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PacWest Bancorp Announces Results for the Third Quarter of 2015

Highlights

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

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

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

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

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

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

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

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

FINANCIAL HIGHLIGHTS

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

ADJUSTED NET EARNINGS

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

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

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

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

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

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

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

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

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

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

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

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

Noninterest Income

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

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

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

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

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

Noninterest Expense

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

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

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

Income Taxes

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

BALANCE SHEET HIGHLIGHTS

Loans and Leases

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

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

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

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

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

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

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

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

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

Credit Exposure Affected by Low Oil Prices

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

Deposits

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

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

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

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

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

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

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

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

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

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

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

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

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

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

CREDIT QUALITY

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

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

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

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

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

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

SQUARE 1 FINANCIAL, INC. MERGER

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

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

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

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

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

ABOUT PACWEST BANCORP

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

FORWARD LOOKING STATEMENTS

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

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

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

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


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


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


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


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


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


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


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

GAAP TO NON-GAAP RECONCILIATION

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

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

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

PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(Unaudited)
Three Months Ended Nine Months Ended
Adjusted Net Earnings and September 30, June 30, September 30, September 30,
Related Ratios 2015 2015 2014 2015 2014
(Dollars in thousands)
Net earnings $ 69,616 $ 85,083 $ 62,271 $ 227,778 $ 97,906
Less: Tax benefit on discontinued operations - - (3) - (1,067)
Add: Tax expense on continuing operations 39,777 45,287 42,911 131,137 73,744
Pre-tax earnings 109,393 130,370 105,179 358,915 170,583
Add: Acquisition, integration and
reorganization costs 747 900 5,193 3,647 93,635
Less: FDIC loss sharing expense, net (4,449) (5,107) (7,415) (13,955) (27,370)
Gain on sale of loans and leases 27 163 973 190 594
Gain (loss) on securities 655 (186) - 3,744 4,841
Covered OREO (expense) income, net (20) 12 (452) 11 1,348
Gain on sale of owned office building - - - - 1,570
Adjusted pre-tax earnings before accelerated
discount accretion 113,927 136,388 117,266 372,572 283,235
Less: Accelerated discount accretion from
early payoffs of acquired loans 9,659 19,447 4,501 46,458 27,446
Adjusted pre-tax earnings 104,268 116,941 112,765 326,114 255,789
Tax expense (1) (39,101) (43,853) (45,895) (122,293) (104,106)
Adjusted net earnings $ 65,167 $ 73,088 $ 66,870 $ 203,821 $ 151,683
Average assets $ 16,690,177 $ 16,463,311 $ 15,716,539 $ 16,484,817 $ 12,456,182
Average stockholders' equity $ 3,572,765 $ 3,548,748 $ 3,465,119 $ 3,551,763 $ 2,515,506
Less: Average intangible assets 1,741,902 1,743,340 1,744,542 1,740,911 1,208,266
Average tangible common equity $ 1,830,863 $ 1,805,408 $ 1,720,577 $ 1,810,852 $ 1,307,240
Return on average assets (2) 1.65% 2.07% 1.57% 1.85% 1.05%
Return on average equity (3) 7.73% 9.62% 7.13% 8.57% 5.20%
Return on average tangible equity (4) 15.09% 18.90% 14.36% 16.82% 10.01%
Adjusted return on average assets (5) 1.55% 1.78% 1.69% 1.65% 1.63%
Adjusted return on average equity (6) 7.24% 8.26% 7.66% 7.67% 8.06%
Adjusted return on average tangible equity (7) 14.12% 16.24% 15.42% 15.05% 15.51%
(1) Full-year expected effective rate of 37.5% 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 net earnings divided by average stockholders' equity.
(4) Annualized net earnings divided by average tangible common equity.
(5) Annualized adjusted net earnings divided by average assets.
(6) Annualized adjusted net earnings divided by average stockholders' 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 2015 2015 2014 2015 2014
(Dollars in thousands)
Noninterest expense $ 90,139 $ 85,276 $ 94,923 $ 259,775 $ 314,287
Less: Intangible asset amortization 1,497 1,502 1,608 4,500 4,649
Foreclosed assets expense (income), net 4,521 (2,340) 4,827 2,517 3,463
Acquisition, integration, and
reorganization costs 747 900 5,193 3,647 93,635
Noninterest expense used for efficiency ratio $ 83,374 $ 85,214 $ 83,295 $ 249,111 $ 212,540
Net interest income (TE) $ 195,274 $ 204,721 $ 190,373 $ 600,855 $ 472,151
Noninterest income 15,758 19,623 16,314 56,252 29,484
Net revenues 211,032 224,344 206,687 657,107 501,635
Less: Gain (loss) on securities 655 (186) - 3,744 4,841
Gain on sale of owned office building - - - - 1,570
Net revenues used for efficiency ratio 210,377 224,530 206,687 653,363 495,224
Less: Accelerated discount accretion from
early payoffs of acquired loans 9,659 19,447 4,501 46,458 27,446
FDIC loss sharing expense, net (4,449) (5,107) (7,415) (13,955) (27,370)
Adjusted net revenues $ 205,167 $ 210,190 $ 209,601 $ 620,860 $ 495,148
Efficiency ratio (1) 39.6% 38.0% 40.3% 38.1% 42.9%
Adjusted efficiency ratio (2) 40.6% 40.5% 39.7% 40.1% 42.9%
(1) Noninterest expense used for efficiency ratio divided by net revenues used for efficiency ratio.
(2) Noninterest expense used for efficiency ratio 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 2015 2015 2015 2014 2014
(Dollars in thousands)
PacWest Bancorp Consolidated:
Stockholders' equity$ 3,581,704 $ 3,551,490 $ 3,533,361 $ 3,506,230 $ 3,478,051
Less: Intangible assets 1,741,084 1,742,581 1,744,083 1,737,683 1,740,952
Tangible common equity$ 1,840,620 $ 1,808,909 $ 1,789,278 $ 1,768,547 $ 1,737,099
Total assets$ 16,814,105 $ 16,697,020 $ 16,643,940 $ 16,234,605 $ 15,938,150
Less: Intangible assets 1,741,084 1,742,581 1,744,083 1,737,683 1,740,952
Tangible assets$ 15,073,021 $ 14,954,439 $ 14,899,857 $ 14,496,922 $ 14,197,198
Equity to assets ratio 21.30% 21.27% 21.23% 21.60% 21.82%
Tangible common equity ratio (1) 12.21% 12.10% 12.01% 12.20% 12.24%
Book value per share$ 34.76 $ 34.46 $ 34.29 $ 34.03 $ 33.76
Tangible book value per share (2)$ 17.86 $ 17.55 $ 17.36 $ 17.17 $ 16.86
Shares outstanding 103,053,694 103,051,989 103,044,257 103,022,017 103,027,830
Pacific Western Bank:
Stockholders' equity$ 3,466,817 $ 3,440,715 $ 3,410,276 $ 3,378,879 $ 3,356,943
Less: Intangible assets 1,741,084 1,742,581 1,744,083 1,737,683 1,740,952
Tangible common equity$ 1,725,733 $ 1,698,134 $ 1,666,193 $ 1,641,196 $ 1,615,991
Total assets$ 16,707,072 $ 16,555,610 $ 16,458,591 $ 15,995,719 $ 15,675,291
Less: Intangible assets 1,741,084 1,742,581 1,744,083 1,737,683 1,740,952
Tangible assets$ 14,965,988 $ 14,813,029 $ 14,714,508 $ 14,258,036 $ 13,934,339
Equity to assets ratio 20.75% 20.78% 20.72% 21.12% 21.42%
Tangible common equity ratio 11.53% 11.46% 11.32% 11.51% 11.60%
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by shares outstanding.


Contact: Matthew P. Wagner President and CEO Phone: 310-728-1020 Patrick J. Rusnak Executive Vice President and CFO 714-989-4705

Source:PacWest Bancorp