PacWest Bancorp announced on Thursday net earnings for the fourth quarter of 2013 of $3.1 million, or 6 cents per diluted share, compared with net earnings for the third quarter of 2013 of $24.2 million, or 53 cents per diluted share, and net earnings of $45.1 million for calendar year 2013, or $1.08 per diluted share, compared with $56.8 million, or $1.54 per diluted share, for calendar year 2012.
For the fourth quarter of 2013, net earnings include a $12.2 million, or 28 cents per diluted share, after-tax charge for accelerated restricted stock vesting and third quarter of 2013 net earnings include a $5.2 million, or 12 cents per diluted share, after-tax acquisition-related securities gain.
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.
As analysts and investors view adjusted earnings from continuing operations before income taxes as an indicator of the company's ability to both generate earnings and absorb credit losses, we disclose this amount in addition to pre-tax earnings. We disclose the adjusted efficiency ratio as it shows the trend in recurring overhead-related noninterest expense relative to recurring net revenues. As the allowance for credit losses takes into account credit deterioration on acquired loans and leases, which include an estimate of credit losses in their initial fair values, we disclose the adjusted allowance for credit losses to loans and leases in addition to the allowance for credit losses to loans and leases.
The adjusted allowance for credit losses to loans and leases excludes acquired loans and leases and the related allowance. Given that the use of return on average tangible equity, tangible common equity amounts and ratios, and tangible book value per share is prevalent among banking regulators, investors and analysts, we disclose our return on average tangible equity in addition to return on average equity, our tangible common equity ratio in addition to the equity-to-assets ratio, and tangible book value per share in addition to book value per share.
The quarter-over-quarter decrease in net earnings of $21.1 million was due mostly to: (a) the $12.4 million ($12.2 million after tax) accelerated vesting of restricted stock, (b) the $6.2 million ($3.6 million after tax) increase in net credit costs (mostly due to higher FDIC loss sharing expense), (c) the $5.2 million non-taxable acquisition-related securities gain recorded in the third quarter but not repeated in the fourth quarter, and (d) the $1 million ($598,000 after tax) decrease in net interest income. These items were offset by the decrease in acquisition and integration costs of $1.2 million ($524,000 after tax).
"Although our fourth-quarter earnings were negatively impacted by our decision to accelerate vesting of some restricted stock, that action saved the company $21 million in compensation and tax expense that would have been recorded when we complete the merger with CapitalSource," said Matt Wagner, chief executive officer. "The real story is in our adjusted earnings, which totaled $38.2 million for the fourth quarter. That level was achieved by improved credit quality, profitable loan originations and core deposits, and maintenance of our net interest margin.
"New loans and leases originated and purchased in the fourth quarter totaled $236 million, down slightly from the $241 million we posted in the third quarter. The net paydowns of loans and leases in the fourth quarter included one lending relationship for $32 million, which paid off on the last day of the year. Nevertheless, we see some economic improvement in our markets and expect new loan activity will increase."
Wagner went on to comment on the pending CapitalSource merger: "The integration planning for our merger with CapitalSource continues to progress very well. We received stockholder approval of the merger last week and expect to close in the first quarter of 2014, subject to receipt of final regulatory approval. We all look forward to completing the merger so that we can begin to profitably grow the new organization."
Vic Santoro, chief financial officer, said: "Our 'core' loan and lease yield of 6.64 percent and our all-in deposit cost of 0.11 percent are the main drivers of our superior net interest margin. Our net interest margin has held above the 5.25 percent mark all year, hitting 5.41 percent in the fourth quarter. When volatile items are excluded, our core NIM is 5.31 percent.
"We remain focused on controlling our expenses, with fourth-quarter noninterest expense declining $1.2 million quarter-over-quarter when accelerated stock vesting, OREO, and acquisition and integration costs are excluded. The level of our adjusted fourth quarter earnings continues to be strong, and we expect to generate solid core earnings in 2014 and beyond."
Net earnings for the year ended Dec. 31, 2013, were $45.1 million, a decrease of $11.7 million compared to last year. The decline in profitability was due mainly to: (a) the $24.3 million ($14.7 million after tax) increase in acquisition and integration costs, (b) the $12.3 million ($7.1 million after tax) increase in net credit costs, (c) the $12.4 million ($12.2 million after tax) accelerated vesting of restricted stock, and (d) the $12.1 million ($7.0 million after tax) increase, mostly from acquisitions, in compensation expense. These items were offset by: (a) the $22.6 million ($13.1 million after tax) decrease in debt termination expense and (b) the $21.2 million ($12.3 million after tax) increase in net interest income.