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PacWest Bancorp Announces Results for the Second Quarter of 2015

Highlights

  • Net Earnings of $85.1 Million, or $0.83 Per Diluted Share; Adjusted Net Earnings of $72.5 Million, or $0.70 Per Diluted Share
  • Core Net Interest Margin at 5.27%; Core Tax Equivalent Net Interest Margin at 5.33%
  • New Loan and Lease Originations of $658.7 Million
  • Core Deposits Increased $387.2 Million in the Quarter and are 52% of Total Deposits

LOS ANGELES, July 15, 2015 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the second quarter of 2015 of $85.1 million, or $0.83 per diluted share, compared to net earnings for the first quarter of 2015 of $73.1 million, or $0.71 per diluted share. When certain income and expense items described below are excluded, adjusted net earnings were $72.5 million, or $0.70 per diluted share, for the second quarter of 2015 compared to $65.0 million, or $0.63 per diluted share, for the first quarter of 2015. The increase in adjusted net earnings is largely the result of higher adjusted noninterest income and a lower provision for credit losses as compared to the first quarter.

Matt Wagner, President and CEO, commented, "The results of our second quarter on both a reported and adjusted basis continue to demonstrate our sustained earning power and strong capital position. Although the negative net loan and lease growth for the quarter was a disappointment, our first quarter originations were well above our expectations and the current loan and lease pipeline is robust. We continue to expect high single digit growth for the full year."

Mr. Wagner continued, "Our Non-PCI credit metrics are good. The allowance coverage ratio increased to 0.78%, nonaccruals decreased a bit and classified loans and leases increased. The classified balances move from quarter to quarter due mainly to the relative size of credits within the portfolio. Nevertheless, we believe our credit loss exposure on classified credits is minimal. Our exposure to credits related to support services to the oil and gas industries improved moderately, showing declines in both outstandings and nonaccrual balances."

Mr. Wagner commented on the status of the Square 1 merger stating, "We continue to look forward to closing the Square 1 merger in the fourth quarter of 2015, as we expect regulatory and stockholder approvals to come in the normal course. The integration team, composed of senior employees of both PacWest and Square 1, has been working for months on the integration plan, and we expect once final regulatory approval is received, the integration will be completed quickly."

Vic Santoro, Executive Vice President and CFO stated, "Second quarter deposit growth was very good, with total deposits increasing $648 million and core deposits increasing $387 million. We were particularly pleased with the deposits generated in the CapitalSource Division, which increased to $456 million at the end of June from $303 million at the end of March. Although we continue to make progress towards our goal of remixing the Bank's deposit base, the Square 1 merger is expected to accelerate that process."

Mr. Santoro continued, "Our core net interest margin remains very strong at 5.27%, with the corresponding tax equivalent NIM at 5.33%. We continue to closely control operating expenses as shown by the adjusted efficiency ratio of 40.6% in the second quarter. Our focus for the remainder of 2015 will be loan and lease growth, core deposit growth, expense control and the successful integration of Square 1."

FINANCIAL HIGHLIGHTS

At or For the Three Months Ended At or For the Six Months Ended
June 30, March 31, June 30,
2015 2015 Change 2015 2014 Change
(Dollars in thousands, except per share data)
Financial Highlights:
Total Assets $ 16,697,020 $ 16,643,940 $ 53,080 $ 16,697,020 $ 15,684,671 $ 1,012,349
Loans and Leases, Net of Deferred Fees $ 12,034,189 $ 12,272,166 $ (237,977) $ 12,034,189 $ 11,190,105 $ 844,084
Total Deposits $ 12,581,816 $ 11,934,175 $ 647,641 $ 12,581,816 $ 11,667,797 $ 914,019
Net Earnings $ 85,083 $ 73,079 $ 12,004 $ 158,162 $ 35,635 $ 122,527
Diluted Earnings Per Share $ 0.83 $ 0.71 $ 0.12 $ 1.54 $ 0.49 $ 1.05
Return on Average Assets (1) 2.07% 1.82% 0.25 1.95% 0.67% 1.28
Adjusted Net Earnings (2) $ 72,503 $ 65,041 $ 7,462 $ 137,545 $ 84,813 $ 52,732
Adjusted Diluted Earnings Per Share (2) $ 0.70 $ 0.63 $ 0.07 $ 1.33 $ 1.16 $ 0.17
Adjusted Return on Average Assets (1) (2) 1.77% 1.62% 0.15 1.69% 1.58% 0.11
Return on Average Tangible Equity (1) (2) 18.90% 16.50% 2.40 17.71% 6.55% 11.16
Adjusted Return on Average Tangible Equity (1) (2) 16.11% 14.69% 1.42 15.40% 15.59% (0.19)
Noninterest-Bearing Deposits as Percentage of Total Deposits 26% 26% -- 26% 23% 3
Core Deposits as Percentage of Total Deposits 52% 52% -- 52% 49% 3
Tangible Common Equity Ratio (2) 12.10% 12.01% 0.09 12.10% 12.14% (0.04)
Tangible Book Value Per Share (2) $ 17.55 $ 17.36 $ 0.19 $ 17.55 $ 16.42 $ 1.13
Net Interest Margin 5.83% 5.89% (0.06) 5.86% 6.14% (0.28)
Core Net Interest Margin (2) 5.27% 5.38% (0.11) 5.32% 5.63% (0.31)
Efficiency Ratio 38.4% 38.4% -- 38.4% 75.2% (36.8)
Adjusted Efficiency Ratio (2) 40.6% 40.4% 0.2 40.5% 46.9% (6.4)
(1) Annualized.
(2) Non-GAAP measure.

ADJUSTED NET EARNINGS

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

Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2015 2015 2014 2015 2014
(Dollars in thousands)
Net earnings $ 85,083 $ 73,079 $ 10,555 $ 158,162 $ 35,635
Less: Tax benefit on discontinued operations -- -- (476) -- (1,064)
Add: Tax expense on continuing operations 45,287 46,073 15,552 91,360 30,833
Pre-tax earnings 130,370 119,152 25,631 249,522 65,404
Add: Acquisition, integration, and reorganization costs 900 2,000 86,242 2,900 88,442
Less: FDIC loss sharing expense, net (5,107) (4,399) (8,525) (9,506) (19,955)
Gain (loss) on sale of loans and leases 163 -- (485) 163 (379)
(Loss) gain on securities (186) 3,275 89 3,089 4,841
Covered OREO (expense) income, net 12 19 185 31 1,800
Gain on sale of owned office building -- -- -- -- 1,570
Adjusted pre-tax earnings before accelerated discount accretion 136,388 122,257 120,609 258,645 165,969
Less: Accelerated discount accretion from early payoffs of acquired loans 19,447 17,352 15,290 36,799 22,945
Adjusted pre-tax earnings 116,941 104,905 105,319 221,846 143,024
Tax expense (1) (44,438) (39,864) (42,865) (84,301) (58,211)
Adjusted net earnings $ 72,503 $ 65,041 $ 62,454 $ 137,545 $ 84,813
Annualized adjusted return on average assets 1.77% 1.62% 1.67% 1.69% 1.58%
Adjusted diluted earnings per share $ 0.70 $ 0.63 $ 0.63 $ 1.33 $ 1.16
(1) Full-year expected effective rate of 38.0% used for 2015 periods and actual effective rate of 40.7% used for 2014 periods.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased $3.5 million to $202.6 million for the second quarter of 2015 compared to $199.1 million for the first quarter of 2015 due to increased FHLB dividends, higher average loan and lease balances, higher accelerated discount accretion from early payoffs of acquired loans, and one more day in the second quarter. Net interest margin ("NIM") for the second quarter of 2015 was 5.83% compared to 5.89% for the first quarter of 2015, and the loan and lease yield was 6.75% compared to 6.80% for the first quarter of 2015. The decreases in the NIM and loan yield were both due to higher nonaccrual loan and lease average balances in the second quarter and the payoffs of higher-yielding loans and leases. Accelerated discount accretion from early payoffs of acquired loans was $19.4 million in the second quarter of 2015 (64 basis points on the loan and lease yield) compared to $17.4 million in the first quarter of 2015 (58 basis points on the loan and lease yield).

The cost of total deposits increased to 0.37% from 0.36% in the prior quarter due primarily to a $0.5 million decrease in the amount of premium accretion on the time deposits acquired in the CapitalSource merger. The repricing of maturing time deposits at current rates and new time deposit production resulted in the decline in the weighted average contractual interest rate on time deposits to 0.71% at June 30, 2015 from 0.72% at March 31, 2015.

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

Three Months Ended
June 30, March 31,
Net Interest Margin 2015 2015
(Dollars in thousands)
Average Assets:
Loans and leases $ 12,108,016 $ 12,055,682
Investment securities 1,672,590 1,613,422
Deposits in financial institutions 161,683 32,761
Interest-earning assets 13,942,289 13,701,865
Other assets 2,521,022 2,594,775
Total assets $ 16,463,311 $ 16,296,640
Average Liabilities and Stockholders' Equity:
Interest-bearing deposits $ 9,107,937 $ 8,801,306
Borrowings 81,164 424,061
Subordinated debentures 432,656 432,603
Interest-bearing liabilities 9,621,757 9,657,970
Noninterest-bearing demand deposits 3,157,129 2,949,719
Other liabilities 135,677 155,608
Total liabilities 12,914,563 12,763,297
Stockholders' equity 3,548,748 3,533,343
Liabilities and stockholders' equity $ 16,463,311 $ 16,296,640
Time deposits $ 5,559,903 $ 5,481,886
Total deposits $ 12,265,066 $ 11,751,025
Funding sources $ 12,778,886 $ 12,607,689
Yields on Average Assets:
Loans and leases 6.75% 6.80%
Investment securities (1) 3.49% 3.07%
Interest-earning assets 6.28% 6.34%
Costs of Average Liabilities:
Total deposits 0.37% 0.36%
Time deposits 0.68% 0.65%
Interest-bearing deposits 0.49% 0.48%
Borrowings 0.43% 0.22%
Subordinated debentures 4.25% 4.24%
Interest-bearing liabilities 0.66% 0.64%
Funding sources 0.50% 0.49%
Net interest rate spread 5.62% 5.70%
Net interest margin 5.83% 5.89%
Tax equivalent net interest margin 5.89% 5.95%
(1) Tax equivalent yields were 4.01% and 3.52%, respectively.

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

Three Months Ended Three Months Ended
June 30, 2015 March 31, 2015
Loan and Loan and
NIM Lease Yield NIM Lease Yield
Reported 5.83% 6.75% 5.89% 6.80%
Less: Accelerated accretion of acquisition discounts from early payoffs of acquired loans (0.56)% (0.64)% (0.51)% (0.58)%
Core (non-GAAP measure) 5.27% 6.11% 5.38% 6.22%

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

Three Months Ended Three Months Ended
June 30, 2015 March 31, 2015
Impact on Impact on
Amount NIM Amount NIM
(Dollars in thousands)
Net interest income/NIM as reported $ 202,552 5.83% $ 199,075 5.89%
Less: Accelerated accretion of acquisition discounts from early payoffs of acquired loans (19,447) (0.56)% (17,352) (0.51)%
Remaining accretion of Non-PCI loan acquisition discounts (9,195) (0.26)% (11,245) (0.33)%
Amortization of TruPS discount 1,400 0.04% 1,401 0.04%
Accretion of time deposits premium (799) (0.02)% (1,285) (0.04)%
(28,041) (0.80)% (28,481) (0.84)%
Net interest income/NIM excluding purchase accounting $ 174,511 5.03% $ 170,594 5.05%

Noninterest Income

Noninterest income decreased by $1.3 million to $19.6 million for the second quarter of 2015 compared to $20.9 million for the first quarter of 2015 due mostly to lower foreign currency translation net gains (losses) and lower gains (losses) on sale of securities offset by higher dividends and realized gains on equity investments and higher other commissions and fees. Foreign currency translation net gains (losses) decreased $4.0 million from the prior quarter and are based upon movement of the U.S. Dollar against various foreign currencies, principally the Euro. We hedged our Euro-denominated trust preferred issuance in June to reduce the related foreign currency translation volatility. The gain on sale of securities was $3.3 million for the first quarter of 2015 compared to a net loss of $0.2 million for the second quarter; all sales related to on-going portfolio risk management activities. Dividends and realized gains on equity investments tend to fluctuate from period to period based upon actual dividends received and sales activity. The second quarter included the sale of three equity investments at a net gain of $6.0 million; there were no similar sales in the first quarter. The $1.7 million increase in other commissions and fees was due to higher loan prepayment fees and is driven by the level of loan payoff activity.

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

Three Months Ended
June 30, March 31, Increase
Noninterest Income 2015 2015 (Decrease)
(In thousands)
Service charges on deposit accounts $ 2,612 $ 2,574 $ 38
Other commissions and fees 7,123 5,396 1,727
Leased equipment income 5,375 5,382 (7)
Gain on sale of loans and leases 163 -- 163
(Loss) gain on securities (186) 3,275 (3,461)
FDIC loss sharing expense, net (5,107) (4,399) (708)
Other income:
Dividends and realized gains on equity investments 8,169 3,477 4,692
Foreign currency translation net (losses) gains (1,377) 2,597 (3,974)
Income recognized on early repayment of leases 1,648 736 912
Other 1,203 1,833 (630)
Total noninterest income $ 19,623 $ 20,871 $ (1,248)

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 2015 2015 (Decrease)
(In thousands)
Loss on FDIC loss sharing asset $ (725) $ (278) $ (447)
FDIC loss sharing asset amortization, net (4,286) (4,015) (271)
Net reimbursement from (to) FDIC for covered OREOs 7 (3) 10
Other (103) (103) --
FDIC loss sharing expense, net $ (5,107) $ (4,399) $ (708)

Noninterest Expense

Noninterest expense increased by $0.9 million to $85.3 million for the second quarter of 2015 compared to $84.4 million for the first quarter of 2015. The increase was due mostly to higher insurance and assessments expense of $1.7 million, higher compensation expense of $1.3 million and higher loan-related expense of $1.1 million, offset by lower foreclosed assets expense of $2.7 million and lower acquisition, integration and reorganization costs of $1.1 million. Insurance and assessments expense increased due to the FDIC insurance assessment being calculated under the "large-bank" method starting in the second quarter. Compensation expense increased due to higher stock-based compensation expense, staff pay raises that took effect towards the end of the first quarter and higher incentive accruals. Loan-related expense increased due to lower recoveries of legal costs specifically and lower loan-related expenses generally. The first quarter included a $1.7 million recovery of legal costs compared to a $0.6 million recovery in the second quarter related to the same matter. Foreclosed assets expense decreased due to higher gain on sale of foreclosed assets in the second quarter. Acquisition, integration and reorganization costs will fluctuate from period to period based on the timing and amount of acquisition and integration activities related to the pending acquisition of Square 1 Financial, Inc.

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

Three Months Ended
June 30, March 31, Increase
Noninterest Expense 2015 2015 (Decrease)
(In thousands)
Compensation $ 49,033 $ 47,737 $ 1,296
Occupancy 10,588 10,600 (12)
Data processing 4,402 4,308 94
Other professional services 3,332 3,221 111
Insurance and assessments 4,716 3,025 1,691
Intangible asset amortization 1,502 1,501 1
Leased equipment depreciation 3,103 3,103 --
Foreclosed assets expense (income), net (2,340) 336 (2,676)
Acquisition, integration and reorganization costs 900 2,000 (1,100)
Other expense:
Loan expense 1,486 339 1,147
Other 8,554 8,190 364
Total noninterest expense $ 85,276 $ 84,360 $ 916

Income Taxes

Our overall effective income tax rate was 34.7% for the second quarter of 2015 and 38.7% for the first quarter of 2015. The decline in the effective rate is related to utilization of a portion of the capital loss carryforward and adjustments to certain deferred tax assets. We expect that the effective tax rate for calendar year 2015 will be approximately 38.0%.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases decreased $238.0 million in the second quarter to $12.0 billion at June 30, 2015. Second quarter originations of $658.7 million were offset by payoffs and principal repayments of $889.7 million resulting in the net decrease.

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

Three Months Ended
June 30, March 31,
Loan and Lease Roll Forward (1) 2015 2015
(In thousands)
Beginning balance $ 12,272,166 $ 11,882,432
Originations 658,669 1,037,906
Existing loans and leases:
Principal repayments, net (2) (889,708) (637,288)
Loan and lease sales (3,621) --
Transfers to foreclosed assets (2,694) (394)
Charge-offs (623) (10,490)
Ending balance $ 12,034,189 $ 12,272,166
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) Includes principal repayments on existing loans, changes in revolving lines of credit (repayments and draws), loan participation sales and other changes within the loan portfolio.

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

Three Months Ended June 30, 2015
Community National
Loan and Lease Roll Forward by Segment Banking Lending Total
(In thousands)
Beginning balance $ 3,349,928 $ 8,922,238 $ 12,272,166
Originations 79,760 578,909 658,669
Existing loans and leases:
Transfers between segments (90,021) 90,021 --
Principal repayments, net (234,714) (654,994) (889,708)
Loan and lease sales -- (3,621) (3,621)
Transfers to foreclosed assets (2,694) -- (2,694)
Charge-offs (425) (198) (623)
Ending balance $ 3,101,834 $ 8,932,355 $ 12,034,189
Weighted average yields on originations for the quarters ended:
June 30, 2015 5.17% 6.00% 5.89%
March 31, 2015 5.28% 5.84% 5.76%
December 31, 2014 5.09% 5.76% 5.67%
September 30, 2014 4.73% 5.56% 5.34%

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

June 30, March 31,
Loan and Lease Portfolio 2015 2015
(In thousands)
Real estate mortgage:
Hospitality $ 607,468 $ 622,310
SBA 401,832 392,704
Commercial real estate 2,465,129 2,742,593
Healthcare real estate 1,127,111 1,097,910
Multi-family 832,418 749,661
Other 193,821 209,703
Total real estate mortgage 5,627,779 5,814,881
Real estate construction and land:
Residential 119,825 122,338
Commercial 225,133 208,259
Total real estate construction and land 344,958 330,597
Commercial:
Collateralized 371,954 394,576
Unsecured 120,415 143,585
Asset-based 1,840,514 1,719,835
Cash flow 2,691,743 2,818,293
Equipment finance 904,488 914,015
SBA 45,769 42,426
Total commercial 5,974,883 6,032,730
Consumer 86,569 93,958
Total loans and leases, net of deferred fees $ 12,034,189 $ 12,272,166

Credit Exposure Affected by Low Oil Prices

During the latter half of 2014, oil prices declined significantly. During 2015, per-barrel prices have remained low. As oil prices began to decline, we increased our credit monitoring of loans and leases where borrowers and lessees are affected by low oil prices.

At June 30, 2015, we had 29 outstanding loan and lease relationships totaling $177.2 million to borrowers involved in the oil and gas industry, down from $181.4 million at March 31, 2015. The obligors under these loans and leases provide industrial support services to the oil and gas industries. The collateral for these loans and leases primarily includes equipment, such as drilling equipment and transportation vehicles, used directly and indirectly in these activities. At June 30, 2015, four relationships totaling $64.2 million were on nonaccrual status and were classified, down from $65.1 million at March 31, 2015.

Deposits

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

June 30, 2015 March 31, 2015
% of % of
Deposit Category Amount Total Amount Total
(Dollars in thousands)
Noninterest-bearing demand deposits $ 3,396,688 26% $ 3,029,463 26%
Interest checking deposits 722,231 6% 739,073 6%
Money market deposits 1,722,633 14% 1,682,123 14%
Savings deposits 743,054 6% 746,741 6%
Total core deposits 6,584,606 52% 6,197,400 52%
Brokered non-maturity deposits 651,925 5% 155,976 1%
Total non-maturity deposits 7,236,531 57% 6,353,376 53%
Time deposits under $100,000 2,328,109 19% 2,562,078 22%
Time deposits of $100,000 and over 3,017,176 24% 3,018,721 25%
Total time deposits 5,345,285 43% 5,580,799 47%
Total deposits $ 12,581,816 100% $ 11,934,175 100%

At June 30, 2015, core deposits totaled $6.6 billion, or 52% of total deposits, including $3.4 billion of noninterest-bearing demand deposits, or 26% of total deposits. Deposits obtained from CapitalSource Division borrowers totaled $455.5 million at June 30, 2015, of which $441.8 million were core deposits.

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

June 30, 2015
Time Deposits Time Deposits Total Estimated
Under $100,000 Time Contractual Effective
Time Deposit Maturities $100,000 or More Deposits Rate Rate
(Dollars in thousands)
Due in three months or less $ 850,820 $ 1,287,366 $ 2,138,186 0.65% 0.63%
Due in over three months through six months 467,525 365,480 833,005 0.57% 0.53%
Due in over six months through twelve months 838,723 1,147,809 1,986,532 0.81% 0.78%
Due in over 12 months through 24 months 128,086 181,988 310,074 0.81% 0.70%
Due in over 24 months 42,955 34,533 77,488 1.04% 0.78%
Total $ 2,328,109 $ 3,017,176 $ 5,345,285 0.71% 0.69%
At March 31, 2015 $ 2,562,078 $ 3,018,721 $ 5,580,799 0.72% 0.68%

The remaining purchase accounting premium on acquired CapitalSource time deposits was $1.7 million at June 30, 2015, of which $0.9 million will be recognized as a reduction of interest expense in the remainder of 2015.

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

We made a provision for credit losses of $6.5 million in the second quarter of 2015 and $16.4 million in the first quarter of 2015 in accordance with our allowance methodology, which takes into consideration new loan and lease fundings, commitments to make loans and leases and underlying credit quality trends. The second quarter provision was comprised of a $5.0 million provision for Non-PCI loans and leases and a provision of $1.5 million for PCI loans. The $6.5 million provision, combined with net recoveries of $1.5 million, increased the allowance for credit losses by $8.0 million in the second quarter. The allowance for Non-PCI credit losses to Non-PCI loans and leases coverage ratio increased to 0.78% at June 30th from 0.72% at March 31st. The provision for PCI loans results from decreases in expected cash flows on such loans.

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

Three Months Ended June 30, 2015
Non-PCI
Allowance for Credit Loans and Unfunded Total PCI
Losses Rollforward Leases Commitments Non-PCI Loans Total
(In thousands)
Beginning balance $ 79,680 $ 6,874 $ 86,554 $ 12,698 $ 99,252
Charge-offs (623) -- (623) -- (623)
Recoveries 1,990 -- 1,990 101 2,091
Net recoveries 1,367 -- 1,367 101 1,468
Provision 4,000 1,000 5,000 1,529 6,529
Ending balance $ 85,047 $ 7,874 $ 92,921 $ 14,328 $ 107,249
Three Months Ended March 31, 2015
Non-PCI
Allowance for Credit Loans and Unfunded Total PCI
Losses Rollforward Leases Commitments Non-PCI Loans Total
(In thousands)
Beginning balance $ 70,456 $ 6,311 $ 76,767 $ 13,999 $ 90,766
Charge-offs (9,911) -- (9,911) (579) (10,490)
Recoveries 2,531 -- 2,531 11 2,542
Net charge-offs (7,380) -- (7,380) (568) (7,948)
Provision (negative provision) 16,604 563 17,167 (733) 16,434
Ending balance $ 79,680 $ 6,874 $ 86,554 $ 12,698 $ 99,252

Non-PCI loans and leases at June 30, 2015, include $6.3 billion of originated loans and leases that were not obtained through acquisitions. The allowance for loan and lease losses related to these loans and leases totals $72.4 million, or 1.16% 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. Two additional credit coverage ratios shown in the table below are presented to give an indication of overall credit risk coverage:

June 30, 2015 March 31, 2015
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 $ 11,846,314 $ 92,921 0.78% $ 12,047,946 $ 86,554 0.72%
Acquired loans (5,587,662) (12,697) (1) (6,152,731) (8,962) (1)
Adjusted balance $ 6,258,652 $ 80,224 1.28% $ 5,895,215 $ 77,592 1.32%
Ending balance $ 11,846,314 $ 92,921 0.78% $ 12,047,946 $ 86,554 0.72%
Unamortized net discount 103,302 103,302 (2) 130,845 130,845 (2)
Adjusted balance $ 11,949,616 $ 196,223 1.64% $ 12,178,791 $ 217,399 1.79%
(1) Allowance attributed to $5.6 billion and $6.2 billion of acquired Non-PCI loans at June 30, 2015 and March 31, 2015, based on the allowance calculation that includes an amount for credit deterioration on acquired loans and leases since their acquisition dates.
(2) Unamortized net discount relates to $5.6 billion and $6.2 billion of acquired Non-PCI loans at June 30, 2015 and March 31, 2015, and is assigned specifically to those loans only. Such discount represents the acquisition date fair value adjustment based on market, liquidity, interest rate risk and credit risk and is being accreted to interest income over the remaining life of the respective loans using the interest method. Use of the interest method results in steadily declining amounts being taken into income in each reporting period. Assuming all of these loans continue to make payments according to their terms and there are no prepayments and no deterioration in credit quality, the remaining discount of $103.3 million at June 30, 2015 is expected to be fully accreted to income by the end of 2018.

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

CREDIT QUALITY

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

June 30, March 31,
Non-PCI Credit Quality Metrics 2015 2015
(Dollars in thousands)
Allowance for credit losses $ 92,921 $ 86,554
Nonaccrual loans and leases (1) 131,178 139,334
Classified loans and leases (2) 379,988 333,182
Performing restructured loans 38,203 35,975
Net charge-offs (recoveries) (for the quarter) (1,367) 7,380
Provision for credit losses (for the quarter) 5,000 17,167
Allowance for credit losses to loans and leases 0.78% 0.72%
Allowance for credit losses to nonaccrual loans and leases (1) 70.8% 62.1%
Nonaccrual loans and leases to loans and leases 1.11% 1.16%
Nonperforming assets to loans and leases and foreclosed assets 1.37% 1.45%
Classified loans and leases to loans and leases 3.21% 2.77%
(1) At June 30, 2015 and March 31, 2015 includes $56.1 million and $62.7 million of acquired loans and leases with no allowance due to fair value accounting.
(2) One classified loan with a recorded balance of $31.1 million at June 30, 2015, was reduced to $15.1 million as a result of a July refinancing.

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
June 30, 2015 March 31, 2015 30-89 Days Past Due
% of % of June 30, March 31,
Loan Loan 2015 2015
Amount Category Amount Category Amount Amount
(Dollars in thousands)
Real estate mortgage:
Hospitality $ 7,894 1% $ 8,088 1% $ -- $ --
SBA 10,141 3% 10,919 3% 2,272 3,310
Other 16,213 -- 18,328 -- 2,482 3,009
Total real estate mortgage 34,248 1% 37,335 1% 4,754 6,319
Real estate construction and land:
Residential 377 -- 379 -- -- --
Commercial -- -- 453 -- -- --
Total real estate construction and land 377 -- 832 -- -- --
Commercial:
Collateralized 3,761 1% 3,601 1% 131 1,397
Unsecured 537 -- 594 -- -- --
Asset-based 40 -- 4,159 -- -- --
Cash flow 14,605 1% 15,172 1% -- --
Equipment finance (1) 71,130 8% 71,039 8% 915 7,751
SBA 3,068 7% 3,128 7% -- 614
Total commercial 93,141 2% 97,693 2% 1,046 9,762
Consumer 3,412 4% 3,474 4% 1 9
Total Non-PCI loans and leases $ 131,178 1% $ 139,334 1% $ 5,801 $ 16,090
(1) Includes nonaccrual leases and loans to companies involved in the oil and gas industries of $64.2 million and $65.1 million at June 30, 2015 and March 31, 2015, respectively.

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

June 30, March 31,
Nonperforming Assets 2015 2015
(Dollars in thousands)
Nonaccrual Non-PCI loans and leases $ 131,178 $ 139,334
Nonaccrual PCI Loans (1) 6,016 23,331
Total nonaccrual loans and leases 137,194 162,665
Foreclosed assets, net 31,668 35,940
Total nonperforming assets $ 168,862 $ 198,605
Nonaccrual loans and leases to loans and leases 1.14% 1.32%
Nonperforming assets to loans and leases and foreclosed assets 1.40% 1.61%
(1) Represents legacy CapitalSource borrowing relationships placed on nonaccrual status as of the acquisition date.

SQUARE 1 FINANCIAL, INC. MERGER ANNOUNCEMENT

On March 2, 2015, PacWest announced the signing of a definitive agreement and plan of merger (the "Agreement") whereby PacWest and Square 1 Financial, Inc. ("Square 1") will merge in a transaction valued at approximately $875 million. The combined company will be called PacWest Bancorp and the combined subsidiary bank will be called Pacific Western Bank, with the banking operations of Square 1 conducted under the trade name of Square 1 Bank, a division of Pacific Western Bank.

Under the terms of the Agreement, Square 1 stockholders will receive 0.5997 shares of PacWest common stock for each share of Square 1 common stock and holders of stock options, restricted stock units, and warrants will receive cash based on the approximate value of the merger consideration. The total value of the per share merger consideration was $27.49, based on the closing price of PacWest common stock of $45.84 on February 27, 2015, the last trading day before the transaction was announced.

As of June 30, 2015, on a pro forma consolidated basis, the combined company would have had approximately $21.1 billion in assets with 80 branches throughout California and one in North Carolina. The transaction, currently expected to close in the fourth quarter of 2015, is subject to customary conditions, including the approval of bank regulatory authorities and the Square 1 stockholders.

ABOUT PACWEST BANCORP

PacWest Bancorp is a bank holding company with over $16 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. Pacific Western and its CapitalSource Division 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 pending merger between the Company and Square 1, credit loss exposure, deposit growth, loan and lease portfolio growth, operating expenses and effective tax rates. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words "anticipate," "assume," "intend," "believe," "forecast," "expect," "estimate," "plan," "continue," "will," "should," "look forward" and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:

  • the Company's ability to complete future acquisitions, including the Square 1 merger, and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;
  • the Company's ability to obtain regulatory approvals and meet other closing conditions to the Square 1 merger on the expected terms and schedule;
  • delay in closing the Square 1 merger;
  • business disruption following the proposed Square 1 merger;
  • changes in the Company's stock price before completion of the Square 1 merger, including as a result of the financial performance of the Company or Square 1 prior to closing;
  • the reaction to the Square 1 merger of the companies' customers, employees and counterparties;
  • higher than anticipated loan losses;
  • credit quality deterioration or pronounced and sustained reduction in market values or other economic factors which adversely affect our borrowers' ability to repay loans and leases;
  • changes in economic or competitive market conditions could negatively impact investment or lending opportunities or product pricing and services;
  • reduced demand for our services due to strategic or regulatory reasons;
  • our ability to grow deposits and access wholesale funding sources;
  • legislative or regulatory requirements or changes adversely affected the Company's business including an increase to capital requirements;
  • loan repayments higher than expected;
  • higher than anticipated increases in operating expenses;
  • increased litigation;
  • asset workout or loan servicing expenses;
  • higher compensation costs and professional fees to retain and/or incent employees;
  • 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.

ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION AND WHERE TO FIND IT

Investors and security holders are urged to carefully review and consider each of PacWest Bancorp's and Square 1's public filings with the SEC, including but not limited to their Annual Reports on Form 10-K, their proxy statements, their Current Reports on Form 8-K and their Quarterly Reports on Form 10-Q. The documents filed by PacWest with the SEC may be obtained free of charge at PacWest's website at www.pacwestbancorp.com or at the SEC's website at www.sec.gov. These documents may also be obtained free of charge from PacWest by requesting them in writing to PacWest Bancorp, c/o Pacific Western Bank, 130 S. State College Blvd., Brea, CA 92821, Attention: Investor Relations, telephone (714) 671-6800, or via e-mail to investor-relations@pacwestbancorp.com.

The documents filed by Square 1 with the SEC may be obtained free of charge at Square 1's website at www.square1bank.com or at the SEC's website at www.sec.gov. These documents may also be obtained free of charge from Square 1 by requesting them in writing to Square 1 Financial, c/o Square 1 Bank, 406 Blackwell Street, Suite 240, Durham, NC 27701; Attention: Investor Relations, or by telephone at Phone: (866) 355-0468.

PacWest has filed a registration statement with the SEC which includes a proxy statement of Square 1 and a prospectus of PacWest, and each party will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decision, investors and security holders of Square 1 are urged to carefully read the entire registration statement and proxy statement/prospectus, as well as any amendments or supplements to these documents, because they contain important information about the proposed transaction. A definitive proxy statement/prospectus has been sent to the stockholders of Square 1 seeking the required stockholder approvals. Investors and security holders are able to obtain the registration statement and the proxy statement/prospectus free of charge from the SEC's website or from PacWest or Square 1 by writing to the addresses provided for each company set forth in the paragraphs above.

PacWest, Square 1, their directors, executive officers and certain other persons may be deemed to be participants in the solicitation of proxies from Square 1 stockholders in favor of the approval of the transaction. Information about the directors and executive officers of PacWest and their ownership of PacWest common stock is set forth in the proxy statement for PacWest's 2015 annual meeting of stockholders, as previously filed with the SEC. Information about the directors and executive officers of Square 1 and their ownership of Square 1 common stock is set forth in the proxy statement for Square 1's 2014 annual meeting of stockholders, as previously filed with the SEC. Stockholders may obtain additional information regarding the interests of such participants by reading the registration statement and the proxy statement/prospectus.

PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, March 31, December 31,
2015 2015 2014
(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks $ 209,598 $ 140,873 $ 164,757
Interest-earning deposits in financial institutions 431,033 250,981 148,469
Total cash and cash equivalents 640,631 391,854 313,226
Securities available-for-sale, at estimated fair value 1,698,158 1,595,409 1,567,177
Federal Home Loan Bank stock, at cost 17,250 28,905 40,609
Total investment securities 1,715,408 1,624,314 1,607,786
Non-PCI loans and leases 11,846,314 12,047,946 11,613,832
PCI loans 222,691 254,346 290,852
Total gross loans and leases 12,069,005 12,302,292 11,904,684
Deferred fees and costs (34,816) (30,126) (22,252)
Total loans and leases, net of deferred fees 12,034,189 12,272,166 11,882,432
Allowance for loan and lease losses (99,375) (92,378) (84,455)
Total loans and leases, net 11,934,814 12,179,788 11,797,977
Equipment leased to others under operating leases 117,182 119,959 122,506
Premises and equipment, net 35,984 36,022 36,551
Foreclosed assets, net 31,668 35,940 43,721
Deferred tax asset, net 211,556 236,065 284,411
Goodwill 1,728,380 1,728,380 1,720,479
Core deposit and customer relationship intangibles, net 14,201 15,703 17,204
Other assets 267,196 275,915 290,744
Total assets $ 16,697,020 $ 16,643,940 $ 16,234,605
LIABILITIES:
Noninterest-bearing deposits $ 3,396,688 $ 3,029,463 $ 2,931,352
Interest-bearing deposits 9,185,128 8,904,712 8,823,776
Total deposits 12,581,816 11,934,175 11,755,128
Borrowings 2,751 618,156 383,402
Subordinated debentures 433,944 431,448 433,583
Accrued interest payable and other liabilities 127,019 126,800 156,262
Total liabilities 13,145,530 13,110,579 12,728,375
STOCKHOLDERS' EQUITY (1) 3,551,490 3,533,361 3,506,230
Total liabilities and stockholders' equity $ 16,697,020 $ 16,643,940 $ 16,234,605
(1) Includes net unrealized gain on securities available-for-sale, net $ 16,255 $ 28,744 $ 26,380
Book value per share $ 34.46 $ 34.29 $ 34.03
Tangible book value per share $ 17.55 $ 17.36 $ 17.17
Shares outstanding (includes unvested restricted shares of 990,259 at June 30, 2015, 1,129,445 at March 31, 2015, and 1,108,505 at December 31, 2014) 103,051,989 103,044,257 103,022,017
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2015 2015 2014 2015 2014
(Dollars in thousands, except per share data)
Interest income:
Loans and leases $ 203,781 $ 202,097 $ 192,201 $ 405,878 $ 269,664
Investment securities 14,570 12,195 11,986 26,765 22,809
Deposits in financial institutions 104 22 176 126 250
Total interest income 218,455 214,314 204,363 432,769 292,723
Interest expense:
Deposits 11,233 10,479 7,313 21,712 8,538
Borrowings 88 235 199 323 278
Subordinated debentures 4,582 4,525 4,318 9,107 5,359
Total interest expense 15,903 15,239 11,830 31,142 14,175
Net interest income 202,552 199,075 192,533 401,627 278,548
Provision for credit losses 6,529 16,434 5,030 22,963 4,386
Net interest income after provision for credit losses 196,023 182,641 187,503 378,664 274,162
Noninterest income:
Service charges on deposit accounts 2,612 2,574 2,719 5,186 5,721
Other commissions and fees 7,123 5,396 5,743 12,519 7,675
Leased equipment income 5,375 5,382 5,672 10,757 5,672
Gain (loss) on sale of loans and leases 163 -- (485) 163 (379)
(Loss) gain on securities (186) 3,275 89 3,089 4,841
FDIC loss sharing expense, net (5,107) (4,399) (8,525) (9,506) (19,955)
Other income 9,643 8,643 3,266 18,286 9,595
Total noninterest income 19,623 20,871 8,479 40,494 13,170
Noninterest expense:
Compensation 49,033 47,737 45,081 96,770 73,708
Occupancy 10,588 10,600 11,078 21,188 18,673
Data processing 4,402 4,308 4,099 8,710 6,639
Other professional services 3,332 3,221 2,843 6,553 4,366
Insurance and assessments 4,716 3,025 3,179 7,741 4,772
Intangible asset amortization 1,502 1,501 1,677 3,003 3,041
Leased equipment depreciation 3,103 3,103 3,095 6,206 3,095
Foreclosed assets expense (income), net (2,340) 336 497 (2,004) (1,364)
Acquisition, integration and reorganization costs 900 2,000 86,242 2,900 88,442
Other expense 10,040 8,529 11,409 18,569 17,992
Total noninterest expense 85,276 84,360 169,200 169,636 219,364
Earnings from continuing operations before taxes 130,370 119,152 26,782 249,522 67,968
Income tax expense (45,287) (46,073) (15,552) (91,360) (30,833)
Net earnings from continuing operations 85,083 73,079 11,230 158,162 37,135
Loss from discontinued operations before taxes -- -- (1,151) -- (2,564)
Income tax benefit -- -- 476 -- 1,064
Net loss from discontinued operations -- -- (675) -- (1,500)
Net earnings $ 85,083 $ 73,079 $ 10,555 $ 158,162 $ 35,635
Basic and diluted earnings per share:
Net earnings from continuing operations $ 0.83 $ 0.71 $ 0.11 $ 1.54 $ 0.51
Net earnings $ 0.83 $ 0.71 $ 0.10 $ 1.54 $ 0.49
PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
Three Months Ended
June 30, 2015 March 31, 2015 June 30, 2014
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
(Dollars in thousands)
Assets:
PCI loans $ 228,217 $ 7,894 13.87% $ 260,648 $ 10,165 15.82% $ 375,194 $ 14,104 15.08%
Non-PCI loans and leases 11,879,799 195,887 6.61% 11,795,034 191,932 6.60% 10,125,327 178,097 7.06%
Total loans and leases 12,108,016 203,781 6.75% 12,055,682 202,097 6.80% 10,500,521 192,201 7.34%
Investment securities (1) 1,672,590 14,570 3.49% 1,613,422 12,195 3.07% 1,606,848 11,986 2.99%
Deposits in financial institutions 161,683 104 0.26% 32,761 22 0.27% 276,095 176 0.26%
Total interest-earning assets 13,942,289 218,455 6.28% 13,701,865 214,314 6.34% 12,383,464 204,363 6.62%
Other assets 2,521,022 2,594,775 2,653,637
Total assets $ 16,463,311 $ 16,296,640 $ 15,037,101
Liabilities and Stockholders' Equity:
Interest checking $ 741,966 202 0.11% $ 726,748 194 0.11% $ 601,958 77 0.05%
Money market 2,065,190 1,088 0.21% 1,836,094 945 0.21% 1,691,115 874 0.21%
Savings 740,878 555 0.30% 756,578 571 0.31% 722,808 548 0.30%
Time 5,559,903 9,388 0.68% 5,481,886 8,769 0.65% 5,613,601 5,814 0.42%
Total interest-bearing deposits 9,107,937 11,233 0.49% 8,801,306 10,479 0.48% 8,629,482 7,313 0.34%
Borrowings 81,164 88 0.43% 424,061 235 0.22% 39,931 199 2.00%
Subordinated debentures 432,656 4,582 4.25% 432,603 4,525 4.24% 409,934 4,318 4.22%
Total interest-bearing liabilities 9,621,757 15,903 0.66% 9,657,970 15,239 0.64% 9,079,347 11,830 0.52%
Noninterest-bearing demand deposits 3,157,129 2,949,719 2,546,540
Other liabilities 135,677 155,608 178,196
Total liabilities 12,914,563 12,763,297 11,804,083
Stockholders' equity 3,548,748 3,533,343 3,233,018
Total liabilities and stockholders' equity $ 16,463,311 $ 16,296,640 $ 15,037,101
Net interest income $ 202,552 $ 199,075 $ 192,533
Net interest spread 5.62% 5.70% 6.10%
Net interest margin 5.83% 5.89% 6.24%
Total deposits (2) $ 12,265,066 $ 11,233 0.37% $ 11,751,025 $ 10,479 0.36% $ 11,176,022 $ 7,313 0.26%
Funding sources (3) $ 12,778,886 $ 15,903 0.50% $ 12,607,689 $ 15,239 0.49% $ 11,625,887 $ 11,830 0.41%
(1) The tax equivalent yield on investment securities was 4.01%, 3.52%, and 3.39% for the three months ended June 30, 2015, March 31, 2015, and June 30, 2014.
(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
June 30, March 31, December 31, September 30, June 30,
2015 2015 2014 2014 2014
(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks $ 209,598 $ 140,873 $ 164,757 $ 145,463 $ 243,583
Interest-earning deposits in financial institutions 431,033 250,981 148,469 115,399 119,782
Total cash and cash equivalents 640,631 391,854 313,226 260,862 363,365
Securities available-for-sale 1,698,158 1,595,409 1,567,177 1,539,681 1,552,115
Federal Home Loan Bank stock, at cost 17,250 28,905 40,609 45,602 49,983
Total investment securities 1,715,408 1,624,314 1,607,786 1,585,283 1,602,098
Non-PCI loans and leases 11,846,314 12,047,946 11,613,832 11,239,964 10,802,053
PCI loans 222,691 254,346 290,852 351,431 398,471
Total gross loans and leases 12,069,005 12,302,292 11,904,684 11,591,395 11,200,524
Deferred fees and costs (34,816) (30,126) (22,252) (16,510) (10,419)
Total loans and leases, net of deferred fees 12,034,189 12,272,166 11,882,432 11,574,885 11,190,105
Allowance for loan and lease losses (99,375) (92,378) (84,455) (81,899) (82,149)
Total loans and leases, net 11,934,814 12,179,788 11,797,977 11,492,986 11,107,956
Equipment leased to others under operating leases 117,182 119,959 122,506 125,119 127,289
Premises and equipment, net 35,984 36,022 36,551 38,368 40,440
Foreclosed assets, net 31,668 35,940 43,721 40,524 53,821
Deferred tax asset, net 211,556 236,065 284,411 331,176 342,105
Goodwill 1,728,380 1,728,380 1,720,479 1,722,129 1,725,153
Core deposit and customer relationship intangibles, net 14,201 15,703 17,204 18,822 20,431
Other assets 267,196 275,915 290,744 322,881 302,013
Total assets $ 16,697,020 $ 16,643,940 $ 16,234,605 $ 15,938,150 $ 15,684,671
LIABILITIES:
Noninterest-bearing deposits $ 3,396,688 $ 3,029,463 $ 2,931,352 $ 2,842,488 $ 2,701,434
Interest-bearing deposits 9,185,128 8,904,712 8,823,776 8,680,949 8,966,363
Total deposits 12,581,816 11,934,175 11,755,128 11,523,437 11,667,797
Borrowings 2,751 618,156 383,402 363,672 4,596
Subordinated debentures 433,944 431,448 433,583 433,545 434,878
Accrued interest payable and other liabilities 127,019 126,800 156,262 139,445 139,663
Total liabilities 13,145,530 13,110,579 12,728,375 12,460,099 12,246,934
STOCKHOLDERS' EQUITY (1) 3,551,490 3,533,361 3,506,230 3,478,051 3,437,737
Total liabilities and stockholders' equity $ 16,697,020 $ 16,643,940 $ 16,234,605 $ 15,938,150 $ 15,684,671
(1) Includes net unrealized gain on securities available-for-sale, net $ 16,255 $ 28,744 $ 26,380 $ 20,821 $ 20,121
Book value per share $ 34.46 $ 34.29 $ 34.03 $ 33.76 $ 33.37
Tangible book value per share $ 17.55 $ 17.36 $ 17.17 $ 16.86 $ 16.42
Shares outstanding (includes unvested restricted shares) 103,051,989 103,044,257 103,022,017 103,027,830 103,033,449
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
2015 2015 2014 2014 2014
(Dollars in thousands, except per share data)
Interest income:
Loans and leases $ 203,781 $ 202,097 $ 197,472 $ 189,961 $ 192,201
Investment securities 14,570 12,195 12,205 12,331 11,986
Deposits in financial institutions 104 22 19 64 176
Total interest income 218,455 214,314 209,696 202,356 204,363
Interest expense:
Deposits 11,233 10,479 9,972 8,822 7,313
Borrowings 88 235 144 74 199
Subordinated debentures 4,582 4,525 4,597 4,614 4,318
Total interest expense 15,903 15,239 14,713 13,510 11,830
Net interest income 202,552 199,075 194,983 188,846 192,533
Provision for credit losses 6,529 16,434 2,063 5,050 5,030
Net interest income after provision for credit losses 196,023 182,641 192,920 183,796 187,503
Noninterest income:
Service charges on deposit accounts 2,612 2,574 2,787 2,725 2,719
Other commissions and fees 7,123 5,396 4,556 6,371 5,743
Leased equipment income 5,375 5,382 5,382 5,615 5,672
Gain (loss) on sale of loans and leases 163 -- 7 973 (485)
(Loss) gain on securities (186) 3,275 -- -- 89
FDIC loss sharing expense, net (5,107) (4,399) (4,360) (7,415) (8,525)
Other income 9,643 8,643 4,331 8,045 3,266
Total noninterest income 19,623 20,871 12,703 16,314 8,479
Noninterest expense:
Compensation 49,033 47,737 45,930 45,861 45,081
Occupancy 10,588 10,600 10,745 11,188 11,078
Data processing 4,402 4,308 4,050 3,929 4,099
Other professional services 3,332 3,221 3,181 3,687 2,843
Insurance and assessments 4,716 3,025 3,115 3,020 3,179
Intangible asset amortization 1,502 1,501 1,619 1,608 1,677
Leased equipment depreciation 3,103 3,103 3,103 2,961 3,095
Foreclosed assets expense (income), net (2,340) 336 1,938 4,827 497
Acquisition, integration and reorganization costs 900 2,000 7,381 5,193 86,242
Other expense 10,040 8,529 10,243 12,649 11,409
Total noninterest expense 85,276 84,360 91,305 94,923 169,200
Earnings from continuing operations before taxes 130,370 119,152 114,318 105,187 26,782
Income tax expense (45,287) (46,073) (43,261) (42,911) (15,552)
Net earnings from continuing operations 85,083 73,079 71,057 62,276 11,230
Loss from discontinued operations before taxes -- -- (105) (8) (1,151)
Income tax benefit -- -- 47 3 476
Net loss from discontinued operations -- -- (58) (5) (675)
Net earnings $ 85,083 $ 73,079 $ 70,999 $ 62,271 $ 10,555
Basic and diluted earnings per share:
Net earnings from continuing operations $ 0.83 $ 0.71 $0.69 $0.60 $ 0.11
Net earnings $ 0.83 $ 0.71 $0.69 $0.60 $ 0.10
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,
2015 2015 2014 2014 2014
(Dollars in thousands)
Performance Ratios - GAAP:
Return on average assets (1) 2.07% 1.82% 1.77% 1.57% 0.28%
Return on average equity (1) 9.62% 8.39% 8.05% 7.13% 1.31%
Yield on average loans and leases 6.75% 6.80% 6.76% 6.68% 7.34%
Yield on average interest-earning assets 6.28% 6.34% 6.30% 6.19% 6.62%
Cost of average total deposits 0.37% 0.36% 0.34% 0.30% 0.26%
Cost of average time deposits 0.68% 0.65% 0.60% 0.51% 0.42%
Cost of average interest-bearing liabilities 0.66% 0.64% 0.63% 0.58% 0.52%
Cost of average funding sources 0.50% 0.49% 0.48% 0.44% 0.41%
Net interest rate spread 5.62% 5.70% 5.67% 5.61% 6.10%
Net interest margin 5.83% 5.89% 5.86% 5.78% 6.24%
Noninterest expense as a percentage of average assets (1) 2.08% 2.10% 2.28% 2.40% 4.51%
Efficiency ratio 38.4% 38.4% 44.0% 46.3% 84.2%
Performance Ratios - Non-GAAP:
Adjusted return on average assets (1) 1.77% 1.62% 1.70% 1.69% 1.67%
Adjusted return on average equity (1) 8.19% 7.47% 7.71% 7.66% 7.75%
Return on average tangible equity (1) 18.90% 16.50% 16.00% 14.36% 2.65%
Adjusted return on average tangible equity (1) 16.11% 14.69% 15.33% 15.42% 15.71%
Core net interest margin 5.27% 5.38% 5.52% 5.64% 5.74%
Adjusted efficiency ratio 40.6% 40.4% 41.7% 43.1% 42.7%
Average Balances:
Loans and leases $ 12,108,016 $ 12,055,682 $ 11,586,573 $ 11,285,689 $ 10,500,521
Interest-earning assets 13,942,289 13,701,865 13,205,383 12,969,776 12,383,464
Total assets 16,463,311 16,296,640 15,892,761 15,716,539 15,037,101
Noninterest-bearing deposits 3,157,129 2,949,719 2,900,388 2,778,260 2,546,540
Interest-bearing deposits 9,107,937 8,801,306 8,679,599 8,778,642 8,629,482
Total deposits 12,265,066 11,751,025 11,579,987 11,556,902 11,176,022
Borrowings and subordinated debentures 513,820 856,664 647,912 531,336 449,865
Interest-bearing liabilities 9,621,757 9,657,970 9,327,511 9,309,978 9,079,347
Funding sources 12,778,886 12,607,689 12,227,899 12,088,238 11,625,887
Stockholders' equity 3,548,748 3,533,343 3,500,291 3,465,119 3,233,018
(1) Annualized.
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,
2015 2015 2014 2014 2014
(Dollars in thousands)
Non-PCI Credit Quality:
Allowance for credit losses to loans and leases 0.78% 0.72% 0.66% 0.61% 0.67%
Allowance for credit losses to nonaccrual loans and leases 71% 62% 92% 78% 75%
Nonaccrual loans and leases to loans and leases 1.11% 1.16% 0.72% 0.79% 0.90%
Nonperforming assets to loans and leases and foreclosed assets 1.37% 1.45% 1.09% 1.15% 1.39%
Nonperforming assets to total assets 0.98% 1.05% 0.78% 0.81% 0.96%
Trailing twelve month net charge-offs to average loans and leases 0.06% 0.07% 0.02% 0.09% 0.05%
PacWest Bancorp Consolidated Capital Ratios:
Tier 1 leverage capital ratio 11.96% 11.74% 12.34% 12.17% 12.40%
Common equity tier 1 capital ratio 12.87% 12.27% N/A N/A N/A
Tier 1 risk-based capital ratio 12.87% 12.27% 13.16% 13.24% 13.15%
Total risk-based capital ratio 16.53% 15.80% 16.07% 16.24% 16.25%
Tangible common equity ratio (non-GAAP measure) 12.10% 12.01% 12.20% 12.24% 12.14%
Pacific Western Bank Capital Ratios:
Tier 1 leverage capital ratio 11.65% 11.53% 11.70% 11.74% 11.71%
Common equity tier 1 capital ratio 12.55% 12.07% N/A N/A N/A
Tier 1 risk-based capital ratio 12.55% 12.07% 12.46% 12.74% 12.58%
Total risk-based capital ratio 13.35% 12.80% 13.16% 13.44% 13.32%
Tangible common equity ratio (non-GAAP measure) 11.46% 11.32% 11.51% 11.60% 11.39%
PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
Three Months Ended Six Months Ended
June 30, March 31, June 30, June 30,
2015 2015 2014 2015 2014
(Dollars in thousands, except per share data)
Basic Earnings Per Share:
Net earnings from continuing operations $ 85,083 $ 73,079 $ 11,230 $ 158,162 $ 37,135
Less: earnings allocated to unvested restricted stock (1) (807) (819) (290) (1,570) (424)
Net earnings from continuing operations allocated to common shares 84,276 72,260 10,940 156,592 36,711
Net earnings from discontinued operations allocated to common shares -- -- (675) -- (1,500)
Net earnings allocated to common shares $ 84,276 $ 72,260 $ 10,265 $ 156,592 $ 35,211
Weighted-average basic shares and unvested restricted stock outstanding 103,030 103,035 98,817 103,033 72,454
Less: weighted-average unvested restricted stock outstanding (1,060) (1,122) (678) (1,091) (911)
Weighted-average basic shares outstanding 101,970 101,913 98,139 101,942 71,543
Basic earnings per share:
Net earnings from continuing operations $ 0.83 $ 0.71 $ 0.11 $ 1.54 $ 0.51
Net earnings from discontinued operations -- -- (0.01) -- (0.02)
Net earnings $ 0.83 $ 0.71 $ 0.10 $ 1.54 $ 0.49
Diluted Earnings Per Share:
Net earnings from continuing operations allocated to common shares $ 84,276 $ 72,260 $ 10,940 $ 156,592 $ 36,711
Net earnings from discontinued operations allocated to common shares -- -- (675) -- (1,500)
Net earnings allocated to common shares $ 84,276 $ 72,260 $ 10,265 $ 156,592 $ 35,211
Weighted-average basic shares outstanding 101,970 101,913 98,139 101,942 71,543
Diluted earnings per share:
Net earnings from continuing operations $ 0.83 $ 0.71 $ 0.11 $ 1.54 $ 0.51
Net earnings from discontinued operations -- -- (0.01) -- (0.02)
Net earnings $ 0.83 $ 0.71 $ 0.10 $ 1.54 $ 0.49
(1) Represents cash dividends paid to holders of unvested stock, net of estimated forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.

GAAP TO NON-GAAP RECONCILIATION

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

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

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

PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(Unaudited)
Three Months Ended Six Months Ended
Adjusted Net Earnings June 30, March 31, June 30, June 30,
and Related Ratios 2015 2015 2014 2015 2014
(Dollars in thousands)
Net earnings $ 85,083 $ 73,079 $ 10,555 $ 158,162 $ 35,635
Less: Tax benefit on discontinued operations -- -- (476) -- (1,064)
Add: Tax expense on continuing operations 45,287 46,073 15,552 91,360 30,833
Pre-tax earnings 130,370 119,152 25,631 249,522 65,404
Add: Acquisition, integration and reorganization costs 900 2,000 86,242 2,900 88,442
Less: FDIC loss sharing expense, net (5,107) (4,399) (8,525) (9,506) (19,955)
Gain (loss) on sale of loans and leases 163 -- (485) 163 (379)
(Loss) gain on securities (186) 3,275 89 3,089 4,841
Covered OREO (expense) income, net 12 19 185 31 1,800
Gain on sale of owned office building -- -- -- -- 1,570
Adjusted pre-tax earnings before accelerated discount accretion 136,388 122,257 120,609 258,645 165,969
Less: Accelerated discount accretion from early payoffs of acquired loans 19,447 17,352 15,290 36,799 22,945
Adjusted pre-tax earnings 116,941 104,905 105,319 221,846 143,024
Tax expense (1) (44,438) (39,864) (42,865) (84,301) (58,211)
Adjusted net earnings $ 72,503 $ 65,041 $ 62,454 $ 137,545 $ 84,813
Average assets $ 16,463,311 $ 16,296,640 $ 15,037,101 $ 16,380,436 $ 10,798,982
Average stockholders' equity $ 3,548,748 $ 3,533,343 $ 3,233,018 $ 3,541,088 $ 2,032,830
Less: Average intangible assets 1,743,340 1,737,441 1,638,267 1,740,407 935,684
Average tangible common equity $ 1,805,408 $ 1,795,902 $ 1,594,751 $ 1,800,681 $ 1,097,146
Return on average assets (2) 2.07% 1.82% 0.28% 1.95% 0.67%
Adjusted return on average assets (3) 1.77% 1.62% 1.67% 1.69% 1.58%
Return on average equity (4) 9.62% 8.39% 1.31% 9.01% 3.54%
Adjusted return on average equity (5) 8.19% 7.47% 7.75% 7.83% 8.41%
Return on average tangible equity (6) 18.90% 16.50% 2.65% 17.71% 6.55%
Adjusted return on average tangible equity (7) 16.11% 14.69% 15.71% 15.40% 15.59%
(1) Full-year expected effective rate of 38.0% used for 2015 periods and actual effective rate of 40.7% used for 2014 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,
Adjusted Efficiency Ratio 2015 2015 2014 2015 2014
(Dollars in thousands)
Noninterest expense $ 85,276 $ 84,360 $ 169,200 $ 169,636 $ 219,364
Less: Acquisition, integration, and reorganization costs 900 2,000 86,242 2,900 88,442
Covered OREO expense (income), net (12) (19) (185) (31) (1,800)
Adjusted noninterest expense $ 84,388 $ 82,379 $ 83,143 $ 166,767 $ 132,722
Net interest income $ 202,552 $ 199,075 $ 192,533 $ 401,627 $ 278,548
Noninterest income 19,623 20,871 8,479 40,494 13,170
Net revenues 222,175 219,946 201,012 442,121 291,718
Less: Accelerated discount accretion from early payoffs of acquired loans 19,447 17,352 15,290 36,799 22,945
FDIC loss sharing expense, net (5,107) (4,399) (8,525) (9,506) (19,955)
Gain (loss) on sale of loans and leases 163 -- (485) 163 (379)
(Loss) gain on securities (186) 3,275 89 3,089 4,841
Gain on sale of owned office building -- -- -- -- 1,570
Adjusted net revenues $ 207,858 $ 203,718 $ 194,643 $ 411,576 $ 282,696
Base efficiency ratio (1) 38.4% 38.4% 84.2% 38.4% 75.2%
Adjusted efficiency ratio (2) 40.6% 40.4% 42.7% 40.5% 46.9%
(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 2015 2015 2014 2014 2014
(Dollars in thousands)
PacWest Bancorp Consolidated:
Stockholders' equity $ 3,551,490 $ 3,533,361 $ 3,506,230 $ 3,478,051 $ 3,437,737
Less: Intangible assets 1,742,581 1,744,083 1,737,683 1,740,951 1,745,584
Tangible common equity $ 1,808,909 $ 1,789,278 $ 1,768,547 $ 1,737,100 $ 1,692,153
Total assets $ 16,697,020 $ 16,643,940 $ 16,234,605 $ 15,938,150 $ 15,684,671
Less: Intangible assets 1,742,581 1,744,083 1,737,683 1,740,951 1,745,584
Tangible assets $ 14,954,439 $ 14,899,857 $ 14,496,922 $ 14,197,199 $ 13,939,087
Equity to assets ratio 21.27% 21.23% 21.60% 21.82% 21.92%
Tangible common equity ratio (1) 12.10% 12.01% 12.20% 12.24% 12.14%
Book value per share $ 34.46 $ 34.29 $ 34.03 $ 33.76 $ 33.37
Tangible book value per share (2) $ 17.55 $ 17.36 $ 17.17 $ 16.86 $ 16.42
Shares outstanding 103,051,989 103,044,257 103,022,017 103,027,830 103,033,449
Pacific Western Bank:
Stockholders' equity $ 3,440,715 $ 3,410,276 $ 3,378,879 $ 3,356,943 $ 3,298,713
Less: Intangible assets 1,742,581 1,744,083 1,737,683 1,740,951 1,745,584
Tangible common equity $ 1,698,134 $ 1,666,193 $ 1,641,196 $ 1,615,992 $ 1,553,129
Total assets $ 16,555,610 $ 16,458,591 $ 15,995,719 $ 15,675,291 $ 15,376,245
Less: Intangible assets 1,742,581 1,744,083 1,737,683 1,740,951 1,745,584
Tangible assets $ 14,813,029 $ 14,714,508 $ 14,258,036 $ 13,934,340 $ 13,630,661
Equity to assets ratio 20.78% 20.72% 21.12% 21.42% 21.45%
Tangible common equity ratio 11.46% 11.32% 11.51% 11.60% 11.39%
(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 Victor R. Santoro Executive Vice President and CFO 10250 Constellation Boulevard, Suite 1640 Los Angeles, CA 90067 310-728-1021Source:PacWest Bancorp