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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 March 31, 2013

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

10250 Constellation Blvd., Suite 1640
Los Angeles, California

 

90067
(Address of principal executive offices)   (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 ý   Accelerated filer o   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 May 1, 2013, there were 35,867,862 shares of the registrant's common stock outstanding, excluding 1,498,495 shares of unvested restricted stock.


Table of Contents

PACWEST BANCORP AND SUBSIDIARIES

MARCH 31, 2013 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 (Unaudited)

    4  

 

Condensed Consolidated Statements of Comprehensive Income (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

    49  

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    95  

ITEM 4.

 

Controls and Procedures

    95  

PART II—OTHER INFORMATION

    96  

ITEM 1.

 

Legal Proceedings

    96  

ITEM 1A.

 

Risk Factors

    96  

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    96  

ITEM 6.

 

Exhibits

    97  

SIGNATURES

    98  

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 and Share Data)

(Unaudited)

 
  March 31,
2013
  December 31,
2012
 

ASSETS

             

Cash and due from banks

  $ 90,659   $ 89,011  

Interest-earning deposits in financial institutions

    41,019     75,393  
           

Total cash and cash equivalents

    131,678     164,404  
           

Securities available-for-sale, at fair value ($43,785 and $44,684 covered by FDIC loss sharing at March 31, 2013 and December 31, 2012, respectively)

    1,362,777     1,355,385  

Federal Home Loan Bank stock, at cost

    33,400     37,126  
           

Total investment securities

    1,396,177     1,392,511  
           

Non-covered loans and leases, net of unearned income

    2,956,897     3,046,970  

Allowance for loan and lease losses

    (65,216 )   (65,899 )
           

Non-covered loans and leases, net

    2,891,681     2,981,071  

Covered loans, net

    483,063     517,258  
           

Total loans and leases, net

    3,374,744     3,498,329  
           

Other real estate owned, net ($17,311 and $22,842 covered by FDIC loss sharing at March 31, 2013 and December 31, 2012, respectively)

    53,272     56,414  

Premises and equipment, net

    18,950     19,503  

FDIC loss sharing asset

    55,840     57,475  

Cash surrender value of life insurance

    68,587     68,326  

Goodwill

    79,673     79,866  

Core deposit and customer relationship intangibles, net

    13,547     14,723  

Other assets

    107,437     112,107  
           

Total assets

  $ 5,299,905   $ 5,463,658  
           

LIABILITIES

             

Noninterest-bearing deposits

  $ 1,941,234   $ 1,939,212  

Interest-bearing deposits

    2,611,996     2,769,909  
           

Total deposits

    4,553,230     4,709,121  

Borrowings

    11,196     12,591  

Subordinated debentures

    108,250     108,250  

Accrued interest payable and other liabilities

    37,433     44,575  
           

Total liabilities

    4,710,109     4,874,537  
           

Commitments and contingencies

             

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; 37,501,627 shares issued at March 31, 2013 and 37,772,559 at December 31, 2012 (includes 1,203,495 and 1,698,281 shares of unvested restricted stock, respectively)

    375     377  

Additional paid-in capital

    1,055,504     1,062,184  

Accumulated deficit

    (486,043 )   (499,537 )

Treasury stock, at cost; 430,270 and 351,650 shares at March 31, 2013 and December 31, 2012

    (8,985 )   (6,803 )

Accumulated other comprehensive income

    28,945     32,900  
           

Total stockholders' equity

    589,796     589,121  
           

Total liabilities and stockholders' equity

  $ 5,299,905   $ 5,463,658  
           

   

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

 
  Three Months Ended  
 
  March 31,
2013
  December 31,
2012
  March 31,
2012
 

Interest income:

                   

Loans and leases

  $ 61,010   $ 65,455   $ 64,752  

Investment securities

    8,216     8,173     9,580  

Deposits in financial institutions

    43     74     68  
               

Total interest income

    69,269     73,702     74,400  
               

Interest expense:

                   

Deposits

    2,649     3,039     3,604  

Borrowings

    144     228     1,925  

Subordinated debentures

    783     832     1,191  
               

Total interest expense

    3,576     4,099     6,720  
               

Net interest income

    65,693     69,603     67,680  
               

Provision (negative provision) for credit losses:

                   

Non-covered loans and leases

            (10,000 )

Covered loans

    3,137     (4,333 )   3,926  
               

Total provision (negative provision) for credit losses

    3,137     (4,333 )   (6,074 )
               

Net interest income after provision for credit losses

    62,556     73,936     73,754  
               

Noninterest income:

                   

Service charges on deposit accounts

    2,863     3,063     3,353  

Other commissions and fees

    1,933     2,025     1,883  

Gain on sale of leases

    225     1,242     990  

Gain on sale of securities

    409     1,239      

Increase in cash surrender value of life insurance

    433     300     365  

FDIC loss sharing (expense) income, net

    (3,137 )   (6,022 )   (3,579 )

Other income

    114     210     250  
               

Total noninterest income

    2,840     2,057     3,262  
               

Noninterest expense:

                   

Compensation

    25,350     23,269     24,187  

Occupancy

    6,598     6,773     7,288  

Data processing

    2,233     2,272     2,280  

Other professional services

    2,097     2,200     1,770  

Business development

    736     684     638  

Communications

    613     637     608  

Insurance and assessments

    1,261     1,270     1,293  

Non-covered other real estate owned, net

    313     316     1,821  

Covered other real estate owned, net

    (813 )   (461 )   822  

Intangible asset amortization

    1,176     1,176     1,735  

Acquisition and integration

    692     1,092     25  

Debt termination

            22,598  

Other expense

    3,927     4,297     3,830  
               

Total noninterest expense

    44,183     43,525     68,895  
               

Earnings before income taxes

    21,213     32,468     8,121  

Income tax expense

    (7,719 )   (12,576 )   (2,857 )
               

Net earnings

  $ 13,494   $ 19,892   $ 5,264  
               

Earnings per share:

                   

Basic

  $ 0.37   $ 0.54   $ 0.14  

Diluted

  $ 0.37   $ 0.54   $ 0.14  

Dividends declared per share

  $ 0.25   $ 0.25   $ 0.18  

   

See "Notes to Condensed Consolidated Financial Statements."

4


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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

 
  Three Months Ended  
 
  March 31,
2013
  December 31,
2012
  March 31,
2012
 

Net earnings

  $ 13,494   $ 19,892   $ 5,264  

Other comprehensive (loss) income related to unrealized gains (losses) on securities available-for-sale:

                   

Unrealized holding (losses) gains arising during the period

    (6,410 )   (11,028 )   7,409  

Income tax benefit (expense) related to unrealized holding (losses) gains arising during the period

    2,692     4,632     (3,111 )

Reclassification adjustment for gain included in net earnings

    (409 )   (1,239 )    

Income tax expense related to reclassification adjustment

    172     520      
               

Other comprehensive (loss) income

    (3,955 )   (7,115 )   4,298  
               

Comprehensive income

  $ 9,539   $ 12,777   $ 9,562  
               

   

See "Notes to Condensed Consolidated Financial Statements."

5


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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(Dollars in Thousands, Except Share Data)

(Unaudited)

 
  Three Months Ended March 31, 2013  
 
  Common Stock    
   
   
   
 
 
   
   
  Accumulated
Other
Comprehensive
Income
   
 
 
  Shares   Par
Value
  Additional
Paid-in
Capital
  Accumulated
Deficit
  Treasury
Stock
  Total  

Balance, December 31, 2012

    37,420,909   $ 377   $ 1,062,184   $ (499,537 ) $ (6,803 ) $ 32,900   $ 589,121  

Net earnings

                13,494             13,494  

Other comprehensive loss— net unrealized loss on securities available-for-sale, net of tax

                        (3,955 )   (3,955 )

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

    (270,932 )   (2 )   1,766                 1,764  

Restricted stock surrendered

    (78,620 )               (2,182 )       (2,182 )

Tax effect from vesting of restricted stock

            660                 660  

Cash dividends paid
($0.25 per share)

            (9,106 )               (9,106 )
                               

Balance, March 31, 2013

    37,071,357   $ 375   $ 1,055,504   $ (486,043 ) $ (8,985 ) $ 28,945   $ 589,796  
                               

   

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 
  Three Months Ended March 31,  
 
  2013   2012  

Cash flows from operating activities:

             

Net earnings

  $ 13,494   $ 5,264  

Adjustments to reconcile net earnings to net cash provided by operating activities:

             

Depreciation and amortization

    7,292     3,861  

Provision (negative provision) for credit losses

    3,137     (6,074 )

Gain on sale of other real estate owned

    (1,910 )   (1,434 )

Provision for losses on other real estate owned

    1,185     2,981  

Gain on sale of leases

    (225 )   (990 )

Gain on sale of premises and equipment

        (3 )

Gain on sale of securities

    (409 )    

Earned stock compensation

    1,764     1,633  

Tax effect included in stockholders' equity of restricted stock vesting

    (660 )   (92 )

Decrease in accrued and deferred income taxes, net

    8,611     2,849  

Decrease in FDIC loss sharing asset

    1,635     15,617  

(Increase) decrease in other assets

    (486 )   5,637  

Decrease in accrued interest payable and other liabilities

    (7,601 )   (18,592 )
           

Net cash provided by operating activities

    25,827     10,657  
           

Cash flows from investing activities:

             

Net cash used in acquisitions

        (27,908 )

Net decrease in loans and leases

    113,099     96,668  

Proceeds from sale of loans and leases

    3,054     17,292  

Securities available-for-sale:

             

Proceeds from maturities and paydowns

    100,980     85,683  

Proceeds from sales

    12,810      

Purchases

    (132,446 )   (136,046 )

Net redemptions of Federal Home Loan Bank stock

    3,726     2,204  

Proceeds from sales of other real estate owned

    8,847     13,980  

Purchases of premises and equipment, net

    (742 )   (955 )

Proceeds from sales of premises and equipment

        37  
           

Net cash provided by investing activities

    109,328     50,955  
           

Cash flows from financing activities:

             

Net increase (decrease) in deposits:

             

Noninterest-bearing

    2,022     99,879  

Interest-bearing

    (157,913 )   (120,662 )

Net decrease in borrowings

    (1,362 )   (47,697 )

Redemption of subordinated debentures

        (18,558 )

Repayment of acquired debt

        (128,677 )

Restricted stock surrendered

    (2,182 )   (1,301 )

Tax effect included in stockholders' equity of restricted stock vesting

    660     92  

Cash dividends paid

    (9,106 )   (6,544 )
           

Net cash used in financing activities

    (167,881 )   (223,468 )
           

Net decrease in cash and cash equivalents

    (32,726 )   (161,856 )

Cash and cash equivalents, beginning of period

    164,404     295,617  
           

Cash and cash equivalents, end of period

  $ 131,678   $ 133,761  
           

Supplemental disclosures of cash flow information:

             

Cash paid for interest

  $ 4,063   $ 8,052  

Cash received for income taxes

    (760 )    

Loans transferred to other real estate owned

    4,980     9,081  

   

See "Notes to Condensed Consolidated Financial Statements."

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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 the holding company for our Los Angeles-based wholly-owned banking subsidiary, Pacific Western Bank, which we refer to as "Pacific Western" or the "Bank." When we say "we," "our," or the "Company," we mean the Company on a consolidated basis with the Bank. When we refer to "PacWest" or to the holding company, we are referring to the parent company on a stand-alone basis.

        Pacific Western is a full-service commercial bank offering a broad range of banking products and services including: accepting demand, money market, and time deposits; originating loans and leases, including commercial, real estate construction, equipment finance leases, SBA guaranteed and consumer loans; and providing other business-oriented products. Our operations are primarily located in Southern California extending from San Diego County to California's Central Coast; we also operate three banking offices in the San Francisco Bay area, a leasing operation based in Utah, and asset-based lending operations based in Arizona as well as San Jose and Santa Monica, California. The Bank focuses on conducting business with small to medium sized businesses in our marketplace and the owners and employees of those businesses. The majority of our loans are secured by the real estate collateral of such businesses. Our asset-based lending function operates in Arizona, California, Texas, Colorado, Minnesota, and the Pacific Northwest. Our equipment leasing function has lease receivables in 45 states.

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

        We have completed 25 acquisitions from May 2000 through March 31, 2013. Since 2000, 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 condensed consolidated financial statements from their respective acquisition dates. See Note 2, Acquisitions, for more information about acquisitions and Note 16, Subsequent Events, for information regarding the acquisition of First California Financial Group.

        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

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 1—BASIS OF PRESENTATION (Continued)

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 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 GAAP. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses, the carrying value of intangible assets, the carrying value of the FDIC loss sharing asset, and the realization of deferred tax assets.

        Management makes significant estimates and exercises significant judgment in estimating fair values and accounting for the acquired assets and assumed liabilities in acquisitions.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 2—ACQUISITIONS

        We completed the following acquisitions during the time period of January 1, 2012 to March 31, 2013, using the acquisition method of accounting, and accordingly, the operating results of the acquired entities have been included in our condensed consolidated financial statements from their respective dates of acquisition. The acquired balance sheets are presented at estimated fair value as of their respective acquisition dates:

 
  Acquisition and Date Acquired  
 
  American
Perspective
Bank
  Celtic
Capital
Corporation
  Pacific Western
Equipment
Finance
 
 
  August
2012
  April
2012
  January
2012
 
 
  (In thousands)
 

Assets Acquired:

                   

Cash and due from banks

  $ 3,370   $ 3,435   $ 7,092  

Interest-earning deposits in financial institutions

    10,081          

Investment securities available-for-sale

    48,887          

FHLB stock

    1,412          

Loans and leases

    197,279     54,963     140,959  

Other real estate owned

    1,561          

Goodwill

    15,047     6,645     19,033  

Core deposit and customer relationship intangibles

    1,924     1,300     1,700  

Other intangible assets

        670     1,420  

Leases in process

            19,162  

Other assets

    4,234     69     467  
               

Total assets acquired

  $ 283,795   $ 67,082   $ 189,833  
               

Liabilities Assumed:

                   

Noninterest-bearing deposits

  $ 40,673   $   $  

Interest-bearing deposits

    178,891          

Borrowings from parent

            128,677  

Other borrowings

    5,315     46,804     15,839  

Accrued interest payable and other liabilities

    840     2,278     10,317  
               

Total liabilities assumed

  $ 225,719   $ 49,082   $ 154,833  
               

Cash consideration paid

  $ 58,076   $ 18,000   $ 35,000  
               

        On August 1, 2012, Pacific Western completed the acquisition of American Perspective Bank, or APB, previously headquartered in San Luis Obispo, California. Pacific Western acquired all of the outstanding common stock of APB for $58.1 million in cash and APB was merged with and into Pacific Western; we refer to this transaction as the APB acquisition. APB operated two branches located in San Luis Obispo and Santa Maria, California, and a loan production office located in Paso Robles,

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 2—ACQUISITIONS (Continued)

California, which has since been converted to a full-service branch. The APB acquisition strengthens our presence in the Central Coast region.

        On April 3, 2012, Pacific Western completed the acquisition of Celtic Capital Corporation, or Celtic, an asset-based lending company based in Santa Monica, California. Pacific Western acquired all of the capital stock of Celtic for $18 million in cash and Celtic became a wholly-owned subsidiary of Pacific Western; we refer to this transaction as the Celtic acquisition. Celtic focuses on providing asset-based loans to borrowers across the United States for amounts generally up to $5 million. The Celtic acquisition diversified our loan portfolio, expanded our product lines, and deployed excess liquidity into higher yielding assets.

        On January 3, 2012, Pacific Western completed the acquisition of Pacific Western Equipment Finance (formerly known as Marquette Equipment Finance, and which we refer to as EQF), an equipment leasing company based in Midvale, Utah. Pacific Western acquired all of the capital stock of EQF for $35 million in cash and EQF became a division of Pacific Western; we refer to this transaction as the EQF acquisition. The EQF acquisition diversified our lending portfolio, expanded our product lines, and deployed excess liquidity into higher yielding assets.

NOTE 3—GOODWILL AND OTHER INTANGIBLE ASSETS

        Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Goodwill and other intangible assets deemed to have indefinite lives generated from purchase business combinations are not subject to amortization and are instead tested for impairment no less than annually. 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 condensed consolidated statement of earnings.

        The following table presents the changes in the carrying amount of goodwill for the period indicated:

 
  Goodwill  
 
  (In thousands)
 

Balance, December 31, 2012

  $ 79,866  

Adjustment to APB goodwill

    (193 )
       

Balance, March 31, 2013

  $ 79,673  
       

        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 respective estimated useful lives to their estimated residual values and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or loan customers acquired. The weighted average amortization period remaining for our CDI and CRI is

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

2.4 years. The aggregate amortization expense related to the intangible assets is expected to be $4.5 million for 2013. The estimated aggregate amortization expense related to these intangible assets for each of the next five years is $3.8 million for 2014, $3.5 million for 2015, $1.8 million for 2016, $587,000 for 2017, and $359,000 for 2018.

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

 
  Three Months Ended  
 
  March 31,
2013
  December 31,
2012
  March 31,
2012
 
 
  (In thousands)
 

Gross Amount of CDI and CRI:

                   

Balance, beginning of period

  $ 45,412   $ 45,412   $ 67,100  

Additions

            1,700  

Fully amortized portion

            (7,828 )
               

Balance, end of period

    45,412     45,412     60,972  
               

Accumulated Amortization:

                   

Balance, beginning of period

    (30,689 )   (29,513 )   (49,685 )

Amortization

    (1,176 )   (1,176 )   (1,735 )

Fully amortized portion

            7,828  

Balance, end of period

    (31,865 )   (30,689 )   (43,592 )
               

Net CDI and CRI, end of period

  $ 13,547   $ 14,723   $ 17,380  
               

NOTE 4—INVESTMENT SECURITIES

        The following tables present amortized cost, gross unrealized gains and losses and carrying value (i.e. the estimated fair value), of securities available-for-sale as of the dates indicated. The covered private label collateralized mortgage obligations ("CMO's") were acquired in the FDIC-assisted acquisition of Affinity Bank in August 2009 and are covered by a FDIC loss sharing agreement. Other securities primarily consist of equity securities and an investment in overnight money market funds at a

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—INVESTMENT SECURITIES (Continued)

financial institution. See Note 10, Fair Value Measurements, for information on fair value measurements and methodology.

 
  March 31, 2013  
Security Type
  Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Carrying
Value
 
 
  (In thousands)
 

Residential mortgage-backed securities:

                         

Government agency and government-sponsored enterprise pass through securities

  $ 751,011   $ 30,808   $ (191 ) $ 781,628  

Government agency and government-sponsored enterprise collateralized mortgage obligations

    97,524     1,742     (161 )   99,105  

Covered private label collateralized mortgage obligations

    34,933     8,974     (122 )   43,785  

Municipal securities

    362,212     7,926     (4,713 )   365,425  

Corporate debt securities

    60,807     416     (19 )   61,204  

Other securities

    6,385     5,245         11,630  
                   

Total securities available-for-sale

  $ 1,312,872   $ 55,111   $ (5,206 ) $ 1,362,777  
                   

 

 
  December 31, 2012  
Security Type
  Amortized
Cost
  Gross
Unrealized
Gains
  Gross
Unrealized
Losses
  Carrying
Value
 
 
  (In thousands)
 

Residential mortgage-backed securities:

                         

Government agency and government-sponsored enterprise pass through securities

  $ 774,677   $ 33,618   $ (453 ) $ 807,842  

Government agency and government-sponsored enterprise collateralized mortgage obligations

    99,956     1,870     (132 )   101,694  

Covered private label collateralized mortgage obligations

    36,078     8,729     (123 )   44,684  

Municipal securities

    339,547     10,445     (1,951 )   348,041  

Corporate debt securities

    42,014     432     (81 )   42,365  

Other securities

    6,389     4,370         10,759  
                   

Total securities available-for-sale

  $ 1,298,661   $ 59,464   $ (2,740 ) $ 1,355,385  
                   

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—INVESTMENT SECURITIES (Continued)

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

 
  March 31, 2013  
Maturity
  Amortized
Cost
  Carrying
Value
 
 
  (In thousands)
 

Due in one year or less

  $ 7,375   $ 12,758  

Due after one year through five years

    3,940     4,117  

Due after five years through ten years

    51,365     53,467  

Due after ten years

    1,250,192     1,292,435  
           

Total securities available-for-sale

  $ 1,312,872   $ 1,362,777  
           

        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.

        At March 31, 2013, the estimated fair value of residential mortgage-backed debt securities issued by the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") that were held in our portfolio was approximately $797.3 million. We do not own any equity securities issued by Fannie Mae or Freddie Mac.

        As of March 31, 2013, securities available-for-sale with a carrying value of $157.5 million were pledged as collateral for borrowings, public deposits and other purposes as required by various statutes and agreements.

        During the three months ended March 31, 2013, we sold $12.4 million in corporate debt securities for which we realized a $409,000 gross gain. During the three months ended December 31, 2012, we sold $43.9 million in government agency and government-sponsored enterprise pass through securities for which we realized a $1.2 million gross gain. All of the securities were sold as part of our investment portfolio risk management activities to reduce price volatility and duration.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—INVESTMENT SECURITIES (Continued)

        The following tables present, for those securities that were in a gross unrealized loss position, the carrying values and the gross unrealized losses on securities by length of time the securities were in an unrealized loss position as of the dates indicated:

 
  March 31, 2013  
 
  Less Than 12 Months   12 months or Longer   Total  
Security Type
  Carrying
Value
  Gross
Unrealized
Losses
  Carrying
Value
  Gross
Unrealized
Losses
  Carrying
Value
  Gross
Unrealized
Losses
 
 
  (In thousands)
 

Residential mortgage-backed securities:

                                     

Government agency and government-sponsored enterprise pass through securities

  $ 47,483   $ (190 ) $ 57   $ (1 ) $ 47,540   $ (191 )

Government agency and government-sponsored enterprise collateralized mortgage obligations

    16,967     (128 )   1,994     (33 )   18,961     (161 )

Covered private label collateralized mortgage obligations

    465     (16 )   1,533     (106 )   1,998     (122 )

Municipal securities

    184,175     (4,713 )           184,175     (4,713 )

Corporate debt securities

    5,040     (19 )               5,040     (19 )
                           

Total

  $ 254,130   $ (5,066 ) $ 3,584   $ (140 ) $ 257,714   $ (5,206 )
                           

 

 
  December 31, 2012  
 
  Less Than 12 Months   12 months or Longer   Total  
Security Type
  Carrying
Value
  Gross
Unrealized
Losses
  Carrying
Value
  Gross
Unrealized
Losses
  Carrying
Value
  Gross
Unrealized
Losses
 
 
  (In thousands)
 

Residential mortgage-backed securities:

                                     

Government agency and government-sponsored enterprise pass through securities

  $ 67,299   $ (452 ) $ 60   $ (1 ) $ 67,359   $ (453 )

Government agency and government-sponsored enterprise collateralized mortgage obligations

    18,317     (132 )           18,317     (132 )

Covered private label collateralized mortgage obligations

            1,692     (123 )   1,692     (123 )

Municipal securities

    90,303     (1,951 )           90,303     (1,951 )

Corporate debt securities

    16,819     (81 )           16,819     (81 )
                           

Total

  $ 192,738   $ (2,616 ) $ 1,752   $ (124 ) $ 194,490   $ (2,740 )
                           

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—INVESTMENT SECURITIES (Continued)

        We reviewed the securities that were in a continuous loss position less than 12 months and longer than 12 months at March 31, 2013, and concluded that their losses were a result of the level of market interest rates relative to the types of securities and not a result of the underlying issuers' ability to repay. Accordingly, we determined that the securities were temporarily impaired and we did not recognize such impairment in the condensed consolidated statements of earnings. Additionally, we have no plans to sell these securities and believe that it is more likely than not we would not be required to sell these securities before recovery of their amortized cost.

        The following table presents the composition of our interest income on investment securities:

 
  Three Months Ended  
Securities Interest by Type:
  March 31,
2013
  December 31,
2012
  March 31,
2012
 
 
  (In thousands)
 

Taxable interest

  $ 5,563   $ 5,915   $ 8,539  

Nontaxable interest

    2,425     1,987     980  

Dividend income

    228     271     61  
               

Total interest income on investment securities

  $ 8,216   $ 8,173   $ 9,580  
               

        At March 31, 2013, the Company had a $33.4 million investment in Federal Home Loan Bank of San Francisco ("FHLB") stock carried at cost. We evaluated the carrying value of our FHLB stock investment at March 31, 2013, and determined that it was not impaired. Our evaluation considered the long-term nature of the investment, the current financial and liquidity position of the FHLB, the actions being taken by the FHLB to address its regulatory situation, repurchase activity of excess stock by the FHLB at its carrying value, the return on the investment, and our intent and ability to hold this investment for a period of time sufficient to recover our recorded investment.

NOTE 5—LOANS AND LEASES

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

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

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

 
  March 31, 2013   December 31, 2012  
 
  Amount   % of
Total
  Amount   % of
Total
 
 
  (Dollars in thousands)
 

Real estate mortgage

  $ 1,796,484     61 % $ 1,917,670     63 %

Real estate construction

    126,707     4     129,959     4  

Commercial

    794,419     26     787,775     25  

Leases

    204,766     7     174,373     6  

Consumer

    18,677     1     22,487     1  

Foreign

    17,268     1     17,241     1  
                   

Total gross non-covered loans and leases

    2,958,321     100 %   3,049,505     100 %
                       

Less:

                         

Unearned income

    (1,424 )         (2,535 )      

Allowance for loan and lease losses

    (65,216 )         (65,899 )      
                       

Total net non-covered loans and leases

  $ 2,891,681         $ 2,981,071        
                       

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

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

 
  Three Months Ended March 31, 2013  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Leases   Consumer   Foreign   Total  
 
  (In thousands)
 

Allowance for Loan and Lease Losses on Non-Covered Loans and Leases:

                                           

Balance, beginning of period

  $ 38,700   $ 3,221   $ 20,661   $ 1,493   $ 1,726   $ 98   $ 65,899  

Charge-offs

    (322 )       (708 )   (114 )   (9 )       (1,153 )

Recoveries

    177     323     407         23         930  

Provision (negative provision)

    (1,290 )   (244 )   693     627     (246 )       (460 )
                               

Balance, end of period

  $ 37,265   $ 3,300   $ 21,053   $ 2,006   $ 1,494   $ 98   $ 65,216  
                               

Amount of the allowance applicable to loans and leases:

                                           

Individually evaluated for impairment

  $ 7,805   $ 122   $ 4,467   $   $ 273   $   $ 12,667  
                               

Collectively evaluated for impairment

  $ 29,460   $ 3,178   $ 16,586   $ 2,006   $ 1,221   $ 98   $ 52,549  
                               

Non-Covered Loan and Lease Balances:

                                           

Ending balance

  $ 1,796,484   $ 126,707   $ 794,419   $ 204,766   $ 18,677   $ 17,268   $ 2,958,321  
                               

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

                                           

Individually evaluated for impairment

  $ 95,189   $ 13,688   $ 12,644   $ 244   $ 629   $   $ 122,394  
                               

Collectively evaluated for impairment

  $ 1,701,295   $ 113,019   $ 781,775   $ 204,522   $ 18,048   $ 17,268   $ 2,835,927  
                               

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)


 
  Three Months Ended March 31, 2012  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Leases   Consumer   Foreign   Total  
 
  (In thousands)
 

Allowance for Loan and Lease Losses on Non-Covered Loans and Leases:

                                           

Balance, beginning of period

  $ 50,205   $ 8,697   $ 23,308   $   $ 2,768   $ 335   $ 85,313  

Charge-offs

    (2,190 )       (871 )       (199 )       (3,260 )

Recoveries

    329     10     824         31     20     1,214  

Provision (negative provision)

    (6,134 )   (2,232 )   295     458     (692 )   (195 )   (8,500 )
                               

Balance, end of period

  $ 42,210   $ 6,475   $ 23,556   $ 458   $ 1,908   $ 160   $ 74,767  
                               

Amount of the allowance applicable to loans and leases:

                                           

Individually evaluated for impairment

  $ 9,369   $ 1,312   $ 6,897   $   $ 262   $   $ 17,840  
                               

Collectively evaluated for impairment

  $ 32,841   $ 5,163   $ 16,659   $ 458   $ 1,646   $ 160   $ 56,927  
                               

Non-Covered Loan and Lease Balances:

                                           

Ending balance

  $ 1,896,052   $ 118,304   $ 665,441   $ 153,845   $ 15,826   $ 18,752   $ 2,868,220  
                               

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

                                           

Individually evaluated for impairment

  $ 104,923   $ 30,026   $ 22,544   $ 233   $ 498   $   $ 158,224  
                               

Collectively evaluated for impairment

  $ 1,791,129   $ 88,278   $ 642,897   $ 153,612   $ 15,328   $ 18,752   $ 2,709,996  
                               

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

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

 
  March 31, 2013   December 31, 2012  
 
  Nonclassified   Classified   Total   Nonclassified   Classified   Total  
 
  (In thousands)
 

Real estate mortgage:

                                     

Hospitality

  $ 158,812   $ 13,660   $ 172,472   $ 168,489   $ 12,655   $ 181,144  

SBA 504

    49,678     5,725     55,403     48,372     5,786     54,158  

Other

    1,516,137     52,472     1,568,609     1,633,448     48,920     1,682,368  
                           

Total real estate mortgage

    1,724,627     71,857     1,796,484     1,850,309     67,361     1,917,670  
                           

Real estate construction:

                                     

Residential

    41,055     2,018     43,073     46,591     2,038     48,629  

Commercial

    79,852     3,782     83,634     77,503     3,827     81,330  
                           

Total real estate construction

    120,907     5,800     126,707     124,094     5,865     129,959  
                           

Commercial:

                                     

Collateralized

    418,425     14,227     432,652     440,187     12,989     453,176  

Unsecured

    75,880     2,548     78,428     66,947     2,897     69,844  

Asset-based

    254,633     3,631     258,264     235,075     4,355     239,430  

SBA 7(a)

    19,048     6,027     25,075     18,888     6,437     25,325  
                           

Total commercial

    767,986     26,433     794,419     761,097     26,678     787,775  
                           

Leases

    204,522     244     204,766     174,129     244     174,373  

Consumer

    17,810     867     18,677     21,616     871     22,487  

Foreign

    17,268         17,268     17,241         17,241  
                           

Total non-covered loans and leases

  $ 2,853,120   $ 105,201   $ 2,958,321   $ 2,948,486   $ 101,019   $ 3,049,505  
                           

        In addition to our internal risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company's loan risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations. Risk rating downgrades generally result in higher allowances for credit losses.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

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

 
  March 31, 2013  
 
  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

  $   $   $   $   $ 172,472   $ 172,472  

SBA 504

    120     946     1,727     2,793     52,610     55,403  

Other(1)

    27,960     2,772     5,451     36,183     1,532,426     1,568,609  
                           

Total real estate mortgage

    28,080     3,718     7,178     38,976     1,757,508     1,796,484  
                           

Real estate construction:

                                     

Residential

                    43,073     43,073  

Commercial(1)

    7,290         562     7,852     75,782     83,634  
                           

Total real estate construction

    7,290         562     7,852     118,855     126,707  
                           

Commercial:

                                     

Collateralized

    610     1,268     840     2,718     429,934     432,652  

Unsecured

        132     1,417     1,549     76,879     78,428  

Asset-based

            281     281     257,983     258,264  

SBA 7(a)

    251         1,426     1,677     23,398     25,075  
                           

Total commercial

    861     1,400     3,964     6,225     788,194     794,419  
                           

Leases

    44         244     288     204,478     204,766  

Consumer

    32     14     8     54     18,623     18,677  

Foreign

                    17,268     17,268  
                           

Total non-covered loans and leases

  $ 36,307   $ 5,132   $ 11,956   $ 53,395   $ 2,904,926   $ 2,958,321  
                           

(1)
Included in the 30-59 days past due amount at March 31, 2013, are two loans to the same borrower totaling $32.3 million. These loans, which were 32 days past due at quarter-end, are now current.

        At March 31, 2013 and December 31, 2012, the Company had no non-covered loans and leases that were greater than 90 days past due and still accruing interest. It is the Company's policy to discontinue accruing interest when principal or interest payments are past due 90 days or when, in the opinion of management, there is a reasonable doubt as to the collectability of a loan or lease in the normal course of business. At March 31, 2013, nonaccrual loans and leases totaled $41.9 million. Nonaccrual loans and leases include $6.1 million of loans 30 to 89 days past due and $23.8 million of current loans which have been placed on nonaccrual status based on management's judgment regarding their collectability.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

 
  December 31, 2012  
 
  30-59 Days
Past Due
  60-89 Days
Past Due
  Greater
Than
90 Days
Past Due
  Total
Past Due
  Current   Total  
 
  (In thousands)
 

Real estate mortgage:

                                     

Hospitality

  $   $   $   $   $ 181,144   $ 181,144  

SBA 504

    955         1,727     2,682     51,476     54,158  

Other

    3,822     54     3,134     7,010     1,675,358     1,682,368  
                           

Total real estate mortgage

    4,777     54     4,861     9,692     1,907,978     1,917,670  
                           

Real estate construction:

                                     

Residential

                    48,629     48,629  

Commercial

            1,245     1,245     80,085     81,330  
                           

Total real estate construction

            1,245     1,245     128,714     129,959  
                           

Commercial:

                                     

Collateralized

    902     161     228     1,291     451,885     453,176  

Unsecured

    3     135     225     363     69,481     69,844  

Asset-based

            176     176     239,254     239,430  

SBA 7(a)

    281     547     1,271     2,099     23,226     25,325  
                           

Total commercial

    1,186     843     1,900     3,929     783,846     787,775  
                           

Leases

    225     132     244     601     173,772     174,373  

Consumer

    23     1         24     22,463     22,487  

Foreign

                    17,241     17,241  
                           

Total non-covered loans and leases

  $ 6,211   $ 1,030   $ 8,250   $ 15,491   $ 3,034,014   $ 3,049,505  
                           

        Nonaccrual loans totaled $39.3 million at December 31, 2012, including $3.9 million of loans 30 to 89 days past due and $27.1 million of current loans.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

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

 
  March 31, 2013   December 31, 2012  
 
  Nonaccrual   Performing   Total   Nonaccrual   Performing   Total  
 
  (In thousands)
 

Real estate mortgage:

                                     

Hospitality

  $ 6,823   $ 165,649   $ 172,472   $ 6,908   $ 174,236   $ 181,144  

SBA 504

    2,936     52,467     55,403     2,982     51,176     54,158  

Other

    20,045     1,548,564     1,568,609     15,929     1,666,439     1,682,368  
                           

Total real estate mortgage

    29,804     1,766,680     1,796,484     25,819     1,891,851     1,917,670  
                           

Real estate construction:

                                     

Residential

    1,046     42,027     43,073     1,057     47,572     48,629  

Commercial

    1,447     82,187     83,634     2,715     78,615     81,330  
                           

Total real estate construction

    2,493     124,214     126,707     3,772     126,187     129,959  
                           

Commercial:

                                     

Collateralized

    3,306     429,346     432,652     2,648     450,528     453,176  

Unsecured

    1,471     76,957     78,428     2,019     67,825     69,844  

Asset-based

    281     257,983     258,264     176     239,254     239,430  

SBA 7(a)

    3,867     21,208     25,075     4,181     21,144     25,325  
                           

Total commercial

    8,925     785,494     794,419     9,024     778,751     787,775  
                           

Leases

    244     204,522     204,766     244     174,129     174,373  

Consumer

    427     18,250     18,677     425     22,062     22,487  

Foreign

        17,268     17,268         17,241     17,241  
                           

Total non-covered loans and leases

  $ 41,893   $ 2,916,428   $ 2,958,321   $ 39,284   $ 3,010,221   $ 3,049,505  
                           

        Nonaccrual loans and leases and performing restructured loans are considered impaired for reporting purposes. The following table presents the composition of our impaired loans and leases as of the dates indicated:

 
  March 31, 2013   December 31, 2012  
 
  Nonaccrual
Loans/Leases
  Performing
Restructured
Loans
  Total
Impaired
Loans/Leases
  Nonaccrual
Loans/Leases
  Performing
Restructured
Loans
  Total
Impaired
Loans/Leases
 
 
  (In thousands)
 

Real estate mortgage

  $ 29,804   $ 65,385   $ 95,189   $ 25,819   $ 80,723   $ 106,542  

Real estate construction

    2,493     11,195     13,688     3,772     21,678     25,450  

Commercial

    8,925     3,719     12,644     9,024     3,684     12,708  

Leases

    244         244     244         244  

Consumer

    427     202     629     425     203     628  
                           

Total

  $ 41,893   $ 80,501   $ 122,394   $ 39,284   $ 106,288   $ 145,572  
                           

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

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

 
  March 31, 2013   December 31, 2012  
 
  Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
 
 
  (In thousands)
 

With An Allowance Recorded:

                                     

Real estate mortgage:

                                     

Hospitality

  $ 8,860   $ 9,630   $ 1,772   $ 8,954   $ 9,640   $ 2,396  

SBA 504

    1,672     1,672     237     1,676     1,676     324  

Other

    64,492     67,361     5,796     58,364     60,262     5,107  

Real estate construction:

                                     

Residential

    1,046     1,077     115     1,303     1,330     165  

Commercial

    8,541     8,540     7     6,723     6,723     206  

Commercial:

                                     

Collateralized

    3,109     3,372     2,344     2,477     2,731     1,865  

Unsecured

    2,228     3,497     1,677     2,396     3,121     2,234  

Asset-based

    281     281     151              

SBA 7(a)

    2,159     2,758     295     2,871     3,616     426  

Consumer

    458     501     273     466     506     265  

With No Related Allowance Recorded:

                                     

Real estate mortgage:

                                     

SBA 504

  $ 2,936   $ 3,741   $   $ 2,982   $ 3,755   $  

Other

    17,229     20,222         34,566     38,447      

Real estate construction:

                                     

Commercial

    4,101     7,782         17,424     21,085      

Commercial:

                                     

Collateralized

    1,589     1,592         1,843     2,067      

Unsecured

    143     162         148     163      

Asset-based

                176     176      

SBA 7(a)

    3,135     4,608         2,797     4,057      

Leases

    244     244         244     244      

Consumer

    171     247         162     233      

Total Non-Covered Loans and Leases With and Without An Allowance Recorded:

                                     

Real estate mortgage

  $ 95,189   $ 102,626   $ 7,805   $ 106,542   $ 113,780   $ 7,827  

Real estate construction

    13,688     17,399     122     25,450     29,138     371  

Commercial

    12,644     16,270     4,467     12,708     15,931     4,525  

Leases

    244     244         244     244      

Consumer

    629     748     273     628     739     265  
                           

Total

  $ 122,394   $ 137,287   $ 12,667   $ 145,572   $ 159,832   $ 12,988  
                           

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)


 
  Three Months Ended March 31,  
 
  2013   2012  
 
  Weighted
Average
Recorded
Investment(1)
  Interest
Income
Recognized
  Weighted
Average
Recorded
Investment(1)
  Interest
Income
Recognized
 
 
  (In thousands)
 

With An Allowance Recorded:

                         

Real estate mortgage:

                         

Hospitality

  $ 8,860   $ 20   $ 16,784   $ 132  

SBA 504

    1,672     22     142      

Other

    48,032     395     51,922     549  

Real estate construction:

                         

Residential

    1,046         689     2  

Commercial

    3,296     34     9,431     83  

Commercial:

                         

Collateralized

    2,523     13     4,735     18  

Unsecured

    2,228     10     2,394     5  

Asset-based

    19              

SBA 7(a)

    2,159     15     4,119     23  

Consumer

    458     2     283      

With No Related Allowance Recorded:

                         

Real estate mortgage:

                         

SBA 504

  $ 2,936   $   $ 2,354   $  

Other

    11,312     93     29,447     568  

Real estate construction:

                         

Residential

            1,392     17  

Commercial

    3,688     25     18,514     149  

Commercial:

                         

Collateralized

    1,297         5,132     8  

Unsecured

    143         654      

Asset-based

            63      

SBA 7(a)

    3,119     5     4,927     2  

Leases

    244         156      

Consumer

    155         215      

Total Non-Covered Loans and Leases With and Without An Allowance Recorded:

                         

Real estate mortgage

  $ 72,812   $ 530   $ 100,649   $ 1,249  

Real estate construction

    8,030     59     30,026     251  

Commercial

    11,488     43     22,024     56  

Leases

    244         156      

Consumer

    613     2     498      
                   

Total

  $ 93,187   $ 634   $ 153,353   $ 1,556  
                   

(1)
For the loans and leases reported as impaired at March 31, 2013 and March 31, 2012, amounts were calculated based on the period of time such loans and leases were impaired during the reporting period.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

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

 
  Three Months Ended March 31,  
 
  2013   2012  
 
  Number
of
Loans
  Pre-
Modification
Outstanding
Recorded
Investment
  Post-
Modification
Outstanding
Recorded
Investment
  Number
of
Loans
  Pre-
Modification
Outstanding
Recorded
Investment
  Post-
Modification
Outstanding
Recorded
Investment
 
 
  (Dollars in thousands)
 

Troubled Debt Restructurings:

                                     

Real estate mortgage:

                                     

Hospitality

      $   $     1   $ 2,083   $ 2,083  

SBA 504

                1     563     563  

Other

    5     13,223     13,223     2     10,552     10,552  

Real estate construction:

                                     

Residential

                1     467     467  

Commercial

                1     4,484     4,484  

Commercial:

                                     

Collateralized

    1     395     395     2     606     606  

Unsecured

                1     15     15  

SBA 7(a)

                3     136     136  
                           

Total

    6   $ 13,618   $ 13,618     12   $ 18,906   $ 18,906  
                           

 

 
  Three Months Ended March 31,  
 
  2013   2012  
 
  Number
of
Loans
  Recorded
Investment(1)
  Number
of
Loans
  Recorded
Investment(2)
 
 
  (Dollars in thousands)
 

Troubled Debt Restructurings

                         

That Subsequently Defaulted(3):

                         

Real estate mortgage—Other

    1   $ 1,298     1   $ 1,725  

Real estate construction—Other

    1     562          
                   

Total

    2   $ 1,860     1   $ 1,725  
                   

(1)
Represents the balance at March 31, 2013, for which there were no charge-offs.

(2)
Represents the balance at March 31, 2012 and is net of charge-offs of $324,000.

(3)
The population of defaulted restructured loans for the period indicated includes only those loans restructured during the preceding 12-month period. The table excludes defaulted troubled debt restructurings in those classes for which the recorded investment was zero at the end of the period.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

        We refer to the loans obtained in the Los Padres Bank ("Los Padres") and Affinity Bank ("Affinity") acquisitions that are 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:

 
  March 31, 2013   December 31, 2012  
 
  Amount   % of
Total
  Amount   % of
Total
 
 
  (Dollars in thousands)
 

Real estate mortgage:

                         

Hospitality

  $ 1,204       $ 2,888      

Other

    529,228     95 %   552,333     94 %
                   

Total real estate mortgage

    530,432     95 %   555,221     94 %
                   

Real estate construction:

                         

Residential

    3,049     1 %   5,662     1 %

Commercial

    9,300     2 %   17,558     3 %
                   

Total real estate construction

    12,349     3 %   23,220     4 %
                   

Commercial:

                         

Collateralized

    11,555     2 %   14,603     2 %

Unsecured

    536         640      
                   

Total commercial

    12,091     2 %   15,243     2 %
                   

Consumer

    544         594      
                   

Total gross covered loans

    555,416     100 %   594,278     100 %
                       

Discount

    (43,050 )         (50,951 )      

Allowance for loan losses

    (29,303 )         (26,069 )      
                       

Covered loans, net

  $ 483,063         $ 517,258        
                       

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—LOANS AND LEASES (Continued)

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

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

Balance, December 31, 2012

  $ 493,846   $ (196,022 )

Accretion

    10,346     10,346  

Payments received

    (40,758 )    

Decrease in expected cash flows, net

        9,670  

Provision for credit losses

    (3,137 )    
           

Balance, March 31, 2013

  $ 460,297   $ (176,006 )
           

        The table above excludes certain covered loans from the Los Padres acquisition which are accounted for as acquired non-impaired loans and totaled $22.8 million and $23.4 million at March 31, 2013 and December 31, 2012, 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.

 
  March 31, 2013   December 31, 2012  
 
  Nonclassified   Classified   Total   Nonclassified   Classified   Total  
 
  (In thousands)
 

Real estate mortgage

  $ 310,690   $ 152,864   $ 463,554   $ 339,520   $ 143,598   $ 483,118  

Real estate construction

    4,826     6,090     10,916     4,801     17,590     22,391  

Commercial

    3,559     4,488     8,047     4,814     6,343     11,157  

Consumer

    85     461     546     117     475     592  
                           

Total covered loans, net

  $ 319,160   $ 163,903   $ 483,063   $ 349,252   $ 168,006   $ 517,258  
                           

        In addition to our internal risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company's loan 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.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—OTHER REAL ESTATE OWNED (OREO)

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

 
  March 31, 2013   December 31, 2012  
Property Type
  Non-Covered
OREO
  Covered
OREO
  Total
OREO
  Non-Covered
OREO
  Covered
OREO
  Total
OREO
 
 
  (In thousands)
 

Commercial real estate

  $ 791   $ 7,292   $ 8,083   $ 1,684   $ 11,635   $ 13,319  

Construction and land development

    31,670     6,475     38,145     31,888     6,708     38,596  

Multi-family

        3,301     3,301         4,239     4,239  

Single family residence

    3,500     243     3,743         260     260  
                           

Total OREO, net

  $ 35,961   $ 17,311   $ 53,272   $ 33,572   $ 22,842   $ 56,414  
                           

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

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

OREO Activity:

                   

Balance, December 31, 2012

  $ 33,572   $ 22,842   $ 56,414  

Foreclosures

    3,500     1,480     4,980  

Provision for losses

    (92 )   (1,093 )   (1,185 )

Reductions related to sales

    (1,019 )   (5,918 )   (6,937 )
               

Balance, March 31, 2013

  $ 35,961   $ 17,311   $ 53,272  
               

NOTE 7—FDIC LOSS SHARING ASSET

        The FDIC loss sharing asset relates to assets covered by the loss sharing agreements between the Bank and the FDIC arising from the acquisitions of Los Padres Bank and Affinity Bank. The FDIC loss sharing asset was measured at its estimated fair value on the Los Padres and Affinity acquisition dates using expected future cash flows from the FDIC and a discount rate based on a long-term risk-free interest rate plus a premium. Since the FDIC loss sharing asset was initially recorded at estimated fair value using a discount rate, a portion of the discount is recognized as FDIC loss sharing income in each reporting period.

        An increase in the expected amount of losses on the covered assets will increase the FDIC loss sharing asset; such increase is recognized through a credit to FDIC loss sharing income. Recoveries on previous losses paid to us by the FDIC reduce the FDIC loss sharing asset by a charge to FDIC loss sharing income. In addition, decreases in the expected amount of losses on covered assets will decrease the amount of funds expected to be collected from the FDIC and will therefore reduce the FDIC loss sharing asset through higher prospective amortization expense. The FDIC loss sharing asset is being amortized to its estimated value over the lesser of the term of the loss sharing agreements or the remaining contractual life of the assets covered by the loss sharing agreements.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 7—FDIC LOSS SHARING ASSET (Continued)

        The following table presents the changes in the FDIC loss sharing asset for the period indicated:

 
  FDIC
Loss Sharing
Asset
 
 
  (In thousands)
 

Balance, December 31, 2012

  $ 57,475  

FDIC share of additional losses, net of recoveries

    4,296  

Cash paid to FDIC

    60  

Net amortization

    (5,991 )
       

Balance, March 31, 2013

  $ 55,840  
       

NOTE 8—BORROWINGS, SUBORDINATED DEBENTURES AND BROKERED DEPOSITS

        The following table summarizes our borrowings outstanding as of the dates indicated:

 
  March 31, 2013   December 31, 2012  
 
  Amount   Rate   Amount   Rate  
 
  (Dollars in thousands)
 

Non-recourse debt

  $ 11,196     6.29 % $ 12,591     6.28 %
                       

        As of March 31, 2013 and December 31, 2012, our borrowings consisted of non-recourse debt relating to the payment stream of certain leases sold to third parties. The debt is secured by the equipment in the leases and all interest rates are fixed. As of March 31, 2013, the weighted average maturity of the debt was 2.3 years.

        As of March 31, 2013 and December 31, 2012, there were no outstanding FHLB advances. Our aggregate remaining borrowing capacity under the FHLB secured borrowing lines was $993.9 million at March 31, 2013. As of March 31, 2013, our FHLB advances facility was secured by: (1) a blanket lien on certain qualifying loans in our loan portfolio, which were not pledged to the Federal Reserve Bank of San Francisco ("FRBSF"), and (2) available-for-sale securities with a carrying value of $16.5 million. Additionally, the Bank had secured borrowing capacity from the FRBSF of $381.9 million at March 31, 2013, secured by $486.5 million of certain qualifying loans. As of March 31, 2013, the Bank also had unsecured lines of credit of $80.0 million with correspondent banks for the purchase of overnight funds; these lines are subject to availability of funds.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 8—BORROWINGS, SUBORDINATED DEBENTURES AND BROKERED DEPOSITS (Continued)

        The following table summarizes the terms of each issuance of the subordinated debentures outstanding as of the dates indicated:

 
  March 31, 2013   December 31, 2012    
   
   
   
 
 
  Date
Issued
  Maturity
Date
   
  Next
Reset
Date
 
Series
  Amount   Rate(1)   Amount   Rate(2)   Rate Index  
 
  (Dollars in thousands)
   
   
   
   
 

Trust V

  $ 10,310     3.38 % $ 10,310     3.41 %   8/15/03     9/17/33   3 month LIBOR + 3.10     6/13/13  

Trust VI

    10,310     3.33 %   10,310     3.36 %   9/3/03     9/15/33   3 month LIBOR + 3.05     6/13/13  

Trust CII

    5,155     3.23 %   5,155     3.26 %   9/17/03     9/17/33   3 month LIBOR + 2.95     6/13/13  

Trust VII

    61,856     3.03 %   61,856     3.05 %   2/5/04     4/23/34   3 month LIBOR + 2.75     7/26/13  

Trust CIII

    20,619     1.97 %   20,619     2.00 %   8/15/05     9/15/35   3 month LIBOR + 1.69     6/13/13  
                                             

Total subordinated debentures

  $ 108,250         $ 108,250                              
                                             

(1)
As of April 26, 2013.

(2)
As of January 28, 2013.

        The Company had an aggregate amount of $108.3 million in subordinated debentures outstanding at March 31, 2013. These subordinated debentures were issued in five separate series. Each issuance had a maturity of thirty years from its date of issue. The subordinated debentures are variable-rate instruments and are each callable at par with no prepayment penalty. The subordinated debentures were issued to trusts established by us or entities we have acquired, which in turn issued trust preferred securities, which totaled $105.0 million at March 31, 2013. The proceeds of the subordinated debentures were used primarily to fund several of our acquisitions and to augment regulatory capital.

        The Company includes in Tier 1 capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as shareholders' equity less goodwill, net of any related deferred income tax liability. At March 31, 2013, the amount of trust preferred securities included in Tier I capital was $105.0 million. While our existing trust preferred securities are currently grandfathered as Tier 1 capital under the Dodd-Frank Wall Street Reform and Consumer Protection Act, proposed regulatory capital guidelines would phase them out of Tier 1 capital over a period of years. However, the phase out rules have not been finalized. New issuances of trust preferred securities will not qualify as Tier 1 capital. If trust preferred securities are excluded from regulatory capital, we remain "well capitalized."

        Interest payments made by the Company on subordinated debentures are considered dividend payments under the Board of Governors of the Federal Reserve System ("FRB") regulations. Bank holding companies, such as PacWest Bancorp, are required to notify the FRB prior to declaring and paying a dividend to stockholders during any period in which quarterly and/or cumulative twelve-month net earnings are insufficient to fund the dividend amount, among other requirements. We are not required to make such notification to the FRB.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 8—BORROWINGS, SUBORDINATED DEBENTURES AND BROKERED DEPOSITS (Continued)

        In March 2012, the Company incurred $22.6 million in debt termination expense related to the repayment of $225.0 million in fixed-rate term FHLB advances and the early redemption of $18.6 million in fixed-rate subordinated debentures. The Company used a combination of excess cash and collateralized overnight FHLB advances to repay these debt instruments. The FHLB advances were composed of $200 million maturing in December 2017 with a fixed rate of 3.16% and $25 million due in January 2018 with a fixed rate of 2.61%. The agreements for these FHLB advances had an early repayment fee for payoffs made before maturity. The subordinated debentures were composed of a $10.3 million debenture, due in March 2030 and bearing a fixed rate of 11.00%, which was referred to as "Trust CI," and an $8.3 million debenture due in September 2030 and bearing a fixed rate of 10.6%, which was referred to as "Trust I."

        Brokered time deposits totaled $48.3 million at March 31, 2013, and $37.7 million at December 31, 2012, all of which were part of the CDARS program. The CDARS program represents deposits that are participated with other FDIC insured financial institutions as a means to provide FDIC deposit insurance coverage for the full amount of our customers' deposits.

NOTE 9—COMMITMENTS AND CONTINGENCIES

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

        The following table presents a summary of the financial instruments described above as of the dates indicated:

 
  March 31,
2013
  December 31,
2012
 
 
  (In thousands)
 

Loan commitments to extend credit

  $ 873,118   $ 849,607  

Standby letters of credit

    28,400     27,534  

Commitments to purchase equipment being acquired for lease to others

    1,240     4,399  
           

  $ 902,758   $ 881,540  
           

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 9—COMMITMENTS AND CONTINGENCIES (Continued)

        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.

        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.

        In addition, 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. The investments call for capital contributions up to an amount specified in the partnership agreements. As of March 31, 2013 and December 31, 2013, the Company had commitments to contribute capital to these entities totaling $8.8 million and $10.8 million, respectively.

        In the ordinary course of our business, we are party to various legal actions, which we believe are incidental to the operation of our business. The outcome of such legal actions and the timing of ultimate resolution are inherently difficult to predict. In the opinion of management, based upon information currently available to us, any resulting liability, in addition to amounts already accrued, would not have a material adverse effect on the Company's financial statements or operations.

NOTE 10—FAIR VALUE MEASUREMENTS

        ASC 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:

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 10—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.

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

 
  Fair Value Measurement as of March 31, 2013  
 
  Total   Level 1   Level 2   Level 3  
 
  (In thousands)
 

Measured on a Recurring Basis:

                         

Securities available-for-sale:

                         

Government agency and government- sponsored enterprise residential mortgage-backed securities

  $ 880,733   $   $ 880,733   $  

Covered private label CMOs

    43,785             43,785  

Municipal securities

    365,425         365,425      

Corporate securities

    61,204         61,204      

Other securities

    11,630     9,856     1,774      
                   

  $ 1,362,777   $ 9,856   $ 1,309,136   $ 43,785  
                   

        There were no transfers of assets either between Level 1 and Level 2 nor in or out of Level 3 of the fair value hierarchy for assets measured on a recurring basis during the three months ended March 31, 2013.

        The following table presents information about quantitative inputs and assumptions used to evaluate the fair values provided by our third party pricing service for our Level 3 covered private label CMOs measured at fair value on a recurring basis as of March 31, 2013:

Unobservable Inputs
  Range of Inputs   Weighted Average Input  

Voluntary annual prepayment speeds

  0.13% - 33.9%     9.4 %

Annual default rates

  0% - 15.1%     3.2 %

Loss severity rates

  0% - 65.9%     40.4 %

Discount rates

  0% - 12.9%     5.1 %

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 10—FAIR VALUE MEASUREMENTS (Continued)

        The following table summarizes activity for assets measured at fair value on a recurring basis that are categorized as Level 3 for the period indicated:

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

Balance, December 31, 2012

  $ 44,684  

Total realized in earnings

    402  

Total unrealized gain in comprehensive income

    246  

Net settlements

    (1,547 )
       

Balance, March 31, 2013

  $ 43,785  
       

        The following tables present assets measured at fair value on a non-recurring basis as of the date indicated and the gains and (losses) recognized on such assets for the period indicated:

 
  Fair Value Measurement as of
March 31, 2013
  Gain (Loss)
Three Months
Ended
March 31,
2013
 
 
  Total   Level 1   Level 2   Level 3  
 
  (In thousands)
 

Measured on a Non-Recurring Basis:

                               

Non-covered impaired loans

  $ 80,980   $   $ 6,226   $ 74,754   $ (1,345 )

Covered other real estate owned

    3,789         3,744     45     (1,093 )

SBA loan servicing asset

    956             956     12  
                       

  $ 85,725   $   $ 9,970   $ 75,755   $ (2,426 )
                       

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 10—FAIR VALUE MEASUREMENTS (Continued)

        The following table presents the valuation methodology and unobservable inputs for Level 3 assets measured at fair value on a nonrecurring basis as of March 31, 2013:

Asset
  Fair Value
(in 000's)
  Valuation
Methodology
  Unobservable
Inputs
  Range   Weighted
Average
 

Impaired loans(1)

  $ 71,991   Discounted cash flow   Discount rates   4.06% - 8.81%     6.63 %

  $ 1,311   Appraisals   Discount   3% - 100%     42 %

OREO(2)

 
$

45
 

Appraisals

 

Discount, including 8% for selling costs

 

18%

   
18

%

SBA loan servicing asset

 
$

956
 

Discounted cash flow

 

Prepayment speeds

 

3.40% - 16.34%

   
(3)

            Discount rates   9.66% - 12.67%       (3)

(1)
Excludes $1.5 million of impaired loans with balances of $250,000 or less.

(2)
As of March 31, 2013, there was one OREO measured at Level 3.

(3)
Not readily available.

        ASC Topic 825, "Financial Instruments," requires disclosure of the estimated fair value of certain financial instruments and the methods and significant assumptions used to estimate such fair values. Additionally, certain financial instruments and all nonfinancial instruments are excluded from the applicable disclosure requirements.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 10—FAIR VALUE MEASUREMENTS (Continued)

        The following tables present a summary of the carrying values and estimated fair values of certain financial instruments as of the dates indicated:

 
  March 31, 2013  
 
   
  Estimated Fair Value  
 
  Carrying or
Contract
Amount
 
 
  Total   Level 1   Level 2   Level 3  
 
  (In thousands)
 

Financial Assets:

                               

Cash and due from banks

  $ 90,659   $ 90,659   $ 90,659   $   $  

Interest-earning deposits in financial institutions

    41,019     41,019     41,019          

Securities available-for-sale

    1,362,777     1,362,777     9,856     1,309,136     43,785  

Investment in FHLB stock

    33,400     33,400         33,400      

Loans and leases, net

    3,374,744     3,415,761         6,226     3,409,535  

SBA loan servicing asset

    956     956             956  

Financial Liabilities:

                               

Deposits:

                               

Demand, money market, interest checking and savings deposits

    3,796,438     3,796,438         3,796,438      

Time deposits

    756,792     758,995         758,995      

Borrowings

    11,196     11,196         11,196      

Subordinated debentures

    108,250     108,186         108,186      

 

 
  December 31, 2012  
 
   
  Estimated Fair Value  
 
  Carrying or
Contract
Amount
 
 
  Total   Level 1   Level 2   Level 3  
 
  (In thousands)
 

Financial Assets:

                               

Cash and due from banks

  $ 89,011   $ 89,011   $ 89,011   $   $  

Interest-earning deposits in financial institutions

    75,393     75,393     75,393          

Securities available-for-sale

    1,355,385     1,355,385     8,985     1,301,716     44,684  

Investment in FHLB stock

    37,126     37,126         37,126      

Loans and leases, net

    3,498,329     3,551,674         4,975     3,546,699  

SBA loan servicing asset

    1,000     1,000             1,000  

Financial Liabilities:

                               

Deposits:

                               

Demand, money market, interest checking and savings deposits

    3,888,794     3,888,794         3,888,794      

Time deposits

    820,327     823,912