Attached files

file filename
EX-99.1 - EX-99.1 - PACWEST BANCORPa14-14767_1ex99d1.htm
8-K/A - 8-K/A - PACWEST BANCORPa14-14767_18ka.htm
EX-23.1 - EX-23.1 - PACWEST BANCORPa14-14767_1ex23d1.htm

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF PACWEST BANCORP AND CAPITALSOURCE INC.

 

The following unaudited pro forma condensed consolidated financial statements are based on the separate historical financial statements of PacWest Bancorp (“PacWest” or the “Company”) and CapitalSource Inc. (“CSE”) and give effect to: (1) the PacWest acquisition of First California Financial Group, Inc. (“FCAL”) on May 31, 2013 (which we refer to as the “FCAL acquisition”), including pro forma assumptions and adjustments related to the FCAL acquisition, and (2) the merger of PacWest and CapitalSource which closed on April 7, 2014 (which we refer to as “the merger”), including pro forma assumptions and adjustments related to the merger, as described in the accompanying notes to the unaudited pro forma combined condensed consolidated financial statements. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2013 is presented as if the merger had occurred on December 31, 2013. The unaudited pro forma condensed consolidated statement of earnings for the year ended December 31, 2013 is presented as if the merger and the FCAL acquisition had each occurred on January 1, 2013. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the merger and the FCAL acquisition and, with respect to the statement of earnings only, that the Company expects to have a continuing impact on consolidated results of operations.

 

Prior to the completion of the FCAL acquisition, FCAL decided to discontinue the operations of its Electronic Payment Services (“EPS”) division. Accordingly, the following unaudited pro forma combined condensed consolidated financial statements have been prepared assuming the EPS operations were discontinued on January 1, 2013.

 

The unaudited pro forma condensed consolidated financial information has been prepared using the acquisition method of accounting for business combinations under U.S. generally accepted accounting principles. PacWest is the acquirer for accounting purposes in the merger. Certain reclassifications have been made to the historical financial statements of CSE to conform to the presentation of PacWest’s financial statements. The determination of the merger consideration and fair values of CSE’s assets and liabilities are based on the actual net tangible and intangible assets of CSE that existed as of the close of the merger. PacWest has recorded the significant identifiable tangible and identifiable intangible assets of CSE; however, these are subject to change for a one-year period if material information which existed at the merger date previously unknown becomes known. Accordingly, the unaudited pro forma adjustments, including the allocations of the purchase price, are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed consolidated financial information.

 

In connection with the plan to integrate the operations of CSE following the completion of the merger, PacWest will incur nonrecurring charges, such as costs associated with systems implementation, severance, professional fees and other costs directly related to the merger. Such merger-related after-tax expenses for PacWest, estimated at $43.4 million, will be recorded in results of operations after completion of the merger. The unaudited pro forma combined condensed consolidated balance sheet includes a pro forma adjustment to reduce cash and stockholders’ equity to reflect the payment of these expenses. However, such expenses are not included in the unaudited pro forma condensed consolidated statement of earnings. PacWest, FCAL and CSE also incurred merger-related pre-tax expenses of $37.1 million in 2013 which are not included in the unaudited pro forma condensed consolidated statement of earnings as they are nonrecurring in nature. Additionally, the unaudited pro forma adjustments do not give effect to any nonrecurring or unusual restructuring charges that may be incurred as a result of the merger and integration of these companies or any anticipated disposition of assets or prepayment of liabilities that may result from such merger and integration.

 

1



 

The actual amounts recorded may differ materially from the information presented in these unaudited pro forma condensed consolidated financial statements as a result of:

 

·                  material and significant information becoming known that was previously not expected or known; and

·                  changes in the financial results of the combined company, which could change the future discounted cash flow projections.

 

The unaudited pro forma condensed consolidated financial statements are provided for informational purposes only. The unaudited pro forma condensed consolidated financial statements are not necessarily, and should not be assumed to be, an indication of the results that would have been achieved had the merger and FCAL acquisition been completed as of the dates indicated or that may be achieved in the future. The preparation of the unaudited pro forma condensed consolidated financial statements and related adjustments required management to make certain assumptions and estimates. The unaudited pro forma condensed consolidated financial statements should be read together with:

 

·                  the accompanying notes to the unaudited pro forma condensed consolidated financial statements;

·                  PacWest’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2013, included in PacWest’s Annual Report on Form 10-K for the year ended December 31, 2013;

·                  CSE’s separate audited historical consolidated financial statements and accompanying notes as of and for the year ended December 31, 2013, included in CSE’s Annual Report on Form 10-K for the year ended December 31, 2013;

·                  PacWest’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2014 included in PacWest’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014;

·                  FCAL’s separate unaudited historical consolidated financial statements and accompanying notes as of and for the three months ended March 31, 2013 included in FCAL’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2013; and

·                  Other information pertaining to PacWest and CSE contained in or incorporated by reference into the joint proxy statement/prospectus filed by PacWest pursuant to Rule 424(b)(3) on December 6, 2013. See “Selected Historical Consolidated Financial Data for PacWest” and “Selected Historical Consolidated Financial Data for CapitalSource” included elsewhere in the joint proxy statement/prospectus.

 

The unaudited pro forma condensed consolidated balance sheet as of December 31, 2013 presents the consolidated financial position giving pro forma effect to the following transactions as if they had occurred as of December 31, 2013:

 

·                  The completion of the merger, including the issuance of approximately 56.6 million shares of PacWest’s common stock (based upon the number of shares outstanding of CSE common stock and outstanding equity awards as of April 7, 2014 and an exchange ratio of 0.2837 shares of PacWest common stock for one share of CSE common stock) and the payment of $483.1 million of cash consideration; and

·                  The payment of $43.4 million of remaining estimated after-tax transaction-related merger costs.

 

2



 

PACWEST BANCORP AND SUBSIDIARIES

 

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2013

 

(Dollars in thousands)

 

 

 

PacWest

 

 

 

 

 

 

 

Bancorp

 

CapitalSource Inc.

 

Pro Forma

 

 

 

 

 

 

 

Pro Forma

 

 

 

 

 

 

 

Historical

 

Historical

 

Adjustments

 

Pro Forma

 

Combined

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

147,422

 

$

514,452

 

$

(526,575

)(a)

$

(12,123

)

$

135,299

 

Investment securities

 

1,522,684

 

944,851

 

3,463

 (b)

948,314

 

2,470,998

 

Loans and leases, net of unearned income

 

4,312,352

 

6,784,489

 

(168,666

)(c)

6,615,823

 

10,928,175

 

Allowance for loan and lease losses

 

(82,034

)

(120,520

)

120,520

 (c)

 

(82,034

)

Total loans and leases, net

 

4,230,318

 

6,663,969

 

(48,146

)

6,615,823

 

10,846,141

 

OREO

 

51,837

 

12,824

 

442

 (d)

13,266

 

65,103

 

Goodwill and intangible assets

 

225,991

 

173,135

 

1,346,429

 (e)

1,519,564

 

1,745,555

 

FDIC loss sharing asset

 

45,524

 

 

 

 

45,524

 

Deferred tax asset, net

 

77,924

 

252,268

 

49,357

 (f)

301,625

 

379,549

 

Other assets

 

231,663

 

343,991

 

(6,739

)(g)

337,252

 

568,915

 

Total assets

 

$

6,533,363

 

$

8,905,490

 

$

818,231

 

$

9,723,721

 

$

16,257,084

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing

 

$

2,318,446

 

$

 

$

 

$

 

$

2,318,446

 

Interest-bearing

 

2,962,541

 

6,127,690

 

17,183

 (h)

6,144,873

 

9,107,414

 

Total deposits

 

5,280,987

 

6,127,690

 

17,183

 

6,144,873

 

11,425,860

 

Borrowings

 

113,726

 

625,000

 

12,109

 (i)

637,109

 

750,835

 

Subordinated debentures

 

132,645

 

412,156

 

(111,235

)(j)

300,921

 

433,566

 

Discontinued operations

 

123,028

 

 

 

 

123,028

 

Other liabilities

 

73,884

 

104,017

 

(13,812

)(k)

90,205

 

164,089

 

Total liabilities

 

5,724,270

 

7,268,863

 

(95,755

)

7,173,108

 

12,897,378

 

Total shareholders’ equity

 

809,093

 

1,636,627

 

913,986

 (l)

2,550,613

 

3,359,706

 

Total liabilities and shareholders’ equity

 

$

6,533,363

 

$

8,905,490

 

$

818,231

 

$

9,723,721

 

$

16,257,084

 

 

3



 

Unaudited Pro Forma Condensed Consolidated Balance Sheet Adjustments

 

Pro Forma Adjustments:

 

a)             Adjustment reflects payment of cash consideration of $483.1 million and estimated after-tax merger costs of $43.4 million.

 

b)             Adjustment reflects a premium on investment securities with interest rates above market. This estimated premium will be amortized to interest income over 64 months.

 

c)              Adjustment to loans and leases represents a $214.8 million acquisition discount related to liquidity, interest, and credit risk net of the elimination of the CSE loan premiums and net deferred costs. The acquisition discount will be accreted to interest income over the estimated remaining life of the acquired loan and lease portfolio of 60 months. The CSE historical allowance for loan and lease losses has been eliminated in acquisition accounting.

 

d)             Adjustment reflects the fair value adjustments to OREO based on the Company’s evaluation of the acquired OREO portfolio.

 

e)              The adjustment to goodwill and intangible assets represents (dollars in thousands):

 

Elimination of CSE’s historical intangible assets

 

$

(173,135

)

Establishment of core deposit intangible

 

6,720

 

Establishment of goodwill

 

1,512,844

 

Net increase in goodwill and intangible assets

 

$

1,346,429

 

 

The core deposit intangible will be amortized to expense over the estimated life of the deposits acquired of 84 months using an accelerated method. Goodwill will be evaluated for impairment on a periodic basis.

 

f)               Adjustment represents the establishment of a net deferred tax asset on the basis differences of the assets acquired and liabilities assumed.

 

g)             Adjustment represents fair value adjustments to various other assets including operating leases and investments in trust entities based on the Company’s evaluation of the acquired assets.

 

h)             Adjustment reflects a premium on time deposits with interest rates above market. This estimated premium will be accreted to interest expense over 60 months using an accelerated method.

 

i)                Adjustment reflects a premium on certain borrowings with interest rates above market. This estimated premium was settled in cash when the borrowings were paid off in April 2014.

 

j)                Adjustment reflects a discount on acquired subordinated debentures. This estimated discount will be amortized to interest expense over the remaining contractual lives of the subordinated debentures of 280 months.

 

k)             Adjustment represents fair value adjustments to various other liabilities including the reserve for unfunded commitments and deferred rent based on the Company’s evaluation of the acquired liabilities.

 

l)                The adjustment to shareholders’ equity represents (dollars in thousands):

 

Value of PacWest stock issued

 

$

2,594,070

 

Less: Payment of estimated after-tax merger costs

 

(43,457

)

Less: CSE shareholders’ equity

 

(1,636,627

)

Net increase in shareholders’ equity

 

$

913,986

 

 

4



 

The following table presents the unaudited pro forma condensed consolidated statement of earnings for the year ended December 31, 2013 giving pro forma effect to the merger and the FCAL acquisition as if they had occurred as of January 1, 2013. Such pro forma statement reflects the following:

 

·                  The full year impact of PacWest’s statement of earnings, which includes the acquired FCAL operations from the May 31, 2013 acquisition date;

·                  The full year impact of CSE’s statement of earnings, including pro forma amortization and accretion of purchase accounting adjustments on investment securities, loans and leases, intangible assets, time deposits, and subordinated debentures;

·                  The issuance of additional PacWest common stock applying the 0.2837 exchange ratio to the outstanding CSE shares in determining pro forma earnings per share;

·                  The impact of FCAL’s statement of earnings for the five months ended May 31, 2013, including pro forma amortization and accretion of purchase accounting adjustments on loans, intangible assets, time deposits and subordinated debentures;

·                  The impact of FCAL’s discontinued operations, the EPS division;

·                  The redemption of FCAL’s Series C preferred stock and the conversion of FCAL’s Series A preferred stock into FCAL common stock; and

·                  The issuance of additional PacWest common stock applying the 0.2966 exchange ratio to the outstanding FCAL shares in determining pro forma earnings per share.

 

5



 

PACWEST BANCORP AND SUBSIDIARIES

 

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

 

YEAR ENDED DECEMBER 31, 2013

 

(In thousands, except per share amounts)

 

 

 

 

 

First California Financial Group, Inc. (1)

 

 

 

CapitalSource Inc.

 

 

 

 

 

PacWest
Historical

 

Historical

 

Pro Forma
Adjustments

 

Pro Forma

 

PacWest and FCAL Pro
Forma Combined

 

Historical

 

Pro Forma
Adjustments (2)

 

Pro Forma

 

PacWest and CapitalSource
Pro Forma Combined

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

272,726

 

$

25,504

 

$

1,945

(m)

$

27,449

 

$

300,175

 

$

415,375

 

$

42,948

(v)

$

458,323

 

$

758,498

 

Deposits in financial institutions

 

265

 

106

 

 

106

 

371

 

1,859

 

 

1,859

 

2,230

 

Investment securities

 

36,923

 

821

 

 

821

 

37,744

 

30,242

 

(648

)(w)

29,594

 

67,338

 

Total interest income

 

309,914

 

26,431

 

1,945

 

28,376

 

338,290

 

447,476

 

42,300

 

489,776

 

828,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

7,868

 

1,714

 

(570

)(n)

1,144

 

9,012

 

51,941

 

(14,781

)(x)

37,160

 

46,172

 

Borrowings and subordinated debentures

 

4,333

 

1,186

 

919

(o)

2,105

 

6,438

 

22,147

 

5,014

(y)

27,161

 

33,599

 

Total interest expense

 

12,201

 

2,900

 

349

 

3,249

 

15,450

 

74,088

 

(9,767

)

64,321

 

79,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

297,713

 

23,531

 

1,596

 

25,127

 

322,840

 

373,388

 

52,067

 

425,455

 

748,295

 

Provision for credit losses

 

(4,210

)

 

 

 

(4,210

)

20,531

 

(z)

20,531

 

16,321

 

Net interest income after provision for credit losses

 

301,923

 

23,531

 

1,596

 

25,127

 

327,050

 

352,857

 

52,067

 

404,924

 

731,974

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service charges, commissions and fees

 

20,181

 

1,293

 

 

1,293

 

21,474

 

 

 

 

21,474

 

Net gain on sales of loans and leases

 

1,791

 

1,144

 

 

1,144

 

2,935

 

 

 

 

2,935

 

Net gain (loss) on sales of securities

 

137

 

(1,209

)

 

(1,209

)

(1,072

)

28,965

 

 

28,965

 

27,893

 

Acquisition-related securities gain

 

5,222

 

 

 

 

5,222

 

 

 

 

5,222

 

FDIC loss sharing expense

 

(26,172

)

(2,845

)

 

(2,845

)

(29,017

)

 

 

 

(29,017

)

Other income

 

3,085

 

3,462

 

(2,872

)(p)

590

 

3,675

 

53,585

 

 

53,585

 

57,260

 

Total noninterest income

 

4,244

 

1,845

 

(2,872

)

(1,027

)

3,217

 

82,550

 

 

82,550

 

85,767

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

107,067

 

11,475

 

(716

)(p),(q)

10,759

 

117,826

 

107,676

 

 

107,676

 

225,502

 

Occupancy

 

29,459

 

2,547

 

(83

)(p)

2,464

 

31,923

 

14,577

 

 

14,577

 

46,500

 

Other

 

60,367

 

19,199

 

(3,259

)(p)

15,940

 

76,307

 

62,825

 

 

62,825

 

139,132

 

Acquisition and integration

 

28,392

 

4,670

 

(23,922

)(r)

(19,252

)

9,140

 

4,000

 

(13,140

)(aa)

(9,140

)

 

Intangible asset amortization

 

5,402

 

625

 

45

(s)

670

 

6,072

 

 

1,380

(bb)

1,380

 

7,452

 

Total noninterest expense

 

230,687

 

38,516

 

(27,935

)

10,581

 

241,268

 

189,078

 

(11,760

)

177,318

 

418,586

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

`

 

Earnings from continuing operations before income taxes

 

75,480

 

(13,140

)

26,658

 

13,518

 

88,998

 

246,329

 

63,827

 

310,156

 

399,154

 

Income tax expense

 

(30,003

)

4,945

 

(11,186

)(t)

(6,241

)

(36,244

)

(82,037

)

(26,807

)(cc)

(108,844

)

(145,088

)

Net earnings from continuing operations

 

$

45,477

 

$

(8,195

)

$

15,472

 

$

7,277

 

$

52,754

 

$

164,292

 

$

37,020

 

$

201,312

 

$

254,066

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings from continuing operations per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.09

 

$

(0.30

)

 

 

 

 

$

1.16

 

$

0.84

 

 

 

 

 

$

2.48

 

Diluted

 

$

1.09

 

$

(0.29

)

 

 

 

 

$

1.16

 

$

0.82

 

 

 

 

 

$

2.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

40,823.4

 

29,265.0

 

3,500.7

(u)

 

 

44,324.1

 

195,190.0

 

56,602.0

(dd)

 

 

100,926.10

 

Diluted

 

40,823.4

 

29,685.6

 

3,500.7

(u)

 

 

44,324.1

 

200,451.9

 

56,602.0

(dd)

 

 

100,926.10

 

 


Notes:

(1)

PacWest acquired First California Financial Group, Inc. (FCAL) on May 31, 2013 in an all-stock transaction. The FCAL historical results are for the five months ended May 31, 2013. The pro forma adjustments and operating results are to reflect this acquisition as if it occurred on January 1, 2013. See accompanying “Unaudited Pro Forma Condensed Consolidated Statement of Earnings Adjustments.”

(2)

See accompanying “Unaudited Pro Forma Condensed Consolidated Statement of Earnings Adjustments.”

 

 

6



 

Unaudited Pro Forma Condensed Consolidated Statement of Earnings Adjustments

 

FCAL Pro Forma Adjustments:

 

m)         Accretion of $48.3 million discount on loans over the estimated weighted average remaining life of the acquired loan portfolio of 124 months.

 

n)             Accretion of $2.0 million time deposit premium over 60 months and elimination of FCAL’s historical accretion.

 

o)             Estimated borrowing costs from $227 million of additional borrowings to replace the demand deposits of the discontinued operations of the EPS division and amortization of the $2.7 million subordinated debentures fair value adjustment over 60 months.

 

p)             Elimination of historical results of FCAL’s EPS operations since EPS operations are assumed to be discontinued at January 31, 2013.

 

q)             Incremental expense due to the change in control provisions of the FCAL supplemental executive retirement plan over 180 months.

 

r)              Elimination of nonrecurring acquisition and integration costs directly related to the FCAL acquisition incurred by PacWest and FCAL.

 

s)               Amortization of the $7.9 million core deposit intangible asset over its estimated life of 84 months and elimination of FCAL’s historical intangible asset amortization.

 

t)                Represents income taxes on the pro forma adjustments at a combined Federal and California effective tax rate of approximately 42 percent.

 

u)             Adjustment represents the exchange ratio of 0.2966 multiplied by the historical shares and equity awards outstanding of FCAL common stock weighted for the five-month period.

 

CSE Pro Forma Adjustments:

 

v)             Accretion of $214.8 million discount on loans over the estimated weighted average life of the acquired loan portfolio of 60 months.

 

w)           Amortization of the $3.5 million fair value adjustment on investment securities over 64 months.

 

x)             Accretion of $17.2 million time deposit premium over 60 months using an accelerated method.

 

y)             Amortization of the $111.2 million subordinated debenture fair value adjustment over 280 months.

 

z)              No pro forma adjustment is made for the historical provision for loan losses. PacWest expects that provisions for credit losses on the acquired loan portfolio will not be as great as the historical provisions because the acquired loans are recorded at fair value, which includes an estimate of lifetime credit losses.

 

aa)      Elimination of nonrecurring acquisition and integration costs directly related to the CSE acquisition incurred by PacWest and CSE.

 

bb)      Amortization of the $6.7 million core deposit intangible asset over its estimated life of 84 months.

 

cc)        Represents income taxes on the pro forma adjustments at a combined Federal and California effective tax rate of approximately 42 percent.

 

dd)      Adjustment represents the exchange ratio of 0.2837 multiplied by the historical shares and equity awards outstanding of CSE common stock.

 

7