Exhibit 99.1
PRESS RELEASE
PacWest Bancorp
(NASDAQ: PACW)
Contact: | | Matthew P. Wagner
President and CEO
10250 Constellation Boulevard
Suite 1640
Los Angeles, CA 90067 | | Victor R. Santoro
Executive Vice President and CFO
10250 Constellation Boulevard
Suite 1640
Los Angeles, CA 90067 |
| | | | |
Phone: | | 310-728-1020 | | 310-728-1021 |
Fax: | | 310-201-0498 | | 310-201-0498 |
FOR IMMEDIATE RELEASE | | April 23, 2014 |
PACWEST BANCORP ANNOUNCES RESULTS
FOR THE FIRST QUARTER OF 2014
Highlights
· Net Earnings of $25.1 Million or $0.55 Per Diluted Share
· Net Interest Margin at 5.95%
· Credit Loss Reserve at 1.75% of Loans and Leases (excludes PCI loans)
· Credit Loss Reserve at 115% of Nonaccrual Loans and Leases (excludes PCI loans)
· Demand Deposits Reach 45% of Total Deposits
· Core Deposits at 88% of Total Deposits
· CapitalSource Merger Closed April 7, 2014; Deposit System Converted April 12, 2014
Los Angeles, California . . . PacWest Bancorp (Nasdaq: PACW) today announced net earnings for the first quarter of 2014 of $25.1 million, or $0.55 per diluted share, compared to net earnings for the fourth quarter of 2013 of $3.1 million, or $0.06 per diluted share. For the fourth quarter of 2013, net earnings included a $12.2 million, or $0.28 per diluted share, after-tax charge for accelerated restricted stock vesting.
This press release contains certain non-GAAP financial disclosures for adjusted earnings from continuing operations before income taxes, adjusted efficiency ratio, adjusted allowance for credit losses to loans and leases, return on average tangible equity, and tangible common equity ratio. 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. As analysts and investors view adjusted earnings from continuing operations before income taxes as an indicator of the Company’s ability to both generate earnings and absorb credit losses, we disclose this amount in addition to pre-tax earnings. We disclose the adjusted efficiency ratio as it shows the trend in
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recurring overhead-related noninterest expense relative to recurring net revenues. As the allowance for credit losses takes into account credit deterioration on acquired loans and leases, which include an estimate of credit losses in their initial fair values, we disclose the adjusted allowance for credit losses to loans and leases in addition to the allowance for credit losses to loans and leases. The adjusted allowance for credit losses to loans and leases excludes acquired loans and leases and the related allowance. Given that the use of return on average tangible equity, tangible common equity amounts and ratios, and tangible book value per share is prevalent among banking regulators, investors and analysts, we disclose our return on average tangible equity in addition to return on average equity, our tangible common equity ratio in addition to the equity-to-assets ratio, and tangible book value per share in addition to book value per share. Please refer to the tables at the end of this release for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measures to the GAAP financial measures.
The comparability of financial information is affected by our acquisitions. Operating results include the operations of acquired entities from the dates of acquisition. The operations of First California Financial Group, Inc. (“FCAL”) have been included since its acquisition date of May 31, 2013. The CapitalSource merger closed on April 7, 2014. Accordingly, CapitalSource operations will be included in second quarter 2014 results from that date.
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FIRST QUARTER RESULTS
| | Three Months Ended | |
| | March 31, | | December 31, | |
| | 2014 | | 2013 | |
| | (Dollars in thousands, except per share data) | |
Financial Highlights: | | | | | |
Net earnings from continuing operations | | $ | 25,905 | | $ | 3,447 | |
Net earnings | | $ | 25,080 | | $ | 3,109 | |
Diluted earnings per share from continuing operations | | $ | 0.57 | | $ | 0.07 | |
Diluted earnings per share | | $ | 0.55 | | $ | 0.06 | |
Adjusted earnings from continuing operations before income taxes (1) | | $ | 45,284 | | $ | 38,213 | |
Annualized return on average assets | | 1.56 | % | 0.19 | % |
Annualized return on average equity | | 12.40 | % | 1.51 | % |
Annualized return on average tangible equity (2) | | 17.10 | % | 2.11 | % |
Net interest margin | | 5.95 | % | 5.41 | % |
Core net interest margin (3) | | 5.42 | % | 5.31 | % |
Efficiency ratio | | 56.1 | % | 85.5 | % |
Adjusted efficiency ratio (4) | | 52.7 | % | 56.7 | % |
| | | | | |
At Quarter End: | | | | | |
Allowance for credit losses to loans and leases (excludes PCI loans) (5) | | 1.75 | % | 1.73 | % |
Allowance for credit losses to nonaccrual loans and leases (excludes PCI loans) (5) | | 115 | % | 145 | % |
Equity to assets ratios: | | | | | |
PacWest Bancorp Consolidated | | 12.79 | % | 12.38 | % |
Pacific Western Bank | | 13.99 | % | 13.97 | % |
Tangible common equity ratios: | | | | | |
PacWest Bancorp Consolidated | | 9.68 | % | 9.24 | % |
Pacific Western Bank | | 10.92 | % | 10.88 | % |
(1) Represents pre-tax earnings from continuing operations excluding net credit costs, securities gains and losses, gain on sale of owned office building, accelerated vesting of restricted stock, and acquisition and integration costs. See GAAP to Non-GAAP Reconciliation table.
(2) Calculation reduces average equity by average intangible assets. See GAAP to Non-GAAP Reconciliation table.
(3) Excludes impact of accelerated accretion of acquisition discounts resulting from PCI loan payoffs.
(4) Excludes FDIC loss sharing expense, securities gains and losses, gain on sale of owned office building, accelerated vesting of restricted stock, OREO expenses, and acquisition and integration costs. See GAAP to Non-GAAP Reconciliation table.
(5) PCI refers to purchased credit impaired loans, which includes acquired loans that are impaired on the purchase date.
The quarter-over-quarter increase in net earnings of $22.0 million was due mostly to: (a) the $12.4 million ($12.2 million after tax) accelerated vesting of restricted stock that occurred during the fourth quarter of 2013 and not repeated in the first quarter of 2014; (b) the $4.7 million ($2.8 million after tax) increase in net interest income; (c) the $5.0 million ($2.9 million after tax) increase in gain on sale of securities; and (d) the $5.4 million ($3.1 million after tax) increase in other income.
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Matt Wagner, President and CEO, commented “We had a very successful first quarter, posting net earnings of $25.1 million and a net interest margin of 5.95%. Although loan and lease growth was moderated in the first quarter to augment liquidity in anticipation of the CapitalSource merger, we were able to maintain our core loan yield at 6.68% due to the structure and mix of new loan originations. Our credit quality metrics remain at high levels. The slight increase in classified and nonaccrual non-PCI loans and leases results from our conservative evaluations and presents no expected loss content. The Company’s allowance for credit loss coverage ratio increased 2 basis points to 1.75% at the end of March.”
Mr. Wagner continued, “Crowning the end of the first quarter was final regulatory approval of our merger with CapitalSource in early April and closing on April 7. The branch office consolidation, core deposit system conversion and general ledger cutover were completed flawlessly over the April 12 weekend. We have already begun executing on our business plan for the new Company, which focuses on loan growth in all markets and attracting and retaining low-cost core deposits. We welcome all of our new customers, employees, and directors and look forward to a successful 2014 and beyond.”
Vic Santoro, Executive Vice President and CFO, stated “The hallmark of this Company has been its earning power supported by its net interest margin and expense control. Our adjusted net earnings reached $28.2 million in the first quarter, exceeding reported net earnings of $25.1 million that included $4.1 million in after-tax gains from asset sales. Our core net interest margin remains strong, reaching 5.42% for the first quarter from a combination of higher interest income on loans and leases and a low all-in deposit cost of 9 basis points. Our efficiency ratios, both reported and adjusted, declined quarter-over-quarter, with the adjusted efficiency ratio reaching 52.7%. This earning power, along with a strong capital base, positions us well to integrate the CapitalSource operation and be successful in 2014.”
BALANCE SHEET CHANGES
Total assets decreased $15.5 million during the first quarter of 2014 to $6.5 billion due mainly to decreases in total loans and leases, securities available-for-sale, the FDIC loss sharing asset, and other assets, offset partially by an increase in cash and cash equivalents. At March 31, 2014, gross loans and leases totaled $4.2 billion, a decrease of $152.3 million since December 31, 2013. The gross Non-PCI loan and lease portfolio totaled $3.8 billion, a decrease of $102.0 million during the first quarter reflecting $320.2 million in net pay downs offset by $168.0 million in originations and purchases. The PCI loan portfolio, which is mostly covered loans, totaled $332.5 million, down $50.3 million during the first quarter due to repayments and resolution activities. Securities available-for-sale declined $17.3 million, due mainly to the sale of $137.3 million in government sponsored enterprise (“GSE”) pass through securities that resulted in a net gain of $4.8 million. Cash and cash equivalents increased $194.7 million to $342.1 million at quarter-end in anticipation of the CapitalSource merger, which closed April 7, 2014.
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The following tables present our loan portfolio activity for the first quarter of 2014 and the fourth quarter of 2013:
| | | | Originated | | | | | |
| | December 31, | | and | | Net | | March 31, | |
| | 2013 | | Purchased (1) | | Paydowns | | 2014 | |
| | (In thousands) | |
Non-PCI loans, excluding Asset Financing Segment | | $ | 3,458,342 | | $ | 139,735 | | $ | (219,818 | )(2) | $ | 3,378,259 | |
Asset Financing Segment | | 472,197 | | 28,251 | | (50,138 | ) | 450,310 | |
Total Non-PCI loans and leases | | 3,930,539 | | 167,986 | | (269,956 | ) | 3,828,569 | |
PCI loans | | 382,796 | | — | | (50,280 | ) | 332,516 | |
Total | | $ | 4,313,335 | | $ | 167,986 | | $ | (320,236 | ) | $ | 4,161,085 | |
(1) Includes loan purchases of $17.4 million.
(2) Includes two loan payoffs for $26.6 million and $23.2 million.
| | | | Originated | | | | | |
| | September 30, | | and | | Net | | December 31, | |
| | 2013 | | Purchased (1) | | Paydowns | | 2013 | |
| | (In thousands) | |
Non-PCI loans, excluding Asset Financing Segment | | $ | 3,483,866 | | $ | 167,691 | | $ | (193,215 | )(2) | $ | 3,458,342 | |
Asset Financing Segment | | 467,689 | | 68,725 | | (64,217 | ) | 472,197 | |
Total Non-PCI loans and leases | | 3,951,555 | | 236,416 | | (257,432 | ) | 3,930,539 | |
PCI loans | | 432,757 | | — | | (49,961 | ) | 382,796 | |
Total | | $ | 4,384,312 | | $ | 236,416 | | $ | (307,393 | ) | $ | 4,313,335 | |
(1) Includes loan purchases of $20.9 million.
(2) Includes two loans of a single lending relationship for $31.8 million that repaid on December 31, 2013.
Total liabilities decreased $40.1 million during the first quarter of 2014 to $5.7 billion due to decreases in FHLB advances, liabilities of discontinued operations, and accrued interest payable and other liabilities, offset partially by an increase in total deposits. The increase in total deposits of $88.4 million was represented by an increase in core deposits of $103.2 million, offset partially by a decrease of $14.8 million in time deposits. The increase in core deposits was composed of increases of $73.2 million, $30.2 million, and $7.4 million in noninterest-bearing demand deposits, money market deposits, and savings deposits, respectively, offset by a decrease of $7.5 million in interest checking deposits. At March 31, 2014, core deposits totaled $4.7 billion, or 88% of total deposits, and noninterest-bearing demand deposits totaled $2.4 billion, or 45% of total deposits.
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SECURITIES AVAILABLE-FOR-SALE
The following table presents the components, yields, and durations of our securities available-for-sale as of the date indicated:
| | March 31, 2014 | |
| | Amortized | | Carrying | | | | Duration | |
Security Type | | Cost | | Value | | Yield (1) | | (in years) | |
| | (Dollars in thousands) | |
Residential mortgage-backed securities: | | | | | | | | | |
Government agency and government-sponsored enterprise pass through securities | | $ | 560,004 | | $ | 574,669 | | 2.63 | % | 3.9 | |
Government agency and government-sponsored enterprise collateralized mortgage obligations | | 272,832 | | 269,637 | | 2.40 | % | 5.2 | |
Covered private label collateralized mortgage obligations | | 29,649 | | 37,594 | | 6.99 | % | 2.9 | |
Municipal securities (2) | | 455,437 | | 447,933 | | 2.79 | % | 6.0 | |
Corporate debt securities | | 84,210 | | 84,211 | | 2.58 | % | 2.6 | |
Government-sponsored enterprise debt securities | | 36,180 | | 36,054 | | 2.22 | % | 5.9 | |
Other securities | | 27,393 | | 27,375 | | 0.64 | % | 0.1 | |
Total securities available-for-sale (2) | | $ | 1,465,705 | | $ | 1,477,473 | | 3.06 | % | 4.6 | |
(1) Represents the yield for the month of March 2014.
(2) The tax equivalent yield was 4.18% and 3.47% for municipal securities and total securities available-for-sale, respectively.
The following table shows the geographic composition of the majority of our municipal securities portfolio as of the date indicated:
| | March 31, 2014 | |
| | Carrying | | % of | |
| | Value | | Total | |
| | (In thousands) | | | |
Municipal Securities by State: | | | | | |
Texas | | $ | 84,273 | | 19 | % |
Washington | | 42,991 | | 10 | % |
New York | | 32,867 | | 8 | % |
Colorado | | 25,881 | | 6 | % |
Illinois | | 24,766 | | 6 | % |
Ohio | | 22,739 | | 5 | % |
California | | 19,799 | | 4 | % |
Hawaii | | 15,469 | | 3 | % |
Florida | | 15,308 | | 3 | % |
Massachusetts | | 15,370 | | 3 | % |
Total of 10 largest states | | 299,463 | | 67 | % |
All other states | | 148,470 | | 33 | % |
Total municipal securities | | $ | 447,933 | | 100 | % |
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COVERED ASSETS
We are party to four loss sharing agreements with the FDIC. Such agreements cover a substantial portion of losses incurred on covered loans, other real estate owned, and certain investment securities.
A summary of covered assets is shown in the following table as of the dates indicated:
| | March 31, | | December 31, | |
Covered Assets | | 2014 | | 2013 | |
| | (In thousands) | |
Loans, net of allowance | | $ | 377,435 | | $ | 426,625 | |
Investment securities | | 37,594 | | 37,904 | |
Other real estate owned, net | | 6,177 | | 9,036 | |
Total covered assets | | $ | 421,206 | | $ | 473,565 | |
| | | | | |
Percentage of total assets | | 6.5 | % | 7.2 | % |
NET INTEREST INCOME
Net interest income increased by $4.7 million to $86.0 million for the first quarter of 2014 compared to $81.3 million for the fourth quarter of 2013 due primarily to higher interest income on loans and leases. Interest income on loans and leases increased $4.1 million due mostly to higher accelerated accretion of acquisition discounts resulting from PCI loan payoffs, offset partially by two fewer days in the current quarter. Interest income on investment securities increased $401,000 due to purchases of higher yielding securities during the first quarter, offset partially by the sale of $137.3 million in lower yielding GSE securities and reduced discount accretion on our covered private label mortgage-backed securities due to slower prepayments. Interest expense declined by $253,000 due mainly to a lower average rate and average balance for time deposits, as well as a lower average balance for money market deposits and two fewer days in the current quarter.
NET INTEREST MARGIN
Our net interest margin (“NIM”) for the first quarter of 2014 was 5.95%, compared to 5.41% for the fourth quarter of 2013. The 54 basis point increase in NIM was driven by a 53 basis point increase in our earning asset yield. The increase in the earning asset yield was due to the 65 basis point increase in the loan and lease yield.
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The NIM and loan and lease yield are impacted by accelerated accretion of acquisition discounts resulting from PCI loan payoffs that cause volatility. The effects of this item on the NIM and loan yield are shown in the following table for the periods indicated:
| | Three Months Ended | |
| | March 31, 2014 | | December 31, 2013 | |
| | NIM | | Loan Yield | | NIM | | Loan Yield | |
Increase in NIM and loan and lease yield due to accelerated accretion of acquisition discounts resulting from PCI loan payoffs | | 0.53 | % | 0.74 | % | 0.10 | % | 0.13 | % |
As reported | | 5.95 | % | 7.42 | % | 5.41 | % | 6.77 | % |
Core | | 5.42 | % | 6.68 | % | 5.31 | % | 6.64 | % |
The following table presents the loan and lease yields and related average balances for our Non-PCI loans and leases, PCI loans, and total loan and lease portfolio for the periods indicated:
| | Three Months Ended | |
| | March 31, | | December 31, | |
| | 2014 | | 2013 | |
| | (Dollars in thousands) | |
Yields: | | | | | |
Non-PCI loans and leases | | 6.17 | % | 6.14 | % |
PCI loans | | 21.83 | % | 13.15 | % |
Total loans and leases | | 7.42 | % | 6.77 | % |
| | | | | |
Average Balances: | | | | | |
Non-PCI loans and leases | | $ | 3,891,990 | | $ | 3,916,650 | |
PCI loans | | 339,329 | | 384,727 | |
Total loans and leases | | $ | 4,231,319 | | $ | 4,301,377 | |
The yield on loans and leases increased to 7.42% for the first quarter of 2014 from 6.77% for the fourth quarter of 2013 due to higher accelerated accretion of acquisition discounts resulting from PCI loan payoffs. The accelerated accretion of acquisition discounts resulting from PCI loan payoffs totaled $7.7 million for the first quarter and $1.4 million for the fourth quarter. When accelerated accretion is excluded, the core yield on loans and leases was 6.68% for the first quarter and 6.64% for the fourth quarter.
The yield on PCI loans increased to 21.83% for the first quarter of 2014 from 13.15% for the fourth quarter of 2013 due mainly to the $6.3 million increase in accelerated accretion of acquisition discounts resulting from PCI loan payoffs. When accelerated accretion is excluded, the core yield on PCI loans increased to 12.68% for the first quarter from 11.67% for the fourth quarter due to improved performance on the underlying loans.
The cost of average funding sources declined one basis point to 0.17% for the first quarter of 2014 from 0.18% for the fourth quarter of 2013. This includes all-in deposit cost which declined two basis points to 0.09% for the current quarter compared to the prior quarter. The cost of total interest-bearing deposits and total interest-bearing liabilities each declined two basis points to 0.17% and 0.30% for the first quarter. Such declines are due mainly to a lower average rate on time deposits.
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NONINTEREST INCOME
Noninterest income increased by $8.6 million to a positive $4.7 million for the first quarter of 2014 from a negative $3.9 million for the fourth quarter of 2013. The increase was due mostly to the $5.0 million increase in gain on sales of securities during the first quarter and a $5.4 million increase in other income, offset by an increase of $837,000 in FDIC loss sharing expense and a decrease of $577,000 in gain on sales of leases. During the first quarter we sold $137.3 million in GSE pass through securities that resulted in a gain of $4.8 million. We sold these securities to take advantage of favorable market conditions for premium coupon seasoned GSE securities, and redeployed the proceeds into single-maturity investments that are expected to perform better under current market conditions. During the fourth quarter we sold $10.0 million in collateralized loan obligation (“CLO”) securities, which resulted in a net loss of $272,000. We sold the CLO securities in order to minimize our risk in holding these securities subject to the then proposed regulations referred to as the Volcker rule. The increase in other income was due to $3.5 million in income recognized on the early repayment of leases and a $1.6 million gain on the sale of an owned office building. The increase in FDIC loss sharing expense was due to lower covered OREO expense attributable mainly to higher gain on sales of covered OREO and higher losses on the FDIC loss sharing asset.
The following table presents the details of FDIC loss sharing income (expense), net for the periods indicated:
| | Three Months Ended | |
| | March 31, | | December 31, | | Increase | |
| | 2014 | | 2013 | | (Decrease) | |
| | (In thousands) | |
FDIC Loss Sharing Income (Expense), Net: | | | | | | | |
Gain (loss) on FDIC loss sharing asset (1) | | $ | (2,206 | ) | $ | (1,909 | ) | $ | (297 | ) |
FDIC loss sharing asset amortization, net | | (7,912 | ) | (8,111 | ) | 199 | |
Net reimbursement (to) from FDIC for covered OREOs (2) | | (1,224 | ) | (508 | ) | (716 | ) |
Other | | (88 | ) | (65 | ) | (23 | ) |
FDIC loss sharing income (expense), net | | $ | (11,430 | ) | $ | (10,593 | ) | $ | (837 | ) |
(1) Includes increases related to covered loan loss provisions and decreases for: (a) write-offs for covered loans expected to be resolved at amounts higher than their carrying values, and (b) amounts to be reimbursed to the FDIC for covered loans resolved at amounts higher than their carrying values.
(2) Represents amounts to be reimbursed to the FDIC for gains on covered OREO sales and due from the FDIC for covered OREO write-downs.
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NONINTEREST EXPENSE
Noninterest expense decreased by $15.2 million to $50.9 million for the first quarter of 2014 compared to $66.1 million for the fourth quarter of 2013. The decline was due to the $12.4 million of expense from accelerated vesting of restricted stock incurred in the fourth quarter and not repeated in the first quarter, as well as decreases of $2.1 million and $1.0 million in acquisition and integration costs and covered OREO expense, respectively. The decrease in covered OREO expense was due mainly to a higher gain on sales of covered OREO of $650,000, lower write-downs of $244,000, and lower maintenance costs of $127,000. Compensation expense increased $930,000 due mainly to the timing of payroll taxes and lower cost deferral on loan originations, offset partially by lower restricted stock amortization, excluding the accelerated vesting of restricted stock.
Noninterest expense includes: (a) amortization of restricted stock, which is included in compensation, and (b) intangible asset amortization. Amortization of restricted stock, excluding the accelerated vesting of restricted stock, totaled $1.6 million for the first quarter of 2014 and $2.3 million for the fourth quarter of 2013. Intangible asset amortization totaled $1.4 million for each of the first quarter and fourth quarter.
In December 2013, the Company accelerated the vesting of certain restricted stock awards that resulted in a pre-tax charge of $12.4 million ($12.2 million after tax). This action was taken by the Company in order to eliminate an additional $21.0 million of compensation and tax expense related to change in control payments that the Company would have otherwise incurred upon consummation of the CapitalSource merger. Such eliminated expenses relate to tax gross-up payments and the value of lost tax deductions, in each case due to the impact of Sections 280G and 4999 of the Internal Revenue Code as they apply to change in control payments that would have become payable to certain PacWest employees in conjunction with the CapitalSource merger. The restricted stock awards that were vested on an accelerated basis in 2013 would have otherwise vested upon consummation of the CapitalSource merger, and the $12.2 million after-tax charge to earnings that we recorded in December 2013 would have been incurred at that time.
INCOME TAXES
Our overall effective income tax rate was 35.8% for the first quarter of 2014 and 74.1% for the fourth quarter of 2013. The fourth quarter effective tax rate was driven higher than normal by the non-deductibility of most of the $12.4 million accelerated vesting of restricted stock. When this item is excluded, our adjusted effective tax rate was 36.4% for the fourth quarter.
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NET CREDIT COSTS
Net credit costs on a pre-tax basis are shown in the following table:
| | Three Months Ended | |
| | March 31, | | December 31, | |
| | 2014 | | 2013 | |
| | (In thousands) | |
Negative provision for credit losses | | $ | (644 | ) | $ | (1,338 | ) |
Non-covered OREO (income) expense, net | | (246 | ) | 25 | |
Covered OREO (income) expense, net | | (1,615 | ) | (594 | ) |
Less: FDIC loss sharing expense, net | | 11,430 | | 10,593 | |
Total net credit costs | | $ | 8,925 | | $ | 8,686 | |
CREDIT QUALITY
Credit quality metrics declined somewhat quarter over quarter due to slightly elevated levels of classified and nonaccrual loans and leases. Economic trends in our markets will cause periodic movements in nonaccrual and classified loan and lease balances. However, losses on such nonaccrual and classified loans and leases are not expected to be material.
The following table presents our Non-PCI credit quality metrics as of the dates indicated:
| | March 31, | | December 31, | |
| | 2014 | | 2013 | |
| | (Dollars in thousands) | |
Non-PCI Credit Quality Metrics: | | | | | |
Allowance for credit losses | | $ | 66,955 | | $ | 67,816 | |
Nonaccrual loans and leases | | 58,121 | | 46,774 | |
Classified loans and leases (1) | | 150,517 | | 127,311 | |
Performing restructured loans | | 35,101 | | 41,648 | |
Net charge-offs (recoveries) (for the quarter) | | 861 | | (15 | ) |
Provision for credit losses (for the quarter) | | — | | — | |
Allowance for credit losses to loans and leases | | 1.75 | % | 1.73 | % |
Allowance for credit losses to nonaccrual loans and leases | | 115.2 | % | 145.0 | % |
Nonperforming assets to loans and leases and other real estate owned | | 2.71 | % | 2.48 | % |
| | | | | | | |
(1) Classified loans and leases are those with a credit risk rating of substandard or doubtful.
Non-PCI loans and leases at March 31, 2014, include $1.0 billion in loans and leases acquired in acquisitions. These acquired loans and leases were initially recorded at their estimated fair values and such initial fair values included an estimate of credit losses. The allowance calculation for Non-PCI loans and leases includes an amount for credit deterioration on acquired loans and leases since their acquisition dates. At March 31, 2014, the allowance for credit losses includes $737,000 attributed to these acquired loans and leases. When these acquired loans and leases are excluded from the total of Non-PCI loans and leases and the related allowance of $737,000 is excluded from the allowance for credit losses, the result is an adjusted coverage ratio of our allowance for credit losses for Non-PCI loans and leases of 2.34% at March 31, 2014; the comparable ratio at December 31, 2013 was 2.34%.
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Credit Loss Provisions
The Company recorded a negative provision for credit losses of $644,000 for the first quarter of 2014 compared to a negative provision for credit losses of $1.3 million for the fourth quarter of 2013; such provisions relate to PCI loans only.
The provision, or negative provision, for credit losses on PCI loans results from decreases, or increases, in expected cash flows on such loans compared to those previously estimated. Cash flows on PCI loans are estimated quarterly and are subject to change based on varying conditions with the underlying borrowers and collateral. The negative provisions for credit losses on PCI loans in the first and fourth quarters were due to increases in both actual cash flows from early pay-offs and expected cash flows on PCI loans generally.
The provision level on Non-PCI loans and leases is generated by our allowance methodology, which reflects the level and trends of net charge-offs, the levels of nonaccrual and classified loans and leases, the migration of loans and leases into various risk classifications, and the level of outstanding loans and leases. Based on such methodology, there was no provision for credit losses on Non-PCI loans and leases for the first quarter of 2014 and fourth quarter of 2013.
Nonperforming Assets
Nonperforming assets include nonaccrual loans and leases (excluding PCI loans, which are accounted for based on expected cash flows and considered accruing regardless of the payment status of the underlying loans) and OREO and totaled $105.0 million at March 31, 2014 compared to $98.6 million at December 31, 2013. The ratio of nonperforming assets to Non-PCI loans and leases and OREO increased to 2.71% at March 31, 2014 from 2.48% at December 31, 2013.
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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 | |
| | March 31, 2014 | | December 31, 2013 | | 30 - 89 Days Past Due | |
| | | | % of | | | | % of | | March 31, | | December 31, | |
| | | | Loan | | | | Loan | | 2014 | | 2013 | |
| | Balance | | Category | | Balance | | Category | | Balance | | Balance | |
| | (Dollars in thousands) | |
Real estate mortgage: | | | | | | | | | | | | | |
Hospitality | | $ | 6,639 | | 3.9 | % | $ | 6,723 | | 3.7 | % | $ | — | | $ | — | |
SBA 504 | | 2,519 | | 6.0 | % | 2,602 | | 5.8 | % | 1,092 | | 2,155 | |
Other (1) | | 29,701 | | 1.4 | % | 18,648 | | 0.8 | % | 1,831 | | 11,270 | |
Total real estate mortgage | | 38,859 | | 1.7 | % | 27,973 | | 1.2 | % | 2,923 | | 13,425 | |
Real estate construction: | | | | | | | | | | | | | |
Residential | | 387 | | 0.6 | % | 389 | | 0.7 | % | — | | — | |
Commercial | | 3,353 | | 1.9 | % | 2,830 | | 1.9 | % | — | | — | |
Total real estate construction | | 3,740 | | 1.6 | % | 3,219 | | 1.5 | % | — | | — | |
Commercial: | | | | | | | | | | | | | |
Collateralized | | 7,797 | | 1.3 | % | 9,991 | | 1.7 | % | 140 | | 119 | |
Unsecured | | 411 | | 0.3 | % | 458 | | 0.3 | % | — | | 82 | |
Asset-based | | 558 | | 0.3 | % | 1,070 | | 0.5 | % | — | | — | |
SBA 7(a) | | 2,993 | | 10.9 | % | 3,037 | | 10.6 | % | 387 | | 459 | |
Total commercial | | 11,759 | | 1.2 | % | 14,556 | | 1.5 | % | 527 | | 660 | |
Leases | | 220 | | 0.1 | % | 632 | | 0.2 | % | 4,075 | | 2,273 | |
Consumer (2) | | 3,543 | | 5.3 | % | 394 | | 0.7 | % | 307 | | 3,313 | |
Total non-PCI loans and leases | | $ | 58,121 | | 1.5 | % | $ | 46,774 | | 1.2 | % | $ | 7,832 | | $ | 19,671 | |
(1) Of the $11.3 million in accruing and 30-89 days past due at December 31, 2013, one loan for $5.9 million moved to nonaccrual status at March 31, 2014.
(2) Of the $3.3 million in accruing and 30-89 days past due at December 31, 2013, one loan for $3.2 million moved to nonaccrual status at March 31, 2014.
The $11.3 million increase in nonaccrual loans and leases (excluding PCI loans) during the first quarter of 2014 was attributable to (a) additions of $18.4 million, (b) charge-offs of $1.5 million, and (c) other reductions, payoffs and returns to accrual status of $5.6 million.
13
Below is a summary of the ten largest Non-PCI lending relationships on nonaccrual status, excluding SBA-related loans, as of the date indicated:
March 31, | | |
2014 | | |
Nonaccrual | | |
Amount | | Description |
(In thousands) | | |
| | |
$ | 6,723 | | Two loans, each secured by a hotel in San Diego County. The borrower is paying according to the restructured terms of each loan. |
| | |
5,904 | | Loan secured by 2nd trust deeds on two single family residences in Los Angeles County. (1) |
| | |
5,324 | | Three loans to a contractor, one of which is secured by equipment, one of which is secured by an industrial building in San Diego County, and one of which is unsecured. The borrower is paying according to the restructured terms of each loan. |
| | |
3,521 | | Two loans secured by 19 properties located predominantly in San Luis Obispo County. Collateral consists of five undeveloped residential properties, two single family residences, two commercial buildings, and 10 undeveloped commercial properties. The borrower is paying according to the restructured terms of each loan. (1) |
| | |
3,154 | | Loan secured by an industrial building in Santa Barbara County. (1) |
| | |
2,704 | | Two loans that are both unsecured. The borrower is paying according to the restructured terms of each loan. |
| | |
2,428 | | Loan secured by a single retail building located in San Bernardino County. (1) |
| | |
1,494 | | Loan secured by industrial zoned land in Ventura County. |
| | |
1,468 | | Loan secured by an industrial building in San Diego County. The borrower is paying according to the restructured terms of the loan. (1) |
| | |
1,320 | | Loan secured by an office building in Maricopa County, Arizona. Subsequent to quarter-end, the loan was paid off in full. |
$ | 34,040 | | Total |
(1) New nonaccrual in first quarter of 2014.
The following table presents the details of OREO as of the dates indicated:
| | March 31, 2014 | | December 31, 2013 | |
| | Non- | | | | Non- | | | |
| | Covered | | Covered | | Covered | | Covered | |
Property Type | | OREO | | OREO | | OREO | | OREO | |
| | (In thousands) | |
Commercial real estate | | $ | 10,050 | | $ | 3,111 | | $ | 10,672 | | $ | 5,081 | |
Construction and land development | | 30,464 | | 2,218 | | 31,950 | | 3,113 | |
Multi-family | | — | | 835 | | — | | 835 | |
Single family residence | | 179 | | 13 | | 179 | | 7 | |
Total OREO, net | | $ | 40,693 | | $ | 6,177 | | $ | 42,801 | | $ | 9,036 | |
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The following table presents OREO activity for the period indicated:
| | Three Months Ended | |
| | March 31, 2014 | |
| | Non-Covered | | Covered | | Total | |
| | OREO | | OREO | | OREO | |
| | (In thousands) | |
Beginning of period | | $ | 42,801 | | $ | 9,036 | | $ | 51,837 | |
Foreclosures | | — | | 13 | | 13 | |
Provision for losses | | — | | (94 | ) | (94 | ) |
Reductions related to sales | | (2,108 | ) | (2,778 | ) | (4,886 | ) |
End of period | | $ | 40,693 | | $ | 6,177 | | $ | 46,870 | |
| | | | | | | |
Net gain on sale | | $ | 699 | | $ | 1,624 | | $ | 2,323 | |
REGULATORY CAPITAL MEASURES ARE ABOVE THE WELL-CAPITALIZED MINIMUMS
PacWest Bancorp and its wholly-owned banking subsidiary, Pacific Western Bank, each remained well capitalized as of the date indicated as shown in the following table:
| | March 31, 2014 | |
| | Well | | Pacific | | PacWest | |
| | Capitalized | | Western | | Bancorp | |
| | Requirement | | Bank | | Consolidated | |
Tier 1 leverage capital ratio | | 5.00 | % | 10.88 | % | 11.73 | % |
Tier 1 risk-based capital ratio | | 6.00 | % | 15.00 | % | 16.16 | % |
Total risk-based capital ratio | | 10.00 | % | 16.25 | % | 17.42 | % |
Tangible common equity ratio | | N/A | | 10.92 | % | 9.68 | % |
CAPITALSOURCE MERGER
On April 7, 2014, PacWest Bancorp (“PacWest”) completed the merger with CapitalSource Inc. (“CapitalSource”). The combined company is called PacWest Bancorp. As part of the merger, CapitalSource Bank, (“CSB”), a wholly-owned subsidiary of CapitalSource, merged with and into PacWest’s wholly-owned banking subsidiary, Pacific Western Bank, and the combined subsidiary bank is called Pacific Western Bank.
The merger, which was first announced on July 22, 2013, was concluded following receipt of shareholder approval from both institutions and all required regulatory approvals. As of March 31, 2014, CapitalSource had $9.1 billion in assets and PacWest had $6.5 billion in assets. On a pro forma combined basis with CapitalSource and excluding purchase accounting adjustments, PacWest would have had approximately $15.6 billion in assets as of March 31, 2014.
Upon closing, PacWest created the CapitalSource division of Pacific Western Bank. This division, which will operate under the CapitalSource name, will continue to serve businesses nationwide with a full spectrum of middle-market lending. Pacific Western Bank, through its combined network of 81 branches throughout California, will continue to serve small and medium-sized businesses with financing solutions, cash management and deposit services.
15
In the merger with CapitalSource, each share of CapitalSource common stock was converted into the right to receive $2.47 in cash and 0.2837 of a share of PacWest Bancorp common stock. PacWest issued an aggregate of approximately 56.7 million shares of PacWest common stock to CapitalSource stockholders. Based on the closing price of PacWest’s common stock on April 7, 2014 of $45.83 per share, the aggregate consideration paid to CapitalSource common stockholders and holders of equity awards to acquire CapitalSource common stock was approximately $3.1 billion.
Former holders of CapitalSource common stock and equity awards to acquire CapitalSource common stock as a group received shares of PacWest common stock in the merger constituting approximately 55% of the outstanding shares of PacWest common stock immediately after the merger. As a result, holders of PacWest common stock immediately prior to the merger, as a group, own approximately 45% of the outstanding shares of the PacWest common stock immediately after the merger.
The integration of CapitalSource Bank’s deposit system and the conversion of CapitalSource Bank’s branches to Pacific Western Bank’s operating platform were completed over the weekend of April 12, 2014. CapitalSource had 21 branches, 12 of which were closed in the consolidation with Pacific Western Bank at the close of business on April 11, 2014. One overlapping Pacific Western branch was closed at the close of business on April 11, 2014 as well. All remaining branches re-opened on Monday April 14, 2014 as Pacific Western Bank branches.
Summary unaudited financial information for CapitalSource for the first quarter of 2014 follows:
| | Three Months Ended | |
| | March 31, 2014 | |
| | (Dollars in thousands) | |
Net interest income | | $ | 89,370 | |
Negative provision for loan and lease losses | | (1,657 | ) |
Noninterest income | | 4,713 | |
Noninterest expense | | 49,133 | |
Income taxes | | 23,104 | |
Net income | | $ | 23,503 | |
| | | |
New loan and lease originations | | $ | 557,743 | |
| | | |
Loan yield | | 6.07 | % |
Deposit cost | | 0.90 | % |
Net interest margin | | 4.59 | % |
CapitalSource’s consolidated net income for the first quarter of 2014 was negatively impacted compared to its prior quarter by several items including a lease abandonment charge of $6.3 million ($3.2 million after-tax), a $9.3 million write-down of equity investments due to the Volcker Rule (no tax benefit due to full tax valuation allowance on capital losses) and a $3.5 million valuation charge on an REO property ($1.7 million after-tax). Additionally, these items were offset partially by a $2.1 million gain on the sale of equity investments (no tax expense due to full tax valuation allowance on capital losses) and $1.7 million negative provision for loan and lease losses ($836,000 after-tax). Excluding these items, adjusted net income for the first quarter of 2014 would have been $34.8 million. At March 31, 2014, total assets were $9.1 billion, gross loans were $7.1 billion, and total deposits were $6.2 billion. Net loan growth at CapitalSource Bank was $288 million or 4.2% for the first quarter of 2014.
16
ABOUT PACWEST BANCORP
PacWest Bancorp (“PacWest”) is a bank holding company with $6.5 billion in assets as of March 31, 2014, with one wholly-owned banking subsidiary. On a pro forma combined basis with CapitalSource and excluding purchase accounting adjustments, PacWest would have had approximately $15.6 billion in assets as of March 31, 2014. Pacific Western provides commercial banking services, including real estate, construction, and commercial loans, to small and medium-sized businesses through 81 full-service branches, including the nine retained CapitalSource Bank branches, located throughout the state of California. Pacific Western’s divisions (CapitalSource, First Community Financial and Pacific Western Equipment Finance), and subsidiaries (BFI Business Finance and Celtic Capital Corporation), deliver the full spectrum of financing solutions nationwide across all industries and property types. Additional information regarding PacWest Bancorp is available on the Internet at www.pacwestbancorp.com. Information regarding Pacific Western Bank is also available on the Internet at www.pacificwesternbank.com.
FORWARD-LOOKING STATEMENTS
This press release contains certain forward-looking information about PacWest that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. We caution readers that a number of important factors could cause actual results to differ materially from those expressed in, implied or projected by, such forward-looking statements.
Risks and uncertainties include, but are not limited to: failure to obtain regulatory or other required approvals; an inability to achieve expected cost savings in the amounts or timeframes discussed if at all, or the costs associated with transactions or the time needed to complete transactions being greater than expected; lower than expected revenues; credit quality deterioration or a reduction in real estate values could cause an increase in the allowance for credit losses and a reduction in net earnings; increased competitive pressure among depository institutions; the Company’s ability to complete future acquisitions, successfully integrate such acquired entities, or achieve expected beneficial synergies and/or operating efficiencies within expected time-frames or at all; settlements with the FDIC related to our four loss-sharing arrangements; the possibility that personnel changes will not proceed as planned; the cost of additional capital is more than expected; a change in the interest rate environment reduces net interest margins; asset/liability repricing risks and liquidity risks; pending legal matters may take longer or cost more to resolve or may be resolved adversely to the Company; general economic conditions, either nationally or in the market areas in which the Company does or anticipates doing business, are less favorable than expected; environmental conditions, including natural disasters, may disrupt our business, impede our operations, negatively impact the values of collateral securing the Company’s loans and leases or impair the ability of our borrowers to support their debt obligations; the economic and regulatory effects of the continuing war on
17
terrorism and other events of war, including the conflicts in the Middle East; legislative or regulatory requirements or changes adversely affecting the Company’s business; changes in the securities markets; regulatory approvals for any capital activities cannot be obtained on the terms expected or on the anticipated schedule; and, other risks that are described in PacWest’s public filings with the U.S. Securities and Exchange Commission (the “SEC”).
Additional risks and uncertainties relating to the transaction with CapitalSource include, but are not limited to the ability to successfully integrate the two institutions and achieve expected synergies and operating efficiencies on the expected timeframe. For a discussion of risks and uncertainties relating to PacWest’s and CapitalSource’s businesses, investors and security holders are urged to read PacWest’s annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by PacWest with the SEC.
If any of these risks or uncertainties materializes or if any of the assumptions underlying such forward-looking statements proves to be incorrect, PacWest’s results could differ materially from those expressed in, implied or projected by such forward-looking statements. PacWest assumes no obligation to update such forward-looking statements.
The documents filed by PacWest with the SEC may be obtained at PacWest Bancorp’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 directing a request to: PacWest Bancorp c/o Pacific Western Bank, 275 North Brea Boulevard, Brea, CA 92821. Attention: Investor Relations. Telephone 714-671-6800.
18
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | March 31, | | December 31, | |
| | 2014 | | 2013 | |
| | (In thousands, except per share and share data) | |
ASSETS | | | | | |
Cash and due from banks | | $ | 113,508 | | $ | 96,424 | |
Interest-earning deposits in financial institutions | | 228,579 | | 50,998 | |
Total cash and cash equivalents | | 342,087 | | 147,422 | |
| | | | | |
Non-covered securities available-for-sale | | 1,439,879 | | 1,456,841 | |
Covered securities available-for-sale | | 37,594 | | 37,904 | |
Total securities available-for-sale, at estimated fair value | | 1,477,473 | | 1,494,745 | |
Federal Home Loan Bank stock, at cost | | 25,000 | | 27,939 | |
Total investment securities | | 1,502,473 | | 1,522,684 | |
| | | | | |
Non-covered loans and leases | | 3,762,720 | | 3,864,917 | |
Covered loans | | 398,365 | | 448,418 | |
Gross loans and leases | | 4,161,085 | | 4,313,335 | |
Unearned income | | (18 | ) | (983 | ) |
Allowance for loan and lease losses | | (81,180 | ) | (82,034 | ) |
Total loans and leases, net | | 4,079,887 | | 4,230,318 | |
| | | | | |
Non-covered other real estate owned, net | | 40,693 | | 42,801 | |
Covered other real estate owned, net | | 6,177 | | 9,036 | |
Total other real estate owned, net | | 46,870 | | 51,837 | |
| | | | | |
Premises and equipment, net | | 29,908 | | 32,435 | |
FDIC loss sharing asset | | 34,628 | | 45,524 | |
Cash surrender value of life insurance | | 77,955 | | 77,489 | |
Goodwill | | 208,743 | | 208,743 | |
Core deposit and customer relationship intangibles, net | | 15,884 | | 17,248 | |
Other assets | | 179,418 | | 199,663 | |
Total assets | | $ | 6,517,853 | | $ | 6,533,363 | |
| | | | | |
LIABILITIES | | | | | |
Noninterest-bearing demand deposits | | $ | 2,391,609 | | $ | 2,318,446 | |
Interest-bearing deposits | | 2,977,799 | | 2,962,541 | |
Total deposits | | 5,369,408 | | 5,280,987 | |
Borrowings | | 5,748 | | 113,726 | |
Subordinated debentures | | 132,790 | | 132,645 | |
Discontinued operations | | 112,432 | | 123,028 | |
Accrued interest payable and other liabilities | | 63,773 | | 73,884 | |
Total liabilities | | 5,684,151 | | 5,724,270 | |
STOCKHOLDERS’ EQUITY (1) | | 833,702 | | 809,093 | |
Total liabilities and stockholders’ equity | | $ | 6,517,853 | | $ | 6,533,363 | |
(1) Includes net unrealized gain (loss) on securities available-for-sale, net | | $ | 6,825 | | $ | (3,347 | ) |
| | | | | |
Book value per share | | $ | 18.21 | | $ | 17.66 | |
Tangible book value per share | | $ | 13.31 | | $ | 12.73 | |
| | | | | |
Shares outstanding (includes unvested restricted shares of 1,087,436 at March 31, 2014 and 1,216,524 at December 31, 2013) | | 45,777,580 | | 45,822,834 | |
19
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
| | Three Months Ended | |
| | March 31, | | December 31, | | March 31, | |
| | 2014 | | 2013 | | 2013 | |
| | (In thousands, except per share data) | |
Interest income: | | | | | | | |
Loans and leases | | $ | 77,463 | | $ | 73,352 | | $ | 61,010 | |
Investment securities | | 10,823 | | 10,422 | | 8,216 | |
Deposits in financial institutions | | 74 | | 82 | | 43 | |
Total interest income | | 88,360 | | 83,856 | | 69,269 | |
| | | | | | | |
Interest expense: | | | | | | | |
Deposits | | 1,225 | | 1,450 | | 2,649 | |
Borrowings | | 79 | | 86 | | 144 | |
Subordinated debentures | | 1,041 | | 1,062 | | 783 | |
Total interest expense | | 2,345 | | 2,598 | | 3,576 | |
| | | | | | | |
Net interest income | | 86,015 | | 81,258 | | 65,693 | |
| | | | | | | |
Provision (negative provision) for credit losses | | (644 | ) | (1,338 | ) | 3,137 | |
| | | | | | | |
Net interest income after provision for credit losses | | 86,659 | | 82,596 | | 62,556 | |
| | | | | | | |
Noninterest income (expense): | | | | | | | |
Service charges on deposit accounts | | 3,002 | | 3,197 | | 2,863 | |
Other commissions and fees | | 1,932 | | 2,125 | | 1,933 | |
Gain on sale of leases | | 106 | | 683 | | 225 | |
Gain (loss) on sale of securities | | 4,752 | | (272 | ) | 409 | |
Increase in cash surrender value of life insurance | | 466 | | 448 | | 433 | |
FDIC loss sharing expense, net | | (11,430 | ) | (10,593 | ) | (3,137 | ) |
Other income | | 5,863 | | 486 | | 114 | |
Total noninterest income (expense) | | 4,691 | | (3,926 | ) | 2,840 | |
| | | | | | | |
Noninterest expense: | | | | | | | |
Compensation | | 28,627 | | 27,697 | | 25,350 | |
Accelerated vesting of restricted stock | | — | | 12,420 | | — | |
Occupancy | | 7,595 | | 7,553 | | 6,598 | |
Data processing | | 2,540 | | 2,216 | | 2,233 | |
Other professional services | | 2,286 | | 2,314 | | 2,097 | |
Business development | | 934 | | 992 | | 736 | |
Communications | | 737 | | 860 | | 613 | |
Insurance and assessments | | 1,593 | | 1,572 | | 1,261 | |
Non-covered other real estate owned, net | | (246 | ) | 25 | | 313 | |
Covered other real estate owned, net | | (1,615 | ) | (594 | ) | (813 | ) |
Intangible asset amortization | | 1,364 | | 1,430 | | 1,176 | |
Acquisition and integration | | 2,200 | | 4,253 | | 692 | |
Other expenses | | 4,854 | | 5,350 | | 3,927 | |
Total noninterest expense | | 50,869 | | 66,088 | | 44,183 | |
| | | | | | | |
Earnings from continuing operations before income taxes | | 40,481 | | 12,582 | | 21,213 | |
Income tax expense | | (14,576 | ) | (9,135 | ) | (7,719 | ) |
Net earnings from continuing operations | | 25,905 | | 3,447 | | 13,494 | |
| | | | | | | |
Loss from discontinued operations before income taxes | | (1,413 | ) | (578 | ) | — | |
Income tax benefit | | 588 | | 240 | | — | |
Net loss from discontinued operations | | (825 | ) | (338 | ) | — | |
Net earnings | | $ | 25,080 | | $ | 3,109 | | $ | 13,494 | |
| | | | | | | |
Basic and diluted earnings per share: | | | | | | | |
Net earnings from continuing operations | | $ | 0.57 | | $ | 0.07 | | $ | 0.37 | |
Net earnings | | $ | 0.55 | | $ | 0.06 | | $ | 0.37 | |
20
PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
(Unaudited)
| | Three Months Ended | |
| | March 31, | | December 31, | | March 31, | |
| | 2014 | | 2013 | | 2013 | |
| | (Dollars in thousands) | |
Average Assets: | | | | | | | |
Loans and leases, net of unearned income | | $ | 4,231,319 | | $ | 4,301,377 | | $ | 3,500,895 | |
Investment securities | | 1,512,694 | | 1,531,335 | | 1,365,210 | |
Interest-earning deposits in financial institutions | | 118,682 | | 129,716 | | 69,056 | |
Average interest-earning assets | | 5,862,695 | | 5,962,428 | | 4,935,161 | |
Other assets | | 650,681 | | 670,302 | | 440,990 | |
Average total assets | | $ | 6,513,376 | | $ | 6,632,730 | | $ | 5,376,151 | |
| | | | | | | |
Average liabilities: | | | | | | | |
Interest checking deposits | | $ | 627,493 | | $ | 627,256 | | $ | 523,503 | |
Money market deposits | | 1,451,964 | | 1,512,369 | | 1,207,332 | |
Savings deposits | | 223,074 | | 220,331 | | 155,687 | |
Time deposits | | 666,463 | | 694,924 | | 796,644 | |
Average interest-bearing deposits | | 2,968,994 | | 3,054,880 | | 2,683,166 | |
Borrowings | | 18,176 | | 9,861 | | 12,561 | |
Subordinated debentures | | 132,696 | | 132,560 | | 108,250 | |
Average interest-bearing liabilities | | 3,119,866 | | 3,197,301 | | 2,803,977 | |
Noninterest-bearing demand deposits | | 2,374,325 | | 2,397,642 | | 1,940,435 | |
Other liabilities | | 198,937 | | 218,852 | | 42,532 | |
Average total liabilities | | 5,693,128 | | 5,813,795 | | 4,786,944 | |
Average stockholders’ equity | | 820,248 | | 818,935 | | 589,207 | |
Average liabilities and stockholders’ equity | | $ | 6,513,376 | | $ | 6,632,730 | | $ | 5,376,151 | |
| | | | | | | |
Average deposits | | $ | 5,343,319 | | $ | 5,452,522 | | $ | 4,623,601 | |
Average funding sources (1) | | $ | 5,494,191 | | $ | 5,594,943 | | $ | 4,744,412 | |
| | | | | | | |
Yield on: | | | | | | | |
Average loans and leases | | 7.42 | % | 6.77 | % | 7.07 | % |
Average investment securities | | 2.90 | % | 2.70 | % | 2.44 | % |
Average investment securities - tax-equivalent yield | | 3.35 | % | 3.14 | % | 2.79 | % |
Average interest-earning deposits | | 0.25 | % | 0.25 | % | 0.25 | % |
Average interest-earning assets | | 6.11 | % | 5.58 | % | 5.69 | % |
| | | | | | | |
Cost of: | | | | | | | |
Average deposits/all-in deposit cost (2) | | 0.09 | % | 0.11 | % | 0.23 | % |
Average interest-bearing deposits | | 0.17 | % | 0.19 | % | 0.40 | % |
Average borrowings | | 1.76 | % | 3.46 | % | 4.65 | % |
Average subordinated debentures | | 3.18 | % | 3.18 | % | 2.93 | % |
Average interest-bearing liabilities | | 0.30 | % | 0.32 | % | 0.52 | % |
| | | | | | | |
Net interest rate spread (3) | | 5.81 | % | 5.26 | % | 5.17 | % |
Net interest margin (4) | | 5.95 | % | 5.41 | % | 5.40 | % |
| | | | | | | |
Cost of average funding sources (5) | | 0.17 | % | 0.18 | % | 0.31 | % |
(1) Average funding sources is the sum of average interest-bearing liabilities plus average noninterest-bearing demand deposits.
(2) Cost of average deposits/all-in deposit cost is calculated as annualized interest expense on deposits divided by average deposits.
(3) Net interest rate spread is calculated as the yield on average interest-earning assets less the cost of average interest-bearing liabilities.
(4) Net interest margin is calculated as annualized net interest income divided by average interest-earning assets.
(5) Cost of average funding sources is calculated as annualized total interest expense divided by average funding sources.
21
PACWEST BANCORP AND SUBSIDIARIES
LOAN CONCENTRATION BY PORTFOLIO SEGMENT
(Unaudited)
| | March 31, | | December 31, | |
| | 2014 | | 2013 | |
| | (In thousands) | |
Non-Covered Loans and Leases | | | | | |
Real estate mortgage | | $ | 2,273,159 | | $ | 2,378,025 | |
Real estate construction | | 232,882 | | 201,723 | |
Commercial | | 942,687 | | 963,152 | |
Leases | | 249,736 | | 269,769 | |
Consumer | | 64,256 | | 52,248 | |
Total gross non-covered loans and leases | | $ | 3,762,720 | | $ | 3,864,917 | |
| | | | | |
Covered Loans | | | | | |
Real estate mortgage | | $ | 368,945 | | $ | 417,973 | |
Real estate construction | | 17,037 | | 17,794 | |
Commercial | | 9,592 | | 9,829 | |
Consumer | | 2,791 | | 2,822 | |
Total gross covered loans | | $ | 398,365 | | $ | 448,418 | |
| | | | | |
Total Loans and Leases | | | | | |
Real estate mortgage | | $ | 2,642,104 | | $ | 2,795,998 | |
Real estate construction | | 249,919 | | 219,517 | |
Commercial | | 952,279 | | 972,981 | |
Leases | | 249,736 | | 269,769 | |
Consumer | | 67,047 | | 55,070 | |
Total gross loans and leases | | $ | 4,161,085 | | $ | 4,313,335 | |
22
PACWEST BANCORP AND SUBSIDIARIES
LOAN PORTFOLIO COMPOSITION
(Unaudited)
| | March 31, 2014 | | December 31, 2013 | |
| | Non-PCI | | PCI | | Total | | Non-PCI | | PCI | | Total | |
| | Loans (1) | | Loans (2) | | Loans | | Loans | | Loans | | Loans | |
| | (In thousands) | |
Non-Covered Loans and Leases | | | | | | | | | | | | | |
Real estate mortgage | | $ | 2,257,853 | | $ | 15,306 | | $ | 2,273,159 | | $ | 2,359,125 | | $ | 18,900 | | $ | 2,378,025 | |
Real estate construction | | 231,351 | | 1,531 | | 232,882 | | 200,332 | | 1,391 | | 201,723 | |
Commercial | | 942,687 | | — | | 942,687 | | 963,152 | | — | | 963,152 | |
Leases | | 249,736 | | — | | 249,736 | | 269,769 | | — | | 269,769 | |
Consumer | | 64,222 | | 34 | | 64,256 | | 52,213 | | 35 | | 52,248 | |
Total gross non-covered loans and leases | | $ | 3,745,849 | | $ | 16,871 | | $ | 3,762,720 | | $ | 3,844,591 | | $ | 20,326 | | $ | 3,864,917 | |
| | | | | | | | | | | | | |
Covered Loans | | | | | | | | | | | | | |
Real estate mortgage | | $ | 62,719 | | $ | 306,226 | | $ | 368,945 | | $ | 65,739 | | $ | 352,234 | | $ | 417,973 | |
Real estate construction | | 8,722 | | 8,315 | | 17,037 | | 8,758 | | 9,036 | | 17,794 | |
Commercial | | 8,719 | | 873 | | 9,592 | | 8,855 | | 974 | | 9,829 | |
Consumer | | 2,560 | | 231 | | 2,791 | | 2,596 | | 226 | | 2,822 | |
Total gross covered loans | | $ | 82,720 | | $ | 315,645 | | $ | 398,365 | | $ | 85,948 | | $ | 362,470 | | $ | 448,418 | |
| | | | | | | | | | | | | |
Total Loans and Leases | | | | | | | | | | | | | |
Real estate mortgage | | $ | 2,320,572 | | $ | 321,532 | | $ | 2,642,104 | | $ | 2,424,864 | | $ | 371,134 | | $ | 2,795,998 | |
Real estate construction | | 240,073 | | 9,846 | | 249,919 | | 209,090 | | 10,427 | | 219,517 | |
Commercial | | 951,406 | | 873 | | 952,279 | | 972,007 | | 974 | | 972,981 | |
Leases | | 249,736 | | — | | 249,736 | | 269,769 | | — | | 269,769 | |
Consumer | | 66,782 | | 265 | | 67,047 | | 54,809 | | 261 | | 55,070 | |
Total gross loans and leases | | $ | 3,828,569 | | $ | 332,516 | | $ | 4,161,085 | | $ | 3,930,539 | | $ | 382,796 | | $ | 4,313,335 | |
| | | | | | | | | | | | | |
Loans and Leases, Net of Allowance | | | | | | | | | | | | | |
Non-covered loans and leases | | $ | 3,745,849 | | $ | 16,871 | | $ | 3,762,720 | | $ | 3,844,591 | | $ | 20,326 | | $ | 3,864,917 | |
Allowance for credit losses | | (66,955 | ) | (270 | ) | (67,225 | ) | (67,816 | ) | — | | (67,816 | ) |
Non-covered loans and leases, net | | $ | 3,678,894 | | $ | 16,601 | | $ | 3,695,495 | | $ | 3,776,775 | | $ | 20,326 | | $ | 3,797,101 | |
| | | | | | | | | | | | | |
Covered loans | | $ | 82,720 | | $ | 315,645 | | $ | 398,365 | | $ | 85,948 | | $ | 362,470 | | $ | 448,418 | |
Allowance for credit losses | | — | | (20,930 | ) | (20,930 | ) | — | | (21,793 | ) | (21,793 | ) |
Covered loans, net | | $ | 82,720 | | $ | 294,715 | | $ | 377,435 | | $ | 85,948 | | $ | 340,677 | | $ | 426,625 | |
| | | | | | | | | | | | | |
Total loans and leases | | $ | 3,828,569 | | $ | 332,516 | | $ | 4,161,085 | | $ | 3,930,539 | | $ | 382,796 | | $ | 4,313,335 | |
Allowance for credit losses | | (66,955 | ) | (21,200 | ) | (88,155 | ) | (67,816 | ) | (21,793 | ) | (89,609 | ) |
Total loans and leases, net | | $ | 3,761,614 | | $ | 311,316 | | $ | 4,072,930 | | $ | 3,862,723 | | $ | 361,003 | | $ | 4,223,726 | |
| | | | | | | | | | | | | |
Allowance for credit losses to loans and leases | | 1.75 | % | 6.38 | % | 2.12 | % | 1.73 | % | 5.69 | % | 2.08 | % |
(1) Non-PCI loans include loans originated by Pacific Western Bank and acquired loans that were not impaired on their acquisition date.
(2) PCI loans include loans acquired by Pacific Western Bank in an FDIC-assisted acquisition and loans acquired in the FCAL acquisition that were impaired on the acquisition date.
23
PACWEST BANCORP AND SUBSIDIARIES
NON-PCI NONCLASSIFIED AND CLASSIFIED LOANS AND LEASES
(Unaudited)
| | March 31, 2014 | |
| | Nonclassified | | Classified | | Total | |
| | (In thousands) | |
Real estate mortgage: | | | | | | | |
Hospitality | | $ | 159,966 | | $ | 10,907 | | $ | 170,873 | |
SBA 504 | | 37,143 | | 5,175 | | 42,318 | |
Other | | 2,043,877 | | 63,504 | | 2,107,381 | |
Total real estate mortgage | | 2,240,986 | | 79,586 | | 2,320,572 | |
Real estate construction: | | | | | | | |
Residential | | 59,795 | | 747 | | 60,542 | |
Commercial | | 173,294 | | 6,237 | | 179,531 | |
Total real estate construction | | 233,089 | | 6,984 | | 240,073 | |
Commercial: | | | | | | | |
Collateralized (1) | | 535,547 | | 44,437 | | 579,984 | |
Unsecured | | 141,532 | | 1,977 | | 143,509 | |
Asset-based | | 196,802 | | 3,772 | | 200,574 | |
SBA 7(a) | | 21,729 | | 5,610 | | 27,339 | |
Total commercial | | 895,610 | | 55,796 | | 951,406 | |
Leases (2) | | 245,936 | | 3,800 | | 249,736 | |
Consumer | | 62,431 | | 4,351 | | 66,782 | |
Total non-PCI loans and leases | | $ | 3,678,052 | | $ | 150,517 | | $ | 3,828,569 | |
| | December 31, 2013 | |
| | Nonclassified | | Classified | | Total | |
| | (In thousands) | |
Real estate mortgage: | | | | | | | |
Hospitality | | $ | 168,216 | | $ | 12,337 | | $ | 180,553 | |
SBA 504 | | 39,869 | | 5,297 | | 45,166 | |
Other | | 2,134,866 | | 64,279 | | 2,199,145 | |
Total real estate mortgage | | 2,342,951 | | 81,913 | | 2,424,864 | |
Real estate construction: | | | | | | | |
Residential | | 58,131 | | 750 | | 58,881 | |
Commercial | | 143,918 | | 6,291 | | 150,209 | |
Total real estate construction | | 202,049 | | 7,041 | | 209,090 | |
Commercial: | | | | | | | |
Collateralized | | 568,348 | | 18,838 | | 587,186 | |
Unsecured | | 151,896 | | 1,856 | | 153,752 | |
Asset-based | | 195,569 | | 6,859 | | 202,428 | |
SBA 7(a) | | 22,880 | | 5,761 | | 28,641 | |
Total commercial | | 938,693 | | 33,314 | | 972,007 | |
Leases | | 269,137 | | 632 | | 269,769 | |
Consumer | | 50,398 | | 4,411 | | 54,809 | |
Total non-PCI loans and leases | | $ | 3,803,228 | | $ | 127,311 | | $ | 3,930,539 | |
(1) The $25.6 million increase in classified loans during the three months ended March 31, 2014 was due mainly to the downgrading of one loan for $27.9 million. |
(2) The $3.2 million increase in classified loans during the three months ended March 31, 2014 was due mainly to the downgrading of two loans totaling $3.7 million. |
Note: Nonclassified loans and leases are those with a credit risk rating of either pass or special mention, while classified loans and leases are those with a credit risk rating of either substandard or doubtful. |
24
PACWEST BANCORP AND SUBSIDIARIES
LOAN CONCENTRATION
(Unaudited)
| | March 31, 2014 | |
| | Non-Covered Loans | | | | Total Loans | |
| | and Leases | | Covered Loans | | and Leases | |
| | | | % of | | | | % of | | | | % of | |
| | Amount | | Total | | Amount | | Total | | Amount | | Total | |
| | (Dollars in thousands) | |
Real estate mortgage: | | | | | | | | | | | | | |
Hospitality | | $ | 169,678 | | 4 | % | $ | 2,334 | | 1 | % | $ | 172,012 | | 4 | % |
SBA 504 | | 42,318 | | 1 | % | — | | — | | 42,318 | | 1 | % |
Other | | 2,061,163 | | 55 | % | 366,611 | | 92 | % | 2,427,774 | | 58 | % |
Total real estate mortgage | | 2,273,159 | | 60 | % | 368,945 | | 93 | % | 2,642,104 | | 63 | % |
Real estate construction: | | | | | | | | | | | | | |
Residential | | 60,542 | | 2 | % | 1,573 | | — | | 62,115 | | 1 | % |
Commercial | | 172,340 | | 4 | % | 15,464 | | 4 | % | 187,804 | | 5 | % |
Total real estate construction | | 232,882 | | 6 | % | 17,037 | | 4 | % | 249,919 | | 6 | % |
| | | | | | | | | | | | | |
Total real estate loans | | 2,506,041 | | 66 | % | 385,982 | | 97 | % | 2,892,023 | | 69 | % |
| | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | |
Collateralized | | 574,058 | | 15 | % | 6,684 | | 1 | % | 580,742 | | 14 | % |
Unsecured | | 140,716 | | 4 | % | 2,908 | | 1 | % | 143,624 | | 3 | % |
Asset-based | | 200,574 | | 5 | % | — | | — | | 200,574 | | 5 | % |
SBA 7(a) | | 27,339 | | 1 | % | — | | — | | 27,339 | | 1 | % |
Total commercial | | 942,687 | | 25 | % | 9,592 | | 2 | % | 952,279 | | 23 | % |
Leases | | 249,736 | | 7 | % | — | | — | | 249,736 | | 6 | % |
Consumer | | 64,256 | | 2 | % | 2,791 | | 1 | % | 67,047 | | 2 | % |
Total gross loans and leases | | $ | 3,762,720 | | 100 | % | $ | 398,365 | | 100 | % | $ | 4,161,085 | | 100 | % |
| | December 31, 2013 | |
| | Non-Covered Loans | | | | | | Total Loans | |
| | and Leases | | Covered Loans | | and Leases | |
| | | | % of | | | | % of | | | | % of | |
| | Amount | | Total | | Amount | | Total | | Amount | | Total | |
| | (Dollars in thousands) | |
Real estate mortgage: | | | | | | | | | | | | | |
Hospitality | | $ | 179,340 | | 5 | % | $ | 2,395 | | 1 | % | $ | 181,735 | | 4 | % |
SBA 504 | | 45,166 | | 1 | % | — | | — | | 45,166 | | 1 | % |
Other | | 2,153,519 | | 56 | % | 415,578 | | 92 | % | 2,569,097 | | 60 | % |
Total real estate mortgage | | 2,378,025 | | 62 | % | 417,973 | | 93 | % | 2,795,998 | | 65 | % |
Real estate construction: | | | | | | | | | | | | | |
Residential | | 58,881 | | 1 | % | 17 | | — | | 58,898 | | 1 | % |
Commercial | | 142,842 | | 4 | % | 17,777 | | 4 | % | 160,619 | | 4 | % |
Total real estate construction | | 201,723 | | 5 | % | 17,794 | | 4 | % | 219,517 | | 5 | % |
| | | | | | | | | | | | | |
Total real estate loans | | 2,579,748 | | 67 | % | 435,767 | | 97 | % | 3,015,515 | | 70 | % |
| | | | | | | | | | | | | |
Commercial: | | | | | | | | | | | | | |
Collateralized | | 581,097 | | 15 | % | 6,934 | | 1 | % | 588,031 | | 13 | % |
Unsecured | | 150,985 | | 4 | % | 2,895 | | 1 | % | 153,880 | | 4 | % |
Asset-based | | 202,428 | | 5 | % | — | | — | | 202,428 | | 5 | % |
SBA 7(a) | | 28,642 | | 1 | % | — | | — | | 28,642 | | 1 | % |
Total commercial | | 963,152 | | 25 | % | 9,829 | | 2 | % | 972,981 | | 23 | % |
Leases | | 269,769 | | 7 | % | — | | — | | 269,769 | | 6 | % |
Consumer | | 52,248 | | 1 | % | 2,822 | | 1 | % | 55,070 | | 1 | % |
Total gross loans and leases | | $ | 3,864,917 | | 100 | % | $ | 448,418 | | 100 | % | $ | 4,313,335 | | 100 | % |
25
PACWEST BANCORP AND SUBSIDIARIES
LOAN CONCENTRATION
REAL ESTATE MORTGAGE LOANS
(Unaudited)
| | Non-Covered Loans | | Covered Loans | |
| | March 31, 2014 | | December 31, 2013 | | March 31, 2014 | | December 31, 2013 | |
| | | | % of | | | | % of | | | | % of | | | | % of | |
Loan Category | | Amount | | Total | | Amount | | Total | | Amount | | Total | | Amount | | Total | |
| | (Dollars in thousands) | |
Commercial real estate mortgage: | | | | | | | | | | | | | | | | | |
Industrial/warehouse | | $ | 334,833 | | 15 | % | $ | 336,648 | | 14 | % | $ | 17,407 | | 5 | % | $ | 17,697 | | 4 | % |
Retail | | 270,661 | | 12 | % | 281,739 | | 12 | % | 50,314 | | 14 | % | 64,631 | | 16 | % |
Office buildings | | 385,391 | | 17 | % | 392,921 | | 16 | % | 36,341 | | 10 | % | 42,040 | | 10 | % |
Owner-occupied | | 207,777 | | 9 | % | 218,786 | | 9 | % | 13,763 | | 4 | % | 14,409 | | 3 | % |
Hotel | | 169,678 | | 7 | % | 179,340 | | 8 | % | 2,334 | | — | | 2,395 | | 1 | % |
Healthcare | | 180,132 | | 8 | % | 180,957 | | 8 | % | 7,503 | | 2 | % | 8,780 | | 2 | % |
Mixed use | | 36,080 | | 2 | % | 63,218 | | 3 | % | 2,641 | | 1 | % | 5,748 | | 1 | % |
Gas station | | 28,855 | | 1 | % | 31,421 | | 1 | % | 3,714 | | 1 | % | 3,803 | | 1 | % |
Self storage | | 44,032 | | 2 | % | 47,762 | | 2 | % | 19,376 | | 5 | % | 25,998 | | 6 | % |
Restaurant | | 19,910 | | 1 | % | 20,617 | | 1 | % | 854 | | — | | 893 | | — | |
Land acquisition/development | | 4,402 | | — | | 4,420 | | — | | — | | — | | — | | — | |
Unimproved land | | 11,920 | | 1 | % | 12,043 | | 1 | % | 496 | | — | | 474 | | — | |
Other | | 166,366 | | 7 | % | 167,356 | | 7 | % | 6,839 | | 2 | % | 7,424 | | 2 | % |
Total commercial real estate mortgage | | 1,860,037 | | 82 | % | 1,937,228 | | 82 | % | 161,582 | | 44 | % | 194,292 | | 46 | % |
| | | | | | | | | | | | | | | | | |
Residential real estate mortgage: | | | | | | | | | | | | | | | | | |
Multi-family | | 193,651 | | 9 | % | 211,360 | | 9 | % | 104,756 | | 28 | % | 118,869 | | 29 | % |
Single family owner-occupied | | 139,326 | | 6 | % | 149,917 | | 6 | % | 61,105 | | 17 | % | 62,591 | | 15 | % |
Single family nonowner-occupied | | 17,075 | | 1 | % | 16,084 | | 1 | % | 17,379 | | 5 | % | 17,657 | | 4 | % |
HELOCs | | 52,480 | | 2 | % | 53,206 | | 2 | % | 23,667 | | 6 | % | 24,093 | | 6 | % |
Mixed use | | 10,590 | | — | | 10,230 | | — | | 456 | | — | | 471 | | — | |
Total residential real estate mortgage | | 413,122 | | 18 | % | 440,797 | | 18 | % | 207,363 | | 56 | % | 223,681 | | 54 | % |
| | | | | | | | | | | | | | | | | |
Total gross real estate mortgage loans | | $ | 2,273,159 | | 100 | % | $ | 2,378,025 | | 100 | % | $ | 368,945 | | 100 | % | $ | 417,973 | | 100 | % |
26
PACWEST BANCORP AND SUBSIDIARIES
ALLOWANCE FOR LOAN AND LEASE LOSSES,
ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING
ASSETS AND CREDIT QUALITY RATIOS
(Unaudited)
| | March 31, | | December 31, | |
| | 2014 | | 2013 | |
| | (Dollars in thousands) | |
Allowance for loan and lease losses: | | | | | |
Non-PCI loans | | $ | 59,980 | | $ | 60,241 | |
PCI loans | | 21,200 | | 21,793 | |
Total allowance for loan and lease losses | | 81,180 | | 82,034 | |
Reserve for unfunded loan commitments on non-PCI loans | | 6,975 | | 7,575 | |
Total allowance for credit losses | | $ | 88,155 | | $ | 89,609 | |
| | | | | |
Allowance for credit losses on Non-PCI loans and leases (1) | | $ | 66,955 | | $ | 67,816 | |
| | | | | |
Nonaccrual loans and leases (2) | | $ | 58,121 | | $ | 46,774 | |
Other real estate owned | | 46,870 | | 51,837 | |
Total nonperforming assets | | $ | 104,991 | | $ | 98,611 | |
| | | | | |
Performing restructured loans (2) | | $ | 35,101 | | $ | 41,648 | |
| | | | | |
Nonaccrual loans and leases (excluding PCI loans): | | | | | |
Non-covered | | $ | 52,131 | | $ | 41,529 | |
Covered | | 5,990 | | 5,245 | |
Total nonaccrual loans and leases (excludes PCI loans) | | $ | 58,121 | | $ | 46,774 | |
| | | | | |
Non-PCI Credit Quality Ratios: | | | | | |
Allowance for credit losses to loans and leases | | 1.75 | % | 1.73 | % |
Adjusted allowance for credit losses to loans and leases (3) | | 2.34 | % | 2.34 | % |
Allowance for credit losses to nonaccrual loans and leases | | 115.2 | % | 145.0 | % |
Nonperforming assets to loans and leases and other real estate owned | | 2.71 | % | 2.48 | % |
Nonperforming assets to total assets | | 1.61 | % | 1.51 | % |
Nonaccrual loans and leases to loans and leases | | 1.52 | % | 1.19 | % |
(1) Calculated as sum of: (a) allowance for loan and lease losses on Non-PCI loans, and (b) reserve for unfunded loan commitments on Non-PCI loans. |
(2) Applies only to non-PCI loans and leases. |
(3) Excludes allowance related to acquired loans and leases and the related balance of acquired loans and leases. |
27
PACWEST BANCORP AND SUBSIDIARIES |
ALLOWANCE FOR LOAN AND LEASE LOSSES ROLLFORWARD |
(Unaudited) |
| | Three Months Ended | |
| | March 31, | | December 31, | | March 31, | |
| | 2014 | | 2013 | | 2013 | |
| | (Dollars in thousands) | |
Allowance for loan losses on non-PCI loans and leases, beginning of period | | $ | 60,241 | | $ | 60,551 | | $ | 65,899 | |
Loans and leases charged-off: | | | | | | | |
Real estate mortgage | | (94 | ) | (712 | ) | (322 | ) |
Commercial | | (1,069 | ) | (1,778 | ) | (708 | ) |
Leases | | (372 | ) | — | | (114 | ) |
Consumer | | (15 | ) | (87 | ) | (9 | ) |
Total loans and leases charged off | | (1,550 | ) | (2,577 | ) | (1,153 | ) |
Recoveries on loans charged-off: | | | | | | | |
Real estate mortgage | | 261 | | 842 | | 177 | |
Real estate construction | | 24 | | 1,140 | | 323 | |
Commercial | | 377 | | 593 | | 407 | |
Consumer | | 27 | | 17 | | 23 | |
Total recoveries on loans charged off | | 689 | | 2,592 | | 930 | |
Net (charge-offs) recoveries | | (861 | ) | 15 | | (223 | ) |
Provision (negative provision) for loan and lease losses | | 600 | | (325 | ) | (460 | ) |
Allowance for loan losses on non-PCI loans and leases, end of period | | $ | 59,980 | | $ | 60,241 | | $ | 65,216 | |
| | | | | | | |
Annualized net charge-offs to average non-PCI loans and leases | | 0.09 | % | — | | 0.03 | % |
| | | | | | | |
| | | | | | | |
Allowance for loan losses on PCI loans, beginning of period | | $ | 21,793 | | $ | 23,235 | | $ | 26,069 | |
(Negative provision) provision for credit losses | | (644 | ) | (1,338 | ) | 3,137 | |
Net (charge-offs) recoveries | | 51 | | (104 | ) | 97 | |
Allowance for loan losses on PCI loans, end of period | | $ | 21,200 | | $ | 21,793 | | $ | 29,303 | |
| | | | | | | |
| | | | | | | |
Components of Provision (Negative Provision) for Credit Losses | | | | | | | |
Non-PCI loans and leases: | | | | | | | |
Allowance for loan and lease losses | | $ | 600 | | $ | (325 | ) | $ | (460) | |
Reserve for unfunded commitments | | (600 | ) | 325 | | 460 | |
Allowance for loan losses on PCI loans | | (644 | ) | (1,338 | ) | 3,137 | |
Total (negative provision) provision for credit losses | | $ | (644) | | $ | (1,338) | | $ | 3,137 | |
28
PACWEST BANCORP AND SUBSIDIARIES
DEPOSITS
(Unaudited)
| | March 31, 2014 | | December 31, 2013 | |
| | | | % of | | | | % of | |
Deposit Category | | Amount | | Total | | Amount | | Total | |
| | (Dollars in thousands) | |
Noninterest-bearing demand deposits | | $ | 2,391,609 | | 45 | % | $ | 2,318,446 | | 44 | % |
Interest checking deposits | | 613,144 | | 11 | % | 620,622 | | 12 | % |
Money market deposits | | 1,489,068 | | 28 | % | 1,458,910 | | 28 | % |
Savings deposits | | 226,012 | | 4 | % | 218,638 | | 4 | % |
Total core deposits | | 4,719,833 | | 88 | % | 4,616,616 | | 88 | % |
Time deposits under $100,000 | | 209,512 | | 4 | % | 225,360 | | 4 | % |
Time deposits of $100,000 and over | | 440,063 | | 8 | % | 439,011 | | 8 | % |
Total time deposits | | 649,575 | | 12 | % | 664,371 | | 12 | % |
Total deposits | | $ | 5,369,408 | | 100 | % | $ | 5,280,987 | | 100 | % |
PACWEST BANCORP AND SUBSIDIARIES
TIME DEPOSITS
(Unaudited)
| | March 31, 2014 | |
| | Time | | Time | | | | | |
| | Deposits | | Deposits | | Total | | | |
| | Under | | $100,000 | | Time | | | |
Maturity | | $100,000 | | or More | | Deposits | | Rate | |
| | (Dollars in thousands) | |
Due in three months or less | | $ | 66,507 | | $ | 135,183 | | $ | 201,690 | | 0.38 | % |
Due in over three months through six months | | 43,178 | | 131,913 | | 175,091 | | 0.37 | % |
Due in over six months through twelve months | | 44,978 | | 74,391 | | 119,369 | | 0.38 | % |
Due in over 12 months through 24 months | | 20,734 | | 38,291 | | 59,025 | | 0.72 | % |
Due in over 24 months | | 34,115 | | 60,285 | | 94,400 | | 0.77 | % |
Total | | $ | 209,512 | | $ | 440,063 | | $ | 649,575 | | 0.46 | % |
29
PACWEST BANCORP AND SUBSIDIARIES
EARNINGS PER SHARE CALCULATIONS
(Unaudited)
| | Three Months Ended | |
| | March 31, | | December 31, | | March 31, | |
| | 2014 | | 2013 | | 2013 | |
| | (In thousands, except per share data) | |
Basic Earnings Per Share: | | | | | | | |
Net earnings from continuing operations | | $ | 25,905 | | $ | 3,447 | | $ | 13,494 | |
Less: earnings allocated to unvested restricted stock (1) | | (500 | ) | (280 | ) | (326 | ) |
Net earnings from continuing operations allocated to common shares | | 25,405 | | 3,167 | | 13,168 | |
Net earnings (loss) from discontinued operations allocated to common shares | | (804 | ) | (338 | ) | — | |
Net earnings allocated to common shares | | $ | 24,601 | | $ | 2,829 | | $ | 13,168 | |
| | | | | | | |
Weighted-average basic shares and unvested restricted stock outstanding | | 45,799 | | 46,069 | | 37,391 | |
Less: weighted-average unvested restricted stock outstanding | | (1,148 | ) | (1,743 | ) | (1,594 | ) |
Weighted-average basic shares outstanding | | 44,651 | | 44,326 | | 35,797 | |
| | | | | | | |
Basic earnings per share: | | | | | | | |
Net earnings from continuing operations | | $ | 0.57 | | $ | 0.07 | | $ | 0.37 | |
Net earnings from discontinued operations | | (0.02 | ) | (0.01 | ) | — | |
Net earnings | | $ | 0.55 | | $ | 0.06 | | $ | 0.37 | |
| | | | | | | |
Diluted Earnings Per Share: | | | | | | | |
Net earnings from continuing operations allocated to common shares | | $ | 25,405 | | $ | 3,167 | | $ | 13,168 | |
Net earnings (loss) from discontinued operations allocated to common shares | | (804 | ) | (338 | ) | — | |
Net earnings allocated to common shares | | $ | 24,601 | | $ | 2,829 | | $ | 13,168 | |
| | | | | | | |
Weighted-average basic shares outstanding | | 44,651 | | 44,326 | | 35,797 | |
| | | | | | | |
Diluted earnings per share: | | | | | | | |
Net earnings from continuing operations | | $ | 0.57 | | $ | 0.07 | | $ | 0.37 | |
Net earnings from discontinued operations | | (0.02 | ) | (0.01 | ) | — | |
Net earnings | | $ | 0.55 | | $ | 0.06 | | $ | 0.37 | |
(1) Represents cash dividends paid to holders of unvested restricted stock, net of estimated forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
30
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATIONS
(Unaudited)
| | Three Months Ended | |
Adjusted Earnings From Continuing | | March 31, | | December 31, | | March 31, | |
Operations Before Income Taxes | | 2014 | | 2013 | | 2013 | |
| | (In thousands) | |
Earnings from continuing operations before income taxes | | $ | 40,481 | | $ | 12,582 | | $ | 21,213 | |
Plus: | Provision (negative provision) for credit losses | | (644 | ) | (1,338 | ) | 3,137 | |
| Accelerated vesting of restricted stock | | — | | 12,420 | | — | |
| Non-covered OREO expense, net | | (246 | ) | 25 | | 313 | |
| Covered OREO (income) expense, net | | (1,615 | ) | (594 | ) | (813 | ) |
| Acquisition and integration costs | | 2,200 | | 4,253 | | 692 | |
Less: | FDIC loss sharing expense, net | | (11,430 | ) | (10,593 | ) | (3,137 | ) |
| Gain (loss) on sale of securities | | 4,752 | | (272 | ) | 409 | |
| Gain on sale of owned office building | | 1,570 | | — | | — | |
| Adjusted earnings from continuing operations before income taxes | | $ | 45,284 | | $ | 38,213 | | $ | 27,270 | |
| | Three Months Ended | |
| | March 31, | | December 31, | | March 31, | |
Adjusted Efficiency Ratio | | 2014 | | 2013 | | 2013 | |
| | (Dollars in thousands) | |
Noninterest expense | | $ | 50,869 | | $ | 66,088 | | $ | 44,183 | |
Less: | Accelerated vesting of restricted stock | | — | | 12,420 | | — | |
| Non-covered OREO expense (income), net | | (246 | ) | 25 | | 313 | |
| Covered OREO (income) expense, net | | (1,615 | ) | (594 | ) | (813 | ) |
| Acquisition and integration costs | | 2,200 | | 4,253 | | 692 | |
| Adjusted noninterest expense | | $ | 50,530 | | $ | 49,984 | | $ | 43,991 | |
| | | | | | | |
Net interest income | | $ | 86,015 | | $ | 81,258 | | $ | 65,693 | |
Noninterest income (expense) | | 4,691 | | (3,926 | ) | 2,840 | |
| Net revenues | | 90,706 | | 77,332 | | 68,533 | |
Less: | FDIC loss sharing expense, net | | (11,430 | ) | (10,593 | ) | (3,137 | ) |
| Gain (loss) on sale of securities | | 4,752 | | (272 | ) | 409 | |
| Gain on sale of owned office building | | 1,570 | | — | | — | |
| Adjusted net revenues | | $ | 95,814 | | $ | 88,197 | | $ | 71,261 | |
| | | | | | | |
Base efficiency ratio (1) | | 56.1 | % | 85.5 | % | 64.5 | % |
Adjusted efficiency ratio (2) | | 52.7 | % | 56.7 | % | 61.7 | % |
(1) Noninterest expense divided by net revenues.
(2) Adjusted noninterest expense divided by adjusted net revenues.
31
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATIONS
(Unaudited)
Adjusted Allowance for Credit Losses to | | March 31, | | December 31, | |
Loans and Leases (Excludes PCI Loans) | | 2014 | | 2013 | |
| | (Dollars in thousands) | |
| | | | | |
Allowance for credit losses | | $ | 66,955 | | $ | 67,816 | |
Less: | Allowance related to acquired loans and leases | | 737 | | 607 | |
| Adjusted allowance for credit losses | | $ | 66,218 | | $ | 67,209 | |
| | | | | |
Gross loans and leases | | $ | 3,828,569 | | $ | 3,930,539 | |
Less: | Carrying value of acquired Non-PCI loans and leases | | 1,001,248 | | 1,060,172 | |
| Adjusted loans and leases | | $ | 2,827,321 | | $ | 2,870,367 | |
| | | | | | |
| Allowance for credit losses to loans and leases (1) | | 1.75 | % | 1.73 | % |
| Adjusted allowance for credit losses to loans and leases (2) | | 2.34 | % | 2.34 | % |
(1) Allowance for credit losses divided by gross loans and leases.
(2) Adjusted allowance for credit losses divided by adjusted loans and leases.
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATIONS
(Unaudited)
| | Three Months Ended | |
| | March 31, | | December 31, | | March 31, | |
Return on Average Tangible Equity | | 2014 | | 2013 | | 2013 | |
| | (Dollars in thousands) | |
PacWest Bancorp Consolidated: | | | | | | | |
Net earnings | | $ | 25,080 | | $ | 3,109 | | $ | 13,494 | |
| | | | | | | |
Average stockholders’ equity | | $ | 820,248 | | $ | 818,935 | | $ | 589,207 | |
Less: | Average intangible assets | | 225,294 | | 233,628 | | 93,786 | |
| Average tangible common equity | | $ | 594,954 | | $ | 585,307 | | $ | 495,421 | |
| | | | | | | | |
| Annualized return on average equity (1) | | 12.40 | % | 1.51 | % | 9.29 | % |
| Annualized return on average tangible equity (2) | | 17.10 | % | 2.11 | % | 11.05 | % |
(1) Annualized net earnings divided by average stockholders’ equity.
(2) Annualized net earnings divided by average tangible common equity.
32
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATIONS
(Unaudited)
| | March 31, | | December 31, | |
Tangible Common Equity Ratio | | 2014 | | 2013 | |
| | (Dollars in thousands) | |
PacWest Bancorp Consolidated: | | | | | |
Stockholders’ equity | | $ | 833,702 | | $ | 809,093 | |
Less: | Intangible assets | | 224,627 | | 225,991 | |
| Tangible common equity | | $ | 609,075 | | $ | 583,102 | |
| | | | | |
Total assets | | $ | 6,517,853 | | $ | 6,533,363 | |
Less: | Intangible assets | | 224,627 | | 225,991 | |
| Tangible assets | | $ | 6,293,226 | | $ | 6,307,372 | |
| | | | | | |
| Equity to assets ratio | | 12.79 | % | 12.38 | % |
| Tangible common equity ratio (1) | | 9.68 | % | 9.24 | % |
| | | | | |
Book value per share | | $ | 18.21 | | $ | 17.66 | |
Tangible book value per share (2) | | $ | 13.31 | | $ | 12.73 | |
Shares outstanding | | 45,777,580 | | 45,822,834 | |
| | | | | |
Pacific Western Bank: | | | | | |
Stockholders’ equity | | $ | 910,644 | | $ | 911,200 | |
Less: | Intangible assets | | 224,627 | | 225,991 | |
| Tangible common equity | | $ | 686,017 | | $ | 685,209 | |
| | | | | |
Total assets | | $ | 6,507,288 | | $ | 6,523,742 | |
Less: | Intangible assets | | 224,627 | | 225,991 | |
| Tangible assets | | $ | 6,282,661 | | $ | 6,297,751 | |
| | | | | |
| Equity to assets ratio | | 13.99 | % | 13.97 | % |
| Tangible common equity ratio (1) | | 10.92 | % | 10.88 | % |
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by shares outstanding.
Contact information:
Matt Wagner, Chief Executive Officer, (310) 728-1020
Vic Santoro, Executive Vice President and CFO, (310) 728-1021
33
