Document
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 June 30, 2016
Commission File No. 001-36408
PACWEST BANCORP
(Exact name of registrant as specified in its charter)
|
| | |
Delaware | | 33-0885320 |
(State of Incorporation) | | (I.R.S. Employer Identification No.) |
9701 Wilshire Blvd., Suite 700
Beverly Hills, CA 90212
(Address of Principal Executive Offices, Including Zip Code)
(310) 887-8500
(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):
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| | |
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 July 27, 2016, there were 120,412,363 shares of the registrant's common stock outstanding, excluding 1,407,486 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 | |
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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
|
| | | | | | | |
| June 30, | | December 31, |
| 2016 | | 2015 |
| (Unaudited) |
| (Dollars in thousands) |
ASSETS: | | | |
Cash and due from banks | $ | 226,471 |
| | $ | 161,020 |
|
Interest-earning deposits in financial institutions | 218,882 |
| | 235,466 |
|
Total cash and cash equivalents | 445,353 |
| | 396,486 |
|
Securities available-for-sale, at fair value | 3,347,546 |
| | 3,559,437 |
|
Federal Home Loan Bank stock, at cost | 24,214 |
| | 19,710 |
|
Total investment securities | 3,371,760 |
| | 3,579,147 |
|
Gross loans and leases | 14,703,326 |
| | 14,528,165 |
|
Deferred fees, net | (61,866 | ) | | (49,911 | ) |
Allowance for loan and lease losses | (143,289 | ) | | (115,111 | ) |
Total loans and leases, net | 14,498,171 |
| | 14,363,143 |
|
Equipment leased to others under operating leases | 204,062 |
| | 197,452 |
|
Premises and equipment, net | 38,718 |
| | 39,197 |
|
Foreclosed assets, net | 16,181 |
| | 22,120 |
|
Goodwill | 2,175,791 |
| | 2,176,291 |
|
Core deposit and customer relationship intangibles, net | 43,766 |
| | 53,220 |
|
Deferred tax asset, net | 24,413 |
| | 126,389 |
|
Other assets | 328,924 |
| | 335,045 |
|
Total assets | $ | 21,147,139 |
| | $ | 21,288,490 |
|
| | | |
LIABILITIES: | | | |
Noninterest-bearing deposits | $ | 6,222,696 |
| | $ | 6,171,455 |
|
Interest-bearing deposits | 8,925,313 |
| | 9,494,727 |
|
Total deposits | 15,148,009 |
| | 15,666,182 |
|
Borrowings | 918,208 |
| | 621,914 |
|
Subordinated debentures | 439,322 |
| | 436,000 |
|
Accrued interest payable and other liabilities | 128,296 |
| | 166,703 |
|
Total liabilities | 16,633,835 |
| | 16,890,799 |
|
| | | |
Commitments and contingencies (Note 8) |
|
| |
|
|
| | | |
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 June 30, 2016 and December 31, 2015; | | | |
123,317,742 and 122,791,729 shares issued, respectively, including 1,407,486 and 1,211,951 shares of | | | |
unvested restricted stock, respectively) | 1,233 |
| | 1,228 |
|
Additional paid-in capital | 4,299,259 |
| | 4,405,775 |
|
Retained earnings | 186,531 |
| | 13,907 |
|
Treasury stock, at cost (1,497,893 and 1,378,002 shares at June 30, 2016 and December 31, 2015) | (55,463 | ) | | (51,047 | ) |
Accumulated other comprehensive income, net | 81,744 |
| | 27,828 |
|
Total stockholders' equity | 4,513,304 |
| | 4,397,691 |
|
Total liabilities and stockholders' equity | $ | 21,147,139 |
| | $ | 21,288,490 |
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
|
| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | March 31, | | June 30, | | June 30, |
| 2016 | | 2016 | | 2015 | | 2016 | | 2015 |
| (Unaudited) |
| (Dollars in thousands, except per share data) |
Interest income: | | | | | | | | | |
Loans and leases | $ | 224,326 |
| | $ | 236,375 |
| | $ | 203,781 |
| | $ | 460,701 |
| | $ | 405,878 |
|
Investment securities | 22,420 |
| | 22,547 |
| | 14,570 |
| | 44,967 |
| | 26,765 |
|
Deposits in financial institutions | 308 |
| | 308 |
| | 104 |
| | 616 |
| | 126 |
|
Total interest income | 247,054 |
| | 259,230 |
| | 218,455 |
| | 506,284 |
| | 432,769 |
|
Interest expense: | | | | | | | | | |
Deposits | 7,823 |
| | 9,073 |
| | 11,233 |
| | 16,896 |
| | 21,712 |
|
Borrowings | 352 |
| | 581 |
| | 88 |
| | 933 |
| | 323 |
|
Subordinated debentures | 5,122 |
| | 4,982 |
| | 4,582 |
| | 10,104 |
| | 9,107 |
|
Total interest expense | 13,297 |
| | 14,636 |
| | 15,903 |
| | 27,933 |
| | 31,142 |
|
Net interest income | 233,757 |
| | 244,594 |
| | 202,552 |
| | 478,351 |
| | 401,627 |
|
Provision for credit losses | 13,903 |
| | 20,140 |
| | 6,529 |
| | 34,043 |
| | 22,963 |
|
Net interest income after provision for credit losses | 219,854 |
| | 224,454 |
| | 196,023 |
| | 444,308 |
| | 378,664 |
|
Noninterest income: | | | | | | | | | |
Service charges on deposit accounts | 3,633 |
| | 3,856 |
| | 2,612 |
| | 7,489 |
| | 5,186 |
|
Other commissions and fees | 11,073 |
| | 11,489 |
| | 7,123 |
| | 22,562 |
| | 12,519 |
|
Leased equipment income | 8,523 |
| | 8,244 |
| | 5,375 |
| | 16,767 |
| | 10,757 |
|
Gain on sale of loans and leases | 388 |
| | 245 |
| | 163 |
| | 633 |
| | 163 |
|
Gain (loss) on sale of securities | 478 |
| | 8,110 |
| | (186 | ) | | 8,588 |
| | 3,089 |
|
FDIC loss sharing expense, net | (6,502 | ) | | (2,415 | ) | | (5,107 | ) | | (8,917 | ) | | (9,506 | ) |
Other income | 4,528 |
| | 5,010 |
| | 9,643 |
| | 9,538 |
| | 18,286 |
|
Total noninterest income | 22,121 |
| | 34,539 |
| | 19,623 |
| | 56,660 |
| | 40,494 |
|
Noninterest expense: | | | | | | | | | |
Compensation | 62,174 |
| | 61,065 |
| | 49,033 |
| | 123,239 |
| | 96,770 |
|
Occupancy | 12,193 |
| | 12,632 |
| | 10,588 |
| | 24,825 |
| | 21,188 |
|
Data processing | 5,644 |
| | 5,904 |
| | 4,402 |
| | 11,548 |
| | 8,710 |
|
Other professional services | 3,223 |
| | 3,572 |
| | 3,332 |
| | 6,795 |
| | 6,553 |
|
Insurance and assessments | 4,951 |
| | 4,965 |
| | 4,716 |
| | 9,916 |
| | 7,741 |
|
Intangible asset amortization | 4,371 |
| | 4,746 |
| | 1,502 |
| | 9,117 |
| | 3,003 |
|
Leased equipment depreciation | 5,286 |
| | 5,024 |
| | 3,103 |
| | 10,310 |
| | 6,206 |
|
Foreclosed assets income, net | (3 | ) | | (561 | ) | | (2,340 | ) | | (564 | ) | | (2,004 | ) |
Acquisition, integration and reorganization costs | — |
| | 200 |
| | 900 |
| | 200 |
| | 2,900 |
|
Other expense | 12,242 |
| | 13,141 |
| | 10,040 |
| | 25,383 |
| | 18,569 |
|
Total noninterest expense | 110,081 |
| | 110,688 |
| | 85,276 |
| | 220,769 |
| | 169,636 |
|
Earnings before income taxes | 131,894 |
| | 148,305 |
| | 130,370 |
| | 280,199 |
| | 249,522 |
|
Income tax expense | (49,726 | ) | | (57,849 | ) | | (45,287 | ) | | (107,575 | ) | | (91,360 | ) |
Net earnings | $ | 82,168 |
| | $ | 90,456 |
| | $ | 85,083 |
| | $ | 172,624 |
| | $ | 158,162 |
|
| | | | | | | | | |
Earnings per share: | | | | | | | | | |
Basic | $ | 0.68 |
| | $ | 0.74 |
| | $ | 0.83 |
| | $ | 1.42 |
| | $ | 1.54 |
|
Diluted | $ | 0.68 |
| | $ | 0.74 |
| | $ | 0.83 |
| | $ | 1.42 |
| | $ | 1.54 |
|
Dividends declared per share | $ | 0.50 |
| | $ | 0.50 |
| | $ | 0.50 |
| | $ | 1.00 |
| | $ | 1.00 |
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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| | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | March 31, | | June 30, | | June 30, |
| 2016 | | 2016 | | 2015 | | 2016 | | 2015 |
| (Unaudited) |
| (In thousands) |
Net earnings | $ | 82,168 |
| | $ | 90,456 |
| | $ | 85,083 |
| | $ | 172,624 |
| | $ | 158,162 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | | |
Unrealized net holding gains (losses) on securities | | | | | | | | | |
available-for-sale arising during the period | 56,514 |
| | 43,093 |
| | (21,213 | ) | | 99,607 |
| | (13,850 | ) |
Income tax (expense) benefit related to net unrealized | | | | | | | | | |
holding gains (losses) arising during the period | (22,965 | ) | | (17,655 | ) | | 8,614 |
| | (40,620 | ) | | 5,509 |
|
Unrealized net holding gains (losses) on securities | | | | | | | | | |
available-for-sale, net of tax | 33,549 |
| | 25,438 |
| | (12,599 | ) | | 58,987 |
| | (8,341 | ) |
Reclassification adjustment for net (gains) losses | | | | | | | | | |
included in net earnings (1) | (478 | ) | | (8,110 | ) | | 186 |
| | (8,588 | ) | | (3,089 | ) |
Income tax expense (benefit) related to reclassification | | | | | | | | | |
adjustment | 194 |
| | 3,323 |
| | (76 | ) | | 3,517 |
| | 1,305 |
|
Reclassification adjustment for net (gains) losses | | | | | | | | | |
included in net earnings, net of tax | (284 | ) | | (4,787 | ) | | 110 |
| | (5,071 | ) | | (1,784 | ) |
Other comprehensive income (loss), net of tax | 33,265 |
| | 20,651 |
| | (12,489 | ) | | 53,916 |
| | (10,125 | ) |
Comprehensive income | $ | 115,433 |
| | $ | 111,107 |
| | $ | 72,594 |
| | $ | 226,540 |
| | $ | 148,037 |
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___________________________________
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(1) | Entire amounts are recognized in "Gain (loss) on sale of 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
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| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2016 |
| Common Stock | | | | | | Accumulated | | |
| | | | | Additional | | | | | | Other | | |
| | | Par | | Paid-in | | Retained | | Treasury | | Comprehensive | | |
| Shares | | Value | | Capital | | Earnings | | Stock | | Income | | Total |
| (Unaudited) |
| (Dollars in thousands) |
Balance, December 31, 2015 | 121,413,727 |
| | $ | 1,228 |
| | $ | 4,405,775 |
| | $ | 13,907 |
| | $ | (51,047 | ) | | $ | 27,828 |
| | $ | 4,397,691 |
|
Net earnings | — |
| | — |
| | — |
| | 172,624 |
| | — |
| | — |
| | 172,624 |
|
Other comprehensive income - net | | | | | | | | | | | | | |
unrealized gain on securities | | | | | | | | | | | | | |
available-for-sale, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 53,916 |
| | 53,916 |
|
Restricted stock awarded and | | | | | | | | | | | | | |
earned stock compensation, | | | | | | | | | | | | | |
net of shares forfeited | 526,013 |
| | 5 |
| | 11,595 |
| | — |
| | — |
| | — |
| | 11,600 |
|
Restricted stock surrendered | (119,891 | ) | | — |
| | — |
| | — |
| | (4,416 | ) | | — |
| | (4,416 | ) |
Tax effect from vesting of | | | | | | | | | | | | | |
restricted stock | — |
| | — |
| | 3,683 |
| | — |
| | — |
| | — |
| | 3,683 |
|
Cash dividends paid | — |
| | — |
| | (121,794 | ) | | — |
| | — |
| | — |
| | (121,794 | ) |
Balance, June 30, 2016 | 121,819,849 |
| | $ | 1,233 |
| | $ | 4,299,259 |
| | $ | 186,531 |
| | $ | (55,463 | ) | | $ | 81,744 |
| | $ | 4,513,304 |
|
See Notes to Condensed Consolidated Financial Statements.
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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| | | | | | | |
| Six Months Ended |
| June 30, |
| 2016 | | 2015 |
| (Unaudited) |
| (Dollars in thousands) |
Cash flows from operating activities: | | | |
Net earnings | $ | 172,624 |
| | $ | 158,162 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
| | | |
Depreciation and amortization | 43,813 |
| | 22,087 |
|
Provision for credit losses | 34,043 |
| | 22,963 |
|
(Gain) loss on sale of foreclosed assets | (534 | ) | | 126 |
|
Provision for losses on foreclosed assets | — |
| | 406 |
|
Gain on sale of loans and leases | (633 | ) | | (163 | ) |
Gain on sale of premises and equipment | (23 | ) | | (11 | ) |
Gain on sale of securities | (8,588 | ) | | (3,089 | ) |
Unrealized gain on derivatives and foreign currencies, net | (569 | ) | | (1,226 | ) |
Earned stock compensation | 11,600 |
| | 8,074 |
|
Loss on sale of leasing unit | 720 |
| | — |
|
Tax effect included in stockholders' equity of restricted stock vesting | (3,683 | ) | | (401 | ) |
Decrease in accrued and deferred income taxes, net | 68,466 |
| | 72,169 |
|
(Increase) decrease in other assets | (2,388 | ) | | 26,443 |
|
Decrease in accrued interest payable and other liabilities | (40,683 | ) | | (26,541 | ) |
Net cash provided by operating activities | 274,165 |
| | 278,999 |
|
| | | |
Cash flows from investing activities: | | | |
Net increase in loans and leases | (380,289 | ) | | (169,071 | ) |
Proceeds from sales of loans and leases | 78,888 |
| | 3,784 |
|
Securities available-for-sale: | | | |
Proceeds from maturities and paydowns | 117,684 |
| | 63,741 |
|
Proceeds from sales | 353,374 |
| | 159,548 |
|
Purchases | (177,644 | ) | | (375,156 | ) |
Net (purchases) redemptions of Federal Home Loan Bank stock | (4,504 | ) | | 23,359 |
|
Proceeds from sales of foreclosed assets | 6,602 |
| | 14,610 |
|
Purchases of premises and equipment, net | (3,951 | ) | | (3,407 | ) |
Proceeds from sales of premises and equipment | 24 |
| | 63 |
|
Proceeds from sale of leasing unit | 138,955 |
| | — |
|
Proceeds from BOLI death benefit | 1,853 |
| | — |
|
Net increase of equipment leased to others under operating leases | (16,060 | ) | | — |
|
Net cash provided by (used in) investing activities | 114,932 |
| | (282,529 | ) |
| | | |
Cash flows from financing activities: | | | |
Net increase (decrease) in deposits: | | | |
Noninterest-bearing | 53,387 |
| | 461,107 |
|
Interest-bearing | (569,414 | ) | | 361,330 |
|
Net increase (decrease) in borrowings | 298,324 |
| | (380,651 | ) |
Restricted stock surrendered | (4,416 | ) | | (8,336 | ) |
Tax effect included in stockholders' equity of restricted stock vesting | 3,683 |
| | 401 |
|
Cash dividends paid | (121,794 | ) | | (102,916 | ) |
Net cash (used in) provided by financing activities | (340,230 | ) | | 330,935 |
|
Net increase in cash and cash equivalents | 48,867 |
| | 327,405 |
|
Cash and cash equivalents at beginning of period | 396,486 |
| | 313,226 |
|
Cash and cash equivalents at end of period | $ | 445,353 |
| | $ | 640,631 |
|
| | | |
Supplemental disclosures of cash flow information: | | | |
Cash paid for interest | $ | 28,558 |
| | $ | 29,006 |
|
Cash paid for income taxes | 44,908 |
| | 6,076 |
|
Loans transferred to foreclosed assets | 129 |
| | 3,089 |
|
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 wholly-owned banking subsidiary, Pacific Western Bank. References to "Pacific Western" or the "Bank" refer to Pacific Western Bank together with its wholly-owned subsidiaries. References to “we,” "us," “our,” or the “Company,” refer to PacWest Bancorp together with its subsidiaries on a consolidated basis. When we refer to “PacWest” or to the holding company, we are referring to PacWest Bancorp, the parent company, on a stand‑alone basis. As of June 30, 2016, the Company had total assets of $21.1 billion, gross loans and leases of $14.7 billion, total deposits of $15.1 billion and total stockholders' equity of $4.5 billion.
We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. The Bank offers a broad range of loan and lease and deposit products and services through 79 full-service branches located throughout the State of California, one branch located in Durham, North Carolina, and several loan production offices located in cities across the country. The Bank provides commercial banking services, including real estate, construction, and commercial loans and leases, and comprehensive deposit and treasury management services to small and middle-market businesses. Pacific Western offers additional products and services through its CapitalSource and Square 1 Bank divisions. CapitalSource provides cash flow, asset-based, equipment and real estate loans and treasury management services to established middle-market businesses on a national basis. Square 1 Bank offers a comprehensive suite of financial services focused on entrepreneurial businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. In addition, we provide investment advisory and asset management services to select clients through Square 1 Asset Management, Inc., a wholly-owned subsidiary of the Bank and a SEC-registered investment adviser. 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 Pacific Western.
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 compensation, occupancy, general operating expenses, and the interest paid by the Bank on deposits and borrowings.
We have completed 28 acquisitions from May 1, 2000 through June 30, 2016, including the acquisition of Square 1 Financial, Inc. on October 6, 2015. 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 2. Acquisitions, for more information about the Square 1 acquisition.
On March 31, 2016, we sold our Pacific Western Equipment Finance ("PWEF") leasing unit in Midvale, Utah, including approximately $139 million of outstanding lease balances.
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, 2015 as filed with the Securities and Exchange Commission ("Form 10-K").
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 significant intercompany accounts and transactions have been eliminated and adjustments, consisting solely of normal recurring accruals and considered necessary for the fair presentation of financial statements for the interim periods, have been included. The current period's results of operations are not necessarily indicative of the results that ultimately may be achieved for the year. The interim 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.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Use of Estimates
We have made a number of estimates and assumptions related to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these condensed consolidated financial statements in conformity with U.S. GAAP. 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 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 2, Acquisitions, the acquired assets and liabilities of Square 1 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. The operating segments previously reported have been aggregated to one segment to conform to the current period's presentation format.
Note 2. Acquisitions
Square 1 Financial, Inc. Acquisition
We acquired Square 1 Financial, Inc. ("Square 1") on October 6, 2015. As part of the acquisition, Square 1 Bank, a wholly-owned subsidiary of Square 1, merged with and into Pacific Western. At closing, we formed the Square 1 Bank Division of the Bank to focus on providing a comprehensive suite of financial services to entrepreneurial businesses and their venture capital and private equity investors nationwide. When we refer to Square 1, we are referring to the company acquired on October 6, 2015, and when we refer to the Square 1 Bank Division, we are referring to a division of Pacific Western.
We completed this acquisition to increase our core deposits, expand our nationwide lending platform, and increase our presence in the technology and life-sciences credit markets. The Square 1 acquisition has been accounted for under the acquisition method of accounting. We acquired $4.6 billion of assets and assumed $3.8 billion of liabilities upon closing of the acquisition. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the acquisition date. We made significant estimates and exercised significant judgment in estimating fair values and accounting for such acquired assets and liabilities. 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. The fair value of the acquired net tax assets, once the final tax returns have been filed, may change. The application of the acquisition method of accounting resulted in goodwill of $447.9 million. All of the recognized goodwill is expected to be non-deductible for tax purposes.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 3. Goodwill and Other Intangible Assets
Goodwill arises from the acquisition method of accounting for business combinations and represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Our intangible assets with definite lives are core deposit intangibles ("CDI") and customer relationship intangibles ("CRI").
Goodwill and other intangible assets deemed to have indefinite lives generated from 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 as of June 30, 2016 is 5.8 years. The aggregate CDI and CRI amortization expense is expected to be $16.5 million for 2016. The estimated aggregate amortization expense related to these intangible assets for each of the next five years is $11.5 million for 2017, $8.8 million for 2018, $6.7 million for 2019, $4.7 million for 2020, and $3.0 million for 2021.
The following table presents the changes in the carrying amount of goodwill for the period indicated:
|
| | | |
| Goodwill |
| (In thousands) |
Balance, December 31, 2015 | $ | 2,176,291 |
|
Reduction due to sale of PWEF leasing unit | (500 | ) |
Balance, June 30, 2016 | $ | 2,175,791 |
|
Through the sale of the PWEF leasing unit, $0.5 million of goodwill was allocated to this business group; such goodwill reduction is included in the $0.7 million loss on sale of the PWEF leasing unit and included in "Other income" in the condensed consolidated statement of earnings.
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, | | March 31, | | June 30, | | June 30, |
| 2016 | | 2016 | | 2015 | | 2016 | | 2015 |
| (In thousands) |
Gross Amount of CDI and CRI: | | | | | | | | | |
Balance, beginning of period | $ | 93,824 |
| | $ | 95,524 |
| | $ | 53,090 |
| | $ | 95,524 |
| | $ | 53,090 |
|
Fully amortized portion | (17,311 | ) | | — |
| | — |
| | (17,311 | ) | | — |
|
Reduction due to sale of PWEF leasing unit | — |
| | (1,700 | ) | | — |
| | (1,700 | ) | | — |
|
Balance, end of period | 76,513 |
| | 93,824 |
| | 53,090 |
| | 76,513 |
| | 53,090 |
|
Accumulated Amortization: | | | | | | | | | |
Balance, beginning of period | (45,687 | ) | | (42,304 | ) | | (37,387 | ) | | (42,304 | ) | | (35,886 | ) |
Amortization | (4,371 | ) | | (4,746 | ) | | (1,502 | ) | | (9,117 | ) | | (3,003 | ) |
Fully amortized portion | 17,311 |
| | — |
| | — |
| | 17,311 |
| | — |
|
Reduction due to sale of PWEF leasing unit | — |
| | 1,363 |
| | — |
| | 1,363 |
| | — |
|
Balance, end of period | (32,747 | ) | | (45,687 | ) | | (38,889 | ) | | (32,747 | ) | | (38,889 | ) |
Net CDI and CRI, end of period | $ | 43,766 |
| | $ | 48,137 |
| | $ | 14,201 |
| | $ | 43,766 |
| | $ | 14,201 |
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 4. 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:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| | | Gross | | Gross | | | | | | Gross | | Gross | | |
| Amortized | | Unrealized | | Unrealized | | Fair | | Amortized | | Unrealized | | Unrealized | | Fair |
Security Type: | Cost | | Gains | | Losses | | Value | | Cost | | Gains | | Losses | | Value |
| (In thousands) |
Residential mortgage-backed securities: | | | | | | | | | | | | | | | |
Government agency and | | | | | | | | | | | | | | | |
government-sponsored enterprise | | | | | | | | | | | | | | | |
pass-through securities | $ | 509,895 |
| | $ | 11,108 |
| | $ | (484 | ) | | $ | 520,519 |
| | $ | 660,069 |
| | $ | 11,517 |
| | $ | (3,746 | ) | | $ | 667,840 |
|
Government agency and | | | | | | | | | | | | | | | |
government-sponsored enterprise | | | | | | | | | | | | | | | |
collateralized mortgage obligations | 161,207 |
| | 4,158 |
| | (154 | ) | | 165,211 |
| | 193,148 |
| | 2,633 |
| | (1,026 | ) | | 194,755 |
|
Private label collateralized | | | | | | | | | | | | | | | |
mortgage obligations | 144,935 |
| | 5,385 |
| | (751 | ) | | 149,569 |
| | 140,065 |
| | 5,837 |
| | (1,106 | ) | | 144,796 |
|
Municipal securities | 1,449,194 |
| | 104,093 |
| | (1 | ) | | 1,553,286 |
| | 1,508,968 |
| | 39,435 |
| | (1,072 | ) | | 1,547,331 |
|
Government agency and | | | | | | | | | | | | | | | |
government-sponsored enterprise | | | | | | | | | | | | | | | |
commercial mortgage-backed | | | | | | | | | | | | | | | |
securities | 449,096 |
| | 15,584 |
| | (281 | ) | | 464,399 |
| | 392,729 |
| | 1,509 |
| | (2,797 | ) | | 391,441 |
|
Corporate debt securities | 47,218 |
| | 935 |
| | (1,426 | ) | | 46,727 |
| | 49,047 |
| | 327 |
| | (950 | ) | | 48,424 |
|
Collateralized loan obligations | 155,309 |
| | 376 |
| | (1,798 | ) | | 153,887 |
| | 133,192 |
| | 128 |
| | (1,131 | ) | | 132,189 |
|
SBA securities | 195,621 |
| | 1,977 |
| | (297 | ) | | 197,301 |
| | 211,946 |
| | 41 |
| | (830 | ) | | 211,157 |
|
US Treasury securities | — |
| | — |
| | — |
| | — |
| | 70,196 |
| | — |
| | (816 | ) | | 69,380 |
|
Government-sponsored enterprise debt | | | | | | | | | | | | | | | |
securities | — |
| | — |
| | — |
| | — |
| | 36,302 |
| | 611 |
| | — |
| | 36,913 |
|
Asset-backed and other securities | 96,910 |
| | 439 |
| | (702 | ) | | 96,647 |
| | 116,723 |
| | 119 |
| | (1,631 | ) | | 115,211 |
|
Total | $ | 3,209,385 |
| | $ | 144,055 |
| | $ | (5,894 | ) | | $ | 3,347,546 |
| | $ | 3,512,385 |
| | $ | 62,157 |
| | $ | (15,105 | ) | | $ | 3,559,437 |
|
As of June 30, 2016, securities available‑for‑sale with a carrying value of $442.9 million were pledged as collateral for borrowings, public deposits and other purposes as required by various statutes and agreements.
During the three months ended June 30, 2016, we sold $9.9 million of primarily municipal securities for a gross realized gain of $0.6 million and a gross realized loss of $0.1 million. During the three months ended June 30, 2015, we sold $14.8 million of municipal securities for a gross realized gain of $0.1 million and a gross realized loss of $0.3 million.
During the six months ended June 30, 2016, we sold $344.8 million of various securities, primarily government agency and government-sponsored enterprise ("GSE") pass-through securities and collateralized mortgage obligations, U.S. Treasury securities and GSE debt securities, for a gross realized gain of $9.5 million and a gross realized loss of $0.9 million. During the six months ended June 30, 2015, we sold $156.5 million of government agency and GSE pass-through securities, corporate debt securities, and municipal securities for a gross realized gain of $3.8 million and a gross realized loss of $0.7 million.
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:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 |
| Less Than 12 Months | | 12 Months or More | | Total |
| | | Gross | | | | Gross | | | | Gross |
| Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
Security Type: | Value | | Losses | | Value | | Losses | | Value | | Losses |
| (In thousands) |
Residential mortgage-backed securities: | | | | | | | | | | |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise pass-through | | | | | | | | | | | |
securities | $ | 142,069 |
| | $ | (465 | ) | | $ | 4,618 |
| | $ | (19 | ) | | $ | 146,687 |
| | $ | (484 | ) |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise collateralized | | | | | | | | | | | |
mortgage obligations | 31,379 |
| | (154 | ) | | — |
| | — |
| | 31,379 |
| | (154 | ) |
Private label collateralized mortgage | | | | | | | | | | | |
obligations | 49,862 |
| | (534 | ) | | 3,058 |
| | (217 | ) | | 52,920 |
| | (751 | ) |
Municipal securities | 7,465 |
| | (1 | ) | | — |
| | — |
| | 7,465 |
| | (1 | ) |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise commercial | | | | | | | | | | | |
mortgage-backed securities | 43,039 |
| | (281 | ) | | — |
| | — |
| | 43,039 |
| | (281 | ) |
Corporate debt securities | 28,792 |
| | (1,426 | ) | | — |
| | — |
| | 28,792 |
| | (1,426 | ) |
Collateralized loan obligations | 58,145 |
| | (685 | ) | | 53,825 |
| | (1,113 | ) | | 111,970 |
| | (1,798 | ) |
SBA securities | 53,519 |
| | (297 | ) | | — |
| | — |
| | 53,519 |
| | (297 | ) |
Asset-backed and other securities | 41,628 |
| | (170 | ) | | 20,993 |
| | (532 | ) | | 62,621 |
| | (702 | ) |
Total | $ | 455,898 |
| | $ | (4,013 | ) | | $ | 82,494 |
| | $ | (1,881 | ) | | $ | 538,392 |
| | $ | (5,894 | ) |
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2015 |
| Less Than 12 Months | | 12 Months or More | | Total |
| | | Gross | | | | Gross | | | | Gross |
| Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized |
Security Type: | Value | | Losses | | Value | | Losses | | Value | | Losses |
| (In thousands) |
Residential mortgage-backed securities: | | | | | | | | | | | |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise pass-through | | | | | | | | | | | |
securities | $ | 352,042 |
| | $ | (3,480 | ) | | $ | 9,342 |
| | $ | (266 | ) | | $ | 361,384 |
| | $ | (3,746 | ) |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise collateralized | | | | | | | | | | | |
mortgage obligations | 117,786 |
| | (1,026 | ) | | — |
| | — |
| | 117,786 |
| | (1,026 | ) |
Private label collateralized mortgage | | | | | | | | | | | |
obligations | 93,533 |
| | (1,000 | ) | | 1,638 |
| | (106 | ) | | 95,171 |
| | (1,106 | ) |
Municipal securities | 126,892 |
| | (1,061 | ) | | 531 |
| | (11 | ) | | 127,423 |
| | (1,072 | ) |
Government agency and government- | | | | | | | | | | | |
sponsored enterprise commercial | | | | | | | | | | | |
mortgage-backed securities | 236,098 |
| | (2,156 | ) | | 14,230 |
| | (641 | ) | | 250,328 |
| | (2,797 | ) |
US Treasury securities | 69,380 |
| | (816 | ) | | — |
| | — |
| | 69,380 |
| | (816 | ) |
Corporate debt securities | 29,379 |
| | (950 | ) | | — |
| | — |
| | 29,379 |
| | (950 | ) |
Collateralized loan obligations | 100,993 |
| | (1,131 | ) | | — |
| | — |
| | 100,993 |
| | (1,131 | ) |
SBA securities | 179,942 |
| | (830 | ) | | — |
| | — |
| | 179,942 |
| | (830 | ) |
Asset-backed and other securities | 71,619 |
| | (1,182 | ) | | 16,091 |
| | (449 | ) | | 87,710 |
| | (1,631 | ) |
Total | $ | 1,377,664 |
| | $ | (13,632 | ) | | $ | 41,832 |
| | $ | (1,473 | ) | | $ | 1,419,496 |
| | $ | (15,105 | ) |
We reviewed the securities that were in a loss position at June 30, 2016, and concluded their unrealized losses were not a result of downgraded credit ratings or other indicators of deterioration of the underlying issuers' ability to repay. Such unrealized losses were a result of the level of market interest rates and pricing changes caused by shifting supply and demand dynamics relative to the types of securities. Accordingly, we determined the securities were temporarily impaired and we did not recognize such impairment in the condensed consolidated statements of earnings. Although we occasionally sell securities for portfolio management purposes, we do not foresee having to sell any temporarily impaired securities strictly for liquidity needs and believe that it is more likely than not we would not be required to sell any temporarily impaired securities before recovery of their amortized cost.
Contractual Maturities of Securities Available-for-Sale
The following table presents the contractual maturities of our available-for-sale securities portfolio based on amortized cost and carrying value as of the date indicated:
|
| | | | | | | |
| June 30, 2016 |
| Amortized | | Fair |
Maturity: | Cost | | Value |
| (In thousands) |
Due in one year or less | $ | 14,761 |
| | $ | 14,834 |
|
Due after one year through five years | 230,982 |
| | 235,996 |
|
Due after five years through ten years | 713,952 |
| | 736,838 |
|
Due after ten years | 2,249,690 |
| | 2,359,878 |
|
Total securities available-for-sale | $ | 3,209,385 |
| | $ | 3,347,546 |
|
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.
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
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 | | Six Months Ended |
| June 30, | | March 31, | | June 30, | | June 30, |
| 2016 | | 2016 | | 2015 | | 2016 | | 2015 |
| (In thousands) |
Taxable interest | $ | 11,406 |
| | $ | 11,396 |
| | $ | 7,577 |
| | $ | 22,802 |
| | $ | 15,050 |
|
Non-taxable interest | 10,503 |
| | 10,726 |
| | 4,808 |
| | 21,229 |
| | 8,702 |
|
Dividend income | 511 |
| | 425 |
| | 2,185 |
| | 936 |
| | 3,013 |
|
Total interest income on investment securities | $ | 22,420 |
| | $ | 22,547 |
| | $ | 14,570 |
| | $ | 44,967 |
| | $ | 26,765 |
|
Note 5. Loans and Leases
The Company’s loan and lease portfolio includes originated and purchased loans and leases. Originated 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 all contractually required payments would be collected, 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 for which it was deemed 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 are recognized as an adjustment to interest income over the contractual life of the loans using the effective interest method or taken into income on an accelerated basis 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:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Non-PCI | | | | | | Non-PCI | | | | |
| Loans | | PCI | | | | Loans | | PCI | | |
| and Leases | | Loans | | Total | | and Leases | | Loans | | Total |
| (In thousands) |
Real estate mortgage | $ | 5,581,646 |
| | $ | 120,633 |
| | $ | 5,702,279 |
| | $ | 5,706,903 |
| | $ | 168,725 |
| | $ | 5,875,628 |
|
Real estate construction and land | 706,493 |
| | 2,700 |
| | 709,193 |
| | 534,307 |
| | 2,656 |
| | 536,963 |
|
Commercial | 8,065,687 |
| | 13,311 |
| | 8,078,998 |
| | 7,977,067 |
| | 17,415 |
| | 7,994,482 |
|
Consumer | 212,599 |
| | 257 |
| | 212,856 |
| | 120,793 |
| | 299 |
| | 121,092 |
|
Total gross loans and leases | 14,566,425 |
| | 136,901 |
| | 14,703,326 |
| | 14,339,070 |
| | 189,095 |
| | 14,528,165 |
|
Deferred fees, net | (61,845 | ) | | (21 | ) | | (61,866 | ) | | (49,861 | ) | | (50 | ) | | (49,911 | ) |
Total loans and leases, net of deferred fees | 14,504,580 |
| | 136,880 |
| | 14,641,460 |
| | 14,289,209 |
| | 189,045 |
| | 14,478,254 |
|
Allowance for loan and lease losses | (132,000 | ) | | (11,289 | ) | | (143,289 | ) | | (105,534 | ) | | (9,577 | ) | | (115,111 | ) |
Total net loans and leases | $ | 14,372,580 |
| | $ | 125,591 |
| | $ | 14,498,171 |
| | $ | 14,183,675 |
| | $ | 179,468 |
| | $ | 14,363,143 |
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Non‑Purchased Credit Impaired (Non‑PCI) Loans and Leases
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, 2016 |
| 30 - 89 | | 90 or More | | | | | | |
| Days | | Days | | Total | | | | |
| Past Due | | Past Due | | Past Due | | Current | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | |
Commercial | $ | 5,400 |
| | $ | 14,244 |
| | $ | 19,644 |
| | $ | 4,446,762 |
| | $ | 4,466,406 |
|
Residential | 442 |
| | 1,896 |
| | 2,338 |
| | 1,094,636 |
| | 1,096,974 |
|
Total real estate mortgage | 5,842 |
| | 16,140 |
| | 21,982 |
| | 5,541,398 |
| | 5,563,380 |
|
Real estate construction and land: | | | | | | | | | |
Commercial | — |
| | — |
| | — |
| | 414,466 |
| | 414,466 |
|
Residential | — |
| | — |
| | — |
| | 281,767 |
| | 281,767 |
|
Total real estate construction and land | — |
| | — |
| | — |
| | 696,233 |
| | 696,233 |
|
Commercial: | | | | | | | | | |
Cash flow | 458 |
| | 1,852 |
| | 2,310 |
| | 3,039,552 |
| | 3,041,862 |
|
Asset-based | — |
| | — |
| | — |
| | 2,682,264 |
| | 2,682,264 |
|
Venture capital | 3,548 |
| | — |
| | 3,548 |
| | 1,657,719 |
| | 1,661,267 |
|
Equipment finance | 41,361 |
| | 2,509 |
| | 43,870 |
| | 603,070 |
| | 646,940 |
|
Total commercial | 45,367 |
| | 4,361 |
| | 49,728 |
| | 7,982,605 |
| | 8,032,333 |
|
Consumer | — |
| | 4 |
| | 4 |
| | 212,630 |
| | 212,634 |
|
Total Non-PCI loans and leases | $ | 51,209 |
| | $ | 20,505 |
| | $ | 71,714 |
| | $ | 14,432,866 |
| | $ | 14,504,580 |
|
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2015 |
| 30 - 89 | | 90 or More | | | | | | |
| Days | | Days | | Total | | | | |
| Past Due | | Past Due | | Past Due | | Current | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | |
Commercial | $ | 3,947 |
| | $ | 13,075 |
| | $ | 17,022 |
| | $ | 4,534,936 |
| | $ | 4,551,958 |
|
Residential | 3,391 |
| | 905 |
| | 4,296 |
| | 1,131,809 |
| | 1,136,105 |
|
Total real estate mortgage | 7,338 |
| | 13,980 |
| | 21,318 |
| | 5,666,745 |
| | 5,688,063 |
|
Real estate construction and land: | | | | | | | | | |
Commercial | — |
| | — |
| | — |
| | 343,360 |
| | 343,360 |
|
Residential | — |
| | — |
| | — |
| | 184,360 |
| | 184,360 |
|
Total real estate construction and land | — |
| | — |
| | — |
| | 527,720 |
| | 527,720 |
|
Commercial: | | | | | | | | | |
Cash flow | 2,048 |
| | 1,427 |
| | 3,475 |
| | 3,058,793 |
| | 3,062,268 |
|
Asset-based | 1 |
| | — |
| | 1 |
| | 2,547,532 |
| | 2,547,533 |
|
Venture capital | 250 |
| | 700 |
| | 950 |
| | 1,451,477 |
| | 1,452,427 |
|
Equipment finance | 359 |
| | 94 |
| | 453 |
| | 889,896 |
| | 890,349 |
|
Total commercial | 2,658 |
| | 2,221 |
| | 4,879 |
| | 7,947,698 |
| | 7,952,577 |
|
Consumer | 626 |
| | 1,307 |
| | 1,933 |
| | 118,916 |
| | 120,849 |
|
Total Non-PCI loans and leases | $ | 10,622 |
| | $ | 17,508 |
| | $ | 28,130 |
| | $ | 14,261,079 |
| | $ | 14,289,209 |
|
PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
It is the Company's policy to discontinue accruing interest 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 or when principal or interest payments are past due 90 days or more unless the loan is both well secured and in the process of collection. Interest income on nonaccrual loans is recognized only to the extent cash is received and the principal balance of the loan is deemed collectable.
The following table presents our nonaccrual and performing Non‑PCI loans and leases by portfolio segment and class as of the dates indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2016 | | December 31, 2015 |
| Nonaccrual | | Performing | | Total | | Nonaccrual | | Performing | | Total |
| (In thousands) |
Real estate mortgage: | | | | | | | | | | | |
Commercial | $ | 29,183 |
| | $ | 4,437,223 |
| | $ | 4,466,406 |
| | $ | 52,363 |
| | $ | 4,499,595 |
| | $ | 4,551,958 |
|
|