| Business Segments |
BUSINESS SEGMENTS The Company’s reportable segments consist of “Community Banking," “National Lending,” and “Other.” As a result of the CapitalSource Inc. merger, Pacific Western Bank established the CapitalSource Division, which we also refer to as the National Lending segment. The CapitalSource Division, or National Lending segment, includes the lending operations gained through the CapitalSource Inc. merger, Pacific Western Equipment Finance, and the CapitalSource Business Finance Group (formerly BFI Business Finance and First Community Financial). We reorganized our asset-based lending and leasing operations when we established the CapitalSource Division. We combined BFI Business Finance and First Community Financial to form the CapitalSource Business Finance Group, and we sold Celtic Capital Corporation in July 2014. The CapitalSource Division lends throughout the United States, providing middle-market businesses asset-secured loans, equipment-secured loans, and cash flow loans and providing real estate investment firms real estate loans secured by various property types. The CapitalSource Division’s loan and lease origination efforts are conducted through offices located in Chevy Chase, Maryland; Los Angeles and San Jose, California; St. Louis, Missouri; Denver, Colorado; Chicago, Illinois; New York, New York; and Midvale, Utah. The Community Banking and National Lending segments include all of the operations of Pacific Western Bank. The Community Banking segment includes the operations of Pacific Western Bank, excluding the CapitalSource Division, and includes lending and deposit gathering activities conducted primarily through its California-based branch offices and the Bank’s treasury management function and corporate overhead. The Other segment consists of holding company operations which result in expenses principally for compensation, facilities, professional services, interest on subordinated debentures, and the non-bank subsidiary operations including interest income from a loan portfolio and related loan servicing expense. Transactions between segments consist primarily of borrowed funds and expense allocations for interest, deposit gathering, corporate overhead and credit loss provisions. Intersegment interest expense is allocated from the Community Banking segment to the National Lending segment based upon National Lending’s average interest-earning assets and operating leases, net of a capital allocation, and the Bank’s total cost of deposits. The Community Banking segment further allocates to the National Lending segment noninterest expense for deposit gathering and maintenance costs and the Bank’s corporate overhead. The provision for credit losses is allocated based on actual charge‑offs for the period as well as net portfolio growth and credit quality trends. All costs associated with investing the Bank’s excess liquidity and acquisition, integration and reorganization costs are housed in the Community Banking segment. Noninterest income and noninterest expense, including lending and loan servicing activity, directly attributable to a segment are assigned to such segment. The following tables present information regarding our business segments as of and for the years indicated: | | | | | | | | | | | | | | | | | | December 31, 2014 | | Community | | National | | | | Consolidated | Balance Sheet Data: | Banking | | Lending | | Other | | Company | | (In thousands) | Loans and leases, net of unearned income | $ | 3,401,129 |
| | $ | 8,455,849 |
| | $ | 25,454 |
| | $ | 11,882,432 |
| Allowance for loan and lease losses | (48,253 | ) | | (36,202 | ) | | — |
| | (84,455 | ) | Total loans and leases, net | $ | 3,352,876 |
| | $ | 8,419,647 |
| | $ | 25,454 |
| | $ | 11,797,977 |
| Goodwill(1) | $ | 326,078 |
| | $ | 1,394,401 |
| | $ | — |
| | $ | 1,720,479 |
| Core deposit and customer relationship intangibles, net | 16,306 |
| | 898 |
| | — |
| | 17,204 |
| Total assets | 6,512,313 |
| | 9,483,601 |
| | 238,886 |
| | 16,234,800 |
| Total deposits(2) | 12,030,436 |
| | 33,179 |
| | (308,487 | ) | | 11,755,128 |
|
| | (1) | The increase in the goodwill for the Community Banking segment and National Lending segment during 2014 was due primarily to $1.5 billion from the CapitalSource merger. |
| | (2) | The negative balance for total deposits in the “Other” segment represents the elimination of holding company cash held in deposit accounts at the Bank. |
| | | | | | | | | | | | | | | | | | December 31, 2013 | | Community | | National | | | | Consolidated | Balance Sheet Data: | Banking | | Lending | | Other | | Company | | (In thousands) | Loans and leases, net of unearned income | $ | 3,837,475 |
| | $ | 474,877 |
| | $ | — |
| | $ | 4,312,352 |
| Allowance for loan and lease losses | (75,498 | ) | | (6,536 | ) | | — |
| | (82,034 | ) | Total loans and leases, net | $ | 3,761,977 |
| | $ | 468,341 |
| | $ | — |
| | $ | 4,230,318 |
| Goodwill(1) | $ | 183,065 |
| | $ | 25,678 |
| | $ | — |
| | $ | 208,743 |
| Core deposit and customer relationship intangibles, net | 15,331 |
| | 1,917 |
| | — |
| | 17,248 |
| Total assets | 6,004,067 |
| | 519,675 |
| | 9,621 |
| | 6,533,363 |
| Total deposits(2) | 5,302,822 |
| | — |
| | (21,835 | ) | | 5,280,987 |
|
| | (1) | The increase in the Community Banking segment's goodwill during 2013 was due primarily to $129.1 million from the FCAL acquisition. |
| | (2) | The negative balance for total deposits in the “Other” segment represents the elimination of holding company cash held in deposit accounts at the Bank. |
| | | | | | | | | | | | | | | | | | Year Ended December 31, 2014 | | Community | | National | | | | Consolidated | Results of Operations: | Banking | | Lending | | Other | | Company | | (In thousands) | Interest income | $ | 279,671 |
| | $ | 422,677 |
| | $ | 2,427 |
| | $ | 704,775 |
| Interest expense | (27,598 | ) | | (230 | ) | | (14,570 | ) | | (42,398 | ) | Intersegment interest income (expense) | 15,716 |
| | (15,716 | ) | | — |
| | — |
| Net interest income (expense) | 267,789 |
| | 406,731 |
| | (12,143 | ) | | 662,377 |
| Negative provision (provision) for credit losses | 21,311 |
| | (32,810 | ) | | — |
| | (11,499 | ) | Gain on securities | 4,841 |
| | — |
| | — |
| | 4,841 |
| FDIC loss sharing expense | (31,730 | ) | | — |
| | — |
| | (31,730 | ) | Other noninterest income | 25,168 |
| | 34,215 |
| | 9,693 |
| | 69,076 |
| Total noninterest income | (1,721 | ) | | 34,215 |
| | 9,693 |
| | 42,187 |
| Foreclosed assets (expense) income, net | (5,685 | ) | | (302 | ) | | 586 |
| | (5,401 | ) | Intangible asset amortization | (5,745 | ) | | (523 | ) | | — |
| | (6,268 | ) | Acquisition, integration and reorganization costs | (89,888 | ) | | (10,073 | ) | | (1,055 | ) | | (101,016 | ) | Other noninterest expense | (198,921 | ) | | (80,418 | ) | | (16,720 | ) | | (296,059 | ) | Total noninterest expense | (300,239 | ) | | (91,316 | ) | | (17,189 | ) | | (408,744 | ) | Intersegment noninterest income (expense) | 71,897 |
| | (71,897 | ) | | — |
| | — |
| Total noninterest expense - adjusted | (228,342 | ) | | (163,213 | ) | | (17,189 | ) | | (408,744 | ) | Earnings from continuing operations before taxes | 59,037 |
| | 244,923 |
| | (19,639 | ) | | 284,321 |
| Income tax (expense) benefit | (27,370 | ) | | (97,853 | ) | | 11,370 |
| | (113,853 | ) | Net earnings (loss) from continuing operations | 31,667 |
| | 147,070 |
| | (8,269 | ) | | 170,468 |
| Loss from discontinued operations before taxes | (2,677 | ) | | — |
| | — |
| | (2,677 | ) | Income tax benefit | 1,114 |
| | — |
| | — |
| | 1,114 |
| Net loss from discontinued operations | (1,563 | ) | | — |
| | — |
| | (1,563 | ) | Net earnings (loss) | $ | 30,104 |
| | $ | 147,070 |
| | $ | (8,269 | ) | | $ | 168,905 |
|
| | | | | | | | | | | | | | | | | | Year Ended December 31, 2013 | | Community | | National | | | | Consolidated | Results of Operations: | Banking | | Lending | | Other | | Company | | (In thousands) | Interest income | $ | 261,492 |
| | $ | 48,422 |
| | $ | — |
| | $ | 309,914 |
| Interest expense | (7,873 | ) | | (532 | ) | | (3,796 | ) | | (12,201 | ) | Intersegment interest income (expense) | 1,525 |
| | (1,525 | ) | | — |
| | — |
| Net interest income | 255,144 |
| | 46,365 |
| | (3,796 | ) | | 297,713 |
| Negative provision (provision) for credit losses | 8,079 |
| | (3,869 | ) | | — |
| | 4,210 |
| Gain on securities | 137 |
| | — |
| | 5,222 |
| | 5,359 |
| FDIC loss sharing expense | (26,172 | ) | | — |
| | — |
| | (26,172 | ) | Other noninterest income | 21,395 |
| | 3,558 |
| | 104 |
| | 25,057 |
| Total noninterest income | (4,640 | ) | | 3,558 |
| | 5,326 |
| | 4,244 |
| Foreclosed assets income, net | 1,503 |
| | — |
| | — |
| | 1,503 |
| Intangible asset amortization | (4,748 | ) | | (654 | ) | | — |
| | (5,402 | ) | Acquisition, integration and reorganization costs | (40,552 | ) | | — |
| | (260 | ) | | (40,812 | ) | Other noninterest expense | (156,600 | ) | | (23,575 | ) | | (5,801 | ) | | (185,976 | ) | Total noninterest expense | (200,397 | ) | | (24,229 | ) | | (6,061 | ) | | (230,687 | ) | Earnings (loss) from continuing operations before taxes | 58,186 |
| | 21,825 |
| | (4,531 | ) | | 75,480 |
| Income tax (expense) benefit | (24,940 | ) | | (9,101 | ) | | 4,038 |
| | (30,003 | ) | Net earnings from continuing operations | 33,246 |
| | 12,724 |
| | (493 | ) | | 45,477 |
| Loss from discontinued operations before taxes | (620 | ) | | — |
| | — |
| | (620 | ) | Income tax benefit | 258 |
| | — |
| | — |
| | 258 |
| Net loss from discontinued operations | (362 | ) | | — |
| | — |
| | (362 | ) | Net earnings (loss) | $ | 32,884 |
| | $ | 12,724 |
| | $ | (493 | ) | | $ | 45,115 |
|
| | | | | | | | | | | | | | | | | | Year Ended December 31, 2012 | | Community | | National | | | | Consolidated | Results of Operations: | Banking | | Lending | | Other | | Company | | (In thousands) | Interest income | $ | 251,720 |
| | $ | 44,395 |
| | $ | — |
| | $ | 296,115 |
| Interest expense | (15,043 | ) | | (884 | ) | | (3,721 | ) | | (19,648 | ) | Intersegment interest income (expense) | 2,055 |
| | (2,055 | ) | | — |
| | — |
| Net interest income | 238,732 |
| | 41,456 |
| | (3,721 | ) | | 276,467 |
| Negative provision (provision) for credit losses | 14,585 |
| | (1,766 | ) | | — |
| | 12,819 |
| Gain on securities | 1,239 |
| | — |
| | — |
| | 1,239 |
| FDIC loss sharing expense | (10,070 | ) | | — |
| | — |
| | (10,070 | ) | Other noninterest income | 20,572 |
| | 4,017 |
| | 114 |
| | 24,703 |
| Total noninterest income | 11,741 |
| | 4,017 |
| | 114 |
| | 15,872 |
| Foreclosed assets expense, net | (10,931 | ) | | — |
| | — |
| | (10,931 | ) | Intangible asset amortization | (5,898 | ) | | (428 | ) | | — |
| | (6,326 | ) | Acquisition, integration and reorganization costs | (4,089 | ) | | — |
| | — |
| | (4,089 | ) | Debt termination expense | (24,195 | ) | | — |
| | 1,597 |
| | (22,598 | ) | Other noninterest expense | (138,640 | ) | | (23,502 | ) | | (5,576 | ) | | (167,718 | ) | Total noninterest expense | (183,753 | ) | | (23,930 | ) | | (3,979 | ) | | (211,662 | ) | Earnings (loss) before taxes | 81,305 |
| | 19,777 |
| | (7,586 | ) | | 93,496 |
| Income tax (expense) benefit | (31,542 | ) | | (8,327 | ) | | 3,174 |
| | (36,695 | ) | Net earnings (loss) | $ | 49,763 |
| | $ | 11,450 |
| | $ | (4,412 | ) | | $ | 56,801 |
|
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