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PacWest Bancorp Announces Results for the Second Quarter of 2014

Highlights

  • CapitalSource Merger Closed April 7, 2014; Deposit System Converted April 12, 2014
  • Net Earnings of $10.6 Million or $0.10 Per Diluted Share; Adjusted Net Earnings of $63.8 Million or $0.64 Per Diluted Share
  • Net Interest Margin at 6.24%
  • Loan and Lease Production of $881.3 Million; $143.0 Million of Organic Loan and Lease Growth in the Quarter
  • Demand Deposits Increased $0.3 Billion in the Second Quarter and are 23% of Total Deposits
  • Core Deposits Increased $1.0 Billion in the Second Quarter and are 49% of Total Deposits

LOS ANGELES, July 22, 2014 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the second quarter of 2014 of $10.6 million, or $0.10 per diluted share, compared to net earnings for the first quarter of 2014 of $25.1 million, or $0.55 per diluted share. When certain income and expense items described below are excluded, adjusted net earnings are $63.8 million, or $0.64 per diluted share.

Matt Wagner, President and CEO, commented, "The benefits of the CapitalSource merger are apparent in our second quarter results: record adjusted net earnings of $64 million, new loan and lease fundings of $881 million, organic loan and lease growth of $143 million, and significant progress in meeting our deposit transformation and cost savings targets. Our loan fundings were strong across both divisions, with the national lending platform embodied in the CapitalSource division originating $745 million in loans and leases and our Community Bank division originating $137 million in loans. Loan refinancings by other lenders at liberal pricing metrics continued, and the improving economy in our market areas enabled borrowers to either sell their properties or use excess cash balances to reduce outstandings. Nevertheless, our pipelines are robust and we expect continued high levels of loan and lease fundings."

Mr. Wagner continued, "PacWest Bancorp is a very strong and well-positioned company. Our second quarter adjusted return on assets and adjusted return on tangible equity stood at 1.70% and 16.05%. Our tangible common equity ratio was 12.14% at June 30, well above the 10% target we set when we initiated the CapitalSource merger. The strengths of these financial metrics position us to support asset growth and produce solid earnings."

Vic Santoro, Executive Vice President and CFO, stated, "Our core net interest margin was 5.74% for the quarter, right about where we expected it to be. We have made great strides in reaching our cost savings targets, with our adjusted efficiency ratio at 43%. Our Deposit Solutions Team, which concentrates on generating core deposits from legacy CapitalSource borrowers, has achieved significant success so far with new core deposits of $95 million and a pipeline of almost $175 million. Overall, organic core deposit growth was $200 million in the second quarter, and our teams remain focused on gathering new deposits from all sources."

FINANCIAL HIGHLIGHTS

At or For the Three Months Ended At or For the Six Months Ended
June 30, March 31, June 30, June 30,
2014 2014 Change 2014 2013 Change
(Dollars in thousands, except per share data)
Financial Highlights: (1)
Total Assets $ 15,684,866 $ 6,517,853 $ 9,167,013 $ 15,684,866 $ 6,709,102 $ 8,975,764
Gross Loans and Leases 11,200,524 4,161,085 7,039,439 11,200,524 4,420,619 6,779,905
Total Deposits 11,667,797 5,369,408 6,298,389 11,667,797 5,523,000 6,144,797
Net Earnings 10,555 25,080 (14,525) 35,635 17,843 17,792
Diluted Earnings Per Share $ 0.10 $ 0.55 $ (0.45) $ 0.49 $ 0.47 $ 0.02
Annualized Return on Average Assets 0.28% 1.56% (1.28) 0.67% 0.65% 0.02
Adjusted Net Earnings (2) $ 63,814 $ 22,570 $ 41,244 $ 86,384 $ 33,797 $ 52,587
Adjusted Diluted Earnings Per Share $ 0.64 $ 0.48 $ 0.16 $ 1.18 $ 0.90 $ 0.28
Annualized Adjusted Return on Average Assets (2) 1.70% 1.41% 0.29 1.61% 1.22% 0.39
Annualized Return on Average Tangible Equity(2) 2.65% 17.10% (14.45) 6.55% 6.97% (0.42)
Annualized Adjusted Return on Average Tangible Equity(2) 16.05% 15.39% 0.66 15.88% 13.21% 2.67
Noninterest-Bearing Deposits as a Percentage of Total Deposits 23% 45% (22) 23% 41% (18)
Core Deposits as a Percentage of Total Deposits 49% 88% (39) 49% 85% (36)
Tangible Common Equity Ratio (2) 12.14% 9.68% 2.46 12.14% 8.83% 3.31
Tangible Book Value Per Share(2) $ 16.43 $ 13.31 $ 3.12 $ 16.43 $ 12.42 $ 4.01
Net Interest Margin 6.24% 5.95% 0.29 6.14% 5.30% 0.84
Core Net Interest Margin (2) 5.74% 5.42% 0.32 5.64% 5.27% 0.37
Efficiency Ratio 84.5% 56.1% 28.4 75.7% 79.0% (3.3)
Adjusted Efficiency Ratio (2) 43.1% 57.1% (14.0) 47.4% 62.9% (15.5)
Annualized Operating Expense as a Percentage of Average Assets 2.14% 3.15% (1.01) 2.44% 3.26% (0.82)
(1) Includes the acquisition of First California Financial Group, Inc. on May 31, 2013 and CapitalSource Inc. on April 7, 2014.
(2) Non-GAAP measure.

ADJUSTED 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 Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2014 2014 2013 2014 2013
(Dollars in thousands)
Reported net earnings $ 10,555 $ 25,080 $ 4,349 $ 35,635 $ 17,843
Subtract: Tax benefit on discontinued operations (476) (588) (34) (1,064) (34)
Add: Tax expense on continuing operations 14,846 14,576 1,906 29,422 9,625
Reported pre-tax earnings 24,925 39,068 6,221 63,993 27,434
Add: Acquisition, integration and reorganization costs 86,242 2,200 17,997 88,442 18,689
Subtract: FDIC loss sharing expense, net (8,525) (11,430) (5,410) (19,955) (8,547)
(Loss) gain on sale of loans and leases (485) 106 279 (379) 504
Gain on securities 89 4,752 4,841 409
Covered OREO income, net 185 1,615 94 1,800 907
Gain on sale of owned office building 1,570 1,570
Adjusted pre-tax earnings before accelerated discount accretion on acquired loan payoffs 119,903 44,655 29,255 164,558 52,850
Subtract: Accelerated discount accretion resulting from payoffs of acquired loans 15,290 7,655 177 22,945 854
Adjusted pre-tax earnings 104,613 37,000 29,078 141,613 51,996
Tax expense (1) (40,799) (14,430) (10,177) (55,229) (18,199)
Adjusted net earnings $ 63,814 $ 22,570 $ 18,901 $ 86,384 $ 33,797
Annualized adjusted return on average assets 1.70% 1.41% 1.31% 1.61% 1.22%
Adjusted diluted earnings per share $ 0.64 $ 0.48 $ 0.48 $ 1.18 $ 0.90
(1) Full-year expected effective rate of 39% used in 2014 periods and actual effective rate of 35% used in 2013 periods.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased by $106.5 million to $192.5 million for the second quarter of 2014 compared to $86.0 million for the first quarter of 2014 due to the significant increase in interest-earning assets from the CapitalSource merger. Net interest margin ("NIM") for the second quarter of 2014 was 6.24%, compared to 5.95% for the first quarter of 2014. The 29 basis point increase in NIM was driven by the increase in interest-earning assets, which resulted from loans and leases added with the CapitalSource merger and organic loan growth during the quarter. Loan yield for the second quarter of 2014 was 7.34%, compared to 7.42% for the first quarter of 2014. The impact on the loan yield from accelerated discount accretion resulting from acquired loan payoffs was 58 basis points in the second quarter compared to 74 basis points in the first quarter. The total cost of deposits increased to 0.26% from 0.09% in the prior quarter due primarily to the higher-cost time deposits acquired in the CapitalSource merger.

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

Three Months Ended
June 30, March 31,
Net Interest Margin 2014 2014
(Dollars in thousands)
Average Assets:
Loans and leases $ 10,500,521 $ 4,231,319
Investment securities 1,606,848 1,512,694
Deposits in financial institutions 276,095 118,682
Average interest-earning assets 12,383,464 5,862,695
Other assets 2,653,637 650,681
Average total assets $ 15,037,101 $ 6,513,376
Average Liabilities:
Interest-bearing deposits $ 8,629,482 $ 2,968,994
Borrowings 39,931 18,176
Subordinated debentures 409,934 132,696
Average interest-bearing liabilities 9,079,347 3,119,866
Noninterest-bearing demand deposits 2,546,540 2,374,325
Other liabilities 178,196 198,937
Average total liabilities 11,804,083 5,693,128
Average stockholders' equity 3,233,018 820,248
Average liabilities and stockholders' equity $ 15,037,101 $ 6,513,376
Average time deposits $ 5,613,601 $ 666,463
Average total deposits $ 11,176,022 $ 5,343,319
Average funding sources $ 11,625,887 $ 5,494,191
Yield on:
Average loans and leases 7.34% 7.42%
Average investment securities 2.99% 2.90%
Average interest-earning assets 6.62% 6.11%
Cost of:
Average total deposits cost 0.26% 0.09%
Average time deposits 0.42% 0.31%
Average interest-bearing deposits 0.34% 0.17%
Average borrowings 2.00% 1.76%
Average subordinated debentures 4.22% 3.18%
Average interest-bearing liabilities 0.52% 0.30%
Average funding sources 0.41% 0.17%
Net interest rate spread 6.10% 5.81%
Net interest margin 6.24% 5.95%

The NIM and loan and lease yield are impacted by accelerated accretion of acquisition discounts resulting from acquired loan payoffs that cause volatility. The effects of this item are shown in the following table for the periods indicated:

Three Months Ended Three Months Ended
June 30, 2014 March 31, 2014
Loan and Loan and
NIM Lease Yield NIM Lease Yield
Reported 6.24% 7.34% 5.95% 7.42%
Less: Accelerated accretion of acquisition discounts resulting from acquired loan payoffs (0.50)% (0.58)% (0.53)% (0.74)%
Core (non-GAAP measure) 5.74% 6.76% 5.42% 6.68%

Noninterest Income

Noninterest income increased by $3.8 million to $8.5 million for the second quarter of 2014 from $4.7 million for the first quarter of 2014. The increase was due mostly to income streams gained in the CapitalSource merger, including certain other commissions and fees and leased equipment income, and lower FDIC loss sharing expense offset by lower gain on asset sales and other income. The increase in other commissions and fees is due to higher unused commitment fees, letter of credit fees and prepayment fees of $3.1 million, all attributed to the added CapitalSource operations. FDIC loss sharing expense, which relates to four loss sharing agreements with the FDIC, decreased due to lower gain on sales of covered OREO and lower losses on the FDIC loss sharing asset. Covered assets totaled $399.0 million at June 30, 2014 and $421.2 million at March 31, 2014.

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

Three Months Ended
June 30, March 31, Increase
Noninterest Income 2014 2014 (Decrease)
(In thousands)
Service charges on deposit accounts $ 2,719 $ 3,002 $ (283)
Other commissions and fees 5,743 1,932 3,811
Leased equipment income 5,672 5,672
(Loss) gain on sale of loans and leases (485) 106 (591)
Gain on securities 89 4,752 (4,663)
FDIC loss sharing expense, net (8,525) (11,430) 2,905
Other income:
Income recognized on early repayment of leases 961 3,505 (2,544)
Gain on sale of owned office building 1,570 (1,570)
Other 2,305 1,254 1,051
Total noninterest income $ 8,479 $ 4,691 $ 3,788

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

Three Months Ended
June 30, March 31, Increase
FDIC Loss Sharing Expense, Net 2014 2014 (Decrease)
(In thousands)
Gain (loss) on FDIC loss sharing asset $ (991) $ (2,206) $ 1,215
FDIC loss sharing asset amortization, net (7,270) (7,912) 642
Net reimbursement (to) from FDIC for covered OREOs (175) (1,224) 1,049
Other (89) (88) (1)
FDIC loss sharing expense, net $ (8,525) $ (11,430) $ 2,905

Noninterest Expense

Noninterest expense increased by $119.0 million to $169.9 million for the second quarter of 2014 compared to $50.9 million for the first quarter of 2014. The increase was due mostly to higher acquisition, integration and reorganization costs related to the CapitalSource merger, which increased $84.0 million, and higher operating expenses of $29.5 million. The second quarter acquisition, integration and reorganization costs of $86.2 million included CapitalSource merger expenses, such as investment banking, legal and accounting fees, lease terminations, and change in control payments, as well as $7.5 million to write off goodwill and other intangibles relating to the reorganization of the legacy PacWest asset financing segment, which included the sale of certain of its assets.

Operating expenses increased to $80.1 million for the second quarter of 2014 compared to $50.5 million for the first quarter of 2014 due to including the CapitalSource operations after the April 7, 2014 merger date. As a result of the merger, the number of employees increased to approximately 1,450 at June 30 from approximately 1,100 at March 31, and nine branch locations and administrative offices were added.

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

Three Months Ended
June 30, March 31, Increase
Noninterest Expense 2014 2014 (Decrease)
(In thousands)
Compensation $ 45,081 $ 28,627 $ 16,454
Occupancy 11,078 7,595 3,483
Data processing 4,099 2,540 1,559
Other professional services 2,843 1,523 1,320
Insurance and assessments 3,179 1,593 1,586
Intangible asset amortization 1,677 1,364 313
Other expense:
Loan expense 3,024 1,194 1,830
Communications 1,421 737 684
Other 7,670 5,357 2,313
Total operating expense 80,072 50,530 29,542
Leased equipment depreciation 3,095 3,095
Foreclosed assets expense (income), net 497 (1,861) 2,358
Acquisition, integration and reorganization costs 86,242 2,200 84,042
Total noninterest expense $ 169,906 $ 50,869 $ 119,037

Income Taxes

Our overall effective income tax rate was 57.7% for the second quarter of 2014 and 35.8% for the first quarter of 2014. The second quarter effective tax rate was driven higher than normal by the non-deductibility and tax treatment of certain acquisition, integration and reorganization costs. When these items are excluded, our adjusted effective tax rate was 40.2% for the second quarter.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases increased $7.0 billion in the second quarter to $11.2 billion at June 30, 2014. Excluding the $6.9 billion of loans and leases acquired in the CapitalSource merger, loans and leases increased by $143.0 million in the second quarter.

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

Three Months Ended
Loan and Lease Roll Forward (1) June 30, 2014 March 31, 2014
(In thousands)
Beginning balance $ 4,161,067 $ 4,312,352
Loans and leases originated and purchased 881,281 167,986
Existing loans and leases:
Principal repayments, net (2) (715,422) (316,686)
Loan and lease sales (21,371) (1,022)
Transfers to foreclosed assets (655) (13)
Charge-offs (830) (1,550)
Loans and leases acquired through acquisition 6,886,035
Ending balance $ 11,190,105 $ 4,161,067
(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) and other changes within the loan portfolio.

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

Three Months Ended June 30, 2014
Community National
Loan and Lease Roll Forward by Segment Banking Lending Total
(In thousands)
Beginning balance $ 4,161,067 $ — $ 4,161,067
Loans and leases originated and purchased 136,724 744,557 881,281
Existing loans and leases:
Transfers between segments (523,416) 523,416
Principal repayments, net (243,382) (472,040) (715,422)
Loan and lease sales (8,675) (12,696) (21,371)
Transfers to foreclosed assets (655) (655)
Charge-offs (296) (534) (830)
Loans and leases acquired through acquisition 6,886,035 6,886,035
Ending balance $ 3,521,367 $ 7,668,738 $ 11,190,105

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

Loan and Lease Portfolio June 30, 2014 March 31, 2014
(In thousands)
Real estate mortgage:
Hospitality $ 560,832 $ 172,012
SBA 352,492 42,318
Other 4,682,258 2,427,756
Total real estate mortgage 5,595,582 2,642,086
Real estate construction:
Residential 73,488 62,115
Commercial 235,018 187,804
Total real estate construction 308,506 249,919
Commercial:
Collateralized 446,754 580,742
Unsecured 145,632 143,624
Asset-based 1,488,267 200,574
Cash flow 2,167,135
Equipment finance 932,554 249,736
SBA 42,333 27,339
Total commercial 5,222,675 1,202,015
Consumer 63,342 67,047
Total Loans and Leases $ 11,190,105 $ 4,161,067

Deposits

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

June 30, 2014 March 31, 2014
% of % of
Deposit Category Amount Total Amount Total
(Dollars in thousands)
Noninterest-bearing demand deposits $ 2,701,434 23% $ 2,391,609 45%
Interest checking deposits 587,418 5% 613,144 11%
Money market deposits 1,688,773 14% 1,489,068 28%
Savings deposits 760,553 7% 226,012 4%
Total core deposits 5,738,178 49% 4,719,833 88%
Time deposits under $100,000 2,251,473 19% 209,512 4%
Time deposits of $100,000 and over 3,678,146 32% 440,063 8%
Total time deposits 5,929,619 51% 649,575 12%
Total deposits $ 11,667,797 100% $ 5,369,408 100%

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

June 30, 2014
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 $ 842,413 $ 1,467,897 $ 2,310,310 0.84% 0.62%
Due in over three months through six months 548,254 845,683 1,393,937 0.88% 0.70%
Due in over six months through twelve months 630,769 983,575 1,614,344 0.91% 0.78%
Due in over 12 months through 24 months 169,043 264,693 433,736 1.05% 0.73%
Due in over 24 months 60,994 116,298 177,292 1.02% 0.72%
Total $ 2,251,473 $ 3,678,146 $ 5,929,619 0.89% 0.69%

At June 30, 2014, core deposits totaled $5.7 billion, or 49% of total deposits, and noninterest-bearing demand deposits, which totaled $2.7 billion, were 23% of total deposits. Total deposits increased $6.3 billion during the second quarter to $11.7 billion at June 30, 2014, including an increase in core deposits of $1.0 billion. The increase in the quarter was due to $6.2 billion of deposits acquired in the CapitalSource merger, including $5.3 billion of time deposits with a weighted average rate of 98 basis points and a weighted average effective cost of 70 basis points. The purchase accounting discount on acquired time deposits totaled $17.2 million, and the remaining unamortized time deposit discount at June 30, 2014 was $11.6 million with a weighted average life of seven months.

ALLOWANCE FOR CREDIT LOSSES

The allowance for Non-PCI credit losses was $72.4 million or 0.67% of Non-PCI loans and leases at June 30, 2014, compared to $67.0 million, or 1.75% of Non-PCI loans and leases at March 31, 2014. We made a provision for credit losses of $5.0 million in the second quarter of 2014 in accordance with our loan methodology, which takes into consideration new loan and lease fundings, commitments to make loans and leases, and underlying credit quality trends. The decrease in the credit loss ratio was due to the loans acquired in the CapitalSource merger for which there is no initial credit loss allowance. All acquired loans are initially recorded at their estimated fair value with such initial fair value including an estimate of credit losses. We present the two additional credit coverage ratios shown in the table below to give an indication of overall credit risk coverage:

June 30, 2014 March 31, 2014
Non-PCI Non-PCI
Credit Risk Coverage Ratios Loans and Allowance/ Coverage Loans and Allowance/ Coverage
(Excludes PCI Loans) Leases Discount Ratio Leases Discount Ratio
(Dollars in thousands)
Ending balance $ 10,791,634 $ 72,367 0.67% $ 3,828,569 $ 66,955 1.75%
Acquired loans (7,327,541) (500)(1) (1,001,248) (737) (1)
Adjusted balance $ 3,464,093 $ 71,867 2.07% $ 2,827,321 $ 66,218 2.34%
Ending Balance $ 10,791,634 $ 72,367 0.67% $ 3,828,569 $ 66,955 1.75%
Unamortized net discount 184,927 184,927(2) 31,607 31,607(2)
Adjusted balance $ 10,976,561 $ 257,294 2.34% $ 3,860,176 $ 98,562 2.55%
(1) Allowance attributed to $7.3 billion and $1.0 billion of acquired Non-PCI loans at June 30, 2014 and March 31, 2014, 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 $7.3 billion and $1.0 billion of acquired loans at June 30, 2014 and March 31, 2014, and is assigned specifically to those loans only. Such discount represents the acquisition date fair value adjustment based on market, liquidity and interest rate risk in addition to credit risk and is being accreted to interest income over the remaining life of the respective loans.

CREDIT QUALITY

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

June 30, March 31,
Non-PCI Credit Quality Metrics 2014 2014
(Dollars in thousands)
Allowance for credit losses $ 72,367 $ 66,955
Nonaccrual loans and leases (1) 96,802 58,121
Classified loans and leases (2) 304,627 150,517
Performing restructured loans 33,741 35,101
Net charge-offs (recoveries) (for the quarter) (412) 861
Provision for credit losses (for the quarter) 5,000
Allowance for credit losses to loans and leases 0.67% 1.75%
Allowance for credit losses to nonaccrual loans and leases 74.8% 115.2%
Nonperforming assets to loans and leases and foreclosed assets 1.39% 2.81%
Classified loans and leases to loans and leases 2.82% 3.93%
(1) At June 30, 2014, includes $37,515 of acquired loans and leases with no allowance due to fair value accounting.
(2) Classified loans and leases are those with a credit risk rating of substandard or doubtful.

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

June 30, March 31,
2014 2014
(Dollars in thousands)
Nonaccrual Non-PCI loans and leases $ 96,802 $ 58,121
Nonaccrual PCI loans (1) 38,467
Foreclosed assets, net 53,821 50,895
Total nonperforming assets $ 189,090 $ 109,016
Nonperforming assets to loans and leases and foreclosed assets 1.68% 2.64%
(1) Represents four legacy CapitalSource borrowing relationships placed on nonaccrual status as of the acquisition date.

The following table presents our 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
June 30, 2014 March 31, 2014 30 - 89 Days Past Due
% of % of June 30, March 31,
Loan Loan 2014 2014
Balance Category Balance Category Balance Balance
(Dollars in thousands)
Real estate mortgage:
Hospitality $ 6,552 1% $ 6,639 4% $ — $ —
SBA 8,032 2% 2,519 6% 1,233 1,092
Other 28,098 1% 29,701 1% 1,427 1,831
Total real estate mortgage 42,682 1% 38,859 2% 2,660 2,923
Real estate construction:
Residential 927 1% 387 1%
Commercial 2,737 1% 3,353 2%
Total real estate construction 3,664 1% 3,740 2%
Commercial:
Collateralized 11,247 3% 7,797 1% 575 140
Unsecured 322 —% 411 —% 145
Asset-based 4,874 —% 558 —%
Cash flow 15,793 1% —%
Equipment finance 10,576 1% 220 —% 4,075
SBA 4,096 10% 2,993 11% 75 387
Total commercial 46,908 1% 11,979 1% 795 4,602
Consumer 3,548 6% 3,543 5% 128 307
Total Non-PCI loans and leases 96,802 1% 58,121 2% 3,583 7,832
PCI loans 38,467 10% —% * (1) * (1)
Total loans and leases $ 135,269 1% $ 58,121 1% $ 3,583 $ 7,832
(1) PCI loans, regardless of the underlying payment status of the borrower, are generally considered accruing and performing when reasonably estimable cash flows support the carrying amount of the loans. At June 30, 2014, the amount of PCI loans with borrowers past due 30-89 days totaled $53.9 million, of which $24.2 million were on nonaccrual status, and the amount past due 90 or more days totaled $64.0 million of which $14.2 million were on nonaccrual s amount of PCI loans with borrowers past due 30-89 days and past due 90 or more days totaled $3.1 million and $39.5 million,tatus. At March 31, 2014, the respectively, and none of which were on nonaccrual status.

CAPITALSOURCE MERGER

On April 7, 2014, PacWest Bancorp ("PacWest") completed the merger with CapitalSource Inc. ("CapitalSource"). The combined company is called PacWest Bancorp. As part of the merger, CapitalSource Bank, a wholly-owned subsidiary of CapitalSource, merged with and into PacWest's wholly-owned banking subsidiary, Pacific Western Bank, and the combined subsidiary bank is called Pacific Western Bank.

Upon closing, PacWest created the CapitalSource division of Pacific Western Bank. This division operates under the CapitalSource name and continues to serve businesses nationwide with a full spectrum of middle-market lending. Pacific Western Bank, through its combined network of 81 branches throughout California, continues to serve small and medium-sized businesses with financing solutions, cash management and deposit services.

In the merger with CapitalSource, each share of CapitalSource common stock was converted into the right to receive $2.47 in cash and 0.2837 of a share of PacWest Bancorp common stock. PacWest issued an aggregate of approximately 56.7 million shares of PacWest common stock to CapitalSource stockholders. Based on the closing price of PacWest's common stock on April 7, 2014 of $45.83 per share, the aggregate consideration paid to CapitalSource common stockholders and holders of equity awards to acquire CapitalSource common stock was approximately $3.1 billion.

The integration of CapitalSource Bank's deposit system and the conversion of CapitalSource Bank's branches to Pacific Western Bank's operating platform were completed over the weekend of April 12, 2014. CapitalSource had 21 branches, 12 of which were closed in the consolidation with Pacific Western Bank at the close of business on April 11, 2014. One overlapping Pacific Western branch was closed on April 11, 2014 as well. All remaining branches re-opened on Monday April 14, 2014 as Pacific Western Bank branches.

The following table shows the various purchase accounting adjustments at the merger date by category along with accretion/amortization periods:

Purchase
Accounting Estimated Accretion/
Description Adjustment Amortization Method
(In thousands)
Debit (Credit)
Loans and non-operating leases $ (215,019) 60 months using a level yield method
Equipment leased to others under operating leases $ (10,352) 48 months using a level yield method
Investment in trust preferred securities $ (3,352) Straight line over 280 months
Core deposit intangible $ 6,720 Straight line over 84 months
Time deposit premium $ (17,183) 60 months using an accelerated method
Subordinated debentures $ 111,235 Straight line over 280 months

ABOUT PACWEST BANCORP

PacWest Bancorp is a bank holding company with over $15 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank ("Pacific Western"). Through 81 full-service branches located throughout the state of California, Pacific Western provides commercial banking services, including real estate, construction, and commercial loans, to small and medium-sized businesses. Its national lending divisions CapitalSource and Pacific Western Equipment Finance, and its subsidiary CapitalSource Business Finance Group (formerly known as BFI Business Finance), deliver the full spectrum of financing solutions nationwide across numerous industries and property types. 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 profitability, return on assets, and Pacific Western Bank loan and lease portfolio growth and production. 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:

  • changes in economic or competitive market conditions could negatively impact investment or lending opportunities or product pricing and services;
  • deteriorations in credit and other markets;
  • higher than anticipated loan losses;
  • sustained reduction in real estate markets could negatively impact the value of our collateral and our borrowers' ability to repay loans;
  • a change in the interest rate environment reduces interest margins;
  • loan repayments higher than expected;
  • lower than expected revenues;
  • asset/liability repricing risks and liquidity risks reduces interest margins and the value of investments;
  • increased costs to manage and sell foreclosed assets;
  • higher mix of cash and investments;
  • reduced demand for our services;
  • our inability 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;
  • regulatory approvals for any capital activities cannot be obtained on the terms expected or on the anticipated schedule; 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
June 30, March 31, December 31,
2014 2014 2013
(Dollars in thousands, except per share data)
ASSETS
Cash and due from banks $ 243,583 $ 113,508 $ 96,424
Interest-earning deposits in financial institutions 119,782 228,579 50,998
Total cash and cash equivalents 363,365 342,087 147,422
Securities available-for-sale, at estimated fair value 1,552,115 1,477,473 1,494,745
Federal Home Loan Bank stock, at cost 49,983 25,000 27,939
Total investment securities 1,602,098 1,502,473 1,522,684
Gross loans and leases 11,200,524 4,161,085 4,313,335
Unearned income (10,419) (18) (983)
Allowance for loan and lease losses (82,149) (81,180) (82,034)
Total loans and leases, net 11,107,956 4,079,887 4,230,318
Equipment leased to others under operating leases 127,289
Premises and equipment, net 40,440 29,908 32,435
Foreclosed assets, net 53,821 50,895 55,891
FDIC loss sharing asset 28,834 34,628 45,524
Deferred tax asset, net 342,105 72,683 77,924
Goodwill 1,725,153 208,743 208,743
Core deposit and customer relationship intangibles, net 20,431 15,884 17,248
Other assets 273,374 180,665 195,174
Total assets $ 15,684,866 $ 6,517,853 $ 6,533,363
LIABILITIES
Noninterest-bearing demand deposits $ 2,701,434 $ 2,391,609 $ 2,318,446
Interest-bearing deposits 8,966,363 2,977,799 2,962,541
Total deposits 11,667,797 5,369,408 5,280,987
Borrowings 4,596 5,748 113,726
Subordinated debentures 434,878 132,790 132,645
Accrued interest payable and other liabilities 139,663 176,205 196,912
Total liabilities 12,246,934 5,684,151 5,724,270
STOCKHOLDERS' EQUITY (1) 3,437,932 833,702 809,093
Total liabilities and stockholders' equity $ 15,684,866 $ 6,517,853 $ 6,533,363
(1) Includes net unrealized gain (loss) on securities available-for-sale, net $ 20,121 $ 6,825 $ (3,347)
Book value per share $ 33.37 $ 18.21 $ 17.66
Tangible book value per share $ 16.43 $ 13.31 $ 12.73
Shares outstanding (includes unvested restricted shares of 1,121,850 at June 30, 2014, 1,087,436 at March 31, 2014 and 1,216,524 at December 31, 2013) 103,033,449 45,777,580 45,822,834
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2014 2014 2013 2014 2013
(Dollars in thousands, except per share data)
Interest income:
Loans and leases $ 192,201 $ 77,463 $ 63,168 $ 269,664 $ 124,178
Investment securities 11,986 10,823 8,414 22,809 16,630
Deposits in financial institutions 176 74 49 250 92
Total interest income 204,363 88,360 71,631 292,723 140,900
Interest expense:
Deposits 7,313 1,225 2,077 8,538 4,726
Borrowings 199 79 199 278 343
Subordinated debentures 4,318 1,041 882 5,359 1,665
Total interest expense 11,830 2,345 3,158 14,175 6,734
Net interest income 192,533 86,015 68,473 278,548 134,166
Provision (negative provision) for credit losses 5,030 (644) (1,842) 4,386 1,295
Net interest income after provision for credit losses 187,503 86,659 70,315 274,162 132,871
Noninterest income:
Service charges on deposit accounts 2,719 3,002 2,767 5,721 5,630
Other commissions and fees 5,743 1,932 2,154 7,675 4,087
Leased equipment income 5,672 5,672
(Loss) gain on sale of loans and leases (485) 106 279 (379) 504
Gain on securities 89 4,752 4,841 409
FDIC loss sharing expense, net (8,525) (11,430) (5,410) (19,955) (8,547)
Other income 3,266 6,329 413 9,595 960
Total noninterest income 8,479 4,691 203 13,170 3,043
Noninterest expense:
Compensation 45,081 28,627 26,057 73,708 51,407
Occupancy 11,078 7,595 7,480 18,673 14,078
Data processing 4,099 2,540 2,455 6,639 4,688
Other professional services 2,843 1,523 1,599 4,366 3,078
Insurance and assessments 3,179 1,593 1,267 4,772 2,528
Intangible asset amortization 1,677 1,364 1,284 3,041 2,460
Other expense 12,115 7,288 6,091 19,403 11,985
Total operating expense 80,072 50,530 46,233 130,602 90,224
Leased equipment depreciation 3,095 �� 3,095
Foreclosed assets expense (income), net 497 (1,861) (14) (1,364) (514)
Acquisition, integration and reorganization costs 86,242 2,200 17,997 88,442 18,689
Total noninterest expense 169,906 50,869 64,216 220,775 108,399
Earnings from continuing operations before income taxes 26,076 40,481 6,302 66,557 27,515
Income tax expense (14,846) (14,576) (1,906) (29,422) (9,625)
Net earnings from continuing operations 11,230 25,905 4,396 37,135 17,890
Loss from discontinued operations before income taxes (1,151) (1,413) (81) (2,564) (81)
Income tax benefit 476 588 34 1,064 34
Net loss from discontinued operations (675) (825) (47) (1,500) (47)
Net earnings $ 10,555 $ 25,080 $ 4,349 $ 35,635 $ 17,843
Basic and diluted earnings per share:
Net earnings from continuing operations $ 0.11 $ 0.57 $ 0.11 $ 0.51 $ 0.47
Net earnings $ 0.10 $ 0.55 $ 0.11 $ 0.49 $ 0.47

PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
Three Months Ended
June 30, 2014 March 31, 2014 June 30, 2013
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 $ 375,194 $ 14,104 15.08% $ 339,329 $ 18,270 21.84% $ 472,090 $ 10,435 8.87%
Non-PCI loans and leases 10,125,327 178,098 7.06% 3,891,990 59,193 6.17% 3,293,625 52,733 6.42%
Total loans and leases 10,500,521 192,201 7.34% 4,231,319 77,463 7.42% 3,765,715 63,168 6.73%
Investment securities (1) 1,606,848 11,986 2.99% 1,512,694 10,823 2.90% 1,424,804 8,414 2.37%
Deposits in financial institutions 276,095 176 0.26% 118,682 74 0.25% 75,739 49 0.26%
Total interest-earning assets 12,383,464 204,363 6.62% 5,862,695 88,360 6.11% 5,266,258 71,631 5.46%
Noninterest-earning assets 2,653,637 650,681 511,633
Total assets $ 15,037,101 $ 6,513,376 $ 5,777,891
Liabilities and Stockholders' Equity:
Interest-bearing checking $ 601,958 77 0.05% $ 627,493 78 0.05% $ 557,438 75 0.05%
Money market 1,691,115 874 0.21% 1,451,964 618 0.17% 1,307,386 587 0.18%
Savings 722,808 548 0.30% 223,074 14 0.03% 184,055 22 0.05%
Time 5,613,601 5,814 0.42% 666,463 515 0.31% 756,008 1,393 0.74%
Total interest-bearing deposits 8,629,482 7,313 0.34% 2,968,994 1,225 0.17% 2,804,887 2,077 0.30%
Borrowings 39,931 199 2.00% 18,176 79 1.76% 20,554 199 3.88%
Subordinated debentures 409,934 4,318 4.22% 132,696 1,041 3.18% 116,998 882 3.02%
Total interest-bearing liabilities 9,079,347 $ 11,830 0.52% 3,119,866 $ 2,345 0.30% 2,942,439 $ 3,158 0.43%
Noninterest-bearing demand deposits 2,546,540 2,374,325 2,072,923
Other liabilities 178,196 198,937 96,104
Total liabilities 11,804,083 5,693,128 5,111,466
Stockholders' equity 3,233,018 820,248 666,425
Total liabilities and shareholders' equity $ 15,037,101 $ 6,513,376 $ 5,777,891
Net interest income $ 192,533 $ 86,015 $ 68,473
Net interest spread 6.10% 5.81% 5.03%
Net interest margin 6.24% 5.95% 5.22%
(1) The tax-equivalent yield on investment securities was 3.39%, 3.35%, and 2.74% for the three months ended June 30, 2014, March 31, 2014, and June 30, 2013, respectively.

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER BALANCE SHEET
June 30, March 31, December 31, September 30, June 30,
2014 2014 2013 2013 2013
(Dollars in thousands, except per share data)
ASSETS
Cash and due from banks $ 243,583 $ 113,508 $ 96,424 $ 132,467 $ 106,237
Interest-earning deposits in financial institutions 119,782 228,579 50,998 11,552 112,590
Total cash and cash equivalents 363,365 342,087 147,422 144,019 218,827
Securities available-for-sale, at estimated fair value 1,552,115 1,477,473 1,494,745 1,512,147 1,473,578
Federal Home Loan Bank stock, at cost 49,983 25,000 27,939 34,095 39,129
Total investment securities 1,602,098 1,502,473 1,522,684 1,546,242 1,512,707
Gross loans and leases 11,200,524 4,161,085 4,313,335 4,384,312 4,420,619
Unearned income (10,419) (18) (983) (919) (933)
Allowance for loan and lease losses (82,149) (81,180) (82,034) (83,786) (90,643)
Total loans and leases, net 11,107,956 4,079,887 4,230,318 4,299,607 4,329,043
Equipment leased to others under operating leases 127,289
Premises and equipment, net 40,440 29,908 32,435 32,683 33,642
Foreclosed assets, net 53,821 50,895 55,891 55,972 64,546
FDIC loss sharing asset 28,834 34,628 45,524 55,653 66,993
Deferred tax asset, net 342,105 72,683 77,924 70,933 69,176
Goodwill 1,725,153 208,743 208,743 215,862 209,190
Core deposit and customer relationship intangibles, net 20,431 15,884 17,248 18,678 20,190
Other assets 273,374 180,665 195,174 177,206 184,788
Total assets $ 15,684,866 $ 6,517,853 $ 6,533,363 $ 6,616,855 $ 6,709,102
LIABILITIES
Noninterest-bearing demand deposits $ 2,701,434 $ 2,391,609 $ 2,318,446 $ 2,328,688 $ 2,291,246
Interest-bearing deposits 8,966,363 2,977,799 2,962,541 3,104,456 3,231,754
Total deposits 11,667,797 5,369,408 5,280,987 5,433,144 5,523,000
Borrowings 4,596 5,748 113,726 8,243 9,696
Subordinated debentures 434,878 132,790 132,645 132,500 132,358
Accrued interest payable and other liabilities 139,663 176,205 196,912 226,679 242,349
Total liabilities 12,246,934 5,684,151 5,724,270 5,800,566 5,907,403
STOCKHOLDERS' EQUITY (1) 3,437,932 833,702 809,093 816,289 801,699
Total liabilities and stockholders' equity $ 15,684,866 $ 6,517,853 $ 6,533,363 $ 6,616,855 $ 6,709,102
(1) Includes net unrealized gain (loss) on securities available-for-sale, net $ 20,121 $ 6,825 $ (3,347) $ 327 $ 996
Book value per share $ 33.37 $ 18.21 $ 17.66 $ 17.71 $ 17.40
Tangible book value per share $ 16.43 $ 13.31 $ 12.73 $ 12.62 $ 12.42
Shares outstanding (includes unvested restricted shares) 103,033,449 45,777,580 45,822,834 46,090,742 46,080,731
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2014 2014 2013 2013 2013
(Dollars in thousands, except per share data)
Interest income:
Loans and leases $ 192,201 $ 77,463 $ 73,352 $ 75,196 $ 63,168
Investment securities 11,986 10,823 10,422 9,871 8,414
Deposits in financial institutions 176 74 82 91 49
Total interest income 204,363 88,360 83,856 85,158 71,631
Interest expense:
Deposits 7,313 1,225 1,450 1,692 2,077
Borrowings 199 79 86 108 199
Subordinated debentures 4,318 1,041 1,062 1,069 882
Total interest expense 11,830 2,345 2,598 2,869 3,158
Net interest income 192,533 86,015 81,258 82,289 68,473
Provision (negative provision) for credit losses 5,030 (644) (1,338) (4,167) (1,842)
Net interest income after provision for credit losses 187,503 86,659 82,596 86,456 70,315
Noninterest income:
Service charges on deposit accounts 2,719 3,002 3,197 2,938 2,767
Other commissions and fees 5,743 1,932 2,125 2,204 2,154
Leased equipment income 5,672
(Loss) gain on sale of loans and leases (485) 106 683 604 279
Gain (loss) on securities 89 4,752 (272) 5,222
FDIC loss sharing expense, net (8,525) (11,430) (10,593) (7,032) (5,410)
Other income 3,266 6,329 934 1,191 413
Total noninterest income (expense) 8,479 4,691 (3,926) 5,127 203
Noninterest expense:
Compensation 45,081 28,627 27,697 27,963 26,057
Occupancy 11,078 7,595 7,553 7,828 7,480
Data processing 4,099 2,540 2,216 2,590 2,455
Other professional services 2,843 1,523 1,770 1,906 1,599
Insurance and assessments 3,179 1,593 1,572 1,496 1,267
Intangible asset amortization 1,677 1,364 1,430 1,512 1,284
Other expense 12,115 7,288 7,746 7,875 6,091
Total operating expense 80,072 50,530 49,984 51,170 46,233
Leased equipment depreciation 3,095
Foreclosed assets expense (income), net 497 (1,861) (569) (420) (14)
Acquisition, integration and reorganization costs 86,242 2,200 16,673 5,450 17,997
Total noninterest expense 169,906 50,869 66,088 56,200 64,216
Earnings from continuing operations before income taxes 26,076 40,481 12,582 35,383 6,302
Income tax expense (14,846) (14,576) (9,135) (11,243) (1,906)
Net earnings from continuing operations 11,230 25,905 3,447 24,140 4,396
(Loss) earnings from discontinued operations before income taxes (1,151) (1,413) (578) 39 (81)
Income tax benefit (expense) 476 588 240 (16) 34
Net (loss) earnings from discontinued operations (675) (825) (338) 23 (47)
Net earnings $ 10,555 $ 25,080 $ 3,109 $ 24,163 $ 4,349
Basic and diluted earnings per share:
Net earnings from continuing operations $ 0.11 $ 0.57 $ 0.07 $ 0.53 $ 0.11
Net earnings $ 0.10 $ 0.55 $ 0.06 $ 0.53 $ 0.11

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
At or For the Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2014 2014 2013 2013 2013
(Dollars in thousands)
Performance Ratios - GAAP:
Annualized return on average assets 0.28% 1.56% 0.19% 1.44% 0.30%
Annualized return on average equity 1.31% 12.40% 1.51% 12.02% 2.62%
Yield on loans and leases 7.34% 7.42% 6.77% 6.90% 6.73%
Yield on interest-earning assets 6.62% 6.11% 5.58% 5.65% 5.46%
Cost of total deposits 0.26% 0.09% 0.11% 0.12% 0.17%
Cost of time deposits 0.42% 0.31% 0.40% 0.45% 0.74%
Cost of interest-bearing liabilities 0.52% 0.30% 0.32% 0.34% 0.43%
Cost of funding sources 0.41% 0.17% 0.18% 0.20% 0.25%
Net interest rate spread 6.10% 5.81% 5.26% 5.31% 5.03%
Net interest margin 6.24% 5.95% 5.41% 5.46% 5.22%
Annualized operating expense as a percentage of average assets 2.14% 3.15% 2.99% 3.05% 3.21%
Annualized noninterest expense as a percentage of average assets 4.53% 3.17% 3.95% 3.35% 4.46%
Efficiency ratio 84.5% 56.1% 85.5% 64.3% 93.5%
Average Balances:
Average loans and leases $ 10,500,521 $ 4,231,319 $ 4,301,377 $ 4,320,770 $ 3,765,715
Average interest-earning assets 12,383,464 5,862,695 5,962,428 5,979,811 5,266,258
Average total assets 15,037,101 6,513,376 6,632,730 6,660,854 5,777,891
Average noninterest-bearing deposits 2,546,540 2,374,325 2,397,642 2,329,197 2,072,923
Average interest-bearing deposits 8,629,482 2,968,994 3,054,880 3,169,924 2,804,887
Average total deposits 11,176,022 5,343,319 5,452,522 5,499,121 4,877,810
Average borrowings and subordinated debentures 449,865 150,872 142,421 141,425 137,552
Average interest-bearing liabilities 9,079,347 3,119,866 3,197,301 3,311,349 2,942,439
Average funding sources 11,625,887 5,494,191 5,594,943 5,640,546 5,015,362
Average stockholders' equity 3,233,018 820,248 818,935 797,725 666,425
Non-PCI Credit Quality:
Allowance for credit losses to loans and leases 0.67% 1.75% 1.73% 1.72% 1.78%
Allowance for credit losses to nonaccrual loans and leases 75% 115% 145% 133% 135%
Nonaccrual loans and leases to loans and leases 0.90% 1.51% 1.19% 1.29% 1.32%
Nonperforming assets to loans and leases and foreclosed assets 1.39% 2.81% 2.58% 2.67% 2.91%
Nonperforming assets to total assets 0.96% 1.67% 1.57% 1.61% 1.73%
Trailing twelve month net charge-offs to average loans and leases 0.05% 0.13% 0.12% 0.21% 0.19%

PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2014 2014 2013 2013 2013
Performance Ratios - Non-GAAP:
Annualized adjusted return on average assets 1.70% 1.41% 1.43% 1.14% 1.31%
Annualized adjusted return on average equity 7.92% 11.16% 11.60% 9.54% 11.38%
Annualized return on average tangible equity 2.65% 17.10% 2.11% 16.85% 3.25%
Annualized adjusted return on average tangible equity 16.05% 15.39% 16.23% 13.39% 14.13%
Core net interest margin 5.74% 5.42% 5.31% 5.29% 5.21%
Adjusted efficiency ratio 43.1% 57.1% 58.1% 59.0% 62.9%
PacWest Bancorp Consolidated Capital Ratios:
Tier 1 leverage capital ratio 12.40% 11.73% 11.17% 11.16% 12.75%
Tier 1 risk-based capital ratio 13.15% 16.16% 15.06% 15.13% 15.04%
Total risk-based capital ratio 16.25% 17.42% 16.32% 16.39% 16.30%
Tangible common equity ratio (non-GAAP measure) 12.14% 9.68% 9.24% 9.12% 8.83%
Pacific Western Bank Capital Ratios:
Tier 1 leverage capital ratio 11.71% 10.88% 10.83% 10.53% 12.05%
Tier 1 risk-based capital ratio 12.58% 15.00% 14.61% 14.27% 14.16%
Total risk-based capital ratio 13.32% 16.25% 15.87% 15.53% 15.42%
Tangible common equity ratio (non-GAAP measure) 11.40% 10.92% 10.88% 10.54% 10.22%

PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
2014 2014 2013 2014 2013
(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Net earnings from continuing operations $ 11,230 $ 25,905 $ 4,396 $ 37,135 $ 17,890
Less: earnings allocated to unvested restricted stock (1) (290) (500) (212) (424) (351)
Net earnings from continuing operations allocated to common shares 10,940 25,405 4,184 36,711 17,539
Net earnings (loss) from discontinued operations allocated to common shares (675) (804) (47) (1,500) (47)
Net earnings allocated to common shares $ 10,265 $ 24,601 $ 4,137 $ 35,211 $ 17,492
Weighted-average basic shares and unvested restricted stock outstanding 98,817 45,799 40,338 72,454 38,873
Less: weighted-average unvested restricted stock outstanding (678) (1,148) (1,597) (911) (1,595)
Weighted-average basic shares outstanding 98,139 44,651 38,741 71,543 37,278
Basic earnings per share:
Net earnings from continuing operations $ 0.11 $ 0.57 $ 0.11 $ 0.51 $ 0.47
Net earnings from discontinued operations (0.01) (0.02) (0.02)
Net earnings $ 0.10 $ 0.55 $ 0.11 $ 0.49 $ 0.47
Diluted Earnings Per Share:
Net earnings from continuing operations allocated to common shares $ 10,940 $ 25,405 $ 4,184 $ 36,711 $ 17,539
Net earnings (loss) from discontinued operations allocated to common shares (675) (804) (47) (1,500) (47)
Net earnings allocated to common shares $ 10,265 $ 24,601 $ 4,137 $ 35,211 $ 17,492
Weighted-average basic shares outstanding 98,139 44,651 38,741 71,543 37,278
Diluted earnings per share:
Net earnings from continuing operations $ 0.11 $ 0.57 $ 0.11 $ 0.51 $ 0.47
Net earnings from discontinued operations (0.01) (0.02) (0.02)
Net earnings $ 0.10 $ 0.55 $ 0.11 $ 0.49 $ 0.47
(1) Represents cash dividends paid to holders of unvested restricted 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 - as analysts and investors view this measure as an indicator of the Company's ability to both generate earnings and absorb credit losses, 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 Six Months Ended
June 30, March 31, June 30, June 30, June 30,
Adjusted Net Earnings and Related Ratios 2014 2014 2013 2014 2013
(Dollars in thousands)
Reported net earnings $ 10,555 $ 25,080 $ 4,349 $ 35,635 $ 17,843
Subtract: Tax benefit on discontinued operations (476) (588) (34) (1,064) (34)
Add: Tax expense on continuing operations 14,846 14,576 1,906 29,422 9,625
Reported pre-tax earnings 24,925 39,068 6,221 63,993 27,434
Add: Acquisition, integration and reorganization costs 86,242 2,200 17,997 88,442 18,689
Subtract: FDIC loss sharing expense, net (8,525) (11,430) (5,410) (19,955) (8,547)
(Loss) gain on sale of loans and leases (485) 106 279 (379) 504
Gain on securities 89 4,752 4,841 409
Covered OREO income, net 185 1,615 94 1,800 907
Gain on sale of owned office building 1,570 1,570
Adjusted pre-tax earnings before accelerated discount accretion 119,903 44,655 29,255 164,558 52,850
Subtract: Accelerated discount accretion resulting from payoffs of acquired loans 15,290 7,655 177 22,945 854
Adjusted pre-tax earnings 104,613 37,000 29,078 141,613 51,996
Tax expense (1) (40,799) (14,430) (10,177) (55,229) (18,199)
Adjusted net earnings $ 63,814 $ 22,570 $ 18,901 $ 86,384 $ 33,797
Average assets $ 15,037,101 $ 6,513,376 $ 5,777,891 $ 10,798,982 $ 5,578,131
Average stockholders' equity $ 3,233,018 $ 820,248 $ 666,425 $ 2,032,830 $ 628,029
Less: Average intangible assets 1,638,267 225,294 129,863 935,684 111,924
Average tangible common equity $ 1,594,751 $ 594,954 $ 536,562 $ 1,097,146 $ 516,105
Annualized return on average assets (2) 0.28% 1.56% 0.30% 0.67% 0.65%
Annualized adjusted return on average assets (3) 1.70% 1.41% 1.31% 1.61% 1.22%
Annualized return on average equity (4) 1.31% 12.40% 2.62% 3.54% 5.73%
Annualized adjusted return on average equity (5) 7.92% 11.16% 11.38% 8.57% 10.85%
Annualized return on average tangible equity (6) 2.65% 17.10% 3.25% 6.55% 6.97%
Annualized adjusted return on average tangible equity (7) 16.05% 15.39% 14.13% 15.88% 13.21%
(1) Full-year expected effective rate of 39% used in 2014 periods and actual effective rate of 35% used in 2013 periods.
(2) Annualized net earnings divided by average assets.
(3) Annualized adjusted net earnings divided by average assets.
(4) Annualized net earnings divided by average stockholders' equity.
(5) Annualized adjusted net earnings divided by average stockholders' equity.
(6) Annualized net earnings divided by average tangible common equity.
(7) Annualized adjusted net earnings divided by average tangible common equity.
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(Unaudited)
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30, June 30,
Adjusted Efficiency Ratio 2014 2014 2013 2014 2013
(Dollars in thousands)
Noninterest expense $ 169,906 $ 50,869 $ 64,216 $ 220,775 $ 108,399
Less: Acquisition, integration and reorganization costs 86,242 2,200 17,997 88,442 18,689
Covered OREO income, net (185) (1,615) (94) (1,800) (907)
Adjusted noninterest expense $ 83,849 $ 50,284 $ 46,313 $ 134,133 $ 90,617
Net interest income $ 192,533 $ 86,015 $ 68,473 $ 278,548 $ 134,166
Noninterest income 8,479 4,691 203 13,170 3,043
Net revenues 201,012 90,706 68,676 291,718 137,209
Less: FDIC loss sharing expense, net (8,525) (11,430) (5,410) (19,955) (8,547)
(Loss) gain on sale of loans and leases (485) 106 279 (379) 504
Gain on securities 89 4,752 4,841 409
Gain on sale of owned office building 1,570 1,570
Accelerated discount accretion resulting from payoffs of acquired loans 15,290 7,655 177 22,945 854
Adjusted net revenues $ 194,643 $ 88,053 $ 73,630 $ 282,696 $ 143,989
Base efficiency ratio (1) 84.5% 56.1% 93.5% 75.7% 79.0%
Adjusted efficiency ratio (2) 43.1% 57.1% 62.9% 47.4% 62.9%
(1) Noninterest expense divided by net revenues.
(2) Adjusted noninterest expense divided by adjusted net revenues.
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(Unaudited)
June 30, March 31, December 31, September 30, June 30,
Tangible Common Equity Ratio 2014 2014 2013 2013 2013
(Dollars in thousands)
PacWest Bancorp Consolidated:
Stockholder's equity $ 3,437,932 $ 833,702 $ 809,093 $ 816,289 $ 801,699
Less: Intangible assets 1,745,584 224,627 225,991 234,540 229,380
Tangible common equity $ 1,692,348 $ 609,075 $ 583,102 $ 581,749 $ 572,319
Total assets $ 15,684,866 $ 6,517,853 $ 6,533,363 $ 6,616,855 $ 6,709,102
Less: Intangible assets 1,745,584 224,627 225,991 234,540 229,380
Tangible assets $ 13,939,282 $ 6,293,226 $ 6,307,372 $ 6,382,315 $ 6,479,722
Equity to assets ratio 21.92% 12.79% 12.38% 12.34% 11.95%
Tangible common equity ratio (1) 12.14% 9.68% 9.24% 9.12% 8.83%
Book value per share $ 33.37 $ 18.21 $ 17.66 $ 17.71 $ 17.40
Tangible book value per share (2) $ 16.43 $ 13.31 $ 12.73 $ 12.62 $ 12.42
Shares outstanding 103,033,449 45,777,580 45,822,834 46,090,742 46,080,731
Pacific Western Bank:
Stockholder's equity $ 3,298,908 $ 910,644 $ 911,200 $ 906,029 $ 890,477
Less: Intangible assets 1,745,584 224,627 225,991 234,540 229,380
Tangible common equity $ 1,553,324 $ 686,017 $ 685,209 $ 671,489 $ 661,097
Total assets $ 15,376,440 $ 6,507,288 $ 6,523,742 $ 6,607,926 $ 6,699,832
Less: Intangible assets 1,745,584 224,627 225,991 234,540 229,380
Tangible assets $ 13,630,856 $ 6,282,661 $ 6,297,751 $ 6,373,386 $ 6,470,452
Equity to assets ratio 21.45% 13.99% 13.97% 13.71% 13.29%
Tangible common equity ratio (1) 11.40% 10.92% 10.88% 10.54% 10.22%
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by shares outstanding.


CONTACT: Matt Wagner, Chief Executive Officer, (310) 728-1020 Vic Santoro, Executive Vice President and CFO, (310) 728-1021Source:PacWest Bancorp