EX-99.1 2 a10-2267_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 21, 2010

 

PACWEST BANCORP ANNOUNCES RESULTS

FOR THE FOURTH QUARTER OF 2009

 

—Average Core Deposits Increased $267.1 Million—

—Net Interest Margin Increases to 4.79%—

—Credit Loss Reserve at 3.35% of Net Non-Covered Loans—

 

San Diego, California . . . PacWest Bancorp (Nasdaq: PACW) today announced a net loss for the fourth quarter of 2009 of $7.8 million, or $0.23 per diluted share, compared to net earnings of $2.7 million, or $0.08 per diluted share, for the third quarter of 2009.  The third and fourth quarters were impacted significantly by legacy portfolio credit loss provisions and credit-related transactions from the Affinity acquisition which are discussed further below.

 

Net loss for the year ended December 31, 2009 was $9.4 million, or $0.30 per diluted share, compared to a net loss of $728.1 million for 2008, or $26.81 per diluted share.  The 2008 goodwill write-off totaled $761.7 million; there was no such item in 2009.

 

This press release contains certain non-GAAP financial disclosures for tangible capital.  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.  Because the use of tangible capital amounts and ratios is becoming more prevalent among banking regulators, investors and analysts, we disclose our tangible capital ratios in addition to equity-to-assets ratios.  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 measures to the GAAP financial measures.

 

1


 

FOURTH QUARTER RESULTS

 

In thousands, except per share data and percentages

 

Fourth
Quarter
2009

 

Third
Quarter
2009

 

 

 

 

 

 

 

Net earnings (loss)

 

$

(7,780

)

$

2,725

 

Diluted earnings (loss) per share

 

$

(0.23

)

$

0.08

 

Return on average assets

 

(0.56

)%

0.22

%

Return on average equity

 

(5.91

)%

2.25

%

Efficiency ratio

 

53.7

%

37.1

%

Net interest margin

 

4.79

%

4.73

%

 

 

 

 

 

 

At quarter end:

 

 

 

 

 

Allowance for credit losses to non-covered loans (1), net of unearned income

 

3.35

%

3.15

%

Equity-to-assets:

 

 

 

 

 

Consolidated Company

 

9.52

%

9.45

%

Pacific Western Bank

 

11.03

%

10.85

%

Tangible common equity ratios:

 

 

 

 

 

Consolidated Company

 

8.95

%

8.85

%

Pacific Western Bank

 

10.47

%

10.26

%

 

(1) Non-covered loans represent legacy Pacific Western Bank loans and exclude all loans acquired in the Affinity acquisition.

 

The decrease in net earnings between the third and fourth quarters was $10.5 million.  Net interest income increased $4.7 million after tax due largely to increased interest income from the Affinity acquisition.  The credit loss provision on the legacy loan portfolio decreased to $34.9 million ($20.2 million after tax) compared to $75.0 million ($43.5 million after tax) in the third quarter.  Fourth quarter Affinity-related credit costs of $3.9 million ($2.3 million after tax) include a credit loss provision, income from an increase in the FDIC loss sharing asset and other real estate owned costs.  Although there were no Affinity-related credit transactions in the third quarter, the third quarter includes the gain from the Affinity transaction of $67.0 million ($38.9 million after tax).

 

Matt Wagner, Chief Executive Officer, commented, “Credit remains volatile and we continue to aggressively manage performing and nonperforming loans.  During the fourth quarter, in addition to our focus on credit, we integrated the Affinity acquisition, both in terms of the branch network and establishing procedures and review mechanisms for covered loans.  We also continued to perform well on the deposit front, with over $83 million in core deposit growth during the fourth quarter.  For 2009, we had over $550 million in core deposit growth, and over $300 million of core deposit growth excluding the Affinity acquisition.”

 

Mr. Wagner continued, “Our portfolio of legacy and covered loans continues to generate significant interest income.  This, combined with our good deposit mix, generates substantial revenue that allows us to absorb credit loss provisions.  Although we remain cautious about the economic environment in which we operate, we are confident in the core strengths of our franchise.”

 

2


 

Vic Santoro, Executive Vice President and Chief Financial Officer, stated, “Our fourth quarter showed the benefits of the Affinity acquisition which added approximately $13 million in revenue and $5 million in non-credit operating expenses.  Our strong balance sheet and revenue generating ability allows us to add meaningfully to our allowance for credit losses as needed.  We continue to perform well in this difficult economic environment with high levels of net interest income, strong capital levels in excess of the regulatory well-capitalized minimums, and with an appropriate allowance for credit losses.”

 

YEAR TO DATE RESULTS

 

 

 

Year ended
December 31,

 

In thousands, except per share data and percentages

 

2009

 

2008

 

 

 

 

 

 

 

Net loss

 

$

(9,350

)

$

(728,065

)

Diluted loss per share

 

$

(0.30

)

$

(26.81

)

 

 

 

 

 

 

Efficiency ratio

 

55.7

%

371.7

%

Net interest margin

 

4.79

%

5.30

%

 

The lower net loss for the year ended December 31, 2009 compared to the same period last year was due mostly to the $761.7 million goodwill write-off recorded in 2008.  When compared to 2008, the 2009 period shows lower net interest income ($1.9 million after tax), higher provision for credit losses ($66.2 million after tax), higher OREO costs ($12.2 million after tax) and higher FDIC insurance assessments ($3.4 million after tax) partially offset by the gain from the Affinity acquisition ($38.9 million after tax) and income from an increase in the FDIC loss sharing asset ($9.5 million after tax).  The gain from the Affinity acquisition reduced the 2009 efficiency ratio to 55.7% from 70.3%.  The goodwill write-off increased the 2008 efficiency ratio from 59.2% to 371.7%.

 

BALANCE SHEET CHANGES

 

Gross loans decreased $142.4 million during the fourth quarter, including a $115.8 million decrease in non-covered loans.  The legacy loan portfolio declined $283.1 million in 2009.  The legacy portfolio continues to decline as a result of repayments, charge-offs and the stagnant economy which causes both a low demand for loans and fewer acceptable lending opportunities.  The covered loan portfolio will also continue to decline from resolutions of problem assets.

 

Total deposits increased $47.0 million during the fourth quarter and $619.4 million for 2009.  Core deposits, which include noninterest-bearing demand, interest checking, savings and money market deposits, totaled $3.0 billion at December 31, 2009 and increased $83.3 million during the fourth quarter and $552.4 million for 2009.  During the fourth quarter we added $87.6 million in brokered deposits, net of maturities and used them together with excess liquidity to repay $185.0 million in Federal Home Loan Bank advances.  Brokered and acquired money desk deposits totaled $111.1 million at December 31, 2009.  Noninterest-bearing demand deposits totaled $1.3 billion and represented 32% of total deposits at year end.

 

3


 

COVERED ASSETS

 

As part of the Affinity acquisition on August 28, 2009, we entered into a loss sharing agreement with the FDIC that covers a substantial portion of losses on loans, other real estate owned and certain investment securities incurred after the acquisition date.  A summary of the covered assets at December 31, 2009 and September 30, 2009 are shown in the following table.

 

 

 

Balance as of

 

Covered Assets

 

December 31, 2009

 

September 30, 2009

 

 

 

(Dollars in thousands)

 

Loans, net

 

$

621,686

 

$

666,312

 

Investment securities

 

52,125

 

54,499

 

Other real estate owned

 

27,688

 

26,778

 

Total covered assets

 

$

701,499

 

$

747,589

 

 

NET INTEREST INCOME

 

Net interest income was $62.3 million for the fourth quarter of 2009 compared to $54.2 million for the third quarter.  The $8.1 million net increase is largely from interest income on higher average loan and investment balances.  Overall deposit interest expense declined $279,000 during the fourth quarter; interest on time deposits declined $753,000 due mostly to lower offering rates while interest on demand, money market and savings increased $474,000 due mostly to higher average balances.  Borrowing costs increased $311,000 due mainly to higher average balances.

 

Net interest income decreased $3.3 million for 2009 compared to 2008.  The decrease is due mostly to reduced loan interest income from lower yields.  Loan yields are down year-over-year due to the higher level of nonaccrual loans coupled with the lower level of market interest rates.  The decline in market interest rates also contributed to lower interest expense.

 

NET INTEREST MARGIN

 

Our net interest margin for the fourth quarter of 2009 was 4.79%, an increase of 6 basis points when compared to the third quarter of 2009 net interest margin of 4.73%.  The yield on average loans was 6.29% for the fourth quarter of 2009 compared to 6.20% for the third quarter.  Net reversals of interest income on nonaccrual loans negatively impacted the fourth quarter’s net interest margin by 7 basis points and loan yield by 8 basis points.

 

Deposit pricing and improved deposit mix led to a 25 basis point decrease in the cost of interest-bearing deposits to 1.06% for the fourth quarter and a 13 basis point decrease in our all-in deposit cost to 0.72%.  Our relatively low cost of deposits is driven by demand deposit balances, which averaged 32% of average total deposits during the fourth quarter of 2009.  Average core deposits increased $267.1 million for the linked quarters.  The overall cost of interest-bearing liabilities was 1.44% for the fourth quarter of 2009, down 28 basis points from the third quarter due mostly to lower time deposit costs.

 

The net interest margin for 2009 was 4.79%, a decrease of 51 basis points when compared to 2008.  The decrease is due mostly to increased nonaccrual loans and lower market interest rates.

 

4


 

NONINTEREST INCOME

 

Noninterest income for the fourth quarter of 2009 totaled $21.8 million compared to $72.6 million in the third quarter of 2009.  During the third quarter of 2009, the Company recorded a $67.0 million gain from the Affinity acquisition; there was no such gain in the fourth quarter.  Fourth quarter noninterest income includes $16.3 million from an increase in the FDIC loss sharing asset due to credit deterioration on covered loans and OREO subsequent to the acquisition date. Such income mostly represents the FDIC’s share of the current period’s credit loss provision on covered loans and writedowns on covered OREO under the terms of the loss sharing agreement.

 

Noninterest income increased $81.5 million for 2009 compared to the amount earned in 2008 due mostly to the 2009 gain from the Affinity acquisition coupled with the other income of $16.3 million related to the loss-sharing arrangement with the FDIC on covered assets.

 

NONINTEREST EXPENSE

 

Noninterest expense decreased $1.9 million to $45.2 million in the fourth quarter of 2009 from $47.1 million in the third quarter.  Such decrease is due mostly to the combination of lower OREO costs and a full quarter’s costs from the acquired Affinity Bank operations.  The fourth quarter OREO expenses include holding costs of $1.0 million, carrying value write-downs and loss provisions of $4.1 million and net realized gains on sales of $12,000.  Other expense includes a $481,000 penalty related to the early repayment of $85 million in acquired FHLB advances.

 

Noninterest expense includes amortization of time-based and performance-based restricted stock, which is included in compensation, and intangible asset amortization.  Amortization of restricted stock totaled $1.9 million for the fourth quarter of 2009, $2.2 million for the third quarter of 2009 and $8.2 million for the year ended December 31, 2009.  Intangible asset amortization totaled $2.4 million for the fourth quarter of 2009, $2.6 million for the third quarter of 2009 and $9.5 million for the year ended December 31, 2009.

 

Noninterest expense decreased $726.7 million year over year due mostly to the $761.7 million goodwill write-off in 2008.  The remaining $35.0 million increase in noninterest expense is due to higher OREO costs of $21.1 million, higher deposit insurance costs of $5.8 million and higher compensation costs of $6.0 million.  The increased deposit insurance costs relate to higher FDIC deposit insurance premiums, including the cost to participate in the Temporary Liquidity Guarantee Program, and the second quarter of 2009 special FDIC deposit insurance assessment.  Compensation costs increased year-over-year due to increased staff levels from the Affinity acquisition and higher compensation expense on restricted stock awards.

 

TAXES

 

The effective tax rate for the fourth quarter of 2009 was 44.3% compared to 42.9% for the third quarter of 2009.  The increase in the effective tax rate for the forth quarter compared to the third quarter is due to changes in estimates for certain non-deductible expenses.  The Company’s blended Federal and State statutory rate is 42.0%.

 

5


 

CREDIT QUALITY

 

Our loan portfolio, including both non-covered and covered loans, continues to experience pressure from adverse economic trends in Southern California and other areas where our borrowers and collateral are located, which we expect will continue during 2010.

 

Provision for Credit Losses

 

The fourth quarter provision for credit losses totaled $52.9 million and is composed of $34.9 million on the legacy portfolio and $18.0 million on the covered loan portfolio.  The provision on the legacy portfolio is generated by our methodology and reflects the levels of net charge-offs and adversely classified loans.  The provision on the covered loan portfolio reflects an increase in the covered loan allowance for credit losses and results from further credit deterioration since the acquisition date.

 

Net charge-offs on non-covered legacy loans totaled $31.2 million in both the third and fourth quarters of 2009.  These elevated charge-offs reflect the aggressive actions we are taking in promptly identifying and resolving problem credits.

 

The allowance for credit losses on the legacy portfolio totaled $124.3 million at December 31, 2009, and represented 3.35% of the non-covered legacy loan balances at that date.

 

Non-covered Nonaccrual Loans and Other Real Estate Owned

 

Non-covered nonperforming assets include non-covered nonaccrual loans and non-covered OREO and totaled $283.4 million at the end of December compared to $232.8 million at the end of September. The ratio of non-covered nonperforming assets to non-covered loans and non-covered OREO increased to 7.56% at December 31, 2009 from 6.03% at September 30, 2009.  The increase in non-covered nonperforming assets is primarily due to higher non-covered nonaccrual loans.

 

The types and balances of non-covered loans included in the categories of nonaccrual and accruing loans past due between 30 and 89 days at December 31, 2009 and September 30, 2009 follow:

 

 

 

Nonaccrual loans (1)

 

Accruing and over 30 days past
due (1)

 

 

 

December 31, 2009

 

September 30, 2009

 

December 31,

 

September 30,

 

 

 

As a % of

 

 

 

As a % of

 

 

 

2009

 

2009

 

Loan category

 

loan category

 

Balance

 

loan category

 

Balance

 

Balance

 

Balance

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA 504

 

20.1

%

$

22,849

 

22.0

%

$

26,945

 

$

1,603

 

$

1,112

 

SBA 7(a) and Express

 

28.7

%

12,095

 

24.6

%

9,929

 

1,487

 

32

 

Residential construction

 

16.3

%

17,017

 

33.0

%

38,709

 

—

 

—

 

Commercial real estate

 

4.2

%

88,869

 

2.7

%

58,432

 

1,109

 

6,234

 

Commercial construction

 

11.9

%

26,393

 

6.6

%

14,713

 

1,032

 

2,770

 

Commercial

 

0.7

%

5,064

 

0.5

%

3,952

 

2,592

 

3,237

 

Commercial land

 

15.6

%

9,113

 

1.6

%

898

 

—

 

8,592

 

Residential other

 

16.7

%

19,621

 

17.0

%

20,795

 

178

 

1,092

 

Residential land

 

68.2

%

37,107

 

20.7

%

17,219

 

—

 

308

 

Residential multifamily

 

1.9

%

1,579

 

1.8

%

1,795

 

—

 

1,292

 

Other, including foreign

 

0.7

%

460

 

0.3

%

231

 

492

 

243

 

 

 

6.5

%

$

240,167

 

5.1

%

$

193,618

 

$

8,493

 

$

24,912

 

 

(1) Excludes covered loans acquired in the Affinity acquisition.

 

6


 

The $46.5 million net increase in nonaccrual loans during the fourth quarter is composed of additions of $120.4 million, reductions, payoffs and returns to accrual status of $32.2 million, charge-offs of $27.6 million, and foreclosures of $14.1 million. The additions to nonaccrual loans include six hotel loans totaling $25.7 million, two retail mall loans totaling $19.4 million, two loans totaling $30.6 million on undeveloped land, and a $12.7 million construction loan on a recently completed office building.  Reductions include the sale of a note on a residential condominium project for $11.5 million.

 

The most significant loans which have remained on nonaccrual status during the fourth quarter include a $13.1 million residential loan for an 85 lot in-fill development south of Los Angeles, a loan on a golf course in our Desert Region for $14.7 million, three loans on operating hotels totaling $10.0 million, and a $17.7 million “residential other” loan secured by five exclusive residential properties in San Diego.  Subsequent to December 31, 2009, the golf course loan was foreclosed and is currently in other real estate owned.

 

Included in the non-covered nonaccrual loans at the end of December are $34.9 million of SBA related loans representing 15% of total non-covered nonaccrual loans at that date.  The SBA 504 loans are secured by first trust deeds on owner-occupied commercial 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 $10.3 million.  At December 31, 2009, the SBA loan portfolio totaled $157.2 million and was composed of $114.9 million in SBA 504 loans and $42.3 million in SBA 7(a) and Express loans.

 

The details of non-covered OREO as of December 31, 2009 and September 30, 2009 follow:

 

 

 

Balance as of

 

Property Type

 

December 31, 2009

 

September 30, 2009

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

Improved residential land

 

$

7,514

 

$

3,009

 

Commercial real estate

 

28,478

 

27,863

 

Residential condominiums

 

—

 

2,418

 

Single family residences

 

7,263

 

5,920

 

Total

 

$

43,255

 

$

39,210

 

 

Our exposure to non-covered nonowner-occupied residential construction loans was reduced by $28.3 million during the fourth quarter to $159.7 million at the end of December.  The reduction was due mostly to $14.0 million in payoffs, the sale of an $11.5 million note on a residential condominium project and $9.4 million in foreclosures offset by $6.6 million in new loans.

 

7


 

The details of the non-covered nonowner-occupied residential construction loan portfolio as of the dates indicated follow:

 

 

 

As of December 31, 2009

 

As of September 30, 2009

 

Loan Category

 

Balance

 

Number of loans

 

Average loan balance

 

Balance

 

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

Residential land acquisition and development

 

$

52,458

 

16

 

$

3,279

 

$

60,651

 

Residential nonowner-occupied single family

 

30,103

 

17

 

1,771

 

52,204

 

Unimproved residential land

 

39,003

 

13

 

3,000

 

39,748

 

Residential multifamily

 

38,130

 

7

 

5,447

 

35,423

 

 

 

$

159,694

 

53

 

$

3,013

 

$

188,026

 

 

Our largest non-covered loan portfolio concentration is the real estate mortgage category, which includes loans secured by commercial and residential real estate.  The following table presents our non-covered real estate mortgage loan portfolio as of the dates indicated.

 

Loan Category

 

At December 31, 2009

 

At September 30, 2009

 

 

 

(Dollars in thousands)

 

Commercial real estate mortgage

 

 

 

 

 

100% owner-occupied

 

$

377,057

 

$

383,213

 

Hotels and other hospitality

 

257,489

 

278,489

 

Retail

 

479,370

 

478,566

 

Nonowner-occupied office building, industrial and warehouse facilities

 

1,079,525

 

1,117,649

 

Total commercial real estate mortgage

 

2,193,441

 

2,257,917

 

 

 

 

 

 

 

Residential real estate mortgage:

 

 

 

 

 

Multi-family

 

105,276

 

107,842

 

Single family owner-occupied

 

84,591

 

92,227

 

Single family nonowner-occupied

 

40,405

 

42,534

 

Total residential real estate mortgage

 

230,272

 

242,603

 

Total real estate mortgage

 

$

2,423,713

 

$

2,500,520

 

 

Covered Loans and Other Real Estate Owned

 

As part of the Affinity acquisition that occurred on August 28, 2009, we entered into a loss sharing agreement with the FDIC that covers a substantial portion of losses on loans, other real estate owned and certain investment securities incurred after the acquisition date.  The carrying value of loans that would normally be considered nonaccrual except for the accounting requirements regarding purchased impaired loans and other real estate owned covered by the loss sharing agreement (“covered nonaccrual loans” and “covered OREO”; collectively, “covered nonperforming assets”) at December 31, 2009 follows:

 

 Covered Nonperforming Assets

 

At December 31, 2009

 

 

 

(Dollars in thousands)

 

Covered nonaccrual loans

 

$

87,653

 

Covered OREO

 

27,688

 

Total covered nonperforming assets

 

$

115,341

 

 

8


 

STOCKHOLDERS’ EQUITY

 

On December 22, 2009, PacWest Bancorp filed a registration statement with the SEC to offer to sell, from time to time, shares of common stock, preferred stock, and other equity-linked securities for an aggregate initial offering price of up to $350 million.  The registration statement was declared effective on January 8, 2010.  Proceeds from any offering under this registration statement are anticipated to be used to fund future acquisitions of banks and financial institutions and for general corporate purposes.

 

EARNINGS PER SHARE

 

New accounting guidance adopted on January 1, 2009 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of such nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. All of our unvested restricted stock participates with common stockholders in dividends declared and paid by the Company.  Application of the guidance generally results in a reduction of net earnings available to common stockholders and lower earnings per share when compared to the previous requirements.  The effect of the application of the guidance on both basic and diluted earnings per share for the fourth quarter of 2008 was a reduction of $0.01 to $0.34 from $0.35.   The effect on the net loss per share for the year ended December 31, 2008 was an increase of $0.02 to $26.81 from $26.79.

 

ABOUT PACWEST BANCORP

 

PacWest Bancorp is a bank holding company with $5.3 billion in assets as of December 31, 2009, with one wholly-owned banking subsidiary, Pacific Western Bank. Through 68 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 Bernardino, San Diego, San Francisco, San Mateo and Ventura Counties.  Through its subsidiary BFI Business Finance and its division First Community Financial, 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; settlements with the FDIC related to our loss-sharing arrangement and other adjustments related

 

9


 

to the Affinity Bank acquisition; 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 and Afghanistan; 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

 

September 30

 

December 31,

 

 

 

2009

 

2009

 

2008

 

 

 

(In thousands, except share data)

 

Assets:

 

 

 

 

 

 

 

Cash and due from banks

 

$

93,915

 

$

98,910

 

$

100,925

 

Federal funds sold

 

—

 

—

 

165

 

Total cash and cash equivalents

 

93,915

 

98,910

 

101,090

 

 

 

 

 

 

 

 

 

Interest-bearing deposits in financial institutions

 

117,133

 

199,899

 

58,780

 

 

 

 

 

 

 

 

 

Federal Home Loan Bank stock, at cost

 

50,429

 

50,429

 

33,782

 

Securities available-for-sale, at estimated fair value

 

423,700

 

362,056

 

121,577

 

Total securities

 

474,129

 

412,485

 

155,359

 

 

 

 

 

 

 

 

 

Non-covered loans, net of unearned income

 

3,707,383

 

3,822,685

 

3,987,891

 

Allowance for loan losses

 

(118,717

)

(114,575

)

(63,519

)

Non-covered loans, net

 

3,588,666

 

3,708,110

 

3,924,372

 

Covered loans, net

 

621,686

 

666,312

 

—

 

Total loans

 

4,210,352

 

4,374,422

 

3,924,372

 

 

 

 

 

 

 

 

 

Premises and equipment

 

22,546

 

23,118

 

24,675

 

 

 

 

 

 

 

 

 

Non-covered other real estate owned, net

 

43,255

 

39,210

 

41,310

 

Covered other real estate owned, net

 

27,688

 

26,778

 

—

 

Total other real estate owned

 

70,943

 

65,988

 

41,310

 

 

 

 

 

 

 

 

 

Intangible assets

 

33,296

 

35,651

 

39,922

 

Cash surrender value of life insurance

 

66,149

 

65,646

 

70,588

 

FDIC loss sharing asset

 

112,817

 

107,718

 

—

 

Other assets

 

122,799

 

95,761

 

79,406

 

Total assets

 

$

5,324,079

 

$

5,479,598

 

$

4,495,502

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

1,302,974

 

$

1,271,197

 

$

1,165,485

 

Interest-bearing deposits

 

2,791,595

 

2,776,390

 

2,309,730

 

Total deposits

 

4,094,569

 

4,047,587

 

3,475,215

 

 

 

 

 

 

 

 

 

Accrued interest payable and other liabilities

 

50,174

 

49,195

 

64,567

 

Borrowings

 

542,763

 

735,419

 

450,000

 

Subordinated debentures

 

129,798

 

129,848

 

129,994

 

Total liabilities

 

4,817,304

 

4,962,049

 

4,119,776

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

506,775

 

517,549

 

375,726

 

Total Liabilities and Stockholders’ Equity

 

$

5,324,079

 

$

5,479,598

 

$

4,495,502

 

 

 

 

 

 

 

 

 

Shares outstanding (including 1,095,417 shares at December 31, 2009, 1,186,868 shares at September 30, 2009, and 1,309,586 shares at December 31, 2008, underlying unvested stock awards)

 

35,015,322

 

35,022,552

 

28,516,106

 

 

 

 

 

 

 

 

 

Tangible book value per share

 

$

13.52

 

$

13.76

 

$

11.78

 

Book value per share

 

$

14.47

 

$

14.78

 

$

13.18

 

 

11


 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

 

 

 

 

 

Year Ended

 

 

 

Quarters Ended

 

December 31,

 

 

 

12/31/09

 

9/30/09

 

12/31/08

 

2009

 

2008

 

 

 

(In thousands, except per share data)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

70,331

 

$

64,658

 

$

66,507

 

$

258,499

 

$

280,408

 

Interest on federal funds sold

 

—

 

—

 

75

 

—

 

161

 

Interest on time deposits in other financial institutions

 

197

 

111

 

176

 

406

 

182

 

Interest on investment securities

 

5,041

 

2,741

 

1,707

 

10,969

 

7,077

 

Total interest income

 

75,569

 

67,510

 

68,465

 

269,874

 

287,828

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Interest expense on deposits

 

7,475

 

7,754

 

11,416

 

31,916

 

41,157

 

Interest expense on borrowings

 

4,300

 

3,989

 

4,217

 

15,497

 

18,742

 

Interest expense on subordinated debentures

 

1,467

 

1,530

 

2,107

 

6,415

 

8,597

 

Total interest expense

 

13,242

 

13,273

 

17,740

 

53,828

 

68,496

 

Net interest income before provision for credit losses

 

62,327

 

54,237

 

50,725

 

216,046

 

219,332

 

Provision for credit losses

 

52,900

 

75,000

 

8,800

 

159,900

 

45,800

 

Net interest income (loss) after provision for credit losses

 

9,427

 

(20,763

)

41,925

 

56,146

 

173,532

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

2,890

 

2,960

 

3,420

 

12,008

 

13,014

 

Other commissions and fees

 

1,799

 

1,721

 

2,062

 

6,951

 

7,277

 

Loss on sale of loans

 

—

 

—

 

—

 

—

 

(303

)

Gain on sale of securities, net

 

—

 

—

 

—

 

—

 

81

 

Increase in cash surrender value of life insurance

 

375

 

371

 

584

 

1,579

 

2,420

 

Increase in FDIC loss sharing asset

 

16,314

 

—

 

—

 

16,314

 

—

 

Other income

 

450

 

584

 

476

 

2,066

 

1,938

 

Gain from Affinity acquisition

 

—

 

66,989

 

—

 

66,989

 

—

 

Total noninterest income

 

21,828

 

72,625

 

6,542

 

105,907

 

24,427

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

20,320

 

20,128

 

15,088

 

78,173

 

72,185

 

Occupancy

 

7,100

 

6,435

 

6,410

 

26,383

 

24,531

 

Data processing

 

1,831

 

1,810

 

1,590

 

6,946

 

6,232

 

Other professional services

 

2,047

 

1,857

 

1,688

 

6,914

 

6,540

 

Business development

 

663

 

528

 

789

 

2,541

 

3,044

 

Communications

 

789

 

762

 

766

 

2,932

 

3,151

 

Insurance and assessments

 

1,826

 

2,010

 

1,148

 

9,305

 

3,523

 

Other real estate owned, net

 

4,953

 

8,141

 

748

 

23,322

 

2,218

 

Intangible asset amortization

 

2,355

 

2,578

 

2,332

 

9,547

 

9,620

 

Reorganization and lease charges

 

—

 

—

 

—

 

1,215

 

258

 

Legal settlement

 

—

 

—

 

—

 

—

 

780

 

Goodwill write-off

 

—

 

—

 

—

 

—

 

761,701

 

Other

 

3,329

 

2,842

 

3,260

 

11,926

 

12,152

 

Total noninterest expense

 

45,213

 

47,091

 

33,819

 

179,204

 

905,935

 

Earnings (loss) before income taxes

 

(13,958

)

4,771

 

14,648

 

(17,151

)

(707,976

)

Income taxes

 

(6,178

)

2,046

 

5,027

 

(7,801

)

20,089

 

Net earnings (loss)

 

$

(7,780

)

$

2,725

 

$

9,621

 

$

(9,350

)

$

(728,065

)

 

 

 

 

 

 

 

 

 

 

 

 

Per share information

 

 

 

 

 

 

 

 

 

 

 

Basic earning (loss) per share

 

$

(0.23

)

$

0.08

 

$

0.34

 

$

(0.30

)

$

(26.81

)

Diluted earning (loss) per share

 

$

(0.23

)

$

0.08

 

$

0.34

 

$

(0.30

)

$

(26.81

)

 

12


 

UNAUDITED AVERAGE BALANCE SHEETS

 

 

 

Quarters Ended

 

Year Ended

 

 

 

12/31/09

 

9/30/09

 

12/31/08

 

12/31/09

 

12/31/08

 

 

 

(Dollars in thousands)

 

Average Assets:

 

 

 

 

 

 

 

 

 

 

 

Loans, net of unearned income

 

$

4,439,586

 

$

4,140,220

 

$

3,952,872

 

$

4,111,379

 

$

3,958,963

 

Investment securities

 

421,647

 

 262,816

 

 142,494

 

 258,160

 

 142,258

 

Federal funds sold

 

279

 

4

 

 29,702

 

135

 

 11,064

 

Interest-bearing deposits in financial institutions

 

 298,073

 

 150,358

 

 104,800

 

 144,216

 

 26,564

 

Average earning assets

 

5,159,585

 

4,553,398

 

4,229,868

 

4,513,890

 

4,138,849

 

Other assets

 

 373,570

 

 304,817

 

 274,687

 

 309,827

 

 578,463

 

Average total assets

 

$

5,533,155

 

$

4,858,215

 

$

4,504,555

 

$

4,823,717

 

$

4,717,312

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Average liabilities

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

1,318,819

 

$

1,274,968

 

$

1,208,085

 

$

1,245,512

 

$

1,242,557

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking

 

 438,242

 

 402,503

 

 338,434

 

 390,605

 

 358,308

 

Money market accounts

 

1,188,939

 

1,001,609

 

 858,971

 

 981,901

 

1,007,112

 

Savings

 

 111,374

 

 111,184

 

 117,278

 

 114,933

 

 105,938

 

Time deposits

 

1,064,596

 

 841,001

 

 899,264

 

 874,786

 

 561,288

 

Interest-bearing deposits

 

2,803,151

 

2,356,297

 

2,213,947

 

2,362,225

 

2,032,646

 

Average deposits

 

4,121,970

 

3,631,265

 

3,422,032

 

3,607,737

 

3,275,203

 

Subordinated debentures

 

 129,829

 

 129,876

 

 130,025

 

 129,901

 

 132,010

 

Borrowings

 

 706,013

 

 567,320

 

 536,370

 

 550,888

 

 578,783

 

Other liabilities

 

 52,846

 

 44,117

 

 38,919

 

 50,043

 

 46,270

 

Average liabilities

 

5,010,658

 

4,372,578

 

4,127,346

 

4,338,569

 

4,032,266

 

Average equity

 

 522,497

 

 485,637

 

 377,209

 

 485,148

 

 685,046

 

Average liabilities and stockholders’ equity

 

$

5,533,155

 

$

4,858,215

 

$

4,504,555

 

$

4,823,717

 

$

4,717,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yield Analysis:

 

 

 

 

 

 

 

 

 

 

 

Average earning assets

 

$

5,159,585

 

$

4,553,398

 

$

4,229,868

 

$

4,513,890

 

$

4,138,849

 

Yield

 

5.81

%

5.88

%

6.44

%

5.98

%

6.95

%

Average interest-bearing deposits

 

$

2,803,151

 

$

2,356,297

 

$

2,213,947

 

$

2,362,225

 

$

2,032,646

 

Cost

 

1.06

%

1.31

%

2.05

%

1.35

%

2.02

%

Average deposits

 

$

4,121,970

 

$

3,631,265

 

$

3,422,032

 

$

3,607,737

 

$

3,275,203

 

Cost

 

0.72

%

0.85

%

1.33

%

0.88

%

1.26

%

Average interest-bearing liabilities

 

$

3,638,993

 

$

3,053,493

 

$

2,880,342

 

$

3,043,014

 

$

2,743,439

 

Cost

 

1.44

%

1.72

%

2.45

%

1.77

%

2.50

%

Average subordinated debentures

 

$

129,829

 

$

129,876

 

$

130,025

 

$

129,901

 

$

132,010

 

Cost

 

4.48

%

4.67

%

6.45

%

4.94

%

6.51

%

Average borrowings

 

$

706,013

 

$

567,320

 

$

536,370

 

$

550,888

 

$

578,783

 

Cost

 

2.42

%

2.79

%

3.13

%

2.81

%

3.24

%

Average interest sensitive liabilities

 

$

4,957,812

 

$

4,328,461

 

$

4,088,427

 

$

4,288,526

 

$

3,985,996

 

Cost

 

1.06

%

1.22

%

1.73

%

1.26

%

1.72

%

 

 

 

 

 

 

 

 

 

 

 

 

Interest spread

 

4.37

%

4.16

%

3.99

%

4.21

%

4.46

%

Net interest margin

 

4.79

%

4.73

%

4.77

%

4.79

%

5.30

%

 

13


 

DEPOSITS (unaudited)

 

 

 

As of the Dates Indicated

 

 

 

12/31/09

 

9/30/09

 

12/31/08

 

 

 

(Dollars in thousands)

 

Transaction accounts:

 

 

 

 

 

 

 

Demand deposits

 

$

1,302,974

 

$

1,271,197

 

$

1,165,485

 

Interest checking

 

439,694

 

432,273

 

342,241

 

Total transaction accounts

 

1,742,668

 

1,703,470

 

1,507,726

 

Non-transaction accounts:

 

 

 

 

 

 

 

Money market

 

1,171,386

 

1,124,511

 

837,873

 

Savings

 

108,569

 

111,365

 

124,603

 

Time deposits under $100,000

 

505,130

 

489,580

 

611,083

 

Time deposits over $100,000

 

566,816

 

618,661

 

393,930

 

Total non-transaction accounts

 

2,351,901

 

2,344,117

 

1,967,489

 

Total deposits

 

$

4,094,569

 

$

4,047,587

 

$

3,475,215

 

 

 

 

 

 

 

 

 

Core deposits (1)

 

$

3,022,623

 

$

2,939,346

 

$

2,470,202

 

 

(1) Includes noninterest-bearing demand, interest checking, savings and money market deposits.

 

LOAN CONCENTRATION (unaudited)

Legacy Pacific Western Bank Loans

 

 

 

As of the Dates Indicated

 

 

 

12/31/09

 

9/30/09

 

6/30/09

 

3/31/09

 

12/31/08

 

 

 

(Dollars in thousands)

 

Loan Category:

 

 

 

 

 

 

 

 

 

 

 

Domestic:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

781,003

 

$

774,755

 

$

776,060

 

$

779,971

 

$

845,410

 

Real estate-construction

 

440,286

 

480,119

 

544,889

 

583,709

 

579,884

 

Commercial real estate-mortgage

 

2,423,712

 

2,500,520

 

2,511,292

 

2,482,790

 

2,473,089

 

Consumer

 

32,138

 

33,011

 

35,150

 

38,615

 

44,938

 

Foreign:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

34,524

 

38,964

 

42,672

 

44,955

 

50,918

 

Other

 

1,719

 

1,763

 

1,722

 

2,126

 

2,245

 

Total gross non-covered loans

 

$

3,713,382

 

$

3,829,132

 

$

3,911,785

 

$

3,932,166

 

$

3,996,484

 

 

14


 

COMPONENTS OF ALLOWANCE FOR CREDIT LOSSES,
NONPERFORMING ASSETS AND CREDIT QUALITY
MEASURES FOR NON-COVERED LOANS (Unaudited)

 

 

 

As of the dates indicated:

 

 

 

12/31/09

 

9/30/09

 

12/31/08

 

 

 

(Dollars in thousands)

 

ALLOWANCE FOR CREDIT LOSSES (1):

 

 

 

 

 

 

 

Allowance for loan losses

 

$

118,717

 

$

114,575

 

$

63,519

 

Reserve for unfunded loan commitments

 

5,561

 

6,011

 

5,271

 

Allowance for credit losses for non-covered loans

 

$

124,278

 

$

120,586

 

$

68,790

 

 

 

 

 

 

 

 

 

NONPERFORMING ASSETS (2):

 

 

 

 

 

 

 

Nonaccrual loans

 

$

240,167

 

$

193,618

 

$

63,470

 

Other real estate owned

 

43,255

 

39,210

 

41,310

 

Total nonperforming assets

 

$

283,422

 

$

232,828

 

$

104,780

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses to loans, net of unearned income

 

3.35

%

3.15

%

1.72

%

Allowance for credit losses to nonaccrual loans

 

51.75

%

62.28

%

108.4

%

Nonperforming assets to total loans and other real estate owned

 

7.56

%

6.03

%

2.60

%

Nonaccrual loans to total loans

 

6.48

%

5.06

%

1.59

%

 

(1) Applies only to legacy Pacific Western Bank loans.

(2) Excludes covered nonperforming assets acquired in the Affinity acquisition.

 

ALLOWANCE FOR CREDIT LOSSES
ROLLFORWARD AND NET CHARGE-OFF
MEASUREMENT FOR NON-COVERED LOANS (1)
(unaudited)

 

 

 

As of or for the:

 

 

 

Quarter Ended

 

Year Ended

 

 

 

12/31/09

 

12/31/09

 

12/31/08

 

 

 

(Dollars in thousands)

 

Balance at beginning of period

 

$

120,586

 

$

68,790

 

$

61,028

 

Non-covered Loans charged-off:

 

 

 

 

 

 

 

Commercial

 

(3,936

)

(11,982

)

(7,664

)

Real estate-construction

 

(5,989

)

(28,542

)

(24,998

)

Real estate-mortgage

 

(21,865

)

(46,047

)

(2,617

)

Consumer

 

(48

)

(1,180

)

(3,947

)

Foreign

 

—

 

(368

)

(349

)

Total loans charged-off

 

(31,838

)

(88,119

)

(39,575

)

 

 

 

 

 

 

 

 

Recoveries on non-covered loans charged-off:

 

 

 

 

 

 

 

Commercial

 

126

 

548

 

971

 

Real estate-construction

 

453

 

461

 

88

 

Real estate-mortgage

 

37

 

503

 

412

 

Consumer

 

14

 

151

 

47

 

Foreign

 

—

 

44

 

19

 

Total recoveries on loans charged-off

 

630

 

1,707

 

1,537

 

Net charge-offs

 

(31,208

)

(86,412

)

(38,038

)

Provision for credit losses

 

34,900

 

141,900

 

45,800

 

Balance at end of period

 

$

124,278

 

$

124,278

 

$

68,790

 

 

 

 

 

 

 

 

 

Annualized net charge-offs to average non-covered loans

 

3.26

%

2.22

%

0.96

%

 

(1) Applies only to legacy Pacific Western Bank loans.

 

15


 

This press release contains certain non-GAAP financial disclosures for tangible capital.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.Because the use of tangible capital amounts and ratios is becoming more prevalent among banking regulators, investors and analysts, we disclose our tangible capital ratios in addition to equity-to-assets ratios.

 

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).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)

 

 

 

As of the dates indicated:

 

In thousands, except per share data and percentages

 

12/31/09

 

09/30/09

 

12/31/08

 

 

 

 

 

 

 

 

 

End of period assets

 

$

 5,324,079

 

$

 5,479,598

 

$

 4,495,502

 

Intangibles

 

33,296

 

35,651

 

39,922

 

End of period tangible assets

 

$

 5,290,783

 

$

 5,443,947

 

$

 4,455,580

 

 

 

 

 

 

 

 

 

End of period equity

 

$

506,775

 

$

517,549

 

$

375,726

 

Intangibles

 

33,296

 

35,651

 

39,922

 

End of period tangible equity

 

$

473,479

 

$

481,898

 

$

335,804

 

 

 

 

 

 

 

 

 

Equity to assets ratio

 

9.52

%

9.45

%

8.36

%

Tangible common equity ratio

 

8.95

%

8.85

%

7.54

%

 

 

 

 

 

 

 

 

Pacific Western Bank

 

 

 

 

 

 

 

End of period assets

 

$

 5,313,750

 

$

 5,469,398

 

$

 4,488,680

 

Intangibles

 

33,296

 

35,651

 

39,922

 

End of period tangible assets

 

$

 5,280,454

 

$

 5,433,747

 

$

 4,448,758

 

 

 

 

 

 

 

 

 

End of period equity

 

$

585,940

 

$

593,199

 

$

494,858

 

Intangibles

 

33,296

 

35,651

 

39,922

 

End of period tangible equity

 

$

552,644

 

$

557,548

 

$

454,936

 

 

 

 

 

 

 

 

 

Equity-to-assets

 

11.03

%

10.85

%

11.02

%

Tangible common equity ratio

 

10.47

%

10.26

%

10.23

%

 

Contact information:

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

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

 

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