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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 June 30, 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
(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 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 August 1, 2013, there were 44,292,169 shares of the registrant's common stock outstanding, excluding 1,785,896 shares of unvested restricted stock.

   


Table of Contents

PACWEST BANCORP AND SUBSIDIARIES

JUNE 30, 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

    58  

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    114  

ITEM 4.

 

Controls and Procedures

    114  

PART II—OTHER INFORMATION

    115  

ITEM 1.

 

Legal Proceedings

    115  

ITEM 1A.

 

Risk Factors

    116  

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    119  

ITEM 6.

 

Exhibits

    120  

SIGNATURES

    121  

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)

 
  June 30,
2013
  December 31,
2012
 

ASSETS

             

Cash and due from banks

  $ 106,237   $ 89,011  

Interest-earning deposits in financial institutions

    112,590     75,393  
           

Total cash and cash equivalents

    218,827     164,404  
           

Securities available-for-sale, at fair value ($40,917 and $44,684 covered by FDIC loss sharing at June 30, 2013 and December 31, 2012)

    1,473,578     1,355,385  

Federal Home Loan Bank stock, at cost

    39,129     37,126  
           

Total investment securities

    1,512,707     1,392,511  
           

Loans and leases, net of unearned income ($581,404 and $543,327 covered by FDIC loss sharing at June 30, 2013 and December 31, 2012)

    4,419,686     3,590,297  

Allowance for loan and lease losses ($27,397 and $26,069 for loans covered by FDIC loss sharing at June 30, 2013 and December 31, 2012)

    (90,643 )   (91,968 )
           

Total loans and leases, net

    4,329,043     3,498,329  
           

Other real estate owned, net ($19,114 and $22,842 covered by FDIC loss sharing at June 30, 2013 and December 31, 2012)

    64,546     56,414  

Premises and equipment, net

    33,642     19,503  

FDIC loss sharing asset

    66,993     57,475  

Cash surrender value of life insurance

    80,592     68,326  

Goodwill

    209,190     79,866  

Core deposit and customer relationship intangibles, net

    20,190     14,723  

Other assets

    173,372     112,107  
           

Total assets

  $ 6,709,102   $ 5,463,658  
           

LIABILITIES

             

Noninterest-bearing deposits

  $ 2,291,246   $ 1,939,212  

Interest-bearing deposits

    3,231,754     2,769,909  
           

Total deposits

    5,523,000     4,709,121  

Borrowings

    9,696     12,591  

Subordinated debentures

    132,358     108,250  

Discontinued operations

    173,439      

Accrued interest payable and other liabilities

    68,910     44,575  
           

Total liabilities

    5,907,403     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; 46,514,056 shares issued at June 30, 2013 and 37,772,559 at December 31, 2012 (includes 1,788,562 and 1,698,281 shares of unvested restricted stock)

    465     377  

Additional paid-in capital

    1,291,002     1,062,184  

Accumulated deficit

    (481,694 )   (499,537 )

Treasury stock, at cost; 433,325 and 351,650 shares at June 30, 2013 and December 31, 2012

    (9,070 )   (6,803 )

Accumulated other comprehensive income

    996     32,900  
           

Total stockholders' equity

    801,699     589,121  
           

Total liabilities and stockholders' equity

  $ 6,709,102   $ 5,463,658  
           

   

See "Notes to Condensed Consolidated Financial Statements."

3


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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in Thousands, Except Per Share Data)

(Unaudited)

 
  Three Months Ended   Six Months Ended
June 30,
 
 
  June 30,
2013
  March 31,
2013
  June 30,
2012
 
 
  2013   2012  

Interest income:

                               

Loans and leases

  $ 63,168   $ 61,010   $ 63,312   $ 124,178   $ 128,064  

Investment securities

    8,414     8,216     9,558     16,630     19,138  

Deposits in financial institutions

    49     43     20     92     88  
                       

Total interest income

    71,631     69,269     72,890     140,900     147,290  
                       

Interest expense:

                               

Deposits

    2,077     2,649     3,336     4,726     6,940  

Borrowings

    199     144     293     343     2,218  

Subordinated debentures

    882     783     848     1,665     2,039  
                       

Total interest expense

    3,158     3,576     4,477     6,734     11,197  
                       

Net interest income

    68,473     65,693     68,413     134,166     136,093  
                       

Total provision (negative provision) for credit losses

    (1,842 )   3,137     (271 )   1,295     (6,345 )
                       

Net interest income after provision for credit losses

    70,315     62,556     68,684     132,871     142,438  
                       

Noninterest income:

                               

Service charges on deposit accounts

    2,767     2,863     3,328     5,630     6,681  

Other commissions and fees

    2,154     1,933     2,095     4,087     3,978  

Gain on sale of leases

    279     225     403     504     1,393  

Gain on sale of securities

        409         409      

Other-than-temporary impairment loss on covered security

            (1,115 )       (1,115 )

Increase in cash surrender value of life insurance

    221     433     295     654     660  

FDIC loss sharing expense, net

    (5,410 )   (3,137 )   (102 )   (8,547 )   (3,681 )

Other income

    192     114     (33 )   306     217  
                       

Total noninterest income

    203     2,840     4,871     3,043     8,133  
                       

Noninterest expense:

                               

Compensation

    26,057     25,350     23,699     51,407     47,886  

Occupancy

    7,480     6,598     7,088     14,078     14,376  

Data processing

    2,455     2,233     2,258     4,688     4,538  

Other professional services

    2,240     2,097     2,378     4,337     4,148  

Business development

    798     736     581     1,534     1,219  

Communications

    622     613     626     1,235     1,234  

Insurance and assessments

    1,267     1,261     1,323     2,528     2,616  

Non-covered other real estate owned, net

    80     313     130     393     1,951  

Covered other real estate owned, net

    (94 )   (813 )   2,130     (907 )   2,952  

Intangible asset amortization

    1,284     1,176     1,737     2,460     3,472  

Acquisition and integration

    17,997     692     871     18,689     896  

Debt termination

                    22,598  

Other expense

    4,030     3,927     4,764     7,957     8,594  
                       

Total noninterest expense

    64,216     44,183     47,585     108,399     116,480  
                       

Earnings from continuing operations before income taxes

    6,302     21,213     25,970     27,515     34,091  

Income tax expense

    (1,906 )   (7,719 )   (10,413 )   (9,625 )   (13,270 )
                       

Net earnings from continuing operations

    4,396     13,494     15,557     17,890     20,821  
                       

Loss from discontinued operations before income taxes

    (81 )           (81 )    

Income tax benefit

    34             34      
                       

Net loss from discontinued operations

    (47 )           (47 )    
                       

Net earnings

  $ 4,349   $ 13,494   $ 15,557   $ 17,843   $ 20,821  
                       

Basic earnings per share:

                               

Net earnings from continuing operations

  $ 0.11   $ 0.37   $ 0.42   $ 0.47   $ 0.57  

Net earnings

  $ 0.11   $ 0.37   $ 0.42   $ 0.47   $ 0.57  

Diluted earnings per share:

                               

Net earnings from continuing operations

  $ 0.11   $ 0.37   $ 0.42   $ 0.47   $ 0.57  

Net earnings

  $ 0.11   $ 0.37   $ 0.42   $ 0.47   $ 0.57  

Dividends declared per share

  $ 0.25   $ 0.25   $ 0.18   $ 0.50   $ 0.36  

   

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands)

(Unaudited)

 
  Three Months Ended   Six Months Ended
June 30,
 
 
  June 30,
2013
  March 31,
2013
  June 30,
2012
 
 
  2013   2012  

Net earnings

  $ 4,349   $ 13,494   $ 15,557   $ 17,843   $ 20,821  

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

                               

Unrealized holding (losses) gains arising during the period

    (48,189 )   (6,410 )   8,185     (54,599 )   15,594  

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

    20,240     2,692     (3,439 )   22,932     (6,550 )

Reclassification adjustment for gain included in net earnings

        (409 )   1,115     (409 )   1,115  

Income tax expense related to reclassification adjustment

        172     (468 )   172     (468 )
                       

Other comprehensive (loss) income

    (27,949 )   (3,955 )   5,393     (31,904 )   9,691  
                       

Comprehensive (loss) income

  $ (23,600 ) $ 9,539   $ 20,950   $ (14,061 ) $ 30,512  
                       

   

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)

 
  Six Months Ended June 30, 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

                17,843             17,843  

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

                        (31,904 )   (31,904 )

Issuance of common stock for acquisition of First California Financial Group

    8,403,119     84     242,184                 242,268  

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

    338,378     4     4,141                 4,145  

Restricted stock surrendered

    (81,675 )               (2,267 )       (2,267 )

Tax effect from vesting of restricted stock

            778                 778  

Cash dividends paid ($0.50 per share)

            (18,285 )               (18,285 )
                               

Balance, June 30, 2013

    46,080,731   $ 465   $ 1,291,002   $ (481,694 ) $ (9,070 ) $ 996   $ 801,699  
                               

   

See "Notes to Condensed Consolidated Financial Statements."

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PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 
  Six Months Ended
June 30,
 
 
  2013   2012  

Cash flows from operating activities:

             

Net earnings

  $ 17,843   $ 20,821  

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

             

Depreciation and amortization

    15,179     10,730  

Provision (negative provision) for credit losses

    1,295     (6,345 )

Gain on sale of other real estate owned

    (2,602 )   (2,479 )

Provision for losses on other real estate owned

    1,477     5,786  

Gain on sale of leases

    (504 )   (1,393 )

Gain on sale of premises and equipment

    (11 )   160  

Gain on sale of securities

    (409 )    

Other-than-temporary impairment loss on covered security

        1,115  

Earned stock compensation

    4,145     3,256  

Tax effect included in stockholders' equity of restricted stock vesting

    (778 )   (156 )

Decrease in accrued and deferred income taxes, net

    (3,860 )   7,264  

Decrease in FDIC loss sharing asset

    9,463     18,786  

(Increase) decrease in other assets

    7,580     10,500  

Decrease in accrued interest payable and other liabilities

    (6,809 )   (17,932 )
           

Net cash provided by operating activities

    42,009     50,113  
           

Cash flows from investing activities:

             

Net cash and cash equivalents acquired (used) in acquisitions

    273,013     (42,306 )

Net decrease in loans and leases

    200,023     204,368  

Proceeds from sale of loans and leases

    9,455     22,693  

Securities available-for-sale:

             

Proceeds from maturities and paydowns

    193,561     169,630  

Proceeds from sales

    12,810      

Purchases

    (388,946 )   (186,387 )

Net redemptions of Federal Home Loan Bank stock

    7,515     4,370  

Proceeds from sales of other real estate owned

    15,869     26,213  

Purchases of premises and equipment, net

    (1,301 )   (1,827 )

Proceeds from sales of premises and equipment

    22     691  
           

Net cash provided by investing activities

    322,021     197,445  
           

Cash flows from financing activities:

             

Net increase (decrease) in deposits:

             

Noninterest-bearing

    (9,132 )   186,660  

Interest-bearing

    (277,868 )   (172,784 )

Net decrease in borrowings

    (2,833 )   (225,220 )

Redemption of subordinated debentures

        (18,558 )

Repayment of acquired debt

        (175,481 )

Restricted stock surrendered

    (2,267 )   (1,374 )

Tax effect included in stockholders' equity of restricted stock vesting

    778     156  

Cash dividends paid

    (18,285 )   (13,105 )
           

Net cash used in financing activities

    (309,607 )   (419,706 )
           

Net increase (decrease) in cash and cash equivalents

    54,423     (172,148 )

Cash and cash equivalents, beginning of period

    164,404     295,617  
           

Cash and cash equivalents, end of period

  $ 218,827   $ 123,469  
           

Supplemental disclosures of cash flow information:

             

Cash paid for interest

  $ 7,569   $ 12,778  

Cash paid for income taxes

    13,573     6,229  

Loans transferred to other real estate owned

    9,090     19,721  

Common stock issued for First California Financial Group acquisition

    242,268      

   

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, with 75 branches located across 10 California counties. The Bank has a relatively low cost of funds due to a high percentage of noninterest-bearing and low cost deposits.

        We have completed 26 acquisitions from May 2000 through June 30, 2013, including the acquisition of First California Financial Group, Inc. ("FCAL") on May 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 3, Acquisitions, for more information about the FCAL acquisition and the acquisitions that we made in 2012, and Note 18, Subsequent Events, for information regarding the announcement of the CapitalSource merger.

        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.

        As described in Note 3 below, we completed the acquisition of FCAL on May 31, 2013. The acquired assets and liabilities of FCAL 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 of FCAL.

        Certain prior period amounts have been reclassified to conform to the current period's presentation format. The June 30, 2013 loan tables present non-purchased credit impaired ("Non-PCI") and purchased credit impaired ("PCI") loan categories in addition to covered and non-covered loan information. Previously the loan tables only presented covered and non-covered loan categories.

NOTE 2—DISCONTINUED OPERATIONS

        In connection with the acquisition of FCAL, we acquired Electronic Payment Services ("EPS"), a division of the Bank that is being discontinued. The EPS operations are in the process of being exited and consequently the operating results have been reported as discontinued operations. Accordingly, all income and expense related to EPS have been removed from continuing operations and are included in the condensed consolidated statements of earnings under the caption "Loss from discontinued operations." For the three months ended June 30, 2013, revenues and pre-tax loss for the EPS division were $436,000 and $81,000, respectively. Liabilities of the EPS division, which consist primarily of noninterest-bearing deposits, are included in the condensed consolidated balance sheets under the caption "Discontinued operations." Included in the EPS noninterest-bearing deposits are $93.2 million of brokered deposits. For segment reporting purposes, the EPS division is included in our Banking Segment.

NOTE 3—ACQUISITIONS

        We completed the following acquisitions during the time period of January 1, 2012 to June 30, 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.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—ACQUISITIONS (Continued)

        The following balance sheets of the acquired entities are presented at estimated fair value as of their respective acquisition dates:

 
  Acquisition and Date Acquired  
 
  First
California
Financial
Group
  American
Perspective
Bank
  Celtic
Capital
Corporation
  Pacific
Western
Equipment
Finance
 
 
  May 31,
2013
  August 1,
2012
  April 3,
2012
  January 3,
2012
 
 
  (In thousands)
 

Assets Acquired:

                         

Cash and due from banks

  $ 6,124   $ 3,370   $ 3,435   $ 7,092  

Interest-earning deposits in financial institutions

    266,889     10,081          

Investment securities available-for-sale

    4,444     48,887          

FHLB stock

    9,518     1,412          

Loans and leases

    1,049,613     197,279     54,963     140,959  

Other real estate owned

    13,772     1,561          

Premises and equipment

    15,437              

FDIC loss sharing asset

    18,981              

Cash surrender value of life insurance

    13,265              

Goodwill

    129,517     15,047     6,645     19,033  

Core deposit and customer relationship intangibles

    7,927     1,924     1,300     1,700  

Other intangible assets

            670     1,420  

Leases in process

                19,162  

Other assets

    39,910     4,234     69     467  
                   

Total assets acquired

  $ 1,575,397   $ 283,795   $ 67,082   $ 189,833  
                   

Liabilities Assumed:

                         

Noninterest-bearing deposits

  $ 361,166   $ 40,673   $   $  

Interest-bearing deposits

    739,713     178,891          

Borrowings from parent

                128,677  

Other borrowings

        5,315     46,804     15,839  

Subordinated debentures

    24,061              

Discontinued operations

    184,619              

Accrued interest payable and other liabilities

    19,492     840     2,278     10,317  
                   

Total liabilities assumed

  $ 1,329,051   $ 225,719   $ 49,082   $ 154,833  
                   

Total consideration paid

  $ 246,346   $ 58,076   $ 18,000   $ 35,000  
                   

Summary of consideration:

                         

Cash paid

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

PacWest common stock issued

    242,268              

Cancellation of FCAL common stock owned by PacWest

    4,078              
                   

Total

  $ 246,346   $ 58,076   $ 18,000   $ 35,000  
                   

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—ACQUISITIONS (Continued)

        On May 31, 2013, PacWest Bancorp ("PacWest") completed the acquisition of First California Financial Group, Inc. ("FCAL"). As part of the acquisition, First California Bank ("FCB"), a wholly-owned subsidiary of FCAL, merged with and into Pacific Western. The acquisition, which was first announced on November 6, 2012, was concluded following receipt of shareholder approval from both institutions and all required regulatory approvals.

        In the FCAL acquisition, each share of FCAL common stock was converted into the right to receive 0.2966 of a share of PacWest common stock. The exchange ratio was calculated based on the volume-weighted average share price of PacWest common stock for the 20 consecutive trading days ending on the second full trading day prior to the receipt of the last of the regulatory approvals required under the merger agreement. PacWest issued an aggregate of approximately 8.4 million shares of PacWest common stock to FCAL stockholders (which included PacWest common shares issuable in exchange for FCAL's Series A Preferred Stock). In addition, approximately one million shares of FCAL common stock owned by PacWest were cancelled in the transaction. Based on the closing price of PacWest's common stock on May 31, 2013 of $28.83 per share, the aggregate consideration paid to FCAL common stockholders, plus the cost of the FCAL shares of common stock cancelled in the merger, was $246.3 million.

        The integration of FCB systems and the conversion of FCB's branches to PWB's operating platform was completed in June 2013. FCB had 15 branches, eight of which overlapped with existing PWB branches. Six of the FCB branches and two PWB branches were closed as part of the integration and consolidation plan. As a result PWB added seven locations to its branch network.

        FCB was a full-service commercial bank headquartered in Westlake Village, California. FCB provided a full range of banking services, including revolving lines of credit, term loans, commercial real estate loans, construction loans, consumer loans and home equity loans to individuals, professionals, and small to mid-sized businesses. FCB operated throughout Southern California in the Los Angeles, Orange, Riverside, San Bernardino, San Diego, Ventura, and San Luis Obispo Counties. We made this acquisition to expand our presence in Southern California.

        The operations of FCAL are included in our operating results since the May 31, 2013 acquisition date and added revenue of $4.7 million, noninterest expense of $2.3 million, and net earnings of $1.4 million for the second quarter of 2013. Such operating results exclude acquisition and integration costs and are not necessarily indicative of future operating results. FCAL's results of operations prior to the acquisition are not included in our operating results.

        The FCAL acquisition has been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the May 31, 2013 acquisition date. Such fair values are preliminary estimates and are subject to adjustment for up to one year after the acquisition date or when additional information relative to the closing date fair values becomes available and such information is considered final, whichever is earlier. While the fair values are preliminary we believe there will not be material adjustments to the amounts recorded with the exception of the acquired tax assets, which will be finalized once the final tax returns have been filed. The application of the acquisition method of accounting resulted in goodwill of $129.5 million. All of the recognized goodwill is expected to be non-deductible for tax purposes.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—ACQUISITIONS (Continued)

American Perspective Bank Acquisition

        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, 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.

        The following table presents our unaudited pro forma results of operations for the periods presented as if the FCAL acquisition had been completed on January 1, 2012. The unaudited pro forma results of operations include the historical accounts of the Company and FCAL and pro forma adjustments as may be required, including the amortization of intangibles with definite lives and the amortization or accretion of any premiums or discounts arising from fair value adjustments for assets acquired and liabilities assumed. The unaudited pro forma information is intended for informational purposes only and is not necessarily indicative of our future operating results or operating results that would have occurred had the FCAL acquisition been completed at the beginning of 2012. No

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 3—ACQUISITIONS (Continued)

assumptions have been applied to the pro forma results of operations regarding possible revenue enhancements, expense efficiencies or asset dispositions.

 
  Three Months
Ended June 30,
  Six Months
Ended June 30,
 
 
  2013   2012   2013   2012  
 
  (In thousands, except
per share data)

 

Pro forma revenues (net interest income plus noninterest income)

  $ 79,377   $ 93,246   $ 164,628   $ 182,473  

Pro forma net earnings from continuing operations

  $ 10,501   $ 19,178   $ 26,778   $ 27,587  

Pro forma net earnings from continuing operations per share:

                         

Basic

  $ 0.22   $ 0.42   $ 0.58   $ 0.61  

Diluted

  $ 0.22   $ 0.42   $ 0.58   $ 0.61  

NOTE 4—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 )

Non-tax deductible addition from the FCAL acquisition

    129,517  
       

Balance, June 30, 2013

  $ 209,190  
       

        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 for the CDI addition from the FCAL acquisition is 3.9 years. The weighted average amortization period remaining for all of our CDI and CRI is 3.0 years. The aggregate amortization expense related to the intangible assets is expected to be $5.4 million for 2013. The estimated aggregate amortization expense related to these intangible assets for each of the next five years is $5.3 million for 2014, $4.8 million for 2015, $3.0 million for 2016, $1.6 million for 2017, and $1.3 million for 2018.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 4—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   Six Months Ended
June 30,
 
 
  June 30,
2013
  March 31,
2013
  June 30,
2012
 
 
  2013   2012  
 
  (In thousands)
 

Gross Amount of CDI and CRI:

                               

Balance, beginning of period

  $ 45,412   $ 45,412   $ 60,972   $ 45,412   $ 67,100  

Additions

    7,927         1,300     7,927     3,000  

Fully amortized portion

                    (7,828 )
                       

Balance, end of period

    53,339     45,412     62,272     53,339     62,272  
                       

Accumulated Amortization:

                               

Balance, beginning of period

    (31,865 )   (30,689 )   (43,592 )   (30,689 )   (49,685 )

Amortization

    (1,284 )   (1,176 )   (1,737 )   (2,460 )   (3,472 )

Fully amortized portion

                    7,828  
                       

Balance, end of period

    (33,149 )   (31,865 )   (45,329 )   (33,149 )   (45,329 )
                       

Net CDI and CRI, end of period

  $ 20,190   $ 13,547   $ 16,943   $ 20,190   $ 16,943  
                       

NOTE 5—INVESTMENT SECURITIES

        The following tables present amortized cost, gross unrealized gains and losses, and carrying value of securities available-for-sale as of the dates indicated:

 
  June 30, 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

  $ 726,501   $ 17,608   $ (1,692 ) $ 742,417  

Government agency and government-sponsored enterprise collateralized mortgage obligations

    147,580     722     (2,982 )   145,320  

Covered private label collateralized mortgage obligations

    32,959     8,094     (136 )   40,917  

Municipal securities

    442,733     2,394     (20,953 )   424,174  

Corporate debt securities

    83,938     187     (993 )   83,132  

Other securities

    38,151     1     (534 )   37,618  
                   

Total securities available-for-sale

  $ 1,471,862   $ 29,006   $ (27,290 ) $ 1,473,578  
                   

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—INVESTMENT SECURITIES (Continued)

 

 
  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  
                   

        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 consist primarily of asset backed securities and collateralized loan obligations. See Note 11, Fair Value Measurements, for information on fair value measurements and methodology.

        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:

 
  June 30, 2013  
Maturity
  Amortized
Cost
  Carrying
Value
 
 
  (In thousands)
 

Due in one year or less

  $ 4,696   $ 4,813  

Due after one year through five years

    24,214     24,219  

Due after five years through ten years

    107,766     106,582  

Due after ten years

    1,335,186     1,337,964  
           

Total securities available-for-sale

  $ 1,471,862   $ 1,473,578  
           

        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 June 30, 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 $769.9 million. We do not own any equity securities issued by Fannie Mae or Freddie Mac.

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Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—INVESTMENT SECURITIES (Continued)

        As of June 30, 2013, securities available-for-sale with a carrying value of $208.2 million were pledged as collateral for borrowings, public deposits and other purposes as required by various statutes and agreements.

        There were no securities sold during the three months ended June 30, 2013. 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. These securities were sold as part of our investment portfolio risk management activities to reduce price volatility and duration.

        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:

 
  June 30, 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

  $ 128,542   $ (1,691 ) $ 53   $ (1 ) $ 128,595   $ (1,692 )

Government agency and government-sponsored enterprise collateralized mortgage obligations

    100,267     (2,979 )   1,436     (3 )   101,703     (2,982 )

Covered private label collateralized mortgage obligations

    602     (31 )   665     (105 )   1,267     (136 )

Municipal securities

    302,174     (20,953 )           302,174     (20,953 )

Corporate debt securities

    72,146     (993 )           72,146     (993 )

Other securities

    23,984     (534 )           23,984     (534 )
                           

Total

  $ 627,715   $ (27,181 ) $ 2,154   $ (109 ) $ 629,869   $ (27,290 )
                           

 

 
  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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Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 5—INVESTMENT SECURITIES (Continued)

        We reviewed the securities that were in a continuous loss position less than 12 months and longer than 12 months at June 30, 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   Six Months Ended
June 30,
 
 
  June 30,
2013
  March 31,
2013
  June 30,
2012
 
Securities Interest by Type:
  2013   2012  
 
  (In thousands)
 

Taxable interest

  $ 5,388   $ 5,563   $ 8,365   $ 10,951   $ 16,904  

Nontaxable interest

    2,716     2,425     1,134     5,141     2,114  

Dividend income

    310     228     59     538     120  
                       

Total interest income on investment securities

  $ 8,414   $ 8,216   $ 9,558   $ 16,630   $ 19,138  
                       

        At June 30, 2013, the Company had a $39.1 million investment in Federal Home Loan Bank of San Francisco ("FHLB") stock carried at cost. During the second quarter of 2013, FHLB stock increased $5.7 million due to $9.5 million added in the FCAL acquisition offset by $3.8 million of redemptions by the FHLB. We evaluated the carrying value of our FHLB stock investment at June 30, 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, 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 6—LOANS AND LEASES

        The Company's loan portfolio consists of (1) purchased credit-impaired ("PCI") loans and (2) non-purchased credit-impaired ("Non-PCI") loans. PCI loans represent acquired loans for which there is, at the acquisition date, evidence of credit deterioration since their origination and it is probable that we would be unable to collect all contractually required payments. Such loans are accounted for in accordance with ASC Subtopic 310-30, "Loans and Debt Securities Acquired with Deteriorated Credit Quality." Non-PCI loans are comprised of originated loans and acquired non-impaired loans for which there is no evidence of credit deterioration at their acquisition date and it is probable that we would be able to collect all contractually required payments. Originated loans are carried at the principal amount outstanding, net of unearned income. Unearned income is recognized as an adjustment to interest income over the contractual life of the loans using the effective interest method or taken into income when the related loans are paid off or sold. The purchase discount on acquired non-impaired loans is recognized as an adjustment to interest income over the contractual life

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Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

of such loans using the effective interest method or taken into income when the related loans are paid off or sold.

        We further present our loans by "covered" and "non-covered" loan categories. Covered loans represent loans covered by loss sharing agreements with the FDIC for which we will be reimbursed for a substantial portion of any future losses under the terms of the agreements. Covered loans also include those loans acquired in the FCAL acquisition as FCB had acquired two failed banks from the FDIC for which the loss sharing agreements with the FDIC remain in effect. Non-covered loans and leases represent loans and leases not covered by FDIC loss sharing agreements.

        The following table summarizes the composition of our loan portfolio as of the dates indicated:

 
  June 30, 2013   December 31, 2012  
 
  Non-PCI
Loans
and Leases
  PCI
Loans
  Total   Non-PCI
Loans
and Leases
  PCI
Loans
  Total  
 
  (In thousands)
 

Non-covered loans and leases

  $ 3,819,576   $ 19,639   $ 3,839,215   $ 3,049,505   $   $ 3,049,505  

Covered loans

    106,654     474,750     581,404     25,442     517,885     543,327  
                           

Total gross loans and leases

    3,926,230     494,389     4,420,619     3,074,947     517,885     3,592,832  

Unearned income

    (933 )       (933 )   (2,535 )       (2,535 )
                           

Total loans and leases, net of unearned income

    3,925,297     494,389     4,419,686     3,072,412     517,885     3,590,297  
                           

Allowance for loan and lease losses:

                                     

Non-covered loans and leases

    (63,246 )       (63,246 )   (65,899 )       (65,899 )

Covered loans

        (27,397 )   (27,397 )       (26,069 )   (26,069 )
                           

Total allowance for loan and lease losses

    (63,246 )   (27,397 )   (90,643 )   (65,899 )   (26,069 )   (91,968 )
                           

Total net loans and leases

  $ 3,862,051   $ 466,992   $ 4,329,043   $ 3,006,513   $ 491,816   $ 3,498,329  
                           

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

        The following table presents the composition of our gross loans by portfolio segment as of the dates indicated:

 
  June 30, 2013   December 31, 2012  
 
  Non-PCI
Loans
and Leases
  PCI
Loans
  Total   Non-PCI
Loans
and Leases
  PCI
Loans
  Total  
 
  (In thousands)
 

Non-Covered Loans and Leases

                                     

Real estate mortgage

  $ 2,477,066   $ 18,298   $ 2,495,364   $ 1,917,670   $   $ 1,917,670  

Real estate construction

    185,888     1,305     187,193     129,959         129,959  

Commercial

    898,973         898,973     787,775         787,775  

Leases

    216,089         216,089     174,373         174,373  

Consumer

    25,487     36     25,523     22,487         22,487  

Foreign

    16,073         16,073     17,241         17,241  
                           

Total gross non-covered loans and leases

  $ 3,819,576   $ 19,639   $ 3,839,215   $ 3,049,505   $   $ 3,049,505  
                           

Covered Loans

                                     

Real estate mortgage

  $ 81,124   $ 456,114   $ 537,238   $ 20,843   $ 484,057   $ 504,900  

Real estate construction

    11,888     14,654     26,542         24,645     24,645  

Commercial

    10,536     3,560     14,096     4,113     9,071     13,184  

Consumer

    3,106     422     3,528     486     112     598  
                           

Total gross covered loans

  $ 106,654   $ 474,750   $ 581,404   $ 25,442   $ 517,885   $ 543,327  
                           

Total Loans and Leases

                                     

Real estate mortgage

  $ 2,558,190   $ 474,412   $ 3,032,602   $ 1,938,513   $ 484,057   $ 2,422,570  

Real estate construction

    197,776     15,959     213,735     129,959     24,645     154,604  

Commercial

    909,509     3,560     913,069     791,888     9,071     800,959  

Leases

    216,089         216,089     174,373         174,373  

Consumer

    28,593     458     29,051     22,973     112     23,085  

Foreign

    16,073         16,073     17,241         17,241  
                           

Total gross loans and leases

  $ 3,926,230   $ 494,389   $ 4,420,619   $ 3,074,947   $ 517,885   $ 3,592,832  
                           

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

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

 
  Three Months Ended June 30, 2013  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Leases   Consumer   Foreign   Total
Non-PCI
  Total
PCI
  Total  
 
  (In thousands)
 

Allowance for Loan and Lease Losses:

                                                       

Balance, beginning of period

  $ 37,265   $ 3,300   $ 21,053   $ 2,006   $ 1,494   $ 98   $ 65,216   $ 29,303   $ 94,519  

Charge-offs

    (3,237 )       (1,370 )       (27 )       (4,634 )   (64 )   (4,698 )

Recoveries

    1,336     12     1,297         19         2,664         2,664  

Provision (negative provision)

    (3,560 )   120     3,185     90     181     (16 )       (1,842 )   (1,842 )
                                       

Balance, end of period

  $ 31,804   $ 3,432   $ 24,165   $ 2,096   $ 1,667   $ 82   $ 63,246   $ 27,397   $ 90,643  
                                       

 

 
  Six Months Ended June 30, 2013  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Leases   Consumer   Foreign   Total
Non-PCI
  Total
PCI
  Total  
 
  (In thousands)
 

Allowance for Loan and Lease Losses:

                                                       

Balance, beginning of period

  $ 38,700   $ 3,221   $ 20,661   $ 1,493   $ 1,726   $ 98   $ 65,899   $ 26,069   $ 91,968  

Charge-offs

    (3,559 )       (2,078 )   (114 )   (36 )       (5,787 )       (5,787 )

Recoveries

    1,513     335     1,704         42         3,594     33     3,627  

Provision (negative provision)

    (4,850 )   (124 )   3,878     717     (65 )   (16 )   (460 )   1,295     835  
                                       

Balance, end of period

  $ 31,804     3,432   $ 24,165   $ 2,096   $ 1,667   $ 82   $ 63,246   $ 27,397   $ 90,643  
                                       

Amount of the allowance applicable to loans and leases:

                                                       

Individually evaluated for impairment

  $ 3,548   $ 62   $ 7,270   $   $ 240   $   $ 11,120              
                                           

Collectively evaluated for impairment

  $ 28,256   $ 3,370   $ 16,895   $ 2,096   $ 1,427   $ 82   $ 52,126              
                                           

Acquired with deteriorated credit quality

                                            $ 27,397        
                                                       

Loans and Leases:

                                                       

Ending balance

  $ 2,558,190   $ 197,776   $ 909,509   $ 216,089   $ 28,593   $ 16,073   $ 3,926,230   $ 494,389   $ 4,420,619  
                                       

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

                                                       

Individually evaluated for impairment

  $ 96,293   $ 14,966   $ 23,031   $ 244   $ 698   $   $ 135,232              
                                           

Collectively evaluated for impairment

  $ 2,461,897   $ 182,810   $ 886,478   $ 215,845   $ 27,895   $ 16,073   $ 3,790,998              
                                           

Acquired with deteriorated credit quality

                                            $ 494,389        
                                                       

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Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

 

 
  Three Months Ended June 30, 2012  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Leases   Consumer   Foreign   Total
Non-PCI
  Total
PCI
  Total  
 
  (In thousands)
 

Allowance for Loan and Lease Losses:

                                                       

Balance, beginning of period

  $ 42,210   $ 6,475   $ 23,556   $ 458   $ 1,908   $ 160   $ 74,767   $ 35,810   $ 110,577  

Charge-offs

    (2,583 )       (1,352 )       (34 )       (3,969 )   (4,076 )   (8,045 )

Recoveries

    43     14     190         16         263         263  

Provision (negative provision)

    2,566     (993 )   (415 )   40     (155 )   (43 )   1,000     (271 )   729  
                                       

Balance, end of period

  $ 42,236   $ 5,496   $ 21,979   $ 498   $ 1,735   $ 117   $ 72,061   $ 31,463   $ 103,524  
                                       

 

 
  Six Months Ended June 30, 2012  
 
  Real
Estate
Mortgage
  Real
Estate
Construction
  Commercial   Leases   Consumer   Foreign   Total
Non-PCI
  Total
PCI
  Total  
 
  (In thousands)
 

Allowance for Loan and Lease Losses:

                                                       

Balance, beginning of period

  $ 50,205   $ 8,697   $ 23,308   $   $ 2,768   $ 335   $ 85,313   $ 31,275   $ 116,588  

Charge-offs

    (4,773 )       (2,223 )       (233 )       (7,229 )   (3,467 )   (10,696 )

Recoveries

    372     24     1,014         47     20     1,477         1,477  

Provision (negative provision)

    (3,568 )   (3,225 )   (120 )   498     (847 )   (238 )   (7,500 )   3,655     (3,845 )
                                       

Balance, end of period

  $ 42,236   $ 5,496   $ 21,979   $ 498   $ 1,735   $ 117   $ 72,061   $ 31,463   $ 103,524  
                                       

Amount of the allowance applicable to loans and leases:

                                                       

Individually evaluated for impairment

  $ 6,221   $ 1,197   $ 6,363   $   $ 255   $   $ 14,036              
                                           

Collectively evaluated for impairment

  $ 36,015   $ 4,299   $ 15,616   $ 498   $ 1,480   $ 117   $ 58,025              
                                           

Acquired with deteriorated credit quality

                                            $ 31,463        
                                                       

Loans and Leases:

                                                       

Ending balance

  $ 1,850,162   $ 129,107   $ 707,566   $ 153,793   $ 17,689   $ 17,017   $ 2,875,334   $ 611,967   $ 3,487,301  
                                       

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

                                                       

Individually evaluated for impairment

  $ 103,252   $ 32,607   $ 23,111   $ 244   $ 495   $   $ 159,709              
                                           

Collectively evaluated for impairment

  $ 1,746,910   $ 96,500   $ 684,455   $ 153,549   $ 17,194   $ 17,017   $ 2,715,625              
                                           

Acquired with deteriorated credit quality

                                            $ 611,967        
                                                       

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

        The following table presents the composition of loans and leases (excluding PCI loans), which we also refer to as Non-PCI loans and leases, by portfolio segment as of the dates indicated:

 
  June 30, 2013   December 31, 2012  
 
  Amount   % of
Total
  Amount   % of
Total
 
 
  (Dollars in thousands)
 

Real estate mortgage

  $ 2,558,190     65 % $ 1,938,513     63 %

Real estate construction

    197,776     5     129,959     4  

Commercial

    909,509     23     791,888     25  

Leases

    216,089     6     174,373     6  

Consumer

    28,593     1     22,973     1  

Foreign

    16,073         17,241     1  
                   

Total gross Non-PCI loans and leases

    3,926,230     100 %   3,074,947     100 %
                       

Less:

                         

Unearned income

    (933 )         (2,535 )      

Allowance for loan and lease losses

    (63,246 )         (65,899 )      
                       

Total net Non-PCI loans and leases

  $ 3,862,051         $ 3,006,513        
                       

        As of May 31, 2013, the fair value of the FCAL Non-PCI loans acquired was $1.0 billion, the related gross contractual amount was $1.3 billion, and the estimated contractual cash flows not expected to be collected was $34.4 million.

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

        The following table presents the credit risk rating categories for Non-PCI 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.

 
  June 30, 2013   December 31, 2012  
 
  Nonclassified   Classified   Total   Nonclassified   Classified   Total  
 
  (In thousands)
 

Real estate mortgage:

                                     

Hospitality

  $ 186,728   $ 5,685   $ 192,413   $ 168,489   $ 12,655   $ 181,144  

SBA 504

    49,826     5,765     55,591     48,372     5,786     54,158  

Other

    2,244,304     65,882     2,310,186     1,653,446     49,765     1,703,211  
                           

Total real estate mortgage

    2,480,858     77,332     2,558,190     1,870,307     68,206     1,938,513  
                           

Real estate construction:

                                     

Residential

    56,161     1,775     57,936     46,591     2,038     48,629  

Commercial

    131,417     8,423     139,840     77,503     3,827     81,330  
                           

Total real estate construction

    187,578     10,198     197,776     124,094     5,865     129,959  
                           

Commercial:

                                     

Collateralized

    499,198     25,842     525,040     442,293     14,802     457,095  

Unsecured

    98,856     2,890     101,746     67,133     2,905     70,038  

Asset-based

    249,834     4,247     254,081     235,075     4,355     239,430  

SBA 7(a)

    22,666     5,976     28,642     18,888     6,437     25,325  
                           

Total commercial

    870,554     38,955     909,509     763,389     28,499     791,888  
                           

Leases

    215,845     244     216,089     174,129     244     174,373  

Consumer

    27,141     1,452     28,593     21,733     1,240     22,973  

Foreign

    16,073         16,073     17,241         17,241  
                           

Total Non-PCI loans and leases

  $ 3,798,049   $ 128,181   $ 3,926,230   $ 2,970,893   $ 104,054   $ 3,074,947  
                           

        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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Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

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

 
  June 30, 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

  $   $   $   $   $ 192,413   $ 192,413  

SBA 504

        929     1,836     2,765     52,826     55,591  

Other

    1,793     2,717     12,296     16,806     2,293,380     2,310,186  
                           

Total real estate mortgage

    1,793     3,646     14,132     19,571     2,538,619     2,558,190  
                           

Real estate construction:

                                     

Residential

                    57,936     57,936  

Commercial

        555         555     139,285     139,840  
                           

Total real estate construction

        555         555     197,221     197,776  
                           

Commercial:

                                     

Collateralized

    1,277     422     6,877     8,576     516,464     525,040  

Unsecured

    131     975     1,390     2,496     99,250     101,746  

Asset-based

                    254,081     254,081  

SBA 7(a)

    200     604     510     1,314     27,328     28,642  
                           

Total commercial

    1,608     2,001     8,777     12,386     897,123     909,509  
                           

Leases

            244     244     215,845     216,089  

Consumer

    104             104     28,489     28,593  

Foreign

                    16,073     16,073  
                           

Total Non-PCI loans and leases

  $ 3,505   $ 6,202   $ 23,153   $ 32,860   $ 3,893,370   $ 3,926,230  
                           

        At June 30, 2013 and December 31, 2012, the Company had no loans and leases (excluding PCI 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 the collectability of a loan or lease in the normal course of business. At June 30, 2013, nonaccrual loans and leases totaled $51.7 million. Nonaccrual loans and leases include $4.7 million of loans 30 to 89 days past due and $23.9 million of

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Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

current loans which have been placed on nonaccrual status based on management's judgment regarding their collectability.

 
  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

    4,098     54     3,271     7,423     1,695,788     1,703,211  
                           

Total real estate mortgage

    5,053     54     4,998     10,105     1,928,408     1,938,513  
                           

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

    964     161     872     1,997     455,098     457,095  

Unsecured

    3     135     230     368     69,670     70,038  

Asset-based

            176     176     239,254     239,430  

SBA 7(a)

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

Total commercial

    1,248     843     2,549     4,640     787,248     791,888  
                           

Leases

    225     132     244     601     173,772     174,373  

Consumer

    23     1         24     22,949     22,973  

Foreign

                    17,241     17,241  
                           

Total Non-PCI loans and leases

  $ 6,549   $ 1,030   $ 9,036   $ 16,615   $ 3,058,332   $ 3,074,947  
                           

        Nonaccrual loans totaled $41.8 million at December 31, 2012, including $4.2 million of loans 30 to 89 days past due and $28.6 million of current loans.

25


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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

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

 
  June 30, 2013   December 31, 2012  
 
  Nonaccrual   Performing   Total   Nonaccrual   Performing   Total  
 
  (In thousands)
 

Real estate mortgage:

                                     

Hospitality

  $   $ 192,413   $ 192,413   $ 6,908   $ 174,236   $ 181,144  

SBA 504

    3,007     52,584     55,591     2,982     51,176     54,158  

Other

    26,093     2,284,093     2,310,186     16,585     1,686,626     1,703,211  
                           

Total real estate mortgage

    29,100     2,529,090     2,558,190     26,475     1,912,038     1,938,513  
                           

Real estate construction:

                                     

Residential

    834     57,102     57,936     1,057     47,572     48,629  

Commercial

    2,938     136,902     139,840     2,715     78,615     81,330  
                           

Total real estate construction

    3,772     194,004     197,776     3,772     126,187     129,959  
                           

Commercial:

                                     

Collateralized

    13,441     511,599     525,040     4,462     452,633     457,095  

Unsecured

    1,583     100,163     101,746     2,027     68,011     70,038  

Asset-based

        254,081     254,081     176     239,254     239,430  

SBA 7(a)

    3,052     25,590     28,642     4,181     21,144     25,325  
                           

Total commercial

    18,076     891,433     909,509     10,846     781,042     791,888  
                           

Leases

    244     215,845     216,089     244     174,129     174,373  

Consumer

    497     28,096     28,593     425     22,548     22,973  

Foreign

        16,073     16,073         17,241     17,241  
                           

Total Non-PCI loans and leases

  $ 51,689   $ 3,874,541   $ 3,926,230   $ 41,762   $ 3,033,185   $ 3,074,947  
                           

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

        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:

 
  June 30, 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

  $ 29,100   $ 67,193   $ 96,293   $ 26,475   $ 80,723   $ 107,198  

Real estate construction

    3,772     11,194     14,966     3,772     21,678     25,450  

Commercial

    18,076     4,955     23,031     10,846     3,684     14,530  

Leases

    244         244     244         244  

Consumer

    497     201     698     425     203     628  
                           

Total

  $ 51,689   $ 83,543   $ 135,232   $ 41,762   $ 106,288   $ 148,050  
                           

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PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

        The following tables present information regarding our impaired loans and leases (excluding PCI loans) by portfolio segment and class for the dates indicated:

 
  June 30, 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

  $ 8,779   $ 9,621   $ 378   $ 8,954   $ 9,640   $ 2,396  

SBA 504

    1,659     1,659     234     1,676     1,676     324  

Other

    51,327     51,908     2,936     58,364     60,262     5,107  

Real estate construction:

                                     

Residential

    393     393     54     1,303     1,330     165  

Commercial

    8,540     8,540     8     6,723     6,723     206  

Commercial:

                                     

Collateralized

    4,648     4,892     4,697     2,477     2,731     1,865  

Unsecured

    2,062     3,334     1,719     2,396     3,121     2,234  

Asset-based

    2,032     2,032     604              

SBA 7(a)

    1,094     1,097     250     2,871     3,616     426  

Consumer

    436     476     240     466     506     265  

With No Related Allowance Recorded:

                                     

Real estate mortgage:

                                     

SBA 504

  $ 3,007   $ 3,848   $   $ 2,982   $ 3,755   $  

Other

    31,521     46,887         35,222     39,503      

Real estate construction:

                                     

Residential

    441     474                  

Commercial

    5,592     9,948         17,424     21,085      

Commercial:

                                     

Collateralized

    9,724     17,147         3,657     4,994      

Unsecured

    259     357         156     163      

Asset-based

                176     176      

SBA 7(a)

    3,212     4,968         2,797     4,057      

Leases

    244     244         244     244      

Consumer

    262     372         162     233      

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

                                     

Real estate mortgage

  $ 96,293   $ 113,923   $ 3,548   $ 107,198   $ 114,836   $ 7,827  

Real estate construction

    14,966     19,355     62     25,450     29,138     371  

Commercial

    23,031     33,827     7,270     14,530     18,858     4,525  

Leases

    244     244         244     244      

Consumer

    698     848     240     628     739     265  
                           

Total

  $ 135,232   $ 168,197   $ 11,120   $ 148,050   $ 163,815   $ 12,988  
                           

28


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)


 
  Three Months Ended June 30,  
 
  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

  $ 8,779   $ 226   $ 9,144   $ 21  

SBA 504

    1,659     23     563     7  

Other

    51,327     513     54,310     536  

Real estate construction:

                         

Residential

    393         1,289     3  

Commercial

    8,540     87     13,528     98  

Commercial:

                         

Collateralized

    3,804     10     4,101     15  

Unsecured

    2,062     8     2,348     4  

Asset-based

    223     5          

SBA 7(a)

    1,094     12     2,666     39  

Consumer

    436     3     276      

With No Related Allowance Recorded:

                         

Real estate mortgage:

                         

Hospitality

  $   $   $ 6,200   $  

SBA 504

    2,935         1,873      

Other

    25,041     133     30,358     32  

Real estate construction:

                         

Residential

    441         778     17  

Commercial

    4,568     (59 )   16,187     139  

Commercial:

                         

Collateralized

    4,266         7,199     7  

Unsecured

    179         640      

Asset-based

            174      

SBA 7(a)

    2,872     5     5,686     27  

Leases

    244         244      

Consumer

    173         219      

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

                         

Real estate mortgage

  $ 89,741   $ 895   $ 102,448   $ 596  

Real estate construction

    13,942     28     31,782     257  

Commercial

    14,500     40     22,814     92  

Leases

    244         244      

Consumer

    609     3     495      
                   

Total

  $ 119,036   $ 966   $ 157,783   $ 945  
                   

(1)
For the loans and leases (excluding PCI loans) reported as impaired at June 30, 2013 and June 30, 2012, amounts were calculated based on the period of time such loans and leases were impaired during the reporting period.

29


Table of Contents


PACWEST BANCORP AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(Unaudited)

NOTE 6—LOANS AND LEASES (Continued)

 
  Six Months Ended June 30,  
 
  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

  $ 8,779   $ 247   $ 9,144   $ 36  

SBA 504

    1,659     45     352     5  

Other

    50,276     1,010     52,640     1,062  

Real estate construction:

                         

Residential

    393         1,289     5  

Commercial

    8,540     179     13,528     205  

Commercial:

                         

Collateralized

    2,795     18     3,804     28  

Unsecured

    2,062     17     2,341     10  

Asset-based

    112     5          

SBA 7(a)

    1,094     23     2,652     60  

Consumer

    436     5     276      

With No Related Allowance Recorded:

                         

Real estate mortgage:

                         

Hospitality

  $   $   $ 6,200   $  

SBA 504

    2,911         1,873      

Other

    20,777     190     29,861     646  

Real estate construction:

                         

Residential

    441         778     33  

Commercial

    4,317