Highlights
  • Net Earnings of $73.1 Million, or $0.71 Per Diluted Share; Adjusted Net Earnings of $62.9 Million, or $0.61 Per Diluted Share
  • Core Net Interest Margin at 5.38%
  • $389.7 Million, or 13.1% Annualized, Loan and Lease Growth Driven by $1.0 Billion of Production
  • Demand Deposits Increased $98.1 Million in the Quarter and are 26% of Total Deposits
  • Core Deposits Increased $61.8 Million in the Quarter and are 52% of Total Deposits

LOS ANGELES, April 16, 2015 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the first quarter of 2015 of $73.1 million, or $0.71 per diluted share, compared to net earnings for the fourth quarter of 2014 of $71.0 million, or $0.69 per diluted share. When certain income and expense items described below are excluded, adjusted net earnings are $62.9 million, or $0.61 per diluted share, for the first quarter of 2015 and $68.0 million, or $0.66 per diluted share, for the fourth quarter of 2014. The decline in adjusted earnings is largely the result of the first quarter provision for credit losses.

Matt Wagner, President and CEO, commented, "Reported net earnings remained strong this quarter at $73.1 million. Loan and lease originations of $1.0 billion reached a new high since the CapitalSource merger, resulting in an annualized growth rate for the quarter of 13.1%. The combination of loan and lease growth with some deterioration in a few energy-related credits resulted in a credit loss provision of $16.4 million. When the credit loss provision is excluded, however, our adjusted net earnings increased $3.6 million quarter-over-quarter to $72.8 million."

Mr. Wagner continued, "In addition to focusing on loan growth and credit, our teams concentrated on deposit growth. Core deposits were up $61.8 million in the quarter, and deposits from CapitalSource Division borrowers grew $25.1 million, reaching $303.1 million at the end of March. Although we continue to make progress in achieving our goal of remixing our deposit base, the anticipated merger with Square 1 is expected to accelerate that process. We are on track to close the Square 1 merger in the fourth quarter. Regulatory applications have been filed, SEC filings are in process and integration planning is underway. We look forward to closing the merger and expanding our business with Square 1's loan and deposit products."

Vic Santoro, Executive Vice President and CFO, stated, "Our reported and core NIMs of 5.89% and 5.38% remain very strong. The $1.0 billion in new loans and leases went on the books this quarter at a yield of 5.76%, nine basis points better than last quarter's 5.67%. Our all-in deposit cost of 0.36% compares very favorably to our $10-$50 billion peer banks whose NIMs are substantially lower than ours. And our adjusted efficiency ratio of 40.4% reflects lower expenses. The Company's earning power, along with its solid tangible capital at 12.01%, positions us well for continued profitable growth."

FINANCIAL HIGHLIGHTS
  At or For the Three Months Ended
  March 31, December 31,  
  2015 2014 Change
  (Dollars in thousands, except per share data)
Financial Highlights:       
Total Assets  $ 16,643,940  $ 16,234,800  $ 409,140
Loans and Leases, Net of  Deferred Fees  $ 12,272,166  $ 11,882,432  $ 389,734
Total Deposits  $ 11,934,175  $ 11,755,128  $ 179,047
       
Net Earnings  $ 73,079  $ 70,999  $ 2,080
Diluted Earnings Per Share  $ 0.71  $ 0.69  $ 0.02
Annualized Return on Average  Assets 1.82% 1.77%  0.05
       
Adjusted Net Earnings (1) (2)  $ 62,943  $ 68,018  $ (5,075)
Adjusted Diluted Earnings Per Share (1)  $ 0.61  $ 0.66  $ (0.05)
Annualized Adjusted Return on  Average Assets (1) 1.57% 1.70%  (0.13)
Annualized Return on Average Tangible Equity (1) 16.50% 16.00%  0.50
Annualized Adjusted Return on Average Tangible Equity (1) 14.21% 15.33%  (1.12)
       
Noninterest-Bearing Deposits as Percentage of Total Deposits 26% 25%  1
Core Deposits as Percentage of Total Deposits 52% 52%  --
Tangible Common Equity Ratio (1) 12.01% 12.20%  (0.19)
Tangible Book Value Per Share (1)  $ 17.36  $ 17.17  $ 0.19
Net Interest Margin 5.89% 5.86%  0.03
Core Net Interest Margin (1) 5.38% 5.52%  (0.14)
Efficiency Ratio 38.4% 44.0%  (5.6)
Adjusted Efficiency Ratio (1) 40.4% 41.7%  (1.3)
       
(1) Non-GAAP measure.
(2) When the provision for credit losses is excluded, adjusted net earnings are $72.8 million and $69.2 million for the quarters ended March 31, 2015 and December 31, 2014, respectively. 
       

ADJUSTED NET EARNINGS

In evaluating its earnings, the Company removes certain items to arrive at adjusted net earnings and adjusted diluted earnings per share, as detailed below:
       
  Three Months Ended
  March 31, December 31, March 31,
  2015 2014 2014
  (Dollars in thousands)
       
Reported net earnings  $ 73,079  $ 70,999  $ 25,080
Less: Tax benefit on discontinued operations  --  (47)  (588)
Add: Tax expense on continuing operations  46,073  43,261  15,281
Reported pre-tax earnings  119,152  114,213  39,773
Add: Acquisition, integration, and reorganization costs  2,000  7,381  2,200
Less: FDIC loss sharing expense, net   (4,399)  (4,360)  (11,430)
Gain on sale of loans and leases  --  7  106
Gain on securities  3,275  --  4,752
Covered OREO (expense) income, net  19  (176)  1,615
Gain on sale of owned office building  --  --  1,570
Adjusted pre-tax earnings before accelerated discount accretion  122,257  126,123  45,360
Less: Accelerated discount accretion from early payoffs of acquired loans  17,352  11,421  7,655
Adjusted pre-tax earnings  104,905  114,702  37,705
Tax expense (1)  (41,962)  (46,684)  (15,346)
Adjusted net earnings (2)  $ 62,943  $ 68,018  $ 22,359
       
Annualized adjusted return on average assets 1.57% 1.70% 1.39%
       
Adjusted diluted earnings per share  $ 0.61  $ 0.66  $ 0.47
       
(1) Full-year expected effective rate of 40.0% used for 2015 period and actual effective rate of 40.7% used for 2014 periods.
(2) When the provision for credit losses is excluded, adjusted net earnings are $72.8 million and $69.2 million for the quarters ended March 31, 2015 and December 31, 2014, respectively.
       

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased $4.1 million to $199.1 million for the first quarter of 2015 compared to $195.0 million for the fourth quarter of 2014 due to higher average loan and lease balances and higher accelerated discount accretion resulting from early payoffs of acquired loans offset by two less days in the quarter. Net interest margin ("NIM") for the first quarter of 2015 was 5.89% compared to 5.86% for the fourth quarter of 2014, and loan yield was 6.80% compared to 6.76% for the fourth quarter of 2014. The increase in the NIM and loan yield are both due to higher accelerated discount accretion from early payoffs of acquired loans. Accelerated accretion resulting from early payoffs of acquired loans was $17.4 million in the first quarter of 2015 (58 basis points on the loan and lease yield) compared to $11.4 million in the fourth quarter (39 basis points on the loan and lease yield), an increase of $6.0 million.

The total cost of deposits increased to 0.36% from 0.34% in the prior quarter due primarily to a $1.2 million decrease in the amount of premium accretion on the time deposits acquired in the CapitalSource merger. The repricing of maturing time deposits at current rates and new time deposit production resulted in the decline in the weighted average contractual interest rate on time deposits to 0.72% at March 31, 2015 from 0.75% at December 31, 2014.

Net interest margin information is presented in the following table for the periods indicated:
     
  Three Months Ended
  March 31, December 31,
Net Interest Margin 2015 2014
  (In thousands)
Average Assets:    
Loans and leases  $ 12,055,682  $ 11,586,573
Investment securities  1,613,422  1,591,839
Deposits in financial institutions  32,761  26,971
Average interest-earning assets  13,701,865  13,205,383
Other assets  2,594,775  2,687,378
Average total assets  $ 16,296,640  $ 15,892,761
     
Average Liabilities:    
Interest-bearing deposits  $ 8,801,306  $ 8,679,599
Borrowings  424,061  214,053
Subordinated debentures  432,603  433,859
Average interest-bearing liabilities  9,657,970  9,327,511
Noninterest-bearing demand deposits  2,949,719  2,900,388
Other liabilities  155,608  164,571
Average total liabilities  12,763,297  12,392,470
Average stockholders' equity  3,533,343  3,500,291
Average liabilities and stockholders' equity  $ 16,296,640  $ 15,892,761
     
Average time deposits  $ 5,481,886  $ 5,427,687
Average total deposits  $ 11,751,025  $ 11,579,987
Average funding sources  $ 12,607,689  $ 12,227,899
     
Yield on:    
Average loans and leases 6.80% 6.76%
Average investment securities 3.07% 3.04%
Average interest-earning assets 6.34% 6.30%
     
Cost of:    
Average total deposits 0.36% 0.34%
Average time deposits 0.65% 0.60%
Average interest-bearing deposits 0.48% 0.46%
Average borrowings 0.22% 0.27%
Average subordinated debentures 4.24% 4.20%
Average interest-bearing liabilities 0.64% 0.63%
Average funding sources 0.49% 0.48%
     
Net interest rate spread 5.70% 5.67%
Net interest margin 5.89% 5.86%
     

The NIM and loan and lease yield are impacted by volatility in accelerated accretion of acquisition discounts from early payoffs of acquired loans. The effects of this item are shown in the following table for the periods indicated:
         
  Three Months Ended Three Months Ended
  March 31, 2015 December 31, 2014
    Loan and   Loan and
  NIM Lease Yield NIM Lease Yield
Reported 5.89% 6.80% 5.86% 6.76%
Less: Accelerated accretion of acquisition discounts from early payoffs of acquired loans (0.51)% (0.58)% (0.34)% (0.39)%
Core (non-GAAP measure) 5.38% 6.22% 5.52% 6.37%
         

The impact on the NIM from all purchase accounting items is detailed in the table below for the periods indicated:
         
  Three Months Ended Three Months Ended
  March 31, 2015 December 31, 2014
    Impact on   Impact on
  Amount NIM Amount NIM
  (Dollars in thousands)
         
Net interest income/NIM as reported  $ 199,075 5.89%  $ 194,983 5.86%
Less: Accelerated accretion of acquisition discounts from early payoffs of acquired loans  (17,352) (0.51)%  (11,421) (0.34)%
Remaining accretion of Non-PCI loan acquisition discounts  (11,245) (0.33)%  (13,073) (0.39)%
Amortization of TruPS discount  1,401 0.04%  1,401 0.04%
Accretion of time deposits premium  (1,285) (0.04)%  (2,469) (0.07)%
   (28,481) (0.84)%  (25,562) (0.76)%
Net interest income/NIM excluding purchase accounting  $ 170,594 5.05%  $ 169,421 5.10%
         

Noninterest Income

Noninterest income increased by $8.2 million to $20.9 million for the first quarter of 2015 compared to $12.7 million for the fourth quarter of 2014 due mostly to higher commissions and fees, gain on securities, higher dividends and gains on equity investments, and higher foreign currency translation net gains. The increase in commissions and fees is largely the result of a servicing asset write-off made in the fourth quarter of 2014. The gain on sale of securities was $3.3 million for the first quarter of 2015; there were no securities sold in the prior quarter. Dividends and gains on equity investments increased $1.6 million and foreign currency translation net gains increased $1.7 million from the prior quarter. These items tend to fluctuate from period to period based upon dividends received, sales of equity investments and the movement of the U.S. Dollar against various foreign currencies, especially the Euro.

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

       
  Three Months Ended
  March 31, December 31, Increase
Noninterest Income 2015 2014 (Decrease)
  (In thousands)
       
Service charges on deposit accounts  $ 2,574  $ 2,787  $ (213)
Other commissions and fees  5,396  4,556  840
Leased equipment income  5,382  5,382  --
Gain on sale of loans and leases  --  7  (7)
Gain on securities  3,275  --  3,275
FDIC loss sharing expense, net  (4,399)  (4,360)  (39)
Other income:      
Dividends and realized gains on equity investments  3,477  1,924  1,553
Foreign currency translation net gains  2,597  854  1,743
Income recognized on early repayment of leases  736  294  442
Other  1,833  1,259  574
Total noninterest income  $ 20,871  $ 12,703  $ 8,168
       

The following table presents the details of FDIC loss sharing expense for the periods indicated:
       
  Three Months Ended
  March 31, December 31, Increase
FDIC Loss Sharing Expense, Net 2015 2014 (Decrease)
  (In thousands)
       
Loss on FDIC loss sharing asset  $ (278)  $ (525)  $ 247
FDIC loss sharing asset amortization, net  (4,015)  (3,795)  (220)
Net reimbursement from FDIC for covered OREOs  (3)  63  (66)
Other  (103)  (103)  -- 
FDIC loss sharing expense, net  $ (4,399)  $ (4,360)  $ (39)
       

Noninterest Expense

Noninterest expense decreased by $6.9 million to $84.4 million for the first quarter of 2015 compared to $91.3 million for the fourth quarter of 2014. The decrease was due mostly to lower acquisition, integration and reorganization expense of $5.4 million, lower foreclosed assets expense of $1.6 million and lower loan-related expense of $2.0 million, offset by higher compensation expense of $1.8 million. The decrease in foreclosed assets expense was mostly due to lower write-downs on existing properties. Loan-related expense decreased due to lower expenses related to origination and work-out activities and a $1.7 million recovery of legal costs. The increase in compensation expense was from higher payroll taxes due to the tax cycle.

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

       
  Three Months Ended
  March 31, December 31, Increase
Noninterest Expense 2015 2014 (Decrease)
  (In thousands)
       
Compensation  $ 47,737  $ 45,930  $ 1,807
Occupancy  10,600  10,745  (145)
Data processing  4,308  4,050  258
Other professional services  3,221  3,181  40
Insurance and assessments  3,025  3,115  (90)
Intangible asset amortization  1,501  1,619  (118)
Leased equipment depreciation  3,103  3,103  --
Foreclosed assets expense, net  336  1,938  (1,602)
Acquisition, integration and reorganization costs  2,000  7,381  (5,381)
Other expense:      
Loan expense  339  2,365  (2,026)
Other  8,190  7,878  312
Total noninterest expense  $ 84,360  $ 91,305  $ (6,945)
       

Income Taxes

Our overall effective income tax rate was 38.7% for the first quarter of 2015 and 37.9% for the fourth quarter of 2014.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases increased $389.7 million in the first quarter to $12.3 billion at March 31, 2015. The loan and lease growth in the first quarter represents an annualized growth rate of 13.1%.

The following table presents a roll forward of the loan and lease portfolio for the periods indicated:
     
  Three Months Ended
  March 31, December 31,
Loan and Lease Roll Forward (1) 2015 2014
  (In thousands)
     
Beginning balance  $ 11,882,432  $ 11,574,885
Loans and leases originated and purchased  1,037,906  950,385
Existing loans and leases:    
Principal repayments, net (2)  (637,288)  (620,799)
Loan and lease sales  --  (6,388)
Transfers to foreclosed assets  (394)  (9,139)
Charge-offs  (10,490)  (6,512)
Ending balance  $ 12,272,166  $ 11,882,432
     
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) Includes principal repayments on existing loans, changes in revolving lines of credit (repayments and draws), loan participation sales and other changes within the loan portfolio.
     

The following table presents a roll forward of the loan and lease portfolio by business segment for the period indicated:
  Three Months Ended March 31, 2015
  Community National  
Loan and Lease Roll Forward by Segment Banking Lending Total
  (In thousands)
       
Beginning balance  $ 3,401,129  $ 8,481,303  $ 11,882,432
Loans and leases originated and purchased  143,200  894,706  1,037,906
Existing loans and leases:      
Principal repayments, net   (192,104)  (445,184)  (637,288)
Loan and lease sales  --  --  --
Transfers to foreclosed assets  (186)  (208)  (394)
Charge-offs  (2,111)  (8,379)  (10,490)
Ending balance  $ 3,349,928  $ 8,922,238  $ 12,272,166
       
Weighted average yields on originations for the quarters ended:    
March 31, 2015 5.28% 5.84% 5.76%
December 31, 2014 5.09% 5.76% 5.67%
September 30, 2014 4.73% 5.56% 5.34%
June 30, 2014 4.98% 5.86% 5.71%
       

The following table presents the composition of our loan and lease portfolio as of the dates indicated:
     
  March 31, December 31,
Loan and Lease Portfolio 2015 2014
  (In thousands)
Real estate mortgage:    
Hospitality  $ 622,310  $ 570,634
SBA  392,704  380,890
Commercial real estate  2,742,593  2,428,794
Healthcare real estate  1,097,910  1,030,851
Multi-family  749,661  774,710
Other  209,703  411,123
Total real estate mortgage  5,814,881  5,597,002
Real estate construction:    
Residential  122,338  96,749
Commercial  208,259  217,297
Total real estate construction  330,597  314,046
Commercial:    
Collateralized  394,576  439,567
Unsecured  143,585  131,939
Asset-based  1,719,835  1,794,907
Cash flow  2,818,293  2,486,411
Equipment finance  914,015  969,489
SBA  42,426  47,304
Total commercial  6,032,730  5,869,617
Consumer  93,958  101,767
Total loans and leases, net of deferred fees  $ 12,272,166  $ 11,882,432
     

Energy-Related Credit Exposure

The continued low price of oil further weakened the exploration business during the first quarter. Ultimately, those involved in exploration cut back on their business with support service providers. Since almost all of our energy-related credits are in support services, several of our outstanding credits weakened during the quarter. Updated cash flow analyses and appraisals resulted in a $6.5 million credit loss provision on several energy-related credits.

At March 31, 2015, we had 45 outstanding loan and lease relationships totaling $264.4 million to borrowers broadly involved in the energy industry. The obligors under these loans and leases either conduct mining, oil and gas extraction or provide industrial support services to such types of businesses. The collateral for these loans and leases primarily includes equipment, such as drilling and mining equipment and transportation vehicles, used directly and indirectly in these activities. At March 31, 2015, six relationships totaling $69.3 million were on nonaccrual status and were classified.

Deposits

The following table presents the composition of our deposit portfolio as of the dates indicated:
         
  March 31, 2015 December 31, 2014
    % of   % of
Deposit Category Amount Total Amount Total
  (Dollars in thousands)
         
Noninterest-bearing demand deposits  $ 3,029,463 26%  $ 2,931,352 25%
Interest checking deposits  739,073 6%  732,196 6%
Money market deposits  1,682,123 14%  1,709,068 15%
Savings deposits  746,741 6%  762,961 6%
Total core deposits  6,197,400 52%  6,135,577 52%
Brokered non-maturity deposits  155,976 1%  120,613 1%
Total non-maturity deposits  6,353,376 53%  6,256,190 53%
Time deposits under $100,000  2,562,078 22%  2,467,338 21%
Time deposits of $100,000 and over  3,018,721 25%  3,031,600 26%
Total time deposits  5,580,799 47%  5,498,938 47%
Total deposits  $ 11,934,175 100%  $ 11,755,128 100%
         

At March 31, 2015, core deposits totaled $6.2 billion, or 52% of total deposits, including $3.0 billion of noninterest-bearing demand deposits, or 26% of total deposits. Deposits obtained from CapitalSource Division borrowers totaled $303.1 million at March 31, 2015, of which $289.9 million were core deposits.

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

           
  March 31, 2015
  Time Deposits Time Deposits Total    Estimated
  Under $100,000 Time  Contractual Effective 
Time Deposit Maturities $100,000 or More Deposits Rate Rate
  (Dollars in thousands)
           
Due in three months or less  $ 666,961  $ 741,091  $ 1,408,052 0.65% 0.60%
Due in over three months through six months  845,811  1,242,887  2,088,698 0.71% 0.68%
Due in over six months through twelve months  825,838  701,955  1,527,793 0.71% 0.67%
Due in over 12 months through 24 months  175,369  288,107  463,476 0.95% 0.85%
Due in over 24 months   48,099  44,681  92,780 0.99% 0.72%
Total  $ 2,562,078  $ 3,018,721  $ 5,580,799 0.72% 0.68%
           
At December 31, 2014  $ 2,467,338  $ 3,031,600  $ 5,498,938 0.75% 0.69%
           

The remaining purchase accounting premium on acquired CapitalSource time deposits was $2.4 million at March 31, 2015, of which $1.6 million will be recognized as a reduction of interest expense in the remainder of 2015.

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

We made a provision for credit losses of $16.4 million in the first quarter of 2015 and $2.1 million in the fourth quarter of 2014 in accordance with our loan methodology, which takes into consideration new loan and lease fundings, commitments to make loans and leases, and underlying credit quality trends. The first quarter provision is comprised of a $17.1 million provision for Non-PCI loans and leases and a negative provision of $0.7 million for PCI loans. The $17.1 million provision related to Non-PCI loans and leases included $8.8 million for specific reserves and $8.3 million for the combination of portfolio growth, payoffs, and risk rating changes. Of the $8.8 million of net provision for specific reserves, $6.5 million related to newly impaired energy-related leases. The negative provision for PCI loans results from increases in expected cash flows on such loans, which have a net carrying value of $254.3 million at March 31, 2015.

The following tables show roll forwards of the allowance for credit losses for the first quarter of 2015 and fourth quarter of 2014:
           
  Three Months Ended March 31, 2015
  Non-PCI        
  Loans and Unfunded Total PCI  
Allowance for Credit Losses Rollforward Leases Commitments Non-PCI Loans Total
  (In thousands)
           
Beginning balance  $ 70,456  $ 6,311  $ 76,767  $ 13,999  $ 90,766
Charge-offs  (9,911)  --  (9,911)  (579)  (10,490)
Recoveries  2,531  --  2,531  11  2,542
Net (charge-offs) recoveries  (7,380)  --  (7,380)  (568)  (7,948)
Provision (negative provision)  16,604  563  17,167  (733)  16,434
Ending balance  $ 79,680  $ 6,874  $ 86,554  $ 12,698  $ 99,252
           
           
  Three Months Ended December 31, 2014
  Non-PCI        
  Loans and Unfunded Total PCI  
Allowance for Credit Losses Rollforward Leases Commitments Non-PCI Loans Total
  (In thousands)
           
Beginning balance  $ 63,084  $ 5,913  $ 68,997  $ 18,815  $ 87,812
Charge-offs  (1,647)  --  (1,647)  (4,865)  (6,512)
Recoveries  6,688  --  6,688  715  7,403
Net charge-offs  5,041  --  5,041  (4,150)  891
Provision (negative provision)  2,331  398  2,729  (666)  2,063
Ending balance  $ 70,456  $ 6,311  $ 76,767  $ 13,999  $ 90,766
           

Non-PCI loans and leases include $5.9 billion of originated loans and leases that were not obtained through acquisitions. The allowance related to these loans and leases totals $70.7 million, or 1.20% of the outstanding balance.

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

  March 31, 2015 December 31, 2014
  Non-PCI     Non-PCI    
  Loans and Allowance/ Coverage Loans and Allowance/ Coverage
Credit Risk Coverage Ratios (Excludes PCI Loans) Leases Discount Ratio Leases Discount Ratio
  (Dollars in thousands)
             
Ending balance  $ 12,047,946  $ 86,554 0.72%  $ 11,613,832  $ 76,767 0.66%
Acquired loans  (6,152,731)  (8,962) (1)  (6,562,267)  (4,184) (1)
Adjusted balance  $ 5,895,215  $ 77,592 1.32%  $ 5,051,565  $ 72,583 1.44%
             
Ending balance  $ 12,047,946  $ 86,554 0.72%  $ 11,613,832  $ 76,767 0.66%
Unamortized net discount  130,845  130,845 (2)  156,428  156,428 (2)
Adjusted balance  $ 12,178,791  $ 217,399 1.79%  $ 11,770,260  $ 233,195 1.98%
             
             
(1) Allowance attributed to $6.2 billion and $6.6 billion of acquired Non-PCI loans at March 31, 2015 and December 31, 2014, based on the allowance calculation that includes an amount for credit deterioration on acquired loans and leases since their acquisition dates.
(2) Unamortized net discount relates to $6.2 billion and $6.6 billion of acquired Non-PCI loans at March 31, 2015 and December 31, 2014, and is assigned specifically to those loans only. Such discount represents the acquisition date fair value adjustment based on market, liquidity, and interest rate risk in addition to credit risk and is being accreted to interest income over the remaining life of the respective loans.
             

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

CREDIT QUALITY

The following table presents our Non-PCI loan and lease credit quality metrics as of the dates indicated:
     
  March 31, December 31,
Non-PCI Credit Quality Metrics 2015 2014
  (Dollars in thousands)
     
Allowance for credit losses  $ 86,554  $ 76,767
Nonaccrual loans and leases (1)  139,334  83,621
Classified loans and leases (2)  333,182  242,611
Performing restructured loans  35,975  35,244
Net charge-offs (recoveries) (for the quarter)  7,380  (5,041)
Provision for credit losses (for the quarter)  17,167  2,729
Allowance for credit losses to loans and leases 0.72% 0.66%
Allowance for credit losses to nonaccrual loans and leases 62.1% 91.8%
Nonperforming assets to loans and leases and foreclosed assets 1.45% 1.09%
Classified loans and leases to loans and leases 2.77% 2.09%
     
(1) At March 31, 2015 and December 31, 2014 includes $62.7 million and $22.9 million of acquired loans and leases with no allowance due to fair value accounting.
(2) Classified loans and leases are those with a credit risk rating of substandard or doubtful.
     

Energy-related loans and leases classified and placed on nonaccrual during the quarter totaled $69.9 million. First quarter net charge-offs of $7.4 million include $5.0 million on energy-related credits.

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, 2015 December 31, 2014 30-89 Days Past Due
    % of   % of March 31, December 31,
    Loan   Loan 2015 2014
  Balance Category Balance Category Balance Balance
  (Dollars in thousands)
Real estate mortgage:            
Hospitality  $ 8,088 1%  $ 6,366 1%  $ --  $ --
SBA  10,919 3%  11,141 3%  3,310  3,339
Other  18,328  --  20,105  --  3,009  4,769
Total real estate mortgage  37,335 1%  37,612 1%  6,319  8,108
Real estate construction:            
Residential  379  --  381  --  --  --
Commercial  453  --  1,178 1%  --  --
Total real estate construction  832  --  1,559 1%  --  --
Commercial:            
Collateralized  3,601 1%  5,450 1%  1,397  93
Unsecured  594  --  639  --  --  69
Asset-based  4,159  --  4,574  --  --  --
Cash flow  15,172 1%  15,964 1%  --  --
Equipment finance  71,039 8%  11,131 1%  7,751  2,339
SBA  3,128 7%  3,207 7%  614  26
Total commercial  97,693 2%  40,965 1%  9,762  2,527
Consumer  3,474 4%  3,485 3%  9  50
Total Non-PCI loans and leases (1)  $ 139,334 1%  $ 83,621 1%  $ 16,090  $ 10,685
             
(1) Includes leases and loans to companies involved in the energy industry of $69.3 million and $6.8 million at March 31, 2015 and December 31, 2014, respectively. There were $0.7 million and no energy-related leases accruing and 30-89 days past due at March 31, 2015 and December 31, 2014, respectively.
             

The following table presents our nonperforming assets as of the dates indicated:
     
  March 31, December 31,
Nonperforming Assets 2015 2014
  (Dollars in thousands)
     
Nonaccrual Non-PCI loans and leases  $ 139,334  $ 83,621
Nonaccrual PCI Loans(1)  23,331  25,264
Total nonaccrual loans and leases  162,665  108,885
Foreclosed assets, net  35,940  43,721
Total nonperforming assets  $ 198,605  $ 152,606
     
Nonperforming assets to loans and leases and foreclosed assets 1.61% 1.28%
     
(1) Represents legacy CapitalSource borrowing relationships placed on nonaccrual status as of the acquisition date.
     

SQUARE 1 FINANCIAL, INC. MERGER ANNOUNCEMENT

On March 2, 2015, PacWest announced the signing of a definitive agreement and plan of merger (the "Agreement") whereby PacWest and Square 1 Financial, Inc. ("Square 1") will merge in a transaction valued at approximately $849 million. The combined company will be called PacWest Bancorp and the combined subsidiary bank will be called Pacific Western Bank. The Square 1 lending operations will continue to do business under the name Square 1 as a division of Pacific Western Bank.

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

As of December 31, 2014, on a pro forma consolidated basis, the combined company would have had approximately $19.8 billion in assets with 80 branches throughout California and one in North Carolina. The combined institution would be the 6 th largest publicly-owned bank headquartered in California.

The transaction, currently expected to close in the fourth quarter of 2015, is subject to customary conditions, including the approval of bank regulatory authorities and the Square 1 stockholders.

ABOUT PACWEST BANCORP

PacWest Bancorp is a bank holding company with over $16 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank ("Pacific Western"). Through 80 full-service branches located throughout the state of California, Pacific Western provides commercial banking services, including real estate, construction, and commercial loans, to small and medium-sized businesses. Pacific Western and its CapitalSource Division deliver the full spectrum of financing solutions nationwide across numerous industries and property types. For more information about PacWest Bancorp, visit www.pacwestbancorp.com, or to learn more about Pacific Western Bank, visit www.pacificwesternbank.com.

FORWARD LOOKING STATEMENTS

This release contains certain "forward-looking statements" about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, strategies, goals, and projections and including statements about our expectations regarding our pending merger between the Company and Square 1, profitability, deposit growth, and effective tax rates. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words "anticipate," "assume," "intend," "believe," "forecast," "expect," "estimate," "plan," "continue," "will," "should," "look forward" and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:
  • the Company's ability to complete future acquisitions, including the Square 1 merger, and to successfully integrate such acquired entities or achieve expected benefits, synergies and/or operating efficiencies within expected time frames or at all;
  • the Company's ability to obtain regulatory approvals and meet other closing conditions to the Square 1 merger on the expected terms and schedule;
  • delay in closing the Square 1 merger;
  • business disruption following the proposed Square 1 merger;
  • changes in the Company's stock price before completion of the Square 1 merger, including as a result of the financial performance of the Company or Square 1 prior to closing;
  • the reaction to the Square 1 merger of the companies' customers, employees and counterparties;
  • changes in economic or competitive market conditions could negatively impact investment or lending opportunities or product pricing and services;
  • deteriorations in credit and other markets;
  • higher than anticipated loan and lease losses;
  • sustained reduction in real estate markets could negatively impact the value of our collateral and our borrowers' ability to repay loans;
  • a change in the interest rate environment reduces interest margins;
  • lower than expected revenues;
  • asset/liability repricing risks and liquidity risks reduces interest margins and the value of investments;
  • increased costs to manage and sell foreclosed assets;
  • legislative or regulatory requirements or changes adversely affected the Company's business, including an increase to capital requirements;
  • regulatory approvals for any capital activities cannot be obtained on the terms expected or on the anticipated schedule;
  • changes in tax laws or regulations affecting our business;
  • our inability to generate sufficient earnings;
  • tax planning or disallowance of tax benefits by tax authorities;
  • changes in tax filing jurisdictions or entity classifications; and
  • other risk factors described in documents filed by PacWest with the U.S. Securities and Exchange Commission ("SEC").

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

ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION AND WHERE TO FIND IT

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

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

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

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

 
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
     
  March 31, December 31,
  2015 2014
  (Dollars in thousands, except per share data)
ASSETS:    
Cash and due from banks  $ 140,873  $ 164,757
Interest-earning deposits in financial institutions  250,981  148,469
Total cash and cash equivalents  391,854  313,226
     
Securities available-for-sale, at estimated fair value  1,595,409  1,567,177
Federal Home Loan Bank stock, at cost  28,905  40,609
Total investment securities  1,624,314  1,607,786
     
Non-PCI loans and leases  12,047,946  11,613,832
PCI loans  254,346  290,852
Total gross loans and leases  12,302,292  11,904,684
Deferred fees and costs  (30,126)  (22,252)
Total loans and leases, net of deferred fees  12,272,166  11,882,432
Allowance for loan and lease losses  (92,378)  (84,455)
Total loans and leases, net  12,179,788  11,797,977
     
Equipment leased to others under operating leases  119,959  122,506
Premises and equipment, net  36,022  36,551
Foreclosed assets, net  35,940  43,721
Deferred tax asset, net  236,065  284,411
Goodwill  1,728,380  1,720,479
Core deposit and customer relationship intangibles, net  15,703  17,204
Other assets  275,915  290,939
Total assets  $ 16,643,940  $ 16,234,800
     
LIABILITIES:    
Noninterest-bearing deposits  $ 3,029,463  $ 2,931,352
Interest-bearing deposits  8,904,712  8,823,776
Total deposits  11,934,175  11,755,128
Borrowings  618,156  383,402
Subordinated debentures  431,448  433,583
Accrued interest payable and other liabilities  126,800  156,262
Total liabilities  13,110,579  12,728,375
STOCKHOLDERS' EQUITY (1)  3,533,361  3,506,425
Total liabilities and stockholders' equity  $ 16,643,940  $ 16,234,800
     
(1) Includes net unrealized gain on securities available-for-sale, net  $ 28,744  $ 26,380
     
Book value per share  $ 34.29  $ 34.04
Tangible book value per share  $ 17.36  $ 17.17
     
Shares outstanding (includes unvested restricted shares of 1,129,445 at March 31, 2015 and 1,108,505 at December 31, 2014) 103,044,257 103,022,017
 
 
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
       
  Three Months Ended
  March 31, December 31, March 31,
  2015 2014 2014
  (Dollars in thousands, except per share data)
Interest income:      
Loans and leases  $ 202,097  $ 197,472  $ 77,463
Investment securities  12,195  12,205  10,823
Deposits in financial institutions  22  19  74
Total interest income  214,314  209,696  88,360
       
Interest expense:      
Deposits  10,479  9,972  1,225
Borrowings  235  144  79
Subordinated debentures  4,525  4,597  1,041
Total interest expense  15,239  14,713  2,345
       
Net interest income  199,075  194,983  86,015
Provision (negative provision) for credit losses  16,434  2,063  (644)
Net interest income after provision for credit losses  182,641  192,920  86,659
       
Noninterest income:      
Service charges on deposit accounts  2,574  2,787  3,002
Other commissions and fees  5,396  4,556  1,932
Leased equipment income  5,382  5,382  --
Gain on sale of loans and leases  --  7  106
Gain on securities  3,275  --  4,752
FDIC loss sharing expense, net  (4,399)  (4,360)  (11,430)
Other income  8,643  4,331  6,329
Total noninterest income  20,871  12,703  4,691
       
Noninterest expense:      
Compensation  47,737  45,930  28,627
Occupancy  10,600  10,745  7,595
Data processing  4,308  4,050  2,540
Other professional services  3,221  3,181  1,523
Insurance and assessments  3,025  3,115  1,593
Intangible asset amortization  1,501  1,619  1,364
Leased equipment depreciation  3,103  3,103  --
Foreclosed assets expense (income), net  336  1,938  (1,861)
Acquisition, integration and reorganization costs  2,000  7,381  2,200
Other expense  8,529  10,243  6,583
Total noninterest expense  84,360  91,305  50,164
       
Earnings from continuing operations before taxes  119,152  114,318  41,186
Income tax expense  (46,073)  (43,261)  (15,281)
Net earnings from continuing operations  73,079  71,057  25,905
       
Loss from discontinued operations before taxes  --  (105)  (1,413)
Income tax benefit  --  47  588
Net loss from discontinued operations  --  (58)  (825)
       
Net earnings  $ 73,079  $ 70,999  $ 25,080
       
Basic and diluted earnings per share  $ 0.71  $ 0.69  $ 0.55
       
 
PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
                   
  Three Months Ended
  March 31, 2015 December 31, 2014 March 31, 2014
    Interest Average   Interest Average   Interest Average
  Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
  Balance Expense Cost Balance Expense Cost Balance Expense Cost
  (Dollars in thousands)
Assets:                  
PCI loans  $ 260,648  $ 10,165 15.82%  $ 311,061  $ 11,247 14.34%  $ 339,329  $ 18,264 21.83%
Non-PCI loans and leases  11,795,034  191,932 6.60%  11,275,512  186,225 6.55%  3,891,990  59,199 6.17%
Total loans and leases  12,055,682  202,097 6.80%  11,586,573  197,472 6.76%  4,231,319  77,463 7.42%
Investment securities (1)  1,613,422  12,195 3.07%  1,591,839  12,205 3.04%  1,512,694  10,823 2.90%
Deposits in financial institutions  32,761  22 0.27%  26,971  19 0.28%  118,682  74 0.25%
Total interest-earning assets  13,701,865  214,314 6.34%  13,205,383  209,696 6.30%  5,862,695  88,360 6.11%
Other assets  2,594,775      2,687,378      650,681    
Total assets  $ 16,296,640      $ 15,892,761      $ 6,513,376    
                   
Liabilities and Stockholders' Equity:                  
                 
Interest checking  $ 726,748  194 0.11%  $ 702,498  194 0.11%  $ 627,493  78 0.05%
Money market  1,836,094  945 0.21%  1,788,341  932 0.21%  1,451,964  618 0.17%
Savings  756,578  571 0.31%  761,073  572 0.30%  223,074  14 0.03%
Time  5,481,886  8,769 0.65%  5,427,687  8,274 0.60%  666,463  515 0.31%
Total interest-bearing deposits  8,801,306  10,479 0.48%  8,679,599  9,972 0.46%  2,968,994  1,225 0.17%
Borrowings  424,061  235 0.22%  214,053  144 0.27%  18,176  79 1.76%
Subordinated debentures  432,603  4,525 4.24%  433,859  4,597 4.20%  132,696  1,041 3.18%
Total interest-bearing liabilities  9,657,970  15,239 0.64%  9,327,511  14,713 0.63%  3,119,866  2,345 0.30%
Noninterest-bearing demand deposits  2,949,719      2,900,388      2,374,325    
Other liabilities  155,608      164,571      198,937    
Total liabilities  12,763,297      12,392,470      5,693,128    
Stockholders' equity  3,533,343      3,500,291      820,248    
Total liabilities and stockholders' equity  $ 16,296,640      $ 15,892,761      $ 6,513,376    
Net interest income    $199,075      $194,983      $ 86,015  
Net interest spread     5.70%     5.67%     5.81%
Net interest margin     5.89%     5.86%     5.95%
                   
Total deposits (2)  $ 11,751,025  $ 10,479 0.36%  $ 11,579,987  $ 9,972 0.34%  $ 5,343,319  $ 1,225 0.09%
Funding sources (3)  $ 12,607,689  $ 15,239 0.49%  $ 12,227,899  $ 14,713 0.48%  $ 5,494,191  $ 2,345 0.17%
                   
(1) The tax equivalent yield on investment securities was 3.52%, 3.45%, and 3.35% for the three months ended March 31, 2015, December 31, 2014, and March 31, 2014.
(2) Total deposits is the sum of interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on deposits divided by average total deposits.
(3) Funding sources is the sum of interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as annualized total interest expense divided by average funding sources.
                   
           
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER BALANCE SHEET
           
  March 31, December 31, September 30, June 30, March 31,
  2015 2014 2014 2014 2014
  (Dollars in thousands, except per share data)
ASSETS:          
Cash and due from banks  $ 140,873  $ 164,757  $ 145,463  $ 243,583  $ 113,508
Interest-earning deposits in financial institutions  250,981  148,469  115,399  119,782  228,579
Total cash and cash equivalents  391,854  313,226  260,862  363,365  342,087
           
Securities available-for-sale  1,595,409  1,567,177  1,539,681  1,552,115  1,477,473
Federal Home Loan Bank stock, at cost  28,905  40,609  45,602  49,983  25,000
Total investment securities  1,624,314  1,607,786  1,585,283  1,602,098  1,502,473
           
Non-PCI loans and leases  12,047,946  11,613,832  11,239,964  10,802,053  3,828,569
PCI loans  254,346  290,852  351,431  398,471  332,516
Total gross loans and leases  12,302,292  11,904,684  11,591,395  11,200,524  4,161,085
Deferred fees and costs  (30,126)  (22,252)  (16,510)  (10,419)  (18)
Total loans and leases, net of deferred fees  12,272,166  11,882,432  11,574,885  11,190,105  4,161,067
Allowance for loan and lease losses  (92,378)  (84,455)  (81,899)  (82,149)  (81,180)
Total loans and leases, net  12,179,788  11,797,977  11,492,986  11,107,956  4,079,887
           
Equipment leased to others under operating leases  119,959  122,506  125,119  127,289  --
Premises and equipment, net  36,022  36,551  38,368  40,440  29,908
Foreclosed assets, net  35,940  43,721  40,524  53,821  50,895
Deferred tax asset, net  236,065  284,411  331,176  342,105  72,683
Goodwill  1,728,380  1,720,479  1,722,129  1,725,153  208,743
Core deposit and customer relationship intangibles, net  15,703  17,204  18,822  20,431  15,884
Other assets  275,915  290,939  323,076  302,208  215,293
Total assets  $ 16,643,940  $ 16,234,800  $ 15,938,345  $ 15,684,866  $ 6,517,853
           
LIABILITIES:          
Noninterest-bearing deposits  $ 3,029,463  $ 2,931,352  $ 2,842,488  $ 2,701,434  $ 2,391,609
Interest-bearing deposits  8,904,712  8,823,776  8,680,949  8,966,363  2,977,799
Total deposits  11,934,175  11,755,128  11,523,437  11,667,797  5,369,408
Borrowings  618,156  383,402  363,672  4,596  5,748
Subordinated debentures  431,448  433,583  433,545  434,878  132,790
Accrued interest payable and other liabilities  126,800  156,262  139,445  139,663  176,205
Total liabilities  13,110,579  12,728,375  12,460,099  12,246,934  5,684,151
STOCKHOLDERS' EQUITY (1)  3,533,361  3,506,425  3,478,246  3,437,932  833,702
Total liabilities and stockholders' equity  $ 16,643,940  $ 16,234,800  $ 15,938,345  $ 15,684,866  $ 6,517,853
           
(1) Includes net unrealized gain on securities available-for-sale, net  $ 28,744  $ 26,380  $ 20,821  $ 20,121  $ 6,825
           
Book value per share  $ 34.29  $ 34.04  $ 33.76  $ 33.37  $ 18.21
Tangible book value per share  $ 17.36  $ 17.17  $ 16.86  $ 16.43  $ 13.31
           
Shares outstanding (includes unvested restricted shares)  103,044,257  103,022,017  103,027,830  103,033,449  45,777,580
           
           
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
           
  Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2015 2014 2014 2014 2014
  (Dollars in thousands, except per share data)
Interest income:          
Loans and leases  $ 202,097  $ 197,472  $ 189,961  $ 192,201  $ 77,463
Investment securities  12,195  12,205  12,331  11,986  10,823
Deposits in financial institutions  22  19  64  176  74
Total interest income  214,314  209,696  202,356  204,363  88,360
           
Interest expense:          
Deposits  10,479  9,972  8,822  7,313  1,225
Borrowings  235  144  74  199  79
Subordinated debentures  4,525  4,597  4,614  4,318  1,041
Total interest expense  15,239  14,713  13,510  11,830  2,345
           
Net interest income  199,075  194,983  188,846  192,533  86,015
Provision (negative provision) for credit losses  16,434  2,063  5,050  5,030  (644)
Net interest income after provision for credit losses  182,641  192,920  183,796  187,503  86,659
           
Noninterest income:          
Service charges on deposit accounts  2,574  2,787  2,725  2,719  3,002
Other commissions and fees  5,396  4,556  6,371  5,743  1,932
Leased equipment income  5,382  5,382  5,615  5,672  -- 
Gain (loss) on sale of loans and leases  --  7  973  (485)  106
Gain on securities  3,275  --  --  89  4,752
FDIC loss sharing expense, net  (4,399)  (4,360)  (7,415)  (8,525)  (11,430)
Other income  8,643  4,331  8,045  3,266  6,329
Total noninterest income  20,871  12,703  16,314  8,479  4,691
           
Noninterest expense:          
Compensation  47,737  45,930  45,861  45,081  28,627
Occupancy  10,600  10,745  11,188  11,078  7,595
Data processing  4,308  4,050  3,929  4,099  2,540
Other professional services  3,221  3,181  3,687  2,843  1,523
Insurance and assessments  3,025  3,115  3,020  3,179  1,593
Intangible asset amortization  1,501  1,619  1,608  1,677  1,364
Leased equipment depreciation  3,103  3,103  2,961  3,095  -- 
Foreclosed assets expense (income), net  336  1,938  4,827  497  (1,861)
Acquisition, integration and reorganization costs  2,000  7,381  5,193  86,242  2,200
Other expense  8,529  10,243  12,649  11,409  6,583
Total noninterest expense  84,360  91,305  94,923  169,200  50,164
           
Earnings from continuing operations before taxes  119,152  114,318  105,187  26,782  41,186
Income tax expense  (46,073)  (43,261)  (42,911)  (15,552)  (15,281)
Net earnings from continuing operations  73,079  71,057  62,276  11,230  25,905
           
Loss from discontinued operations before taxes  --  (105)  (8)  (1,151)  (1,413)
Income tax benefit  --  47  3  476  588
Net loss from discontinued operations  --  (58)  (5)  (675)  (825)
           
Net earnings  $ 73,079  $ 70,999  $ 62,271  $ 10,555  $ 25,080
           
Basic and diluted earnings per share  $ 0.71  $ 0.69  $ 0.60  $ 0.10  $ 0.55
           
           
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
           
  At or For the Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2015 2014 2014 2014 2014
  (Dollars in thousands)
Performance Ratios - GAAP:          
Annualized return on average assets 1.82% 1.77% 1.57% 0.28% 1.56%
Annualized return on average equity 8.39% 8.05% 7.13% 1.31% 12.40%
Yield on loans and leases 6.80% 6.76% 6.68% 7.34% 7.42%
Yield on interest-earning assets 6.34% 6.30% 6.19% 6.62% 6.11%
Cost of total deposits 0.36% 0.34% 0.30% 0.26% 0.09%
Cost of time deposits 0.65% 0.60% 0.51% 0.42% 0.31%
Cost of interest-bearing liabilities 0.64% 0.63% 0.58% 0.52% 0.30%
Cost of funding sources 0.49% 0.48% 0.44% 0.41% 0.17%
Net interest rate spread 5.70% 5.67% 5.61% 6.10% 5.81%
Net interest margin 5.89% 5.86% 5.78% 6.24% 5.95%
Annualized noninterest expense as a percentage of average assets 2.10% 2.28% 2.40% 4.51% 3.12%
Efficiency ratio 38.4% 44.0% 46.3% 84.2% 55.3%
           
Performance Ratios - Non-GAAP:          
Annualized adjusted return on average assets 1.57% 1.70% 1.71% 1.69% 1.39%
Annualized adjusted return on average equity 7.22% 7.71% 7.75% 7.84% 11.05%
Annualized return on average tangible equity 16.50% 16.00% 14.36% 2.65% 17.10%
Annualized adjusted return on average tangible equity 14.21% 15.33% 15.60% 15.89% 15.24%
Core net interest margin 5.38% 5.52% 5.64% 5.74% 5.42%
Adjusted efficiency ratio 40.4% 41.7% 43.1% 42.7% 56.3%
           
Average Balances:          
Average loans and leases  $ 12,055,682  $ 11,586,573  $ 11,285,689  $ 10,500,521  $ 4,231,319
Average interest-earning assets  13,701,865  13,205,383  12,969,776  12,383,464  5,862,695
Average total assets  16,296,640  15,892,761  15,716,539  15,037,101  6,513,376
Average noninterest-bearing deposits  2,949,719  2,900,388  2,778,260  2,546,540  2,374,325
Average interest-bearing deposits  8,801,306  8,679,599  8,778,642  8,629,482  2,968,994
Average total deposits  11,751,025  11,579,987  11,556,902  11,176,022  5,343,319
Average borrowings and subordinated debentures  856,664  647,912  531,336  449,865  150,872
Average interest-bearing liabilities  9,657,970  9,327,511  9,309,978  9,079,347  3,119,866
Average funding sources  12,607,689  12,227,899  12,088,238  11,625,887  5,494,191
Average stockholders' equity  3,533,343  3,500,291  3,465,119  3,233,018  820,248
           
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER SELECTED FINANCIAL DATA
           
  At or For the Three Months Ended
  March 31, December 31, September 30, June 30, March 31,
  2015 2014 2014 2014 2014
  (Dollars in thousands)
Non-PCI Credit Quality:          
Allowance for credit losses to loans and leases 0.72% 0.66% 0.61% 0.67% 1.75%
Allowance for credit losses to nonaccrual loans and leases 62% 92% 78% 75% 115%
Nonaccrual loans and leases to loans and leases 1.16% 0.72% 0.79% 0.90% 1.52%
Nonperforming assets to loans and leases and foreclosed assets 1.45% 1.09% 1.15% 1.39% 2.81%
Nonperforming assets to total assets 1.05% 0.78% 0.81% 0.96% 1.67%
Trailing twelve month net charge-offs to average loans and leases 0.07% 0.02% 0.09% 0.05% 0.13%
           
PacWest Bancorp Consolidated Capital Ratios:          
Tier 1 leverage capital ratio 11.74% 12.34% 12.17% 12.40% 11.73%
Common equity tier 1 capital ratio 12.35% N/A N/A N/A N/A
Tier 1 risk-based capital ratio 12.35% 13.16% 13.24% 13.15% 16.16%
Total risk-based capital ratio 15.90% 16.07% 16.24% 16.25% 17.42%
Tangible common equity ratio (non-GAAP measure) 12.01% 12.20% 12.24% 12.14% 9.68%
           
Pacific Western Bank Capital Ratios:          
Tier 1 leverage capital ratio 11.53% 11.70% 11.74% 11.71% 10.88%
Common equity tier 1 capital ratio 12.15% N/A N/A N/A N/A
Tier 1 risk-based capital ratio 12.15% 12.46% 12.74% 12.58% 15.00%
Total risk-based capital ratio 12.88% 13.16% 13.44% 13.32% 16.25%
Tangible common equity ratio (non-GAAP measure) 11.32% 11.51% 11.60% 11.40% 10.92%
           
 
PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
       
  Three Months Ended
  March 31, December 31, March 31,
  2015 2014 2014
  (Dollars in thousands, except per share data)
Basic Earnings Per Share:      
Net earnings from continuing operations  $ 73,079  $ 71,057  $ 25,905
Less: earnings allocated to unvested restricted stock (1)  (819)  (810)  (500)
Net earnings from continuing operations allocated to common shares  72,260  70,247  25,405
Net earnings from discontinued operations allocated to common shares  --  (57)  (804)
Net earnings allocated to common shares  $ 72,260  $ 70,190  $ 24,601
       
Weighted-average basic shares and unvested restricted stock outstanding  103,035  103,045  45,799
Less: weighted-average unvested restricted stock outstanding  (1,122)  (1,132)  (1,148)
Weighted-average basic shares outstanding  101,913  101,913  44,651
       
Basic earnings per share:      
Net earnings from continuing operations  $ 0.71  $ 0.69  $ 0.57
Net earnings from discontinued operations  --   --   (0.02)
Net earnings  $ 0.71  $ 0.69  $ 0.55
       
       
Diluted Earnings Per Share:      
Net earnings from continuing operations allocated to common shares  $ 72,260  $ 70,247  $ 25,405
Net earnings from discontinued operations allocated to common shares  --  (57)  (804)
Net earnings allocated to common shares  $ 72,260  $ 70,190  $ 24,601
       
Weighted-average basic shares outstanding  101,913  101,913  44,651
       
Diluted earnings per share:      
Net earnings from continuing operations  $ 0.71  $ 0.69  $ 0.57
Net earnings from discontinued operations  --   --   (0.02)
Net earnings  $ 0.71  $ 0.69  $ 0.55
 
(1) Represents cash dividends paid to holders of unvested stock, net of estimated forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
       

GAAP TO NON-GAAP RECONCILIATION

This press release contains certain non-GAAP financial disclosures for adjusted net earnings, adjusted return on average assets, adjusted return on average equity, return on average tangible equity, adjusted return on average tangible equity, tangible common equity amounts and ratios, tangible book value per share, adjusted efficiency ratio, core net interest margin, and operating expense as a percentage of average assets. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance:
  • Adjusted net earnings: To calculate adjusted net earnings, we exclude from net earnings primarily income statement items for which the related assets or liabilities have been completely resolved and are no longer on the balance sheet. As analysts and investors view this measure as an indicator of the Company's ability to generate recurring earnings, we disclose this amount in addition to net earnings.  
  • Adjusted return on average assets, adjusted return on average equity, return on average tangible equity, adjusted return on average tangible equity, tangible common equity amounts and ratios, and tangible book value per share: Given that the use of these measures is prevalent among banking regulators, investors and analysts, we disclose them in addition to return on average assets, return on average equity, equity-to-assets ratio, and book value per share, respectively.  
  • Adjusted efficiency ratio: We disclose this measure in addition to efficiency ratio as it shows the trend in recurring overhead-related noninterest expense relative to recurring net revenues.

Please refer to the tables on the following pages for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measures to the GAAP financial measures.
       
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(Unaudited)
       
  Three Months Ended
  March 31, December 31, March 31,
Adjusted Net Earnings and Related Ratios 2015 2014 2014
  (Dollars in thousands)
       
Reported net earnings  $ 73,079  $ 70,999  $ 25,080
Less: Tax benefit on discontinued operations  --  (47)  (588)
Add: Tax expense on continuing operations  46,073  43,261  15,281
Reported pre-tax earnings  119,152  114,213  39,773
Add: Acquisition, integration and reorganization costs  2,000  7,381  2,200
Less: FDIC loss sharing expense, net  (4,399)  (4,360)  (11,430)
Gain on sale of loans and leases  --  7  106
Gain on securities  3,275  --  4,752
Covered OREO (expense) income, net  19  (176)  1,615
Gain on sale of owned office building  --  --  1,570
Adjusted pre-tax earnings before accelerated discount accretion  122,257  126,123  45,360
Less: Accelerated discount accretion from early payoffs of acquired loans  17,352  11,421  7,655
Adjusted pre-tax earnings  104,905  114,702  37,705
Tax expense (1)  (41,962)  (46,684)  (15,346)
Adjusted net earnings (2)  $ 62,943  $ 68,018  $ 22,359
       
Average assets  $ 16,296,640  $ 15,892,761  $ 6,513,376
       
Average stockholders' equity  $ 3,533,343  $ 3,500,291  $ 820,248
Less: Average intangible assets  1,737,441  1,739,977  225,294
Average tangible common equity  $ 1,795,902  $ 1,760,314  $ 594,954
       
Annualized return on average assets (3) 1.82% 1.77% 1.56%
Annualized adjusted return on average assets (4) 1.57% 1.70% 1.39%
Annualized return on average equity (5) 8.39% 8.05% 12.40%
Annualized adjusted return on average equity (6) 7.22% 7.71% 11.05%
Annualized return on average tangible equity (7) 16.50% 16.00% 17.10%
Annualized adjusted return on average tangible equity (8) 14.21% 15.33% 15.24%
       
(1) Full-year expected effective rate of 40.0% used for 2015 period and actual effective rate of 40.7% used for 2014 periods.
(2) When the provision for credit losses is excluded, adjusted net earnings are $72.8 million and $69.2 million for the quarters ended March 31, 2015 and December 31, 2014, respectively.
(3) Annualized net earnings divided by average assets.
(4) Annualized adjusted net earnings divided by average assets.
(5) Annualized net earnings divided by average stockholders' equity.
(6) Annualized adjusted net earnings divided by average stockholders' equity.
(7) Annualized net earnings divided by average tangible common equity.
(8) Annualized adjusted net earnings divided by average tangible common equity.
       
       
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(Unaudited)  
       
  Three Months Ended
  March 31, December 31, March 31,
Adjusted Efficiency Ratio 2015 2014 2014
  (Dollars in thousands)
       
Noninterest expense  $ 84,360  $ 91,305  $ 50,164
Less: Acquisition, integration, and reorganization costs  2,000  7,381  2,200
Covered OREO expense (income), net  (19)  176  (1,615)
Adjusted noninterest expense  $ 82,379  $ 83,748  $ 49,579
       
Net interest income  $ 199,075  $ 194,983  $ 86,015
Noninterest income  20,871  12,703  4,691
Net revenues  219,946  207,686  90,706
Less: FDIC loss sharing expense, net  (4,399)  (4,360)  (11,430)
Gain on sale of loans and leases  --  7  106
Gain on securities  3,275  --  4,752
Gain on sale of owned office building  --  --  1,570
Accelerated discount accretion from early payoffs of acquired loans  17,352  11,421  7,655
Adjusted net revenues  $ 203,718  $ 200,618  $ 88,053
       
Base efficiency ratio (1) 38.4% 44.0% 55.3%
Adjusted efficiency ratio (2) 40.4% 41.7% 56.3%
       
(1) Noninterest expense divided by net revenues.
(2) Adjusted noninterest expense divided by adjusted net revenues.
       
 
PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
(Unaudited)
           
  March 31, December 31, September 30, June 30, March 31,
Tangible Common Equity Ratio 2015 2014 2014 2014 2014
  (Dollars in thousands)
PacWest Bancorp Consolidated:          
Stockholders' equity  $ 3,533,361  $ 3,506,425  $ 3,478,246  $ 3,437,932  $ 833,702
Less: Intangible assets  1,744,083  1,737,683  1,740,951  1,745,584  224,627
Tangible common equity  $ 1,789,278  $ 1,768,742  $ 1,737,295  $ 1,692,348  $ 609,075
           
Total assets  $ 16,643,940  $ 16,234,800  $ 15,938,345  $ 15,684,866  $ 6,517,853
Less: Intangible assets  1,744,083  1,737,683  1,740,951  1,745,584  224,627
Tangible assets  $ 14,899,857  $ 14,497,117  $ 14,197,394  $ 13,939,282  $ 6,293,226
           
Equity to assets ratio 21.23% 21.60% 21.82% 21.92% 12.79%
Tangible common equity ratio (1) 12.01% 12.20% 12.24% 12.14% 9.68%
           
Book value per share  $ 34.29  $ 34.04  $ 33.76  $ 33.37  $ 18.21
Tangible book value per share (2)  $ 17.36  $ 17.17  $ 16.86  $ 16.43  $ 13.31
Shares outstanding  103,044,257  103,022,017  103,027,830  103,033,449  45,777,580
           
           
Pacific Western Bank:          
Stockholders' equity  $ 3,410,276  $ 3,379,074  $ 3,357,138  $ 3,298,908  $ 910,644
Less: Intangible assets  1,744,083  1,737,683  1,740,951  1,745,584  224,627
Tangible common equity  $ 1,666,193  $ 1,641,391  $ 1,616,187  $ 1,553,324  $ 686,017
           
Total assets  $ 16,458,591  $ 15,995,914  $ 15,675,486  $ 15,376,440  $ 6,507,288
Less: Intangible assets  1,744,083  1,737,683  1,740,951  1,745,584  224,627
Tangible assets  $ 14,714,508  $ 14,258,231  $ 13,934,535  $ 13,630,856  $ 6,282,661
           
Equity to assets ratio 20.72% 21.12% 21.42% 21.45% 13.99%
Tangible common equity ratio 11.32% 11.51% 11.60% 11.40% 10.92%
           
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by shares outstanding.
CONTACT: Matthew P. Wagner         President and CEO         10250 Constellation Boulevard, Suite 1640         Los Angeles, CA 90067         310-728-1020                  Victor R. Santoro         Executive Vice President and CFO         10250 Constellation Boulevard, Suite 1640         Los Angeles, CA 90067         310-728-1021