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PacWest Bancorp Announces Results for the Third Quarter of 2014

Highlights

  • Net Earnings of $62.3 Million or $0.60 Per Diluted Share; Adjusted Net Earnings of $68.4 Million or $0.66 Per Diluted Share
  • Core Net Interest Margin at 5.64%
  • $384.8 Million of Organic Loan and Lease Growth in the Quarter Driven by $974.7 Million of Production
  • Demand Deposits Increased $141.1 Million in the Quarter and are 25% of Total Deposits
  • Core Deposits Increased $268.8 Million in the Quarter and are 52% of Total Deposits

LOS ANGELES, Oct. 22, 2014 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the third quarter of 2014 of $62.3 million, or $0.60 per diluted share, compared to net earnings for the second quarter of 2014 of $10.6 million, or $0.10 per diluted share. When certain income and expense items described below are excluded, adjusted net earnings are $68.4 million, or $0.66 per diluted share, for the third quarter of 2014 and $63.8 million, or $0.64 per diluted share, for the second quarter of 2014.

Matt Wagner, President and CEO, commented, "The operating metrics of our third quarter are outstanding. We originated $975 million of loans and leases resulting in annualized portfolio growth of 14%. Core deposits grew $269 million during the quarter, with $85 million of such growth coming from CapitalSource division borrowers. At September 30, CapitalSource division borrowers had $193 million on deposit with us and our team continues to have a strong pipeline. On the earnings side, we posted a robust adjusted earnings of $68.4 million, or $0.66 per share, that represent a 1.73% return on average assets and a 15.8% return on average tangible equity. Our credit quality remains strong, with substantial reductions in nonaccrual and classified loans and leases. These strong operating results, along with the asset generation momentum from the CapitalSource merger, position us well for continued growth and success."

Vic Santoro, Executive Vice President and CFO, stated, "Our net interest margin and expense control were strong in the third quarter. Our core net interest margin remains quite solid at 5.64%. The third quarter adjusted efficiency ratio at 43% held steady with the second quarter. We continue to build capital, with a tangible common equity ratio of 12.2% at the end of September."

FINANCIAL HIGHLIGHTS

At or For the Three Months Ended At or For the Nine Months Ended
September 30, June 30, September 30,
2014 2014 Change 2014 2013 Change
(Dollars in thousands, except per share data)
Financial Highlights: (1)
Total Assets $ 15,938,345 $ 15,684,866 $ 253,479 $ 15,938,345 $ 6,616,855 $ 9,321,490
Gross Loans and Leases 11,591,395 11,200,524 390,871 11,591,395 4,384,312 7,207,083
Total Deposits 11,523,437 11,667,797 (144,360) 11,523,437 5,433,144 6,090,293
Net Earnings 62,271 10,555 51,716 97,906 42,006 55,900
Diluted Earnings Per Share $ 0.60 $ 0.10 $ 0.50 $ 1.18 $ 1.03 $ 0.15
Annualized Return on Average Assets 1.57% 0.28% 1.29 1.05% 0.95% 0.10
Adjusted Net Earnings (2) $ 68,356 $ 63,814 $ 4,542 $ 154,740 $ 59,564 $ 95,176
Adjusted Diluted Earnings Per Share (2) $ 0.66 $ 0.64 $ 0.02 $ 1.86 $ 1.47 $ 0.39
Annualized Adjusted Return on Average Assets (2) 1.73% 1.70% 0.03 1.66% 1.34% 0.32
Annualized Return on Average Tangible Equity (2) 14.36% 2.65% 11.71 10.01% 10.52% (0.51)
Annualized Adjusted Return on Average Tangible Equity (2) 15.76% 16.05% (0.29) 15.83% 14.92% 0.91
Noninterest-Bearing Deposits as a Percentage of Total Deposits 25% 23% 2 25% 43% (18)
Core Deposits as a Percentage of Total Deposits 52% 49% 3 52% 87% (35)
Tangible Common Equity Ratio (2) 12.24% 12.14% 0.10 12.24% 9.12% 3.12
Tangible Book Value Per Share (2) $ 16.86 $ 16.43 $ 0.43 $ 16.86 $ 12.62 $ 4.24
Net Interest Margin 5.78% 6.24% (0.46) 5.99% 5.36% 0.63
Core Net Interest Margin (2) 5.64% 5.74% (0.10) 5.64% 5.28% 0.36
Efficiency Ratio 46.6% 84.5% (37.9) 63.7% 73.3% (9.6)
Adjusted Efficiency Ratio (2) 43.4% 43.1% 0.3 45.8% 61.5% (15.7)
Annualized Operating Expense as a Percentage of Average Assets 2.09% 2.14% (0.05) 2.29% 3.18% (0.89)
(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 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,
2014 2014 2013 2014 2013
(Dollars in thousands)
Reported net earnings $ 62,271 $ 10,555 $ 24,163 $ 97,906 $ 42,006
Subtract: Tax (benefit) expense on discontinued operations (3) (476) 16 (1,067) (18)
Add: Tax expense on continuing operations 42,205 14,846 11,243 71,627 20,868
Reported pre-tax earnings 104,473 24,925 35,422 168,466 62,856
Add: Acquisition, integration and reorganization costs 5,193 86,242 5,450 93,635 24,139
Subtract: FDIC loss sharing expense, net (7,415) (8,525) (7,032) (27,370) (15,579)
(Loss) gain on sale of loans and leases 973 (485) 604 594 1,108
Gain on securities -- 89 5,222 4,841 5,631
Covered OREO (expense) income, net (452) 185 332 1,348 1,239
Gain on sale of owned office building -- -- -- 1,570 --
Adjusted pre-tax earnings before accelerated discount accretion on acquired loan payoffs 116,560 119,903 41,746 281,118 94,596
Subtract: Accelerated discount accretion resulting from payoffs of acquired loans 4,501 15,290 2,105 27,446 2,959
Adjusted pre-tax earnings 112,059 104,613 39,641 253,672 91,637
Tax expense (1) (43,703) (40,799) (13,874) (98,932) (32,073)
Adjusted net earnings $ 68,356 $ 63,814 $ 25,767 $ 154,740 $ 59,564
Annualized adjusted return on average assets 1.73% 1.70% 1.53% 1.66% 1.34%
Adjusted diluted earnings per share $ 0.66 $ 0.64 $ 0.56 $ 1.86 $ 1.47
(1) Full-year expected effective tax rate of 39% used in 2014 periods and actual effective tax rate of 35% used in 2013 periods.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased $3.7 million to $188.8 million for the third quarter of 2014 compared to $192.5 million for the second quarter of 2014 due to lower accelerated discount accretion resulting from payoffs of acquired loans offset by higher interest income from higher average loan and lease balances. Net interest margin ("NIM") for the third quarter of 2014 was 5.78%, compared to 6.24% for the second quarter of 2014 and the loan yield was 6.68% compared to 7.34% for the second quarter of 2014. The decrease in the NIM and the loan yield are both due to lower accelerated discount accretion from payoffs of acquired loans. Accelerated accretion resulting from payoffs of acquired loans was $4.5 million in the third quarter (16 basis points on the loan and lease yield) compared to $15.3 million in the second quarter (58 basis points on the loan and lease yield), a decrease of $10.8 million. Nevertheless, when accelerated accretion is excluded, interest income on loans and leases increased $8.5 million quarter over quarter as a direct result of the $1.9 billion of loans and leases originated and purchased since March 31, 2014.

The total cost of deposits increased to 0.30% from 0.26% in the prior quarter due primarily to a lower amount of premium accretion on the time deposits acquired in the CapitalSource merger. The outflow of maturing higher-rate time deposits, and the retention of a portion of these deposits at current rates, resulted in the decline in the weighted average contractual rate of time deposits to 0.80% at September 30th from 0.89% at June 30th.

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

Three Months Ended
September 30, June 30,
Net Interest Margin 2014 2014
(In thousands)
Average Assets:
Loans and leases $ 11,285,689 $ 10,500,521
Investment securities 1,584,811 1,606,848
Deposits in financial institutions 99,276 276,095
Average interest-earning assets 12,969,776 12,383,464
Other assets 2,746,763 2,653,637
Average total assets $ 15,716,539 $ 15,037,101
Average Liabilities:
Interest-bearing deposits $ 8,778,642 $ 8,629,482
Borrowings 96,711 39,931
Subordinated debentures 434,625 409,934
Average interest-bearing liabilities 9,309,978 9,079,347
Noninterest-bearing demand deposits 2,778,260 2,546,540
Other liabilities 163,182 178,196
Average total liabilities 12,251,420 11,804,083
Average stockholders' equity 3,465,119 3,233,018
Average liabilities and stockholders' equity $ 15,716,539 $ 15,037,101
Average time deposits $ 5,680,732 $ 5,613,601
Average total deposits $ 11,556,902 $ 11,176,022
Average funding sources $ 12,088,238 $ 11,625,887
Yield on:
Average loans and leases 6.68% 7.34%
Average investment securities 3.09% 2.99%
Average interest-earning assets 6.19% 6.62%
Cost of:
Average total deposits 0.30% 0.26%
Average time deposits 0.51% 0.42%
Average interest-bearing deposits 0.40% 0.34%
Average borrowings 0.30% 2.00%
Average subordinated debentures 4.21% 4.22%
Average interest-bearing liabilities 0.58% 0.52%
Average funding sources 0.44% 0.41%
Net interest rate spread 5.61% 6.10%
Net interest margin 5.78% 6.24%

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
September 30, 2014 June 30, 2014
Loan and Loan and
NIM Lease Yield NIM Lease Yield
Reported 5.78% 6.68% 6.24% 7.34%
Less: Accelerated accretion of acquisition discounts resulting from acquired loan payoffs (0.14)% (0.16)% (0.50)% (0.58)%
Core (non-GAAP measure) 5.64% 6.52% 5.74% 6.76%

The impact on the NIM from all purchase accounting items is detailed in the table below for the period indicated:

Three Months Ended
September 30, 2014
Impact on
Amount NIM
(Dollars in thousands)
NIM - as reported $ 188,846 5.78%
Less: Accelerated accretion of acquisition discounts from early acquired loan payoffs (4,501) (0.14)%
Remaining accretion of Non-PCI loan acquisition discounts (15,072) (0.46)%
Amortization of TruPS discount 1,402 0.04%
Accretion of time deposits premium (5,081) (0.16)%
(23,252) (0.72)%
NIM - excluding purchase accounting $ 165,594 5.06%

Noninterest Income

Noninterest income increased by $7.8 million to $16.3 million for the third quarter of 2014 compared to $8.5 million for the second quarter of 2014 due mostly to higher gain on sales of loans and leases, lower FDIC loss sharing expense and higher other income. The increase in other income is attributed to higher dividends on other equity investments and higher foreign currency translation net gains. The increase in other commissions and fees is due to higher unused commitment fees and prepayment fees. FDIC loss sharing expense decreased $1.1 million due mostly to lower amortization of the FDIC loss sharing asset as one of the Bank's loss sharing agreements reached the end of its initial indemnification period during the quarter.

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

Three Months Ended
September 30, June 30, Increase
Noninterest Income 2014 2014 (Decrease)
(In thousands)
Service charges on deposit accounts $ 2,725 $ 2,719 $ 6
Other commissions and fees 6,371 5,743 628
Leased equipment income 5,615 5,672 (57)
Gain (loss) on sale of loans and leases 973 (485) 1,458
Gain on securities -- 89 (89)
FDIC loss sharing expense, net (7,415) (8,525) 1,110
Other income:
Dividends and realized gains on equity investments 3,625 658 2,967
Foreign currency translation net gains 2,253 251 2,002
Income recognized on early repayment of leases 510 961 (451)
Other 1,657 1,396 261
Total noninterest income $ 16,314 $ 8,479 $ 7,835

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 2014 2014 (Decrease)
(In thousands)
Loss on FDIC loss sharing asset $ (1,735) $ (991) $ (744)
FDIC loss sharing asset amortization, net (6,074) (7,270) 1,196
Net reimbursement (to) from FDIC for covered OREOs 491 (175) 666
Other (97) (89) (8)
FDIC loss sharing expense, net $ (7,415) $ (8,525) $ 1,110

Noninterest Expense

Noninterest expense decreased by $74.3 million to $95.6 million for the third quarter of 2014 compared to $169.9 million for the second quarter of 2014. The decrease was due mostly to lower acquisition, integration and reorganization costs which decreased $81.0 million, offset by higher foreclosed assets expense of $4.3 million and higher operating expenses of $2.6 million. The increase in foreclosed assets expense was mostly due to write-downs on existing properties.

Operating expenses increased to $82.6 million for the third quarter of 2014 compared to $80.1 million for the second quarter of 2014 due to increases in compensation, other professional services and other expenses. Compensation expense was affected by a number of items including:

  • Lower base salaries and payroll taxes of $1.8 million;
  • Higher incentive compensation expense of $1.9 million, largely due to the level of loan and lease originations; and
  • Higher restricted stock expense of $600,000; as new awards were made in May 2014, the third quarter included three months of amortization expense compared to two months in the second quarter.

Other professional services increased due to higher legal and other consulting expenses related to corporate initiatives. Other expenses increased due to higher loan-related expenses related to origination and work-out activities and an accrual for loan-related litigation exposure.

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

Three Months Ended
September 30, June 30, Increase
Noninterest Expense 2014 2014 (Decrease)
(In thousands)
Compensation $ 45,861 $ 45,081 $ 780
Occupancy 11,188 11,078 110
Data processing 3,929 4,099 (170)
Other professional services 3,687 2,843 844
Insurance and assessments 3,020 3,179 (159)
Intangible asset amortization 1,608 1,677 (69)
Other expense:
Loan expense 3,711 3,024 687
Communications 1,369 1,421 (52)
Other 8,275 7,670 605
Total operating expense 82,648 80,072 2,576
Leased equipment depreciation 2,961 3,095 (134)
Foreclosed assets expense, net 4,827 497 4,330
Acquisition, integration and reorganization costs 5,193 86,242 (81,049)
Total noninterest expense $ 95,629 $ 169,906 $ (74,277)

Income Taxes

Our overall effective income tax rate was 40.4% for the third quarter of 2014 and 57.7% for the second 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, the second quarter adjusted effective tax rate was 40.2%.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases increased $384.8 million in the third quarter to $11.6 billion at September 30, 2014. The loan and lease growth in the third quarter represents an annualized growth rate of 14%.

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) 2014 2014
(In thousands)
Beginning balance $ 11,190,105 $ 4,161,067
Loans and leases originated and purchased 974,658 881,281
Existing loans and leases:
Principal repayments, net (2) (535,758) (710,818)
Loan and lease sales (13,039) (21,371)
Transfers to loans held for sale (33,125) --
Transfers to foreclosed assets -- (655)
Charge-offs (7,956) (5,434)
Loans and leases acquired through acquisition -- 6,886,035
Ending balance $ 11,574,885 $ 11,190,105
(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 September 30, 2014
PWB
Community National
Loan and Lease Roll Forward by Segment Banking Lending Total
(In thousands)
Beginning balance $ 3,521,367 $ 7,668,738 $ 11,190,105
Loans and leases originated and purchased 236,384 738,274 974,658
Existing loans and leases:
Principal repayments, net (269,365) (266,393) (535,758)
Loan and lease sales (223) (12,816) (13,039)
Transfers to loans held for sale -- (33,125) (33,125)
Charge-offs (6,038) (1,918) (7,956)
Ending balance $ 3,482,125 $ 8,092,760 $ 11,574,885
Weighted average rate on originations 4.73% 5.56% 5.34%

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

September 30, June 30,
Loan and Lease Portfolio 2014 2014
(In thousands)
Real estate mortgage:
Hospitality $ 530,628 $ 560,832
SBA 357,923 352,492
Commercial real estate 2,492,883 2,390,066
Healthcare real estate 1,006,164 976,539
Multi-family 811,234 857,907
Other 514,283 457,746
Total real estate mortgage 5,713,115 5,595,582
Real estate construction:
Residential 72,881 73,488
Commercial 218,389 235,018
Total real estate construction 291,270 308,506
Commercial:
Collateralized 429,011 446,754
Unsecured 127,150 145,632
Asset-based 1,594,488 1,488,267
Cash flow 2,341,511 2,167,135
Equipment finance 928,460 932,554
SBA 41,129 42,333
Total commercial 5,461,749 5,222,675
Consumer 108,751 63,342
Total loans and leases, net of deferred fees $ 11,574,885 $ 11,190,105

Deposits

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

September 30, 2014 June 30, 2014
% of % of
Deposit Category Amount Total Amount Total
(Dollars in thousands)
Noninterest-bearing demand deposits $ 2,842,488 25% $ 2,701,434 23%
Interest checking deposits 683,014 6% 587,418 5%
Money market deposits 1,721,563 15% 1,688,773 14%
Savings deposits 759,893 6% 760,553 7%
Total core deposits 6,006,958 52% 5,738,178 49%
Time deposits under $100,000 2,267,013 20% 2,251,473 19%
Time deposits of $100,000 and over 3,249,466 28% 3,678,146 32%
Total time deposits 5,516,479 48% 5,929,619 51%
Total deposits $ 11,523,437 100% $ 11,667,797 100%

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

September 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 $ 611,767 $ 925,768 $ 1,537,535 0.81% 0.65%
Due in over three months through six months 539,313 735,895 1,275,208 0.77% 0.67%
Due in over six months through twelve months 892,299 1,327,287 2,219,586 0.78% 0.72%
Due in over 12 months through 24 months 152,307 179,141 331,448 1.01% 0.72%
Due in over 24 months 71,327 81,375 152,702 0.97% 0.70%
Total $ 2,267,013 $ 3,249,466 $ 5,516,479 0.80% 0.69%
At June 30, 2014 $ 2,251,473 $ 3,678,146 $ 5,929,619 0.89% 0.69%

At September 30, 2014, core deposits totaled $6.0 billion, or 52% of total deposits, and noninterest-bearing demand deposits, which totaled $2.8 billion, were 25% of total deposits. The remaining purchase accounting premium on acquired CapitalSource time deposits was $5.9 million at September 30, 2014 with a weighted average life of 11 months.

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

We made a provision for credit losses of $5.0 million in both the third and second quarters 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 third quarter provision is comprised of $2.7 million for Non-PCI loans and $2.3 million for PCI loans. The provision for PCI loans results from decreases in expected cash flows on such loans, which have a net carrying value of $351.4 million at September 30th.

The following tables show roll forwards of the allowance for credit losses for the second and third quarters:

Three Months Ended June 30, 2014
Non-PCI
Allowance for Credit Loans and Unfunded Total PCI
Losses Rollforward Leases Commitments Non-PCI Loans Total
(In thousands)
Beginning Balance $ 59,980 $ 6,975 $ 66,955 $ 21,200 $ 88,155
Charge-offs (830) -- (830) (4,604) (5,434)
Recoveries 1,242 -- 1,242 -- 1,242
Provision (negative provision) 5,131 (131) 5,000 30 5,030
Ending Balance $ 65,523 $ 6,844 $ 72,367 $ 16,626 $ 88,993
Three Months Ended September 30, 2014
Non-PCI
Allowance for Credit Loans and Unfunded Total PCI
Losses Rollforward Leases Commitments Non-PCI Loans Total
(In thousands)
Beginning Balance $ 65,523 $ 6,844 $ 72,367 $ 16,626 $ 88,993
Charge-offs (7,848) -- (7,848) (108) (7,956)
Recoveries 1,725 -- 1,725 -- 1,725
Provision (negative provision) 3,684 (931) 2,753 2,297 5,050
Ending Balance $ 63,084 $ 5,913 $ 68,997 $ 18,815 $ 87,812

Non-PCI loans and leases include $4.2 billion of originated loans and leases that were not obtained through acquisitions. The allowance related to these loans and leases totals $60.0 million, or 1.43% of the outstanding balance.

All acquired loans are recorded initially at their estimated fair value with such initial fair value including an estimate of credit losses. The two additional credit coverage ratios shown in the table below are presented to give an indication of overall credit risk coverage:

September 30, 2014 June 30, 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 $ 11,239,964 $ 68,997 0.61% $ 10,802,053 $ 72,367 0.67%
Acquired loans (7,039,518) (3,038) (1) (7,327,541) (396) (1)
Adjusted balance $ 4,200,446 $ 65,959 1.57% $ 3,474,512 $ 71,971 2.07%
Ending Balance $ 11,239,964 $ 68,997 0.61% $ 10,802,053 $ 72,367 0.67%
Unamortized net discount 179,424 179,424 (2) 196,950 196,950 (2)
Adjusted balance $ 11,419,388 $ 248,421 2.18% $ 10,999,003 $ 269,317 2.45%
(1) Allowance attributed to $7.0 billion and $7.3 billion of acquired Non-PCI loans at September 30, 2014 and June 30, 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 $7.0 billion and $7.3 billion of acquired Non-PCI loans at September 30, 2014 and June 30, 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.

The decrease in coverage ratios results from the combination of charge-offs on loans that were reserved for in the second quarter, the full payoff of a significant classified loan in the third quarter, and a lower balance of unamortized discount.

CREDIT QUALITY

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

September 30, June 30,
Non-PCI Credit Quality Metrics 2014 2014
(Dollars in thousands)
Allowance for credit losses $ 68,997 $ 72,367
Nonaccrual loans and leases (1) 88,948 96,802
Classified loans and leases (2) 260,986 304,627
Performing restructured loans 34,308 33,741
Net charge-offs (recoveries) (for the quarter) 6,123 (412)
Provision for credit losses (for the quarter) 2,753 5,000
Allowance for credit losses to loans and leases 0.61% 0.67%
Allowance for credit losses to nonaccrual loans and leases 77.6% 74.8%
Nonperforming assets to loans and leases and foreclosed assets 1.15% 1.39%
Classified loans and leases to loans and leases 2.32% 2.82%
(1) At September 30, 2014 and June 30, 2014, includes $24,465 and $37,515, respectively, 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 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, 2014 June 30, 2014 30-89 Days Past Due
% of % of September 30, June 30,
Loan Loan 2014 2014
Balance Category Balance Category Balance Balance
(Dollars in thousands)
Real estate mortgage:
Hospitality $ 6,451 1% $ 6,552 1% $ -- $ --
SBA 7,483 2% 8,032 2% 529 1,233
Other 26,575 1% 28,098 1% 4,014 1,427
Total real estate mortgage 40,509 1% 42,682 1% 4,543 2,660
Real estate construction:
Residential 925 1% 927 1% -- --
Commercial 2,703 1% 2,737 1% 1,190 --
Total real estate construction 3,628 1% 3,664 1% 1,190 --
Commercial:
Collateralized 5,165 1% 11,247 3% -- 575
Unsecured 226 -- 322 -- 1 145
Asset-based 5,003 -- 4,874 -- -- --
Cash flow 15,958 1% 15,793 -- -- --
Equipment finance 12,885 1% 10,576 1% -- --
SBA 2,039 5% 4,096 10% -- 75
Total commercial 41,276 1% 46,908 1% 1 795
Consumer 3,535 3% 3,548 6% 165 128
Total Non-PCI loans and leases $ 88,948 1% $ 96,802 1% $ 5,899 $ 3,583

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

September 30, June 30,
Nonperforming Assets 2014 2014
(Dollars in thousands)
Nonaccrual Non-PCI loans and leases $ 88,948 $ 96,802
Nonaccrual PCI Loans (1) 27,670 38,467
Foreclosed assets, net 40,524 53,821
Total nonperforming assets $ 157,142 $ 189,090
Nonperforming assets to loans and leases and foreclosed assets 1.35% 1.68%
(1) Represents legacy CapitalSource borrowing relationships placed on nonaccrual status as of the acquisition date.

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. As of September 30, 2014, there are $27.7 million of PCI loans on nonaccrual status and included in the table above as the timing and amount of future cash flows is not reasonably estimable.

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 80 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 CapitalSource and Community Banking divisions, 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 expectations regarding our profitability, effective tax rates, and deposit growth. 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 and lease 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;
  • 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;
  • 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,
2014 2014 2013
(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks $ 145,463 $ 243,583 $ 96,424
Interest-earning deposits in financial institutions 115,399 119,782 50,998
Total cash and cash equivalents 260,862 363,365 147,422
Securities available-for-sale, at estimated fair value 1,539,681 1,552,115 1,494,745
Federal Home Loan Bank stock, at cost 45,602 49,983 27,939
Total investment securities 1,585,283 1,602,098 1,522,684
Non-PCI loans and leases 11,239,964 10,802,053 3,930,539
PCI loans 351,431 398,471 382,796
Total gross loans and leases 11,591,395 11,200,524 4,313,335
Deferred fees and costs (16,510) (10,419) (983)
Allowance for loan and lease losses (81,899) (82,149) (82,034)
Total loans and leases, net 11,492,986 11,107,956 4,230,318
Equipment leased to others under operating leases 125,119 127,289 --
Premises and equipment, net 38,368 40,440 32,435
Foreclosed assets, net 40,524 53,821 55,891
FDIC loss sharing asset 22,977 28,834 45,524
Deferred tax asset, net 331,176 342,105 79,636
Goodwill 1,722,129 1,725,153 208,743
Core deposit and customer relationship intangibles, net 18,822 20,431 17,248
Other assets 300,099 273,374 193,462
Total assets $ 15,938,345 $ 15,684,866 $ 6,533,363
LIABILITIES:
Noninterest-bearing deposits $ 2,842,488 $ 2,701,434 $ 2,318,446
Interest-bearing deposits 8,680,949 8,966,363 2,962,541
Total deposits 11,523,437 11,667,797 5,280,987
Borrowings 363,672 4,596 113,726
Subordinated debentures 433,545 434,878 132,645
Accrued interest payable and other liabilities 139,445 139,663 196,912
Total liabilities 12,460,099 12,246,934 5,724,270
STOCKHOLDERS' EQUITY (1) 3,478,246 3,437,932 809,093
Total liabilities and shareholders' equity $ 15,938,345 $ 15,684,866 $ 6,533,363
(1) Includes net unrealized gain (loss) on securities available-for-sale, net $ 20,821 $ 20,121 $ (3,347)
Book value per share $ 33.76 $ 33.37 $ 17.66
Tangible book value per share $ 16.86 $ 16.43 $ 12.73
Shares outstanding (includes unvested restricted shares of 1,115,550 at September 30, 2014, 1,121,850 at June 30, 2014 and 1,216,524 at December 31, 2013) 103,027,830 103,033,449 45,822,834
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
2014 2014 2013 2014 2013
(Dollars in thousands, except per share data)
Interest income:
Loans and leases $ 189,961 $ 192,201 $ 75,196 $ 459,625 $ 199,374
Investment securities 12,331 11,986 9,871 35,140 26,501
Deposits in financial institutions 64 176 91 314 183
Total interest income 202,356 204,363 85,158 495,079 226,058
Interest expense:
Deposits 8,822 7,313 1,692 17,360 6,418
Borrowings 74 199 108 352 451
Subordinated debentures 4,614 4,318 1,069 9,973 2,734
Total interest expense 13,510 11,830 2,869 27,685 9,603
Net interest income 188,846 192,533 82,289 467,394 216,455
Provision (negative provision) for credit losses 5,050 5,030 (4,167) 9,436 (2,872)
Net interest income after provision for credit losses 183,796 187,503 86,456 457,958 219,327
Noninterest income:
Service charges on deposit accounts 2,725 2,719 2,938 8,446 8,568
Other commissions and fees 6,371 5,743 2,204 14,046 6,291
Leased equipment income 5,615 5,672 -- 11,287 --
Gain (loss) on sale of loans and leases 973 (485) 604 594 1,108
Gain on securities -- 89 5,222 4,841 5,631
FDIC loss sharing expense, net (7,415) (8,525) (7,032) (27,370) (15,579)
Other income 8,045 3,266 1,191 17,640 2,151
Total noninterest income 16,314 8,479 5,127 29,484 8,170
Noninterest expense:
Compensation 45,861 45,081 27,963 119,569 79,370
Occupancy 11,188 11,078 7,828 29,861 21,906
Data processing 3,929 4,099 2,590 10,568 7,278
Other professional services 3,687 2,843 1,906 8,053 4,984
Insurance and assessments 3,020 3,179 1,496 7,792 4,024
Intangible asset amortization 1,608 1,677 1,512 4,649 3,972
Other expenses 13,355 12,115 7,875 32,758 19,860
Total operating expense 82,648 80,072 51,170 213,250 141,394
Leased equipment depreciation 2,961 3,095 -- 6,056 --
Foreclosed assets expense (income), net 4,827 497 (420) 3,463 (934)
Acquisition, integration and reorganization costs 5,193 86,242 5,450 93,635 24,139
Total noninterest expense 95,629 169,906 56,200 316,404 164,599
Earnings from continuing operations before taxes 104,481 26,076 35,383 171,038 62,898
Income tax expense (42,205) (14,846) (11,243) (71,627) (20,868)
Net earnings from continuing operations 62,276 11,230 24,140 99,411 42,030
(Loss) earnings from discontinued operations before taxes (8) (1,151) 39 (2,572) (42)
Income tax benefit (expense) 3 476 (16) 1,067 18
Net (loss) earnings from discontinued operations (5) (675) 23 (1,505) (24)
Net earnings $ 62,271 $ 10,555 $ 24,163 $ 97,906 $ 42,006
Basic and diluted earnings per share:
Net earnings from continuing operations $ 0.60 $ 0.11 $ 0.53 $ 1.20 $ 1.03
Net earnings $ 0.60 $ 0.10 $ 0.53 $ 1.18 $ 1.03
PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
Three Months Ended
September 30, 2014 June 30, 2014 September 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 $ 363,049 $ 13,490 14.74% $ 375,194 $ 14,104 15.08% $ 430,990 $ 12,902 11.88%
Non-PCI loans and leases 10,922,640 176,471 6.41% 10,125,327 178,097 7.06% 3,889,780 62,294 6.35%
Total loans and leases 11,285,689 189,961 6.68% 10,500,521 192,201 7.34% 4,320,770 75,196 6.90%
Investment securities (1) 1,584,811 12,331 3.09% 1,606,848 11,986 2.99% 1,518,256 9,871 2.58%
Deposits in financial institutions 99,276 64 0.26% 276,095 176 0.26% 140,785 91 0.26%
Total interest-earning assets 12,969,776 202,356 6.19% 12,383,464 204,363 6.62% 5,979,811 85,158 5.65%
Other assets 2,746,763 2,653,637 681,043
Total assets $ 15,716,539 $ 15,037,101 $ 6,660,854
Liabilities and
Stockholders' Equity:
Interest checking $ 605,288 86 0.06% $ 601,958 77 0.05% $ 619,884 83 0.05%
Money market 1,733,445 908 0.21% 1,691,115 874 0.21% 1,567,976 730 0.18%
Savings 759,177 575 0.30% 722,808 548 0.30% 216,174 14 0.03%
Time 5,680,732 7,253 0.51% 5,613,601 5,814 0.42% 765,890 865 0.45%
Total interest-bearing deposits 8,778,642 8,822 0.40% 8,629,482 7,313 0.34% 3,169,924 1,692 0.21%
Borrowings 96,711 74 0.30% 39,931 199 2.00% 9,012 108 4.75%
Subordinated debentures 434,625 4,614 4.21% 409,934 4,318 4.22% 132,413 1,069 3.20%
Total interest-bearing liabilities 9,309,978 13,510 0.58% 9,079,347 11,830 0.52% 3,311,349 2,869 0.34%
Noninterest-bearing demand deposits 2,778,260 2,546,540 2,329,197
Other liabilities 163,182 178,196 222,583
Total liabilities 12,251,420 11,804,083 5,863,129
Stockholders' equity 3,465,119 3,233,018 797,725
Total liabilities and stockholders' equity $ 15,716,539 $ 15,037,101 $ 6,660,854
Net interest income $ 188,846 $ 192,533 $ 82,289
Net interest spread 5.61% 6.10% 5.31%
Net interest margin 5.78% 6.24% 5.46%
Total deposits (2) $ 11,556,902 $ 8,822 0.30% $ 11,176,022 $ 7,313 0.26% $ 5,499,121 $ 1,692 0.12%
Funding sources (3) $ 12,088,238 $ 13,510 0.44% $ 11,625,887 $ 11,830 0.41% $ 5,640,546 $ 2,869 0.20%
(1) The tax equivalent yield on investment securities was 3.47%, 3.39%, and 2.97% for the three months ended September 30, 2014, June 30, 2014, and September 30, 2013.
(2) 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.
(3) 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,
2014 2014 2014 2013 2013
(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks $ 145,463 $ 243,583 $ 113,508 $ 96,424 $ 132,467
Interest-earning deposits in financial institutions 115,399 119,782 228,579 50,998 11,552
Total cash and cash equivalents 260,862 363,365 342,087 147,422 144,019
Securities available-for-sale 1,539,681 1,552,115 1,477,473 1,494,745 1,512,147
Federal Home Loan Bank stock, at cost 45,602 49,983 25,000 27,939 34,095
Total investment securities 1,585,283 1,602,098 1,502,473 1,522,684 1,546,242
Non-PCI loans and leases 11,239,964 10,802,053 3,828,569 3,930,539 3,951,555
PCI loans 351,431 398,471 332,516 382,796 432,757
Total gross loans and leases 11,591,395 11,200,524 4,161,085 4,313,335 4,384,312
Deferred fees and costs (16,510) (10,419) (18) (983) (919)
Allowance for loan and lease losses (81,899) (82,149) (81,180) (82,034) (83,786)
Total loans and leases, net 11,492,986 11,107,956 4,079,887 4,230,318 4,299,607
Equipment leased to others under operating leases 125,119 127,289 -- -- --
Premises and equipment, net 38,368 40,440 29,908 32,435 32,683
Foreclosed assets, net 40,524 53,821 50,895 55,891 55,972
FDIC loss sharing asset 22,977 28,834 34,628 45,524 55,653
Deferred tax asset, net 331,176 342,105 72,683 79,636 70,933
Goodwill 1,722,129 1,725,153 208,743 208,743 215,862
Core deposit and customer relationship intangibles, net 18,822 20,431 15,884 17,248 18,678
Other assets 300,099 273,374 180,665 193,462 177,206
Total assets $ 15,938,345 $ 15,684,866 $ 6,517,853 $ 6,533,363 $ 6,616,855
LIABILITIES:
Noninterest-bearing deposits $ 2,842,488 $ 2,701,434 $ 2,391,609 $ 2,318,446 $ 2,328,688
Interest-bearing deposits 8,680,949 8,966,363 2,977,799 2,962,541 3,104,456
Total deposits 11,523,437 11,667,797 5,369,408 5,280,987 5,433,144
Borrowings 363,672 4,596 5,748 113,726 8,243
Subordinated debentures 433,545 434,878 132,790 132,645 132,500
Accrued interest payable and other liabilities 139,445 139,663 176,205 196,912 226,679
Total liabilities 12,460,099 12,246,934 5,684,151 5,724,270 5,800,566
STOCKHOLDERS' EQUITY (1) 3,478,246 3,437,932 833,702 809,093 816,289
Total liabilities and shareholders' equity $ 15,938,345 $ 15,684,866 $ 6,517,853 $ 6,533,363 $ 6,616,855
(1) Includes net unrealized gain (loss) on securities available-for-sale, net $ 20,821 $ 20,121 $ 6,825 $ (3,347) $ 327
Book value per share $ 33.76 $ 33.37 $ 18.21 $ 17.66 $ 17.71
Tangible book value per share $ 16.86 $ 16.43 $ 13.31 $ 12.73 $ 12.62
Shares outstanding (includes unvested restricted shares) 103,027,830 103,033,449 45,777,580 45,822,834 46,090,742
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2014 2014 2014 2013 2013
(Dollars in thousands, except per share data)
Interest income:
Loans and leases $ 189,961 $ 192,201 $ 77,463 $ 73,352 $ 75,196
Investment securities 12,331 11,986 10,823 10,422 9,871
Deposits in financial institutions 64 176 74 82 91
Total interest income 202,356 204,363 88,360 83,856 85,158
Interest expense:
Deposits 8,822 7,313 1,225 1,450 1,692
Borrowings 74 199 79 86 108
Subordinated debentures 4,614 4,318 1,041 1,062 1,069
Total interest expense 13,510 11,830 2,345 2,598 2,869
Net interest income 188,846 192,533 86,015 81,258 82,289
Provision (negative provision) for credit losses 5,050 5,030 (644) (1,338) (4,167)
Net interest income after provision for credit losses 183,796 187,503 86,659 82,596 86,456
Noninterest income:
Service charges on deposit accounts 2,725 2,719 3,002 3,197 2,938
Other commissions and fees 6,371 5,743 1,932 2,125 2,204
Leased equipment income 5,615 5,672 -- -- --
Gain (loss) on sale of loans and leases 973 (485) 106 683 604
Gain (loss) on securities -- 89 4,752 (272) 5,222
FDIC loss sharing expense, net (7,415) (8,525) (11,430) (10,593) (7,032)
Other income 8,045 3,266 6,329 934 1,191
Total noninterest income 16,314 8,479 4,691 (3,926) 5,127
Noninterest expense:
Compensation 45,861 45,081 28,627 27,697 27,963
Occupancy 11,188 11,078 7,595 7,553 7,828
Data processing 3,929 4,099 2,540 2,216 2,590
Other professional services 3,687 2,843 1,523 1,770 1,906
Insurance and assessments 3,020 3,179 1,593 1,572 1,496
Intangible asset amortization 1,608 1,677 1,364 1,430 1,512
Other expenses 13,355 12,115 7,288 7,746 7,875
Total operating expense 82,648 80,072 50,530 49,984 51,170
Leased equipment depreciation 2,961 3,095 -- -- --
Foreclosed assets expense (income), net 4,827 497 (1,861) (569) (420)
Acquisition, integration and reorganization costs 5,193 86,242 2,200 16,673 5,450
Total noninterest expense 95,629 169,906 50,869 66,088 56,200
Earnings from continuing operations before taxes 104,481 26,076 40,481 12,582 35,383
Income tax expense (42,205) (14,846) (14,576) (9,135) (11,243)
Net earnings from continuing operations 62,276 11,230 25,905 3,447 24,140
(Loss) earnings from discontinued operations before taxes (8) (1,151) (1,413) (578) 39
Income tax benefit (expense) 3 476 588 240 (16)
Net (loss) earnings from discontinued operations (5) (675) (825) (338) 23
Net earnings $ 62,271 $ 10,555 $ 25,080 $ 3,109 $ 24,163
Basic and diluted earnings per share:
Net earnings from continuing operations $ 0.60 $ 0.11 $ 0.57 $ 0.07 $ 0.53
Net earnings $ 0.60 $ 0.10 $ 0.55 $ 0.06 $ 0.53
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,
2014 2014 2014 2013 2013
(Dollars in thousands)
Performance Ratios - GAAP:
Annualized return on average assets 1.57% 0.28% 1.56% 0.19% 1.44%
Annualized return on average equity 7.13% 1.31% 12.40% 1.51% 12.02%
Yield on loans and leases 6.68% 7.34% 7.42% 6.77% 6.90%
Yield on interest-earning assets 6.19% 6.62% 6.11% 5.58% 5.65%
Cost of total deposits 0.30% 0.26% 0.09% 0.11% 0.12%
Cost of time deposits 0.51% 0.42% 0.31% 0.40% 0.45%
Cost of interest-bearing liabilities 0.58% 0.52% 0.30% 0.32% 0.34%
Cost of funding sources 0.44% 0.41% 0.17% 0.18% 0.20%
Net interest rate spread 5.61% 6.10% 5.81% 5.26% 5.31%
Net interest margin 5.78% 6.24% 5.95% 5.41% 5.46%
Annualized operating expense as a percentage of average assets 2.09% 2.14% 3.15% 2.99% 3.05%
Annualized noninterest expense as a percentage of average assets 2.41% 4.53% 3.17% 3.95% 3.35%
Efficiency ratio 46.6% 84.5% 56.1% 85.5% 64.3%
Performance Ratios - Non-GAAP:
Annualized adjusted return on average assets 1.73% 1.70% 1.41% 1.43% 1.53%
Annualized adjusted return on average equity 7.83% 7.92% 11.16% 11.60% 12.81%
Annualized return on average tangible equity 14.36% 2.65% 17.10% 2.11% 16.85%
Annualized adjusted return on average tangible equity 15.76% 16.05% 15.39% 16.23% 17.97%
Core net interest margin 5.64% 5.74% 5.42% 5.31% 5.32%
Adjusted efficiency ratio 43.4% 43.1% 57.1% 58.1% 59.0%
Average Balances:
Average loans and leases $ 11,285,689 $ 10,500,521 $ 4,231,319 $ 4,301,377 $ 4,320,770
Average interest-earning assets 12,969,776 12,383,464 5,862,695 5,962,428 5,979,811
Average total assets 15,716,539 15,037,101 6,513,376 6,632,730 6,660,854
Average noninterest-bearing deposits 2,778,260 2,546,540 2,374,325 2,397,642 2,329,197
Average interest-bearing deposits 8,778,642 8,629,482 2,968,994 3,054,880 3,169,924
Average total deposits 11,556,902 11,176,022 5,343,319 5,452,522 5,499,121
Average borrowings and subordinated debentures 531,336 449,865 150,872 142,421 141,425
Average interest-bearing liabilities 9,309,978 9,079,347 3,119,866 3,197,301 3,311,349
Average funding sources 12,088,238 11,625,887 5,494,191 5,594,943 5,640,546
Average stockholders' equity 3,465,119 3,233,018 820,248 818,935 797,725
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,
2014 2014 2014 2013 2013
(Dollars in thousands)
Non-PCI Credit Quality:
Allowance for credit losses to loans and leases 0.61% 0.67% 1.75% 1.73% 1.72%
Allowance for credit losses to nonaccrual loans and leases 78% 75% 115% 145% 133%
Nonaccrual loans and leases to loans and leases 0.79% 0.90% 1.52% 1.19% 1.29%
Nonperforming assets to loans and leases and foreclosed assets 1.15% 1.39% 2.81% 2.58% 2.67%
Nonperforming assets to total assets 0.81% 0.96% 1.67% 1.57% 1.61%
Trailing twelve month net charge-offs to average loans and leases 0.09% 0.05% 0.13% 0.12% 0.21%
PacWest Bancorp Consolidated Capital Ratios:
Tier 1 leverage capital ratio 12.17% 12.40% 11.73% 11.22% 11.16%
Tier 1 risk-based capital ratio 13.24% 13.15% 16.16% 15.12% 15.13%
Total risk-based capital ratio 16.24% 16.25% 17.42% 16.38% 16.39%
Tangible common equity ratio (non-GAAP measure) 12.24% 12.14% 9.68% 9.24% 9.12%
Pacific Western Bank Capital Ratios:
Tier 1 leverage capital ratio 11.74% 11.71% 10.88% 10.79% 10.53%
Tier 1 risk-based capital ratio 12.74% 12.58% 15.00% 14.54% 14.27%
Total risk-based capital ratio 13.44% 13.32% 16.25% 15.80% 15.53%
Tangible common equity ratio (non-GAAP measure) 11.60% 11.40% 10.92% 10.88% 10.54%
PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
2014 2014 2013 2014 2013
(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Net earnings from continuing operations $ 62,276 $ 11,230 $ 24,140 $ 99,411 $ 42,030
Less: earnings allocated to unvested restricted stock (1) (685) (290) (786) (1,147) (1,137)
Net earnings from continuing operations allocated to common shares 61,591 10,940 23,354 98,264 40,893
Net earnings from discontinued operations allocated to common shares -- (675) 23 (1,487) (24)
Net earnings allocated to common shares $ 61,591 $ 10,265 $ 23,377 $ 96,777 $ 40,869
Weighted-average basic shares and unvested restricted stock outstanding 103,029 98,817 46,091 82,758 41,306
Less: weighted-average unvested restricted stock outstanding (1,117) (678) (1,795) (981) (1,663)
Weighted-average basic shares outstanding 101,912 98,139 44,296 81,777 39,643
Basic earnings per share:
Net earnings from continuing operations $ 0.60 $ 0.11 $ 0.53 $ 1.20 $ 1.03
Net earnings from discontinued operations -- (0.01) -- (0.02) --
Net earnings $ 0.60 $ 0.10 $ 0.53 $ 1.18 $ 1.03
Diluted Earnings Per Share:
Net earnings from continuing operations allocated to common shares $ 61,591 $ 10,940 $ 23,354 $ 98,264 $ 40,893
Net earnings from discontinued operations allocated to common shares -- (675) 23 (1,487) (24)
Net earnings allocated to common shares $ 61,591 $ 10,265 $ 23,377 $ 96,777 $ 40,869
Weighted-average basic shares outstanding 101,912 98,139 44,296 81,777 39,643
Diluted earnings per share:
Net earnings from continuing operations $ 0.60 $ 0.11 $ 0.53 $ 1.20 $ 1.03
Net earnings from discontinued operations -- (0.01) -- (0.02) --
Net earnings $ 0.60 $ 0.10 $ 0.53 $ 1.18 $ 1.03
(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 - 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 Nine Months Ended
September 30, June 30, September 30, September 30,
Adjusted Net Earnings and Related Ratios 2014 2014 2013 2014 2013
(Dollars in thousands)
Reported net earnings $ 62,271 $ 10,555 $ 24,163 $ 97,906 $ 42,006
Subtract: Tax (benefit) expense on discontinued operations (3) (476) 16 (1,067) (18)
Add: Tax expense on continuing operations 42,205 14,846 11,243 71,627 20,868
Reported pre-tax earnings 104,473 24,925 35,422 168,466 62,856
Add: Acquisition, integration and reorganization costs 5,193 86,242 5,450 93,635 24,139
Subtract: FDIC loss sharing expense, net (7,415) (8,525) (7,032) (27,370) (15,579)
(Loss) gain on sale of loans and leases 973 (485) 604 594 1,108
Gain on securities -- 89 5,222 4,841 5,631
Covered OREO (expense) income, net (452) 185 332 1,348 1,239
Gain on sale of owned office building -- -- -- 1,570 --
Adjusted pre-tax earnings before accelerated discount accretion 116,560 119,903 41,746 281,118 94,596
Subtract: Accelerated discount accretion resulting from payoffs of acquired loans 4,501 15,290 2,105 27,446 2,959
Adjusted pre-tax earnings 112,059 104,613 39,641 253,672 91,637
Tax expense (1) (43,703) (40,799) (13,874) (98,932) (32,073)
Adjusted net earnings $ 68,356 $ 63,814 $ 25,767 $ 154,740 $ 59,564
Average assets $ 15,716,539 $ 15,037,101 $ 6,660,854 $ 12,456,181 $ 5,943,004
Average stockholders' equity $ 3,465,119 $ 3,233,018 $ 797,725 $ 2,515,506 $ 685,216
Less: Average intangible assets 1,744,542 1,638,267 228,947 1,208,266 151,360
Average tangible common equity $ 1,720,577 $ 1,594,751 $ 568,778 $ 1,307,240 $ 533,856
Annualized return on average assets (2) 1.57% 0.28% 1.44% 1.05% 0.95%
Annualized adjusted return on average assets (3) 1.73% 1.70% 1.53% 1.66% 1.34%
Annualized return on average equity (4) 7.13% 1.31% 12.02% 5.20% 8.20%
Annualized adjusted return on average equity (5) 7.83% 7.92% 12.81% 8.22% 11.62%
Annualized return on average tangible equity (6) 14.36% 2.65% 16.85% 10.01% 10.52%
Annualized adjusted return on average tangible equity (7) 15.76% 16.05% 17.97% 15.83% 14.92%
(1) Full-year expected effective tax 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 Nine Months Ended
September 30, June 30, September 30, September 30,
Adjusted Efficiency Ratio 2014 2014 2013 2014 2013
(Dollars in thousands)
Noninterest expense $ 95,629 $ 169,906 $ 56,200 $ 316,404 $ 164,599
Less: Acquisition, integration and reorganization costs 5,193 86,242 5,450 93,635 24,139
Covered OREO expense (income), net 452 (185) (332) (1,348) (1,239)
Adjusted noninterest expense $ 89,984 $ 83,849 $ 51,082 $ 224,117 $ 141,699
Net interest income $ 188,846 $ 192,533 $ 82,289 $ 467,394 $ 216,455
Noninterest income 16,314 8,479 5,127 29,484 8,170
Net revenues 205,160 201,012 87,416 496,878 224,625
Less: FDIC loss sharing expense, net (7,415) (8,525) (7,032) (27,370) (15,579)
(Loss) gain on sale of loans and leases 973 (485) 604 594 1,108
Gain on securities -- 89 5,222 4,841 5,631
Gain on sale of owned office building -- -- -- 1,570 --
Accelerated discount accretion resulting from payoffs of acquired loans 4,501 15,290 2,105 27,446 2,959
Adjusted net revenues $ 207,101 $ 194,643 $ 86,517 $ 489,797 $ 230,506
Base efficiency ratio (1) 46.6% 84.5% 64.3% 63.7% 73.3%
Adjusted efficiency ratio (2) 43.4% 43.1% 59.0% 45.8% 61.5%
(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)
September 30, June 30, March 31, December 31, September 30,
Tangible Common Equity Ratio 2014 2014 2014 2013 2013
(Dollars in thousands)
PacWest Bancorp Consolidated:
Stockholders' equity $ 3,478,246 $ 3,437,932 $ 833,702 $ 809,093 $ 816,289
Less: Intangible assets 1,740,951 1,745,584 224,627 225,991 234,540
Tangible common equity $ 1,737,295 $ 1,692,348 $ 609,075 $ 583,102 $ 581,749
Total assets $ 15,938,345 $ 15,684,866 $ 6,517,853 $ 6,533,363 $ 6,616,855
Less: Intangible assets 1,740,951 1,745,584 224,627 225,991 234,540
Tangible assets $ 14,197,394 $ 13,939,282 $ 6,293,226 $ 6,307,372 $ 6,382,315
Equity to assets ratio 21.82% 21.92% 12.79% 12.38% 12.34%
Tangible common equity ratio (1) 12.24% 12.14% 9.68% 9.24% 9.12%
Book value per share $ 33.76 $ 33.37 $ 18.21 $ 17.66 $ 17.71
Tangible book value per share (2) $ 16.86 $ 16.43 $ 13.31 $ 12.73 $ 12.62
Shares outstanding 103,027,830 103,033,449 45,777,580 45,822,834 46,090,742
Pacific Western Bank:
Stockholders' equity $ 3,357,138 $ 3,298,908 $ 910,644 $ 911,200 $ 906,029
Less: Intangible assets 1,740,951 1,745,584 224,627 225,991 234,540
Tangible common equity $ 1,616,187 $ 1,553,324 $ 686,017 $ 685,209 $ 671,489
Total assets $ 15,675,486 $ 15,376,440 $ 6,507,288 $ 6,523,742 $ 6,607,926
Less: Intangible assets 1,740,951 1,745,584 224,627 225,991 234,540
Tangible assets $ 13,934,535 $ 13,630,856 $ 6,282,661 $ 6,297,751 $ 6,373,386
Equity to assets ratio 21.42% 21.45% 13.99% 13.97% 13.71%
Tangible common equity ratio 11.60% 11.40% 10.92% 10.88% 10.54%
(1) Tangible common equity divided by tangible assets
(2) Tangible common equity divided by shares outstanding

CONTACT: Matthew P. Wagner President and CEO 10250 Constellation Boulevard, Suite 1640 Los Angeles, CA 90067 Phone: 310-728-1020 Fax: 310-201-0498 Victor R. Santoro Executive Vice President and CFO 10250 Constellation Boulevard, Suite 1640 Los Angeles, CA 90067 Phone: 310-728-1021 Fax: 310-201-0498Source:PacWest Bancorp