03.31.15 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
Commission File No. 00-30747
PACWEST BANCORP
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 33-0885320 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
10250 Constellation Blvd., Suite 1640
Los Angeles, CA 90067
(Address of Principal Executive Offices, Including 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 þ 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 þ 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
| | |
þ Large accelerated filer | | o Accelerated filer |
| | |
o Non-accelerated filer | (Do not check if a smaller reporting company) | o Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of April 29, 2015, there were 101,855,519 shares of the registrant's common stock outstanding, excluding 1,129,445 shares of unvested restricted stock.
PACWEST BANCORP
TABLE OF CONTENTS
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| | |
| | Page |
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PART I. FINANCIAL INFORMATION |
Item 1. | Condensed Consolidated Financial Statements (Unaudited) | |
| Condensed Consolidated Balance Sheets (Unaudited) | |
| Condensed Consolidated Statements of Earnings (Unaudited) | |
| Condensed Consolidated Statements of Comprehensive Income (Unaudited) | |
| Condensed Consolidated Statement Changes in Stockholders' Equity (Unaudited) | |
| Condensed Consolidated Statements of Cash Flows (Unaudited) | |
| Notes to Condensed Consolidated Financial Statements (Unaudited) | |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
|
PART II. OTHER INFORMATION |
| | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | Index to Exhibits | |
Signatures | |
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
|
| | | | | | | |
| March 31, 2015 | | December 31, 2014 |
| (Unaudited) |
| (Dollars in thousands) |
ASSETS | | | |
Cash and due from banks | $ | 140,873 |
| | $ | 164,757 |
|
Interest-earning deposits in financial institutions | 250,981 |
| | 148,469 |
|
Total cash and cash equivalents | 391,854 |
| | 313,226 |
|
Securities available-for-sale, at fair value | 1,595,409 |
| | 1,567,177 |
|
Federal Home Loan Bank stock, at cost | 28,905 |
| | 40,609 |
|
Total investment securities | 1,624,314 |
| | 1,607,786 |
|
Gross loans and leases | 12,302,292 |
| | 11,904,684 |
|
Deferred fees and costs | (30,126 | ) | | (22,252 | ) |
Allowance for loan and lease losses | (92,378 | ) | | (84,455 | ) |
Total loans and leases, net | 12,179,788 |
| | 11,797,977 |
|
Equipment leased to others under operating leases | 119,959 |
| | 122,506 |
|
Premises and equipment, net | 36,022 |
| | 36,551 |
|
Foreclosed assets, net | 35,940 |
| | 43,721 |
|
Goodwill | 1,728,380 |
| | 1,720,479 |
|
Core deposit and customer relationship intangibles, net | 15,703 |
| | 17,204 |
|
Deferred tax asset, net | 236,065 |
| | 284,411 |
|
Other assets | 275,915 |
| | 290,744 |
|
Total assets | $ | 16,643,940 |
| | $ | 16,234,605 |
|
| | | |
LIABILITIES: | | | |
Noninterest-bearing deposits | $ | 3,029,463 |
| | $ | 2,931,352 |
|
Interest-bearing deposits | 8,904,712 |
| | 8,823,776 |
|
Total deposits | 11,934,175 |
| | 11,755,128 |
|
Borrowings | 618,156 |
| | 383,402 |
|
Subordinated debentures | 431,448 |
| | 433,583 |
|
Accrued interest payable and other liabilities | 126,800 |
| | 156,262 |
|
Total liabilities | 13,110,579 |
| | 12,728,375 |
|
Commitments and contingencies (Note 10) | — |
| | — |
|
STOCKHOLDERS' EQUITY: | | | |
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued and outstanding) | — |
| | — |
|
Common stock ($0.01 par value, 200,000,000 shares authorized at March 31, 2015 and December 31, 2014; 104,241,437 and 104,219,197 shares issued, respectively, including 1,129,445 and 1,108,505 shares of unvested restricted stock, respectively) | 1,042 |
| | 1,042 |
|
Additional paid-in capital | 3,758,855 |
| | 3,807,167 |
|
Accumulated deficit | (212,633 | ) | | (285,712 | ) |
Treasury stock, at cost (1,197,180 shares at March 31, 2015 and December 31, 2014) | (42,647 | ) | | (42,647 | ) |
Accumulated other comprehensive income, net | 28,744 |
| | 26,380 |
|
Total stockholders' equity | 3,533,361 |
| | 3,506,230 |
|
Total liabilities and stockholders' equity | $ | 16,643,940 |
| | $ | 16,234,605 |
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
|
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2015 | | December 31, 2014 | | March 31, 2014 |
| (Unaudited) |
| (Dollars in thousands, except per share data) |
Interest income: | | | | | |
Loans and leases | $ | 202,097 |
| | $ | 197,472 |
| | $ | 77,463 |
|
Investment securities | 12,195 |
| | 12,205 |
| | 10,823 |
|
Deposits in financial institutions | 22 |
| | 19 |
| | 74 |
|
Total interest income | 214,314 |
| | 209,696 |
| | 88,360 |
|
Interest expense: | | | | | |
Deposits | 10,479 |
| | 9,972 |
| | 1,225 |
|
Borrowings | 235 |
| | 144 |
| | 79 |
|
Subordinated debentures | 4,525 |
| | 4,597 |
| | 1,041 |
|
Total interest expense | 15,239 |
| | 14,713 |
| | 2,345 |
|
Net interest income | 199,075 |
| | 194,983 |
| | 86,015 |
|
Provision (negative provision) for credit losses | 16,434 |
| | 2,063 |
| | (644 | ) |
Net interest income after provision (negative provision) for credit losses | 182,641 |
| | 192,920 |
| | 86,659 |
|
Noninterest income: | | | | | |
Service charges on deposit accounts | 2,574 |
| | 2,787 |
| | 3,002 |
|
Other commissions and fees | 5,396 |
| | 4,556 |
| | 1,932 |
|
Leased equipment income | 5,382 |
| | 5,382 |
| | — |
|
Gain on sale of loans and leases | — |
| | 7 |
| | 106 |
|
Gain on securities | 3,275 |
| | — |
| | 4,752 |
|
FDIC loss sharing expense, net | (4,399 | ) | | (4,360 | ) | | (11,430 | ) |
Other income | 8,643 |
| | 4,331 |
| | 6,329 |
|
Total noninterest income | 20,871 |
| | 12,703 |
| | 4,691 |
|
Noninterest expense: | | | | | |
Compensation | 47,737 |
| | 45,930 |
| | 28,627 |
|
Occupancy | 10,600 |
| | 10,745 |
| | 7,595 |
|
Data processing | 4,308 |
| | 4,050 |
| | 2,540 |
|
Other professional services | 3,221 |
| | 3,181 |
| | 1,523 |
|
Insurance and assessments | 3,025 |
| | 3,115 |
| | 1,593 |
|
Intangible asset amortization | 1,501 |
| | 1,619 |
| | 1,364 |
|
Leased equipment depreciation | 3,103 |
| | 3,103 |
| | — |
|
Foreclosed assets expense (income), net | 336 |
| | 1,938 |
| | (1,861 | ) |
Acquisition, integration and reorganization costs | 2,000 |
| | 7,381 |
| | 2,200 |
|
Other expense | 8,529 |
| | 10,243 |
| | 6,583 |
|
Total noninterest expense | 84,360 |
| | 91,305 |
| | 50,164 |
|
Earnings from continuing operations before taxes | 119,152 |
| | 114,318 |
| | 41,186 |
|
Income tax expense | (46,073 | ) | | (43,261 | ) | | (15,281 | ) |
Net earnings from continuing operations | 73,079 |
| | 71,057 |
| | 25,905 |
|
Loss from discontinued operations before taxes | — |
| | (105 | ) | | (1,413 | ) |
Income tax benefit | — |
| | 47 |
| | 588 |
|
Net loss from discontinued operations | — |
| | (58 | ) | | (825 | ) |
Net earnings | $ | 73,079 |
| | $ | 70,999 |
| | $ | 25,080 |
|
Basic earnings per share: | | | | | |
Net earnings from continuing operations | $ | 0.71 |
| | $ | 0.69 |
| | $ | 0.57 |
|
Net earnings | $ | 0.71 |
| | $ | 0.69 |
| | $ | 0.55 |
|
Diluted earnings per share: | | | | | |
Net earnings from continuing operations | $ | 0.71 |
| | $ | 0.69 |
| | $ | 0.57 |
|
Net earnings | $ | 0.71 |
| | $ | 0.69 |
| | $ | 0.55 |
|
Dividends declared per share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.25 |
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2015 | | December 31, 2014 | | March 31, 2014 |
| (Unaudited) |
| (In thousands) |
Net earnings | $ | 73,079 |
| | $ | 70,999 |
| | $ | 25,080 |
|
Other comprehensive income, net of tax: | | | | | |
Unrealized holding gains on securities available-for-sale | 7,363 |
| | 9,523 |
| | 22,291 |
|
Income tax expense related to unrealized holding gains arising during the period | (3,105 | ) | | (3,964 | ) | | (9,363 | ) |
Unrealized holding gains on securities available-for-sale, net of tax | 4,258 |
| | 5,559 |
| | 12,928 |
|
Reclassification adjustment for gains included in net earnings (1) | (3,275 | ) | | — |
| | (4,752 | ) |
Income tax expense related to reclassification adjustment | 1,381 |
| | — |
| | 1,996 |
|
Reclassification adjustment for gains included in net earnings, net of tax | (1,894 | ) | | — |
| | (2,756 | ) |
Other comprehensive income, net of tax | 2,364 |
| | 5,559 |
| | 10,172 |
|
Comprehensive income | $ | 75,443 |
| | $ | 76,558 |
| | $ | 35,252 |
|
___________________________________
| |
(1) | Entire amounts are recognized in "Gain on securities" on the Condensed Consolidated Statements of Earnings. |
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2015 |
| Common Stock | | | | | | | | |
| Shares | | Par Value | | Additional Paid-in Capital | | Accumulated Deficit | | Treasury Stock | | Accumulated Other Comprehensive Income | | Total |
| (Unaudited) |
| (Dollars in thousands, except share data) |
Balance, December 31, 2014 | 103,022,017 |
| | 1,042 |
| | 3,807,167 |
| | (285,712 | ) | | (42,647 | ) | | 26,380 |
| | 3,506,230 |
|
Net earnings | — |
| | — |
| | — |
| | 73,079 |
| | — |
| | — |
| | 73,079 |
|
Other comprehensive income - net unrealized gain on securities available-for-sale, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 2,364 |
| | 2,364 |
|
Restricted stock awarded and earned stock compensation, net of shares forfeited | 20,940 |
| | — |
| | 3,112 |
| | — |
| | — |
| | — |
| | 3,112 |
|
Dividend reinvestment | 1,300 |
| | — |
| | 58 |
| | — |
| | — |
| | — |
| | 58 |
|
Cash dividends paid | — |
| | — |
| | (51,482 | ) | | — |
| | — |
| | — |
| | (51,482 | ) |
Balance, March 31, 2015 | 103,044,257 |
| | $ | 1,042 |
| | $ | 3,758,855 |
| | $ | (212,633 | ) | | $ | (42,647 | ) | | $ | 28,744 |
| | $ | 3,533,361 |
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
| (Unaudited) |
| (Dollars in thousands) |
Cash flows from operating activities: | | | |
Net earnings | $ | 73,079 |
| | $ | 25,080 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
| | | |
Depreciation and amortization | 10,648 |
| | 6,653 |
|
Provision (negative provision) for credit losses | 16,434 |
| | (644 | ) |
Loss (gain) on sale of foreclosed assets | 106 |
| | (2,323 | ) |
Provision for losses on foreclosed assets | 124 |
| | 94 |
|
Gain on sale of loans and leases | — |
| | (106 | ) |
Gain on sale of premises and equipment | (3 | ) | | (1,571 | ) |
Gain on sale of securities | (3,275 | ) | | (4,752 | ) |
Unrealized gain on derivatives and foreign currencies, net | (2,715 | ) | | — |
|
Earned stock compensation | 3,112 |
| | 1,611 |
|
Tax effect included in stockholders' equity of restricted stock vesting | — |
| | (1,110 | ) |
Increase in accrued and deferred income taxes, net | 38,722 |
| | 19,679 |
|
Decrease in other assets | 19,356 |
| | 4,740 |
|
Decrease in accrued interest payable and other liabilities | (29,102 | ) | | (20,107 | ) |
Net cash provided by operating activities | 126,486 |
| | 27,244 |
|
| | | |
Cash flows from investing activities: | | | |
Net (increase) decrease in loan and leases | (403,438 | ) | | 149,440 |
|
Proceeds from sale of loans and leases | — |
| | 1,128 |
|
Securities available-for-sale: | | | |
Proceeds from maturities and paydowns | 27,547 |
| | 33,860 |
|
Proceeds from sales | 144,945 |
| | 142,041 |
|
Purchases | (196,568 | ) | | (140,048 | ) |
Net redemptions of Federal Home Loan Bank stock | 11,704 |
| | 2,939 |
|
Proceeds from sales of foreclosed assets | 7,945 |
| | 7,209 |
|
Purchases of premises and equipment, net | (1,490 | ) | | (1,115 | ) |
Proceeds from sales of premises and equipment | 29 |
| | 3,753 |
|
Net cash (used in) provided by investing activities | (409,326 | ) | | 199,207 |
|
| | | |
Cash flows from financing activities: | | | |
Net increase in deposits: | | | |
Noninterest-bearing | 97,224 |
| | 73,163 |
|
Interest-bearing | 80,914 |
| | 15,258 |
|
Net increase (decrease) in borrowings | 234,754 |
| | (107,953 | ) |
Restricted stock surrendered | — |
| | (2,058 | ) |
Tax effect included in stockholders' equity of restricted vesting stock | — |
| | 1,110 |
|
Cash dividends paid | (51,424 | ) | | (11,306 | ) |
Net cash provided by (used in) financing activities | 361,468 |
| | (31,786 | ) |
Net increase in cash and cash equivalents | 78,628 |
| | 194,665 |
|
Cash and cash equivalents at beginning of period | 313,226 |
| | 147,422 |
|
Cash and cash equivalents at end of period | $ | 391,854 |
| | $ | 342,087 |
|
| | | |
Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | 12,334 |
| | $ | 2,483 |
|
Cash received for income taxes | (7,695 | ) | | (5,693 | ) |
Loans transferred to foreclosed assets | 394 |
| | 13 |
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1. Organization
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 PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to “PacWest” or to the holding company, we are referring to PacWest Bancorp, the parent company, on a stand‑alone basis. As of March 31, 2015, we had total assets of $16.6 billion, gross loans and leases of $12.3 billion, total deposits of $11.9 billion and total stockholders' equity of $3.5 billion.
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 and originating loans and leases, including an array of commercial real estate loans and commercial lending products. The Bank strives to attract locally generated and relationship-based deposits, with 80 full-service branches located primarily in Southern California, extending from San Diego County to California’s Central Coast. The Bank also operates three banking offices in the San Francisco Bay area and four banking offices in the Central Valley. Our targeted collateral for real estate loan offerings includes healthcare properties, office properties, industrial properties, multifamily properties, hospitality properties, and retail properties. Our commercial loan products include equipment loans and leases, asset-based loans, loans to finance companies, and loans secured by borrower future cash flows.
As a result of the CapitalSource Inc. merger, Pacific Western Bank established the CapitalSource Division, which we also refer to as the National Lending segment. The CapitalSource Division lends throughout the United States, providing middle-market businesses asset-secured loans, equipment-secured loans and leases, and cash flow loans and providing real estate loans secured by various property types. The Bank's leasing operation, Pacific Western Equipment Finance, and its group specializing in asset-based lending, CapitalSource Business Finance Group (formerly BFI Business Finance and First Community Financial), are part of the CapitalSource Division. The CapitalSource Division’s loan and lease origination efforts are conducted through offices located in Chevy Chase, Maryland; Los Angeles and San Jose, California; St. Louis, Missouri; Denver, Colorado; Chicago, Illinois; New York, New York; and Midvale, Utah. When we refer to "CapitalSource Inc." we are referring to the company acquired on April 7, 2014 and when we refer to the "CapitalSource Division" we are referring to a division of the Bank that specializes in middle-market lending on a nationwide basis.
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 include interest paid by the Bank on deposits and borrowings, compensation and general operating expenses.
We have completed 27 acquisitions from May 2000 through March 31, 2015, including the acquisition of CapitalSource Inc. 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 consolidated financial statements from their respective acquisition dates. See Note 3, Acquisitions, for more information about the CapitalSource Inc. merger.
Square 1 Financial, Inc. Merger Announcement
On March 2, 2015, PacWest announced the signing of an agreement and plan of merger (the “Agreement”) whereby PacWest and Square 1 Financial, Inc. (“Square 1”) will merge in a transaction valued at approximately $849 million. The surviving company will be PacWest Bancorp and the surviving subsidiary bank will be Pacific Western Bank. The Square 1 lending operations will continue to do business under the name Square 1 as a division of Pacific Western Bank.
Under the terms of the Agreement, Square 1 stockholders will receive 0.5997 shares of PacWest common stock for each share of Square 1 common stock. The total value of the per share merger consideration is $27.49, based on the $45.84 closing price of PacWest common stock on February 27, 2015, the last trading day before the transaction was announced.
As of December 31, 2014, on a pro forma consolidated basis, after giving effect to the Square 1 merger, the Company would have had approximately $19.8 billion in assets with 80 branches throughout California and one branch in North Carolina.
The transaction, currently expected to close in the fourth quarter of 2015, is subject to customary conditions, including the approval of bank regulatory authorities and the Square 1 stockholders.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Significant Accounting Policies
Except as discussed below, our accounting policies are described in Note 1, Nature of Operations and Summary of Significant Accounting Policies, of our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission ("Form 10-K").
Accounting Standard Adopted in 2015
Effective January 1, 2015, the Company adopted new accounting guidance for investments in affordable housing projects that qualify for the low-income housing tax credit. As a result of the adoption of this new guidance, the Company made an accounting policy election to amortize the initial cost of its qualifying investments in proportion to the tax credits and other benefits received and to present the amortization as a component of income tax expense, referred to as the proportional amortization method. Previously, investments in low-income housing tax credits were accounted for under the equity method and such amortization was presented in other expense. The guidance was required to be applied retrospectively and accordingly, prior period amounts for other expense and tax expense have been revised to conform with the current period presentation. The revised amortization amounts for prior periods were not material.
The retrospective application of the adoption of the new accounting guidance for the proportional amortization method resulted in a cumulative effect on retained earnings of a reduction of $195,000.
Basis of Presentation
Our interim consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, certain disclosures accompanying annual consolidated financial statements are omitted. In the opinion of management, all adjustments and eliminations, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K.
The accompanying financial statements reflect our consolidated accounts. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
We have 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 U.S. GAAP. Material estimates subject to change in the near term include, among other items, the allowance for credit losses, the carrying value and useful lives of intangible assets, the carrying value of the FDIC loss sharing asset, the realization of deferred tax assets, and the fair value estimates of assets acquired and liabilities assumed in acquisitions. These estimates may be adjusted as more current information becomes available, and any adjustment may be significant.
As described in Note 3, Acquisitions, the acquired assets and liabilities of CapitalSource Inc. were measured at their estimated fair values. We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and assumed liabilities.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period's presentation format. On the statements of earnings, the "Other expense" category includes loan-related legal expenses which were previously reported within the "Other professional services" category. On the balance sheets, the "Other assets" category includes "FDIC loss sharing asset," which was previously reported as a separate category. These reclassifications did not affect previously reported net earnings.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 2. Discontinued Operations
Discontinued operations include the income and expense related to Electronic Payment Services ("EPS"), a discontinued division of the Bank acquired in connection with the First California Financial Group, Inc. ("FCAL") acquisition. Liabilities of the EPS division were $20.4 million and $21.3 million at March 31, 2015 and December 31, 2014, and consisted primarily of noninterest‑bearing deposits, and are included in the condensed consolidated balance sheets under the caption “Accrued interest payable and other liabilities.” For segment reporting purposes, the EPS division is included in our Community Banking segment.
Note 3. Acquisitions
The following assets acquired and liabilities assumed of CapitalSource Inc. are presented at estimated fair value as of its acquisition date:
|
| | | |
| Acquisition and Date Acquired |
| CapitalSource Inc. |
| April 7, 2014 |
| (In thousands) |
Assets Acquired: | |
Cash and due from banks | $ | 768,553 |
|
Interest‑earning deposits in financial institutions | 60,612 |
|
Investment securities available‑for‑sale | 382,797 |
|
FHLB stock | 46,060 |
|
Loans and leases | 6,877,427 |
|
Equipment leased to others under operating leases | 160,015 |
|
Premises and equipment | 12,663 |
|
Foreclosed assets | 6,382 |
|
Income tax assets | 304,856 |
|
Goodwill | 1,526,282 |
|
Core deposit and customer relationship intangibles | 6,720 |
|
Other assets(1) | 582,985 |
|
Total assets acquired | $ | 10,735,352 |
|
Liabilities Assumed: | |
Noninterest‑bearing deposits | $ | 4,631 |
|
Interest‑bearing deposits | 6,236,419 |
|
Other borrowings | 992,109 |
|
Subordinated debentures | 300,918 |
|
Accrued interest payable and other liabilities | 124,087 |
|
Total liabilities assumed | $ | 7,658,164 |
|
Total consideration paid | $ | 3,077,188 |
|
Summary of consideration: | |
Cash paid | $ | 483,118 |
|
PacWest common stock issued | 2,594,070 |
|
Total | $ | 3,077,188 |
|
___________________ | |
(1) | Includes a $484 million receivable for securities sales proceeds. |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
CapitalSource Inc. Merger
We acquired CapitalSource Inc. on April 7, 2014. As part of the merger, CapitalSource Bank (“CSB”), a wholly owned subsidiary of CapitalSource Inc., merged with and into Pacific Western Bank. We completed the merger in order to augment our loan and lease generation capabilities and to diversify our loan portfolio.
At closing, we created the CapitalSource Division of the Bank. The CapitalSource Division provides a full spectrum of financing solutions across numerous industries and property types to middle market businesses nationwide. When we refer to "CapitalSource Inc." we are referring to the company acquired on April 7, 2014 and when we refer to the "CapitalSource Division" we are referring to a division of the Bank that lends throughout the United States, providing middle-market businesses asset-secured loans, equipment-secured loans and leases, and cash flow loans and providing real estate loans secured by various property types.
The CapitalSource Inc. merger 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 merger date. We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and liabilities. The application of the acquisition method of accounting resulted in goodwill of $1.5 billion. All of the recognized goodwill was non‑deductible for tax purposes.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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. Our intangible assets with definite lives are core deposit intangibles ("CDI") and customer relationship intangibles ("CRI"). In the first quarter of 2015, we finalized the estimated fair value of the deferred tax assets acquired in the CapitalSource Inc. merger which resulted in a $7.9 million decrease with a corresponding adjustment to increase goodwill.
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 statements of earnings.
CDI and CRI are amortized over their respective estimated useful lives and reviewed for impairment at least quarterly. The amortization expense represents the estimated decline in the value of the underlying deposits or loan and lease customers acquired. The weighted average amortization period remaining for all of our CDI and CRI is 4.3 years. The aggregate CDI and CRI amortization expense is expected to be $6.0 million for 2015. The estimated aggregate amortization expense related to these intangible assets for each of the next five years is $4.1 million for 2016, $2.3 million for 2017, $2.0 million for 2018, $1.7 million for 2019, and $953,000 for 2020.
The following table presents the changes in the carrying amount of goodwill for the period indicated:
|
| | | |
| Goodwill |
| (In thousands) |
Balance, December 31, 2014 | $ | 1,720,479 |
|
To adjust acquired CapitalSource Inc. deferred tax assets | 7,901 |
|
Balance, March 31, 2015 | $ | 1,728,380 |
|
The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:
|
| | | | | | | | | | | |
| Three Months Ended |
| March 31, | | December 31, | | March 31, |
| 2015 | | 2014 | | 2014 |
| (In thousands) |
Gross Amount of CDI and CRI: | | | | | |
Balance, end of period | $ | 53,090 |
| | $ | 53,090 |
| | $ | 48,963 |
|
Accumulated Amortization: | | | | | |
Balance, beginning of period | (35,886 | ) | | (34,267 | ) | | (31,715 | ) |
Amortization | (1,501 | ) | | (1,619 | ) | | (1,364 | ) |
Balance, end of period | (37,387 | ) | | (35,886 | ) | | (33,079 | ) |
Net CDI and CRI, end of period | $ | 15,703 |
| | $ | 17,204 |
| | $ | 15,884 |
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 5. Investment Securities
Securities Available-for-Sale
The following table presents amortized cost, gross unrealized gains and losses, and carrying values of securities available-for-sale as of the dates indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2015 | | December 31, 2014 |
| Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| (In thousands) |
Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
Government agency and | | | | | | | | | | | | | | | |
government-sponsored enterprise | | | | | | | | | | | | | | | |
pass-through securities | $ | 439,696 |
| | $ | 19,327 |
| | $ | (131 | ) | | $ | 458,892 |
| | $ | 515,902 |
| | $ | 20,142 |
| | $ | (372 | ) | | $ | 535,672 |
|
Government agency and | | | | | | | | | | | | | | | |
government-sponsored enterprise | | | | | | | | | | | | | | | |
collateralized mortgage obligations | 269,766 |
| | 6,909 |
| | (451 | ) | | 276,224 |
| | 275,513 |
| | 3,513 |
| | (1,080 | ) | | 277,946 |
|
Covered private label collateralized | | | | | | | | | | | | | | | |
mortgage obligations | 26,496 |
| | 7,014 |
| | (66 | ) | | 33,444 |
| | 26,889 |
| | 7,153 |
| | (95 | ) | | 33,947 |
|
Other private label collateralized | | | | | | | | | | | | | | | |
mortgage obligations | 9,645 |
| | 52 |
| | (47 | ) | | 9,650 |
| | 10,961 |
| | 46 |
| | (93 | ) | | 10,914 |
|
Municipal securities | 579,344 |
| | 15,708 |
| | (2,199 | ) | | 592,853 |
| | 521,499 |
| | 15,899 |
| | (1,282 | ) | | 536,116 |
|
Corporate debt securities | 47,485 |
| | 683 |
| | (423 | ) | | 47,745 |
| | 110,074 |
| | 597 |
| | (562 | ) | | 110,109 |
|
Collateralized loan obligations | 112,883 |
| | 922 |
| | — |
| | 113,805 |
| | — |
| | — |
| | — |
| | — |
|
Government-sponsored enterprise debt | | | | | | | | | | | | | | | |
securities | 36,249 |
| | 1,156 |
| | — |
| | 37,405 |
| | 36,232 |
| | 525 |
| | — |
| | 36,757 |
|
Other securities | 25,451 |
| | 34 |
| | (94 | ) | | 25,391 |
| | 25,801 |
| | 33 |
| | (118 | ) | | 25,716 |
|
Total | $ | 1,547,015 |
| | $ | 51,805 |
| | $ | (3,411 | ) | | $ | 1,595,409 |
| | $ | 1,522,871 |
| | $ | 47,908 |
| | $ | (3,602 | ) | | $ | 1,567,177 |
|
Other securities consist primarily of asset‑backed securities. See Note 11, Fair Value Measurements, for information on fair value measurements and methodology.
As of March 31, 2015, securities available‑for‑sale with a carrying value of $354.7 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, 2015 and 2014, we purchased $196.6 million and $140.0 million in securities available-for-sale.
During the three months ended March 31, 2015, we sold $13.9 million of Texas municipal securities for an $883,000 gain, $67.5 million in corporate debt securities for a realized loss of $232,000 and $60.3 million in government agency and government-sponsored enterprise ("GSE") pass-through securities for a realized gross gain of $2.6 million. These securities were sold as part of our investment portfolio risk management activities. During the three months ended March 31, 2014, we sold $137.3 million in GSE pass through securities for which we realized a gross gain of $4.8 million. These securities were sold to take advantage of favorable market conditions for premium coupon seasoned GSE pass through securities. We redeployed the proceeds into single-maturity investments that were expected to perform better under the current market conditions.
Realized gains or losses resulting from the sale of securities are calculated using the specific identification method and included in gain on securities. During the three months ended March 31, 2015 and 2014, we had $4.3 million and $12.9 million of net unrealized after-tax gains as a component of accumulated other comprehensive income.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Unrealized Losses on Securities Available-for-Sale
The following tables present the gross unrealized losses and fair values of securities available-for-sale that were in unrealized loss positions, for which other-than-temporary impairments have not been recognized in earnings, as of the dates indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2015 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| (In thousands) |
Residential mortgage-backed securities: | | | | | | | | | | |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise pass-through | | | | | | | | | | | |
securities | $ | 5,031 |
| | $ | (42 | ) | | $ | 10,085 |
| | $ | (89 | ) | | $ | 15,116 |
| | $ | (131 | ) |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise collateralized | | | | | | | | | | | |
mortgage obligations | — |
| | — |
| | 14,403 |
| | (451 | ) | | 14,403 |
| | (451 | ) |
Covered private label collateralized | | | | | | | | | | | |
mortgage obligations | 726 |
| | (6 | ) | | 643 |
| | (60 | ) | | 1,369 |
| | (66 | ) |
Other private label collateralized | | | | | | | | | | | |
mortgage obligations | 1,206 |
| | (46 | ) | | 360 |
| | (1 | ) | | 1,566 |
| | (47 | ) |
Municipal securities | 112,361 |
| | (1,277 | ) | | 38,687 |
| | (922 | ) | | 151,048 |
| | (2,199 | ) |
Corporate debt securities | 25,104 |
| | (423 | ) | | — |
| | — |
| | 25,104 |
| | (423 | ) |
Other securities | 6,453 |
| | (72 | ) | | 10,020 |
| | (22 | ) | | 16,473 |
| | (94 | ) |
Total | $ | 150,881 |
| | $ | (1,866 | ) | | $ | 74,198 |
| | $ | (1,545 | ) | | $ | 225,079 |
| | $ | (3,411 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2014 |
| Less Than 12 Months | | 12 Months or More | | Total |
| Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses | | Fair Value | | Gross Unrealized Losses |
| (In thousands) |
Residential mortgage-backed securities: | | | | | | | | | | | |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise pass-through | | | | | | | | | | | |
securities | $ | 10,711 |
| | $ | (13 | ) | | $ | 27,100 |
| | $ | (359 | ) | | $ | 37,811 |
| | $ | (372 | ) |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise collateralized | | | | | | | | | | | |
mortgage obligations | 23,908 |
| | (73 | ) | | 40,652 |
| | (1,007 | ) | | 64,560 |
| | (1,080 | ) |
Covered private label collateralized | | | | | | | | | | | |
mortgage obligations | — |
| | — |
| | 1,000 |
| | (95 | ) | | 1,000 |
| | (95 | ) |
Other private label collateralized | | | | | | | | | | | |
mortgage obligations | 1,618 |
| | (93 | ) | | — |
| | — |
| | 1,618 |
| | (93 | ) |
Municipal securities | 11,854 |
| | (66 | ) | | 84,822 |
| | (1,216 | ) | | 96,676 |
| | (1,282 | ) |
Corporate debt securities | 52,071 |
| | (547 | ) | | 10,131 |
| | (15 | ) | | 62,202 |
| | (562 | ) |
Other securities | 6,440 |
| | (90 | ) | | 10,019 |
| | (28 | ) | | 16,459 |
| | (118 | ) |
Total | $ | 106,602 |
| | $ | (882 | ) | | $ | 173,724 |
| | $ | (2,720 | ) | | $ | 280,326 |
| | $ | (3,602 | ) |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
We reviewed the securities that were in a loss position at March 31, 2015, and concluded their losses were a result of the level of market interest rates relative to the types of securities and pricing changes caused by shifting supply and demand dynamics and not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. Accordingly, we determined the securities were temporarily impaired and we did not recognize such impairment in the condensed consolidated statements of earnings. We occasionally sell securities for risk management purposes to reduce risks related to price volatility and duration. We do not foresee having to sell these securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell these securities before recovery of their amortized cost.
Contractual Maturities
The following table presents the contractual maturities of our available-for-sale securities portfolio based on amortized cost and carrying value as of the date indicated:
|
| | | | | | | |
| March 31, 2015 |
| Amortized Cost | | Estimated Fair Value |
| (In thousands) |
Due in one year or less | $ | 18,358 |
| | $ | 18,538 |
|
Due after one year through five years | 76,173 |
| | 76,515 |
|
Due after five years through ten years | 276,933 |
| | 287,023 |
|
Due after ten years | 1,175,551 |
| | 1,213,333 |
|
Total securities available-for-sale | $ | 1,547,015 |
| | $ | 1,595,409 |
|
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.
FHLB Stock
At March 31, 2015, we had a $28.9 million investment in Federal Home Loan Bank of San Francisco ("FHLB") stock carried at cost. During the three months ended March 31, 2015, FHLB stock declined $11.7 million due primarily to $15.6 million in redemptions, offset partially by $3.9 million in purchases. We evaluated the carrying value of our FHLB stock investment at March 31, 2015, 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.
Interest Income on Investment Securities
The following table presents the composition of our interest income on investment securities for the periods indicated:
|
| | | | | | | | | | | |
| Three Months Ended |
| March 31, 2015 | | December 31, 2014 | | March 31, 2014 |
| (In thousands) |
Taxable interest | $ | 7,473 |
| | $ | 7,697 |
| | $ | 6,920 |
|
Non-taxable interest | 3,894 |
| | 3,593 |
| | 3,328 |
|
Dividend income | 828 |
| | 915 |
| | 575 |
|
Total interest income on investment securities | $ | 12,195 |
| | $ | 12,205 |
| | $ | 10,823 |
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 6. Loans and Leases
The Company’s loan and lease portfolio includes originated and purchased loans and leases. Originated loans and leases and purchased loans and leases for which there was no evidence of credit deterioration at their acquisition date and for which it was probable that we would be able to collect all contractually required payments, are referred to collectively as non-purchased credit impaired loans, or "Non-PCI loans." Purchased loans for which there was, at the acquisition date, evidence of credit deterioration since their origination and it was probable that we would be unable to collect all contractually required payments are referred to as purchased credit impaired loans, or "PCI loans".
Non-PCI loans are carried at the principal amount outstanding, net of deferred fees and costs, and in the case of acquired loans, net of purchase discounts and premiums. Deferred fees and costs and purchase discounts and premiums on acquired non-impaired loans are recognized as an adjustment to interest income over the contractual life of the loans using the effective interest method or taken into income when the related loans are paid off or sold.
PCI loans are accounted for in accordance with ASC Subtopic 310‑30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality". For PCI loans, at the time of acquisition we (i) calculate the contractual amount and timing of undiscounted principal and interest payments (the "undiscounted contractual cash flows") and (ii) estimate the amount and timing of undiscounted expected principal and interest payments (the "undiscounted expected cash flows"). The difference between the undiscounted contractual cash flows and the undiscounted expected cash flows is the nonaccretable difference. The difference between the undiscounted cash flows expected to be collected and the estimated fair value of the acquired loans is the accretable yield. The nonaccretable difference represents an estimate of the loss exposure of principal and interest related to the PCI loan portfolio; such amount is subject to change over time based on the performance of such loans. The carrying value of PCI loans is reduced by payments received, both principal and interest, and increased by the portion of the accretable yield recognized as interest income.
The following table summarizes the composition of our loan and lease portfolio as of the dates indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2015 | | December 31, 2014 |
| Non-PCI | | | | | | Non-PCI | | | | |
| Loans | | PCI | | | | Loans | | PCI | | |
| and Leases | | Loans | | Total | | and Leases | | Loans | | Total |
| (In thousands) |
Real estate mortgage | $ | 5,601,937 |
| | $ | 226,502 |
| | $ | 5,828,439 |
| | $ | 5,350,827 |
| | $ | 256,489 |
| | $ | 5,607,316 |
|
Real estate construction | 331,108 |
| | 1,897 |
| | 333,005 |
| | 309,162 |
| | 6,924 |
| | 316,086 |
|
Commercial | 6,021,282 |
| | 25,664 |
| | 6,046,946 |
| | 5,852,420 |
| | 27,155 |
| | 5,879,575 |
|
Consumer | 93,619 |
| | 283 |
| | 93,902 |
| | 101,423 |
| | 284 |
| | 101,707 |
|
Total gross loans and leases | 12,047,946 |
| | 254,346 |
| | 12,302,292 |
| | 11,613,832 |
| | 290,852 |
| | 11,904,684 |
|
Deferred fees and costs | (30,065 | ) | | (61 | ) | | (30,126 | ) | | (22,191 | ) | | (61 | ) | | (22,252 | ) |
Total loans and leases, net of deferred fees | 12,017,881 |
| | 254,285 |
| | 12,272,166 |
| | 11,591,641 |
| | 290,791 |
| | 11,882,432 |
|
Allowance for loan and lease losses | (79,680 | ) | | (12,698 | ) | | (92,378 | ) | | (70,456 | ) | | (13,999 | ) | | (84,455 | ) |
Total net loans and leases | $ | 11,938,201 |
| | $ | 241,587 |
| | $ | 12,179,788 |
| | $ | 11,521,185 |
| | $ | 276,792 |
| | $ | 11,797,977 |
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables present a summary of the activity in the allowance for loan and lease losses on Non‑PCI loans and leases by portfolio segment and PCI loans for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2015 |
| Real Estate Mortgage | | Real Estate Construction | | Commercial | | Consumer | | Total Non-PCI | | Total PCI | | Total |
| (In thousands) |
Allowance for Loan and Lease Losses: | | | | | | | | | | | | | |
Balance, beginning of period | $ | 25,097 |
| | $ | 4,248 |
| | $ | 39,858 |
| | $ | 1,253 |
| | $ | 70,456 |
| | $ | 13,999 |
| | $ | 84,455 |
|
Charge-offs | (1,453 | ) | | — |
| | (8,395 | ) | | (63 | ) | | (9,911 | ) | | (579 | ) | | (10,490 | ) |
Recoveries | 1,295 |
| | 632 |
| | 410 |
| | 194 |
| | 2,531 |
| | 11 |
| | 2,542 |
|
Provision (negative provision) | 5,972 |
| | (2,707 | ) | | 13,921 |
| | (582 | ) | | 16,604 |
| | (733 | ) | | 15,871 |
|
Balance, end of period | $ | 30,911 |
| | $ | 2,173 |
| | $ | 45,794 |
| | $ | 802 |
| | $ | 79,680 |
| | $ | 12,698 |
| | $ | 92,378 |
|
| | | | | | | | | | | | | |
Amount of the allowance applicable to loans and leases: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 1,500 |
| | $ | 55 |
| | $ | 10,493 |
| | $ | 178 |
| | $ | 12,226 |
| | | | |
Collectively evaluated for impairment | $ | 29,411 |
| | $ | 2,118 |
| | $ | 35,301 |
| | $ | 624 |
| | $ | 67,454 |
| | | | |
Acquired loans with deteriorated credit quality | | | | | | | | | | | $ | 12,698 |
| | |
Loan and Leases: | | | | | | | | | | | | | |
Ending balance | $ | 5,588,430 |
| | $ | 328,709 |
| | $ | 6,007,067 |
| | $ | 93,675 |
| | $ | 12,017,881 |
| | $ | 254,285 |
| | $ | 12,272,166 |
|
The ending balance of the loan and lease portfolio is composed of loans and leases: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 59,733 |
| | $ | 8,639 |
| | $ | 103,208 |
| | $ | 3,729 |
| | $ | 175,309 |
| | | | |
Collectively evaluated for impairment | $ | 5,528,697 |
| | $ | 320,070 |
| | $ | 5,903,859 |
| | $ | 89,946 |
| | $ | 11,842,572 |
| | | | |
Acquired loans with deteriorated credit quality | | | | | | | | | | | $ | 254,285 |
| | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2014 |
| Real Estate Mortgage | | Real Estate Construction | | Commercial | | Consumer | | Total Non-PCI | | Total PCI | | Total |
| (In thousands) |
Allowance for loan and lease losses: | | | | | | | | | | | | | |
Balance, beginning of period | $ | 26,078 |
| | $ | 4,298 |
| | $ | 26,921 |
| | $ | 2,944 |
| | $ | 60,241 |
| | $ | 21,793 |
| | $ | 82,034 |
|
Charge-offs | (94 | ) | | — |
| | (1,441 | ) | | (15 | ) | | (1,550 | ) | | — |
| | (1,550 | ) |
Recoveries | 261 |
| | 24 |
| | 377 |
| | 27 |
| | 689 |
| | 51 |
| | 740 |
|
Provision (negative provision) | (1,893 | ) | | (219 | ) | | 1,883 |
| | 829 |
| | 600 |
| | (644 | ) | | (44 | ) |
Balance, end of period | $ | 24,352 |
| | $ | 4,103 |
| | $ | 27,740 |
| | $ | 3,785 |
| | $ | 59,980 |
| | $ | 21,200 |
| | $ | 81,180 |
|
| | | | | | | | | | | | | |
Amount of the allowance applicable to loans and leases: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 2,690 |
| | $ | 251 |
| | $ | 5,337 |
| | $ | 387 |
| | $ | 8,665 |
| | | | |
Collectively evaluated for impairment | $ | 21,662 |
| | $ | 3,852 |
| | $ | 22,403 |
| | $ | 3,398 |
| | $ | 51,315 |
| | | | |
Acquired loans with deteriorated credit quality | | | | | | | | | | | $ | 21,200 |
| | |
Loan and Leases: | | | | | | | | | | | | | |
Ending balance | $ | 2,320,554 |
| | $ | 240,073 |
| | $ | 1,201,142 |
| | $ | 66,782 |
| | $ | 3,828,551 |
| | $ | 332,516 |
| | $ | 4,161,067 |
|
The ending balance of the loan and lease portfolio is composed of loans and leases: | | | | | | | | | | | | | |
Individually evaluated for impairment | $ | 58,532 |
| | $ | 12,926 |
| | $ | 17,792 |
| | $ | 3,972 |
| | $ | 93,222 |
| | | | |
Collectively evaluated for impairment | $ | 2,262,022 |
| | $ | 227,147 |
| | $ | 1,183,350 |
| | $ | 62,810 |
| | $ | 3,735,329 |
| | | | |
Acquired loans with deteriorated credit quality | | | | | | | | | | | $ | 332,516 |
| | |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Non‑Purchased Credit Impaired (Non‑PCI) Loans and Leases
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.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2015 | | December 31, 2014 |
| Classified | | Nonclassified | | Total | | Classified | | Nonclassified | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | | | |
Hospitality | $ | 16,928 |
| | $ | 595,161 |
| | $ | 612,089 |
| | $ | 17,761 |
| | $ | 542,458 |
| | $ | 560,219 |
|
SBA | 10,919 |
| | 377,857 |
| | 388,776 |
| | 11,141 |
| | 364,786 |
| | 375,927 |
|
Other | 69,859 |
| | 4,517,706 |
| | 4,587,565 |
| | 68,084 |
| | 4,336,330 |
| | 4,404,414 |
|
Total real estate mortgage | 97,706 |
| | 5,490,724 |
| | 5,588,430 |
| | 96,986 |
| | 5,243,574 |
| | 5,340,560 |
|
Real estate construction: | | | | | | | | | | | |
Residential | 398 |
| | 121,918 |
| | 122,316 |
| | 402 |
| | 96,326 |
| | 96,728 |
|
Commercial | 1,456 |
| | 204,937 |
| | 206,393 |
| | 3,346 |
| | 207,061 |
| | 210,407 |
|
Total real estate construction | 1,854 |
| | 326,855 |
| | 328,709 |
| | 3,748 |
| | 303,387 |
| | 307,135 |
|
Commercial: | | | | | | | | | | | |
Collateralized | 21,265 |
| | 373,123 |
| | 394,388 |
| | 22,433 |
| | 416,754 |
| | 439,187 |
|
Unsecured | 1,267 |
| | 142,047 |
| | 143,314 |
| | 1,323 |
| | 130,501 |
| | 131,824 |
|
Asset-based | 11,304 |
| | 1,708,473 |
| | 1,719,777 |
| | 11,547 |
| | 1,783,304 |
| | 1,794,851 |
|
Cash flow | 105,763 |
| | 2,687,421 |
| | 2,793,184 |
| | 83,321 |
| | 2,376,530 |
| | 2,459,851 |
|
Equipment finance | 86,938 |
| | 827,078 |
| | 914,016 |
| | 15,973 |
| | 953,516 |
| | 969,489 |
|
SBA | 3,128 |
| | 39,260 |
| | 42,388 |
| | 3,207 |
| | 44,054 |
| | 47,261 |
|
Total commercial | 229,665 |
| | 5,777,402 |
| | 6,007,067 |
| | 137,804 |
| | 5,704,659 |
| | 5,842,463 |
|
Consumer | 3,957 |
| | 89,718 |
| | 93,675 |
| | 4,073 |
| | 97,410 |
| | 101,483 |
|
Total Non-PCI loans and leases | $ | 333,182 |
| | $ | 11,684,699 |
| | $ | 12,017,881 |
| | $ | 242,611 |
| | $ | 11,349,030 |
| | $ | 11,591,641 |
|
In addition to our internal risk rating process, our federal and state banking regulators, as an integral part of their examination process, periodically review the Company’s loan and lease risk rating classifications. Our regulators may require the Company to recognize rating downgrades based on their judgments related to information available to them at the time of their examinations. Risk rating downgrades generally result in higher allowances for credit losses.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following tables present an aging analysis of our Non‑PCI loans and leases by portfolio segment and class as of the dates indicated:
|
| | | | | | | | | | | | | | | | | | | |
| March 31, 2015 |
| 30-89 Days Past Due | | 90 or More Days Past Due | | Total Past Due | | Current | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | |
Hospitality | $ | — |
| | $ | — |
| | $ | — |
| | $ | 612,089 |
| | $ | 612,089 |
|
SBA | 5,582 |
| | 5,487 |
| | 11,069 |
| | 377,707 |
| | 388,776 |
|
Other | 6,234 |
| | 5,319 |
| | 11,553 |
| | 4,576,012 |
| | 4,587,565 |
|
Total real estate mortgage | 11,816 |
| | 10,806 |
| | 22,622 |
| | 5,565,808 |
| | 5,588,430 |
|
Real estate construction: | | | | | | | | | |
Residential | — |
| | — |
| | — |
| | 122,316 |
| | 122,316 |
|
Commercial | — |
| | — |
| | — |
| | 206,393 |
| | 206,393 |
|
Total real estate construction | — |
| | — |
| | — |
| | 328,709 |
| | 328,709 |
|
Commercial: | | | | | | | | | |
Collateralized | 1,782 |
| | 424 |
| | 2,206 |
| | 392,182 |
| | 394,388 |
|
Unsecured | — |
| | 16 |
| | 16 |
| | 143,298 |
| | 143,314 |
|
Asset-based | — |
| | — |
| | — |
| | 1,719,777 |
| | 1,719,777 |
|
Cash flow | — |
| | — |
| | — |
| | 2,793,184 |
| | 2,793,184 |
|
Equipment finance | 23,409 |
| | — |
| | 23,409 |
| | 890,607 |
| | 914,016 |
|
SBA | 788 |
| | 1,362 |
| | 2,150 |
| | 40,238 |
| | 42,388 |
|
Total commercial | 25,979 |
| | 1,802 |
| | 27,781 |
| | 5,979,286 |
| | 6,007,067 |
|
Consumer | 9 |
| | 3,196 |
| | 3,205 |
| | 90,470 |
| | 93,675 |
|
Total Non-PCI loans and leases | $ | 37,804 |
| | $ | 15,804 |
| | $ | 53,608 |
| | $ | 11,964,273 |
| | $ | 12,017,881 |
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2014 |
| 30-89 Days Past Due | | 90 or More Days Past Due | | Total Past Due | | Current | | |