EX-99.1 2 a08-26288_1ex99d1.htm EX-99.1

Exhibit 99.1

 

PRESS RELEASE

 

PacWest Bancorp

(NASDAQ: PACW)

 

Contact:

 

Matthew P. Wagner

 

Victor R. Santoro

 

 

Chief Executive Officer

 

Executive Vice President and

 

 

10250 Constellation Boulevard

 

Chief Financial Officer

 

 

Suite 1640

 

10250 Constellation Boulevard

 

 

Los Angeles, CA 90067

 

Suite 1640

 

 

 

 

Los Angeles, CA 90067

Phone:

 

310-728-1020

 

310-728-1021

Fax:

 

310-201-0498

 

310-201-0498

 

 

 

 

 

FOR IMMEDIATE RELEASE

 

October 16, 2008

 

PACWEST BANCORP ANNOUNCES RESULTS FOR THE THIRD QUARTER OF 2008

 

—Net Operating Earnings of $9.6 Million or $0.35 Per Diluted Share—

—Net Interest Margin at 5.42% for the Quarter—

—Nonperforming Assets and Past Due Loans Decline—

—Credit Loss Reserve at 1.72% of Net Loans—

—Total Risk-Based Capital Increases to 12.18%—

 

San Diego, California . . . PacWest Bancorp (Nasdaq: PACW) today announced net operating earnings for the third quarter of 2008 of $9.6 million, or $0.35 per diluted share, compared to net operating earnings of $12.8 million, or $0.47 per diluted share, for the second quarter of 2008.  The decrease in net operating earnings for the third quarter of 2008 compared to the second quarter of 2008 is due mainly to a higher credit loss provision.  Net operating earnings for the second quarter do not include charges for the goodwill write-off, a legal settlement and reorganization costs; there were no such charges in the third quarter of 2008.  When these items are included, the net loss for the second quarter of 2008 was $474.5 million, or $17.47 per diluted share.

 

Net operating earnings for the nine months ended September 30, 2008, were $24.6 million, or $0.90 per diluted share, compared to net operating earnings of $74.0 million, or $2.55 per diluted share, for same period of 2007.  The decrease in net operating earnings was due mainly to lower net interest income and higher credit loss provisions.  Net operating earnings for the periods do not include charges for goodwill write-offs, a 2008 legal settlement and reorganization costs.  When these items are included, the net loss for the nine months ended September 30, 2008 was $737.7 million, or $27.15 per diluted share, compared to net earnings of $73.3 million, or $2.53 per diluted share, for the same period of 2007.

 

1


 

The discussion in this release of net earnings, earnings per share, performance ratios and comparisons to prior periods includes information based on net operating earnings as described above and as shown in the following table.  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.  These non-GAAP financial measures are presented for supplemental informational purposes only for understanding the Company’s operating results and should not be considered a substitute for financial information presented in accordance with United States generally accepted accounting principles (GAAP).  Please refer to the table at the end of this release for a presentation of performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measurements to the GAAP financial measurements.

 

THIRD QUARTER RESULTS

 

 

 

Third

 

Second

 

In thousands, except per share data and percentages

 

Quarter
2008

 

Quarter
2008

 

 

 

 

 

 

 

Net earnings (loss) as reported

 

$

9,551

 

$

(474,514

)

Legal settlement, net of tax

 

—

 

452

 

Reorganization costs, net of tax

 

—

 

150

 

Goodwill write-off

 

—

 

486,701

 

Net operating earnings

 

$

9,551

 

$

12,789

 

 

 

 

 

 

 

Diluted loss per share

 

$

0.35

 

$

(17.47

)

Diluted net operating earnings per share

 

$

0.35

 

$

0.47

 

 

 

 

 

 

 

Net interest margin

 

5.42

%

5.44

%

Allowance for credit losses to loans, net of unearned income

 

1.72

%

1.73

%

 

 

 

 

 

 

Total risk-based capital ratios at quarter end:

 

 

 

 

 

Consolidated Company

 

12.18

%

12.14

%

Pacific Western

 

11.79

%

11.47

%

 

The decrease in net operating earnings for the third quarter of 2008 from the second quarter of 2008 is due to the combination of a higher provision for credit losses, lower net interest income, higher noninterest income, and higher operating noninterest expense.

 

Matt Wagner, Chief Executive Officer, commented, “We had a strong third quarter during which we continued to focus on credit fundamentals and capital building.  Nonaccrual loans, nonperforming assets and past due loans all declined during the quarter and we further reduced our exposure to nonowner-occupied residential construction loans.  Our efforts over the last several quarters have resulted in a balance sheet that includes a very manageable credit portfolio and very strong capital levels.”

 

2


 

Mr. Wagner continued, “Our balance sheet will be further strengthened by the equity infusion of $100 million from CapGen Financial announced on September 2, 2008 and which is expected to close late in the fourth quarter.  This additional capital, combined with our focus on credit quality and cost control, positions us well to seek growth opportunities over the next twelve months.”

 

Vic Santoro, Executive Vice President and Chief Financial Officer, stated, “Despite the challenges of the current environment, we continue to generate positive operating earnings, have been able to maintain our capital at very high levels even before the planned equity infusion, and have developed additional liquidity sources.  Our healthy allowance for credit losses and our ability to maintain the allowance coverage ratio on par with the second quarter allow us to operate comfortably. We have positioned ourselves for future success by ensuring high capital levels, reduced credit exposures, and positive operating earnings.”

 

YEAR TO DATE RESULTS

 

 

 

Nine Months Ended

 

 

 

September 30,

 

In thousands, except per share data and percentages

 

2008

 

2007

 

 

 

 

 

 

 

Net (loss) earnings as reported

 

$

(737,686

)

$

73,267

 

Legal settlement, net of tax

 

452

 

—

 

Reorganization costs, net of tax

 

150

 

778

 

Goodwill write-off

 

761,701

 

—

 

Net operating earnings

 

$

24,617

 

$

74,045

 

 

 

 

 

 

 

Diluted (loss) earnings per share

 

$

(27.15

)

$

2.53

 

Diluted net operating earnings per share

 

$

0.90

 

$

2.55

 

 

 

 

 

 

 

Net interest margin

 

5.48

%

6.41

%

 

The decreases in net operating earnings and diluted net operating earnings per share were due mostly to decreased net interest income from lower market interest rates and lower average loans, a higher credit loss provision, lower gain on sale of loans and higher operating costs.

 

BALANCE SHEET CHANGES

 

Total loans, net of unearned income, increased $29.3 million to $3.9 billion at September 30, 2008, from June 30, 2008.  Real estate loans increased $76.5 million, commercial and industrial loans declined $26.6 million, construction loans declined $14.6 million and consumer loans declined $5.8 million.   Deposit growth totaled $859,000 for the third quarter. Although demand deposits decreased during the third quarter by $20.6 million to $1.2 billion at September 30, 2008, they continue to represent a substantial 38% of total deposits at that date.

 

Third quarter loan growth and deposit flows were funded with a combination of brokered deposits and overnight Federal Home Loan Bank borrowings.  During the third quarter, brokered deposits increased $93.0 million to $163.5 million at September 30, 2008, and represented 5.1% of total deposits at that date.  We augmented our liquidity sources by securing a line of credit from the Federal Reserve Bank with a borrowing capacity of $659 million.

 

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NET INTEREST INCOME

 

Net interest income totaled $55.0 million for the third quarter of 2008 compared to $55.8 million for the second quarter of 2008. Loan interest income declined $824,000 in the third quarter due mostly to lower average construction and commercial loan balances.  Interest expense was $81,000 lower in the third quarter due to lower average borrowings.

 

Net interest income decreased $33.6 million to $168.6 million for the nine months ended September 30, 2008 compared to the same period of 2007.  This decrease was due mainly to lower loan yields from reductions in our base lending rate, lower average construction loan balances and increased nonaccrual loans.

 

NET INTEREST MARGIN

 

Our net interest margin for the third quarter of 2008 was 5.42%, a decrease of 2 basis points when compared to the second quarter of 2008.  There was virtually no effect from nonaccrual loans on the third quarter net interest margin and the net interest margin for the month of September was 5.39%.  The yield on average loans was 7.02% for the third quarter of 2008 compared to 7.04% for the second quarter of 2008; the loan yield for the month of September was 7.05%.  The yield on average earning assets was 6.95% for the third quarter of 2008 compared to 6.97% for the second quarter of 2008.

 

Deposit pricing caused the cost of interest bearing deposits to increase 3 basis points to 1.84% and all-in deposit cost to increase 1 basis point to 1.12%.  The cost of deposits crept up during the third quarter from 1.07% in July to 1.15% in September due to the competition for liquidity and the use of certificates of deposit, both Bank-promoted and wholesale, to fund loan growth and deposit flows.  Our relatively low cost of deposits is driven by demand deposit balances, which averaged 39% of average total deposits during the third quarter of 2008.  The overall cost of interest-bearing liabilities was 2.34% for the third quarter of 2008, up 2 basis points from the second quarter of 2008 due mostly to higher deposit costs.

 

Our net interest margin for the nine months ended September 30, 2008 was 5.48%, a decrease of 93 basis points when compared to the same period of 2007.  The decrease in the net interest margin results primarily from lower loan yields and lower average demand deposits.

 

NONINTEREST INCOME

 

Noninterest income for the third quarter of 2008 totaled $6.0 million compared to $5.4 million in the second quarter of 2008.  During the quarter, $16.5 million of Fannie Mae and Freddie Mac debt obligations were sold at a gain of $81,000.  The suspension of the SBA loan sale operation resulted in no loan sale losses or gains in the third quarter; second quarter losses were $572,000.  Of the increase in other income, $242,000 related to miscellaneous SBA items.

 

Noninterest income declined $9.6 million for the nine months ended September 30, 2008 to $18.0 million from the $27.6 million earned during the same period in 2007.  The decrease in noninterest income resulted largely from lower gain on sale of loans and lower other income.  The 2007 period included a $6.6 million gain related to the sale of a participating interest in certain commercial real estate mortgage loans and net gains of $2.7 million on the sale of SBA loans; this compares to net losses of $303,000 on the sale of SBA loans recognized in 2008.  The 2007 other

 

4


 

income category included a $1.9 million gain related to recognizing an unearned discount on the payoff of an acquired loan; this compares to the $444,000 recognized during 2008.

 

NONINTEREST EXPENSE

 

Operating noninterest expense (defined as reported noninterest expense excluding goodwill write-offs, the legal settlement and reorganization costs) for third quarter of 2008 totaled $37.8 million compared to $36.3 million for the second quarter of 2008.  The increase in operating noninterest expense is due mostly to higher compensation, occupancy, insurance and assessments and foreclosed real estate expense.  The suspension of the SBA loan sale operation and lower SBA loan volume resulted in employee terminations during the third quarter and $165,000 in severance payments.  The second quarter experienced a $675,000 credit from the true-up of accruals for the discretionary bonus plan and the various incentive plans; there was no such item in the third quarter.  Restricted stock amortization expense was lower by $273,000 due to employee terminations and departures.  Occupancy increased $391,000 due to lease buyout costs, seasonally high utilities, upgraded landscaping, and higher commissions paid to our facilities outsourcer.  We expensed $300,000 in the second quarter for a payment made to protect the Bank’s position on a real estate loan; there was no such item in the third quarter.  Expenses related to other real estate owned and other repossessed collateral increased $1.2 million to $1.4 million in the third quarter.  Maintenance expenses were $241,000 higher and writedowns totaled $1.1 million. Insurance and assessments increased due to $202,000 in FDIC credits that were exhausted in the second quarter.

 

Noninterest expense includes amortization of time-based and performance-based restricted stock, which is included in compensation, and intangible asset amortization.  Restricted stock amortization totaled $1.2 million for the third quarter of 2008 compared to $1.5 million for the second quarter of 2008.  In the fourth quarter of 2007 we suspended amortization of certain performance-based restricted stock awards whose vesting is dependent on the attainment of specific long-term financial targets.  At that time, we concluded that attainment of these financial targets was less than probable.  If and when the attainment of such financial targets is deemed probable in future periods, a catch-up adjustment will be recorded and amortization of such performance-based restricted stock will recommence.  Amortization expense for all time-based and performance-based restricted stock awards is estimated to be $4.9 million for 2008.  Intangible asset amortization totaled $2.3 million for the third quarter of 2008 and is estimated to be $9.4 million for 2008.  The 2008 estimates of both restricted stock award expense and intangible asset amortization are subject to change.

 

Operating noninterest expense for the nine months ended September 30, 2008 totaled $109.5 million compared to $104.6 million for the same period in 2007.  The increase is due largely to the BFI acquisition completed in June 2007, higher compensation and higher costs to workout nonperforming assets and other problem credits.

 

GOODWILL WRITE-OFF

 

In response to the volatility in the banking industry and the effect such volatility has had on banking stocks since the beginning of 2008, including PacWest Bancorp’s common stock, we wrote-off $275.0 million of goodwill in the first quarter of 2008 and wrote-off the remaining balance of our goodwill totaling $486.7 million in the second quarter of 2008.  These goodwill write-offs are non-cash charges and had no effect on the Company’s or the Bank’s cash balances or liquidity.  In addition, because goodwill and other intangible assets are not included in the

 

5


 

calculation of regulatory capital, the Company’s and the Bank’s well-capitalized regulatory ratios have not been affected by these non-cash expenses.

 

TAXES

 

The effective tax rate on net operating earnings for the third quarter of 2008 was 39.0% compared to 39.9% for the second quarter of 2008.  The goodwill write-offs are not deductible for tax purposes.

 

CREDIT QUALITY

 

The credit loss provision for the third quarter of 2008 of $7.5 million was based on our reserve methodology and considered, among other factors, net charge-offs, the level and trends of classified, criticized, and nonaccrual loans, general market conditions and portfolio concentrations.  At September 30, 2008, the allowance for credit losses totaled $67.5 million and represented 1.72% of loans net of unearned income compared to $67.4 million and 1.73% at the end of June.

 

Nonperforming assets include nonaccrual loans and other real estate owned (OREO) and totaled $70.2 million at the end of September compared to $74.0 million at the end of June.  OREO totaled $13.3 million at the end of September compared to $9.9 million at the end of June.  The increase in OREO is due to six foreclosures totaling $4.7 million and writedowns of $1.1 million offset by one sale for $263,000.  The ratio of nonperforming assets to loans and real estate owned declined to 1.78% at September 30, 2008 compared to 1.89% at June 30, 2008.

 

The types of loans included in the nonaccrual category and accruing loans past due between 30 and 89 days as of September 30, 2008 and June 30, 2008 follow:

 

 

 

 

 

Accruing and over 30

 

 

 

Nonaccrual loans

 

days past due

 

 

 

Balance as of

 

Loan category

 

9/30/08

 

6/30/08

 

9/30/08

 

6/30/08

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

SBA 504

 

$

6,570

 

$

2,493

 

$

636

 

$

1,898

 

SBA 7(a) and Express

 

4,161

 

13,006

 

340

 

551

 

Residential construction

 

7,401

 

10,762

 

—

 

—

 

Commercial real estate

 

22,852

 

25,322

 

5,558

 

2,309

 

Commercial construction

 

5,925

 

6,228

 

—

 

—

 

Commercial

 

4,153

 

2,966

 

1,495

 

2,821

 

Commercial land

 

881

 

1,519

 

—

 

—

 

Residential other

 

281

 

284

 

—

 

1,045

 

Residential land

 

1,988

 

518

 

—

 

1,058

 

Other, including foreign

 

2,706

 

1,018

 

202

 

3,657

 

 

 

$

56,918

 

$

64,116

 

$

8,231

 

$

13,339

 

 

Included in the nonaccrual loans at the end of September are $10.7 million of SBA related loans representing 19% of total nonaccrual loans at that date.  The SBA 504 loans are secured by first trust deeds on owner-occupied business real estate with loan-to-value ratios of generally 50% or less at the time of origination.  SBA 7(a) loans are secured by borrowers’ real estate and/or

 

6


 

business assets and are covered by an SBA guarantee of up to 85% of the loan amount.  The SBA guaranteed portion on the 7(a) and Express loans shown above is $2.4 million.  At September 30, 2008, the SBA loan portfolio totaled $152.6 million and was composed of $114.0 million in SBA 504 loans and $38.6 million in SBA 7(a) and Express loans.  The commercial real estate nonaccrual loans are represented by six relationships that are well secured and in the process of collection. The net decrease in nonaccrual loans during the third quarter is composed of additions of $17.7 million, repayments and payoffs of $17.3 million, charge-offs of $4.2 million, and foreclosures of $3.4 million.

 

Our exposure to nonowner-occupied residential construction loans was reduced by $25.4 million to $234.9 million at the end of September from $260.4 million at the end of June.  The reduction was due to net repayments of $23.4 million and foreclosures of $2.0 million.  The details of the nonowner-occupied residential construction loan portfolio as of the dates indicated follow:

 

 

 

As of September 30, 2008

 

As of June 30, 2008

 

Loan Category

 

Balance

 

Number of loans

 

Average loan balance

 

Balance

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Residential land acquisition and development

 

$

58,569

 

32

 

$

1,830

 

$

58,537

 

Residential nonowner-occupied single family

 

84,885

 

40

 

2,122

 

97,525

 

Unimproved residential land

 

43,880

 

15

 

2,925

 

44,489

 

Residential multifamily

 

47,585

 

11

 

4,326

 

59,812

 

 

 

$

234,919

 

98

 

$

2,397

 

$

260,363

 

 

REGULATORY CAPITAL MEASURES ARE ABOVE THE WELL-CAPITALIZED MINIMUMS

 

PacWest and its wholly-owned banking subsidiary, Pacific Western Bank, each remained well capitalized at September 30, 2008 as shown in the following table.

 

 

 

Minimum

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

Requirements

 

Actual

 

 

 

Well

 

Pacific

 

Company

 

 

 

Capitalized

 

Western

 

Consolidated

 

Tier 1 leverage capital ratio

 

5.00

%

10.74

%

11.14

%

Tier 1 risk-based capital ratio

 

6.00

%

10.53

%

10.92

%

Total risk-based capital

 

10.00

%

11.79

%

12.18

%

 

ABOUT PACWEST BANCORP

 

PacWest Bancorp is a bank holding company with $4.4 billion in assets as of September 30, 2008, with one wholly-owned banking subsidiary, Pacific Western Bank. Through 60 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 in Los Angeles, Orange, Riverside, San Diego and San Bernardino Counties.  Through its subsidiary BFI Business Finance and its divisions Second Community Financial and Pacific Western SBA Lending, Pacific Western also provides working

 

7


 

capital financing to growing companies located throughout the Southwest, primarily in the states of Arizona, California 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: lower than expected revenues; credit quality deterioration or pronounced and sustained 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, to successfully integrate such acquired entities, or to achieve expected benefits synergies and/or operating efficiencies within expected time-frames or at all; 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 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 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 war in Iraq; legislative or regulatory requirements or changes adversely affecting the Company’s business; and 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.

 

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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

 

June 30,

 

December 31,

 

 

 

2008

 

2008

 

2007

 

 

 

(In thousands, except share date)

 

Assets:

 

 

 

 

 

 

 

Cash and due from banks

 

$

124,692

 

$

117,862

 

$

99,363

 

Federal funds sold

 

5,500

 

9,000

 

2,000

 

Total cash and cash equivalents

 

130,192

 

126,862

 

101,363

 

 

 

 

 

 

 

 

 

Interest-bearing deposits in financial institutions

 

303

 

253

 

420

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank stock, at cost

 

33,458

 

33,944

 

26,649

 

Securities available-for-sale, at estimated fair value

 

97,572

 

109,460

 

106,888

 

Total securities

 

131,030

 

143,404

 

133,537

 

 

 

 

 

 

 

 

 

Loans, held for sale

 

—

 

—

 

63,565

 

 

 

 

 

 

 

 

 

Loans, net of unearned income

 

3,934,321

 

3,905,056

 

3,949,218

 

Allowance for loan losses

 

(61,075

)

(59,777

)

(52,557

)

Net loans

 

3,873,246

 

3,845,279

 

3,896,661

 

 

 

 

 

 

 

 

 

Premises and equipment

 

25,471

 

25,718

 

26,327

 

Other real estate owned, net

 

13,284

 

9,886

 

2,736

 

Intangible assets

 

36,497

 

38,771

 

805,775

 

Cash surrender value of life insurance

 

69,972

 

69,340

 

67,846

 

Other assets

 

83,222

 

83,811

 

80,810

 

Total assets

 

$

4,363,217

 

$

4,343,324

 

$

5,179,040

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity:

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

1,218,486

 

$

1,239,098

 

$

1,211,946

 

Interest-bearing deposits

 

1,974,586

 

1,953,115

 

2,033,200

 

Total deposits

 

3,193,072

 

3,192,213

 

3,245,146

 

 

 

 

 

 

 

 

 

Accrued interest payable and other liabilities

 

43,115

 

44,960

 

45,054

 

Borrowings

 

620,700

 

601,300

 

612,000

 

Subordinated debentures

 

130,043

 

130,107

 

138,488

 

Total liabilities

 

3,986,930

 

3,968,580

 

4,040,688

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

376,287

 

374,744

 

1,138,352

 

Total Liabilities and Shareholders’ Equity

 

$

4,363,217

 

$

4,343,324

 

$

5,179,040

 

 

 

 

 

 

 

 

 

Shares outstanding (including 962,410 shares at September 30, 2008, 1,010,288 at June 30, 2008, and 861,269 shares at December 31, 2007, underlying unvested stock awards)

 

28,159,263

 

28,184,978

 

28,002,382

 

 

 

 

 

 

 

 

 

Tangible book value per share

 

$

12.07

 

$

11.92

 

$

11.88

 

Book value per share

 

$

13.36

 

$

13.30

 

$

40.65

 

 

9


 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

Quarters Ended

 

September 30,

 

 

 

9/30/08

 

6/30/08

 

9/30/07

 

2008

 

2007

 

 

 

(In thousands, except per share data)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

68,712

 

$

69,536

 

$

85,649

 

$

213,901

 

$

260,875

 

Interest on federal funds sold

 

23

 

23

 

605

 

86

 

1,728

 

Interest on time deposits in other financial institutions

 

1

 

2

 

5

 

6

 

17

 

Interest on investment securities

 

1,808

 

1,861

 

1,268

 

5,370

 

4,006

 

Total interest income

 

70,544

 

71,422

 

87,527

 

219,363

 

266,626

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Interest expense on deposits

 

9,001

 

8,919

 

14,924

 

29,741

 

42,080

 

Interest expense on borrowings

 

4,538

 

4,680

 

3,562

 

14,525

 

13,728

 

Interest expense on subordinated debentures

 

2,030

 

2,051

 

2,758

 

6,490

 

8,646

 

Total interest expense

 

15,569

 

15,650

 

21,244

 

50,756

 

64,454

 

Net interest income before provision for credit losses

 

54,975

 

55,772

 

66,283

 

168,607

 

202,172

 

Provision for credit losses

 

7,500

 

3,500

 

—

 

37,000

 

—

 

Net interest income after provision for credit losses

 

47,475

 

52,272

 

66,283

 

131,607

 

202,172

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

3,165

 

3,205

 

2,877

 

9,594

 

8,544

 

Other commissions and fees

 

1,884

 

1,812

 

1,903

 

5,215

 

5,202

 

Gain (loss) on sale of loans

 

—

 

(572

)

(323

)

(303

)

8,981

 

Gain on sale of securities, net

 

81

 

—

 

—

 

81

 

—

 

Increase in cash surrender value of life insurance

 

632

 

617

 

597

 

1,836

 

1,840

 

Other income

 

281

 

339

 

628

 

1,588

 

2,995

 

Total noninterest income

 

6,043

 

5,401

 

5,682

 

18,011

 

27,562

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

19,332

 

18,919

 

17,582

 

57,097

 

54,771

 

Occupancy and FF&E

 

6,321

 

5,930

 

6,057

 

18,121

 

18,031

 

Data processing

 

1,495

 

1,604

 

1,507

 

4,642

 

4,532

 

Other professional services

 

1,768

 

1,669

 

1,574

 

4,852

 

4,806

 

Business development

 

650

 

849

 

780

 

2,255

 

2,336

 

Communications

 

745

 

816

 

825

 

2,385

 

2,498

 

Insurance and assessments

 

1,025

 

810

 

468

 

2,375

 

1,259

 

OREO expense

 

1,360

 

164

 

7

 

1,596

 

66

 

Intangible asset amortization

 

2,274

 

2,484

 

2,574

 

7,288

 

7,053

 

Reorganization charges

 

—

 

258

 

—

 

258

 

1,341

 

Legal settlement

 

—

 

780

 

—

 

780

 

—

 

Goodwill write-off

 

—

 

486,701

 

—

 

761,701

 

—

 

Other

 

2,878

 

3,100

 

3,150

 

8,892

 

9,221

 

Total noninterest expense

 

37,848

 

524,084

 

34,524

 

872,242

 

105,914

 

(Loss) earnings before income taxes

 

15,670

 

(466,411

)

37,441

 

(722,624

)

123,820

 

Income taxes

 

6,119

 

8,103

 

15,245

 

15,062

 

50,553

 

Net (loss) earnings

 

$

9,551

 

$

(474,514

)

$

22,196

 

$

(737,686

)

$

73,267

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information

 

 

 

 

 

 

 

 

 

 

 

Number of diluted shares outstanding (weighted average):

 

 

 

 

 

 

 

 

 

 

 

Net (loss) earnings

 

27,203.8

 

27,166.8

 

28,988.0

 

27,167.8

 

29,001.9

 

Net operating earnings

 

27,203.8

 

27,178.3

 

28,988.0

 

27,206.2

 

29,001.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) earnings per share:

 

$

0.35

 

$

(17.47

)

$

0.77

 

$

(27.15

)

$

2.53

 

Diluted net operating earnings per share:

 

$

0.35

 

$

0.47

 

$

0.77

 

$

0.90

 

$

2.55

 

 

10


 

UNAUDITED AVERAGE BALANCE SHEETS

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

Quarters Ended

 

September 30,

 

 

 

9/30/08

 

6/30/08

 

9/30/07

 

2008

 

2007

 

 

 

(Dollars in thousands)

 

Average Assets:

 

 

 

 

 

 

 

 

 

 

 

Loans, net of unearned income

 

$

3,893,836

 

$

3,970,704

 

$

3,938,511

 

$

3,961,008

 

$

4,065,400

 

Investment securities

 

136,383

 

146,840

 

96,672

 

142,179

 

104,591

 

Federal funds sold

 

4,837

 

4,549

 

47,931

 

4,806

 

44,817

 

Interest-bearing deposits in financial institutions

 

235

 

326

 

436

 

295

 

473

 

Average earning assets

 

4,035,291

 

4,122,419

 

4,083,550

 

4,108,288

 

4,215,281

 

Other assets

 

267,643

 

748,146

 

1,042,212

 

680,462

 

1,045,266

 

Average total assets

 

$

4,302,934

 

$

4,870,565

 

$

5,125,762

 

$

4,788,750

 

$

5,260,547

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Liabilities and Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Average liabilities

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

1,232,660

 

$

1,256,794

 

$

1,383,407

 

$

1,254,130

 

$

1,458,799

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking

 

351,863

 

373,382

 

355,303

 

364,981

 

316,227

 

Money market accounts

 

995,617

 

1,085,945

 

1,136,201

 

1,056,854

 

1,096,241

 

Savings

 

100,720

 

100,779

 

120,484

 

102,130

 

129,644

 

Time deposits

 

502,456

 

426,654

 

451,900

 

447,807

 

509,891

 

Interest-bearing deposits

 

1,950,656

 

1,986,760

 

2,063,888

 

1,971,772

 

2,052,003

 

Average deposits

 

3,183,316

 

3,243,554

 

3,447,295

 

3,225,902

 

3,510,802

 

Subordinated debentures

 

130,082

 

130,149

 

138,650

 

132,677

 

145,365

 

Borrowings

 

566,049

 

592,966

 

279,782

 

593,023

 

360,197

 

Other liabilities

 

47,233

 

48,801

 

55,386

 

48,741

 

57,641

 

Average liabilities

 

3,926,680

 

4,015,470

 

3,921,113

 

4,000,343

 

4,074,005

 

Average equity

 

376,254

 

855,095

 

1,204,649

 

788,407

 

1,186,742

 

Average liabilities and shareholders’ equity

 

$

4,302,934

 

$

4,870,565

 

$

5,125,762

 

$

4,788,750

 

$

5,260,747

 

 

 

 

 

 

 

 

 

 

 

 

 

Yield Analysis:

 

 

 

 

 

 

 

 

 

 

 

Average earning assets

 

$

4,035,291

 

$

4,122,419

 

$

4,083,550

 

$

4,108,288

 

$

4,215,281

 

Yield

 

6.95

%

6.97

%

8.50

%

7.13

%

8.46

%

Average interest-bearing deposits

 

$

1,950,656

 

$

1,986,760

 

$

2,063,888

 

$

1,971,772

 

$

2,052,003

 

Yield

 

1.84

%

1.81

%

2.87

%

2.01

%

2.74

%

Average deposits

 

$

3,183,316

 

$

3,243,554

 

$

3,447,295

 

$

3,225,902

 

$

3,510,802

 

Cost

 

1.12

%

1.11

%

1.72

%

1.23

%

1.60

%

Average interest-bearing liabilities

 

$

2,646,787

 

$

2,709,875

 

$

2,482,320

 

$

2,697,472

 

$

2,557,565

 

Cost

 

2.34

%

2.32

%

3.40

%

2.51

%

3.37

%

Average subordinated debentures

 

130,082

 

130,149

 

138,650

 

132,677

 

145,365

 

Cost

 

6.21

%

6.34

%

7.89

%

6.53

%

7.95

%

Average borrowings

 

566,049

 

592,966

 

279,782

 

593,023

 

360,197

 

Cost

 

3.19

%

3.17

%

5.05

%

3.27

%

5.10

%

Average interest sensitive liabilities

 

$

3,879,447

 

$

3,966,669

 

$

3,865,727

 

$

3,951,602

 

$

4,016,364

 

Cost

 

1.60

%

1.59

%

2.18

%

1.72

%

2.15

%

 

 

 

 

 

 

 

 

 

 

 

 

Interest spread

 

4.61

%

4.65

%

5.10

%

4.62

%

5.09

%

Net interest margin

 

5.42

%

5.44

%

6.44

%

5.48

%

6.41

%

 

11


 

DEPOSITS (unaudited)

 

 

 

As of the Dates Indicated

 

 

 

9/30/08

 

6/30/08

 

12/31/07

 

 

 

(Dollars in thousands)

 

Transaction accounts:

 

 

 

 

 

 

 

Demand deposits

 

$

1,218,486

 

$

1,239,098

 

$

1,211,946

 

Interest checking

 

344,618

 

355,754

 

366,191

 

Total transaction accounts

 

1,563,104

 

1,594,852

 

1,578,137

 

Non-transaction accounts:

 

 

 

 

 

 

 

Money market

 

903,033

 

1,050,726

 

1,135,307

 

Savings

 

98,362

 

100,422

 

108,223

 

Time deposits under $100,000

 

362,886

 

207,621

 

138,750

 

Time deposits over $100,000

 

265,687

 

238,592

 

284,729

 

Total non-transaction accounts

 

1,629,968

 

1,597,361

 

1,667,009

 

Total deposits

 

$

3,193,072

 

$

3,192,213

 

$

3,245,146

 

 

LOAN CONCENTRATION (unaudited)

 

 

 

As of the Dates Indicated

 

 

 

9/30/08

 

6/30/08

 

03/31/08 *

 

12/31/2007 *

 

9/30/2007 *

 

 

 

(Dollars in thousands)

 

Loan Category:

 

 

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

803,717

 

$

833,376

 

$

855,228

 

$

861,708

 

$

864,114

 

Real estate-construction

 

608,968

 

623,605

 

661,782

 

717,419

 

795,272

 

Commercial real estate-mortgage

 

2,437,593

 

2,361,529

 

2,361,365

 

2,335,099

 

2,144,323

 

Consumer

 

41,671

 

47,500

 

47,506

 

49,943

 

48,550

 

Foreign:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

49,153

 

46,096

 

48,737

 

56,916

 

57,538

 

Other

 

2,323

 

1,861

 

906

 

1,206

 

5,879

 

Total gross loans, including loans held for sale

 

$

3,943,425

 

$

3,913,967

 

$

3,975,524

 

$

4,022,291

 

$

3,915,676

 

 

*Commercial and commercial real estate-mortgage categories include loans held for sale.

 

12


 

COMPONENTS OF ALLOWANCE FOR CREDIT LOSSES,

NONPERFORMING ASSETS AND CREDIT QUALITY

MEASURES (Unaudited)

 

 

 

As of or for the:

 

 

 

Quarter Ended

 

Year Ended

 

 

 

9/30/08

 

6/30/08

 

3/31/08

 

12/31/07

 

 

 

(Dollars in thousands)

 

ALLOWANCE FOR CREDIT LOSSES:

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

$61,075

 

$59,777

 

$60,199

 

$52,557

 

Reserve for unfunded loan commitments

 

6,471

 

7,671

 

8,671

 

8,471

 

Allowance for credit losses

 

$67,546

 

$67,448

 

$68,870

 

$61,028

 

 

 

 

 

 

 

 

 

 

 

NONPERFORMING ASSETS:

 

 

 

 

 

 

 

 

 

Nonaccrual loans

 

$56,918

 

$64,116

 

$31,955

 

$22,473

 

Other real estate owned

 

13,285

 

9,886

 

6,055

 

2,736

 

Total nonperforming assets

 

$70,203

 

$74,002

 

$38,010

 

$25,209

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses to loans, net of unearned income

 

1.72

%

1.73

%

1.76

%

1.55

%

Allowance for credit losses to nonaccrual loans

 

118.67

%

105.20

%

215.5

%

271.6

%

Nonperforming assets to total loans, including loans held for sale, and other real estate owned

 

1.78

%

1.89

%

0.96

%

0.63

%

Nonaccrual loans to total loans, including loans held for sale

 

1.45

%

1.64

%

0.81

%

0.56

%

 

ALLOWANCE FOR CREDIT LOSSES ROLLFORWARD
AND NET CHARGE-OFF MEASUREMENT (unaudited)

 

 

 

As of or for the:

 

 

 

Quarter Ended

 

Year Ended

 

 

 

9/30/08

 

6/30/08

 

3/31/08

 

12/31/07

 

Balance at beginning of period

 

$

67,448

 

$

68,870

 

$

61,028

 

$

61,179

 

Loans charged-off:

 

 

 

 

 

 

 

 

 

Commercial

 

(1,551

)

(3,420

)

(108

)

(2,091

)

Real estate-construction

 

(1,184

)

(1,417

)

(18,335

)

(660

)

Real estate-mortgage

 

(1,990

)

(159

)

(68

)

(454

)

Consumer

 

(3,028

)

(97

)

(38

)

(166

)

Foreign

 

—

 

(39

)

—

 

(1,414

)

Total loans charged-off

 

(7,753

)

(5,132

)

(18,549

)

(4,785

)

 

 

 

 

 

 

 

 

 

 

Recoveries on loans charged-off:

 

 

 

 

 

 

 

 

 

Commercial

 

251

 

151

 

356

 

1,591

 

Real estate-construction

 

2

 

—

 

—

 

—

 

Real estate-mortgage

 

80

 

46

 

26

 

163

 

Consumer

 

16

 

10

 

9

 

122

 

Foreign

 

2

 

3

 

—

 

73

 

Total recoveries on loans charged-off

 

351

 

210

 

391

 

1,949

 

Net charge-offs

 

(7,402

)

(4,922

)

(18,158

)

(2,836

)

Provision for credit losses

 

7,500

 

3,500

 

26,000

 

3,000

 

Reduction for loans sold

 

—

 

—

 

—

 

(2,461

)

Additions due to acquisitions

 

—

 

—

 

—

 

2,146

 

Balance at end of period

 

$

67,546

 

$

67,448

 

$

68,870

 

$

61,028

 

 

 

 

 

 

 

 

 

 

 

Annualized net charge-offs to average loans

 

(0.76

)%

(0.50

)%

(1.82

)%

(0.07

)%

 

13


 

The Company has disclosed in this release certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investor’s overall understanding of the Company’s operating financial performance.  Management believes that these non-GAAP financial measures allow for additional transparency and are used by some investors, analysts and other users of the Company’s financial information as performance measures.  These non-GAAP financial measures are presented for supplemental informational purposes only for understanding the Company’s operating results and should not be considered a substitute for financial information presented in accordance with GAAP.  These non-GAAP financial measurers presented by the Company may be different from non-GAAP financial measures used by other companies.  The following table presents performance ratios in accordance with GAAP and a reconciliation of the non-GAAP financial measurements to the GAAP financial measurements.

 

Non GAAP Measurements (Unaudited)

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

Quarter Ended

 

September 30

 

In thousands, except per share data and percentages

 

September 30, 2008

 

June 30, 2008

 

2008

 

2007

 

Net (loss) earnings as reported

 

$

9,551

 

$

(474,514

)

$

(737,686

)

$

73,267

 

Legal settlement, net of tax

 

—

 

452

 

452

 

—

 

Reorganization costs, net of tax

 

—

 

150

 

150

 

778

 

Goodwill write-off

 

—

 

486,701

 

761,701

 

—

 

Net operating earnings

 

$

9,551

 

$

12,789

 

$

24,617

 

$

74,045

 

 

 

 

 

 

 

 

 

 

 

GAAP basic shares outstanding

 

27,191.1

 

27,166.8

 

27,167.8

 

28,884.2

 

Effect of restricted stock and dilutive stock options (a)

 

12.7

 

—

 

—

 

117.7

 

GAAP diluted shares outstanding

 

27,203.8

 

27,166.8

 

27,167.8

 

29,001.9

 

 

 

 

 

 

 

 

 

 

 

Operating earnings basic shares outstanding

 

27,191.1

 

27,166.8

 

27,167.8

 

28,884.2

 

Effect of restricted stock and dilutive stock options

 

12.7

 

11.5

 

38.4

 

117.7

 

Operating earnings diluted shares outstanding

 

27,203.8

 

27,178.3

 

27,206.2

 

29,001.9

 

 

 

 

 

 

 

 

 

 

 

GAAP basic and diluted earnings (loss) per share

 

$

0.35

 

$

(17.47

)

$

(27.15

)

$

2.53

 

Net operating diluted earnings per share

 

$

0.35

 

$

0.47

 

$

0.90

 

$

2.55

 

 

 

 

 

 

 

 

 

 

 

GAAP return on average assets

 

0.88

%

(39.18

)%

(20.58

)%

1.86

%

Net operating return on average assets

 

0.88

%

1.06

%

0.69

%

1.88

%

 

 

 

 

 

 

 

 

 

 

GAAP return on average equity

 

10.10

%

(223.19

)%

(124.98

)%

8.25

%

Net operating return on average equity

 

10.10

%

6.02

%

4.17

%

8.34

%

 

 

 

 

 

 

 

 

 

 

Noninterest expense as reported

 

$

37,848

 

$

524,084

 

$

872,242

 

$

105,914

 

Legal settlement

 

—

 

(780

)

(780

)

—

 

Reorganization costs

 

—

 

(258

)

(258

)

(1,341

)

Goodwill write-off

 

—

 

(486,701

)

(761,701

)

—

 

Operating noninterest expense

 

$

37,848

 

$

36,345

 

$

109,503

 

$

104,573

 

 

(a) Anti-dilutive for the quarter ended June 30, 2008 and nine months ended September 30, 2008.

 

Contact information:

 

Matt Wagner, Chief Executive Officer, (310) 728-1020

Vic Santoro, Executive Vice President and CFO, (310) 728-1021

 

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