   

Capitalized costs to complete other real estate owned

        (638 )
   

Purchases of premises and equipment, net

    (4,397 )   (2,481 )
   

Proceeds from sales of premises and equipment

    27     28  
           
     

Net cash provided by investing activities

    32,386     150,575  
           

Cash flows from financing activities:

             
   

Net increase (decrease) in deposits:

             
     

Noninterest-bearing

    162,691     131,166  
     

Interest-bearing

    (257,993 )   (177,006 )
   

Net proceeds from issuance of common stock

        26,587  
   

Restricted stock surrendered

    (427 )   (836 )
   

Tax effect included in stockholders' equity of restricted stock vesting

    (497 )   (1,427 )
   

Net decrease in borrowings

        (330,000 )
   

Cash dividends paid

    (1,089 )   (1,084 )
           
     

Net cash used in financing activities

    (97,315 )   (352,600 )
           

Net increase (decrease) in cash and cash equivalents

    58,769     (50,963 )

Cash and cash equivalents, beginning of period

    108,552     211,048  
           

Cash and cash equivalents, end of period

  $ 167,321   $ 160,085  
           

Supplemental disclosures of cash flow information:

             
 

Cash paid for interest

  $ 26,273   $ 32,163  
 

Cash paid for income taxes

    29,969     810  
 

Loans transferred to other real estate owned

    57,266     45,669  

See "Notes to Condensed Consolidated Financial Statements."

7


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1—BASIS OF PRESENTATION

        PacWest Bancorp is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. Our principal business is to serve as a holding company for our banking subsidiary, Pacific Western Bank, which we refer to as Pacific Western or the Bank. When we say "we", "our" or the "Company", we mean the Company on a consolidated basis with the Bank. When we refer to "PacWest" or to the holding company, we are referring to the parent company on a stand-alone basis.

        Pacific Western is a full-service commercial bank offering a broad range of banking products and services including: accepting demand, money market, and time deposits; originating loans, including commercial, real estate construction, SBA-guaranteed and consumer loans; and providing other business-oriented products. Our operations are primarily located in Southern California and extend from California's Central Coast to San Diego County. The Bank focuses on conducting business with small to medium-sized businesses in our marketplace and the owners and employees of those businesses. The majority of our loans are secured by the real estate collateral of such businesses. We also operate three banking offices in the San Francisco Bay area and one office in Arizona, all of which were acquired through FDIC-assisted acquisitions. Our asset-based lending function operates in Arizona, California, Texas, and the Pacific Northwest.

        We generate our revenue primarily from interest received on loans and, to a lesser extent, from interest received on investment securities, and fees received in connection with deposit services, extending credit and other services offered, including foreign exchange services. Our major operating expenses are the interest paid by the Bank on deposits and borrowings, compensation and general operating expenses. The Bank relies on a foundation of locally generated and relationship-based deposits. The Bank has a relatively low cost of funds due to a high percentage of noninterest-bearing and low cost deposits.

        We completed 22 acquisitions since May 2000.

        The accounting and reporting policies of the Company are in accordance with U.S. generally accepted accounting principles, which we may refer to as GAAP. All significant intercompany balances and transactions have been eliminated.

        Our financial statements reflect all adjustments that are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. Certain information and note disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The interim operating results are not necessarily indicative of operating results for the full year.

        Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include,

8


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 1—BASIS OF PRESENTATION (Continued)

among other items, the allowances for credit losses, the carrying value of other real estate owned, the carrying value of intangible assets, the carrying value of the FDIC loss sharing asset and the realization of deferred tax assets.

        In August 2010, Pacific Western acquired assets and assumed liabilities of the former Los Padres Bank ("Los Padres") in an FDIC-assisted transaction, which we refer to as the Los Padres acquisition. The acquired assets and assumed liabilities were measured at their estimated fair values. Management made significant estimates and exercised significant judgment in estimating fair values and accounting for the acquired assets and assumed liabilities in the Los Padres acquisition.

        Certain prior period amounts have been reclassified to conform to the current period's presentation format. During the second quarter of 2011, we reclassified recoveries on covered loans such that recoveries now reduce the credit loss provision for covered loans rather than increase FDIC loss sharing income. Such reclassifications had no effect on reported net earnings or losses.

NOTE 2—GOODWILL AND OTHER INTANGIBLE ASSETS

        Goodwill arises from business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Goodwill and other intangible assets deemed to have indefinite lives generated from purchase business combinations are not subject to amortization and are instead tested for impairment no less than annually. Impairment is determined in accordance with ASC 350, "Intangibles—Goodwill and Other" and is based on the reporting unit. Impairment exists when the carrying value of goodwill exceeds its implied fair value. An impairment loss would be recognized in an amount equal to that excess and would be included in noninterest expense in the consolidated statement of earnings (loss). Our annual impairment test of goodwill resulted in no impact on our results of operations and financial condition.

        Goodwill in the amount of $46.8 million was recorded in the Los Padres acquisition. During the second quarter of 2011, we reduced goodwill by $7.6 million as the matter with the FDIC regarding settlement accounting for a wholly-owned subsidiary in the Los Padres acquisition was resolved. A receivable for such amount was included in the FDIC loss sharing asset at June 30, 2011 and the cash was received during the third quarter of 2011.

        Our intangible assets with definite lives are core deposit intangibles, or CDI, and customer relationship intangibles, or CRI. These intangible assets are amortized over their useful lives to their estimated residual values and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or loan customers acquired.

9


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 2—GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

        The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:

 
  Three Months Ended   Nine Months Ended
September 30,
 
 
  September 30,
2011
  June 30,
2011
  September 30,
2010
 
 
  2011   2010  
 
  (In thousands)
 

Gross amount of CDI and CRI:

                               
 

Balance, beginning of period

  $ 73,629   $ 76,319   $ 75,911   $ 76,319   $ 75,911  
 

Additions

            2,427          
 

Fully amortized portion

    (6,529 )   (2,690 )       (9,219 )   2,427  
                       
   

Balance, end of period

    67,100     73,629     78,338     67,100     78,338  
                       

Accumulated amortization:

                               
 

Balance, beginning of period

    (52,401 )   (52,783 )   (47,463 )   (50,476 )   (42,615 )
 

Amortization

    (1,977 )   (2,308 )   (2,434 )   (6,592 )   (7,282 )
 

Fully amortized portion

    6,529     2,690         9,219      
                       
   

Balance, end of period

    (47,849 )   (52,401 )   (49,897 )   (47,849 )   (49,897 )
                       

Net CDI and CRI, end of period

  $ 19,251   $ 21,228   $ 28,441   $ 19,251   $ 28,441  
                       

        The aggregate amortization expense related to the intangible assets is expected to be $8.4 million for 2011. The estimated aggregate amortization expense related to these intangible assets for each of the subsequent four years is $6.1 million for 2012, $4.5 million for 2013, $2.9 million for 2014, and $2.7 million for 2015.

NOTE 3—INVESTMENT SECURITIES

        The amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale are presented in the tables below as of the dates indicated. The private label collateralized mortgage obligations were acquired in the FDIC-assisted acquisition of Affinity Bank ("Affinity") in August 2009 and are covered by a FDIC loss sharing agreement. Other securities include

10


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—INVESTMENT SECURITIES (Continued)

an investment in overnight money market funds at a financial institution. See Note 9, Fair Value Measurements, for information on fair value measurements and methodology.

 
  September 30, 2011  
 
  Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Estimated
Fair
Value
 
 
  (In thousands)
 

Residental mortgage-backed securities:

                         
 

Government and government-sponsored entity pass through securities

  $ 984,907   $ 33,046   $ (347 ) $ 1,017,606  
 

Government and government-sponsored entity collateralized mortgage obligations

    84,783     2,001     (4 )   86,780  
 

Covered private label collateralized mortgage obligations

    42,328     6,687     (1,802 )   47,213  

Municipal securities

    92,422     1,060     (255 )   93,227  

Corporate debt securities

    14,813     23     (194 )   14,642  

Other securities

    2,308             2,308  
                   
   

Total securities available-for-sale

  $ 1,221,561   $ 42,817   $ (2,602 ) $ 1,261,776  
                   

 

 
  December 31, 2010  
 
  Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Estimated
Fair
Value
 
 
  (In thousands)
 

Government-sponsored entity debt securities

  $ 10,014   $ 15   $   $ 10,029  

Residental mortgage-backed securities:

                         
 

Government and government-sponsored entity pass through securities

    754,149     9,282     (7,366 )   756,065  
 

Government and government-sponsored entity collateralized mortgage obligations

    47,416     565     (352 )   47,629  
 

Covered private label collateralized mortgage obligations

    45,867     6,653     (2,083 )   50,437  

Municipal securities

    7,437     129         7,566  

Other securities

    2,290             2,290  
                   
   

Total securities available-for-sale

  $ 867,173   $ 16,644   $ (9,801 ) $ 874,016  
                   

        Mortgage-backed securities have contractual terms to maturity and 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.

11


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—INVESTMENT SECURITIES (Continued)

        The following table presents the contractual maturity distribution of our available-for-sale securities portfolio based on amortized cost and fair value as of the date indicated:

 
  September 30, 2011  
 
  Amortized
Cost
  Estimated
Fair
Value
 
 
  (In thousands)
 

Due in one year or less

  $ 2,308   $ 2,308  

Due after one year through five years

    8,790     9,083  

Due after five years through ten years

    38,956     40,646  

Due after ten years

    1,171,507     1,209,739  
           
 

Total securities available-for-sale

  $ 1,221,561   $ 1,261,776  
           

        At September 30, 2011, the estimated fair value of debt securities and residential mortgage-backed debt securities issued by the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") was approximately $1.0 billion. We do not own any equity securities issued by Fannie Mae or Freddie Mac.

        As of September 30, 2011, securities available-for-sale with an estimated fair value of $77.2 million were pledged as collateral for borrowings, public deposits and other purposes as required by various statutes and agreements.

        The following tables present the estimated fair values and the gross unrealized losses on securities by length of time the securities have been in an unrealized loss position as of the dates indicated:

 
  September 30, 2011  
 
  Less Than 12 Months   12 months or Longer   Total  
 
  Estimated
Fair
Value
  Gross
Unrealized
Losses
  Estimated
Fair
Value
  Gross
Unrealized
Losses
  Estimated
Fair
Value
  Gross
Unrealized
Losses
 
 
  (In thousands)
 

Residential mortgage-backed securities:

                                     
 

Government and government-sponsored entity pass through securities

  $ 72,233   $ (346 ) $ 24   $ (1 ) $ 72,257   $ (347 )
 

Government and government-sponsored entity collateralized mortgage obligations

            1,651     (4 )   1,651     (4 )
 

Covered private label collateralized mortgage obligations

    5,255     (396 )   4,514     (1,406 )   9,769     (1,802 )

Municipal securities

    34,584     (255 )           34,584     (255 )

Corporate debt securities

    10,098     (194 )           10,098     (194 )
                           
   

Total

  $ 122,170   $ (1,191 ) $ 6,189   $ (1,411 ) $ 128,359   $ (2,602 )
                           

12


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—INVESTMENT SECURITIES (Continued)

 

 
  December 31, 2010  
 
  Less Than 12 Months   12 months or Longer   Total  
 
  Estimated
Fair
Value
  Gross
Unrealized
Losses
  Estimated
Fair
Value
  Gross
Unrealized
Losses
  Estimated
Fair
Value
  Gross
Unrealized
Losses
 
 
  (In thousands)
 

Residential mortgage-backed securities:

                                     
 

Government and government-sponsored entity pass through securities

  $ 321,537   $ (7,366 ) $   $   $ 321,537   $ (7,366 )
 

Government and government-sponsored entity collateralized mortgage obligations

    15,690     (327 )   1,553     (25 )   17,243     (352 )
 

Covered private label collateralized mortgage obligations

    1,579     (472 )   4,980     (1,611 )   6,559     (2,083 )
                           
   

Total

  $ 338,806   $ (8,165 ) $ 6,533   $ (1,636 ) $ 345,339   $ (9,801 )
                           

        We reviewed the securities that were in a continuous loss position less than 12 months and longer than 12 months at September 30, 2011, and concluded that their losses were a result of the level of market interest rates relative to the types of securities and not a result of the underlying issuers' abilities to repay. Accordingly, we determined that the securities were temporarily impaired. Additionally, we have no plans to sell these securities and believe that it is more likely than not we would not be required to sell these securities before recovery of their amortized cost. Therefore, we did not recognize the temporary impairment in the consolidated statements of earnings (loss).

        At September 30, 2011, the Company had a $48.3 million investment in Federal Home Loan Bank of San Francisco (FHLB) stock carried at cost. In January 2009, the FHLB announced that it suspended excess FHLB stock redemptions and dividend payments. Since this announcement, the FHLB has declared and paid cash dividends in 2010 and 2011, though at rates less than that paid in the past, and repurchased certain amounts of our excess stock. We evaluated the carrying value of our FHLB stock investment at September 30, 2011 and determined that it was not impaired. Our evaluation considered the long-term nature of the investment, the current financial and liquidity position of the FHLB, the actions being taken by the FHLB to address its regulatory situation, and our intent and ability to hold this investment for a period of time sufficient to recover our recorded investment.

13


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS

        When we refer to non-covered loans we are referring to loans not covered by our FDIC loss sharing agreements.

        The following table presents the composition of non-covered loans by portfolio segment as of the dates indicated:

Loan Segment
  September 30,
2011
  December 31,
2010
 
 
  (In thousands)
 

Real estate mortgage

  $ 2,031,893   $ 2,274,733  

Real estate construction

    152,411     179,479  

Commercial

    671,963     663,557  

Consumer

    20,621     25,058  

Foreign

    20,932     22,608  
           
 

Total gross non-covered loans

    2,897,820     3,165,435  

Less:

             
 

Unearned income

    (4,183 )   (4,380 )
 

Allowance for loan losses

    (90,110 )   (98,653 )
           
   

Total net non-covered loans

  $ 2,803,527   $ 3,062,402  
           

        The following tables present a summary of the activity in the allowance for loan losses on non-covered loans by portfolio segment for the periods indicated:

 
  Three Months Ended September 30, 2011  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Consumer   Foreign   Total  
 
  (In thousands)
 

Allowance for Loan Losses on Non-Covered Loans:

                                     

Balance, beginning of period

  $ 53,540   $ 11,185   $ 28,259   $ 2,910   $ 533   $ 96,427  
 

Charge-offs

    (4,293 )       (2,237 )   (54 )       (6,584 )
 

Recoveries

    225     33     235     74         567  
 

Provision

    2,341     (885 )   (925 )   (642 )   (189 )   (300 )
                           

Balance, end of period

  $ 51,813   $ 10,333   $ 25,332   $ 2,288   $ 344   $ 90,110  
                           

14


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

 

 
  Nine Months Ended September 30, 2011  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Consumer   Foreign   Total  
 
  (In thousands)
 

Allowance for Loan Losses on Non-Covered Loans:

                                     

Balance, beginning of period

  $ 51,657   $ 8,766   $ 33,229   $ 4,652   $ 349   $ 98,653  
 

Charge-offs

    (9,859 )   (5,838 )   (7,967 )   (1,379 )       (25,043 )
 

Recoveries

    349     1,021     1,160     1,375     45     3,950  
 

Provision

    9,666     6,384     (1,090 )   (2,360 )   (50 )   12,550  
                           

Balance, end of period

  $ 51,813   $ 10,333   $ 25,332   $ 2,288   $ 344   $ 90,110  
                           

The ending balance of the allowance is composed of amounts applicable to loans:

                                     
 

Individually evaluated for impairment

  $ 6,399   $ 3,363   $ 7,035   $ 2   $   $ 16,799  
                           
 

Collectively evaluated for impairment

  $ 45,414   $ 6,970   $ 18,297   $ 2,286   $ 344   $ 73,311  
                           

Non-Covered Loan Balances:

                                     

Ending balance

  $ 2,031,893   $ 152,411   $ 671,963   $ 20,621   $ 20,932   $ 2,897,820  
                           

The ending balance of the non-covered loan portfolio is composed of loans:

                                     
 

Individually evaluated for impairment

  $ 91,495   $ 32,621   $ 21,692   $ 565   $   $ 146,373  
                           
 

Collectively evaluated for impairment

  $ 1,940,398   $ 119,790   $ 650,271   $ 20,056   $ 20,932   $ 2,751,447  
                           

15


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

 

 
  Year Ended December 31, 2010  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Consumer   Foreign   Total  
 
  (In thousands)
 

Allowance for Loan Losses on Non-Covered Loans:

                                     

Balance, January 1, 2010

  $ 58,241   $ 39,934   $ 17,710   $ 2,021   $ 811   $ 118,717  
 

Charge-offs

    (117,029 )   (63,590 )   (18,548 )   (3,749 )   (306 )   (203,222 )
 

Recoveries

    1,222     708     1,652     565     133     4,280  
 

Provision

    109,223     31,714     32,415     5,815     (289 )   178,878  
                           

Balance, December 31, 2010

  $ 51,657   $ 8,766   $ 33,229   $ 4,652   $ 349   $ 98,653  
                           

The ending balance of the allowance is composed of amounts applicable to loans:

                                     
 

Individually evaluated for impairment

  $ 3,893   $ 1,125   $ 8,911   $ 1,049   $   $ 14,978  
                           
 

Collectively evaluated for impairment

  $ 47,764   $ 7,641   $ 24,318   $ 3,603   $ 349   $ 83,675  
                           

Non-Covered Loan Balances:

                                     

Ending balance

  $ 2,274,733   $ 179,479   $ 663,557   $ 25,058   $ 22,608   $ 3,165,435  
                           

The ending balance of the non-covered loan portfolio is composed of loans:

                                     
 

Individually evaluated for impairment

  $ 94,171   $ 47,350   $ 39,820   $ 1,951   $ 163   $ 183,455  
                           
 

Collectively evaluated for impairment

  $ 2,180,562   $ 132,129   $ 623,737   $ 23,107   $ 22,445   $ 2,981,980  
                           

        The following table presents the credit risk rating categories for non-covered loans by portfolio segment and class as of the dates indicated. Nonclassified loans are those with a credit risk rating of either pass or special mention, while classified loans are those with a credit risk rating of either substandard or doubtful.

        Our federal and state banking regulators, as an integral part of their examination process, periodically review the Company's loan risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to

16


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)


them at the time of their examinations. Risk rating downgrades generally result in higher provisions for credit losses.

 
  September 30, 2011   December 31, 2010  
 
  Nonclassified   Classified   Total   Nonclassified   Classified   Total  
 
  (In thousands)
   
   
   
 

Real estate mortgage:

                                     
 

Hospitality

  $ 124,346   $ 21,437   $ 145,783   $ 137,952   $ 18,700   $ 156,652  
 

SBA 504

    51,838     7,386     59,224     55,774     13,513     69,287  
 

Other

    1,749,840     77,046     1,826,886     1,956,905     91,889     2,048,794  
                           
   

Total real estate mortgage

    1,926,024     105,869     2,031,893     2,150,631     124,102     2,274,733  
                           

Real estate construction:

                                     
 

Residential

    16,908     3,398     20,306     39,644     25,399     65,043  
 

Commercial

    98,819     33,286     132,105     82,291     32,145     114,436  
                           
   

Total real estate construction

    115,727     36,684     152,411     121,935     57,544     179,479  
                           

Commercial:

                                     
 

Collateralized

    396,393     17,133     413,526     342,607     15,820     358,427  
 

Unsecured

    65,214     5,967     71,181     119,326     10,417     129,743  
 

Asset-based

    157,270     48     157,318     141,813     1,354     143,167  
 

SBA 7(a)

    18,716     11,222     29,938     29,557     2,663     32,220  
                           
   

Total commercial

    637,593     34,370     671,963     633,303     30,254     663,557  
                           

Consumer

    19,799     822     20,621     22,949     2,109     25,058  

Foreign

    20,932         20,932     22,608         22,608  
                           
   

Total non-covered loans

  $ 2,720,075   $ 177,745   $ 2,897,820   $ 2,951,426   $ 214,009   $ 3,165,435  
                           

17


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

        The following tables present an aging analysis of our non-covered loans by portfolio segment and class as of the dates indicated:

 
  September 30, 2011  
 
  30 - 59 Days
Past Due
  60 - 89 Days
Past Due
  Greater
Than
90 Days
Past Due
  Total
Past Due
  Current   Total  
 
  (In thousands)
 

Real estate mortgage:

                                     
 

Hospitality

  $   $   $   $   $ 145,783   $ 145,783  
 

SBA 504

    3,168     896         4,064     55,160     59,224  
 

Other

    13,351     1,939     13,652     28,942     1,797,944     1,826,886  
                           
   

Total real estate mortgage

    16,519     2,835     13,652     33,006     1,998,887     2,031,893  
                           

Real estate construction:

                                     
 

Residential

                    20,306     20,306  
 

Commercial

    1,553         2,719     4,272     127,833     132,105  
                           
   

Total real estate construction

    1,553         2,719     4,272     148,139     152,411  
                           

Commercial:

                                     
 

Collateralized

        396     2,614     3,010     410,516     413,526  
 

Unsecured

        113     2,003     2,116     69,065     71,181  
 

Asset-based

                    157,318     157,318  
 

SBA 7(a)

    974     591     1,591     3,156     26,782     29,938  
                           
   

Total commercial

    974     1,100     6,208     8,282     663,681     671,963  
                           

Consumer

    110     19         129     20,492     20,621  

Foreign

                    20,932     20,932  
                           
   

Total non-covered loans

  $ 19,156   $ 3,954   $ 22,579   $ 45,689   $ 2,852,131   $ 2,897,820  
                           

        At September 30, 2011 and December 31, 2010, the Company had no non-covered loans that were greater than 90 days past due and still accruing interest. It is the Company's policy to discontinue accruing interest when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to collectibility of a loan in the normal course of business. At September 30, 2011, nonaccrual loans totaled $60.0 million. Nonaccrual loans include $3.5 million of loans 30 to 89 days past due and $33.9 million of current loans which have been placed on nonaccrual status based on management's judgment regarding the collectibility of such loans.

18


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

 
  December 31, 2010  
 
  30 - 59 Days
Past Due
  60 - 89 Days
Past Due
  Greater
Than
90 Days
Past Due
  Total
Past Due
  Current   Total  
 
  (In thousands)
 

Real estate mortgage:

                                     
 

Hospitality

  $   $   $   $   $ 156,652   $ 156,652  
 

SBA 504

    799     462     6,235     7,496     61,791     69,287  
 

Other

    426     2,566     13,936     16,928     2,031,866     2,048,794  
                           
   

Total real estate mortgage

    1,225     3,028     20,171     24,424     2,250,309     2,274,733  
                           

Real estate construction:

                                     
 

Residential

            24,004     24,004     41,039     65,043  
 

Commercial

        667     2,145     2,812     111,624     114,436  
                           
   

Total real estate construction

        667     26,149     26,816     152,663     179,479  
                           

Commercial:

                                     
 

Collateralized

    725     883     1,457     3,065     355,362     358,427  
 

Unsecured

        5,966     600     6,566     123,177     129,743  
 

Asset-based

                    143,167     143,167  
 

SBA 7(a)

    1,254     494     751     2,499     29,721     32,220  
                           
   

Total commercial

    1,979     7,343     2,808     12,130     651,427     663,557  
                           

Consumer

    407     1,048         1,455     23,603     25,058  

Foreign

            163     163     22,445     22,608  
                           
   

Total non-covered loans

  $ 3,611   $ 12,086   $ 49,291   $ 64,988   $ 3,100,447   $ 3,165,435  
                           

        Nonaccrual loans totaled $94.2 million at December 31, 2010, of which $12.0 million were 30 to 89 days past due and $32.9 million were current.

19


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

        The following table presents our nonaccrual and performing non-covered loans by portfolio segment and class as of the dates indicated:

 
  September 30, 2011   December 31, 2010  
 
  Nonaccrual   Performing   Total   Nonaccrual   Performing   Total  
 
  (In thousands)
   
   
   
 

Real estate mortgage:

                                     
 

Hospitality

  $ 7,336   $ 138,447   $ 145,783   $ 4,151   $ 152,501   $ 156,652  
 

SBA 504

    2,895     56,329     59,224     9,346     59,941     69,287  
 

Other

    21,693     1,805,193     1,826,886     27,452     2,021,342     2,048,794  
                           
   

Total real estate mortgage

    31,924     1,999,969     2,031,893     40,949     2,233,784     2,274,733  
                           

Real estate construction:

                                     
 

Residential

    1,091     19,215     20,306     24,004     41,039     65,043  
 

Commercial

    9,399     122,706     132,105     5,238     109,198     114,436  
                           
   

Total real estate construction

    10,490     141,921     152,411     29,242     150,237     179,479  
                           

Commercial:

                                     
 

Collateralized

    4,769     408,757     413,526     6,241     352,186     358,427  
 

Unsecured

    4,887     66,294     71,181     9,104     120,639     129,743  
 

Asset-based

    15     157,303     157,318     15     143,152     143,167  
 

SBA 7(a)

    7,318     22,620     29,938     6,518     25,702     32,220  
                           
   

Total commercial

    16,989     654,974     671,963     21,878     641,679     663,557  
                           

Consumer

    565     20,056     20,621     1,951     23,107     25,058  

Foreign

        20,932     20,932     163     22,445     22,608  
                           
   

Total non-covered loans

  $ 59,968   $ 2,837,852   $ 2,897,820   $ 94,183   $ 3,071,252   $ 3,165,435  
                           

        Nonaccrual loans and performing restructured loans are considered impaired for reporting purposes. Impaired loans by portfolio segment are as follows as of the dates indicated:

 
  September 30, 2011   December 31, 2010  
Loan Segment
  Nonaccrual
Loans
  Performing
Restructured
Loans
  Total
Impaired
Loans
  Nonaccrual
Loans
  Performing
Restructured
Loans
  Total
Impaired
Loans
 
 
  (In thousands)
 

Real estate mortgage

  $ 31,924   $ 59,571   $ 91,495   $ 40,949   $ 53,222   $ 94,171  

Real estate construction

    10,490     22,131     32,621     29,242     18,108     47,350  

Commercial

    16,989     4,703     21,692     21,878     17,942     39,820  

Consumer

    565         565     1,951         1,951  

Foreign

                163         163  
                           
 

Total

  $ 59,968   $ 86,405   $ 146,373   $ 94,183   $ 89,272   $ 183,455  
                           

20


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

        The decrease in the real estate construction impaired loan segment is due to the foreclosure on undeveloped land located in Ventura County which secured two non-covered loans with an aggregate balance of $23.0 million. The decrease in the commercial impaired loan segment is due to two loans that have performed in accordance with their restructured terms for at least 12 months and have been removed from this category.

21


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

        The following tables present information regarding our non-covered impaired loans by portfolio segment and class as of and for the dates indicated:

 
  September 30, 2011   December 31, 2010  
 
  Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
 
 
  (In thousands)
 

With An Allowance Recorded:

                                     

Real estate mortgage:

                                     
 

Hospitality

  $ 17,634   $ 17,891   $ 2,893   $ 15,081   $ 15,138   $ 564  
 

SBA 504

    1,159     1,250     195     4,161     6,180     280  
 

Other

    56,238     60,220     3,311     47,188     47,343     3,049  

Real estate construction:

                                     
 

Residential

    2,069     2,077     484     8,301     11,956     673  
 

Other

    24,374     26,391     2,879     5,341     5,701     452  
                           
   

Total real estate

    101,474     107,829     9,762     80,072     86,318     5,018  
                           

Commercial:

                                     
 

Collateralized

    4,691     4,780     3,068     2,192     2,363     1,174  
 

Unsecured

    4,748     14,708     3,183     9,361     9,445     7,696  
 

SBA 7(a)

    4,543     4,632     784     1,999     2,123     41  

Consumer

    69     73     2     1,125     1,127     1,049  
                           
 

Total other

    14,051     24,193     7,037     14,677     15,058     9,960  
                           

With No Related Allowance Recorded:

                                     

Real estate mortgage:

                                     
 

Hospitality

  $   $   $   $ 667   $ 667   $  
 

SBA 504

    2,348     4,007         5,185     6,320      
 

Other

    14,116     16,819         21,889     29,191      

Real estate construction:

                                     
 

Residential

    1,329     1,329         22,676     23,208      
 

Other

    4,849     6,157         11,032     12,603      
                           
   

Total real estate

    22,642     28,312         61,449     71,989      
                           

Commercial:

                                     
 

Collateralized

    2,201     2,416         20,519     20,668      
 

Unsecured

    591     656         224     236      
 

Asset-based

    15     15         15     15      
 

SBA 7(a)

    4,903     6,427         5,510     7,239      

Consumer

    496     563         826     876      

Foreign

                163     238      
                           
 

Total other

    8,206     10,077         27,257     29,272      
                           

Total:

                                     
 

Real estate mortgage

  $ 91,495   $ 100,187   $ 6,399   $ 94,171   $ 104,839   $ 3,893  
 

Real estate construction

    32,621     35,954     3,363     47,350     53,468     1,125  
 

Commercial

    21,692     33,634     7,035     39,820     42,089     8,911  
 

Consumer

    565     636     2     1,951     2,003     1,049  
 

Foreign

                163     238      
                           
   

Total non-covered loans

  $ 146,373   $ 170,411   $ 16,799   $ 183,455   $ 202,637   $ 14,978  
                           

22


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)


 
  Three Months Ended
September 30, 2011
  Nine Months Ended
September 30, 2011
 
 
  Weighted
Average
Recorded
Investment(1)
  Interest
Income
Recognized
  Weighted
Average
Recorded
Investment(1)
  Interest
Income
Recognized
 
 
  (In thousands)
 

With An Allowance Recorded:

                         

Real estate mortgage:

                         
 

Hospitality

  $ 17,634   $ 162   $ 17,435   $ 528  
 

SBA 504

    1,159     8     820     29  
 

Other

    55,580     584     43,025     2,051  

Real estate construction:

                         
 

Residential

    2,069     17     2,069     55  
 

Other

    20,969     274     16,293     502  
                   
   

Total real estate

    97,411     1,045     79,642     3,165  
                   

Commercial:

                         
 

Collateralized

    4,568     32     3,644     76  
 

Unsecured

    4,748     6     4,739     16  
 

SBA 7(a)

    3,131     60     2,400     116  

Consumer

    69         69      
                   
 

Total other

    12,516     98     10,852     208  
                   

With No Related Allowance Recorded:

                         

Real estate mortgage:

                         
 

Hospitality

  $   $   $   $  
 

SBA 504

    2,348         2,348      
 

Other

    13,900     150     10,992     358  

Real estate construction:

                         
 

Residential

    1,329     48     1,329     48  
 

Other

    4,849     114     4,849     163  
                   
   

Total real estate

    22,426     312     19,518     569  
                   

Commercial:

                         
 

Collateralized

    2,198         2,133      
 

Unsecured

    574     2     548     4  
 

Asset-based

    15         15      
 

SBA 7(a)

    4,815     15     4,704     25  

Consumer

    496         462     1  

Foreign

                 
                   
 

Total other

    8,098     17     7,862     30  
                   

Total:

                         
 

Real estate mortgage

  $ 90,621   $ 904   $ 74,620   $ 2,966  
 

Real estate construction

    29,216     453     24,540     768  
 

Commercial

    20,049     115     18,183     237  
 

Consumer

    565         531     1  
 

Foreign

                 
                   
   

Total non-covered loans

  $ 140,451   $ 1,472   $ 117,874   $ 3,972  
                   

(1)
For the loans reported as impaired as of September 30, 2011, amounts were calculated based on the period of time such loans were impaired during the reporting period.

23


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

        The following tables present non-covered new troubled debt restructurings and defaulted troubled debt restructurings for the periods indicated:

 
  Three Months Ended
September 30, 2011
  Nine Months Ended
September 30, 2011
 
 
  Number
of
Loans
  Pre-
Modification
Outstanding
Recorded
Investment
  Post-
Modification
Outstanding
Recorded
Investment
  Number
of
Loans
  Pre-
Modification
Outstanding
Recorded
Investment
  Post-
Modification
Outstanding
Recorded
Investment
 
 
  (Dollars in thousands)
 

Troubled Debt Restructurings:

                                     
 

Real estate mortgage:

                                     
   

Hospitality

    3   $ 14,967   $ 14,967     4   $ 17,053   $ 17,053  
   

SBA 504

                5     2,619     2,619  
   

Other

    12     34,244     34,053     25     52,765     52,574  
 

Real estate construction:

                                     
   

Residential

                1     618     618  
   

Other

    1     2,082     2,082     7     18,605     18,605  
 

Commercial:

                                     
   

Collateralized

    3     1,158     1,158     12     3,161     3,161  
   

Unsecured

    1     450     450     3     726     726  
   

SBA 7(a)

    7     745     745     18     4,292     4,292  
 

Consumer

                2     271     271  
                           
     

Total

    27   $ 53,646   $ 53,455     77   $ 100,110   $ 99,919  
                           

 

 
  Three Months Ended September 30, 2011   Nine Months Ended September 30, 2011  
 
  Number
of
Loans
  Recorded
Investment(1)
  Number
of
Loans
  Recorded
Investment(1)
 
 
  (Dollars in thousands)
 

Troubled Debt Restructurings That Subsequently

                         
 

Defaulted(2):

                         

Real estate mortgage:

                         
 

Other

    4   $ 5,566     4   $ 5,566  

Commercial:

                         
 

SBA 7(a)

    1     448     1     448  
                   
   

Total

    5   $ 6,014     5   $ 6,014  
                   

(1)
Represents the balance at September 30, 2011 and is net of charge-offs of $2.1 million and $3.0 million for the three and nine months ended September 30, 2011, respectively.

(2)
The population of defaulted restructured loans for the periods indicated includes only those loans restructured during the preceeding 12-month period. The table excludes defaulted troubled debt restructurings in those classes for which the recorded investment was zero at September 30, 2011.

24


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

        As a result of adopting the amendments in Accounting Standards Update No. 2011-02, Receivables (Topic 310): A Creditors Determination of Whether a Restructuring is a Troubled Debt Restructuring, we reassessed all restructurings that occurred on or after January 1, 2011, for identification as troubled debt restructurings. We identified one loan as a troubled debt restructuring (TDR) for which the allowance for credit losses had previously been measured under our general allowance for credit losses methodology. Upon identifying this one loan as a TDR, we recognized it as impaired under the guidance in Section 310-10-35. The amendments in Accounting Standards Update No. 2011-02 require prospective application of the impairment measurement guidance in Section 310-10-35 for those loans newly identified as impaired. At the end of the first interim period of adoption (September 30, 2011), the recorded investment in this loan was $2.1 million and the allowance for credit losses associated with that receivable on the basis of a current evaluation of loss was $163,000.

        We refer to the loans acquired in the Los Padres and Affinity acquisitions subject to loss sharing agreements with the FDIC as "covered loans" as we will be reimbursed for a substantial portion of any future losses on them under the terms of the agreements.

        The following table reflects the carrying values of covered loans as of the dates indicated:

Loan Category
  September 30,
2011
  December 31,
2010
 
 
  (In thousands)
 

Multi-family

  $ 267,892   $ 321,650  

Commercial real estate

    386,326     444,244  

Single family

    129,692     157,424  

Construction and land

    57,601     87,301  

Commercial and industrial

    22,869     34,828  

Home equity lines of credit

    6,287     5,916  

Consumer

    603     1,378  
           
 

Total gross covered loans

    871,270     1,052,741  

Less: discount

    (80,920 )   (110,901 )
           
 

Covered loans, net of discount

    790,350     941,840  

Less: allowance for loan losses

    (29,291 )   (33,264 )
           
 

Covered loans, net

  $ 761,059   $ 908,576  
           

25


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—LOANS (Continued)

        The following table summarizes the changes in the carrying amount of covered acquired impaired loans and accretable yield on those loans for the period indicated:

 
  Covered Acquired
Impaired Loans
 
 
  Carrying
Amount
  Accretable
Yield
 
 
  (In thousands)
 

Balance, January 1, 2011

  $ 879,486   $ (290,665 )
 

Accretion

    50,875     50,875  
 

Payments received

    (189,826 )    
 

Increase in expected cash flows, net

        (37,685 )
 

Provision for credit losses

    (9,148 )    
           

Balance, September 30, 2011

  $ 731,387   $ (277,475 )
           

        The table above excludes the covered loans from the Los Padres acquisition which are accounted for as non-impaired loans and totaled $29.7 million and $29.1 million at September 30, 2011 and December 31, 2010, respectively.

        The following table presents the credit risk rating categories for covered loans by portfolio segment as of the dates indicated. Nonclassified loans are those with a credit risk rating of either pass or special mention, while classified loans are those with a credit risk rating of either substandard or doubtful. It should be noted, however, that all of these loans are covered by loss sharing agreements with the FDIC.

 
  September 30, 2011   December 31, 2010  
 
  Nonclassified   Classified   Total   Nonclassified   Classified   Total  
 
  (In thousands)
  (In thousands)
 

Real estate mortgage

  $ 515,633   $ 173,018   $ 688,651   $ 622,837   $ 180,944   $ 803,781  

Real estate construction

    8,369     42,617     50,986     21,370     51,729     73,099  

Commercial

    11,388     9,215     20,603     14,630     16,219     30,849  

Consumer

    242     577     819     722     125     847  
                           
 

Total covered loans

  $ 535,632   $ 225,427   $ 761,059   $ 659,559   $ 249,017   $ 908,576  
                           

        Our federal and state banking regulators, as an integral part of their examination process, periodically review the Company's loan risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations.

26


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—OTHER REAL ESTATE OWNED (OREO)

        The following tables summarize OREO by property type at the dates indicated:

 
  September 30, 2011   December 31, 2010  
Property Type
  Non-Covered
OREO
  Covered
OREO
  Total
OREO
  Non-Covered
OREO
  Covered
OREO
  Total
OREO
 
 
  (In thousands)
  (In thousands)
 

Commercial real estate

  $ 21,431   $ 14,151   $ 35,582   $ 18,205   $ 21,658   $ 39,863  

Construction and land development

    26,093     14,676     40,769     4,650     19,205     23,855  

Multi-family

        1,656     1,656         10,393     10,393  

Single family residence

    736     1,818     2,554     2,743     4,560     7,303  
                           
 

Total OREO, net

  $ 48,260   $ 32,301   $ 80,561   $ 25,598   $ 55,816   $ 81,414  
                           

        The following table presents a rollforward of OREO, net of the valuation allowance, for the periods indicated:

OREO Activity:
  Non-Covered
OREO
  Covered
OREO
  Total
OREO
 
 
  (In thousands)
 

Balance, January 1, 2011

  $ 25,598   $ 55,816   $ 81,414  
 

Foreclosures

    24,981     4,130     29,111  
 

Payments to third parties(1)

    950         950  
 

Provision for losses

    (382 )   (890 )   (1,272 )
 

Reductions related to sales

    (2,780 )   (16,939 )   (19,719 )
               

Balance, March 31, 2011

    48,367     42,117     90,484  
 

Foreclosures

    6,073     13,329     19,402  
 

Payments to third parties(1)

    172         172  
 

Provision for losses

    (1,897 )   (1,565 )   (3,462 )
 

Reductions related to sales

    (521 )   (12,932 )   (13,453 )
               

Balance, June 30, 2011

  $ 52,194   $ 40,949   $ 93,143  
 

Foreclosures

    2,393     6,361     8,754  
 

Payments to third parties(1)

    259         259  
 

Provision for losses

    (1,676 )   (8,601 )   (10,277 )
 

Reductions related to sales

    (4,910 )   (6,408 )   (11,318 )
               

Balance, September 30, 2011

  $ 48,260   $ 32,301   $ 80,561  
               

(1)
Represents amounts due to participants and for guarantees, property taxes or other prior lien positions.

NOTE 6—FDIC LOSS SHARING ASSET

        The FDIC loss sharing asset was initially recorded at fair value, which represented the present value of the estimated cash payments from the FDIC for future losses on covered assets. The ultimate collectibility of this asset is dependent upon the performance of the underlying covered assets, the

27


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—FDIC LOSS SHARING ASSET (Continued)


passage of time and claims paid by the FDIC. The following table presents the changes in the FDIC loss sharing asset for the period indicated:

 
  FDIC
Loss Sharing
Asset
 
 
  (In thousands)
 

Balance, January 1, 2011

  $ 116,352  
 

FDIC share of additional losses, net of recoveries(1)

    18,347  
 

Cash received from FDIC

    (45,148 )
 

Net accretion

    (354 )
       

Balance, September 30, 2011

  $ 89,197  
       

(1)
Includes $7.6 million related to resolution of goodwill matter with the FDIC.

NOTE 7—BORROWINGS, SUBORDINATED DEBENTURES AND BROKERED DEPOSITS

        The following table summarizes our outstanding FHLB advances by their contractual maturity dates as of the date indicated:

 
  September 30, 2011    
 
Contractual Maturity Date
  Amount   Interest
Rate
  Next Date
Callable by
FHLB(1)
 
 
  (In thousands)
   
   
 

December 11, 2017

  $ 200,000     3.16 %   December 12, 2011  

January 11, 2018

    25,000     2.61 %   January 11, 2012  
                   
 

Total FHLB advances

  $ 225,000     3.10 %      
                   

(1)
Callable quarterly.

        The FHLB advances outstanding at September 30, 2011 are each callable term advances. The maturities shown are the contractual maturities for the advances. The advances have each passed their initial call dates and are currently callable on a quarterly basis by the FHLB. While the FHLB may call the advances to be repaid for any reason, they are likely to be called if market interest rates, for borrowings of similar remaining term, are higher than the advances' stated rates on the call dates. We may repay the advances at any time with a prepayment penalty. Our aggregate remaining borrowing capacity under the FHLB secured lines of credit was $1.2 billion at September 30, 2011. As of September 30, 2011, approximately $2.8 billion of real estate and commercial loans and securities with a carrying value of $43.0 million were pledged to secure our FHLB advances. Additionally, the Bank had secured borrowing capacity from the Federal Reserve discount window of $375.0 million at September 30, 2011. As of September 30, 2011, $469.5 million of real estate construction and commercial loans not pledged to the FHLB were pledged to secure the Federal Reserve borrowing capacity. The Bank also maintains unsecured lines of credit of $92.0 million with correspondent banks for the purchase of overnight funds; these lines are subject to availability of funds.

28


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 7—BORROWINGS, SUBORDINATED DEBENTURES AND BROKERED DEPOSITS (Continued)

        The Company had an aggregate amount of $129.3 million in subordinated debentures outstanding at September 30, 2011. These subordinated debentures were issued in seven separate series. Each issuance had a maturity of thirty years from its date of issue. The subordinated debentures were issued to trusts established by us or entities we have acquired, which in turn issued trust preferred securities, which totaled $123.0 million at September 30, 2011. These trust preferred securities are considered Tier 1 capital for regulatory purposes.

        The subordinated debentures are each callable at par with the exception of Trust I and Trust CI, which are callable at par with a prepayment penalty, and only by the issuer. The prepayment penalty for Trust I and Trust CI diminishes over time such that they may be called at par in the year 2020.

        The proceeds of the subordinated debentures we originated were used primarily to fund several of our acquisitions and to augment regulatory capital. Interest payments made by the Company on subordinated debentures are considered dividend payments by the Federal Reserve Bank, or FRB. As such, notification to the FRB is required prior to our intent to pay such interest during any period in which our cumulative net earnings for the previous four quarters are not sufficient to fund the interest payments due for those periods and the current period. Should the FRB object to payment of interest on the subordinated debentures, we would not be able to make the payments until approval is received.

29


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 7—BORROWINGS, SUBORDINATED DEBENTURES AND BROKERED DEPOSITS (Continued)

        The following table summarizes the terms of each issuance of the subordinated debentures outstanding as of September 30, 2011:

Series
  Date
Issued
  September 30,
2011
Amount
  Maturity
Date
  Earliest
Call Date
by Company
Without
Penalty
  Fixed
or
Variable
Rate
  Rate Index   Current
Rate(2)
  Next
Reset
Date
 
 
   
  (In thousands)
   
   
   
   
   
   
 

Trust CI

    3/23/00   $ 10,310     3/8/30     3/8/20   Fixed   N/A     11.00 %   N/A  

Trust I

    9/7/00     8,248     9/7/30     9/7/20   Fixed   N/A     10.60 %   N/A  

Trust V

    8/15/03     10,310     9/17/33       (1) Variable   3 month LIBOR + 3.10     3.45 %   12/15/11  

Trust VI

    9/3/03     10,310     9/15/33       (1) Variable   3 month LIBOR + 3.05     3.40 %   12/13/11  

Trust CII

    9/17/03     5,155     9/17/33       (1) Variable   3 month LIBOR + 2.95     3.30 %   12/15/11  

Trust VII

    2/5/04     61,856     4/23/34       (1) Variable   3 month LIBOR + 2.75     3.18 %   1/27/12  

Trust CIII

    8/15/05     20,619     9/15/35       (1) Variable   3 month LIBOR + 1.69     2.04 %   12/13/11  
                                             

Gross subordinated debentures

          126,808                                  

Unamortized premium(3)

          2,539                                  
                                             

Net subordinated debentures

        $ 129,347                                  
                                             

(1)
These debentures may be called without prepayment penalty.

(2)
As of October 27, 2011.

(3)
This amount represents the fair value adjustment on the subordinated debentures issued to the trusts of acquired companies.

        As previously mentioned, the subordinated debentures were issued to trusts established by us, or entities we acquired, which in turn issued $123.0 million of trust preferred securities. The Company includes in Tier 1 capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as shareholders' equity less goodwill, net of any related deferred income tax liability. At September 30, 2011, the amount of trust preferred securities included in Tier I capital was $123.0 million.

        Brokered deposits totaled $45.0 million at September 30, 2011 and are included in the interest-bearing deposits balance on the accompanying condensed consolidated balance sheets. Such amount represented customer deposits that were subsequently participated with other FDIC-insured financial institutions through the CDARS program as a means to provide FDIC deposit insurance coverage for the full amount of our customers' deposits.

30


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 8—COMMITMENTS AND CONTINGENCES

        The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

        Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to extend credit totaled $686.8 million and $723.1 million at September 30, 2011 and December 31, 2010, respectively.

        Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Most guarantees expire within one year from the date of issuance. The Company generally requires collateral or other security to support financial instruments with credit risk. Standby letters of credit totaled $31.9 million and $23.7 million at September 30, 2011 and December 31, 2010, respectively.

        The Company has investments in low income housing project partnerships, which provide the Company income tax credits, and in a few small business investment companies. As of September 30, 2011, the Company had commitments to contribute capital to these entities totaling $7.3 million.

        In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. Because of these factors, the Company cannot provide a meaningful estimate of the range of reasonably possible outcomes of claims in the aggregate or by individual claim. In the opinion of management, based upon information currently available to us, any resulting liability is not likely to have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

NOTE 9—FAIR VALUE MEASUREMENTS

        ASC 820, Fair Value Measurements and Disclosures, 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:

31


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 9—FAIR VALUE MEASUREMENTS (Continued)

        We use fair value to measure certain assets on a recurring basis, primarily securities available-for-sale; we have no liabilities being measured at fair value. For assets measured at the lower of cost or fair value, the fair value measurement criteria may or may not be met during a reporting period and such measurements are therefore considered "nonrecurring" for purposes of disclosing our fair value measurements. Fair value is used on a nonrecurring basis to adjust carrying values for impaired loans and other real estate owned and also to record impairment on certain assets, such as goodwill, core deposit intangibles and other long-lived assets.

32


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 9—FAIR VALUE MEASUREMENTS (Continued)

        The following tables present information on the assets measured and recorded at fair value on a recurring and nonrecurring basis as of the date indicated:

 
  Fair Value Measurement as of September 30, 2011  
 
  Total   Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
 
  (In thousands)
 

Measured on a Recurring Basis:

                         

Securities available-for-sale:

                         
 

Government and government-sponsored entity residential mortgage-backed securities

  $ 1,104,386   $   $ 1,104,386   $  
 

Covered private label CMOs

    47,213             47,213  
 

Municipal securities

    93,227         93,227      
 

Corporate securities

    14,642         14,642      
 

Other securities

    2,308         2,308      
                   

  $ 1,261,776   $   $ 1,214,563   $ 47,213  
                   

Measured on a Nonrecurring Basis:

                         
 

Non-covered impaired loans

  $ 112,360   $   $ 23,597   $ 88,763  
 

Non-covered other real estate owned

    40,683         13,436     27,247  
 

Covered other real estate owned

    16,449         15,037     1,412  
 

SBA loan servicing asset

    1,334             1,334  
                   

  $ 170,826   $   $ 52,070   $ 118,756  
                   

        There were no significant transfers of assets between Level 1 and Level 2 of the fair value hierarchy during the three months ended September 30, 2011.

        The following table presents gains and (losses) on assets measured on a nonrecurring basis for the periods indicated:

 
  Three Months
Ended
September 30,
2011
  Nine Months
Ended
September 30,
2011
 
 
  (In thousands)
 

Non-covered impaired loans

  $ (9,615 ) $ (16,388 )

Non-covered other real estate owned

    (1,676 )   (3,549 )

Covered other real estate owned

    (7,982 )   (8,561 )

SBA loan servicing asset

    72     2  
           
 

Total gain (loss) on assets measured on a nonrecurring basis

  $ (19,201 ) $ (28,496 )
           

33


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 9—FAIR VALUE MEASUREMENTS (Continued)

        The following table summarizes activity for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period indicated:

 
  Covered
Private
Label CMOs
(Level 3)
 
 
  (In thousands)
 

Beginning as of January 1, 2011

  $ 50,437  
 

Total realized in earnings

    1,572  
 

Total unrealized in comprehensive income

    315  
 

Net settlements

    (5,111 )
       

Balance, September 30, 2011

  $ 47,213  
       

        ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements. The following table is a summary of the carrying values and estimated fair values of certain financial instruments as of the dates indicated:

 
  September 30, 2011   December 31, 2010  
 
  Carrying or
Contract
Amount
  Estimated
Fair
Value
  Carrying or
Contract
Amount
  Estimated
Fair
Value
 
 
  (In thousands)
 

Financial Assets:

                         
 

Cash and due from banks

  $ 94,112   $ 94,112   $ 82,170   $ 82,170  
 

Interest-earning deposits in financial institutions

    73,209     73,209     26,382     26,382  
 

Securities available-for-sale

    1,261,776     1,261,776     874,016     874,016  
 

Investment in FHLB stock

    48,342     48,342     55,040     55,040  
 

Loans, net(1)

    3,564,586     3,588,445     3,970,978     3,960,244  

Financial Liabilities:

                         
 

Deposits

    4,554,396     4,566,531     4,649,698     4,664,575  
 

Borrowings

    225,000     249,588     225,000     243,273  
 

Subordinated debentures

    129,347     135,972     129,572     135,876