PacWest Bancorp Announces Results For The Third Quarter Of 2012

Highlights
  • Net Earnings of $16.1 Million or $0.43 Per Diluted Share
  • Net Interest Margin at 5.58%; Core Net Interest Margin at 5.32%
  • Credit Loss Reserve at 2.46% of Net Non-Covered Loans and Leases and 203% of Non-Covered Nonaccrual Loans and Leases
  • Noninterest-Bearing Deposits at 42% and Core Deposits at 82% of Total Deposits
  • American Perspective Bank Acquisition Closed on August 1, 2012
  • Branch Sale Closed on September 21, 2012

LOS ANGELES, Oct. 17, 2012 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the third quarter of 2012 of $16.1 million, or $0.43 per diluted share, compared to net earnings for the second quarter of 2012 of $15.6 million, or $0.42 per diluted share.

This press release contains certain non-GAAP financial disclosures for tangible common equity; pre-tax earnings before net credit costs, impairment loss on a covered security, debt termination expense, and acquisition and integration costs, which we refer to as "adjusted earnings before income taxes"; and efficiency ratios adjusted to exclude OREO expenses, FDIC loss sharing income, impairment loss on a covered security, acquisition and integration costs, and debt termination expenses. 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. Given the use of tangible common equity amounts and ratios is prevalent among banking regulators, investors and analysts, we disclose our tangible common equity ratio in addition to equity-to-assets ratio. Also, as analysts and investors view adjusted earnings before income taxes as an indicator of the Company's ability to 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 recurring overhead-related noninterest expense relative to recurring net revenues. 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 American Perspective Bank ("APB"), Celtic Capital Corporation ("Celtic") and Pacific Western Equipment Finance ("EQF") have been included since their respective acquisition dates of August 1, 2012, April 1, 2012, and January 3, 2012.

THIRD QUARTER RESULTS    
  Three Months Ended
  September 30, June 30,
  2012 2012
  (Dollars in thousands, except per share data)
Financial Highlights:    
Net earnings   $ 16,088  $ 15,557
Diluted earnings per share  $ 0.43  $ 0.42
Adjusted earnings before income taxes (1)  $ 33,437  $ 30,047
Annualized return on average assets 1.16% 1.16%
Annualized return on average equity 11.16% 11.23%
Net interest margin 5.58% 5.60%
Efficiency ratio 67.6% 64.9%
Adjusted efficiency ratio (2) 56.5% 59.7%
     
At Quarter End:    
Allowance for credit losses to non-covered loans and leases, net of unearned income (3)  2.46%  2.74%
Allowance for credit losses to non-covered nonaccrual loans and leases (3)  203% 148%
Equity to assets ratios:    
PacWest Bancorp Consolidated 10.55% 10.63%
Pacific Western Bank 11.97% 12.11%
Tangible common equity ratios:    
PacWest Bancorp Consolidated 8.98% 9.28%
Pacific Western Bank 10.42% 10.78%
     
(1) Represents pre-tax earnings excluding net credit costs, impairment loss on a covered security, debt termination expense, and acquisition and integration costs. See GAAP to Non-GAAP Reconciliation table.
(2) Excludes OREO expenses, FDIC loss sharing income, impairment loss on a covered security, acquisition and integration costs, and debt termination expense. See GAAP to Non-GAAP Reconciliation table.
(3) Non-covered loans exclude loans covered by loss sharing agreements with the FDIC.

The $531,000 increase in net earnings for the linked quarters was due primarily to the combination of the following:
  • Net interest income increased $2.4 million ($1.4 million after tax), due to the additional interest on loans from the American Perspective Bank ("APB") acquisition, offset by lower accelerated accretion of purchase discount resulting from covered loan payoffs.   
  • The provision for credit losses on non-covered loans was a negative $2.0 million for the quarter ($1.2 million after tax) compared to a zero provision in the second quarter.
  • Noninterest income increased $811,000 ($470,000 after tax), due mostly to an other-than-temporary impairment ("OTTI") loss on a covered security of $1.1 million incurred in the second quarter and not repeated in the third quarter; our portion of the OTTI loss was $223,000 ($129,000 after tax) after the 80% loss coverage by the FDIC. Contributing to the increase in noninterest income was a net gain of $297,000 ($172,000 after tax) on the sale of 10 branches to Opus Bank. These items were offset by decreases in gain on sales of leases, FDIC loss sharing income, and service charges on deposit accounts.
  • Noninterest expense increased $4.1 million ($2.4 million after tax) due mostly to a $3.9 million ($2.3 million after tax) increase in total OREO expense from higher write-downs based on updated appraisals, a $1.2 million ($713,000 after tax) increase in acquisition and integration costs relating to the acquisition of APB, and $718,000 ($416,000 after tax) increase in overhead costs from the APB operations. Partially offsetting these factors was a decrease in other expense relating to a lawsuit settlement of $595,000 ($345,000 after tax) incurred in the second quarter and not repeated in the third quarter.

Net credit costs on a pre-tax basis are shown in the following table:
  Three Months Ended
  September 30, June 30,
  2012 2012
  (In thousands)
     
Negative provision for credit losses on non-covered loans and leases  $ (2,000)  $ --
Non-covered OREO expense, net  1,883  130
Total non-covered net credit costs  (117)  130
     
Negative provision for credit losses on covered loans  (141)  (271)
Covered OREO expense, net  4,290  2,130
   4,149  1,859
     
Less: FDIC loss sharing expense, net, excluding the FDIC share of the OTTI loss  (367)  (994)
Total covered net credit costs  4,516  2,853
     
Total net credit costs  $ 4,399  $ 2,983

The provision for credit losses for the third quarter had two components: a $2.0 million negative provision for non-covered loans and leases and a $141,000 negative provision for covered loans. The third quarter negative non-covered provision for credit losses was based on our allowance methodology which reflected (a) lower historical net charge-off levels, (b) lower nonaccrual and classified loans and leases and (c) the migration of loans and leases into various risk classifications. During the third quarter, net charge-offs declined by $2.7 million to $1.0 million, nonaccrual loans and leases decreased by $15.8 million to $37.0 million, and classified loans and leases declined by $43.0 million to $96.9 million. The covered loans negative credit loss provision was driven by increases in expected cash flows on covered loan pools compared to those previously estimated and cash recoveries. 

Matt Wagner, Chief Executive Officer, commented, "We had a good third quarter and successfully completed two significant transactions. The American Perspective Bank acquisition closed on August 1 and we closed the sale of 10 branches on September 21. The APB acquisition has augmented our earnings and growth potential in the Central Coast market and the branch sale will result in lower overhead of approximately $500,000 per quarter beginning in the fourth quarter. 

Mr. Wagner continued, "The economy remains uncertain and loan growth at this point would involve underpricing competitors, in many cases at margins that are not significantly above our securities portfolio yield. We prefer to selectively make or renew quality loans to our good customers at appropriate margins and build relationships rather than focus on attracting customers at low prices. Given our disciplined approach in generating new business, we see short-term loan growth as relatively flat. Nevertheless, the legacy loan portfolio experienced $8.9 million of organic growth during the third quarter. Our core earnings engine remains very strong and we expect to continue generating solid core income while we evaluate the markets and choose the right time to expand lending more aggressively."

Vic Santoro, Executive Vice President and Chief Financial Officer, stated, "Our third quarter results were very good, with $33.4 million in adjusted pre-tax earnings, a return on average assets of 1.16% and a return on average equity of over 11%. Our net interest margin was 5.58%, being positively impacted by a strong loan yield and increasing DDA balances. Credit quality trends remain positive and core deposit growth continues to be strong, generated both organically and through the APB acquisition. The combination of these factors, along with our continued focus on controlling noninterest expenses, strengthens our balance sheet and allows us to pursue attractive growth and acquisition opportunities as they arise."
YEAR TO DATE RESULTS  
  Nine Months Ended
  September 30,
  2012 2011
  (Dollars in thousands, except per share data)
Financial Highlights:    
Net earnings   $ 36,909  $ 36,821
Diluted earnings per share  $ 1.00  $ 0.99
Adjusted earnings before income taxes (1)  $ 94,376  $ 89,143
Annualized return on average assets 0.90% 0.90%
Annualized return on average equity 8.78% 9.81%
Net interest margin 5.53% 5.35%
Efficiency ratio 76.2% 61.5%
Adjusted efficiency ratio (2) 58.2% 58.9%
     
(1) Represents pre-tax earnings excluding net credit costs, impairment loss on a covered security, debt termination
expense, and acquisition and integration costs. See GAAP to Non-GAAP Reconciliation table.
(2) Excludes OREO expenses, FDIC loss sharing income, impairment loss on a covered security, acquisition
and integration costs, and debt termination expense. See GAAP to Non-GAAP Reconciliation table.

The net earnings for the nine months ended September 30, 2012 are relatively flat compared to the same period last year. The 2012 period included $6.1 million of net earnings from our 2012 acquisitions. Highlights are as follows:
  • Higher net interest income of $8.0 million ($4.6 million after-tax) attributed mostly to a decrease in interest expense from both lower volume and rate of interest-bearing liabilities.
  • Lower provision for credit losses of $30.9 million ($17.9 million after tax); the provision on non-covered loans is lower by $25.3 million ($14.7 million after tax) and the provision on covered loans is lower by $5.6 million ($3.2 million after tax). These declines are due to improving credit quality.
  • Other credit related costs and loss sharing contract activities reduced net earnings by $12.6 million ($7.3 million after tax); this amount includes lower FDIC loss sharing income of $9.2 million ($5.3 million after tax), higher net covered OREO expense of $3.8 million ($2.2 million after tax), and higher covered OTTI expense of $1.1 million ($647,000 after tax), offset by lower non-covered OREO expense of $1.5 million ($848,000 after tax).
  • Noninterest income includes $1.8 million ($1.1 million after tax) related to gain on sale of leases and the gain on sale of the 10 branches; there were no such items in 2011.
  • $22.6 million ($13.1 million after tax) of debt termination expense incurred in the first quarter of 2012 on the repayment of $225 million in fixed-rate term FHLB advances and the early redemption of $18.6 million in trust-preferred securities; there was no such item in 2011.
  • $3.0 million ($1.7 million after tax) of acquisition and integration costs in 2012 related to the Company's acquisition activity; there was no such item in 2011.
  • Excluding debt termination costs, OREO costs, and acquisition and integration costs, noninterest expense increased $3.7 million ($2.1 million after tax) attributed mostly to higher compensation and overhead costs for the acquired operations offset by lower insurance assessments, lower CDI amortization expense, and lower other professional services expense.
  • Lower tax expense of $1.3 million as the Company's effective tax rate declined due to higher tax-free interest income and tax credits.

BALANCE SHEET CHANGES

Total assets increased $216.9 million during the third quarter due primarily to the APB acquisition. 

At September 30, 2012, gross non-covered loans and leases totaled $3.1 billion and the covered loan portfolio was $567.4 million. The gross non-covered loan and lease portfolio increased $206.2 million, due mainly to the addition of $197.3 million in loans from the APB acquisition. When the acquired loans are excluded, organic non-covered loan and lease growth was $8.9 million. This growth was a combination of new loans and leases and reductions due to (a) a sale of a $17.9 million classified loan at a slight discount and (b) refinancings of existing loans by other lenders. During the third quarter, our regional presidents reported that loans having balances of $1.0 million or more refinanced by other lenders totaled approximately $77.0 million. We observed that the rates on these takeouts ranged from a low of 3.85% to a high of 5.00% and fixed terms ranged from a low of 5 years to a high of 30 years. The pricing in the market for new loans continues to be irrational in our view. The covered loan portfolio declined $41.6 million due to repayments and resolution activities. 

Total liabilities increased $198.4 million during the third quarter due to the addition of deposits from the APB acquisition, offset by the deposit decline from the branch sale. Total deposits increased $196.0 million during the third quarter to $4.8 billion at September 30, 2012. Core deposits increased $198.7 million during the third quarter due mostly to increases of $134.5 million in noninterest-bearing demand deposits and $87.5 million in money market deposits. Time deposits decreased $2.7 million during the third quarter to $862.3 million at September 30, 2012. At September 30, 2012, core deposits totaled $3.9 billion, or 82% of total deposits at that date. Noninterest-bearing demand deposits were $2.0 billion at September 30, 2012 and represented 42% of total deposits at that date. A summary of the change in deposits during the third quarter follows:
  Total Deposits Core Deposits Time Deposits
   (In thousands) 
Balance at June 30, 2012  $ 4,591,329  $ 3,726,307  $ 865,022
APB acquisition  219,564  169,989  49,575
Branch sale  (125,222)  (103,183)  (22,039)
Organic growth (1)  101,677  131,894  (30,217)
Balance at September 30, 2012  $ 4,787,348  $ 3,925,007  $ 862,341
       
(1) Organic growth in core deposits includes a $120 million noninterest-bearing deposit received at quarter-end. 
Such funds were withdrawn in October 2012.      

SECURITIES AVAILABLE-FOR-SALE

The following table presents the components, yields, and durations related to our securities available-for-sale portfolio as of the date indicated:
  September 30, 2012
   Amortized   Carrying   Book   Duration 
Security Type  Cost   Value   Yield   (in years) 
  (Dollars in thousands)
Residential mortgage-backed securities:        
Government and government-sponsored         
entity pass through securities  $ 901,955  $ 945,581 2.15%  3.7
Government and government-sponsored         
entity collateralized mortgage         
obligations  89,320  91,275 0.74%  3.1
Covered private label collateralized         
mortgage obligations  37,116  45,887 9.48%  3.8
Municipal securities (1)  236,385  247,280 2.96%  6.4
Corporate debt securities   17,049  17,255 5.07%  12.6
Other securities  6,395  9,933  --  --
Total securities available-for-sale (1)  $ 1,288,220  $ 1,357,211 2.47%  4.2
         
(1) The tax equivalent yield was 4.50% and 2.75% for municipal securities and total securities available for sale, respectively.

COVERED ASSETS

As part of the Los Padres and Affinity acquisitions we entered into loss sharing agreements with the FDIC that cover a substantial portion of losses incurred after the acquisition dates on covered loans and other real estate owned, and in the case of the Affinity acquisition, certain investment securities. A summary of covered assets is shown in the following table as of the dates indicated:
  September 30, June 30,
Covered Assets 2012 2012
   (In thousands) 
Loans, net  $ 567,396  $ 608,949
Investment securities   45,887  44,053
Other real estate owned, net   26,374  31,090
Total covered assets   $ 639,657  $ 684,092
     
Percentage of total assets 11.5% 12.9%

NET INTEREST INCOME

Net interest income increased by $2.4 million to $70.8 million for the third quarter of 2012 compared to $68.4 million for the second quarter of 2012. This change was due to a $3.4 million increase in interest income on loans and leases, offset by a $1.2 million decrease in interest income on investment securities. Interest income on loans and leases increased due to additional interest income from the APB portfolio, offset by lower accelerated accretion of discount resulting from covered loan payoffs. Interest income on investment securities declined due mainly to the call of $33.8 million in higher yield corporate debt securities in July 2012 and accelerated premium amortization on our government agency and government-sponsored enterprise pass through securities and collateralized mortgage obligations due to increased prepayment speeds in the third quarter. Interest expense declined $125,000 due mostly to lower time deposit costs despite adding $219.6 million of deposits in the APB acquisition.

Net interest income increased by $8.0 million to $206.9 million during the nine months ended September 30, 2012 compared to $198.9 million for the same period last year. This change was due to a $10.0 million decrease in interest expense and a $1.8 million increase in interest on investment securities, offset by a $3.7 million decrease in loan and lease interest income. Interest expense on deposits decreased $6.3 million due to lower rates on all interest-bearing deposits and lower average time deposits. Interest expense on borrowings declined $2.9 million due to lower average borrowings and a lower average rate on such borrowings; we repaid fixed-rate term FHLB advances at the end of the first quarter of 2012 and replaced a portion of those advances with lower cost overnight FHLB advances that were repaid during the third quarter. Interest expense on subordinated debentures decreased $779,000 due to the March 2012 redemption of $18.6 million in fixed-rate trust preferred securities. Interest income on investment securities increased $1.8 million due to purchases. Interest income on loans and leases declined due to lower average loans and leases from repayments and resolution activities, offset partially by a higher yield. The higher loan and lease yield is attributed to the relatively higher yields earned on the Celtic and EQF loan and lease portfolios which were added in 2012.

NET INTEREST MARGIN

Our net interest margin ("NIM") for the third quarter of 2012 was 5.58%, a decrease of 2 basis points from the 5.60% reported for the second quarter of 2012.  

The NIM is impacted by changes in interest income from accelerated accretion of purchase discounts resulting from covered loan payoffs, nonaccrual loans, early lease payoffs, and amortization of premiums on certain purchased loans. The effects of such items on the NIM and the calculation of our core  NIM are shown in the following table:
       Nine 
       Months 
   Three Months Ended   Ended 
  September 30, June 30, September 30,
  2012 2012 2012
Net interest margin as reported 5.58% 5.60% 5.53%
Less:      
Accelerated accretion of purchase discounts       
resulting from covered loan payoffs 0.12% 0.19% 0.15%
Nonaccrual loan interest 0.04% (0.02)% 0.01%
Equipment Finance lease payoffs 0.10% 0.07% 0.06%
Net premium amortization/other  --  (0.12)% (0.03)%
Core net interest margin 5.32% 5.48% 5.34%

The yield on average loans and leases increased 16 basis points to 7.44% for the third quarter of 2012 from 7.28% for the second quarter of 2012. When the effects of accelerated accretion, nonaccrual loan interest, and early lease payoffs and premium amortization are excluded, our core loan and lease yield was 7.07% for the third quarter and 7.12% for the second quarter.

All-in deposit cost declined 2 basis points to 0.27% during the third quarter of 2012 compared to the second quarter of 2012. The cost of interest-bearing deposits declined 3 basis points to 0.46% due to the lower rate on average time deposits. The cost of total interest-bearing liabilities declined 2 basis points to 0.59% for the third quarter of 2012.

The NIM for the first nine months of 2012 was 5.53%, an increase of 18 basis points from 5.35% for the same period last year. The increase was due to lower funding costs and a higher yield on loans and leases, offset by a lower return on the securities portfolio.  When the effects of accelerated accretion, nonaccrual loan interest, and early lease payoffs and premium amortization are excluded, our core NIMs were 5.34% and 5.10% for the nine months ended September 30, 2012 and 2011, respectively.   

The yield on average loans and leases increased 39 basis points to 7.34% for the nine months ended September 30, 2012 compared to 6.95% for the same period last year, due mainly to the addition of Celtic's and EQF's higher-yielding loan and lease portfolios.  When the effects of accelerated accretion, nonaccrual loan interest, and early lease payoffs and premium amortization are excluded, our core loan and lease yields were 7.07% and 6.63% for the nine months ended September 30, 2012 and 2011, respectively.  All-in deposit cost declined 18 basis points to 0.30% for the first nine months of 2012 compared to the same period last year. The cost of interest-bearing deposits declined 25 basis points to 0.49% due to lower rates on all interest-bearing deposits and a decline in time deposits. The cost of total interest-bearing liabilities declined 34 basis points to 0.69% due to the reduction in the cost of interest-bearing deposits and the first quarter of 2012 repayment of $225.0 million in fixed-rate term FHLB advances and the redemption of $18.6 million in fixed-rate trust preferred securities.

NONINTEREST INCOME

Noninterest income increased by $811,000 to $5.7 million for the third quarter of 2012 compared to $4.9 million for the second quarter of 2012.  The change was due to a $1.1 million OTTI loss on one of our covered private label collateralized mortgage obligation ("CMO") securities incurred in the second quarter and not repeated in the third quarter. After the 80% loss share on the covered private label CMO, our share of the loss was $223,000.   Additionally, FDIC loss sharing expense is lower by $627,000 when the loss share income related to the OTTI is excluded. We also recognized in other noninterest income a $297,000 gain on the sale of 10 branches to during the third quarter. These items were offset by lower gains on sales of leases of $271,000 and lower service charges on deposit accounts of $220,000. 

The third quarter includes net FDIC loss sharing expense of $367,000 compared to second quarter net FDIC loss sharing expense of $102,000; such change was due mostly to the second quarter OTTI loss on a covered private label CMO security and higher write-offs of the FDIC loss sharing asset relating to resolution of covered loans at amounts higher than their carrying values, offset by higher covered OREO write-downs during the third quarter.    The reduction in service charges on deposit accounts was attributable primarily to lower analysis charges and NSF fees.

The following table presents the details of FDIC loss sharing income (expense), net for the periods indicated:
  Three Months Ended 
  September 30, June 30, Increase 
  2012 2012 (Decrease)
  (In thousands)
FDIC Loss Sharing Income (Expense), Net:      
(Loss) gain on FDIC loss sharing asset (1)  $ (593)  $ 575  $ (1,168)
Net amortization  (2,488)  (1,917)  (571)
Loan recoveries shared with FDIC  (640)  (1,246)  606
Net reimbursement from FDIC for       
covered OREO write-downs and sales  3,350  1,589  1,761
Other-than-temporary impairment loss on       
covered security  --  892  (892)
Other  4  5  (1)
Total FDIC loss sharing income (expense), net  $ (367)  $ (102)  $ (265)
       
(1) Includes increases related to covered loan loss provisions and decreases for write-offs for covered loans resolved or expected to be resolved at amounts higher than their carrying value.

Noninterest income declined by $9.4 million to $13.8 million for the nine months ended September 30, 2012 compared to $23.2 million for the same period last year. The change was due principally to a decrease in net FDIC loss sharing income of $9.2 million, a $1.1 million OTTI loss on one of our covered private label CMO's, and a $714,000 reduction in service charges on deposit accounts, offset partially by a $1.5 million gain on sale of leases attributable to EQF. FDIC loss sharing income, net, decreased due mainly to lower provisions for credit losses on covered loans, increased write-offs of the FDIC loss sharing asset relating to resolution of covered loans at amounts higher than their carrying values, and higher amortization of the FDIC loss sharing asset, offset partially by higher covered OREO write-downs.  

NONINTEREST EXPENSE

Noninterest expense increased by $4.1 million to $51.7 million during the third quarter of 2012 compared to $47.6 million for the second quarter of 2012. Noninterest expense for APB's operations totaled $718,000 since the August 1, 2012 acquisition date. Covered OREO expense increased $2.2 million due to higher write-downs of $2.5 million offset by higher gains on sales of $309,000. Non-covered OREO expense increased $1.8 million due to $2.5 million in higher write-downs offset by higher gains on sales of $709,000. Acquisition and integration costs increased $1.2 million due to the APB acquisition.   Such costs include severance, systems conversion and professional fees, and accruals for the closures of Pacific Western Bank offices at the time of the APB acquisition. Partially offsetting these items was a decrease in other expense relating to a lawsuit settlement of $595,000 incurred in the second quarter; there was no similar expense in the third quarter.

Noninterest expense includes (a) amortization of time-based restricted stock, which is included in compensation, and (b) intangible asset amortization. Amortization of restricted stock totaled $1.4 million and $1.3 million for the third and second quarters of 2012, respectively. Intangible asset amortization totaled $1.7 million for each of the third and second quarters of 2012.

Noninterest expense increased by $31.6 million to $168.1 million during the nine months ended September 30, 2012 compared to $136.5 million for the same period last year. The increase was due mostly to $22.6 million in debt termination expense incurred in the first quarter of 2012 for the early repayments of FHLB advances and trust preferred securities. No such expense was incurred in the prior year period.  Excluding the debt termination expense, noninterest expense increased $9.0 million.   Noninterest expense for APB, Celtic and EQF totaled $10.2 million since their acquisition dates, and the increase in acquisition and integration costs totaled $3.0 million. Covered OREO expense increased $3.8 million due mostly to lower gains on sales of $4.9 million offset by lower write-downs of $909,000. The majority of the other expense categories declined. The following items are net of the impact of acquisition activity.  Intangible asset amortization declined $1.8 million due to certain intangibles being fully amortized. Insurance and assessments decreased $1.6 million due to the revised deposit insurance assessment formula. Non-covered OREO expense decreased $1.5 million due to higher gains on sales of $1.2 million and lower write-downs of $536,000. Other professional services declined $1.2 million due to lower legal fees for litigation and loans and to lower fees for our outsourced internal audit function.

Amortization of restricted stock totaled $4.3 million and $6.2 million for the nine months ended September 30, 2012 and 2011, respectively. Intangible asset amortization totaled $5.2 million and $6.6 million for the same year-to-date periods, respectively.

CREDIT QUALITY      
  September 30, June 30, September 30,
  2012 2012 2011
   (Dollars in thousands) 
Non-Covered Credit Quality Metrics:      
Allowance for credit losses   $ 75,012  $ 78,031  $ 96,535
Nonaccrual loans and leases  36,985  52,763  59,968
Classified loans and leases (1)  96,898  139,910  177,745
Performing restructured loans  112,834  103,815  86,406
Net charge-offs (for the quarter)  1,019  3,706  6,017
Allowance for credit losses to loans and leases, net of unearned income  2.46% 2.74% 3.34%
Allowance for credit losses to nonaccrual loans and leases 203% 148% 161%
Nonperforming assets to loans and leases, net of unearned income, and other real estate owned 2.41% 3.27% 3.68%
       
(1) Classified loans and leases are those with a credit risk rating of substandard or doubtful.  

Our non-covered loans and leases include $341.2 million in loans and leases acquired in our 2012 acquisitions and that were initially recorded at their estimated fair values.  Only $350,000 of our allowance for credit losses applies to such loans and leases because the fair value amounts at which they were initially recorded included an estimate of their credit loss.  When these loans and leases are excluded from the total of non-covered loans and leases, the coverage ratio of our allowance for credit losses increases to 2.76% at September 30, 2012.  The comparable ratio at June 30, 2012 was 2.91%. 

Credit Loss Provisions

The Company recorded a negative provision for credit losses of $2.1 million in the third quarter of 2012 compared to a negative provision for credit losses of $271,000 in the second quarter of 2012. The provision in the third quarter was composed of a $2.0 million negative provision for credit losses on non-covered loans and leases and a $141,000 negative provision for credit losses on covered loans. The negative provision in the second quarter was composed solely of a $271,000 negative provision for credit losses on covered loans. 

The provision level on the non-covered portfolio is generated by our allowance methodology and reflects 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. The provision or negative provision for credit losses on the covered loans increases or decreases the covered loan allowance for credit losses and results from decreases or increases in expected cash flows on covered loans compared to those previously estimated.

Non-covered Nonaccrual Loans and Other Real Estate Owned

Non-covered nonperforming assets include non-covered nonaccrual loans and leases and non-covered OREO and totaled $74.3 million at September 30, 2012 compared to $94.5 million at June 30, 2012. The ratio of non-covered nonperforming assets to non-covered loans and leases and non-covered OREO decreased to 2.41% at September 30, 2012 from 3.27% at June 30, 2012. 

The following table presents our non-covered 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 (1) Accruing and 
  September 30, 2012 June 30, 2012 30 - 89 Days Past Due (1)
    % of   % of September 30, June 30,
    Loan   Loan 2012 2012
  Balance Category Balance Category Balance Balance
  (Dollars in thousands)
Real estate mortgage:            
Hospitality  $ 6,993 5.9%  $ 13,279 9.6%  $ --  $ --
SBA 504  1,330 2.4%  1,873 3.3%  2,926  2,948
Other  9,031 0.5%  14,548 0.9%  --  2,495
Total real estate             
mortgage  17,354 0.9%  29,700 1.6%  2,926  5,443
Real estate construction:            
Residential  1,063 2.5%  1,069 3.4%  --  --
Commercial  3,885 3.5%  4,453 4.6%  1,301  --
Total real estate             
construction  4,948 3.2%  5,522 4.3%  1,301  --
Commercial:            
Collateralized  7,180 1.7%  7,258 2.0%  12  310
Unsecured  2,055 2.4%  2,554 3.4%  --  --
Asset-based   176 0.1%  176 0.1%  --  --
SBA 7(a)   4,433 17.0%  6,830 26.2%  210  404
Total commercial  13,844 1.8%  16,818 2.4%  222  714
Leases  420 0.3%  244 0.2%  --  148
Consumer   419 2.0%  479 2.8%  23  216
Total non-covered             
loans and leases  $ 36,985 1.2%  $ 52,763 1.9%  $ 4,472  $ 6,521
             
(1) Excludes covered loans.          

The $15.8 million decrease in non-covered nonaccrual loans and leases during the third quarter was attributable to (a) additions of $5.5 million, (b) foreclosures of $1.7 million, (c) other reductions, payoffs and returns to accrual status of $17.7 million, and (d) charge-offs of $1.9 million.  

Below is a summary of the ten largest lending relationships on nonaccrual status, excluding SBA-related loans, as of the date indicated:

Nonaccrual  
 Amount   
September 30,  
2012 Description
(In thousands)  
   
 $ 6,993 Two loans, each secured by a hotel in San Diego County, California. The borrower is paying according to the restructured terms of each loan. (1) 
   
 3,057 This loan is unsecured. The borrower is paying according to the restructured terms of the loan. (1) 
   
 2,388 This loan is secured by a strip retail center in Riverside County, California. The borrower is paying according to the restructured terms of the loan. (1)
   
 2,106 This loan is secured by two industrial buildings in San Diego County, California. 
   
 1,811 This loan is unsecured and has a specific reserve for 96% of the balance. The borrower is paying according to the restructured terms of the loan. (1) 
   
 1,635   Three loans, two of which are secured by apartment buildings in San Diego County, California; and one of which is secured by an office building in San Diego County, California. One of the loans secured by an apartment building was repaid early in the 4th quarter. The borrower is paying according to the original terms of the loans.
   
 1,241 This loan is secured by three industrial buildings in Riverside County, California. The borrower is paying according to the original terms of the loan. (1)
   
 1,005 This loan is secured by a multi-tenant industrial building in Riverside County, California. The borrower is not paying currently. (1)
   
 984 This loan is unsecured and has a specific reserve for 100% of the balance. The borrower is not paying currently.(1)
  931   This loan is secured by a medical-related office building in Los Angeles County, California. The borrower is paying according to the restructured terms of the loan. (1)
   
 $ 22,151 Total
   
(1) On nonaccrual status at June 30, 2012

The following table presents the details of non-covered and covered OREO as of the dates indicated:
  September 30, 2012 June 30, 2012
  Non-Covered Covered  Non-Covered Covered 
Property Type OREO OREO OREO OREO
  (In thousands)
Commercial real estate   $ 9,962  $ 18,500  $ 17,630  $ 17,896
Construction and land development   25,633  6,807  24,112  10,011
Multi-family  --  939  --  --
Single family residences  1,738  128  --  3,183
Total OREO, net  $ 37,333  $ 26,374  $ 41,742  $ 31,090

The following table presents non-covered and covered OREO activity for the period indicated:
    Three Months Ended
    September 30, 2012
    Non-Covered Covered  Total
    OREO OREO OREO
    (In thousands)
Beginning of period    $ 41,742  $ 31,090  $ 72,832
Addition from the APB acquisition  1,561  --  1,561
Foreclosures    1,700  10,823  12,523
Payments to third parties (1)  176  --  176
Provision for losses    (2,566)  (5,214)  (7,780)
Reductions related to sales    (5,280)  (10,325)  (15,605)
End of period    $ 37,333  $ 26,374  $ 63,707
Net gain on sale    $ 1,037  $ 1,026  $ 2,063
         
(1) Represents amounts due to participants and for guarantees, property taxes or any other prior lien positions.

REGULATORY CAPITAL MEASURES ARE ABOVE THE WELL-CAPITALIZED MINIMUMS

PacWest and its wholly-owned banking subsidiary, Pacific Western Bank, each remained well capitalized as of the date indicated as shown in the following table:
  September 30, 2012
  Well  Pacific PacWest
  Capitalized Western Bancorp
  Requirement Bank Consolidated
Tier 1 leverage capital ratio  5.00% 9.64% 10.26%
Tier 1 risk-based capital ratio  6.00% 14.25% 14.91%
Total risk-based capital ratio 10.00% 15.52% 16.18%
Tangible common equity ratio N/A 10.42% 8.98%

AMERICAN PERSPECTIVE BANK ACQUISITION

On August 1, 2012, Pacific Western Bank completed the acquisition of American Perspective Bank ("APB") and acquired all of the outstanding common stock and restricted stock of APB for $58.1 million in cash, or $13.00 per share for each share of common stock of American Perspective. APB had two operating branches located in San Luis Obispo and Santa Maria, California, and a loan production office located in Paso Robles, California. Immediately following the completion of the acquisition, APB was merged with and into Pacific Western Bank.

SALE OF BRANCHES

On September 21, 2012, Pacific Western Bank completed the sale of 10 branches to Opus Bank. The branches are located in Los Angeles, San Bernardino, Riverside, and San Diego Counties. 

The transaction resulted in the transfer of deposits to Opus Bank in exchange for a blended deposit premium of 2.5% applied to the deposit balances transferred at closing. The deposits of the offices sold totaled $125.2 million. Although certain other immaterial assets related to the branches were included in the transaction, no loans were transferred. The annual cost savings, representing noninterest expense less noninterest income, are estimated to be $2.0 million after tax.

ABOUT PACWEST BANCORP

PacWest Bancorp ("PacWest") is a bank holding company with $5.5 billion in assets as of September 30, 2012, with one wholly-owned banking subsidiary, Pacific Western Bank ("Pacific Western"). Through 66 full-service community banking branches, Pacific Western provides commercial banking services, including real estate, construction and commercial loans, to small and medium-sized businesses. Pacific Western's branches are located throughout California in Los Angeles, Orange, Riverside, San Bernardino, Santa Barbara, San Diego, San Francisco, San Luis Obispo, San Mateo and Ventura Counties. Through its subsidiaries, BFI Business Finance and Celtic Capital Corporation, and its divisions First Community Financial and Pacific Western Equipment Finance, Pacific Western also provides working capital financing and equipment leasing to growing companies located throughout the United States, with a focus on the Southwestern U.S., primarily in Arizona, California, Utah and Texas. 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 the transaction or the time needed to complete the transaction 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 loss-sharing arrangements from the Los Padres Bank and Affinity Bank acquisitions; 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 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"). 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.

For a more complete discussion of risks and uncertainties, investors and security holders are urged to read PacWest Bancorp's annual report on Form 10-K, quarterly reports on Form 10-Q and other reports filed by PacWest with the SEC. 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.

PACWEST BANCORP AND SUBSIDIARIES      
CONDENSED CONSOLIDATED BALANCE SHEETS       
(Unaudited)      
       
  September 30, June 30, December 31,
  2012 2012 2011
  (In thousands, except per share and share data)
ASSETS      
Cash and due from banks  $ 89,370  $ 97,499  $ 92,342
Interest-earning deposits in financial institutions  71,036  25,970  203,275
Total cash and cash equivalents  160,406  123,469  295,617
       
Non-covered securities available-for-sale  1,311,324  1,307,648  1,281,209
Covered securities available-for-sale  45,887  44,053  45,149
Total securities available-for-sale, at estimated fair value   1,357,211  1,351,701  1,326,358
Federal Home Loan Bank stock, at cost  40,923  41,736  46,106
Total investment securities  1,398,134  1,393,437  1,372,464
       
Non-covered loans and leases, net of unearned income  3,050,891  2,844,291  2,807,713
Allowance for loan and lease losses  (69,142)  (72,061)  (85,313)
Total non-covered loans and leases, net  2,981,749  2,772,230  2,722,400
Covered loans, net  567,396  608,949  703,023
Total loans and leases, net  3,549,145  3,381,179  3,425,423
       
Non-covered other real estate owned, net  37,333  41,742  48,412
Covered other real estate owned, net  26,374  31,090  33,506
Total other real estate owned, net  63,707  72,832  81,918
       
Premises and equipment, net  18,064  21,565  23,068
FDIC loss sharing asset  72,640  76,401  95,187
Cash surrender value of life insurance  67,900  67,595  67,469
Goodwill   79,592  62,008  39,141
Core deposit and customer relationship intangibles  15,899  16,943  17,415
Other assets  113,015  106,193  110,535
Total assets  $ 5,538,502  $ 5,321,622  $ 5,528,237
       
LIABILITIES      
Noninterest-bearing demand deposits  $ 2,006,996  $ 1,872,459  $ 1,685,799
Interest-bearing deposits  2,780,352  2,718,870  2,891,654
Total deposits  4,787,348  4,591,329  4,577,453
Borrowings  17,996  15,546  225,000
Subordinated debentures  108,250  108,250  129,271
Accrued interest payable and other liabilities  40,822  40,849  50,310
Total liabilities  4,954,416  4,755,974  4,982,034
STOCKHOLDERS' EQUITY (1)  584,086  565,648  546,203
Total liabilities and stockholders' equity  $ 5,538,502  $ 5,321,622  $ 5,528,237
       
(1) Includes net unrealized gain on securities available-for-sale, net  $ 40,015  $ 32,494  $ 22,803
       
Tangible book value per share  $ 13.06  $ 13.01  $ 13.14
Book value per share  $ 15.61  $ 15.12  $ 14.66
       
Shares outstanding (includes unvested restricted shares of 1,718,019 at September 30, 2012; 1,703,936 at June 30, 2012; and 1,675,730 at December 31, 2011)  37,420,025  37,402,293  37,254,318
         
         
PACWEST BANCORP AND SUBSIDIARIES        
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS       
(Unaudited)          
           
  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30,
  2012 2012 2011 2012 2011
  (In thousands, except per share data)
Interest income:          
Loans and leases  $ 66,711  $ 63,312  $ 63,347  $ 194,775  $ 198,459
Investment securities   8,346  9,558  9,077  27,484  25,678
Deposits in financial institutions   66  20  94  154  234
Total interest income   75,123  72,890  72,518  222,413  224,371
           
Interest expense:          
Deposits   3,292  3,336  5,072  10,232  16,546
Borrowings   210  293  1,782  2,428  5,289
Subordinated debentures   850  848  1,223  2,889  3,668
Total interest expense   4,352  4,477  8,077  15,549  25,503
Net interest income  70,771  68,413  64,441  206,864  198,868
           
Provision for credit losses:          
Non-covered loans and leases  (2,000)  --  --  (12,000)  13,300
Covered loans  (141)  (271)  348  3,514  9,148
Total provision for credit losses  (2,141)  (271)  348  (8,486)  22,448
Net interest income after           
provision for credit losses   72,912  68,684  64,093  215,350  176,420
           
Noninterest income:          
Service charges on deposit accounts  3,108  3,328  3,545  9,789  10,503
Other commissions and fees   2,123  2,095  2,052  6,101  5,752
Gain on sale of leases  132  403  --  1,525  --
Other-than-temporary impairment           
loss on covered security  --  (1,115)  --  (1,115)  --
Increase in cash surrender value           
of life insurance   304  295  359  964  1,106
FDIC loss sharing income (expense), net  (367)  (102)  963  (4,048)  5,109
Other income  382  (33)  224  599  702
Total noninterest income   5,682  4,871  7,143  13,815  23,172
           
Noninterest expense:          
Compensation   23,812  23,699  21,557  71,698  65,203
Occupancy   6,964  7,088  7,423  21,340  21,548
Data processing   2,310  2,258  2,228  6,848  6,832
Other professional services   2,019  2,378  2,239  6,167  7,040
Business development   635  581  548  1,854  1,712
Communications   652  626  678  1,886  2,371
Insurance and assessments   1,398  1,323  1,641  4,014  5,581
Non-covered other real estate owned, net  1,883  130  2,293  3,834  5,296
Covered other real estate owned, net  4,290  2,130  4,813  7,242  3,440
Intangible asset amortization   1,678  1,737  1,977  5,150  6,592
Acquisition and integration costs  2,101  871  --  2,997  --
Debt termination  --  --  --  22,598  --
Other expenses  3,915  4,764  3,190  12,509  10,909
Total noninterest expense   51,657  47,585  48,587  168,137  136,524
           
Earnings before income taxes   26,937  25,970  22,649  61,028  63,068
Income tax expense   (10,849)  (10,413)  (9,345)  (24,119)  (26,247)
Net earnings   $ 16,088  $ 15,557  $ 13,304  $ 36,909  $ 36,821
           
Basic and diluted earnings per share  $ 0.43  $ 0.42  $ 0.36  $ 1.00  $ 0.99
           
           
PACWEST BANCORP AND SUBSIDIARIES          
AVERAGE BALANCE SHEETS AND YIELD ANALYSIS         
(Unaudited)        
         
  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30,
  2012 2012 2011 2012 2011
  (Dollars in Thousands)
Average Assets:          
Loans and leases, net of unearned income  $ 3,565,637  $ 3,499,056  $ 3,656,184  $ 3,542,571  $ 3,820,036
Investment securities  1,377,016  1,390,080  1,168,822  1,376,722  1,030,416
Interest-earning deposits in           
financial institutions  101,491  28,478  142,691  77,928  119,698
Federal funds sold  --   10  --   3  -- 
Average interest-earning assets  5,044,144  4,917,624  4,967,697  4,997,224  4,970,150
Other assets  478,428  463,962  486,276  471,216  502,435
Average total assets  $ 5,522,572  $ 5,381,586  $ 5,453,973  $ 5,468,440  $ 5,472,585
           
Average liabilities:          
Interest checking deposits  $ 522,551  $ 514,969  $ 489,988  $ 516,924  $ 491,942
Money market deposits  1,248,723  1,172,050  1,222,787  1,206,820  1,226,840
Savings deposits  160,843  160,937  154,922  160,912  148,552
Time deposits  885,181  889,705  1,049,805  905,721  1,102,865
Average interest-bearing deposits  2,817,298  2,737,661  2,917,502  2,790,377  2,970,199
Borrowings  22,700  113,233  225,022  124,863  225,722
Subordinated debentures  108,250  108,250  129,395  113,279  129,469
Average interest-bearing liabilities  2,948,248  2,959,144  3,271,919  3,028,519  3,325,390
Noninterest-bearing demand deposits  1,956,929  1,824,278  1,616,012  1,833,855  1,602,518
Other liabilities  43,786  40,984  43,983  44,829  43,057
Average total liabilities  4,948,963  4,824,406  4,931,914  4,907,203  4,970,965
Average stockholders' equity  573,609  557,180  522,059  561,237  501,620
Average liabilities and stockholders' equity  $ 5,522,572  $ 5,381,586  $ 5,453,973  $ 5,468,440  $ 5,472,585
           
Average deposits   $ 4,774,227  $ 4,561,939  $ 4,533,514  $ 4,624,232  $ 4,572,717
           
Yield on:          
Average loans and leases 7.44% 7.28% 6.87% 7.34% 6.95%
Average investment securities 2.41% 2.77% 3.08% 2.67% 3.33%
Average interest-earning deposits 0.26% 0.28% 0.26% 0.26% 0.26%
Average interest-earning assets 5.92% 5.96% 5.79% 5.95% 6.04%
           
Cost of:          
Average deposits/all-in deposit cost (1) 0.27% 0.29% 0.44% 0.30% 0.48%
Average interest-bearing deposits 0.46% 0.49% 0.69% 0.49% 0.74%
Average borrowings 3.68% 1.04% 3.14% 2.60% 3.13%
Average subordinated debentures 3.12% 3.15% 3.75% 3.41% 3.79%
Average interest-bearing liabilities 0.59% 0.61% 0.98% 0.69% 1.03%
           
Net interest rate spread (2) 5.33% 5.35% 4.81% 5.26% 5.01%
Net interest margin (3) 5.58% 5.60% 5.15% 5.53% 5.35%
           
(1) Cost of average deposits/all-in deposit cost is calculated as annualized interest expense on deposits divided by average deposits.  
(2) Net interest rate spread is calculated as the yield on average interest-earning assets less the cost of average interest-bearing liabilities.
(3) Net interest margin is calculated as annualized net interest income divided by average interest-earning assets.
           
           
PACWEST BANCORP AND SUBSIDIARIES          
LOAN CONCENTRATION             
(Unaudited)            
             
  September 30, 2012
  Total Loans Non-Covered Loans Covered Loans
    % of   % of   % of
  Amount Total Amount Total Amount Total
  (Dollars in thousands)
Real estate mortgage:            
Hospitality  $ 121,092 3%  $ 118,189 4%  $ 2,903 0%
SBA 504  55,083 1%  55,083 2%  --  --
Other  2,359,139 64%  1,755,618 57%  603,521 93%
Total real estate mortgage  2,535,314 68%  1,928,890 63%  606,424 93%
Real estate construction:            
Residential  49,844 1%  42,752 1%  7,092 1%
Commercial  129,499 4%  109,996 4%  19,503 3%
Total real estate construction  179,343 5%  152,748 5%  26,595 4%
             
Total real estate loans  2,714,657 73%  2,081,638 68%  633,019 97%
             
Commercial:            
Collateralized  449,245 12%  433,030 14%  16,215 3%
Unsecured  88,020 2%  87,335 3%  685 0%
Asset-based   226,401 6%  226,401 7%  --  --
SBA 7(a)   26,002 1%  26,002 1%  --  --
Total commercial  789,668 21%  772,768 25%  16,900 3%
Leases (1)  161,934 4%  161,934 5%  --  --
Consumer   21,233 1%  20,615 1%  618 0%
Foreign  16,126 1%  16,126 1%  --  --
Total gross loans  $ 3,703,618 100%  3,053,081 100%  650,537 100%
Less:            
Unearned income       (2,190)    --  
Discount      --    (52,437)  
Allowance       (69,142)    (30,704)  
Total net loans      $ 2,981,749    $ 567,396  
             
(1) Excludes leases in process of $15.1 million.          
           
           
PACWEST BANCORP AND SUBSIDIARIES          
NON-COVERED LOAN CONCENTRATION           
REAL ESTATE MORTGAGE LOANS          
(Unaudited)            
             
  September 30, 2012 June 30, 2012 December 31, 2011
    % of    % of    % of 
Loan Category Amount Total Amount Total Amount Total
  (Dollars in thousands)
Commercial real estate mortgage:            
Industrial/warehouse  $ 329,287 17.1%  $ 344,380 18.8%  $ 367,494 18.5%
Retail  255,669 13.3%  253,201 13.8%  286,691 14.5%
Office buildings  284,920 14.8%  257,703 14.1%  290,074 14.6%
Owner-occupied  196,812 10.2%  204,179 11.2%  226,307 11.4%
Hotel   118,189 6.1%  137,621 7.5%  144,402 7.3%
Healthcare  113,827 5.9%  117,418 6.4%  131,625 6.7%
Mixed use  47,404 2.5%  48,915 2.7%  53,855 2.7%
Gas station  28,563 1.5%  30,328 1.7%  33,715 1.7%
Self storage  19,489 1.0%  19,602 1.1%  23,148 1.2%
Restaurant  16,651 0.9%  16,795 0.9%  22,549 1.1%
Land acquisition/development  21,988 1.1%  22,051 1.2%  14,015 0.7%
Unimproved land  11,089 0.6%  11,516 0.6%  1,369 0.1%
Other  278,475 14.3%  190,761 10.4%  206,504 10.4%
Total commercial real estate mortgage  1,722,363 89.3%  1,654,470 90.4%  1,801,748 90.9%
             
Residential real estate mortgage:            
Multi-family  86,190 4.5%  93,586 5.1%  93,866 4.7%
Single family owner-occupied  37,700 2.0%  39,483 2.2%  32,209 1.6%
Single family nonowner-occupied  7,165 0.4%  8,862 0.5%  19,341 1.0%
HELOCs  47,966 2.5%  32,376 1.8%  35,300 1.8%
Other  27,506 1.3%  --  --  --  --
Total residential real estate mortgage  206,527 10.7%  174,307 9.6%  180,716 9.1%
             
Total gross non-covered real estate mortgage loans  $ 1,928,890 100.0%  $ 1,828,777 100.0%  $ 1,982,464 100.0%
           
           
PACWEST BANCORP AND SUBSIDIARIES          
COVERED LOAN CONCENTRATION           
REAL ESTATE MORTGAGE LOANS          
(Unaudited)            
             
  September 30, 2012 June 30, 2012 December 31, 2011
    % of    % of    % of 
Loan Category Amount Total Amount Total Amount Total
  (Dollars in thousands)
Commercial real estate mortgage:            
Industrial/warehouse  $ 26,510 4.4%  $ 27,580 4.2%  $ 33,755 4.6%
Retail  94,437 15.5%  99,947 15.4%  113,289 15.4%
Office buildings  66,657 11.0%  68,781 10.6%  77,767 10.6%
Owner-occupied  20,164 3.3%  20,323 3.1%  24,837 3.4%
Hotel   2,903 0.5%  2,916 0.4%  2,944 0.4%
Healthcare  14,350 2.4%  14,546 2.2%  16,851 2.3%
Mixed use  5,728 0.9%  6,951 1.1%  7,733 1.1%
Gas station  5,141 0.8%  5,941 0.9%  6,001 0.8%
Self storage  50,110 8.3%  53,187 8.2%  52,793 7.2%
Restaurant  1,723 0.3%  1,764 0.3%  2,532 0.3%
Unimproved land  966 0.2%  1,734 0.3%  1,752 0.2%
Other  13,803 2.3%  13,886 2.1%  14,887 2.0%
Total commercial real estate mortgage  302,492 49.9%  317,556 48.8%  355,141 48.3%
             
Residential real estate mortgage:            
Multi-family  191,736 31.6%  215,759 33.1%  250,633 34.0%
Single family owner-occupied  80,360 13.3%  85,212 13.1%  95,248 12.9%
Single family nonowner-occupied  23,266 3.8%  23,911 3.7%  25,624 3.5%
Mixed use  2,858 0.5%  2,879 0.4%  2,918 0.4%
HELOCs  5,712 0.9%  5,680 0.9%  6,794 0.9%
Total residential real estate mortgage  303,932 50.1%  333,441 51.2%  381,217 51.7%
             
Total gross covered real estate mortgage loans  $ 606,424 100.0%  $ 650,997 100.0%  $ 736,358 100.0%
       
PACWEST BANCORP AND SUBSIDIARIES      
NON-COVERED LOAN CONCENTRATION TREND    
(Unaudited)          
           
  September 30, June 30, March 31, December 31, September 30,
Loan Segment 2012 2012 2012 2011 2011
  (In thousands)
Real estate mortgage   $ 1,928,890  $ 1,828,777  $ 1,896,052  $ 1,982,464  $ 2,031,893
Real estate construction   152,748  129,107  118,304  113,059  152,411
Commercial   772,768  701,044  665,441  671,939  671,963
Leases (1)  161,934  153,793  153,845  --  --
Consumer   20,615  17,151  15,826  23,711  20,621
Foreign:          
Commercial   14,679  15,507  16,747  19,531  19,532
Other, including real estate   1,447  1,510  2,005  1,401  1,400
Total gross non-covered loans and leases   $ 3,053,081  $ 2,846,889  $ 2,868,220  $ 2,812,105  $ 2,897,820
           
(1) Does not include leases in process of $15.1 million, $12.3 million and $13.8 million at September 30, 2012, June 30, 2012 and March 31, 2012.
         
         
PACWEST BANCORP AND SUBSIDIARIES        
COVERED LOAN CONCENTRATION TREND        
(Unaudited)          
           
  September 30,  June 30,  March 31,  December 31,  September 30,
  2012 2012 2012 2011 2011
   (In thousands) 
Real estate mortgage   $ 606,424  $ 650,997  $ 699,653  $ 736,358  $ 788,253
Real estate construction   26,595  32,125  41,191  46,918  55,464
Commercial   16,900  18,954  20,889  25,610  26,729
Consumer   618  659  686  735  824
Total gross covered loans  650,537  702,735  762,419  809,621  871,270
Less: discount  (52,437)  (62,323)  (66,312)  (75,323)  (80,920)
Less: allowance for loan losses  (30,704)  (31,463)  (35,810)  (31,275)  (29,291)
Total covered loans, net  $ 567,396  $ 608,949  $ 660,297  $ 703,023  $ 761,059
     
     
PACWEST BANCORP AND SUBSIDIARIES    
NON-COVERED NONCLASSIFIED AND CLASSIFIED LOANS AND LEASES
(Unaudited)      
       
  September 30, 2012
  Nonclassified Classified Total
  (In thousands)
Real estate mortgage:      
Hospitality  $ 105,417  $ 12,772  $ 118,189
SBA 504  48,971  6,112  55,083
Other  1,715,968  39,650  1,755,618
Total real estate mortgage  1,870,356  58,534  1,928,890
Real estate construction:      
Residential  39,774  2,978  42,752
Commercial  102,098  7,898  109,996
Total real estate construction  141,872  10,876  152,748
Commercial:      
Collateralized  417,379  15,651  433,030
Unsecured  84,374  2,961  87,335
Asset-based   225,700  701  226,401
SBA 7(a)   19,117  6,885  26,002
Total commercial  746,570  26,198  772,768
Leases  161,514  420  161,934
Consumer   19,745  870  20,615
Foreign  16,126  --  16,126
Total non-covered loans and leases  $ 2,956,183  $ 96,898  $ 3,053,081
       
       
  June 30, 2012
  Nonclassified Classified Total
  (In thousands)
Real estate mortgage:      
Hospitality  $ 118,534  $ 19,087  $ 137,621
SBA 504  50,041  6,684  56,725
Other  1,577,843  56,588  1,634,431
Total real estate mortgage  1,746,418  82,359  1,828,777
Real estate construction:      
Residential  28,365  2,888  31,253
Commercial  78,869  18,985  97,854
Total real estate construction  107,234  21,873  129,107
Commercial:      
Collateralized  354,370  16,487  370,857
Unsecured  73,142  2,902  76,044
Asset-based   226,278  1,801  228,079
SBA 7(a)   16,175  9,889  26,064
Total commercial  669,965  31,079  701,044
Leases  150,124  3,669  153,793
Consumer   16,221  930  17,151
Foreign  17,017  --  17,017
Total non-covered loans  $ 2,706,979  $ 139,910  $ 2,846,889
       
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.
       
       
PACWEST BANCORP AND SUBSIDIARIES      
ALLOWANCE FOR CREDIT LOSSES ROLLFORWARD     
AND NET CHARGE-OFF RATIOS FOR       
NON-COVERED LOANS AND LEASES (1)       
(Unaudited)          
           
  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30,
  2012 2012 2011 2012 2011
  (Dollars in thousands)
Allowance for credit losses, beginning of period   $ 78,031  $ 81,737  $ 102,552  $ 93,783  $ 104,328
Loans charged-off:          
Real estate mortgage   (1,118)  (2,583)  (4,293)  (5,891)  (9,859)
Real estate construction   (492)  --  --  (492)  (5,838)
Commercial  (492)  (1,352)  (2,237)  (2,715)  (7,967)
Consumer   (25)  (34)  (54)  (258)  (1,379)
Total loans charged off   (2,127)  (3,969)  (6,584)  (9,356)  (25,043)
Recoveries on loans charged-off:        
Real estate mortgage   845  43  225  1,217  349
Real estate construction   11  14  33  35  1,021
Commercial  218  190  235  1,232  1,160
Consumer   32  16  74  79  1,375
Foreign   2  --  --  22  45
Total recoveries on loans charged off   1,108  263  567  2,585  3,950
Net charge-offs  (1,019)  (3,706)  (6,017)  (6,771)  (21,093)
Provision for credit losses  (2,000)  --  --  (12,000)  13,300
Allowance for credit losses, end of period   $ 75,012  $ 78,031  $ 96,535  $ 75,012  $ 96,535
           
Annualized net charge-offs to average loans and leases 0.14% 0.52% 0.83% 0.31% 0.94%
           
(1) Applies only to non-covered loans and leases.      
     
     
PACWEST BANCORP AND SUBSIDIARIES    
ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING   
ASSETS AND CREDIT QUALITY RATIOS FOR     
NON-COVERED LOANS AND LEASES    
(Unaudited)      
  September 30, June 30, December 31, 
  2012 2012 2011
  (Dollars in thousands)
Allowance for loan and lease losses (1)  $ 69,142  $ 72,061  $ 85,313
Reserve for unfunded loan commitments (1)  5,870  5,970  8,470
Total allowance for credit losses  $ 75,012  $ 78,031  $ 93,783
       
Nonaccrual loans and leases (2)   $ 36,985  $ 52,763  $ 58,260
Other real estate owned (2)  37,333  41,742  48,412
Total nonperforming assets  $ 74,318  $ 94,505  $ 106,672
       
Performing restructured loans (1)  $ 112,834  $ 103,815  $ 116,791
     
Allowance for credit losses to loans and leases, net of unearned income 2.46% 2.74% 3.34%
Allowance for credit losses to nonaccrual loans and leases 202.8% 147.9% 161.0%
Nonperforming assets to loans and leases, net of unearned income, and other real estate owned 2.41% 3.27% 3.73%
Nonperforming assets to total assets 1.34% 1.78% 1.93%
Nonaccrual loans and leases to loans and leases, net of unearned income 1.21% 1.86% 2.07%
       
(1) Applies to non-covered loans.      
(2) Excludes covered nonperforming assets.      
       
PACWEST BANCORP AND SUBSIDIARIES      
DEPOSITS      
(Unaudited)      
       
  September 30, June 30, December 31,
Deposit Category 2012 2012 2011
  (Dollars in thousands)
Noninterest-bearing demand deposits (1)  $ 2,006,996  $ 1,872,459  $ 1,685,799
Interest checking deposits  499,734  518,330  500,998
Money market deposits  1,262,406  1,174,915  1,265,282
Savings deposits  155,871  160,603  157,480
Total core deposits  3,925,007  3,726,307  3,609,559
Time deposits under $100,000  291,450  298,980  324,521
Time deposits of $100,000 and over  570,891  566,042  643,373
Total time deposits  862,341  865,022  967,894
Total deposits   $ 4,787,348  $ 4,591,329  $ 4,577,453
       
Noninterest-bearing demand deposits as a percentage  of total deposits 42% 41% 37%
Core deposits as a percentage of total deposits 82% 81% 79%
       
(1) The September 30, 2012 balance includes a $120 million deposit received at quarter-end. Such funds were withdrawn in October 2012.
         
         
PACWEST BANCORP AND SUBSIDIARIES        
TIME DEPOSITS        
(Unaudited)        
  September 30, 2012
  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  $ 61,420  $ 104,417  $ 165,837 0.33%
Due in over three months through six months  58,504  110,600  169,104 1.42%
Due in over six months through twelve months  100,075  198,550  298,625 1.57%
Due in over 12 months through 24 months  58,026  122,405  180,431 1.07%
Due in over 24 months  13,425  34,919  48,344 1.09%
Total   $ 291,450  $ 570,891  $ 862,341 1.17%
           
           
PACWEST BANCORP AND SUBSIDIARIES          
GAAP TO NON-GAAP RECONCILIATIONS          
(Unaudited)          
           
  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30,
Adjusted Earnings Before Income Taxes 2012 2012 2011 2012 2011
  (In thousands)
Earnings before income taxes  $ 26,937  $ 25,970  $ 22,649  $ 61,028  $ 63,068
Plus: Total provision for credit losses  (2,141)  (271)  348  (8,486)  22,448
Non-covered OREO expense, net  1,883  130  2,293  3,834  5,296
Covered OREO expense, net  4,290  2,130  4,813  7,242  3,440
Other-than-temporary impairment loss on covered security  --  1,115  --  1,115  --
Acquisition and integration costs  2,101  871  --  2,997  --
Debt termination expense  --  --  --  22,598  --
Less: FDIC loss sharing income           
   (expense), net  (367)  (102)  963  (4,048)  5,109
        Adjusted earnings before income taxes  $ 33,437  $ 30,047  $ 29,140  $ 94,376  $ 89,143
           
           
  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30,
Adjusted Efficiency Ratio 2012 2012 2011 2012 2011
  (Dollars in thousands)
Noninterest expense  $ 51,657  $ 47,585  $ 48,587  $ 168,137  $ 136,524
Less: Non-covered OREO expense, net  1,883  130  2,293  3,834  5,296
Covered OREO expense, net  4,290  2,130  4,813  7,242  3,440
Acquisition and integration costs  2,101  871  --  2,997  --
Debt termination expense  --  --  --  22,598  --
    Adjusted noninterest expense  $ 43,383  $ 44,454  $ 41,481  $ 131,466  $ 127,788
           
Net interest income  $ 70,771  $ 68,413  $ 64,441  $ 206,864  $ 198,868
Noninterest income  5,682  4,871  7,143  13,815  23,172
Net revenues  76,453  73,284  71,584  220,679  222,040
Less: FDIC loss sharing income           
   (expense), net  (367)  (102)  963  (4,048)  5,109
Other-than-temporary impairment loss on covered security  --  (1,115)  --  (1,115)  --
        Adjusted net revenues  $ 76,820  $ 74,501  $ 70,621  $ 225,842  $ 216,931
           
Base efficiency ratio (1) 67.6% 64.9% 67.9% 76.2% 61.5%
Adjusted efficiency ratio (2) 56.5% 59.7% 58.7% 58.2% 58.9%
           
(1) Noninterest expense divided by net revenues.
(2) Adjusted noninterest expense divided by adjusted net revenues.
       
       
PACWEST BANCORP AND SUBSIDIARIES      
GAAP TO NON-GAAP RECONCILIATIONS      
(Unaudited)      
       
  September 30, June 30, December 31,
Tangible Common Equity 2012 2012 2011
  (Dollars in thousands)
PacWest Bancorp Consolidated:      
Stockholders' equity  $ 584,086  $ 565,648  $ 546,203
Less: Intangible assets  95,491  78,951  56,556
  Tangible common equity  $ 488,595  $ 486,697  $ 489,647
       
Total assets  $ 5,538,502  $ 5,321,622  $ 5,528,237
Less: Intangible assets  95,491  78,951  56,556
  Tangible assets  $ 5,443,011  $ 5,242,671  $ 5,471,681
       
  Equity to assets ratio 10.55% 10.63% 9.88%
  Tangible common equity ratio (1) 8.98% 9.28% 8.95%
       
Pacific Western Bank:      
Stockholders' equity  $ 660,693  $ 642,553  $ 625,494
Less: Intangible assets  95,491  78,951  56,556
  Tangible common equity  $ 565,202  $ 563,602  $ 568,938
       
Total assets  $ 5,520,998  $ 5,305,170  $ 5,512,025
Less: Intangible assets  95,491  78,951  56,556
  Tangible assets  $ 5,425,507  $ 5,226,219  $ 5,455,469
       
  Equity to assets ratio 11.97% 12.11% 11.35%
  Tangible common equity ratio (1) 10.42% 10.78% 10.43%
       
(1) Calculated as tangible common equity divided by tangible assets.
           
           
           
PACWEST BANCORP AND SUBSIDIARIES          
EARNINGS PER SHARE CALCULATIONS          
(Unaudited)          
           
  Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30,
  2012 2012 2011 2012 2011
  (In thousands, except per share data)
Basic Earnings Per Share:          
Net earnings   $ 16,088  $ 15,557  $ 13,304  $ 36,909  $ 36,821
Less: earnings allocated to unvested restricted stock (1)  (574)  (538)  (622)  (1,170)  (1,595)
Net earnings allocated to  common shares  $ 15,514  $ 15,019  $ 12,682  $ 35,739  $ 35,226
           
Weighted-average basic shares and unvested restricted stock outstanding  37,413.2  37,359.2  37,257.4  37,352.4  37,101.3
Less: weighted-average unvested  restricted stock outstanding  (1,712.8)  (1,669.2)  (1,768.9)  (1,678.8)  (1,629.8)
Weighted-average basic shares outstanding   35,700.4  35,690.0  35,488.5  35,673.6  35,471.5
           
Basic earnings per share  $ 0.43  $ 0.42  $ 0.36  $ 1.00  $ 0.99
           
Diluted Earnings Per Share:          
Net earnings allocated to common shares  $ 15,514  $ 15,019  $ 12,682  $ 35,739  $ 35,226
           
Weighted-average diluted shares outstanding  35,700.4  35,690.0  35,488.5  35,673.6  35,471.5
           
Diluted earnings per share  $ 0.43  $ 0.42  $ 0.36  $ 1.00  $ 0.99
           
(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.
CONTACT: Matt Wagner         Chief Executive Officer         (310) 728-1020         Vic Santoro         Executive Vice President and CFO         (310) 728-1021

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Ignore Bullish Hype on Rate Hikes -- Book Profits on Community Banks Now