PacWest Bancorp Announces Results for the Third Quarter of 2010


Net Earnings of $3.5 Million

Net Interest Margin of 5.08%

Credit Loss Reserve at 3.05% of Net Non-Covered Loans

Los Padres Bank Acquisition Closed on August 20, 2010

Core Deposits Grow $264.0 Million

SAN DIEGO, Oct. 20, 2010 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the third quarter of 2010 of $3.5 million, or $0.10 per diluted share, compared to net earnings of $2.7 million, or $0.07 per diluted share, for the second quarter of 2010. Third quarter earnings include the operating results of Los Padres Bank ("Los Padres"), which was acquired in an FDIC-assisted transaction on August 20, 2010 and added $420,000 in net earnings for the period since the acquisition.

This press release contains non-GAAP financial disclosures for tangible common equity. 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 common equity amounts and ratios is becoming more prevalent among banking regulators, investors and analysts, we disclose our tangible common equity 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.


THIRD QUARTER RESULTS

  Three Months Ended
  September 30,  June 30, 
  2010 2010
  (Dollars in thousands, except per share data)
Financial Highlights:    
Net earnings   $ 3,500  $ 2,705
Diluted earnings per share  $ 0.10  $ 0.07
Annualized return on average assets 0.25% 0.21%
Annualized return on average equity 2.82% 2.26%
Net interest margin 5.08% 4.85%
Efficiency ratio 60.8% 61.4%
     
At Quarter End:    
Allowance for credit losses to non-covered loans net of unearned income (1) 3.05% 2.93%
Equity to assets ratios:    
PacWest Bancorp Consolidated 8.60% 9.44%
Pacific Western Bank 10.17% 11.15%
Tangible common equity ratios:    
PacWest Bancorp Consolidated 7.39% 8.94%
Pacific Western Bank 8.98% 10.66%
     
(1) Non-covered loans exclude all loans from the Los Padres and Affinity acquisitions.

The $795,000 improvement in third quarter net earnings compared to the prior quarter is due mostly to the combination of higher net interest income offset by higher net credit-related costs and higher noninterest expense. The increase in net interest income was due primarily to the growth in loans from the Los Padres acquisition and the July 1, 2010 purchase of $234.1 million in performing real estate loans. The third quarter includes three items which together reduced pre-tax earnings by $1.5 million: a net impairment loss of $175,000 on an investment security; $900,000 in severance to terminated employees; and $430,000 in legal settlements. There were no such items in the second quarter other than employee severance of $120,000.

Net credit costs on a pre-tax basis are shown in the following table:

  Three Months Ended
  September 30,  June 30, 
  2010 2010
  (In thousands)
     
Provision for credit losses on non-covered loans  $ 17,050  $ 14,100
     
Provision for credit losses on covered loans  7,400  8,850
Less: increase in FDIC loss sharing asset  5,920  7,080
Net credit costs on covered loans  1,480  1,770
     
Non-covered OREO expense  2,151  625
     
Covered OREO (income) expense  (319)  (89)
Less: OREO-related decrease in FDIC loss sharing asset  (409)  (52)
Net covered OREO (income) expense  90  (37)
     
Total credit-related costs, net  $ 20,771  $ 16,458
     
Non-covered loan net charge-offs  $ 9,240  $ 12,045

The credit loss provision for the third quarter has two components: $17.1 million for non-covered loans and $7.4 million for covered loans. The third quarter non-covered credit loss provision was driven by (a) non-covered loan net charge-offs of $9.2 million and (b) the level of nonaccrual and classified loans.   The covered loan credit loss provision was driven by credit deterioration on covered loans since the Affinity acquisition date. The covered loan credit loss provisions are offset by the increase in the FDIC loss sharing asset, which represents the FDIC's 80% share of the provisions.

The $3.4 million increase in noninterest expense in the third quarter over the second quarter was due mostly to the Los Padres acquisition, which added $2.1 million to this expense category in the third quarter. OREO costs increased $1.3 million due to write-downs from updated appraisals.

Matt Wagner, Chief Executive Officer, commented, "Our earnings performance continued to improve in the third quarter due to loan and core deposit growth and the Los Padres acquisition.  The Los Padres acquisition, which we closed on August 20, strategically expands our footprint into California's Central Coast and allows for further market expansion." 

Mr. Wagner continued, "The credit picture in Southern California continues to be stressed, and we are identifying and resolving problem credits promptly.  The reserve build we accomplished in the third quarter improved our overall portfolio and non-accrual coverage ratios to 3.05% and 96%.  Although our new nonaccrual loan volume is approximately the same as in the second quarter, we remain cautious on the credit outlook in our portfolio and market areas.  Nevertheless, our core earnings, low cost deposit base and strong capital position give us the ability to create operating and strategic flexibility and to grow both organically and through acquisitions.  We continue to identify in-market acquisition opportunities, both FDIC-assisted and otherwise, and expect to pursue them when they make sense for us and when economic conditions become more favorable."

Vic Santoro, Executive Vice President and Chief Financial Officer, stated, "We had a positive third quarter, showing an increase in profitability over the second quarter, net interest margin expansion to 5.08%, continued deposit growth and strong on-balance-sheet liquidity.  Core deposit growth of $264 million combined with careful pricing contributed to driving our cost of deposits down to 55 basis points.  The staff reduction completed at the end of the third quarter will result in annual pre-tax savings of $3.6 million beginning October 1."

YEAR TO DATE RESULTS

  Nine Months Ended
  September 30, 
  2010 2009
  (Dollars in thousands, except per share data)
Financial Highlights:    
Net loss  $ (54,328)  $ (1,570)
Diluted loss per share  $ (1.55)  $ (0.06)
Net interest margin 4.95% 4.78%
Efficiency ratio 62.0% 56.3%

The higher net loss for the nine months ended September 30, 2010 compared to the same period last year was due mostly to two factors: the 2009 gain recorded in connection with the Affinity acquisition and the higher credit loss provisions in 2010 from the Company's sale of $323.6 million of classified loans in the first quarter and higher non-covered loan charge-offs. When compared to the same period for 2009, the current 2010 period shows higher net interest income ($15.7 million after-tax), higher provision for credit losses ($42.7 million after-tax), higher FDIC loss sharing income ($17.2 million after-tax) and higher noninterest expense ($3.2 million after-tax). The increases in these categories reflect the inclusion of the operating results for Affinity Bank since its August 2009 acquisition date, and to a lesser extent, the operating results for Los Padres Bank since its acquisition in August 2010. 

BALANCE SHEET CHANGES

On August 20, 2010, we acquired Los Padres Bank in an FDIC-assisted acquisition, which added $824.1 million in assets and $752.2 million in deposits. Since the acquisition date and through September 30, 2010, the deposits we acquired from Los Padres have declined by $259.4 million to $492.8 million, and $70.0 million in FHLB advances were repaid. In addition, in a separate transaction on July 1, 2010 we purchased $234.1 million of performing Southern California real estate loans for $228.3 million in cash.

During the third quarter total loans increased $546.6 million on a net basis with the July 1st loan purchase and Los Padres Bank acquisition adding $225 million and $436.5 million, respectively. The loan portfolio continues to decline generally due to repayments, resolution activities and low loan demand. Non-covered loans, net of unearned income, were $3.3 billion at September 30, 2010 and the covered loan portfolio was $966.1 million at September 30, 2010.

Investment securities available-for-sale grew $128.3 million during the third quarter due primarily to the purchase of $144.6 million in government-sponsored entity pass through securities to deploy excess cash. At September 30, 2010 overnight funds held at the Federal Reserve Bank totaled $68.2 million, a decrease of $247.8 million from the balance at June 30, 2010.

The balance of non-covered OREO was $24.6 million at September 30, 2010, relatively unchanged from the June 30, 2010 balance of $24.5 million. Covered OREO increased $27.5 million during the third quarter to $55.2 million at September 30, 2010 due mostly to the Los Padres acquisition. We recorded net gains of $414,000 on the sales of non-covered OREO and $1.5 million on the sales of covered OREO during the third quarter. The activity in non-covered and covered OREO for the third quarter is shown in the following table:

  Three Months Ended
  September 30, 2010
  Non-Covered Covered 
  OREO OREO
  (In thousands)
Balance - beginning of period  $ 24,523  $ 27,787
Addition due to acquisition  --  33,394
Foreclosures  10,554  2,156
Write-downs from updated appraisals  (2,064)  (1,038)
Reductions related to sales  (8,415)  (7,055)
Balance - end of period  $ 24,598  $ 55,244

Total deposits increased $579.0 million during the third quarter to $4.8 billion at September 30, 2010. When the Los Padres deposits are excluded, legacy deposits increased $86 million, continuing the trend we have experienced for the last several quarters.

Core deposits, which include noninterest-bearing demand, interest checking, money market, and savings accounts, increased $264.0 million and totaled $3.4 billion at September 30, 2010 and represented 71% of total deposits at that date. Time deposits increased $315.0 million to $1.4 billion at September 30, 2010. Brokered deposits totaled $104.9 million at September 30, 2010, relatively unchanged since June 30, 2010. Noninterest-bearing demand deposits increased $72.4 million during the third quarter to $1.5 billion and represented 31% of total deposits at September 30, 2010.

Acquired Los Padres deposits totaled $492.8 million at September 30, 2010, a $259.4 million decline from the $752.2 million in deposits acquired. The decline in the acquired deposits was centered in time deposits after the rates on Los Padres time deposits were reduced to market rates effective September 1, 2010.

COVERED ASSETS

As part of the Los Padres and Affinity acquisitions we entered into loss sharing agreements with the FDIC that cover a substantial portion of losses incurred after the acquisition dates on loans and other real estate owned, and in the case of the Affinity acquisition, certain investment securities. A summary of the covered assets at September 30, 2010 and June 30, 2010 is shown in the following table.

  September 30,  June 30, 
Covered Assets 2010 2010
   (In thousands) 
Loans, net  $ 966,140  $ 552,912
Investment securities   51,125  50,771
Other real estate owned   55,244  27,787
Total covered assets   $ 1,072,509  $ 631,470

NET INTEREST INCOME

Net interest income was $65.2 million for the third quarter of 2010 compared to $57.6 million for the second quarter of 2010. The $7.6 million net increase is due mostly to a $6.9 million increase in interest income attributable to higher average loans from the Los Padres acquisition and the July 1 real estate loan purchase. Contributing to the increase in net interest income was a reduction in interest expense of $681,000 due mainly to rate reductions on our deposit products implemented during the third quarter.

Net interest income grew by $27.1 million to $180.8 million during the nine months ended September 30, 2010 compared to the same period last year. This growth was due to an $18.1 million increase in interest income and a $9.0 million decline in interest expense. The increase in interest income was due to higher average balances of investment securities from the purchase of $448.8 million of government-sponsored entity pass through securities during 2010, the interest-earning assets from the Los Padres and Affinity acquisitions, and  a higher average yield on loans.   The decline in interest expense was due mainly to lower rates paid on deposits and borrowings and lower average borrowings.

NET INTEREST MARGIN

Our net interest margin for the third quarter of 2010 was 5.08%, an increase of 23 basis points from the 4.85% posted for the second quarter of 2010. Such improvement reflects higher average loans during the third quarter as a result of the Los Padres acquisition and the July 1, 2010 real estate loan purchase. The yield on average loans was 6.59% for the third quarter of 2010 compared to 6.56% for the prior quarter.  The loan yield, earning asset yield and net interest margin are all affected by loans being placed on or removed from nonaccrual status and the acceleration of purchase discounts on covered loan pay-offs: the net interest margin for the third quarter was positively impacted by 10 basis points from the combination of these items.  The cost of interest-bearing deposits and all-in deposit cost decreased 18 basis points and 11 basis points to 0.81% and 0.55%, respectively; such decreases resulted primarily from lower rates on our deposit products, offset partially by an increase in time deposit volume attributable mostly to the Los Padres acquisition.

The net interest margin for the first nine months of 2010 was 4.95% compared to 4.78% for the first nine months of 2009. The increase is due mostly to higher average investment securities, a higher average rate on loans, lower funding costs, and lower average borrowings.

NONINTEREST INCOME

Noninterest income for the third quarter of 2010 totaled $10.8 million compared to $12.1 million for the second quarter of 2010. The $1.3 million decline was due mostly to lower FDIC loss sharing income stemming from lower credit-related costs on covered loans and OREO. Noninterest income includes an other-than-temporary impairment charge of $874,000 on one covered investment security, which is offset partially by related FDIC loss sharing income of $699,000.

Noninterest income declined for the nine months ended September 30, 2010 to $44.1 million from the $84.1 million earned during the same period in 2009. The $40.0 million decrease in noninterest income is due mainly to the $67.0 million gain on the Affinity acquisition recorded in August 2009; there is no similar gain in the 2010 period. The 2010 period includes $29.6 million of FDIC loss sharing income; there is no similar income in the 2009 period.

NONINTEREST EXPENSE

Noninterest expense totaled $46.2 million for the third quarter of 2010 compared to $42.8 million for the second quarter of 2010. The $3.4 million increase was due mostly to addition of the Los Padres operations, employee termination severance costs, and higher OREO expenses. Los Padres noninterest expense totaled $2.1 million, including $1.0 million in compensation and $447,000 in other professional services expense for integration, audit and consulting fees. We reduced our workforce, excluding the Los Padres employees, by approximately 5% and paid $900,000 in severance at the end of September 2010; we expect annual pre-tax savings from these departures to be $3.6 million. OREO costs increased $1.3 million due mostly to write-downs from updated appraisals, offset partially by higher net gains on sales. Other expense decreased $826,000 as the second quarter included a penalty of $726,000 for the early repayment of $125 million in FHLB advances; there was no similar expense in the current period. Third quarter noninterest expense includes $430,000 related to two legal settlements on customer actions.

Noninterest expense includes amortization of time-based restricted stock, which is included in compensation, and intangible asset amortization. Amortization of restricted stock totaled $2.1 million for the third quarter of 2010 compared to $2.2 million for the second quarter of 2010. Amortization expense for restricted stock is estimated to be $8.4 million for 2010. Intangible asset amortization totaled $2.4 million for both the third and second quarters of 2010, and is estimated to be $9.7 million for 2010, which includes amortization of the Los Padres core deposit intangible. The 2010 estimates of both restricted stock award expense and intangible asset amortization are subject to change.

Noninterest expense for the nine months ended September 30, 2010 increased $5.5 million to $139.5 million from $134.0 million for the same period in 2009. The growth in most expense categories was due primarily to higher overhead costs related to the Affinity and Los Padres acquisitions. Compensation increased $5.7 million due to the acquisitions and severance costs. Occupancy costs increased $1.1 million due mostly to the 10 branches added in the Affinity acquisition. Other professional services increased $1.9 million due mostly to higher legal costs related to loan workout activity. Other expense increased $1.2 million due mostly to higher loan-related costs from loan workouts and a $726,000 penalty for early repayment of $125 million of FHLB advances; there were no FHLB prepayment penalties in the first nine months of 2009. OREO costs declined $5.4 million due mostly to higher net gains on sales of OREO recorded in 2010, offset partially by higher OREO write-downs in 2010.

TAXES

The effective tax rate for the third quarter of 2010 was 34.3% compared to 32.0% for the second quarter of 2010. Both effective rates are lower than the Company's blended Federal and California statutory rate of 42.0% due to resolution and/or lapse of tax contingencies.

LOS PADRES ACQUISITION

On August 20, 2010, Pacific Western Bank acquired certain assets and liabilities of Los Padres from the Federal Deposit Insurance Corporation ("FDIC") in an FDIC-assisted transaction. The FDIC assistance is embodied in a loss sharing agreement with the FDIC that covers a substantial portion of any future losses on loans and other real estate owned.  Under the terms of such loss sharing agreement, the FDIC will absorb 80% of losses and share in 80% of loss recoveries. The loss sharing arrangement for single family and commercial (non-single family) loans is in effect for 10 years and 5 years, respectively, from the acquisition date and the loss recovery provisions are in effect for 10 years and 8 years, respectively, from the acquisition date.

The acquisition has been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their estimated fair values as of the August 20, 2010 acquisition date. Such fair values are preliminary estimates and are subject to adjustment for up to one-year after the acquisition date. The application of the acquisition method of accounting resulted in goodwill of $46.2 million. Such goodwill includes $9.5 million related to the FDIC's settlement accounting for a Los Padres Bank wholly-owned subsidiary. We disagree with the FDIC's accounting for this item and are in process of negotiating with the FDIC for resolution of this matter. Should we be successful in our negotiations, goodwill would be reduced by a cash payment to us from the FDIC of $9.5 million. No assurance can be given, however, that we will be successful in our efforts.

The statement of assets acquired and liabilities assumed in the Los Padres acquisition at their estimated fair values as of the August 20, 2010 acquisition date is shown below:

  August 20,
  2010
Assets   (In thousands) 
Cash and cash equivalents  $ 171,366
Investment securities   44,251
Loans   440,219
Other real estate owned   33,394
Core deposit intangible  2,427
Goodwill  46,228
FDIC loss sharing asset  69,244
Other assets  16,954
Total assets acquired at fair value  $ 824,083
   
Liabilities   
Deposits  $ 752,185
FHLB advances  70,013
Other liabilities  1,885
Total liabilities assumed at fair value  $ 824,083

Our results of operations for the quarter ended September 30, 2010, include the results from the Los Padres acquisition from its August 20, 2010 acquisition date. The income and expense items attributable to the Los Padres acquisition are summarized below; such amounts and the resultant net earnings are not necessarily indicative of future operating results.

  August 20, 2010
  Through
  September 30, 2010
  (In thousands)
Interest income  $ 2,893
Interest expense  275
Net interest income  2,618
Noninterest income  204
Noninterest expense:  
Compensation  1,031
Occupancy  248
Data processing  155
Other professional services  447
Other expense  216
Total noninterest expense  2,097
Earnings before income taxes  725
Income tax expense  (305)
 Net earnings  $ 420

A summary of loans acquired in the Los Padres acquisition as of August 20, 2010 is as follows:

  August 20, 
  2010
  (In thousands)
Construction and land  $ 55,217
Single family  113,371
Multi-family  65,835
Commercial real estate  233,560
Commercial and industrial  43,988
Consumer and equity lines  27,580
Total gross loans  539,551
Discount resulting from acquisition date  
fair value adjustment  (99,332)
Total net loans  $ 440,219

CREDIT QUALITY

Although our credit risk profile improved through both the classified loan sale and ongoing portfolio workout measures, our loan portfolio, including both non-covered and covered loans, continues to experience pressure from adverse economic conditions in Southern California and other areas where our borrowers and collateral are located. We expect such situation to continue during the remainder of 2010.

Credit Loss Provisions

The third quarter provision for credit losses totaled $24.5 million and was composed of $17.1 million on the non-covered loan portfolio and $7.4 million on the covered loan portfolio. The second quarter provision for credit losses totaled $23.0 million and was composed of $14.1 million on the non-covered loan portfolio and $8.9 million on the covered loan portfolio. The provision on the non-covered portfolio is generated by our allowance methodology and reflects net charge-offs and the levels of nonaccrual and classified loans and the migration of loans into various risk classifications. The covered loan credit loss provision increases the covered loan allowance for credit losses and results from credit deterioration on covered loans since the Affinity acquisition date.

Third quarter net charge-offs on non-covered loans totaled $9.2 million compared to second quarter net charge-offs of $12.0 million. The allowance for credit losses on the non-covered portfolio totaled $101.2 million and $93.4 million at September 30, 2010 and June 30, 2010, respectively, and represented 3.05% and 2.93% of the non-covered loan balances at those respective dates.

Non-covered Nonaccrual Loans and Other Real Estate Owned

Non-covered nonperforming assets include non-covered nonaccrual loans and non-covered OREO and totaled $130.1 million at September 30, 2010 compared to $132.8 million at June 30, 2010. The ratio of non-covered nonperforming assets to non-covered loans and non-covered OREO decreased to 3.89% at September 30, 2010 from 4.14% at June 30, 2010. The $2.7 million reduction in non-covered nonperforming assets is due to lower 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 September 30, 2010 and June 30, 2010 follow:

  Nonaccrual Loans (1) Accruing and Over 
  September 30, 2010 June 30, 2010 30 days Past Due (1)
    % of   % of September 30, June 30,
    Loan   Loan 2010 2010
Loan Category Balance Category Balance Category Balance Balance
  (Dollars in thousands)
SBA:            
SBA 504  24,480 26.5%  21,359 22.6%  500  3,041
SBA 7(a) and Express  5,258 16.3%  7,134 20.7%  141  132
Total SBA  29,738    28,493    641  3,173
Commercial real estate  26,392 1.3%  38,428 2.1%  1,356  67
Residential land  25,463 67.8%  24,625 68.3%  22  -- 
Commercial  8,592 1.3%  12,188 1.8%  1,189  2,244
Commercial construction  1,353 1.6%  1,493 1.8%  --   -- 
Residential multi-family  848 0.6%  879 0.5%  --   -- 
Residential  9,250 8.4%  623 0.5%  1,043  503
Residential construction  814 3.0%  470 1.6%  --   -- 
Commercial land  1,517 3.5%  --  0.0%  --   2,150
Other, including foreign  1,572 3.0%  1,084 1.9%  335  64
   $ 105,539 3.2%  $ 108,283 3.4%  $ 4,586  $ 8,201
             
             
(1) Excludes covered loans acquired from the Los Padres and Affinity acquisitions.

The $2.7 million decline in non-covered nonaccrual loans during the third quarter was composed of (a) additions of $26.5 million, (b) reductions, payoffs and returns to accrual status of $10.3 million, (c) foreclosures of $10.7 million, and (d) charge-offs of $8.2 million.

At September 30, 2010, approximately 73% of the nonaccrual loan total was represented by:

  1. SBA-related loans of $29.7 million.
  2. Two loans collateralized by land in Ventura County, California totaling $23.5 million. A charge-off of $3.0 million was taken on these loans in the third quarter due to an updated appraisal.
  3. One loan for $5.7 million secured by an out-of-state shopping center. This loan has been written down to its underlying collateral value based on the most recent appraisal. A receiver is in place to manage the property and foreclosure proceedings have commenced. Protracted collection efforts may result in additional write-downs on this loan and resultant credit loss provisions.
  4. Two unrelated hotel-secured loans totaling $5.6 million. One loan has been written down to its collateral value based on the most recent appraisal, while a specific reserve has been established on the other loan for the appraisal shortfall.
  5. Four industrial warehouse loans to the same borrower totaling $5.9 million.  Collateral for all four loans is located in Riverside County, California. Write-downs and resultant credit loss provisions may be necessary if economic conditions in this market do not improve in the near future.
  6. One residential loan for $6.4 million.  The loan is collateralized by 2nd trust deeds on two single family residences in Beverly Hills, California.

The details of non-covered OREO follow:

  September 30, June 30, 
Property Type 2010 2010
  (In thousands)
Commercial real estate   $ 18,920  $ 17,285
Single family residences  2,743  4,057
Construction and land development  2,935  3,181
Total non-covered OREO  $ 24,598  $ 24,523

Covered Loans and Other Real Estate Owned

As part of the Los Padres acquisition that occurred on August 20, 2010 and the Affinity acquisition that occurred on August 28, 2009, we entered into loss sharing agreements with the FDIC that cover a substantial portion of losses incurred after the acquisition dates on loans and other real estate owned. 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") are as follows.

  September 30,  June 30, 
  2010 2010
   (In thousands) 
 Covered nonaccrual loans   $ 171,804  $ 129,188
 Covered OREO  55,244  27,787
 Total covered nonperforming assets   $ 227,048  $ 156,975

REGULATORY CAPITAL MEASURES ARE ABOVE THE WELL-CAPITALIZED MINIMUMS

PacWest and its wholly-owned banking subsidiary, Pacific Western Bank, each remained well capitalized at September 30, 2010 as shown in the following table.

  September 30, 2010
  Well  Pacific PacWest
  Capitalized Western Bancorp
  Requirement Bank Consolidated
Tier 1 leverage capital ratio  5.00% 9.04% 9.17% 
Tier 1 risk-based capital ratio  6.00%  12.44% 12.54%
Total risk-based capital ratio 10.00%  13.72% 13.82%
Tangible common equity ratio N/A 8.98% 7.39%

COMMON STOCK

On March 1, 2010 holders of 1,348,040 warrants to acquire PacWest Bancorp common stock exercised such warrants for net proceeds of $26.6 million. The warrants, which had a strike price of $20.20 per share, represented 99% of the 1,361,656 six-month warrants issued in August 2009. The additional 1,361,657 million warrants that were issued in August 2009 with a strike price of $20.20 expired unexercised during August 2010.

ABOUT PACWEST BANCORP

PacWest Bancorp ("PacWest") is a bank holding company with $5.7 billion in assets as of September 30, 2010, with one wholly-owned banking subsidiary, Pacific Western Bank ("Pacific Western"). Through 82 full-service community banking branches, including 14 branches of the recently acquired Los Padres Bank, 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.  The branches of the recently acquired Los Padres Bank are located in Santa Barbara and San Luis Obispo counties in California and Maricopa County in Arizona. 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 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 to the Los Padres Bank and Affinity Bank acquisitions; the possibility that personnel changes will not proceed as planned; the cost of additional capital is more than expected; a change in the interest rate environment reduces 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.

PACWEST BANCORP AND SUBSIDIARIES      
CONDENSED CONSOLIDATED BALANCE SHEETS       
(Unaudited)      
       
  September 30, June 30, December 31,
  2010 2010 2009
  (In thousands, except per share and share data)
ASSETS      
Cash and due from banks  $ 91,615  $ 97,029  $ 93,915
Interest-earning deposits in financial institutions  68,470  316,357  117,133
Total cash and cash equivalents  160,085  413,386  211,048
       
Non-covered securities available-for-sale  737,642  609,656  371,575
Covered securities available-for-sale  51,125  50,771  52,125
Total securities available-for-sale, at estimated fair value   788,767  660,427  423,700
Federal Home Loan Bank stock, at cost  57,332  48,555  50,429
Total investment securities  846,099  708,982  474,129
       
Non-covered loans, net of unearned income  3,318,409  3,185,025  3,707,383
Allowance for loan losses  (96,494)  (88,463)  (118,717)
Total non-covered loans, net  3,221,915  3,096,562  3,588,666
Covered loans, net  966,140  552,912  621,686
Total loans  4,188,055  3,649,474  4,210,352
       
Non-covered other real estate owned, net  24,598  24,523  43,255
Covered other real estate owned, net  55,244  27,787  27,688
Total other real estate owned  79,842  52,310  70,943
       
Premises and equipment  21,138  21,677  22,546
Goodwill   46,228  --  --
Core deposit and customer relationship intangibles  28,441  28,448  33,296
Cash surrender value of life insurance  65,735  65,382  66,149
FDIC loss sharing asset  141,591  66,068  112,817
Other assets  165,708  147,955  122,799
Total assets  $ 5,742,922  $ 5,153,682  $ 5,324,079
       
LIABILITIES      
Noninterest-bearing deposits  $ 1,467,862  $ 1,395,510  $ 1,302,974
Interest-bearing deposits  3,333,052  2,826,429  2,791,595
Total deposits  4,800,914  4,221,939  4,094,569
Borrowings  275,000  275,000  542,763
Subordinated debentures  129,648  129,701  129,798
Accrued interest payable and other liabilities  43,598  40,457  50,176
Total liabilities  5,249,160  4,667,097  4,817,306
STOCKHOLDERS' EQUITY (1)  493,762  486,585  506,773
Total liabilities and stockholders' equity  $ 5,742,922  $ 5,153,682  $ 5,324,079
       
(1) Includes net unrealized gain (loss) on securities available-for-sale, net  $ 11,410  $ 8,541  $ (104)
       
Tangible book value per share  $ 11.42  $ 12.48  $ 13.52
Book value per share  $ 13.45  $ 13.25  $ 14.47
       
Shares outstanding (includes unvested restricted shares of 1,359,594 at September 30, 2010, 1,398,173 at June 30, 2010 and 1,095,417 at December 31, 2009)  36,708,275  36,715,741  35,015,322
 
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)
           
  Three Months Ended Nine Months Ended
  September 30,  June 30,  September 30,  September 30, 
  2010 2010 2009 2010 2009
  (In thousands, except per share data)
Interest income:          
Loans  $ 68,480  $ 62,314  $ 64,658  $ 194,539  $ 188,168
Investment securities   6,519  5,702  2,741  17,342  5,928
Deposits in financial institutions   131  245  111  505  209
Total interest income   75,130  68,261  67,510  212,386  194,305
           
Interest expense:          
Deposits   6,375  6,945  7,754  20,209  24,441
Borrowings   2,129  2,216  3,989  7,013  11,197
Subordinated debentures   1,459  1,483  1,530  4,357  4,948
Total interest expense   9,963  10,644  13,273  31,579  40,586
           
Net interest income  65,167  57,617  54,237  180,807  153,719
           
Provision for credit losses:          
Non-covered loans  17,050  14,100  75,000  143,677  107,000
Covered loans  7,400  8,850  --  36,950  --
Total provision for credit losses  24,450  22,950  75,000  180,627  107,000
           
Net interest income (loss) after provision for credit losses   40,717  34,667  (20,763)  180  46,719
           
Noninterest income:          
Service charges on deposit accounts  2,861  2,666  2,960  8,256  9,118
Other commissions and fees   1,760  1,845  1,721  5,395  5,152
Other-than-temporary impairment loss on securities  (874)  --  --  (874)  --
Increase in cash surrender value of life insurance   353  369  371  1,120  1,204
FDIC loss sharing income, net  6,406  7,029  --  29,607  --
Other income  279  173  584  632  1,616
Gain from Affinity acquisition  --  --  66,989  --  66,989
Total noninterest income   10,785  12,082  72,625  44,136  84,079
           
Noninterest expense:          
Compensation   23,060  21,068  20,128  63,539  57,853
Occupancy   6,872  6,576  6,435  20,406  19,283
Data processing   2,121  1,892  1,810  5,982  5,115
Other professional services   2,694  2,042  1,857  6,734  4,867
Business development   571  655  528  1,893  1,878
Communications   811  795  762  2,410  2,143
Insurance and assessments   2,431  2,611  2,010  7,316  7,479
Other real estate owned, net  1,832  536  8,141  12,978  18,369
Intangible asset amortization   2,434  2,424  2,578  7,282  7,192
Other expense  3,348  4,174  2,842  10,977  9,812
Total noninterest expense   46,174  42,773  47,091  139,517  133,991
           
Earnings (loss) before income taxes   5,328  3,976  4,771  (95,201)  (3,193)
Income tax (expense) benefit  (1,828)  (1,271)  (2,046)  40,873  1,623
Net earnings (loss)  $ 3,500  $ 2,705  $ 2,725  $ (54,328)  $ (1,570)
           
Per share information:          
Basic earning (loss) per share  $ 0.10  $ 0.07  $ 0.08  $ (1.55)  $ (0.06)
Diluted earnings (loss) per share  $ 0.10  $ 0.07  $ 0.08  $ (1.55)  $ (0.06)
 
PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
(Unaudited)
         
  Three Months Ended Nine Months Ended
  September 30,  June 30,  September 30,  September 30, 
  2010 2010 2009 2010 2009
  (Dollars in Thousands)
Average Assets:          
Loans, net of unearned income  $ 4,123,684  $ 3,809,546  $ 4,140,220  $ 4,018,697  $ 4,000,774
Investment securities  757,945  584,368  262,816  605,071  203,065
Interest-earning deposits in financial institutions  208,074  374,613  150,358  263,196  92,367
Federal funds sold  --   --   4  --   87
Average interest-earning assets  5,089,703  4,768,527  4,553,398  4,886,964  4,296,293
Other assets  455,323  413,103  304,817  429,116  288,345
Average total assets  $ 5,545,026  $ 5,181,630  $ 4,858,215  $ 5,316,080  $ 4,584,638
           
Average liabilities:          
Interest checking accounts  $ 466,366  $ 438,945  $ 402,503  $ 446,702  $ 374,551
Money market accounts  1,246,585  1,203,527  1,001,609  1,205,893  912,130
Savings accounts  124,132  112,909  111,184  115,918  116,133
Time deposits  1,281,423  1,068,033  841,001  1,132,489  810,820
Average interest-bearing deposits  3,118,506  2,823,414  2,356,297  2,901,002  2,213,634
Borrowings  276,543  303,877  567,320  341,438  498,611
Subordinated debentures  129,683  129,732  129,876  129,731  129,925
Average interest-bearing liabilities  3,524,732  3,257,023  3,053,493  3,372,171  2,842,170
Noninterest-bearing demand deposits  1,472,366  1,403,348  1,274,968  1,403,370  1,220,809
Other liabilities  55,450  41,053  44,117  47,786  49,098
Average total liabilities  5,052,548  4,701,424  4,372,578  4,823,327  4,112,077
Average stockholders' equity  492,478  480,206  485,637  492,753  472,561
Average liabilities and stockholders' equity  $ 5,545,026  $ 5,181,630  $ 4,858,215  $ 5,316,080  $ 4,584,638
           
Average deposits   $ 4,590,872  $ 4,226,762  $ 3,631,265  $ 4,304,372  $ 3,434,443
Average funding sources (1)   $ 4,997,098  $ 4,660,371  $ 4,328,461  $ 4,775,541  $ 4,062,979
           
Yield on:          
Average loans 6.59% 6.56% 6.20% 6.47% 6.29%
Average investment securities 3.41% 3.91% 4.14% 3.83% 3.90%
Average interest-earning deposits 0.25% 0.26% 0.29% 0.26% 0.30%
Average interest-earning assets 5.86% 5.74% 5.88% 5.81% 6.05%
           
Cost of:          
Average interest-bearing deposits 0.81% 0.99% 1.31% 0.93% 1.48%
Average borrowings 3.05% 2.92% 2.79% 2.75% 3.00%
Average subordinated debentures 4.46% 4.59% 4.67% 4.49% 5.09%
Average interest-bearing liabilities 1.12% 1.31% 1.72% 1.25% 1.91%
           
Interest rate spread (2) 4.73% 4.43% 4.16% 4.56% 4.14%
Net interest margin (3) 5.08% 4.85% 4.73% 4.95% 4.78%
           
Cost of average deposits (4) 0.55% 0.66% 0.85% 0.63% 0.95%
Cost of average funding sources (5) 0.79% 0.92% 1.22% 0.88% 1.34%
           
           
(1) Average funding sources is the sum of average interest-bearing liabilities plus average noninterest-bearing demand deposits.
(2) Interest rate spread is calculated as the yield on average interest-earning assets less the cost of average interest-bearing liabilities.
(3) Net interest rate margin is calculated as annualized net interest income divided by average interest-earning assets.
(4) Cost of average deposits is calculated as annualized interest expense on deposits divided by average deposits.
(5) Cost of average funding sources is calculated as annualized total interest expense divided by average funding sources.
       
PACWEST BANCORP AND SUBSIDIARIES      
DEPOSITS      
(Unaudited)      
       
  September 30,  June 30,  December 31,
  2010 2010 2009
  (Dollars in thousands)
Noninterest-bearing deposits  $ 1,467,862  $ 1,395,510  $ 1,302,974
Interest checking deposits  487,022  440,853  439,694
Money market deposits  1,303,522  1,178,606  1,171,386
Savings deposits  135,245  114,674  108,569
Total core deposits  3,393,651  3,129,643  3,022,623
Time deposits under $100,000  559,724  448,720  505,130
Time deposits over $100,000   847,539  643,576  566,816
Total time deposits  1,407,263  1,092,296  1,071,946
Total deposits   $ 4,800,914  $ 4,221,939  $ 4,094,569
       
Noninterest-demand deposits as a percentage of total deposits 31% 33% 32%
         
PACWEST BANCORP AND SUBSIDIARIES        
NON-COVERED LOAN CONCENTRATION         
(Unaudited)          
           
  September 30, June 30, March 31, December 31,  September 30,
Loan Category 2010 2010 2010 2009 2009
  (In thousands)
Domestic:          
Real estate mortgage   $ 2,368,943  $ 2,229,331  $ 2,197,295  $ 2,423,712  $ 2,500,520
Commercial   708,329  709,075  720,105  781,003  774,755
Real estate construction   192,595  194,181  284,274  440,286  480,119
Consumer   28,328  30,323  28,804  32,138  33,011
Foreign:          
Commercial   22,948  25,309  26,736  34,524  38,964
Other, including real estate   1,595  1,637  1,675  1,719  1,763
Total gross non-covered loans  $ 3,322,738  $ 3,189,856  $ 3,258,889  $ 3,713,382  $ 3,829,132
 
PACWEST BANCORP AND SUBSIDIARIES
NON-COVERED LOAN CONCENTRATION
REAL ESTATE MORTGAGE LOANS
(Unaudited)
         
  September 30, 2010 June 30, 2010
    % of    % of 
Loan Category Balance Total Balance Total
  (Dollars in thousands)
Commercial real estate mortgage        
Retail  $ 394,727 16.7%  $ 386,132 17.3%
Industrial/warehouse  414,020 17.5%  326,002 14.6%
Office buildings  358,858 15.1%  305,843 13.7%
Owner-occupied  279,760 11.8%  279,428 12.5%
Hotel   166,504 7.0%  172,122 7.7%
Healthcare  95,311 4.0%  90,298 4.1%
Gas station  40,008 1.7%  40,051 1.8%
Self storage  32,235 1.4%  29,721 1.3%
Restaurant  26,461 1.1%  24,929 1.1%
Land acquisition/development  9,693 0.4%  9,734 0.4%
Unimproved land  1,524 0.1%  1,067 0.0%
Other  300,144 12.7%  286,386 12.8%
Total commercial real estate mortgage  2,119,245 89.5%  1,951,713 87.5%
         
Residential real estate mortgage:        
Mixed use  63,472 2.7%  89,506 4.0%
Multi-family  78,109 3.3%  72,434 3.2%
Single family owner-occupied  40,903 1.7%  42,921 1.9%
Single family nonowner-occupied  27,872 1.2%  35,698 1.6%
HELOC's  38,716 1.6%  37,059 1.7%
Unimproved land  626 0.0%  -- 0.0%
Total residential real estate mortgage  249,698 10.5%  277,618 12.5%
         
Total gross non-covered real estate estate mortgage loans  $ 2,368,943 100.0%  $ 2,229,331 100.0%
 
PACWEST BANCORP AND SUBSIDIARIES
NON-COVERED LOAN CONCENTRATION
REAL ESTATE CONSTRUCTION LOANS
(Unaudited)
         
  September 30, 2010 June 30, 2010
    % of    % of 
Loan Category Balance Total Balance Total
  (Dollars in thousands)
Commercial real estate construction        
Retail  $ 21,817 11.3%  $ 21,942 11.3%
Industrial/warehouse  9,154 4.8%  12,293 6.3%
Office buildings  5,006 2.6%  5,519 2.8%
Owner-occupied  3,548 1.8%  3,548 1.8%
Healthcare  3,856 2.0%  -- 0.0%
Self storage  13,151 6.8%  9,211 4.7%
Land acquisition/development  17,872 9.3%  9,439 4.9%
Unimproved land  25,310 13.1%  31,952 16.5%
Other  16,413 8.5%  21,635 11.1%
Total commercial real estate construction  116,127 60.3%  115,539 59.5%
         
Residential real estate construction:        
Multi-family  24,779 12.9%  25,518 13.1%
Single family owner-occupied  1,689 0.9%  1,689 0.9%
Single family nonowner-occupied  925 0.5%  764 0.4%
Land acquisition/development  1,498 0.8%  3,228 1.7%
Unimproved land  47,577 24.7%  47,443 24.4%
Total residential real estate construction  76,468 39.7%  78,642 40.5%
         
Total gross non-covered real estate construction loans  $ 192,595 100.0%  $ 194,181 100.0%
 
PACWEST BANCORP AND SUBSIDIARIES
ALLOWANCE FOR CREDIT LOSSES, NONPERFORMING 
ASSETS AND CREDIT QUALITY RATIOS FOR 
NON-COVERED LOANS 
(Unaudited)
  September 30, June 30, December 31,
  2010 2010 2009
  (Dollars in thousands)
Allowance for loan losses (1)  $ 96,494  $ 88,463  $ 118,717
Reserve for unfunded loan commitments (1)  4,750  4,971  5,561
Total allowance for credit losses  $ 101,244  $ 93,434  $ 124,278
       
       
Nonaccrual loans (2)   $ 105,539  $ 108,283  $ 240,167
Other real estate owned (2)  24,598  24,523  43,255
Total nonperforming assets  $ 130,137  $ 132,806  $ 283,422
       
Restructured performing loans (1)  $ 143,407  $ 76,367  $ 181,454
       
Allowance for credit losses to loans, net of unearned income 3.05% 2.93% 3.35%
Allowance for credit losses to nonaccrual loans 95.93% 86.29% 51.75%
Nonperforming assets to loans, net of unearned income, and other real estate owned 3.89% 4.14% 7.56%
Nonaccrual loans to loans, net of unearned income 3.18% 3.40% 6.48%
       
(1) Applies to non-covered loans.
(2) Excludes covered nonperforming assets from the Los Padres and Affinity acquisitions.
 
PACWEST BANCORP AND SUBSIDIARIES
ALLOWANCE FOR CREDIT LOSSES ROLLFORWARD 
AND NET CHARGE-OFF RATIOS FOR 
NON-COVERED LOANS (1) 
(Unaudited)
      Year    
  Three Months Ended Ended Three Months Ended
  September 30, June 30, December 31, September 30, June 30,
  2010 2010 2009 2009 2009
  (Dollars in thousands)
Allowance for credit losses - beginning of period   $ 93,434  $ 91,379  $ 68,790  $ 76,743  $ 76,632
Loans charged-off:          
Real estate mortgage   (4,601)  (6,988)  (46,047)  (19,908)  (1,536)
Real estate construction   (3,032)  (3,341)  (28,542)  (8,224)  (12,757)
Commercial  (2,074)  (1,024)  (11,982)  (2,760)  (3,405)
Consumer   (218)  (2,004)  (1,180)  (387)  (529)
Foreign   (113)  --  (368)  --  --
Total loans charged off   (10,038)  (13,357)  (88,119)  (31,279)  (18,227)
Recoveries on loans charged-off:          
Real estate mortgage   --  1,017  503  45  231
Real estate construction   --  27  461  6  2
Commercial  319  254  548  55  64
Consumer   348  12  151  16  11
Foreign   131  2  44  --  30
Total recoveries on loans charged off   798  1,312  1,707  122  338
Net charge-offs  (9,240)  (12,045)  (86,412)  (31,157)  (17,889)
Provision for credit losses  17,050  14,100  141,900  75,000  18,000
Allowance for credit losses - end of period   $ 101,244  $ 93,434  $ 124,278  $ 120,586  $ 76,743
           
Annualized net charge-offs to average loans  1.09% 1.50% 2.22% 3.17% 1.83%
           
(1) Applies only to non-covered loans.

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.

PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATIONS
(Unaudited)
       
  September 30, June 30,  December 31, 
  2010 2010 2009
  (Dollars in thousands)
PacWest Bancorp Consolidated:      
Stockholders' equity  $ 493,762  $ 486,585  $ 506,773
Less: intangible assets  74,669  28,448  33,296
Tangible common equity  $ 419,093  $ 458,137  $ 473,477
       
Total assets  $ 5,742,922  $ 5,153,682  $ 5,324,079
Less: intangible assets  74,669  28,448  33,296
Tangible assets  $ 5,668,253  $ 5,125,234  $ 5,290,783
       
Equity to assets ratio 8.60% 9.44% 9.52%
Tangible common equity ratio (1) 7.39% 8.94% 8.95%
       
Pacific Western Bank:      
Stockholder's equity  $ 582,335  $ 573,227  $ 585,940
Less: intangible assets  74,669  28,448  33,296
Tangible common equity  $ 507,666  $ 544,779  $ 552,644
       
Total assets  $ 5,728,353  $ 5,141,150  $ 5,313,750
Less: intangible assets  74,669  28,448  33,296
Tangible assets  $ 5,653,684  $ 5,112,702  $ 5,280,454
       
Equity to assets ratio 10.17% 11.15% 11.03%
Tangible common equity ratio (1) 8.98% 10.66% 10.47%
       
(1) Calculated as tangible common equity divided by tangible assets.


            

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