EX-99.1 2 a09-3702_1ex99d1.htm EX-99.1

Exhibit 99.1

 

PRESS RELEASE

 

PacWest Bancorp

(NASDAQ: PACW)

 

Contact:

 

Matthew P. Wagner
Chief Executive Officer
10250 Constellation Boulevard
Suite 1640
Los Angeles, CA 90067

 

Victor R. Santoro
Executive Vice President and
Chief Financial Officer
10250 Constellation Boulevard
Suite 1640

 

 

 

 

Los Angeles, CA 90067

Phone:

 

310-728-1020

 

310-728-1021

Fax:

 

310-201-0498

 

310-201-0498

 

FOR IMMEDIATE RELEASE

 

January 22, 2009

 

PACWEST BANCORP ANNOUNCES RESULTS FOR THE FOURTH QUARTER OF 2008

 

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

—Total Risk-Based Capital Ratio of 11.95%—

—Credit Loss Reserve at 1.72% of Net Loans—

 

San Diego, California . . . PacWest Bancorp (Nasdaq: PACW) today announced net earnings for the fourth quarter of 2008 were $9.6 million, or $0.35 per diluted share, compared to net earnings of $9.6 million, or $0.35 per diluted share, for the third quarter of 2008. Net earnings for the fourth quarter of 2008 included adjustments related to restricted stock amortization and income taxes which increased net earnings by $3.1 million, or $0.11 per diluted share. The decrease in net earnings, excluding these items, resulted mostly from lower net interest income and higher provision for credit losses.

 

Net operating earnings for the year ended December 31, 2008, were $34.2 million, or $1.26 per diluted share, compared to net operating earnings of $91.3 million, or $3.18 per diluted share, for 2007. The decrease in net operating earnings was due mainly to lower net interest income, lower gain on sale of loans, and higher credit loss provisions. Net operating earnings 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 year ended December 31, 2008 was $728.1 million, or $26.79 per diluted share, compared to net earnings of $90.3 million, or $3.15 per diluted share, for 2007.

 

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. The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance

 

1


 

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.

 

HIGHLIGHTS FOR THE FOURTH QUARTER OF 2008 AND FISCAL 2008

 

 

 

Fourth Quarter
2008

 

Fiscal 2008

 

Average loan yield

 

6.69

%

7.08

%

Average cost of deposits

 

1.33

%

1.26

%

Net interest margin

 

4.77

%

5.30

%

Average noninterest bearing deposits to average total deposits

 

35.3

%

37.9

%

 

Matt Wagner, Chief Executive Officer, commented, “During the fourth quarter we acquired the deposit base of Security Pacific Bank from the FDIC, worked to close the investment from CapGen which was completed on January 14, 2009, and focused on further reductions in our residential construction portfolio. We continue to generate healthy earnings in the current environment, notwithstanding our credit loss provision.”

 

Mr. Wagner continued, “Our ability to raise capital in the public and private markets without reliance on the federal government is an endorsement of our financial strength and our ability to manage problem credits. The current economic environment remains challenging for all in the financial services industry, and we expect it to become more so in the coming quarters. We believe our strong capital position and emphasis on our core operating principles – acquire low cost deposits, make quality loans, control expenses, and provide exceptional customer service – provide us with the foundation to continue to succeed in these challenging times.”

 

Vic Santoro, Executive Vice President and Chief Financial Officer, stated, “Our capital levels and credit loss provision at the end of the fourth quarter reflect our commitment to operate conservatively and confront challenges directly in this difficult economic environment. Our positive earnings continue to enhance our capital and we are augmenting liquidity through deposit acquisitions, customer-focused initiatives and participation in various deposit programs. In the fourth quarter, we elected to participate in the Transaction Account Guarantee Program whereby the FDIC provides unlimited deposit insurance through December 31, 2009 for customer transaction deposits earning 50 basis points or less. We support this and other initiatives intended to improve the safety of depositor funds.”

 

2


 

QUARTERLY RESULTS

 

 

 

Fourth

 

Third

 

 

 

Quarter

 

Quarter

 

In thousands, except per share data and percentages

 

2008

 

2008

 

 

 

 

 

 

 

Net earnings

 

$

9,621

 

$

9,551

 

Diluted earnings per share

 

$

0.35

 

$

0.35

 

 

 

 

 

 

 

Net interest margin

 

4.77

%

5.42

%

 

 

 

 

 

 

At quarter end:

 

 

 

 

 

Allowance for credit losses to loans, net of unearned income

 

1.72

%

1.72

%

Total risk-based capital ratios:

 

 

 

 

 

Consolidated Company

 

11.95

%

12.18

%

Pacific Western Bank

 

11.87

%

11.79

%

 

Excluding adjustments related to restricted stock amortization and income taxes which increased net earnings by $3.1 million, or $0.11 per diluted share, net earnings decreased $3.0 million quarter over quarter from a combination of lower net interest income, higher provision for credit losses, higher noninterest income, and higher operating costs.

 

YEAR TO DATE RESULTS

 

 

 

Year Ended

 

 

 

December 31,

 

In thousands, except per share data and percentages

 

2008

 

2007

 

 

 

 

 

 

 

Net (loss) earnings as reported

 

$

(728,065

)

$

90,326

 

Legal settlement, net of tax

 

452

 

—

 

Reorganization costs, net of tax

 

150

 

1,004

 

Goodwill write-off

 

761,701

 

—

 

Net operating earnings

 

$

34,238

 

$

91,330

 

 

 

 

 

 

 

Diluted (loss) earnings per share

 

$

(26.79

)

$

3.15

 

Diluted net operating earnings per share

 

$

1.26

 

$

3.18

 

 

 

 

 

 

 

Net interest margin

 

5.30

%

6.34

%

 

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 $53.6 million to $4.0 billion at December 31, 2008, from September 30, 2008. Real estate loans increased $35.4 million, commercial and industrial loans increased $43.5 million, construction loans decreased $29.1 million and consumer loans increased $3.3 million. Fourth quarter loan growth includes $31.0 million in loans acquired as part of the Security Pacific Bank (SPB) deposit acquisition.

 

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Deposits increased $282 million in the fourth quarter due mainly to the SPB deposit acquisition. On November 7, 2008, we acquired $427 million of deposits in the SPB deposit acquisition, including $169 million of brokered deposits and $179 million of higher-costing certificates of deposit (CDs). After expected runoff, at December 31, 2008, such deposits totaled $334 million and included $130 million in brokered deposits and $143 million in other CDs. We expect the majority of the remaining brokered deposits and higher-costing CDs to mature without renewal.

 

When the acquired deposits are excluded, the decline in total deposits was $52 million, including an $80 million decline in demand deposits, a $68 million decline in money market deposits, a $14 million decline in brokered deposits, and a $117 million increase in Bank-sponsored CDs.  Although demand deposits decreased during the fourth quarter to $1.2 billion at December 31, 2008, they continue to represent a substantial 34% of total deposits at that date. At December 31, 2008, brokered deposits, excluding SPB brokered deposits, totaled $150 million; such amount excludes $108 million of customer deposits that were subsequently participated with other FDIC insured financial institutions through the CDARS program as a means to provide FDIC deposit insurance coverage for the full amount of our customers’ deposit.

 

NET INTEREST INCOME

 

Net interest income totaled $50.7 million for the fourth quarter of 2008 compared to $55.0 million for the third quarter of 2008. Loan interest income declined $2.2 million in the fourth quarter due to reductions in our base rate and higher nonaccrual loans. The Federal Reserve lowered the Federal Funds benchmark rate by 175 basis points during the fourth quarter and we reduced our base lending rate 100 basis points. Interest expense increased $2.2 million in the fourth quarter due to high-cost deposits from the Security Pacific Bank deposit acquisition and higher costs on brokered and Bank-sponsored CDs.

 

Net interest income decreased $45.8 million to $219.3 million for the year ended December 31, 2008 compared to 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 fourth quarter of 2008 was 4.77%, a decrease of 65 basis points when compared to the third quarter of 2008. The decrease in the net interest margin is due mostly to lower loan yields and higher costing deposits. The lower loan yield is due to the level of market interest rates and higher nonaccrual loans. Despite lower market interest rates, the cost of deposits increased due to competition for liquidity and the impact of the SPB deposit acquisition. The addition of the SPB deposits decreased the fourth quarter net interest margin by 18 basis points.

 

The net interest margin was 5.07% in October, 4.64% in November and 4.61% in December. When net reversals of interest income on nonaccrual loans are excluded, the net interest margin for the month of December was 4.66%. The yield on average earning assets was 6.44% for the fourth quarter of 2008 compared to 6.95% for the third quarter of 2008. The yield on average loans was 6.69% for the fourth quarter of 2008 compared to 7.02% for the third quarter of 2008; the loan yield for the month of December was 6.63%. When net reversals of interest income on nonaccrual loans are excluded, the loan yield for December was 6.68%.

 

4


 

Deposit pricing in the competitive market caused the cost of interest bearing deposits to increase 21 basis points to 2.05% and all-in deposit cost to increase 21 basis points to 1.33%. On a monthly basis, deposit costs were 1.21% in October, 1.43% in November and 1.34% in December. The cost of deposits increased due to the competition for liquidity, the high-cost deposits from the SPB deposit acquisition, and the use of CDs, both Bank-sponsored and brokered, to fund loan growth and deposit flows. At the time of acquisition, the SPB deposits had a weighted average cost of 3.54%. The SPB deposits remaining at December 31, 2008 had a weighted average cost of 3.36%; excluding the SPB CDs, the remaining SPB deposits had a weighted average cost of 0.82%. We expect the higher-cost acquired deposits will continue to reprice in the current market or be replaced with more cost effective funding.

 

Our relatively low cost of deposits is driven by demand deposit balances, which averaged 35% of average total deposits during the fourth quarter of 2008. The overall cost of interest-bearing liabilities was 2.45% for the fourth quarter of 2008, up 11 basis points from the third quarter of 2008 due mostly to higher deposit costs. In line with deposit cost trends, the cost of interest bearing liabilities increased to 2.42% in December 2008 from 2.34% in September 2008.

 

Our net interest margin for the year ended December 31, 2008 was 5.30%, a decrease of 104 basis points when compared to 2007. The decrease in the net interest margin results primarily from lower loan yields and the higher cost of deposits, including the effect of lower average demand deposits.

 

The FHLB of San Francisco notified its members in early January 2009 that it would be suspending its quarterly dividend.  Although this suspension had no effect on our fourth quarter net interest margin, it is expected to reduce our first quarter of 2009 net interest margin by 3 basis points.

 

NONINTEREST INCOME

 

Noninterest income for the fourth quarter of 2008 totaled $6.8 million compared to $6.0 million in the third quarter of 2008. The increase is due to higher analysis and NSF fees and higher net gains on sales of OREO.

 

Noninterest income declined $8.1 million for the year ended December 31, 2008 to $24.8 million from the $32.9 million earned during 2007. The decrease in noninterest income resulted largely from lower gain on sale of loans, lower other income and higher deposit service charge 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 $1.8 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 income category included a $2.1 million gain related to recognizing an unearned discount on the payoff of an acquired loan; this compares to the $444,000 recognized during 2008. Deposit service fee income increased $1.4 million due to a decline in market interest rate-related earnings credits on business accounts.

 

NONINTEREST EXPENSE

 

Noninterest expense decreased $3.7 million to $34.1 million for fourth quarter of 2008 from $37.8 million for the third quarter of 2008. As described below, noninterest expense was reduced by $4.5 million related to a performance-based restricted stock amortization adjustment. When this item is excluded, noninterest expense is $38.6 million for the fourth quarter, a net increase of $726,000 when compared to the third quarter. Substantially all of the increases in the noninterest expense categories relate to the additional operating costs from the SPB deposit acquisition. OREO costs declined $358,000 due to the combination of lower write-downs and higher OREO operating costs.

 

5


 

Noninterest expense includes amortization of time-based and performance-based restricted stock, which is included in compensation, and intangible asset amortization. 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 based on the conclusion that attainment of these financial targets was less than probable. During the fourth quarter of 2008 we concluded it was improbable that the financial targets would be met for the 2006 and 2007 performance stock awards. Accordingly, we reversed the accumulated amortization on those awards through a credit of $4.5 million to compensation expense. Excluding the performance-based restricted stock amortization adjustment, restricted stock amortization totaled $1.8 million for the fourth quarter of 2008, $1.2 million for the third quarter of 2008 and $5.4 million for fiscal 2008. We recorded a core deposit intangible of $5.8 million related to the SPB deposit acquisition. Intangible asset amortization totaled $2.3 million for the fourth quarter of 2008 and $9.6 million for the year ended 2008.

 

Operating noninterest expense (defined as reported noninterest expense excluding goodwill write-offs, the legal settlement and reorganization costs) for the year ended December 31, 2008 totaled $143.6 million compared to $140.5 million for the same period in 2007. When the performance-based restricted stock amortization adjustment is excluded, 2008 operating noninterest expense totaled $148.1 million, an increase $7.6 million compared to 2007.  The increase is due largely to the BFI acquisition completed in June 2007, higher compensation, higher costs to workout nonperforming assets and other problem credits, and the impact of the November 2008 SPB deposit acquisition.

 

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 our entire balance of goodwill totaling $761.7 million during the first half of 2008. The goodwill write-off is a non-cash charge 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 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 for the fourth quarter of 2008 was 34.3% compared to 39.0% for the third quarter of 2008. The effective tax rates are generally lower than the blended Federal and State statutory rate of 42.0% due to tax credits on certain investments and other tax-exempt income. The fourth quarter’s effective tax rate was lowered further by a net benefit of $500,000 from tax-deductible goodwill and adjustments related to previously recognized State tax credits.

 

CREDIT QUALITY

 

The credit loss provision for the fourth quarter of 2008 of $8.8 million was based on our reserve methodology and considered, among other factors, net charge-offs, the level and trends of classified, criticized, past due and nonaccrual loans, general market conditions and portfolio concentrations. At December 31, 2008, the allowance for credit losses totaled $68.8 million and represented 1.72% of loans net of unearned income compared to $67.5 million and 1.72% at the end of September.

 

6


 

Nonperforming assets include nonaccrual loans and other real estate owned (OREO) and totaled $104.8 million at the end of December compared to $70.2 million at the end of September. OREO totaled $41.3 million at the end of December compared to $13.3 million at the end of September. The increase in OREO is due to 17 foreclosures totaling $36.0 million, writedowns of $190,000 and 5 sales totaling $7.7 million. The ratio of nonperforming assets to loans and OREO increased to 2.60% at December 31, 2008 compared to 1.78% at September 30, 2008.

 

The types of loans included in the nonaccrual and accruing loans past due between 30 and 89 days categories as of December 31, 2008 and September 30, 2008 follow:

 

 

 

Nonaccrual loans

 

Accruing and over 30
days past due

 

 

 

Balance as of

 

Loan category

 

12/31/08

 

9/30/08

 

12/31/08

 

9/30/08

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA 504

 

$

5,308

 

$

6,570

 

$

—

 

$

636

 

SBA 7(a) and Express

 

7,544

 

4,161

 

2,330

 

340

 

Residential construction

 

14,738

 

7,401

 

5,342

 

—

 

Commercial real estate

 

11,081

 

23,131

 

26,674

 

5,558

 

Commercial construction

 

984

 

5,925

 

3,956

 

—

 

Commercial

 

20,325

 

4,153

 

2,298

 

1,495

 

Commercial land

 

314

 

881

 

142

 

—

 

Residential other

 

86

 

285

 

457

 

—

 

Residential land

 

1,665

 

1,988

 

—

 

—

 

Residential multifamily

 

—

 

—

 

3,292

 

—

 

Other, including foreign

 

1,425

 

2,423

 

1,133

 

202

 

 

 

$

63,470

 

$

56,918

 

$

45,624

 

$

8,231

 

 

The net increase in nonaccrual loans during the fourth quarter is composed of additions of $44.8 million, repayments and payoffs of $1.5 million, charge-offs of $5.0 million, and foreclosures of $31.8 million. The increase in the residential construction nonaccrual category is due mostly to two loans to one borrower for related projects located in the Inland Empire. The increase in the commercial nonaccrual category relates to a commercial loan borrower that filed Chapter 11 bankruptcy in October 2008. This loan was highlighted in our third quarter of 2008 Form 10-Q and has since paid down by $2.0 million to $16.6 million.

 

Included in the nonaccrual loans at the end of December are $12.9 million of SBA related loans representing 20% 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 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 $5.4 million. At December 31, 2008, the SBA loan portfolio totaled $160.6 million and was composed of $119.3 million in SBA 504 loans and $41.3 million in SBA 7(a) and Express loans.

 

7


 

Loans accruing and over 30 days past due increased $37.4 million during the fourth quarter. Subsequent to year end, the residential multifamily loan for $3.3 million was paid in full and the renewal of a commercial real estate loan relationship for $11.7 million was completed. The remaining commercial real estate loans that are accruing and over 30 days past due total $15 million and include several creditors that are experiencing increased vacancies. The residential construction category represents one project for $5.3 million on three completed homes in the Rancho Mirage area of southern California that are now being marketed. The commercial construction loan for $3.9 million represents a completed 4-unit industrial warehouse in San Diego that is leasing up.

 

Our exposure to nonowner-occupied residential construction loans was reduced by $5.7 million to $232.7 million at the end of December from $238.4 million at the end of September. The reduction was due to a combination of net repayments, including fundings under existing commitments, of $7.5 million, foreclosures and charge-offs of $4.2 million, and $6.0 million for a new loan to an existing borrower. The details of the nonowner-occupied residential construction loan portfolio as of the dates indicated follow:

 

 

 

As of December 31, 2008

 

As of September 30, 2008

 

Loan Category

 

Balance

 

Number of loans

 

Average loan balance

 

Balance

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Residential land acquisition and development

 

$

 55,236

 

22

 

$

 2,511

 

$

 57,866

 

Residential nonowner-occupied single family

 

75,024

 

33

 

2,273

 

87,395

 

Unimproved residential land

 

50,799

 

16

 

3,175

 

45,583

 

Residential multifamily

 

51,597

 

10

 

5,160

 

47,585

 

 

 

$

232,656

 

81

 

$

2,872

 

$

238,429

 

 

REGULATORY CAPITAL MEASURES ARE ABOVE THE WELL-CAPITALIZED MINIMUMS

 

PacWest and its wholly-owned banking subsidiary, Pacific Western Bank, each remained well capitalized at December 31, 2008 as shown in the following table.

 

 

 

Minimum

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

Requirements

 

Actual

 

 

 

Well

 

Pacific

 

Company

 

 

 

Capitalized

 

Western

 

Consolidated

 

Tier 1 leverage capital ratio

 

5.00

%

10.43

%

10.50

%

Tier 1 risk-based capital ratio

 

6.00

%

10.61

%

10.69

%

Total risk-based capital

 

10.00

%

11.87

%

11.95

%

 

CAPGEN INVESTMENT

 

As announced on January 14, 2009, we issued in a private placement to CapGen Capital Group II LP 3,846,153 PacWest common shares at $26 per share for total cash consideration of approximately $100 million. CapGen Capital Group II LP has registered as a bank holding company and as a result of the investment it owns approximately 12% of PacWest common stock on a fully-diluted basis as of December 31, 2008. As previously disclosed, PacWest anticipates that the additional capital from this investment will be used for general corporate purposes, to fund debt retirement and to take advantage of strategic growth opportunities as they arise.

 

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Pro forma amounts and ratios for the Company assuming the CapGen investment was made on December 31, 2008, compared with actual amounts and ratios follow:

 

 

 

At December 31, 2008

 

 

 

Actual

 

Pro Forma

 

 

 

(In thousands, except share date)

 

Fully-diluted shares

 

28,517.4

 

32,363.6

 

Stockholders’ equity

 

$

375,726

 

$

475,626

 

Book value per share

 

$

13.18

 

$

14.70

 

Tangible book value per share

 

$

11.78

 

$

13.46

 

Tier 1 leverage capital

 

10.50

%

12.73

%

Tier 1 risk-based capital

 

10.69

%

12.97

%

Total risk-based capital

 

11.95

%

14.22

%

 

ABOUT PACWEST BANCORP

 

PacWest Bancorp is a bank holding company with $4.5 billion in assets as of December 31, 2008, with one wholly-owned banking subsidiary, Pacific Western Bank. Through 60 full-service community banking branches, and 4 branches acquired from Security Pacific Bank in November 2008, 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 First Community Financial and Pacific Western SBA Lending, Pacific Western also provides working 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 a 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, successfully integrate such acquired entities, or achieve expected beneficial 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

 

9


 

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.

 

10


 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

December 31,

 

December 31,

 

 

 

2008

 

2007

 

 

 

(In thousands, except share date)

 

Assets:

 

 

 

 

 

Cash and due from banks

 

$

100,925

 

$

99,363

 

Federal funds sold

 

165

 

2,000

 

Total cash and cash equivalents

 

101,090

 

101,363

 

 

 

 

 

 

 

Interest-bearing deposits in financial institutions

 

58,780

 

420

 

 

 

 

 

 

 

Federal Home Loan Bank stock, at cost

 

33,782

 

26,649

 

Securities available-for-sale, at estimated fair value

 

121,577

 

106,888

 

Total securities

 

155,359

 

133,537

 

 

 

 

 

 

 

Loans, held for sale

 

—

 

63,565

 

 

 

 

 

 

 

Loans, net of unearned income

 

3,987,891

 

3,949,218

 

Allowance for loan losses

 

(63,519

)

(52,557

)

Net loans

 

3,924,372

 

3,896,661

 

 

 

 

 

 

 

Premises and equipment

 

24,675

 

26,327

 

Other real estate owned, net

 

41,310

 

2,736

 

Intangible assets

 

39,922

 

805,775

 

Cash surrender value of life insurance

 

70,588

 

67,846

 

Other assets

 

79,406

 

80,810

 

Total assets

 

$

4,495,502

 

$

5,179,040

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

Liabilities:

 

 

 

 

 

Noninterest-bearing deposits

 

$

1,165,485

 

$

1,211,946

 

Interest-bearing deposits

 

2,309,730

 

2,033,200

 

Total deposits

 

3,475,215

 

3,245,146

 

 

 

 

 

 

 

Accrued interest payable and other liabilities

 

64,567

 

45,054

 

Borrowings

 

450,000

 

612,000

 

Subordinated debentures

 

129,994

 

138,488

 

Total liabilities

 

4,119,776

 

4,040,688

 

 

 

 

 

 

 

Stockholders’ Equity

 

375,726

 

1,138,352

 

Total Liabilities and Stockholders’ Equity

 

$

4,495,502

 

$

5,179,040

 

 

 

 

 

 

 

Shares outstanding (including 1,309,586 shares at December 31, 2008 and 861,269 shares at December 31, 2007, underlying unvested stock awards)

 

28,516,106

 

28,002,382

 

 

 

 

 

 

 

Tangible book value per share

 

$

11.78

 

$

11.88

 

Book value per share

 

$

13.18

 

$

40.65

 

 

11


 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

Quarters Ended

 

December 31

 

 

 

12/31/08

 

9/30/08

 

12/31/07

 

2008

 

2007

 

 

 

(In thousands, except per share data)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

66,507

 

$

68,712

 

$

82,742

 

$

280,408

 

$

343,617

 

Interest on federal funds sold

 

75

 

23

 

251

 

161

 

1,979

 

Interest on time deposits in other financial institutions

 

176

 

1

 

4

 

182

 

21

 

Interest on investment securities

 

1,707

 

1,808

 

1,358

 

7,077

 

5,364

 

Total interest income

 

68,465

 

70,544

 

84,355

 

287,828

 

350,981

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Interest expense on deposits

 

11,416

 

9,001

 

14,391

 

41,157

 

56,471

 

Interest expense on borrowings

 

4,217

 

4,538

 

4,306

 

18,742

 

18,034

 

Interest expense on subordinated debentures

 

2,107

 

2,030

 

2,715

 

8,597

 

11,361

 

Total interest expense

 

17,740

 

15,569

 

21,412

 

68,496

 

85,866

 

Net interest income before provision for credit losses

 

50,725

 

54,975

 

62,943

 

219,332

 

265,115

 

Provision for credit losses

 

8,800

 

7,500

 

3,000

 

45,800

 

3,000

 

Net interest income after provision for credit losses

 

41,925

 

47,475

 

59,943

 

173,532

 

262,115

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

3,420

 

3,165

 

3,029

 

13,014

 

11,573

 

Other commissions and fees

 

2,062

 

1,884

 

1,817

 

7,277

 

7,019

 

Gain (loss) on sale of loans

 

—

 

—

 

(543

)

(303

)

8,438

 

Gain on sale of securities, net

 

—

 

81

 

—

 

81

 

—

 

Gain (loss) on sale of OREO

 

254

 

(9

)

(6

)

380

 

(6

)

Increase in cash surrender value of life insurance

 

584

 

632

 

649

 

2,420

 

2,489

 

Other income

 

476

 

290

 

406

 

1,938

 

3,401

 

Total noninterest income

 

6,796

 

6,043

 

5,352

 

24,807

 

32,914

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

15,088

 

19,332

 

16,669

 

72,185

 

71,440

 

Occupancy and FF&E

 

6,410

 

6,321

 

6,054

 

24,531

 

24,085

 

Data processing

 

1,590

 

1,495

 

1,475

 

6,232

 

6,007

 

Other professional services

 

1,688

 

1,768

 

1,495

 

6,540

 

6,301

 

Business development

 

789

 

650

 

1,709

 

3,044

 

4,045

 

Communications

 

766

 

745

 

779

 

3,151

 

3,277

 

Insurance and assessments

 

1,148

 

1,025

 

464

 

3,523

 

1,723

 

OREO

 

1,002

 

1,360

 

34

 

2,598

 

99

 

Intangible asset amortization

 

2,332

 

2,274

 

2,621

 

9,620

 

9,674

 

Reorganization charges

 

—

 

—

 

390

 

258

 

1,731

 

Legal settlement

 

—

 

—

 

—

 

780

 

—

 

Goodwill write-off

 

—

 

—

 

—

 

761,701

 

—

 

Other

 

3,260

 

2,878

 

4,655

 

12,152

 

13,877

 

Total noninterest expense

 

34,073

 

37,848

 

36,345

 

906,315

 

142,259

 

(Loss) earnings before income taxes

 

14,648

 

15,670

 

28,950

 

(707,976

)

152,770

 

Income taxes

 

5,027

 

6,119

 

11,891

 

20,089

 

62,444

 

Net (loss) earnings

 

$

9,621

 

$

9,551

 

$

17,059

 

$

(728,065

)

$

90,326

 

 

 

 

 

 

 

 

 

 

 

 

 

Per share information

 

 

 

 

 

 

 

 

 

 

 

Number of diluted shares outstanding (weighted average):

 

 

 

 

 

 

 

 

 

 

 

Net (loss) earnings

 

27,216.4

 

27,203.8

 

27,703.0

 

27,176.6

 

28,676.0

 

Net operating earnings

 

27,216.4

 

27,203.8

 

27,703.0

 

27,214.8

 

28,676.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) earnings per share:

 

$

0.35

 

$

0.35

 

$

0.62

 

$

(26.79

)

$

3.15

 

Diluted net operating earnings per share:

 

$

0.35

 

$

0.35

 

$

0.62

 

$

1.26

 

$

3.18

 

 

12


 

UNAUDITED AVERAGE BALANCE SHEETS

 

 

 

Quarters Ended

 

Year Ended

 

 

 

12/31/08

 

9/30/08

 

12/31/07

 

12/31/08

 

12/31/07

 

 

 

(Dollars in thousands)

 

Average Assets:

 

 

 

 

 

 

 

 

 

 

 

Loans, net of unearned income

 

$

3,952,872

 

$

3,893,836

 

$

3,960,621

 

$

3,958,963

 

$

4,038,990

 

Investment securities

 

142,494

 

136,383

 

105,995

 

142,258

 

104,945

 

Federal funds sold

 

29,702

 

4,837

 

21,437

 

11,064

 

38,924

 

Interest-bearing deposits in financial institutions

 

104,800

 

235

 

425

 

26,564

 

461

 

Average earning assets

 

4,229,868

 

4,035,291

 

4,088,478

 

4,138,849

 

4,183,320

 

Other assets

 

274,687

 

267,643

 

1,037,646

 

578,463

 

1,043,495

 

Average total assets

 

$

4,504,555

 

$

4,302,934

 

$

5,126,124

 

$

4,717,312

 

$

5,226,815

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Average liabilities

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

1,208,085

 

$

1,232,660

 

$

1,332,259

 

$

1,242,557

 

$

1,426,904

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking

 

338,434

 

351,863

 

363,756

 

358,308

 

328,207

 

Money market accounts

 

858,971

 

995,617

 

1,182,456

 

1,007,112

 

1,117,972

 

Savings

 

117,278

 

100,720

 

113,398

 

105,938

 

125,549

 

Time deposits

 

899,264

 

502,456

 

423,668

 

561,288

 

488,158

 

Interest-bearing deposits

 

2,213,947

 

1,950,656

 

2,083,278

 

2,032,646

 

2,059,886

 

Average deposits

 

3,422,032

 

3,183,316

 

3,415,537

 

3,275,203

 

3,486,790

 

Subordinated debentures

 

130,025

 

130,082

 

138,553

 

132,010

 

143,648

 

Borrowings

 

536,370

 

566,049

 

366,196

 

578,783

 

361,709

 

Other liabilities

 

38,919

 

47,233

 

50,339

 

46,270

 

55,801

 

Average liabilities

 

4,127,346

 

3,926,680

 

3,970,625

 

4,032,266

 

4,047,948

 

Average equity

 

377,209

 

376,254

 

1,155,499

 

685,046

 

1,178,867

 

Average liabilities and stockholders’ equity

 

$

4,504,555

 

$

4,302,934

 

$

5,126,124

 

$

4,717,312

 

$

5,226,815

 

 

 

 

 

 

 

 

 

 

 

 

 

Yield Analysis:

 

 

 

 

 

 

 

 

 

 

 

Average earning assets

 

$

4,229,868

 

$

4,035,291

 

$

4,088,478

 

$

4,138,849

 

$

4,183,320

 

Yield

 

6.44%

 

6.95

%

8.19

%

6.95

%

8.39

%

Average interest-bearing deposits

 

$

2,213,947

 

$

1,950,656

 

$

2,083,278

 

$

2,032,646

 

$

2,059,886

 

Cost

 

2.05

%

1.84

%

2.74

%

2.02

%

2.74

%

Average deposits

 

$

3,422,032

 

$

3,183,316

 

$

3,415,537

 

$

3,275,203

 

$

3,486,790

 

Cost

 

1.33

%

1.12

%

1.67

%

1.26

%

1.62

%

Average interest-bearing liabilities

 

$

2,880,342

 

$

2,646,787

 

$

2,588,027

 

$

2,743,439

 

$

2,565,243

 

Cost

 

2.45

%

2.34

%

3.28

%

2.50

%

3.35

%

Average subordinated debentures

 

130,025

 

130,082

 

138,553

 

132,010

 

143,648

 

Cost

 

6.45

%

6.21

%

7.77

%

6.51

%

7.91

%

Average borrowings

 

536,370

 

566,049

 

366,196

 

578,783

 

361,709

 

Cost

 

3.13

%

3.19

%

4.67

%

3.24

%

4.99

%

Average interest sensitive liabilities

 

$

4,088,427

 

$

3,879,447

 

$

3,920,286

 

$

3,985,996

 

$

3,992,147

 

Cost

 

1.73

%

1.60

%

2.17

%

1.72

%

2.15

%

 

 

 

 

 

 

 

 

 

 

 

 

Interest spread

 

3.99

%

4.61

%

4.89

%

4.46

%

5.04

%

Net interest margin

 

4.77

%

5.42

%

6.11

%

5.30

%

6.34

%

 

13


 

DEPOSITS (unaudited)

 

 

 

As of the Dates Indicated

 

 

 

 

 

 

 

12/31/08

 

9/30/08

 

12/31/07

 

 

 

 

 

 

 

(Dollars in thousands)

 

 

 

 

 

Transaction accounts:

 

 

 

 

 

 

 

 

 

 

 

Demand deposits

 

$

1,165,485

 

$

1,218,486

 

$

1,211,946

 

 

 

 

 

Interest checking

 

342,241

 

344,618

 

366,191

 

 

 

 

 

Total transaction accounts

 

1,507,726

 

1,563,104

 

1,578,137

 

 

 

 

 

Non-transaction accounts:

 

 

 

 

 

 

 

 

 

 

 

Money market

 

837,873

 

903,033

 

1,135,307

 

 

 

 

 

Savings

 

124,603

 

98,362

 

108,223

 

 

 

 

 

Time deposits under $100,000

 

611,083

 

362,886

 

138,750

 

 

 

 

 

Time deposits over $100,000

 

393,930

 

265,687

 

284,729

 

 

 

 

 

Total non-transaction accounts

 

1,967,489

 

1,629,968

 

1,667,009

 

 

 

 

 

Total deposits

 

$

3,475,215

 

$

3,193,072

 

$

3,245,146

 

 

 

 

 

 

LOAN CONCENTRATION (unaudited)

 

 

 

As of the Dates Indicated

 

 

 

12/31/08

 

9/30/08

 

6/30/08

 

3/31/08 *

 

12/31/07 *

 

 

 

 

 

(Dollars in thousands)

 

 

 

Loan Category:

 

 

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

845,410

 

$

803,717

 

$

833,376

 

$

855,228

 

$

861,708

 

Real estate-construction

 

579,884

 

608,968

 

623,605

 

661,782

 

717,419

 

Commercial real estate-mortgage

 

2,473,089

 

2,437,593

 

2,361,529

 

2,361,365

 

2,335,099

 

Consumer

 

44,938

 

41,671

 

47,500

 

47,506

 

49,943

 

Foreign:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

50,918

 

49,153

 

46,096

 

48,737

 

56,916

 

Other

 

2,245

 

2,323

 

1,861

 

906

 

1,206

 

Total gross loans, including loans held for sale

 

$

3,996,484

 

$

3,943,425

 

$

3,913,967

 

$

3,975,524

 

$

4,022,291

 

 

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

 

14


 

COMPONENTS OF ALLOWANCE FOR CREDIT LOSSES,
NONPERFORMING ASSETS AND CREDIT QUALITY
MEASURES (Unaudited)

 

 

 

As of the Dates Indicated

 

 

 

12/31/08

 

9/30/08

 

12/31/07

 

 

 

(Dollars in thousands)

 

ALLOWANCE FOR CREDIT LOSSES:

 

 

 

 

 

 

 

Allowance for loan losses

 

$

63,519

 

$

61,075

 

$

52,557

 

Reserve for unfunded loan commitments

 

5,271

 

6,471

 

8,471

 

Allowance for credit losses

 

$

68,790

 

$

67,546

 

$

61,028

 

 

 

 

 

 

 

 

 

NONPERFORMING ASSETS:

 

 

 

 

 

 

 

Nonaccrual loans

 

$

63,470

 

$

56,918

 

$

22,473

 

Other real estate owned

 

41,310

 

13,284

 

2,736

 

Total nonperforming assets

 

$

104,780

 

$

70,202

 

$

25,209

 

 

 

 

 

 

 

 

 

Allowance for credit losses to loans, net of unearned income

 

1.72

%

1.72

%

1.55

%

Allowance for credit losses to nonaccrual loans

 

108.38

%

118.67

%

271.6

%

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

 

2.60

%

1.78

%

0.63

%

Nonaccrual loans to total loans, including loans held for sale

 

1.59

%

1.45

%

0.56

%

 

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

 

 

 

As of or for the:

 

 

 

Quarter Ended

 

Year Ended

 

 

 

12/31/08

 

12/31/08

 

12/31/07

 

 

 

(Dollars in thousands)

 

Balance at beginning of period

 

$

67,546

 

$

61,028

 

$

61,179

 

Loans charged-off:

 

 

 

 

 

 

 

Commercial

 

(2,585

)

(7,664

)

(2,091

)

Real estate-construction

 

(3,292

)

(24,998

)

(660

)

Real estate-mortgage

 

(1,170

)

(2,617

)

(454

)

Consumer

 

(784

)

(3,947

)

(166

)

Foreign

 

(310

)

(349

)

(1,414

)

Total loans charged-off

 

(8,141

)

(39,575

)

(4,785

)

 

 

 

 

 

 

 

 

Recoveries on loans charged-off:

 

 

 

 

 

 

 

Commercial

 

213

 

971

 

1,591

 

Real estate-construction

 

86

 

88

 

—

 

Real estate-mortgage

 

260

 

412

 

163

 

Consumer

 

12

 

47

 

122

 

Foreign

 

14

 

19

 

73

 

Total recoveries on loans charged-off

 

585

 

1,537

 

1,949

 

Net charge-offs

 

(7,556

)

(38,038

)

(2,836

)

Provision for credit losses

 

8,800

 

45,800

 

3,000

 

Reduction for loans sold

 

—

 

—

 

(2,461

)

Additions due to acquisitions

 

—

 

—

 

2,146

 

Balance at end of period

 

$

68,790

 

$

68,790

 

$

61,028

 

 

 

 

 

 

 

 

 

Annualized net charge-offs to average loans

 

(0.76

)%

(0.96

)%

(0.07

)%

 

15


 

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)

 

 

 

 

 

 

 

Year Ended

 

 

 

Quarter Ended

 

December 31,

 

In thousands, except per share data and percentages

 

December 31, 2008

 

September 30, 2008

 

2008

 

2007

 

Net (loss) earnings as reported

 

$

9,621

 

$

9,551

 

$

(728,065

)

$

90,326

 

Legal settlement, net of tax

 

—

 

—

 

452

 

—

 

Reorganization costs, net of tax

 

—

 

—

 

150

 

1,004

 

Goodwill write-off

 

—

 

—

 

761,701

 

—

 

Net operating earnings

 

$

9,621

 

$

9,551

 

$

34,238

 

$

91,330

 

 

 

 

 

 

 

 

 

 

 

GAAP basic shares outstanding

 

27,202.9

 

27,191.1

 

27,176.6

 

28,571.9

 

Effect of restricted stock and dilutive stock options (a)

 

13.5

 

12.7

 

—

 

104.1

 

GAAP diluted shares outstanding

 

27,216.4

 

27,203.8

 

27,176.6

 

28,676.0

 

 

 

 

 

 

 

 

 

 

 

Operating earnings basic shares outstanding

 

27,202.9

 

27,191.1

 

27,176.6

 

28,571.9

 

Effect of restricted stock and dilutive stock options

 

13.5

 

12.7

 

38.2

 

104.1

 

Operating earnings diluted shares outstanding

 

27,216.4

 

27,203.8

 

27,214.8

 

28,676.0

 

 

 

 

 

 

 

 

 

 

 

GAAP basic and diluted earnings (loss) per share

 

$

0.35

 

$

0.35

 

$

(26.79

)

$

3.15

 

Net operating diluted earnings per share

 

$

0.35

 

$

0.35

 

$

1.26

 

$

3.18

 

 

 

 

 

 

 

 

 

 

 

GAAP return on average assets

 

0.85

%

0.88

%

(15.43

)%

1.73

%

Net operating return on average assets

 

0.85

%

0.88

%

0.73

%

1.75

%

 

 

 

 

 

 

 

 

 

 

GAAP return on average equity

 

10.15

%

10.10

%

(106.28

)%

7.66

%

Net operating return on average equity

 

10.15

%

10.10

%

5.00

%

7.75

%

 

 

 

 

 

 

 

 

 

 

Noninterest expense as reported

 

$

34,073

 

$

37,848

 

$

906,315

 

$

142,259

 

Legal settlement

 

—

 

—

 

(780

)

—

 

Reorganization costs

 

—

 

—

 

(258

)

(1,731

)

Goodwill write-off

 

—

 

—

 

(761,701

)

—

 

Operating noninterest expense

 

$

34,073

 

$

37,848

 

$

143,576

 

$

140,528

 

 

(a) Anti-dilutive for the year ended December 31, 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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