PacWest Bancorp Announces Results for the Third Quarter of 2015

Highlights

  • Net Earnings of $69.6 Million, or $0.68 Per Diluted Share; Adjusted Net Earnings of $65.2 Million, or $0.63 Per Diluted Share
  • New Loan and Lease Production of $1.1 Billion; Annualized Growth Rate of 14%
  • Core Deposits Increased $230.6 Million in the Quarter and Represent 56% of Total Deposits
  • Core Tax Equivalent Net Interest Margin of 5.19%
  • Square 1 Merger Closed October 6, 2015

LOS ANGELES, Oct. 15, 2015 (GLOBE NEWSWIRE) — PacWest Bancorp (Nasdaq:PACW) (“PacWest”) today announced net earnings for the third quarter of 2015 of $69.6 million, or $0.68 per diluted share, compared to net earnings for the second quarter of 2015 of $85.1 million, or $0.83 per diluted share.  When certain income and expense items described below are excluded, adjusted net earnings were $65.2 million, or $0.63 per diluted share, for the third quarter of 2015 compared to $73.1 million, or $0.71 per diluted share, for the second quarter of 2015.  The decrease in adjusted net earnings is largely the result of higher foreclosed assets expense, lower adjusted noninterest income, and a higher provision for credit losses as compared to the second quarter.

Matt Wagner, President and CEO, commented, “As expected, the loan and lease production and growth rebounded strongly in the third quarter and will have a positive impact on revenues in the fourth quarter. We remain confident with our outlook for upper single-digits annual growth for the near term, bearing in mind there may be some volatility between quarters in the growth rate due to payoff activity.”

“The decline in our adjusted earnings on a linked-quarter basis was mostly due to a few discrete items, including an increase in foreclosed assets expense and a decline in equity investment income. Even with the noise from these items, our profitability levels remained solid with an adjusted ROA and ROTE for the third quarter of 1.55% and 14.1%.”

Mr. Wagner continued, “Our Non-PCI credit metrics improved during the third quarter, with meaningful reductions in the level of classified and nonperforming assets.  In addition, our credit exposure to the oil and gas services industry also improved, with reductions in both outstandings and nonaccrual balances of 14% and 25%, respectively.”

Mr. Wagner commented on the Square 1 merger stating, “With the completion of the Square 1 merger, PacWest has a substantially improved core deposit base and a proven platform for generating profitable loan, deposit and noninterest income growth in the venture capital banking space.  We welcome our new director, Mr. Paul Burke, and all of the Square 1 clients and employees.” 

Patrick Rusnak, Executive Vice President and CFO stated, “Third quarter core deposit growth was very good, totaling over $230 million of which about one third was generated by the CapitalSource Division.  While we have continued to make progress towards our goal of remixing the Bank’s deposit base, the Square 1 merger will significantly accelerate that process.”

Mr. Rusnak continued, “Our core tax equivalent net interest margin remains very strong at 5.19%.  We continue to control operating expenses as shown by the adjusted efficiency ratio of 40.6% in the third quarter.  Our focus for the remainder of 2015 will be loan and lease growth, core deposit growth, expense control and the successful integration of Square 1.” 

FINANCIAL HIGHLIGHTS

  At or For the Three Months Ended At or For the Nine Months Ended
  September 30, June 30,   September 30,  
    2015     2015   Change   2015     2014   Change
  (Dollars in thousands, except per share data)
Financial Highlights:           
Net Earnings $   69,616   $   85,083   $   (15,467 ) $   227,778   $   97,906   $   129,872  
Diluted Earnings Per Share $   0.68   $   0.83   $   (0.15 ) $   2.21   $   1.18   $   1.03  
Return on Average Assets (1)   1.65 %   2.07 %     (0.42 )   1.85 %   1.05 %     0.80  
Return on Average           
Tangible Equity (1) (2)   15.09 %   18.90 %     (3.81 )   16.82 %   10.01 %     6.81  
             
Adjusted Net Earnings (2) $   65,167   $   73,088   $   (7,921 ) $   203,821   $   151,683   $   52,138  
Adjusted Diluted Earnings           
Per Share (2) $   0.63   $   0.71   $   (0.08 ) $   1.98   $   1.82   $   0.16  
Adjusted Return on Average          
Assets (1) (2)   1.55 %   1.78 %     (0.23 )   1.65 %   1.63 %     0.02  
Adjusted Return on Average          
Tangible Equity (1) (2)   14.12 %   16.24 %     (2.12 )   15.05 %   15.51 %     (0.46 )
             
Net Interest Margin          
(tax equivalent)   5.46 %   5.89 %     (0.43 )   5.76 %   6.05 %     (0.29 )
Core Net Interest Margin           
(tax equivalent) (2)   5.19 %   5.33 %     (0.14 )   5.31 %   5.70 %     (0.39 )
Efficiency Ratio   39.6 %   38.0 %     1.6     38.1 %   42.9 %     (4.8 )
Adjusted Efficiency Ratio (2)   40.6 %   40.5 %     0.1     40.1 %   42.9 %     (2.8 )
             
Total Assets $   16,814,105   $   16,697,020   $   117,085   $   16,814,105   $   15,938,150   $   875,955  
Loans and Leases, Net of           
Deferred Fees $   12,452,205   $   12,034,189   $   418,016   $   12,452,205   $   11,574,885   $   877,320  
Total Deposits $   12,115,763   $   12,581,816   $   (466,053 ) $   12,115,763   $   11,523,437   $   592,326  
             
Noninterest-Bearing Deposits          
as Percentage of Total           
Deposits   29 %   26 %     3     29 %   25 %     4  
Core Deposits as Percentage           
of Total Deposits   56 %   52 %     4     56 %   52 %     4  
Tangible Common Equity           
Ratio (2)   12.21 %   12.10 %     0.11     12.21 %   12.24 %     (0.03 )
Tangible Book Value Per           
Share (2) $   17.86   $   17.55   $   0.31   $   17.86   $   16.86   $   1.00  
             
(1) Annualized.            
(2) Non-GAAP measure.          

ADJUSTED NET EARNINGS

In evaluating its earnings, the Company removes certain items to arrive at adjusted net earnings and adjusted diluted earnings per share, as detailed below:

    Three Months Ended   Nine Months Ended
    September 30,   June 30,   September 30,   September 30,
      2015       2015       2014       2015       2014  
    (Dollars in thousands)
                     
Net earnings   $   69,616     $   85,083     $   62,271     $   227,778     $   97,906  
Less: Tax benefit on discontinued operations     –         –         (3 )       –         (1,067 )
Add: Tax expense on continuing operations     39,777         45,287         42,911         131,137         73,744  
Pre-tax earnings       109,393         130,370         105,179         358,915         170,583  
Add: Acquisition, integration, and                     
reorganization costs       747         900         5,193         3,647         93,635  
Less: FDIC loss sharing expense, net       (4,449 )       (5,107 )       (7,415 )       (13,955 )       (27,370 )
Gain on sale of loans and leases       27         163         973         190         594  
Gain (loss) on securities       655         (186 )       –         3,744         4,841  
Covered OREO (expense) income, net       (20 )       12         (452 )       11         1,348  
Gain on sale of owned office building       –         –         –         –         1,570  
Adjusted pre-tax earnings before accelerated                  
 discount accretion       113,927         136,388         117,266         372,572         283,235  
Less: Accelerated discount accretion from                   
early payoffs of acquired loans       9,659         19,447         4,501         46,458         27,446  
Adjusted pre-tax earnings       104,268         116,941         112,765         326,114         255,789  
Tax expense (1)       (39,101 )       (43,853 )       (45,895 )       (122,293 )       (104,106 )
Adjusted net earnings    $   65,167     $   73,088     $   66,870     $   203,821     $   151,683  
                     
Adjusted diluted earnings per share   $   0.63     $   0.71     $   0.65     $   1.98     $   1.82  
Adjusted return on average assets     1.55 %     1.78 %     1.69 %     1.65 %     1.63 %
                     
(1) Full-year expected effective rate of 37.5% used for 2015 periods and actual effective rate of 40.7% used for 2014 periods.
                     

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased $10.1 million to $192.5 million for the third quarter of 2015 compared to $202.6 million for the second quarter of 2015 due to lower discount accretion on acquired loans and lower FHLB dividends, offset by one more day in the third quarter.  The loan and lease yield for the third quarter of 2015 was 6.34% compared to 6.75% for the second quarter of 2015.  The decrease in the loan and lease yield was due to lower discount accretion on acquired loans and the yield on new originations being lower than the current portfolio yield. Discount accretion on acquired loans was $17.1 million in the third quarter of 2015 (57 basis points on the loan and lease yield) compared to $28.0 million in the second quarter of 2015 (92 basis points on the loan and lease yield). The decrease in discount accretion was due primarily to lower accelerated accretion from early payoffs.

The tax equivalent net interest margin (“NIM”) for the third quarter of 2015 was 5.46% compared to 5.89% for the second quarter of 2015. The decrease in the NIM was due to lower discount accretion on acquired loans, lower FHLB dividends and a higher percentage of average lower-yielding assets in the mix. Discount accretion on acquired loans contributed 48 basis points to the NIM in the third quarter of 2015 and 81 basis points in the second quarter of 2015. A $1.4 million special dividend received from the FHLB in the second quarter of 2015 contributed four basis points to the second quarter NIM.  

The cost of total deposits decreased to 0.33% in the third quarter from 0.37% in the prior quarter due primarily to a lower level of higher-cost time deposits and the increased balance of noninterest-bearing deposits.  The repricing of maturing time deposits at current rates and new time deposit production resulted in the decline in the weighted average contractual interest rate on time deposits to 0.67% at September 30, 2015 from 0.71% at June 30, 2015.

Net interest margin information is presented in the following table for the periods indicated:

  Three Months Ended
  September 30,   June 30,
Net Interest Margin – Tax Equivalent   2015       2015  
  (Dollars in thousands)
Average Assets:      
Loans and leases $   12,112,881     $   12,108,016  
Investment securities     1,806,628         1,672,590  
Deposits in financial institutions     278,973         161,683  
Interest-earning assets     14,198,482         13,942,289  
Other assets     2,491,695         2,521,022  
Total assets $   16,690,177     $   16,463,311  
       
Average Liabilities and Stockholders’ Equity:  
Interest-bearing deposits $   8,993,681     $   9,107,937  
Borrowings     70,171         81,164  
Subordinated debentures     434,420         432,656  
Interest-bearing liabilities     9,498,272         9,621,757  
Noninterest-bearing demand deposits     3,486,780         3,157,129  
Other liabilities     132,360         135,677  
Total liabilities     13,117,412         12,914,563  
Stockholders’ equity     3,572,765         3,548,748  
Liabilities and stockholders’ equity $   16,690,177     $   16,463,311  
       
Time deposits $   5,042,768     $   5,559,903  
Total deposits $   12,480,461     $   12,265,066  
Funding sources $   12,985,052     $   12,778,886  
       
Yields on Average Assets:    
Loans and leases   6.34 %     6.75 %
Investment securities (1)   3.67 %     4.01 %
Interest-earning assets (1)   5.88 %     6.35 %
       
Costs of Average Liabilities:    
Total deposits    0.33 %     0.37 %
Time deposits   0.66 %     0.68 %
Interest-bearing deposits   0.46 %     0.49 %
Borrowings   0.41 %     0.43 %
Subordinated debentures   4.27 %     4.25 %
Interest-bearing liabilities   0.63 %     0.66 %
Funding sources   0.46 %     0.50 %
       
Net interest rate spread (1)   5.25 %     5.69 %
Net interest margin (1)   5.46 %     5.89 %
       
(1) Tax equivalent       

The tax equivalent NIM and loan and lease yield are impacted by volatility in accelerated accretion of acquisition discounts due to the prepayment of acquired loans and leases. The effects of this item are shown in the following table for the periods indicated:

    Three Months Ended   Three Months Ended
    September 30, 2015   June 30, 2015
      Loan and      Loan and 
    NIM Lease Yield   NIM Lease Yield
Reported     5.46 %   6.34 %     5.89 %   6.75 %
Less: Accelerated accretion of acquisition discounts          
from early payoffs of acquired loans      (0.27 )%   (0.32 )%     (0.56 )%   (0.64 )%
Core (non-GAAP measure)     5.19 %   6.02 %     5.33 %   6.11 %
 

The impact on the tax equivalent net interest income and NIM from all purchase accounting items is set forth in the table below for the periods indicated:

    Three Months Ended   Three Months Ended
  September 30, 2015   June 30, 2015
    Impact on     Impact on
  Amount NIM   Amount NIM
  (Dollars in thousands)
           
Net interest income/NIM (TE)   $   195,274     5.46 %   $   204,721     5.89 %
Less: Accelerated accretion of acquisition discounts            
from early payoffs of acquired loans        (9,659 )   (0.27 )%       (19,447 )   (0.56 )%
Remaining accretion of Non-PCI loan             
acquisition discounts       (7,485 )   (0.21 )%       (8,575 )   (0.25 )%
Total accretion of loan acquisition discounts       (17,144 )   (0.48 )%       (28,022 )   (0.81 )%
Amortization of TruPS discount       1,399     0.04 %       1,400     0.04 %
Accretion of time deposits premium       (576 )   (0.02 )%       (799 )   (0.02 )%
        (16,321 )   (0.46 )%       (27,421 )   (0.79 )%
Net interest income/NIM – excluding purchase            
accounting (non-GAAP measure)   $   178,953     5.00 %   $   177,300     5.10 %
 

Noninterest Income

Noninterest income decreased by $3.8 million to $15.8 million for the third quarter of 2015 compared to $19.6 million for the second quarter of 2015 due mostly to lower realized gains and dividends on equity investments and lower income recognized as a result of loan and lease prepayments, offset by lower foreign currency translation net losses and higher net gains on sale of securities. Realized gains and dividends on equity investments tend to fluctuate from period to period based upon sales activity and actual dividends received. The second quarter of 2015 included the sale of three equity investments at a net gain of $6.0 million compared to one sale in the third quarter at a gain of $0.1 million and dividends on equity investments increased $2.2 million in the third quarter. Foreign currency translation net losses decreased $1.0 million from the prior quarter as the result of movement of the U.S. Dollar against various foreign currencies, principally the Euro. In June 2015, PacWest hedged its Euro-denominated trust preferred issuance with a cross currency swap to reduce the related foreign currency translation volatility. 

The following table presents details of noninterest income for the periods indicated:

  Three Months Ended
  September 30,   June 30,   Increase
Noninterest Income   2015       2015     (Decrease)
  (In thousands)
           
Service charges on deposit accounts $   2,601     $   2,612     $   (11 )
Other commissions and fees     6,376         7,123         (747 )
Leased equipment income     5,475         5,375         100  
Gain on sale of loans and leases     27         163         (136 )
Gain (loss) on securities     655         (186 )       841  
FDIC loss sharing expense, net     (4,449 )       (5,107 )       658  
Other income:          
Dividends and realized gains on equity investments     4,357         8,169         (3,812 )
Foreign currency translation net losses     (373 )       (1,377 )       1,004  
Income recognized on early repayment of leases     12         1,648         (1,636 )
Other     1,077         1,203         (126 )
Total noninterest income  $   15,758     $   19,623     $   (3,865 )
 

The following table presents the details of FDIC loss sharing expense for the periods indicated:

  Three Months Ended
  September 30,   June 30,   Increase
FDIC Loss Sharing Expense, Net   2015       2015     (Decrease)
  (In thousands)
           
Loss on FDIC loss sharing asset $   (846 )   $   (725 )   $   (121 )
FDIC loss sharing asset amortization, net     (3,484 )       (4,286 )       802  
Net reimbursement from (to) FDIC for         
covered OREOs     (11 )       7         (18 )
Other     (108 )       (103 )       (5 )
FDIC loss sharing expense, net $   (4,449 )   $   (5,107 )   $   658  
 

Noninterest Expense

Noninterest expense increased by $4.8 million to $90.1 million for the third quarter of 2015 compared to $85.3 million for the second quarter of 2015.  The increase was due mostly to higher foreclosed assets expense of $6.9 million, offset by lower insurance and assessments expense of $0.9 million and lower compensation expense of $0.9 million.  The increase in foreclosed assets expense was due mostly to a write-down of $4.6 million on an existing foreclosed property in the third quarter, while the second quarter included gains related to foreclosed asset sales of $2.8 million. Insurance and assessments expense decreased due to lower FDIC insurance assessment expense. The reduction in compensation expense was principally due to lower stock-based compensation expense.

The following table presents details of noninterest expense for the periods indicated:

  Three Months Ended
  September 30,   June 30,   Increase
Noninterest Expense   2015       2015     (Decrease)
  (In thousands)
           
Compensation $   48,152     $   49,033     $   (881 )
Occupancy      10,762         10,588         174  
Data processing     4,322         4,402         (80 )
Other professional services     3,396         3,332         64  
Insurance and assessments     3,805         4,716         (911 )
Intangible asset amortization     1,497         1,502         (5 )
Leased equipment depreciation     3,162         3,103         59  
Foreclosed assets expense (income), net     4,521         (2,340 )       6,861  
Acquisition, integration and reorganization costs     747         900         (153 )
Other expense:          
Loan expense     1,494         1,486         8  
Other     8,281         8,554         (273 )
Total noninterest expense $   90,139     $   85,276     $   4,863  
 

Income Taxes

Our overall effective income tax rate was 36.4% for the third quarter of 2015 and 34.7% for the second quarter of 2015.  The effective rate for the second quarter was lower due to the utilization of a portion of the capital loss carryforward and adjustments to certain deferred tax assets. The effective tax rate for calendar year 2015 is expected to be 37.5%. 

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases increased $418.0 million in the third quarter to $12.5 billion at September 30, 2015.   The net increase was driven by third quarter originations and purchases of $1.1 billion, offset partially by principal repayments of $630.3 million.   For the twelve months ended September 30, 2015, total loans and leases increased $877 million, or approximately 8%.

The following table presents a roll forward of the loan and lease portfolio for the periods indicated:

  Three Months Ended
  September 30,   June 30,
Loan and Lease Roll Forward (1)   2015       2015  
  (In thousands)
       
Beginning balance $   12,034,189     $   12,272,166  
New production     1,070,986         658,669  
Existing loans and leases:      
Principal repayments, net (2)     (630,292 )       (889,708 )
Loan and lease sales     (6,864 )       (3,621 )
Transfers to foreclosed assets     (10,383 )       (2,694 )
Charge-offs     (5,431 )       (623 )
Ending balance $   12,452,205     $   12,034,189  
       
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) Includes principal repayments on existing loans, changes in revolving lines of credit (repayments and draws), loan participation sales and other changes within the loan portfolio. 
 

The following table presents a roll forward of the loan and lease portfolio by business division for the period indicated:

    Three Months Ended September 30, 2015
    Community National  
Loan and Lease Roll Forward by Division Banking Lending Total
    (In thousands)
         
Beginning balance   $   3,101,834   $   8,932,355   $   12,034,189  
New production       267,560       803,426       1,070,986  
Existing loans and leases:      
Principal repayments, net      (226,451 )     (403,841 )     (630,292 )
Loan and lease sales     –       (6,864 )     (6,864 )
Transfers to foreclosed assets     (378 )     (10,005 )     (10,383 )
Charge-offs       (989 )     (4,442 )     (5,431 )
Ending balance   $   3,141,576   $   9,310,629   $   12,452,205  
         
Weighted average yields on new production             
for the quarters ended:      
September 30, 2015   4.33 %   5.47 %   5.16 %
June 30, 2015     5.17 %   6.00 %   5.89 %
March 31, 2015     5.28 %   5.84 %   5.76 %
December 31, 2014   5.09 %   5.76 %   5.67 %

The Company identified an $82 million group of multi-family loans during the third quarter and re-underwrote and acquired them in anticipation of launching a multi-family loan origination group later this year that will initially focus on the Los Angeles, Orange County and Bay Area metropolitan markets.  The Company expects this initiative will reduce its overall portfolio credit risk, especially in an adverse economic environment.

The Company’s portfolio of student loans has repaid rapidly. In order to replace such runoff and to further diversify the loan and lease portfolio by product and geography, the Company purchased a $50 million pool of student loans in the third quarter. These multi-family and student loans, which are included under “Community Banking” in the above table, reduced the third quarter new production yield by 23 basis points.

The following table presents the composition of our loan and lease portfolio as of the dates indicated:

  September 30,   June 30,   December 31,   September 30,
Loan and Lease Portfolio   2015       2015       2014       2014  
  (In thousands)
Real estate mortgage:            
Hospitality $   635,160     $   619,510     $   570,634     $   530,628  
SBA     402,382         401,832         380,890         357,923  
Commercial real estate     2,334,497         2,414,464         2,583,965         2,649,503  
Healthcare real estate     1,140,450         1,127,111         1,051,491         1,024,474  
Multi-family     992,325         883,083         789,271         906,528  
Other     184,977         193,821         220,751         244,059  
Total real estate mortgage     5,689,791         5,639,821         5,597,002         5,713,115  
Real estate construction and land:            
Residential     145,262         119,825         96,749         72,881  
Commercial     229,904         213,091         217,297         218,389  
Total real estate construction and land     375,166         332,916         314,046         291,270  
Total real estate loans     6,064,957         5,972,737         5,911,048         6,004,385  
Commercial:              
Collateralized     359,214         371,954         439,567         429,011  
Unsecured     126,726         120,415         131,939         127,150  
Asset-based     2,022,492         1,840,514         1,794,907         1,594,488  
Cash flow     2,805,817         2,691,743         2,486,411         2,341,511  
Equipment finance     894,777         904,488         969,489         928,460  
SBA     48,107         45,769         47,304         41,129  
Total commercial     6,257,133         5,974,883         5,869,617         5,461,749  
Consumer     130,115         86,569         101,767         108,751  
Total loans and leases, net of             
deferred fees $   12,452,205     $   12,034,189     $   11,882,432     $   11,574,885  
               
Total unfunded loan commitments $   2,022,046     $   2,111,637     $   1,921,067     $   1,818,694  

Credit Exposure Affected by Low Oil Prices

At September 30, 2015, PacWest had 27 outstanding loan and lease relationships totaling $152.3 million to borrowers involved in the oil and gas services industry, down from $177.2 million at June 30, 2015.  The collateral for these loans and leases primarily includes equipment, such as drilling equipment and transportation vehicles.  At September 30, 2015, four relationships totaling $47.9 million were on nonaccrual status and were classified, down from $64.2 million at June 30, 2015.   The largest of these relationships had an aggregate outstanding balance of $40 million at September 30, 2015, for which a current collateral appraisal indicated a liquidation value significantly in excess of the carrying value.

Deposits

The following table presents the composition of our deposit portfolio as of the dates indicated:

  September 30,   June 30,   December 31,   September 30,
Deposit Category   2015       2015       2014       2014  
  (Dollars in thousands)
               
Noninterest-bearing demand deposits $   3,508,682     $   3,396,688     $   2,931,352     $   2,842,488  
Interest checking deposits     693,632         722,231         732,196         683,014  
Money market deposits     1,860,983         1,722,633         1,709,068         1,721,563  
Savings deposits     751,955         743,054         762,961         759,893  
Total core deposits     6,815,252         6,584,606         6,135,577         6,006,958  
Brokered non-maturity deposits     713,215         651,925         120,613         –  
Total non-maturity deposits     7,528,467         7,236,531         6,256,190         6,006,958  
Time deposits under $100,000     1,951,938         2,328,109         2,467,338         2,267,013  
Time deposits of $100,000 and over     2,635,358         3,017,176         3,031,600         3,249,466  
Total time deposits     4,587,296         5,345,285         5,498,938         5,516,479  
Total deposits $   12,115,763     $   12,581,816     $   11,755,128     $   11,523,437  
               
Noninterest-bearing demand deposits             
as percentage of total deposits   29 %     26 %     25 %     25 %
Core deposits as percentage of total deposits   56 %     52 %     52 %     52 %

At September 30, 2015, core deposits totaled $6.8 billion, or 56% of total deposits, including $3.5 billion of noninterest-bearing demand deposits, or 29% of total deposits.  Deposits obtained from the CapitalSource Division totaled $527.8 million at September 30, 2015, of which $514.1 million were core deposits. 

The following table summarizes the maturities of our time deposits as of the date indicated:

  September 30, 2015
  Time Deposits Time Deposits Total    Estimated
  Under $ 100,000   Time  Contractual Effective 
Time Deposit Maturities $ 100,000   or More Deposits Rate Rate
  (Dollars in thousands)
           
Due in three months or less $   456,408   $   394,312   $   850,720     0.54 %   0.49 %
Due in over three months through six months     572,782       757,604       1,330,386     0.63 %   0.61 %
Due in over six months through twelve months     745,563       1,258,958       2,004,521     0.74 %   0.72 %
Due in over 12 months through 24 months     136,844       195,105       331,949     0.72 %   0.64 %
Due in over 24 months      40,341       29,379       69,720     1.03 %   0.81 %
Total $   1,951,938   $   2,635,358   $   4,587,296     0.67 %   0.65 %
           
At June 30, 2015 $   2,328,109   $   3,017,176   $   5,345,285     0.71 %   0.69 %
 

The remaining purchase accounting premium on acquired CapitalSource time deposits was $1.2 million at September 30, 2015, of which $0.4 million will be recognized as a reduction of interest expense during the fourth quarter of 2015.   

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

A provision for credit losses of $8.7 million was recorded in the third quarter of 2015 as compared to $6.5 million in the second quarter of 2015. The third quarter provision was comprised of an $11.0 million provision for Non-PCI loans and leases and a negative provision of $2.3 million for PCI loans.  For the Non-PCI portfolio, the $11.0 million provision, combined with net charge-offs of $3.2 million, resulted in an increase in the allowance for credit losses of $7.8 million.  The allowance for Non-PCI credit losses to Non-PCI loans and leases coverage ratio increased to 0.82% at September 30 from 0.78% at June 30.  The negative provision for PCI loans resulted from increases in expected cash flows on such loans, mostly due to payoffs.

The following tables show roll forwards of the allowance for credit losses for the periods indicated:

  Three Months Ended September 30, 2015
  Non-PCI                 
Allowance for Credit  Loans and    Unfunded    Total    PCI    
Losses Rollforward Leases   Commitments   Non-PCI   Loans   Total
  (In thousands)
                   
Beginning balance $   85,047     $   7,874     $   92,921     $   14,328     $   107,249  
Charge-offs     (4,312 )       –         (4,312 )       (1,119 )       (5,431 )
Recoveries     1,081         –         1,081         –         1,081  
Net charge-offs     (3,231 )       –         (3,231 )       (1,119 )       (4,350 )
Provision (negative provision)     10,500         500         11,000         (2,254 )       8,746  
Ending balance $   92,316     $   8,374     $   100,690     $   10,955     $   111,645  
 
  Three Months Ended June 30, 2015
  Non-PCI                 
Allowance for Credit  Loans and    Unfunded    Total    PCI    
Losses Rollforward Leases   Commitments   Non-PCI   Loans   Total
  (In thousands)
                   
Beginning balance $   79,680     $   6,874     $   86,554     $   12,698     $   99,252  
Charge-offs     (623 )       –         (623 )       –         (623 )
Recoveries     1,990         –         1,990         101         2,091  
Net recoveries     1,367         –         1,367         101         1,468  
Provision      4,000         1,000         5,000         1,529         6,529  
Ending balance $   85,047     $   7,874     $   92,921     $   14,328     $   107,249  
 

Non-PCI loans and leases at September 30, 2015 included $7.1 billion of originated loans and leases that were not obtained through acquisitions. The allowance for loan and lease losses related to these loans and leases totaled $80.1 million, or 1.13% of the outstanding balance.

All acquired loans are recorded initially at their estimated fair value including an estimate of credit losses. The table below presents two alternative views of credit risk coverage ratios for Non-PCI loans reflecting adjustments for acquired loans and associated purchase accounting discounts:

  September 30, 2015   June 30, 2015
  Non-PCI       Non-PCI    
  Loans and Allowance/ Coverage   Loans and Allowance/ Coverage
Credit Risk Coverage Ratios Leases Discount Ratio   Leases Discount Ratio
  (Dollars in thousands)
               
Ending balance $   12,300,057   $   100,690     0.82 %   $   11,846,314   $   92,921     0.78 %
Acquired loans     (5,180,808 )     (12,173 )  (1)             (5,587,662 )     (12,697 ) (1)      
Adjusted balance $   7,119,249   $   88,517     1.24 %   $   6,258,652   $   80,224     1.28 %
               
Ending balance $   12,300,057   $   100,690     0.82 %   $   11,846,314   $   92,921     0.78 %
Unamortized net discount     88,690       88,690    (2 )             103,302       103,302    (2 )      
Adjusted balance $   12,388,747   $   189,380     1.53 %   $   11,949,616   $   196,223     1.64 %
               
(1) Allowance attributed to $5.2 billion and $5.6 billion of acquired Non-PCI loans at September 30, 2015 and June 30, 2015, based on the allowance calculation that includes an amount for credit deterioration on acquired loans and leases since their acquisition dates.
(2) Unamortized net discount relates to $5.2 billion and $5.6 billion of acquired Non-PCI loans at September 30, 2015 and June 30, 2015, and is assigned specifically to those loans only.  Such discount represents the acquisition date fair value adjustment based on market, liquidity, interest rate risk and credit risk and is being accreted to interest income over the remaining life of the respective loans using the interest method.  Use of the interest method results in steadily declining amounts being taken into income in each reporting period.  The remaining discount of $88.7 million at September 30, 2015, is expected to be substantially accreted to income by the end of 2018.
 

The decrease in adjusted coverage ratios reflected in the table above resulted from the combination of newly originated loans being provided for at a rate lower than the current coverage ratio and normal and accelerated accretion of unamortized discount.

CREDIT QUALITY

The following table presents Non-PCI loan and lease credit quality metrics as of the dates indicated:

  September 30,   June 30,
Non-PCI Credit Quality Metrics   2015       2015  
  (Dollars in thousands)
       
Allowance for credit losses $   100,690     $   92,921  
Nonaccrual loans and leases (1)     107,190         131,178  
Classified loans and leases      328,038         379,988  
Performing restructured loans     39,956         38,203  
Net charge-offs (recoveries) (for the quarter)     3,231         (1,367 )
Provision for credit losses (for the quarter)     11,000         5,000  
Allowance for credit losses to loans and leases   0.82 %     0.78 %
Allowance for credit losses to nonaccrual loans     
and leases (1)   93.9 %     70.8 %
Nonaccrual loans and leases to loans and leases    0.87 %     1.11 %
Nonperforming assets to loans and leases and     
foreclosed assets   1.14 %     1.37 %
Classified loans and leases to loans and leases   2.67 %     3.21 %
       
(1) At September 30, 2015 and June 30, 2015 includes $54.9 million and $56.1 million of acquired loans and leases with no allowance due to the effects of fair value accounting.
 

The following table presents Non-PCI nonaccrual loans and leases and accruing loans and leases past due between 30 and 89 days by portfolio segment and class as of the dates indicated:

  Nonaccrual Loans and Leases   Accruing and
  September 30, 2015   June 30, 2015   30-89 Days Past Due
    % of      % of    September 30,   June 30,
    Loan      Loan      2015       2015  
  Amount Category   Amount Category   Amount   Amount
  (Dollars in thousands)
Real estate mortgage:                  
Hospitality $   1,845         $   7,894     1 %   $   779     $   –  
SBA     11,682     3 %       10,141     3 %       233         2,272  
Other     18,294       –         16,213       –         2,090         2,482  
Total real estate mortgage     31,821     1 %       34,248     1 %       3,102         4,754  
Real estate construction and land:                  
Residential     374       –         377       –         –         –  
Commercial     –       –         –       –         –         –  
Total real estate                   
 construction and land     374       –         377       –         –         –  
Commercial:                  
Collateralized     2,771     1 %       3,761     1 %       82         131  
Unsecured     923      1 %       537       –         11         –  
Asset-based     90       –         40       –         –         –  
Cash flow     11,761             14,605     1 %       –         –  
Equipment finance (1)     53,153     6 %       71,130     8 %       –         915  
SBA     2,918     6 %       3,068     7 %       –         –  
Total commercial     71,616     1 %       93,141     2 %       93         1,046  
Consumer     3,379     3 %       3,412     4 %       88         1  
Total Non-PCI loans and                   
leases  $   107,190     1 %   $   131,178     1 %   $   3,283     $   5,801  
                   
(1) Includes nonaccrual leases and loans to companies involved in the oil and gas industries of $47.9 million and $64.2 million at September 30, 2015 and June 30, 2015, respectively. 
 

The following table presents nonperforming assets as of the dates indicated:

  September 30,   June 30,
Nonperforming Assets   2015       2015  
  (Dollars in thousands)
       
Nonaccrual Non-PCI loans and leases $   107,190     $   131,178  
Nonaccrual PCI Loans (1)     4,823         6,016  
Total nonaccrual loans and leases     112,013         137,194  
Foreclosed assets, net     33,216         31,668  
Total nonperforming assets $   145,229     $   168,862  
       
Nonaccrual loans and leases to loans and leases   0.90 %     1.14 %
Nonperforming assets to loans and leases    
and foreclosed assets   1.16 %     1.40 %
       
(1) Represents legacy CapitalSource borrowing relationships placed on nonaccrual status as of the acquisition date. 
 

SQUARE 1 FINANCIAL, INC. MERGER

On October 6, 2015, PacWest completed the merger with Square 1 Financial, Inc. (“Square 1”) in a transaction valued at approximately $815 million.  The combined company is called PacWest Bancorp and the combined subsidiary bank is called Pacific Western Bank, with the banking operations of Square 1 conducted under the trade name of Square 1 Bank, a division of Pacific Western Bank.

Under the terms of the merger agreement, Square 1 stockholders received 0.5997 shares of PacWest common stock for each share of Square 1 common stock and holders of stock options and restricted stock units received cash consideration as described in the merger agreement. The total value of the per share merger consideration was $26.37, based on the closing price of PacWest common stock of $43.97 on October 6, 2015.

As of September 30, 2015, on a pro forma combined basis with Square 1 and excluding purchase accounting adjustments, PacWest would have had approximately $21 billion in assets with 80 branches throughout California and one in North Carolina.

Summary unaudited financial information for Square 1 for the third quarter of 2015 follows:

  At or For the
  Three Months Ended
  September 30, 2015
  (Dollars in thousands)
Net interest income $   34,079  
Provision for loan and lease losses     4,564  
Noninterest income     7,313  
Noninterest expense     20,638  
Pre-tax earnings  $   16,190  
   
Loans receivable, net (at quarter-end) $   1,574,357  
Deposits (at quarter-end) $   3,675,805  
Client investment funds (at quarter-end) $   2,264,096  
   
Loan yield   5.81 %
Deposit cost   0.02 %
Net interest margin   3.54 %

ABOUT PACWEST BANCORP

PacWest Bancorp (“PacWest”) is a bank holding company with over $21 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank (“Pacific Western”). With 80 full-service branches located throughout the state of California, Pacific Western provides commercial banking services, including real estate, construction, and commercial loans, and comprehensive deposit and treasury management services to small and medium-sized businesses.  Pacific Western offers additional products and services through its CapitalSource and Square 1 Bank divisions.  The CapitalSource Division provides cash flow, asset-based, equipment and real estate loans and treasury management services to established middle market businesses on a national basis.  The Square 1 Bank Division, headquartered at Pacific Western’s Durham, North Carolina branch, offers a comprehensive suite of financial services focused on entrepreneurial businesses and their venture capital and private equity investors, with offices located in all key innovation hubs across the United States. For more information about PacWest Bancorp, visit www.pacwestbancorp.com, or to learn more about Pacific Western Bank, visit www.pacificwesternbank.com.

FORWARD LOOKING STATEMENTS

This release contains certain “forward-looking statements” about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, strategies, goals, and projections and including statements about our expectations regarding our merger with Square 1, credit loss exposure, profitability, deposit growth, loan and lease portfolio growth, operating expenses, intentions to expand Pacific Western’s lending business, and effective tax rates. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements.   All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:

  • the Company’s ability to complete future acquisitions and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;
  • business disruption following the Square 1 merger;
  • the reaction to the Square 1 merger of the companies’ customers, employees and counterparties;
  • credit quality deterioration or pronounced and sustained reduction in market values or other economic factors which adversely affect our borrowers’ ability to repay loans and leases;
  • higher than anticipated loan losses;
  • continued or worsening credit losses or charge-offs;
  • higher than anticipated delinquencies and reserves;
  • compression of spreads on newly originated loans;
  • asset/liability repricing risks and liquidity risks reduces interest margins and the value of investments;
  • increased costs to manage and sell foreclosed assets;
  • changes in economic or competitive market conditions could negatively impact investment or lending opportunities or product pricing and services;
  • reduced demand for our services due to strategic or regulatory reasons;
  • our ability to grow deposits and access wholesale funding sources;
  • legislative or regulatory requirements or changes adversely affected the Company’s business including an increase to capital requirements;
  • loan repayments higher than expected;
  • higher than anticipated increases in operating expenses;
  • increased litigation;
  • increased asset workout or loan servicing expenses;
  • higher compensation costs and professional fees to retain and/or incent employees;
  • inability to attract qualified professionals;
  • the success and timing of other business strategies;
  • changes in tax laws or regulations affecting our business;
  • our inability to generate sufficient earnings;
  • tax planning or disallowance of tax benefits by tax authorities;
  • changes in tax filing jurisdictions or entity classifications; and
  • other risk factors described in documents filed by PacWest with the U.S. Securities and Exchange Commission (“SEC”).

All forward-looking statements included in this release are based on information available at the time of the release. We are under no obligation to (and expressly disclaim any such obligation to) update or alter our forward-looking statements, whether as a result of new information, future events or otherwise except as required by law.

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
 
  September 30,   June 30,   December 31,
    2015       2015       2014  
  (Dollars in thousands, except per share data)
ASSETS:          
Cash and due from banks $   154,652     $   207,598     $   164,757  
Interest-earning deposits in financial institutions     81,642         433,033         148,469  
Total cash and cash equivalents      236,294         640,631         313,226  
           
Securities available-for-sale, at estimated fair value     1,809,364         1,698,158         1,567,177  
Federal Home Loan Bank stock, at cost     17,250         17,250         40,609  
Total investment securities     1,826,614         1,715,408         1,607,786  
           
Non-PCI loans and leases     12,300,057         11,846,314         11,613,832  
PCI loans     193,340         222,691         290,852  
Total gross loans and leases     12,493,397         12,069,005         11,904,684  
Deferred fees and costs     (41,192 )       (34,816 )       (22,252 )
Total loans and leases, net of deferred fees     12,452,205         12,034,189         11,882,432  
Allowance for loan and lease losses     (103,271 )       (99,375 )       (84,455 )
Total loans and leases, net     12,348,934         11,934,814         11,797,977  
           
Equipment leased to others under operating leases     161,508         117,182         122,506  
Premises and equipment, net     36,475         35,984         36,551  
Foreclosed assets, net     33,216         31,668         43,721  
Deferred tax asset, net     169,760         211,556         284,411  
Goodwill     1,728,380         1,728,380         1,720,479  
Core deposit and customer          
relationship intangibles, net     12,704         14,201         17,204  
Other assets     260,220         267,196         290,744  
Total assets $   16,814,105     $   16,697,020     $   16,234,605  
           
LIABILITIES:          
Noninterest-bearing deposits $   3,508,682     $   3,396,688     $   2,931,352  
Interest-bearing deposits     8,607,081         9,185,128         8,823,776  
Total deposits     12,115,763         12,581,816         11,755,128  
Borrowings     552,497         2,751         383,402  
Subordinated debentures     435,417         433,944         433,583  
Accrued interest payable and other liabilities     128,724         127,019         156,262  
Total liabilities     13,232,401         13,145,530         12,728,375  
STOCKHOLDERS’ EQUITY (1)     3,581,704         3,551,490         3,506,230  
Total liabilities and stockholders’ equity $   16,814,105     $   16,697,020     $   16,234,605  
           
(1) Includes net unrealized gain on securities          
available-for-sale, net $   24,459     $   16,255     $   26,380  
           
Book value per share $   34.76     $   34.46     $   34.03  
Tangible book value per share $   17.86     $   17.55     $   17.17  
           
Shares outstanding (includes unvested restricted shares         
of 988,825 at September 30, 2015, 990,259 at          
June 30, 2015, and 1,108,505 at December 31, 2014)     103,053,694         103,051,989       103,022,017  

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
 
  Three Months Ended   Nine Months Ended
  September 30,   June 30,   September 30,   September 30,
    2015       2015       2014       2015       2014  
  (Dollars in thousands, except per share data)
Interest income:                  
Loans and leases $   193,539     $   203,781     $   189,961     $   599,417     $   459,625  
Investment securities     13,955         14,570         12,331         40,720         35,140  
Deposits in financial institutions     178         104         64         304         314  
Total interest income     207,672         218,455         202,356         640,441         495,079  
                   
Interest expense:                
Deposits     10,400         11,233         8,822         32,112         17,360  
Borrowings     72         88         74         395         352  
Subordinated debentures     4,680         4,582         4,614         13,787         9,973  
Total interest expense     15,152         15,903         13,510         46,294         27,685  
                   
Net interest income     192,520         202,552         188,846         594,147         467,394  
Provision for credit losses     8,746         6,529         5,050         31,709         9,436  
Net interest income after provision               
for credit losses     183,774         196,023         183,796         562,438         457,958  
                   
Noninterest income:                
Service charges on deposit accounts     2,601         2,612         2,725         7,787         8,446  
Other commissions and fees     6,376         7,123         6,371         18,895         14,046  
Leased equipment income     5,475         5,375         5,615         16,232         11,287  
Gain on sale of loans and leases     27         163         973         190         594  
Gain (loss) on securities     655         (186 )       –         3,744         4,841  
FDIC loss sharing expense, net     (4,449 )       (5,107 )       (7,415 )       (13,955 )       (27,370 )
Other income     5,073         9,643         8,045         23,359         17,640  
Total noninterest income     15,758         19,623         16,314         56,252         29,484  
                   
Noninterest expense:                
Compensation      48,152         49,033         45,861         144,922         119,569  
Occupancy     10,762         10,588         11,188         31,950         29,861  
Data processing     4,322         4,402         3,929         13,032         10,568  
Other professional services     3,396         3,332         3,687         9,949         8,053  
Insurance and assessments     3,805         4,716         3,020         11,546         7,792  
Intangible asset amortization     1,497         1,502         1,608         4,500         4,649  
Leased equipment depreciation     3,162         3,103         2,961         9,368         6,056  
Foreclosed assets expense (income), net     4,521         (2,340 )       4,827         2,517         3,463  
Acquisition, integration and reorganization costs     747         900         5,193         3,647         93,635  
Other expense     9,775         10,040         12,649         28,344         30,641  
Total noninterest expense     90,139         85,276         94,923         259,775         314,287  
                   
Earnings from continuing operations before              
taxes     109,393         130,370         105,187         358,915         173,155  
Income tax expense      (39,777 )       (45,287 )       (42,911 )       (131,137 )       (73,744 )
Net earnings from continuing operations      69,616         85,083         62,276         227,778         99,411  
                   
Loss from discontinued operations before taxes     –         –         (8 )       –         (2,572 )
Income tax benefit      –         –         3         –         1,067  
Net loss from discontinued operations     –         –         (5 )       –         (1,505 )
                   
Net earnings  $   69,616     $   85,083     $   62,271     $   227,778     $   97,906  
                   
Basic and diluted earnings per share:              
Net earnings from continuing operations $   0.68     $   0.83     $   0.60     $   2.21     $   1.20  
Net earnings  $   0.68     $   0.83     $   0.60     $   2.21     $   1.18  

PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
 
  Three Months Ended
  September 30, 2015   June 30, 2015   September 30, 2014
    Interest Average     Interest Average     Interest Average
  Average  Income/ Yield/   Average  Income/ Yield/   Average  Income/ Yield/
  Balance Expense Cost   Balance Expense Cost   Balance Expense Cost
  (Dollars in thousands) 
Assets:                      
PCI loans $   193,094   $   7,505     15.42 %   $   228,217   $   7,894     13.87 %   $   363,049   $   13,490     14.74 %
Non-PCI loans and leases     11,919,787       186,034     6.19 %       11,879,799       195,887     6.61 %       10,922,640       176,471     6.41 %
Total loans and leases   12,112,881     193,539     6.34 %     12,108,016     203,781     6.75 %     11,285,689     189,961     6.68 %
Investment securities (1)     1,806,628       16,709     3.67 %       1,672,590       16,739     4.01 %       1,584,811       13,858     3.47 %
Deposits in financial                       
institutions     278,973       178     0.25 %       161,683       104     0.26 %       99,276       64     0.26 %
Total interest-earning                       
assets   14,198,482     210,426     5.88 %      13,942,289      220,624     6.35 %      12,969,776      203,883     6.24 %
Other assets     2,491,695             2,521,022             2,746,763      
Total assets $ 16,690,177         $ 16,463,311         $ 15,716,539      
                       
Liabilities and                       
Stockholders’ Equity:                      
Interest checking $   787,271       300     0.15 %   $   741,966       202     0.11 %   $   605,288       86     0.06 %
Money market     2,417,280       1,218     0.20 %       2,065,190       1,088     0.21 %       1,733,445       908     0.21 %
Savings     746,362       449     0.24 %       740,878       555     0.30 %       759,177       575     0.30 %
Time     5,042,768       8,433     0.66 %       5,559,903       9,388     0.68 %       5,680,732       7,253     0.51 %
Total interest-bearing                       
deposits     8,993,681       10,400     0.46 %       9,107,937       11,233     0.49 %       8,778,642       8,822     0.40 %
Borrowings     70,171       72     0.41 %       81,164       88     0.43 %       96,711       74     0.30 %
Subordinated debentures     434,420       4,680     4.27 %       432,656       4,582     4.25 %       434,625       4,614     4.21 %
Total interest-bearing                       
liabilities     9,498,272       15,152     0.63 %       9,621,757       15,903     0.66 %       9,309,978       13,510     0.58 %
Noninterest-bearing                       
demand deposits     3,486,780             3,157,129             2,778,260      
Other liabilities     132,360             135,677             163,182      
Total liabilities    13,117,412            12,914,563            12,251,420      
Stockholders’ equity     3,572,765             3,548,748             3,465,119      
Total liabilities and                       
stockholders’ equity $  16,690,177         $  16,463,311         $  15,716,539      
Net interest income (2)   $  195,274         $  204,721         $  190,373    
Net interest spread (2)       5.25 %         5.69 %         5.66 %
Net interest margin (2)       5.46 %         5.89 %         5.82 %
                       
Total deposits (3) $ 12,480,461   $ 10,400     0.33 %   $ 12,265,066   $ 11,233     0.37 %   $ 11,556,902   $   8,822     0.30 %
Funding sources (4) $ 12,985,052   $ 15,152     0.46 %   $ 12,778,886   $ 15,903     0.50 %   $ 12,088,238   $   13,510     0.44 %
 
(1) Includes tax equivalent adjustments of $2.8 million, $2.2 million, and $1.5 million for the three months ended September 30, 2015, June 30, 2015, and September 30, 2014 related to tax exempt income on municipal securities.  The federal statutory tax rate utilized was 35% for the periods.
(2) Tax equivalent.
(3) Total deposits is the sum of interest-bearing deposits and noninterest-bearing demand deposits.  The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(4) Funding sources is the sum of interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources. 

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER BALANCE SHEET
                   
  September 30,   June 30,   March 31,   December 31,   September 30,
    2015       2015       2015       2014       2014  
  (Dollars in thousands, except per share data)
ASSETS:                  
Cash and due from banks $   154,652     $   207,598     $   140,873     $   164,757     $   145,463  
Interest-earning deposits in financial               
institutions     81,642         433,033         250,981         148,469         115,399  
Total cash and cash equivalents      236,294         640,631         391,854         313,226         260,862  
                   
Securities available-for-sale     1,809,364         1,698,158         1,595,409         1,567,177         1,539,681  
Federal Home Loan Bank stock, at cost     17,250         17,250         28,905         40,609         45,602  
Total investment securities     1,826,614         1,715,408         1,624,314         1,607,786         1,585,283  
                   
Non-PCI loans and leases     12,300,057         11,846,314         12,047,946         11,613,832         11,239,964  
PCI loans     193,340         222,691         254,346         290,852         351,431  
Total gross loans and leases     12,493,397         12,069,005         12,302,292         11,904,684         11,591,395  
Deferred fees and costs     (41,192 )       (34,816 )       (30,126 )       (22,252 )       (16,510 )
Total loans and leases, net of                 
deferred fees     12,452,205         12,034,189         12,272,166         11,882,432         11,574,885  
Allowance for loan and lease losses     (103,271 )       (99,375 )       (92,378 )       (84,455 )       (81,899 )
Total loans and leases, net     12,348,934         11,934,814         12,179,788         11,797,977         11,492,986  
                   
Equipment leased to others under                 
operating leases     161,508         117,182         119,959         122,506         125,119  
Premises and equipment, net     36,475         35,984         36,022         36,551         38,368  
Foreclosed assets, net     33,216         31,668         35,940         43,721         40,524  
Deferred tax asset, net     169,760         211,556         236,065         284,411         331,176  
Goodwill     1,728,380         1,728,380         1,728,380         1,720,479         1,722,129  
Core deposit and customer                 
relationship intangibles, net     12,704         14,201         15,703         17,204         18,823  
Other assets     260,220         267,196         275,915         290,744         322,880  
Total assets $   16,814,105     $   16,697,020     $   16,643,940     $   16,234,605     $   15,938,150  
                   
LIABILITIES:                  
Noninterest-bearing deposits $   3,508,682     $   3,396,688     $   3,029,463     $   2,931,352     $   2,842,488  
Interest-bearing deposits     8,607,081         9,185,128         8,904,712         8,823,776         8,680,949  
Total deposits     12,115,763         12,581,816         11,934,175         11,755,128         11,523,437  
Borrowings     552,497         2,751         618,156         383,402         363,672  
Subordinated debentures     435,417         433,944         431,448         433,583         433,545  
Accrued interest payable and other                
liabilities     128,724         127,019         126,800         156,262         139,445  
Total liabilities     13,232,401         13,145,530         13,110,579         12,728,375         12,460,099  
STOCKHOLDERS’ EQUITY (1)     3,581,704         3,551,490         3,533,361         3,506,230         3,478,051  
Total liabilities and stockholders’               
equity $   16,814,105     $   16,697,020     $   16,643,940     $   16,234,605     $   15,938,150  
                   
(1) Includes net unrealized gain                 
on securities available-for-sale, net $   24,459     $   16,255     $   28,744     $   26,380     $   20,821  
                   
Book value per share $   34.76     $   34.46     $   34.29     $   34.03     $   33.76  
Tangible book value per share $   17.86     $   17.55     $   17.36     $   17.17     $   16.86  
                   
Shares outstanding (includes unvested               
restricted shares)     103,053,694         103,051,989         103,044,257       103,022,017         103,027,830  

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
 
  Three Months Ended
  September 30,   June 30,   March 31,   December 31,   September 30,
    2015       2015       2015       2014       2014  
  (Dollars in thousands, except per share data)
Interest income:                  
Loans and leases $   193,539     $   203,781     $   202,097     $   197,472     $   189,961  
Investment securities     13,955         14,570         12,195         12,205         12,331  
Deposits in financial institutions     178         104         22         19         64  
Total interest income     207,672         218,455         214,314         209,696         202,356  
                   
Interest expense:                  
Deposits     10,400         11,233         10,479         9,972         8,822  
Borrowings     72         88         235         144         74  
Subordinated debentures     4,680         4,582         4,525         4,597         4,614  
Total interest expense     15,152         15,903         15,239         14,713         13,510  
                   
Net interest income     192,520         202,552         199,075         194,983         188,846  
Provision for credit losses     8,746         6,529         16,434         2,063         5,050  
Net interest income after provision                 
for credit losses     183,774         196,023         182,641         192,920         183,796  
                   
Noninterest income:                  
Service charges on deposit accounts     2,601         2,612         2,574         2,787         2,725  
Other commissions and fees     6,376         7,123         5,396         4,556         6,371  
Leased equipment income     5,475         5,375         5,382         5,382         5,615  
Gain on sale of loans and leases     27         163         –         7         973  
Gain (loss) on securities     655         (186 )       3,275         –         –   
FDIC loss sharing expense, net     (4,449 )       (5,107 )       (4,399 )       (4,360 )       (7,415 )
Other income     5,073         9,643         8,643         4,331         8,045  
Total noninterest income     15,758         19,623         20,871         12,703         16,314  
                   
Noninterest expense:                  
Compensation      48,152         49,033         47,737         45,930         45,861  
Occupancy     10,762         10,588         10,600         10,745         11,188  
Data processing     4,322         4,402         4,308         4,050         3,929  
Other professional services     3,396         3,332         3,221         3,181         3,687  
Insurance and assessments     3,805         4,716         3,025         3,115         3,020  
Intangible asset amortization     1,497         1,502         1,501         1,619         1,608  
Leased equipment depreciation     3,162         3,103         3,103         3,103         2,961  
Foreclosed assets expense (income), net     4,521         (2,340 )       336         1,938         4,827  
Acquisition, integration and reorganization costs      747         900         2,000         7,381         5,193  
Other expense     9,775         10,040         8,529         10,243         12,649  
Total noninterest expense     90,139         85,276         84,360         91,305         94,923  
                   
Earnings from continuing operations before                
taxes     109,393         130,370         119,152         114,318         105,187  
Income tax expense      (39,777 )       (45,287 )       (46,073 )       (43,261 )       (42,911 )
Net earnings from continuing operations      69,616         85,083         73,079         71,057         62,276  
                   
Loss from discontinued operations before taxes     –         –         –         (105 )       (8 )
Income tax benefit     –         –         –         47         3  
Net loss from discontinued operations     –         –         –         (58 )       (5 )
                   
Net earnings  $   69,616     $   85,083     $   73,079     $   70,999     $   62,271  
                   
Basic and diluted earnings per share:                
Net earnings from continuing operations $   0.68     $   0.83     $   0.71     $   0.69     $   0.60  
Net earnings  $   0.68     $   0.83     $   0.71     $   0.69     $   0.60  

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
   
  At or For the Three Months Ended
  September 30,   June 30,   March 31,   December 31,   September 30,
    2015       2015       2015       2014       2014  
  (Dollars in thousands)
Performance Ratios – GAAP:                
Return on average assets (1)   1.65 %     2.07 %     1.82 %     1.77 %     1.57 %
Return on average equity (1)   7.73 %     9.62 %     8.39 %     8.05 %     7.13 %
Yield on average loans and leases   6.34 %     6.75 %     6.80 %     6.76 %     6.68 %
Yield on average interest-earning                 
assets (2)   5.88 %     6.35 %     6.40 %     6.35 %     6.24 %
Cost of average total deposits   0.33 %     0.37 %     0.36 %     0.34 %     0.30 %
Cost of average time deposits   0.66 %     0.68 %     0.65 %     0.60 %     0.51 %
Cost of average interest-bearing                 
liabilities   0.63 %     0.66 %     0.64 %     0.63 %     0.58 %
Cost of average funding sources   0.46 %     0.50 %     0.49 %     0.48 %     0.44 %
Net interest rate spread (2)   5.25 %     5.69 %     5.76 %     5.72 %     5.66 %
Net interest margin (2)   5.46 %     5.89 %     5.95 %     5.91 %     5.82 %
Noninterest expense as a percentage                
of average assets (1)   2.14 %     2.08 %     2.10 %     2.28 %     2.40 %
Efficiency ratio   39.6 %     38.0 %     36.9 %     38.4 %     40.3 %
                   
Performance Ratios – Non-GAAP:                
Adjusted return on average assets (1)   1.55 %     1.78 %     1.62 %     1.70 %     1.69 %
Adjusted return on average equity (1)   7.24 %     8.26 %     7.47 %     7.71 %     7.66 %
Return on average tangible equity (1)   15.09 %     18.90 %     16.50 %     16.00 %     14.36 %
Adjusted return on average                 
tangible equity (1)   14.12 %     16.24 %     14.69 %     15.33 %     15.42 %
Core net interest margin (2)   5.19 %     5.33 %     5.44 %     5.57 %     5.68 %
Adjusted efficiency ratio   40.6 %     40.5 %     39.2 %     39.7 %     39.7 %
                   
Average Balances:                  
Loans and leases $   12,112,881     $   12,108,016     $   12,055,682     $   11,586,573     $   11,285,689  
Interest-earning assets     14,198,482         13,942,289         13,701,865         13,205,383         12,969,776  
Total assets     16,690,177         16,463,311         16,296,640         15,892,761         15,716,539  
Noninterest-bearing deposits     3,486,780         3,157,129         2,949,719         2,900,388         2,778,260  
Interest-bearing deposits     8,993,681         9,107,937         8,801,306         8,679,599         8,778,642  
Total deposits     12,480,461         12,265,066         11,751,025         11,579,987         11,556,902  
Borrowings and subordinated                 
debentures     504,591         513,820         856,664         647,912         531,336  
Interest-bearing liabilities     9,498,272         9,621,757         9,657,970         9,327,511         9,309,978  
Funding sources     12,985,052         12,778,886         12,607,689         12,227,899         12,088,238  
Stockholders’ equity     3,572,765         3,548,748         3,533,343         3,500,291         3,465,119  
                   
(1) Annualized.                  
(2) Tax equivalent.                  

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
 
  At or For the Three Months Ended
  September 30,   June 30,   March 31,   December 31,   September 30,
    2015       2015       2015       2014       2014  
  (Dollars in thousands)
Non-PCI Credit Quality:                
Allowance for credit losses to loans               
and leases   0.82 %     0.78 %     0.72 %     0.66 %     0.61 %
Allowance for credit losses to                 
nonaccrual loans and leases   94 %     71 %     62 %     92 %     78 %
Nonaccrual loans and leases to loans               
and leases   0.87 %     1.11 %     1.16 %     0.72 %     0.79 %
Nonperforming assets to loans and                 
leases and foreclosed assets   1.14 %     1.37 %     1.45 %     1.09 %     1.15 %
Nonperforming assets to total assets   0.84 %     0.98 %     1.05 %     0.78 %     0.81 %
Trailing twelve month net charge-offs               
to average loans and leases   0.04 %     0.06 %     0.07 %     0.02 %     0.09 %
                   
PacWest Bancorp Consolidated                 
Capital Ratios:                  
Tier 1 leverage capital ratio (1)   12.08 %     11.96 %     11.74 %     12.34 %     12.17 %
Common equity tier 1 capital ratio (1)   12.75 %     12.87 %     12.27 %   N/A   N/A
Tier 1 risk-based capital ratio (1)   12.75 %     12.87 %     12.27 %     13.16 %     13.24 %
Total risk-based capital ratio (1)   16.33 %     16.53 %     15.80 %     16.07 %     16.24 %
Tangible common equity ratio                 
(non-GAAP measure)   12.21 %     12.10 %     12.01 %     12.20 %     12.24 %
                   
Pacific Western Bank Capital Ratios:              
Tier 1 leverage capital ratio (1)   11.56 %     11.65 %     11.53 %     11.70 %     11.74 %
Common equity tier 1 capital ratio (1)   12.26 %     12.55 %     12.07 %   N/A   N/A
Tier 1 risk-based capital ratio (1)   12.26 %     12.55 %     12.07 %     12.46 %     12.74 %
Total risk-based capital ratio (1)   13.06 %     13.35 %     12.80 %     13.16 %     13.44 %
Tangible common equity ratio                 
(non-GAAP measure)   11.53 %     11.46 %     11.32 %     11.51 %     11.60 %
                   
(1) Capital ratios for September 30, 2015 are preliminary.

PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
 
  Three Months Ended   Nine Months Ended
  September 30,   June 30,   September 30,   September 30,
    2015       2015       2014       2015       2014  
  (Dollars in thousands, except per share data)
Basic Earnings Per Share:                
Net earnings from continuing operations $   69,616     $   85,083     $   62,276     $   227,778     $   99,411  
Less: earnings allocated to unvested                 
restricted stock (1)     (649 )       (807 )       (685 )       (2,213 )       (1,147 )
Net earnings from continuing operations                 
allocated to common shares     68,967         84,276         61,591         225,565         98,264  
Net earnings from discontinued operations                 
allocated to common shares     –         –         (5 )       –         (1,487 )
Net earnings allocated to common shares $   68,967     $   84,276     $   61,586     $   225,565     $   96,777  
                   
Weighted-average basic shares and                 
unvested restricted stock outstanding     103,048         103,030         103,029         103,038         82,758  
Less: weighted-average unvested                 
restricted stock outstanding     (985 )       (1,060 )       (1,117 )       (1,055 )       (981 )
Weighted-average basic shares outstanding     102,063         101,970         101,912         101,983         81,777  
                   
Basic earnings per share:                
Net earnings from continuing operations $   0.68     $   0.83     $   0.60     $   2.21     $   1.20  
Net earnings from discontinued operations     –          –          –          –          (0.02 )
Net earnings $   0.68     $   0.83     $   0.60     $   2.21     $   1.18  
                   
Diluted Earnings Per Share:                
Net earnings from continuing operations                 
allocated to common shares $   68,967     $   84,276     $   61,591     $   225,565     $   98,264  
Net earnings from discontinued operations                 
allocated to common shares     –         –         (5 )       –         (1,487 )
Net earnings allocated to common shares $   68,967     $   84,276     $   61,586     $   225,565     $   96,777  
                   
Weighted-average basic shares outstanding     102,063         101,970         101,912         101,983         81,777  
                   
Diluted earnings per share:                
Net earnings from continuing operations $   0.68     $   0.83     $   0.60     $   2.21     $   1.20  
Net earnings from discontinued operations     –          –          –          –          (0.02 )
Net earnings $   0.68     $   0.83     $   0.60     $   2.21     $   1.18  
                   
(1) Represents cash dividends paid to holders of unvested stock, net of estimated forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
 

GAAP TO NON-GAAP RECONCILIATION

This press release contains certain non-GAAP financial disclosures for adjusted net earnings, adjusted return on average assets, adjusted return on average equity, return on average tangible equity, adjusted return on average tangible equity, tangible common equity amounts and ratios, tangible book value per share, adjusted efficiency ratio, core net interest margin, and operating expense as a percentage of average assets. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance:

  • Adjusted net earnings: To calculate adjusted net earnings, we exclude from net earnings primarily income statement items for which the related assets or liabilities have been completely resolved and are no longer on the balance sheet.  As analysts and investors view this measure as an indicator of the Company’s ability to generate recurring earnings, we disclose this amount in addition to net earnings.
  • Adjusted return on average assets, adjusted return on average equity, return on average tangible equity, adjusted return on average tangible equity, tangible common equity amounts and ratios, and tangible book value per share: Given that the use of these measures is prevalent among banking regulators, investors and analysts, we disclose them in addition to return on average assets, return on average equity, equity-to-assets ratio, and book value per share, respectively.
  • Adjusted efficiency ratio: We disclose this measure in addition to efficiency ratio as it shows the trend in recurring overhead-related noninterest expense relative to recurring net revenues.

Please refer to the tables on the following pages for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measures to the GAAP financial measures.

PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(Unaudited)
 
    Three Months Ended   Nine Months Ended
Adjusted Net Earnings and   September 30,   June 30,   September 30,   September 30,
Related Ratios     2015       2015       2014       2015       2014  
    (Dollars in thousands)
                     
Net earnings   $   69,616     $   85,083     $   62,271     $   227,778     $   97,906  
Less: Tax benefit on discontinued operations       –         –         (3 )       –         (1,067 )
Add: Tax expense on continuing operations       39,777         45,287         42,911         131,137         73,744  
Pre-tax earnings       109,393         130,370         105,179         358,915         170,583  
Add: Acquisition, integration and                     
reorganization costs       747         900         5,193         3,647         93,635  
Less: FDIC loss sharing expense, net       (4,449 )       (5,107 )       (7,415 )       (13,955 )       (27,370 )
Gain on sale of loans and leases       27         163         973         190         594  
Gain (loss) on securities       655         (186 )       –         3,744         4,841  
Covered OREO (expense) income, net       (20 )       12         (452 )       11         1,348  
Gain on sale of owned office building       –         –         –         –         1,570  
Adjusted pre-tax earnings before accelerated                    
discount accretion       113,927         136,388         117,266         372,572         283,235  
Less: Accelerated discount accretion from                     
early payoffs of acquired loans       9,659         19,447         4,501         46,458         27,446