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Section 1: 10-Q (10-Q)

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 September 30, 2018
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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth 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
 
 
 
 
 
o Emerging growth company
 
 
 
o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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 October 31, 2018, there were 121,770,415 shares of the registrant's common stock outstanding, excluding 1,487,013 shares of unvested restricted stock.


1



PACWEST BANCORP
SEPTEMBER 30, 2018 QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
 
 
 
Page
 
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 Statements of 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


2


PART I
Glossary of Acronyms, Abbreviations, and Terms
The acronyms, abbreviations, and terms listed below are used in various sections of this Form 10-Q, including "Item 1. Financial Statements" and "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."
AFX
American Financial Exchange
 
FRBSF
Federal Reserve Bank of San Francisco
ALM
Asset Liability Management
 
IPO
Initial Public Offering
ASC
Accounting Standards Codification
 
IRR
Interest Rate Risk
ASU
Accounting Standards Update
 
LIHTC
Low Income Housing Tax Credit
Basel III
A comprehensive capital framework and rules for U.S. banking organizations approved by the FRB and the FDIC in 2013.
 
MBS
Mortgage-Backed Securities
BHCA
Bank Holding Company Act of 1956, as amended
 
MVE
Market Value of Equity
BOLI
Bank Owned Life Insurance
 
NII
Net Interest Income
C&I
Commercial and Industrial
 
NIM
Net Interest Margin
CDI
Core Deposit Intangible Assets
 
Non-PCI
Non-Purchased Credit Impaired
CECL
Current Expected Credit Loss
 
NSF
Non-Sufficient Funds
CET1
Common Equity Tier 1
 
OREO
Other Real Estate Owned
CMOs
Collateralized Mortgage Obligations
 
PD/LGD
Probability of Default/Loss Given Default
CRA
Community Reinvestment Act
 
PCI
Purchased Credit Impaired
CRI
Customer Relationship Intangible Assets
 
PRSUs
Performance-Based Restricted Stock Units
CUB
CU Bancorp (a company acquired on October 20, 2017)
 
S1AM
Square 1 Asset Management, Inc.
CU Bank
California United Bank (a wholly-owned subsidiary of CUB)
 
SBA
Small Business Administration
DBO
California Department of Business Oversight
 
SEC
Securities and Exchange Commission
DTAs
Deferred Tax Assets
 
Tax Equivalent Net Interest Income
Net interest income adjusted for tax equivalent adjustments related to tax-exempt interest on certain loans and municipal securities
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
 
Tax Equivalent NIM
NIM adjusted for tax equivalent adjustments related to tax-exempt interest on certain loans and municipal securities
Efficiency Ratio
Noninterest expense (less intangible asset amortization, net foreclosed assets income/expense, and acquisition, integration and reorganization costs) divided by net revenues (the sum of tax equivalent net interest income plus noninterest income, less gain/loss on sale of securities and gain/loss on sales of assets other than loans and leases)
 
TCJA
Tax Cuts and Jobs Act
El Dorado
El Dorado Savings Bank, F.S.B.
 
TDRs
Troubled Debt Restructurings
FASB
Financial Accounting Standards Board
 
TRSAs
Time-Based Restricted Stock Awards
FDIC
Federal Deposit Insurance Corporation
 
U.S. GAAP
U.S. Generally Accepted Accounting Principles
FHLB
Federal Home Loan Bank of San Francisco
 
VIE
Variable Interest Entity
FRB
Board of Governors of the Federal Reserve System
 
 
 


3



ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
September 30,
 
December 31,
 
2018
 
2017
 
(Unaudited)
 
(Dollars in thousands, except par value amounts)
ASSETS:
 
 
 
Cash and due from banks
$
196,502

 
$
233,215

Interest-earning deposits in financial institutions
185,284

 
165,222

Total cash, cash equivalents, and restricted cash
381,786

 
398,437

Securities available-for-sale, at fair value
3,820,333

 
3,774,431

Federal Home Loan Bank stock, at cost
31,077

 
20,790

Total investment securities
3,851,410

 
3,795,221

Loans held for sale, at lower of cost or fair value

 
481,100

Gross loans and leases held for investment
17,295,589

 
17,032,221

Deferred fees, net
(65,443
)
 
(59,478
)
Allowance for loan and lease losses
(141,920
)
 
(139,456
)
Total loans and leases held for investment, net
17,088,226

 
16,833,287

Equipment leased to others under operating leases
275,707

 
284,631

Premises and equipment, net
34,012

 
31,852

Foreclosed assets, net
4,407

 
1,329

Deferred tax asset, net
41,280

 

Goodwill
2,548,670

 
2,548,670

Core deposit and customer relationship intangibles, net
62,106

 
79,626

Other assets
494,522

 
540,723

Total assets
$
24,782,126

 
$
24,994,876

 
 
 
 
LIABILITIES:
 
 
 
Noninterest-bearing deposits
$
7,834,480

 
$
8,508,044

Interest-bearing deposits
10,045,063

 
10,357,492

Total deposits
17,879,543

 
18,865,536

Borrowings
1,513,166

 
467,342

Subordinated debentures
452,944

 
462,437

Accrued interest payable and other liabilities
194,788

 
221,963

Total liabilities
20,040,441

 
20,017,278

 
 
 
 
Commitments and contingencies


 


 
 
 
 
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 September 30, 2018 and
 
 
 
December 31, 2017; 125,132,237 and 130,491,108 shares issued, respectively, includes
 
 
 
1,529,273 and 1,436,120 shares of unvested restricted stock, respectively)
1,251

 
1,305

Additional paid-in capital
3,789,893

 
4,287,487

Retained earnings
1,067,633

 
723,471

Treasury stock, at cost (1,848,787 and 1,708,230 shares at September 30, 2018 and December 31, 2017)
(73,238
)
 
(65,836
)
Accumulated other comprehensive (loss) income, net
(43,854
)
 
31,171

Total stockholders' equity
4,741,685

 
4,977,598

Total liabilities and stockholders' equity
$
24,782,126

 
$
24,994,876

See Notes to Condensed Consolidated Financial Statements.

4



PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
June 30,
 
September 30,
 
September 30,
 
2018
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
 
(Dollars in thousands, except per share amounts)
Interest income:
 
 
 
 
 
 
 
 
 
Loans and leases
$
264,062

 
$
260,300

 
$
235,666

 
$
775,447

 
$
694,462

Investment securities
28,061

 
27,730

 
24,762

 
81,929

 
72,490

Deposits in financial institutions
519

 
484

 
538

 
1,555

 
967

Total interest income
292,642

 
288,514

 
260,966

 
858,931

 
767,919

Interest expense:
 
 
 
 
 
 
 
 
 
Deposits
21,121

 
16,367

 
13,071

 
51,306

 
31,653

Borrowings
3,814

 
2,649

 
188

 
7,383

 
2,272

Subordinated debentures
7,390

 
7,166

 
6,017

 
21,093

 
17,379

Total interest expense
32,325

 
26,182

 
19,276

 
79,782

 
51,304

Net interest income
260,317

 
262,332

 
241,690

 
779,149

 
716,615

Provision for credit losses
11,500

 
17,500

 
15,119

 
33,000

 
51,346

Net interest income after provision for credit losses
248,817

 
244,832

 
226,571

 
746,149

 
665,269

Noninterest income:
 
 
 
 
 
 
 
 
 
Service charges on deposit accounts
3,979

 
4,265

 
3,465

 
12,418

 
10,733

Other commissions and fees
12,397

 
11,767

 
9,944

 
34,429

 
30,917

Leased equipment income
9,120

 
9,790

 
8,332

 
28,497

 
29,442

Gain on sale of loans and leases

 
106

 
2,848

 
4,675

 
4,209

Gain on sale of securities
826

 
253

 
1,236

 
7,390

 
2,788

Other income
10,590

 
13,457

 
5,557

 
27,700

 
23,689

Total noninterest income
36,912

 
39,638

 
31,382

 
115,109

 
101,778

Noninterest expense:
 
 
 
 
 
 
 
 
 
Compensation
72,333

 
69,913

 
64,413

 
213,269

 
194,581

Occupancy
13,069

 
13,575

 
12,729

 
39,867

 
36,148

Data processing
6,740

 
6,896

 
6,459

 
20,295

 
19,811

Other professional services
6,058

 
5,257

 
4,213

 
15,754

 
11,567

Insurance and assessments
5,446

 
5,330

 
4,702

 
16,503

 
14,349

Intangible asset amortization
5,587

 
5,587

 
3,049

 
17,520

 
9,178

Leased equipment depreciation
5,001

 
5,237

 
4,862

 
15,613

 
15,719

Foreclosed assets (income) expense, net
(257
)
 
(61
)
 
2,191

 
(440
)
 
2,177

Acquisition, integration and reorganization costs
800

 

 
1,450

 
800

 
3,650

Loan expense
2,249

 
3,058

 
3,421

 
7,578

 
10,692

Other expense
11,127

 
11,657

 
11,053

 
35,238

 
34,921

Total noninterest expense
128,153

 
126,449

 
118,542

 
381,997

 
352,793

Earnings before income taxes
157,576

 
158,021

 
139,411

 
479,261

 
414,254

Income tax expense
(41,289
)
 
(42,286
)
 
(37,945
)
 
(128,963
)
 
(140,473
)
Net earnings
$
116,287

 
$
115,735

 
$
101,466

 
$
350,298

 
$
273,781

 
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
 
Basic
$
0.94

 
$
0.92

 
$
0.84

 
$
2.79

 
$
2.26

Diluted
$
0.94

 
$
0.92

 
$
0.84

 
$
2.79

 
$
2.26


See Notes to Condensed Consolidated Financial Statements.

5



PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
June 30,
 
September 30,
 
September 30,
 
2018
 
2018
 
2017
 
2018
 
2017
 
(Unaudited)
 
(In thousands)
Net earnings
$
116,287

 
$
115,735

 
$
101,466

 
$
350,298

 
$
273,781

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
 
Unrealized net holding (losses) gains on securities
 
 
 
 
 
 
 
 
 
available-for-sale arising during the period
(29,267
)
 
(14,325
)
 
7,812

 
(106,261
)
 
49,336

Income tax benefit (expense) related to net unrealized
 
 
 
 
 
 
 
 
 
holding (losses) gains arising during the period
8,344

 
4,102

 
(3,198
)
 
30,377

 
(20,055
)
Unrealized net holding (losses) gains on securities
 
 
 
 
 
 
 
 
 
available-for-sale, net of tax
(20,923
)
 
(10,223
)
 
4,614

 
(75,884
)
 
29,281

Reclassification adjustment for net (gains) losses
 
 
 
 
 
 
 
 
 
included in net earnings (1)
(826
)
 
(253
)
 
(1,236
)
 
(7,390
)
 
(2,788
)
Income tax expense (benefit) related to reclassification
 
 
 
 
 
 
 
 
 
adjustment
235

 
72

 
506

 
2,113

 
1,138

Reclassification adjustment for net (gains) losses
 
 
 
 
 
 
 
 
 
included in net earnings, net of tax
(591
)
 
(181
)
 
(730
)
 
(5,277
)
 
(1,650
)
Other comprehensive (loss) income, net of tax
(21,514
)
 
(10,404
)
 
3,884

 
(81,161
)
 
27,631

Comprehensive income
$
94,773

 
$
105,331

 
$
105,350

 
$
269,137

 
$
301,412

___________________________________ 
(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.


6



PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
 
Nine Months Ended September 30, 2018
 
Common Stock
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
Additional
 
 
 
 
 
Other
 
 
 
 
 
Par
 
Paid-in
 
Retained
 
Treasury
 
Comprehensive
 
 
 
Shares
 
Value
 
Capital
 
Earnings
 
Stock
 
Income (Loss)
 
Total
 
(Unaudited)
 
(Dollars in thousands)
Balance, December 31, 2017
128,782,878

 
$
1,305

 
$
4,287,487

 
$
723,471

 
$
(65,836
)
 
$
31,171

 
$
4,977,598

Cumulative effects of changes in
 
 
 
 
 
 
 
 
 
 
 
 
 
accounting principles (1)

 

 

 
(6,136
)
 

 
6,136

 

Net earnings

 

 

 
118,276

 

 

 
118,276

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

 

 

 

 

 
(49,243
)
 
(49,243
)
Restricted stock awarded and
 
 
 
 
 
 
 
 
 
 
 
 
 
earned stock compensation,
 
 
 
 
 
 
 
 
 
 
 
 
 
net of shares forfeited
96,034

 
1

 
7,198

 

 

 

 
7,199

Restricted stock surrendered
(55,186
)
 

 

 

 
(2,858
)
 

 
(2,858
)
Common stock repurchased under
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock Repurchase Program
(2,285,855
)
 
(23
)
 
(119,770
)
 

 

 

 
(119,793
)
Cash dividends paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.50/share

 

 
(63,689
)
 

 

 

 
(63,689
)
Balance, March 31, 2018
126,537,871

 
1,283

 
4,111,226

 
835,611

 
(68,694
)
 
(11,936
)
 
4,867,490

Net earnings

 

 

 
115,735

 

 

 
115,735

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

 

 

 

 

 
(10,404
)
 
(10,404
)
Restricted stock awarded and
 
 
 
 
 
 
 
 
 
 
 
 
 
earned stock compensation,
 
 
 
 
 
 
 
 
 
 
 
 
 
net of shares forfeited
398,132

 
4

 
7,542

 

 

 

 
7,546

Restricted stock surrendered
(81,172
)
 

 

 

 
(4,332
)
 

 
(4,332
)
Common stock repurchased under
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock Repurchase Program
(2,286,881
)
 
(23
)
 
(122,001
)
 

 

 

 
(122,024
)
Cash dividends paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.60/share

 

 
(76,052
)
 

 

 

 
(76,052
)
Balance, June 30, 2018
124,567,950

 
1,264

 
3,920,715

 
951,346

 
(73,026
)
 
(22,340
)
 
4,777,959

Net earnings

 

 

 
116,287

 

 

 
116,287

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

 

 

 

 

 
(21,514
)
 
(21,514
)
Restricted stock awarded and
 
 
 
 
 
 
 
 
 
 
 
 
 
earned stock compensation,
 
 
 
 
 
 
 
 
 
 
 
 
 
net of shares forfeited
(3,803
)
 

 
8,137

 

 

 

 
8,137

Restricted stock surrendered
(4,199
)
 

 

 

 
(212
)
 

 
(212
)
Common stock repurchased under
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock Repurchase Program
(1,276,498
)
 
(13
)
 
(64,564
)
 

 

 

 
(64,577
)
Cash dividends paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.60/share

 

 
(74,395
)
 

 

 

 
(74,395
)
Balance, September 30, 2018
123,283,450

 
$
1,251

 
$
3,789,893

 
$
1,067,633

 
$
(73,238
)
 
$
(43,854
)
 
$
4,741,685

________________________
(1)
Impact due to adoption on January 1, 2018 of ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" and ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income."

See Notes to Condensed Consolidated Financial Statements.



7



PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

 
Nine Months Ended September 30, 2017
 
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, 2016
121,283,669

 
$
1,228

 
$
4,162,132

 
$
366,073

 
$
(56,360
)
 
$
5,982

 
$
4,479,055

Cumulative effect of change in
 
 
 
 
 
 
 
 
 
 
 
 
 
accounting principle (1)

 

 
711

 
(420
)
 

 

 
291

Net earnings

 

 

 
78,668

 

 

 
78,668

Other comprehensive income - net
 
 
 
 
 
 
 
 
 
 
 
 
 
unrealized gain on securities
 
 
 
 
 
 
 
 
 
 
 
 
 
available-for-sale, net of tax

 

 

 

 

 
6,736

 
6,736

Restricted stock awarded and
 
 
 
 
 
 
 
 
 
 
 
 
 
earned stock compensation,
 
 
 
 
 
 
 
 
 
 
 
 
 
net of shares forfeited
165,648

 
2

 
6,468

 

 

 

 
6,470

Restricted stock surrendered
(41,184
)
 

 

 

 
(2,281
)
 

 
(2,281
)
Cash dividends paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.50/share

 

 
(60,833
)
 

 

 

 
(60,833
)
Balance, March 31, 2017
121,408,133

 
1,230

 
4,108,478

 
444,321

 
(58,641
)
 
12,718

 
4,508,106

Net earnings

 

 

 
93,647

 

 

 
93,647

Other comprehensive income - net
 
 
 
 
 
 
 
 
 
 
 
 
 
unrealized gain on securities
 
 
 
 
 
 
 
 
 
 
 
 
 
available-for-sale, net of tax

 

 

 

 

 
17,011

 
17,011

Restricted stock awarded and
 
 
 
 
 
 
 
 
 
 
 
 
 
earned stock compensation,
 
 
 
 
 
 
 
 
 
 
 
 
 
net of shares forfeited
147,850

 
1

 
7,248

 

 

 

 
7,249

Restricted stock surrendered
(107,662
)
 

 

 

 
(5,277
)
 

 
(5,277
)
Cash dividends paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.50/share

 

 
(60,831
)
 

 

 

 
(60,831
)
Balance, June 30, 2017
121,448,321

 
1,231

 
4,054,895

 
537,968

 
(63,918
)
 
29,729

 
4,559,905

Net earnings

 

 

 
101,466

 

 

 
101,466

Other comprehensive income - net
 
 
 
 
 
 
 
 
 
 
 
 
 
unrealized gain on securities
 
 
 
 
 
 
 
 
 
 
 
 
 
available-for-sale, net of tax

 

 

 

 

 
3,884

 
3,884

Restricted stock awarded and
 
 
 
 
 
 
 
 
 
 
 
 
 
earned stock compensation,
 
 
 
 
 
 
 
 
 
 
 
 
 
net of shares forfeited
6,365

 

 
6,479

 

 

 

 
6,479

Restricted stock surrendered
(4,892
)
 

 

 

 
(235
)
 

 
(235
)
Cash dividends paid:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock, $0.50/share

 

 
(60,831
)
 

 

 

 
(60,831
)
Balance, September 30, 2017
121,449,794

 
$
1,231

 
$
4,000,543

 
$
639,434

 
$
(64,153
)
 
$
33,613

 
$
4,610,668

________________________
(1)
Impact due to adoption on January 1, 2017 of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting."
See Notes to Condensed Consolidated Financial Statements.


8



PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended
 
September 30,
 
2018
 
2017
 
(Unaudited)
 
(In thousands)
Cash flows from operating activities:
 
 
 
Net earnings
$
350,298

 
$
273,781

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
25,788

 
23,798

Amortization of net premiums on securities available-for-sale
19,489

 
30,238

Amortization of intangible assets
17,520

 
9,178

Provision for credit losses
33,000

 
51,346

Loss (gain) on sale of foreclosed assets
35

 
(282
)
Provision for losses on foreclosed assets
65

 
2,138

Gain on sale of loans and leases
(4,675
)
 
(4,209
)
Gain on sale of premises and equipment
(13
)
 
(388
)
Gain on sale of securities
(7,390
)
 
(2,788
)
Gain on BOLI death benefit
(437
)
 
(1,050
)
Unrealized loss (gain) on derivatives and foreign currencies, net
76

 
(449
)
Earned stock compensation
22,882

 
20,198

(Increase) decrease in deferred income taxes, net
(8,790
)
 
10,164

Decrease (increase) in other assets
52,275

 
(32,765
)
Decrease in accrued interest payable and other liabilities
(36,303
)
 
(20,738
)
Net cash provided by operating activities
463,820

 
358,172

 
 
 
 
Cash flows from investing activities:
 
 
 
Net increase in loans and leases
(446,880
)
 
(567,291
)
Proceeds from sales of loans and leases
646,587

 
293,808

Proceeds from maturities and paydowns of securities available-for-sale
231,474

 
329,876

Proceeds from sales of securities available-for-sale
500,101

 
185,533

Purchases of securities available-for-sale
(910,298
)
 
(804,710
)
Net (purchases) redemptions of Federal Home Loan Bank stock
(10,287
)
 
4,620

Proceeds from sales of foreclosed assets
57

 
1,455

Purchases of premises and equipment, net
(9,250
)
 
(5,892
)
Proceeds from sales of premises and equipment
49

 
10,306

Proceeds from BOLI death benefit
1,901

 
2,478

Net decrease in equipment leased to others under operating leases
(6,000
)
 
(17,956
)
Net cash used in investing activities
(2,546
)
 
(567,773
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Net (decrease) increase in noninterest-bearing deposits
(671,016
)
 
255,874

Net (decrease) increase in interest-bearing deposits
(312,429
)
 
649,776

Net increase (decrease) in borrowings
1,045,824

 
(655,413
)
Net decrease in subordinated debentures
(12,372
)
 

Common stock repurchased and restricted stock surrendered
(313,796
)
 
(7,793
)
Cash dividends paid
(214,136
)
 
(182,495
)
Net cash (used in) provided by financing activities
(477,925
)
 
59,949

 
 
 
 
Net decrease in cash, cash equivalents, and restricted cash
(16,651
)
 
(149,652
)
Cash, cash equivalents, and restricted cash, beginning of period
398,437

 
419,670

Cash, cash equivalents, and restricted cash, end of period
$
381,786

 
$
270,018



See Notes to Condensed Consolidated Financial Statements.


9



PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended
 
September 30,
 
2018
 
2017
 
(Unaudited)
 
(In thousands)
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
78,884

 
$
48,402

Cash paid for income taxes
62,525

 
146,321

Loans transferred to foreclosed assets
3,235

 
580

Transfers from loans held for investment to loans held for sale

 
175,158

  

See Notes to Condensed Consolidated Financial Statements.


10



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)


NOTE 1.  ORGANIZATION    
PacWest Bancorp, a Delaware corporation, is a bank holding company registered under the BHCA, with our corporate headquarters located in Beverly Hills, California. Our principal business is to serve as the holding company for our wholly-owned 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," 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.
We are focused on relationship-based business banking to small, middle-market and venture-backed businesses nationwide. At September 30, 2018, the Bank offers a broad range of loan and lease and deposit products and services through 74 full-service branches located throughout the State of California, one branch located in Durham, North Carolina, and numerous loan production offices located in cities across the country. Community Banking provides lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices. We offer additional products and services through our National Lending and Venture Banking groups. National Lending provides asset-based, equipment, real estate, and security cash flow loans and treasury management services to established middle-market businesses on a national basis. Venture Banking 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.
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 29 acquisitions from May 1, 2000 through September 30, 2018. 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 CUB acquisition.
El Dorado Savings Bank Merger Announcement
On September 11, 2018, PacWest entered into a definitive agreement and plan of merger (the “Agreement”) whereby PacWest will acquire El Dorado Savings Bank, F.S.B. (“El Dorado”) in a transaction valued at approximately $466.7 million.
El Dorado, headquartered in Placerville, California, is a federally chartered savings bank founded in 1958, with approximately $2.2 billion in assets and 35 branches located primarily in eight Northern California counties and two Northern Nevada counties. In connection with the transaction, El Dorado will be merged into the Bank.
The transaction, which was approved by the PacWest and El Dorado boards of directors, is expected to close in the first quarter of 2019 and is subject to customary closing conditions, including obtaining approval by bank regulatory authorities and El Dorado’s shareholders.

11



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)


Significant Accounting Policies
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, 2017 as filed with the Securities and Exchange Commission ("Form 10-K"). Updates to our significant accounting policies described below reflect the impact of the adoption of ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" and ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”
Investment Securities
Our significant accounting policy for investment securities applied to both debt and equity securities in prior periods. Effective January 1, 2018, upon the adoption of ASUs 2016-01 and 2018-03, our significant accounting policy for investment securities applies only to debt securities.
Equity Investments
Investments in common or preferred stock that are not publicly traded and certain investments in limited partnerships are considered equity investments that do not have a readily determinable fair value. If we have the ability to significantly influence the operating and financial policies of the investee, the investment is accounted for pursuant to the equity method of accounting. This is generally presumed to exist when we own between 20% and 50% of a corporation, or when we own greater than 5% of a limited partnership or similarly structured entity. Our equity investment carrying values are included in other assets and our share of earnings and losses in equity method investees is included in "Noninterest income - other" on the condensed consolidated statements of earnings. Prior to January 1, 2018, if we did not have significant influence over the investee, the cost method was used to account for the equity interest.
Effective January 1, 2018 with the adoption of ASU 2016-01, our accounting treatment for equity investments differs for those with and without readily determinable fair values. Equity investments with readily determinable fair values are recorded at fair value with changes in fair value recorded in “Noninterest income - other.” For equity investments without readily determinable fair values we have elected the “measurement alternative,” and therefore carry these investments at cost, less impairment (if any), plus or minus changes in observable prices. On a quarterly basis, we review our equity investments without readily determinable fair values for impairment. We consider a number of qualitative factors such as whether there is a significant deterioration in earnings performance, credit rating, asset quality, or business prospects of the investee in determining if impairment exists. If the investment is considered impaired, an impairment loss equal to the amount by which the carrying value exceeds its fair value is recorded through a charge to earnings. The impairment loss may be reversed in a subsequent period if there are observable transactions for the identical or similar investment of the same issuer at a higher amount than the carrying amount that was established when the impairment was recognized. Impairment as well as upward or downward adjustments resulting from observable price changes in orderly transactions for identical or similar investments are included in “Noninterest income - other.”
Realized gains or losses resulting from the sale of equity investments are calculated using the specific identification method and are included in "Noninterest income - other."
Comprehensive Income
Comprehensive income consists of net earnings and net unrealized gains (losses) on debt securities available‑for‑sale, net, and is presented in the consolidated statements of comprehensive income.

12



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)


Accounting Standards Adopted in 2018
Effective January 1, 2018, the Company adopted ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" and ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 contained a number of changes which are applicable to the Company including the following: (1) requires equity investments to be measured at fair value with changes in fair value recognized in net income; (2) allows equity investments without readily determinable fair values to be measured at cost less impairment, if any, plus or minus changes in observable prices (referred to as the "measurement alternative"); and (3) changes certain presentation and disclosure requirements for financial instruments, including using the exit price notion when measuring the fair value of financial instruments (see Note 11. Fair Value Measurements). ASU 2018-03 also clarified certain aspects of the guidance issued in ASU 2016-01, including requiring a prospective transition approach for equity investments without readily determinable fair value in which the measurement alternative is applied.
ASU 2016-01 does not apply to investments accounted for using the equity method, investments in consolidated subsidiaries, FHLB stock, and investments in low income housing tax credit projects. Upon adoption of ASU 2016-01, the Company recorded a transition adjustment to reclassify $529,000 in net unrealized gains from accumulated other comprehensive income ("AOCI") to retained earnings. The ASU also eliminated the requirement to classify equity investments into different categories such as “Available-for-sale.” The adoption of this ASU may result in more earnings volatility as changes in fair value of certain equity investments will now be recorded in the statement of earnings as opposed to AOCI.
Effective January 1, 2018, the Company early-adopted ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The TCJA required deferred tax assets and liabilities to be re-measured at its enactment date for the effect of the change in the federal corporate tax rate. This process resulted in "stranded tax effects" in AOCI for deferred tax asset or liabilities which were established with an offsetting amount in AOCI. ASU 2018-02 allows for a reclassification of the stranded tax effects resulting from the enactment of the TCJA from AOCI to retained earnings. The Company elected to reclassify its stranded tax effects of $6.665 million from AOCI to retained earnings effective January 1, 2018, while no other income tax effects related to the application of the TCJA were reclassified.
Effective January 1, 2018, the Company adopted ASU 2014-09, "Revenue Recognition (Topic 606): Revenue from Contracts with Customers." ASU 2014-09 supersedes Topic 605, "Revenue Recognition" and requires an entity to recognize revenue at an amount that reflects the consideration to which it expects to be entitled to in exchange for the transfer of promised goods or services to customers.
Substantially all of the Company's revenue is interest income on loans, investment securities, and deposits at other financial institutions which are specifically outside the scope of ASU 2014-09. ASU 2014-09 applies primarily to certain noninterest income items in the Company's condensed consolidated statement of earnings. The Company adopted ASU 2014-09 as of January 1, 2018 using the cumulative effect transition method, which resulted in no adjustment to retained earnings and no material impact on the Company's consolidated financial position, results of operations, or cash flows. The Company did make minor changes to accounting operations and internal controls as part of adopting this new standard. See Note 13. Revenue From Contracts With Customers for further details.
Effective January 1, 2018, the Company adopted ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments." Upon adoption, the Company applied the retrospective transition method to each period presented. ASU 2016-15 addressed eight issues related to the statement of cash flows, the most relevant to the Company being the classification of proceeds from the settlement of BOLI policies. As the Company classified proceeds from the settlement of BOLI policies in the manner required by ASU 2016-15 in the prior periods presented, there was no change to the Company's consolidated financial position, results of operations, or cash flows for both current and prior periods upon adoption.
Effective January 1, 2018, the Company adopted ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." Upon adoption, the Company applied the retrospective transition method to each period presented. As the Company does not present restricted cash as a separate line in the statement of financial position, there is no change to the presentation of cash on the statement of cash flows. The nature and amount of our restricted cash is shown in Note 2. Restricted Cash Balances.

13



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)


Effective January 1, 2018, the Company adopted ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." ASU 2017-01 provides a new framework for determining whether transactions should be accounted for as acquisitions of assets or businesses. The Company had no acquisitions or purchases of components of a business in the first three quarters of 2018, thus, the impact of adopting the new standard had no impact on the Company's consolidated financial position, results of operations, or cash flows.
Effective January 1, 2018, the Company adopted ASU 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting." ASU 2017-09 provided clarification of what constitutes a modification of a share-based payment award. The Company did not modify any share-based payment awards in the first three quarters of 2018, thus, the impact of adopting the new standard had no impact on the Company's consolidated financial position, results of operations, or cash flows.
Basis of Presentation    
Our interim condensed consolidated financial statements are prepared in accordance with 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 condensed 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.
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. Actual results could differ from those estimates. Material estimates subject to change in the near term include, among other items, the allowance for credit losses (the combination of the allowance for loan and lease losses and the reserve for unfunded loan commitments), the carrying value 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.
The allowance for loan and lease losses (“ALLL”) represents management’s estimate of probable credit losses inherent in the loan portfolio as of the balance sheet date. During the second quarter of 2018, the Company changed its ALLL methodology due to the growth and increased complexity of the loan portfolio. The new ALLL methodology included three primary changes: the quantitative component now employs a probability of default/loss given default ("PD/LGD") methodology; the loan segmentation groups our loan portfolio into 21 loan segments with similar risk characteristics (as opposed to 34 loan segments used under the previous methodology); and the historical range of loan performance history (often referred to as the look-back period) was lengthened by one year. The methodology for assessing individually impaired loans did not change under the new ALLL methodology. The ALLL methodology used to derive qualitative adjustments based on other internal or external factors was updated to align with the new PD/LGD methodology being applied to estimate the quantitative general allowance for unimpaired loans. As a result, the composition of the ALLL changed as the quantitative component increased and the qualitative component decreased as the new quantitative methodology now encompasses more information, such as the longer look-back period, that previously required a qualitative adjustment as part of determining the total ALLL estimate. These changes in the ALLL methodology did not result in material changes to management's overall estimate of the ALLL.








14



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)


Reclassifications
Certain prior period amounts have been reclassified to conform to the current period’s presentation format. In our loan and allowance tables, we realigned our commercial loan portfolio classes and subclasses to better reflect and report our lending, especially in light of the fourth quarter of 2017 cash flow loan sale and the exiting of the origination operations related to general, technology, and healthcare cash flow loans. Prior to the realignment, our commercial portfolio classes were: (1) asset-based, (2) venture capital, (3) cash flow, and (4) equipment finance. After the realignment, our commercial portfolio classes are (1) asset-based (which includes equipment finance), (2) venture capital, and (3) other commercial (which includes retained cash flow). All of the loan and allowance tables, both current period and prior periods, reflect this realignment.
Prior to January 1, 2018, our credit quality disclosures were only for Non-PCI loans and leases. As our gross PCI loan portfolio reduced to less than 0.4% of total loans as of the end of 2017, beginning in 2018 the credit quality disclosures reflect our entire loan and lease portfolio. Accordingly, for the credit quality tables in Note 6. Loans and Leases, amounts related to the 2018 periods are for total loans and leases, while amounts related to the 2017 periods are for Non-PCI loans and leases only.
NOTE 2. RESTRICTED CASH BALANCES
The Company is required to maintain reserve balances with the FRBSF. Such reserve requirements are based on a percentage of deposit liabilities and may be satisfied by cash on hand. The average reserves required to be held at the FRBSF for the nine months ended September 30, 2018 and year ended December 31, 2017 were $76.9 million and $77.6 million. As of September 30, 2018 and December 31, 2017, we pledged cash collateral for our derivative contracts of $2.3 million and $2.7 million.
NOTE 3.  ACQUISITIONS    
CUB Acquisition
On October 20, 2017, we completed the acquisition of CUB. As part of the acquisition, CU Bank, a wholly-owned subsidiary of CUB, was merged with and into the Bank.
We completed the acquisition to, among other things, enhance our Southern California community bank franchise by adding a $2.1 billion loan portfolio and $2.7 billion of core deposits. The CUB acquisition has been accounted for under the acquisition method of accounting. We acquired $3.5 billion of assets and assumed $2.8 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 provisional 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 application of the acquisition method of accounting resulted in goodwill of $374.7 million. All of the recognized goodwill is non-deductible for tax purposes.
NOTE 4.  GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets arise from the acquisition method of accounting for business combinations. Goodwill and other intangible assets generated from business combinations and deemed to have indefinite lives are not subject to amortization and instead are tested for impairment at least annually. Goodwill represents the excess of the purchase price over the fair value of the net assets and other identifiable intangible assets acquired. Impairment exists when the carrying value of the goodwill exceeds its implied fair value. An impairment loss would be recognized in an amount equal to that excess as a charge to "Noninterest expense" in the condensed consolidated statements of earnings.
Our other intangible assets with definite lives include CDI and CRI. 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 aggregate amortization expense is expected to be $22.5 million for 2018. The estimated aggregate amortization expense related to our current intangible assets for each of the next five years is $18.7 million for 2019, $14.6 million for 2020, $10.8 million for 2021, $7.5 million for 2022, and $1.4 million for 2023.

15



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)


The following table presents the changes in CDI and CRI and the related accumulated amortization for the periods indicated:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
June 30,
 
September 30,
 
September 30,
 
2018
 
2018
 
2017
 
2018
 
2017
 
(In thousands)
Gross Amount of CDI and CRI:
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
119,497

 
$
119,497

 
$
64,187

 
$
119,497

 
$
64,187

Fully amortized portion

 

 
(2,190
)
 

 
(2,190
)
Balance, end of period
119,497

 
119,497

 
61,997

 
119,497

 
61,997

Accumulated Amortization:
 
 
 
 
 
 
 
 
 
Balance, beginning of period
(51,804
)
 
(46,217
)
 
(33,950
)
 
(39,871
)
 
(27,821
)
Amortization
(5,587
)
 
(5,587
)
 
(3,049
)
 
(17,520
)
 
(9,178
)
Fully amortized portion

 

 
2,190

 

 
2,190

Balance, end of period
(57,391
)
 
(51,804
)
 
(34,809
)
 
(57,391
)
 
(34,809
)
Net CDI and CRI, end of period
$
62,106

 
$
67,693

 
$
27,188

 
$
62,106

 
$
27,188

NOTE 5. INVESTMENT SECURITIES     
Securities Available-for-Sale
The following table presents amortized cost, gross unrealized gains and losses, and fair values of securities available-for-sale as of the dates indicated:
 
September 30, 2018
 
December 31, 2017
 
 
 
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 MBS and CMOs:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency MBS
$
251,150

 
$
1,971

 
$
(3,290
)
 
$
249,831

 
$
243,375

 
$
3,743

 
$
(844
)
 
$
246,274

Agency CMOs
583,062

 
220

 
(13,677
)
 
569,605

 
277,638

 
968

 
(2,897
)
 
275,709

Private label CMOs
110,353

 
2,699

 
(2,602
)
 
110,450

 
122,816

 
3,813

 
(642
)
 
125,987

Municipal securities
1,272,501

 
10,974

 
(11,892
)
 
1,271,583

 
1,627,707

 
53,700

 
(1,339
)
 
1,680,068

Agency commercial MBS
1,117,749

 

 
(40,744
)
 
1,077,005

 
1,169,969

 
2,758

 
(8,758
)
 
1,163,969

U.S. Treasury securities
400,591

 

 
(2,960
)
 
397,631

 

 

 

 

SBA securities
69,999

 

 
(2,413
)
 
67,586

 
160,214

 
695

 
(575
)
 
160,334

Asset-backed securities
59,322

 
18

 
(888
)
 
58,452

 
89,425

 
159

 
(874
)
 
88,710

Corporate debt securities
17,000

 
1,190

 

 
18,190

 
17,000

 
2,295

 

 
19,295

Collateralized loan obligations

 

 

 

 
6,960

 
55

 

 
7,015

Equity investments (1)

 

 

 

 
6,421

 
779

 
(130
)
 
7,070

Total
$
3,881,727

 
$
17,072

 
$
(78,466
)
 
$
3,820,333

 
$
3,721,525

 
$
68,965

 
$
(16,059
)
 
$
3,774,431

____________________________
(1)
In connection with our adoption of ASU 2016-01 and ASU 2018-03 on January 1, 2018, we reclassified $7.1 million of equity investments from securities available-for-sale to other assets in the first quarter of 2018. The reclassification was applied prospectively without prior period amounts being restated.
As of September 30, 2018, securities available-for-sale with a fair value of $427.8 million were pledged as collateral for borrowings, public deposits, and other purposes as required by various statutes and agreements.

16



PACWEST BANCORP AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)


Realized Gains and Losses on Securities Available-for-Sale
During the three months ended September 30, 2018, we sold $130.5 million of securities available-for-sale for a gross realized gain of $958,000 and a gross realized loss of $132,000. During the three months ended September 30, 2017, we sold $98.3 million of securities available-for-sale for a gross realized gain of $1.3 million and a gross realized loss of $119,000.
During the nine months ended September 30, 2018, we sold $492.7 million of securities available-for-sale for a gross realized gain of $8.1 million and a gross realized loss of $707,000. During the nine months ended September 30, 2017, we sold $182.7 million of securities available-for-sale for a gross realized gain of $3.3 million and a gross realized loss of $498,000.
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:
 
September 30, 2018
 
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 MBS and CMOs:
 
 
 
 
 
 
 
 
 
 
 
Agency MBS
$
76,238

 
$
(1,332
)
 
$
51,861

 
$
(1,958
)
 
$
128,099

 
$
(3,290
)
Agency CMOs
401,795

 
(6,418
)
 
140,997

 
(7,259
)
 
542,792

 
(13,677
)
Private label CMOs
46,713

 
(1,101
)
 
34,654

 
(1,501
)
 
81,367

 
(2,602
)
Municipal securities
436,012

 
(8,743
)
 
55,402

 
(3,149
)
 
491,414

 
(11,892
)
Agency commercial MBS
784,452

 
(26,454
)
 
292,553

 
(14,290
)
 
1,077,005

 
(40,744
)
U.S. Treasury securities
397,631

 
(2,960
)
 

 

 
397,631

 
(2,960
)
SBA securities
32,867

 
(1,143
)
 
34,719

 
(1,270
)
 
67,586

 
(2,413
)
Asset-backed securities
20,815

 
(147
)
 
35,278

 
(741
)
 
56,093

 
(888
)
Total
$
2,196,523

 
$
(48,298
)
 
$
645,464

 
$
(30,168
)
 
$
2,841,987

 
$
(78,466
)
 
December 31, 2017
 
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 MBS and CMOs:
 
 
 
 
 
 
 
 
 
 
Agency MBS
$
44,795

 
$
(311
)
 
$
26,010

 
$
(533
)
 
$
70,805

 
$
(844
)
Agency CMOs
163,014

 
(2,452
)
 
20,928

 
(445
)
 
183,942

 
(2,897
)
Private label CMOs
50,521

 
(500
)
 
5,035

 
(142
)
 
55,556

 
(642
)
Municipal securities
67,936

 
(365
)
 
32,326

 
(974
)
 
100,262

 
(1,339
)
Agency commercial MBS
579,373

 
(3,777
)