Market Overview

PacWest Bancorp Announces Results For the First Quarter 2019

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Highlights

  • Net Earnings of $112.6 Million, or $0.92 Per Diluted Share
  • Tax Equivalent Net Interest Margin of 4.69%
  • Loan and Lease Production of $1.2 Billion; $350 Million of Net Loan Growth
  • Net Charge-offs Less Than $200 Thousand
  • Provision for Credit Losses Decreases 67% to $4.0 Million
  • Core Deposits Represent 84% of Total Deposits

LOS ANGELES, April 16, 2019 (GLOBE NEWSWIRE) -- PacWest Bancorp (NASDAQ:PACW) today announced net earnings for the first quarter of 2019 of $112.6 million, or $0.92 per diluted share, compared to net earnings for the fourth quarter of 2018 of $115.0 million, or $0.93 per diluted share.

Matt Wagner, President and CEO, commented, "We continue to see the results of our credit de-risking strategy with continued downward trends in net charge-offs and credit loss provision and continued improvement in our credit quality metrics. Our first quarter of 2019 results produced a return on assets of 1.77% and a return on tangible equity of 20.64%."

Mr. Wagner continued, "We had one of our strongest first quarters in terms of loan production and net loan growth and will work to continue that momentum into the rest of 2019 with an emphasis on core deposit generation. We also received approval to open a full-service branch office in Denver, Colorado and will continue to execute our expansion plans in that market." 

FINANCIAL HIGHLIGHTS

  At or For the       At or For the    
  Three Months Ended       Three Months Ended    
  March 31,   December 31,
  Increase   March 31,   Increase
Financial Highlights 2019   2018
  (Decrease)   2019   2018   (Decrease)
  (Dollars in thousands, except per share data)
Net earnings $   112,604     $   115,041     $   (2,437 )   $   112,604     $   118,276     $   (5,672 )
Diluted earnings per share $   0.92     $   0.93     $   (0.01 )   $   0.92     $    0.93     $   (0.01 )
Return on average assets   1.77 %     1.84 %       (0.07 )     1.77 %     1.99 %       (0.22 )
Return on average tangible equity (1)   20.64 %     21.23 %       (0.59 )     20.64 %     21.08 %       (0.44 )
                       
Net interest margin ("NIM") (tax equivalent)   4.69 %     4.91 %       (0.22 )     4.69 %     5.11 %       (0.42 )
Yield on average loans and leases (tax equivalent)   6.16 %     6.27 %       (0.11 )     6.16 %     6.11 %        0.05  
Cost of average total deposits   0.73 %     0.62 %       0.11       0.73 %     0.31 %       0.42  
Efficiency ratio   42.4 %     41.7 %       0.7       42.4 %     41.7 %       0.7  
                       
Total assets $   26,324,138     $   25,731,354     $   592,784     $   26,324,138     $   24,149,330     $   2,174,808  
Loans and leases held for investment, net of deferred fees $   18,307,697     $   17,957,713     $   349,984     $   18,307,697     $   16,455,285     $   1,852,412  
Noninterest-bearing demand deposits $   7,712,409     $   7,888,915     $   (176,506 )   $   7,712,409     $   8,232,140     $   (519,731 )
Core deposits $   16,127,638     $   16,346,671     $   (219,033 )   $   16,127,638     $   15,661,529     $   466,109  
Total deposits $   19,285,927     $   18,870,501     $   415,426     $   19,285,927     $   18,078,788     $   1,207,139  
                       
As percentage of total deposits:                      
Noninterest-bearing demand deposits   40 %     42 %       (2 )     40 %     46 %       (6 )
Core deposits   84 %     87 %       (3 )     84 %     87 %       (3 )
                       
Equity to assets ratio   18.20 %     18.75 %       (0.55 )     18.20 %     20.16 %       (1.96 )
Tangible common equity ratio (1)   9.23 %     9.60 %       (0.37 )     9.23 %     10.43 %       (1.20 )
Book value per share $   39.86     $   39.17     $   0.69     $    39.86     $   38.47     $   1.39  
Tangible book value per share (1) $   18.22     $   18.02     $   0.20     $   18.22     $   17.75     $   0.47  
                       
(1) Non-GAAP measure.                      
                       

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased by $6.9 million to $254.9 million for the first quarter of 2019 compared to $261.8 million for the fourth quarter of 2018 due to interest expense growth exceeding interest income growth and two less days in the first quarter compared to the fourth quarter. Interest expense increased by $8.7 million due mainly to higher deposit costs, offset partially by two less days in the first quarter of 2019. Interest income increased by $1.8 million due primarily to a higher balance of average loans and leases, offset partially by a lower yield on average loans and leases and two less days in the first quarter of 2019.  The tax equivalent yield on average loans and leases was 6.16% for the first quarter of 2019 compared to 6.27% for the fourth quarter of 2018. The decrease in the yield on average loans and leases was due principally to lower discount accretion on acquired loans (seven basis points in the first quarter versus 16 basis points in the fourth quarter).

The tax equivalent NIM was 4.69% for the first quarter of 2019 compared to 4.91% for the fourth quarter of 2018. The decrease in the NIM was due mainly to higher deposit and borrowing costs and a lower yield on average loans and leases.

The cost of average total deposits increased to 0.73% for the first quarter of 2019 from 0.62% for the fourth quarter of 2018. The increase was driven primarily by a shift in our deposit mix with increases in time and money market deposits and lower noninterest-bearing demand deposits along with higher rates paid on deposits in conjunction with the Federal Reserve December rate move.

Provision for Credit Losses

The following table presents details of the provision for credit losses for the periods indicated:

  Three Months Ended    
  March 31,   December 31,   Increase
Provision for Credit Losses 2019   2018   (Decrease)
  (In thousands)  
Addition to allowance for loan and lease losses $ 4,000   $ 10,500   $ (6,500 )
Addition to reserve for unfunded loan commitments   -     1,500     (1,500 )
Total provision for credit losses $ 4,000   $ 12,000   $ (8,000 )
                   

Noninterest Income

The following table presents details of noninterest income for the periods indicated:   

  Three Months Ended    
  March 31,   December 31,   Increase
Noninterest Income 2019   2018   (Decrease)
  (In thousands)  
Service charges on deposit accounts $ 3,730   $ 4,091     $ (361 )
Other commissions and fees   11,008     11,114       (106 )
Leased equipment income   9,282     9,384       (102 )
Gain on sale of securities   2,161     786       1,375  
Other income:          
Dividends and gains (losses) on equity investments   296     (1,331 )     1,627  
Warrant income   2,279     2,187       92  
Other   2,308     7,295       (4,987 )
Total noninterest income $ 31,064   $ 33,526     $ (2,462 )
                     

Noninterest income decreased by $2.5 million to $31.1 million for the first quarter of 2019 compared to $33.5 million for the fourth quarter of 2018 due mainly to a $5.0 million decrease in other income, offset partially by an increase of $1.6 million in dividends and gains on equity investments and a $1.4 million increase in gain on sale of securities. Other income decreased due primarily to lower miscellaneous income from borrower settlements and lower BOLI income attributable to a death benefit received in the fourth quarter of 2018.  Dividends and gains on equity investments increased mainly due to negative mark-to-market valuation adjustments in the fourth quarter on equity investments arising from exercised warrants. The increase in gain on sale of securities was attributable to a net gain of $2.2 million on sales of $405.8 million of securities in the first quarter of 2019 as part of a partial portfolio repositioning compared to a net gain of $0.8 million on sales of $70.9 million of securities in the fourth quarter of 2018.

Noninterest Expense

The following table presents details of noninterest expense for the periods indicated:

  Three Months Ended    
  March 31,   December 31,   Increase
Noninterest Expense 2019   2018   (Decrease)
  (In thousands)  
Compensation $ 70,845   $ 69,299     $ 1,546  
Occupancy   14,320     13,356       964  
Data processing   6,925     6,930       (5 )
Other professional services   4,513     6,198       (1,685 )
Insurance and assessments   4,038     4,202       (164 )
Intangible asset amortization   4,870     4,986       (116 )
Leased equipment depreciation   5,651     5,758       (107 )
Foreclosed assets expense (income), net   29     (311 )     340  
Acquisition, integration and reorganization costs   618     970       (352 )
Loan expense   2,885     2,991       (106 )
Other   11,593     14,856       (3,263 )
Total noninterest expense $ 126,287   $ 129,235     $ (2,948 )
                     

Noninterest expense decreased by $2.9 million to $126.3 million for the first quarter of 2019 compared to $129.2 million for the fourth quarter of 2018 attributable primarily to a $3.3 million decrease in other expense and a $1.7 million decrease in other professional services, offset partially by a $1.5 million increase in compensation expense. The decrease in other expense was mainly due to the $2.1 million write-off of the Square 1 Bank trademark asset in the fourth quarter of 2018 as a result of our plan to retire the Square 1 Bank name and increased employee expense in the fourth quarter of 2018 due to executive relocation costs.  Other professional services expense decreased due to lower legal and consulting expenses. Compensation expense increased due to normal seasonal increases in payroll tax and other employee benefit expenses and higher bonus expense, offset partially by lower stock compensation expense, due to an increase in forfeitures, and lower commissions expense.

Income Taxes

The overall effective income tax rate was 27.7% for the first quarter of 2019 and 25.3% for the fourth quarter of 2018.  The fourth quarter 2018 effective tax rate was lower due primarily to a change in the state apportionment method applied by the state of Maryland.  The effective tax rate for the full year 2019 is estimated to be in the range of 27-28%.   

BALANCE SHEET HIGHLIGHTS

Loans and Leases

The following table presents roll forwards of loans and leases held for investment, net of deferred fees, for the periods indicated:

  Three Months Ended
Roll Forward of Loans and Leases Held March 31,   December 31,
for Investment, Net of Deferred Fees (1) 2019   2018
  (Dollars in thousands)
Balance, beginning of period $ 17,957,713     $ 17,230,146  
Additions:      
Production   1,174,838       1,571,565  
Disbursements   1,192,972       1,186,351  
Total production and disbursements   2,367,810       2,757,916  
Reductions:      
Payoffs   (933,300 )     (1,070,691 )
Paydowns   (1,038,964 )     (920,633 )
Total payoffs and paydowns   (1,972,264 )     (1,991,324 )
Sales   (16,936 )     -  
Transfers to foreclosed assets   (37 )     (13,679 )
Charge-offs   (3,465 )     (25,346 )
Transfers to loans held for sale   (25,124 )     -  
Total reductions   (2,017,826 )     (2,030,349 )
Balance, end of period $ 18,307,697     $ 17,957,713  
       
Weighted average rate on production (2)   5.11 %     5.38 %
 
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) The weighted average rate on production presents contractual rates on a tax equivalent basis and excludes amortized fees.  Amortized fees added approximately 24 basis points to loan yields in 2019 and 31 basis points to loan yields in 2018.
 

Loans and leases held for investment, net of deferred fees, increased by $350.0 million, or 8% annualized, in the first quarter of 2019 to $18.3 billion at March 31, 2019.  The net loan growth in the first quarter was primarily from the real estate construction loan class and income producing and other residential loan class, which included $285 million of multi-family loan pool purchases.

The following table presents the composition of loans and leases held for investment, net of deferred fees, as of the dates indicated:

  March 31, 2019   December 31, 2018   March 31, 2018
    % of     % of     % of
Loan and Lease Portfolio (1) Amount Total   Amount Total   Amount Total
  (In thousands)
Real estate mortgage:                
Commercial $   4,640,510 25 %   $   4,824,298 27 %   $   5,033,006 31 %
Income producing and other residential     3,518,948 19 %       3,093,843 17 %       2,521,237 15 %
Total real estate mortgage     8,159,458 44 %       7,918,141 44 %       7,554,243 46 %
Real estate construction and land:                
Commercial     943,596 5 %       912,583 5 %       789,892 5 %
Residential     1,408,128 8 %       1,321,073 8 %       887,110 5 %
Total real estate construction and land     2,351,724 13 %       2,233,656 13 %       1,677,002 10 %
Total real estate     10,511,182 57 %       10,151,797 57 %       9,231,245 56 %
Commercial:                
Asset-based     3,422,202 19 %       3,305,421 18 %       2,957,890 18 %
Venture capital     2,027,450 11 %       2,038,748 11 %       1,920,643 12 %
Other commercial     1,974,702 11 %       2,060,426 12 %       1,947,590 12 %
Total commercial     7,424,354 41 %       7,404,595 41 %       6,826,123 42 %
Consumer     372,161 2 %       401,321 2 %       397,917 2 %
Total loans and leases held for investment, net of deferred fees $   18,307,697 100 %   $   17,957,713 100 %   $   16,455,285 100 %
                 
Total unfunded loan commitments $   7,465,392     $   7,528,248     $   6,352,803  
                       

____________________
(1) Excludes loans held for sale carried at lower of cost or fair value at March 31, 2019.

Allowance for Credit Losses

The following tables present roll forwards of the allowance for credit losses for the periods indicated:

  Three Months Ended March 31, 2019
  Allowance for   Reserve for   Total
Allowance for Credit Loan and   Unfunded Loan   Allowance for
Losses Rollforward Lease Losses   Commitments   Credit Losses
  (In thousands)
Beginning balance $   132,472     $   36,861   $   169,333  
Charge-offs     (3,465 )       -       (3,465 )
Recoveries     3,274          -       3,274  
Net charge-offs     (191 )       -       (191 )
Provision     4,000         -       4,000  
Ending balance $   136,281     $   36,861   $   173,142  
           
           
           
  Three Months Ended December 31, 2018
  Allowance for   Reserve for   Total
Allowance for Credit Loan and   Unfunded Loan   Allowance for
Losses Rollforward Lease Losses   Commitments   Credit Losses
  (In thousands)
Beginning balance $   141,920     $   35,361   $   177,281  
Charge-offs     (25,346 )       -       (25,346 )
Recoveries     5,398         -       5,398  
Net charge-offs     (19,948 )       -       (19,948 )
Provision     10,500         1,500       12,000  
Ending balance $   132,472     $   36,861   $   169,333  
                     

The allowance for credit losses as a percentage of loans and leases held for investment increased to 0.95% at March 31, 2019 from 0.94% at December 31, 2018.

Gross charge-offs for the first quarter of 2019 were $3.5 million and were primarily for other commercial loans.  Gross charge-offs for the fourth quarter of 2018 were $25.3 million and included $23.4 million for venture capital loans, of which $20.0 million related to two loans, and $1.7 million for other commercial loans.  Recoveries for the first quarter of 2019 were $3.3 million and included $2.3 million for venture capital loans and $0.8 million for other commercial loans. Recoveries for the fourth quarter of 2018 were $5.4 million and included $3.1 million for venture capital loans and $1.7 million for other commercial loans.     

For the first quarter of 2019 and fourth quarter of 2018, annualized net charge-offs to average loans and leases were 0.00% and 0.46%.  

Deposits and Client Investment Funds

The following table presents the composition of our deposit portfolio as of the dates indicated:

  March 31, 2019   December 31, 2018   March 31, 2018
    % of     % of     % of
Deposit Composition Amount Total   Amount Total   Amount Total
  (Dollars in thousands)
Noninterest-bearing demand $   7,712,409 40 %   $   7,888,915 42 %   $   8,232,140 46 %
Interest checking     3,163,228 16 %       2,842,463 15 %       2,076,152 11 %
Money market     4,714,078 25 %       5,043,871 27 %       4,676,734 26 %
Savings     537,923 3 %       571,422 3 %       676,503 4 %
Total core deposits     16,127,638 84 %       16,346,671 87 %       15,661,529 87 %
Non-core non-maturity deposits     454,277 2 %       518,192 3 %       585,399 3 %
Total non-maturity deposits     16,581,915 86 %       16,864,863 90 %       16,246,928 90 %
Time deposits $250,000 and under     2,258,989 12 %       1,593,453 8 %       1,482,118 8 %
Time deposits over $250,000     445,023 2 %       412,185 2 %       349,742 2 %
Total time deposits     2,704,012 14 %       2,005,638 10 %       1,831,860 10 %
Total deposits $   19,285,927 100 %   $   18,870,501 100 %   $   18,078,788 100 %
                             

At March 31, 2019, core deposits totaled $16.1 billion, or 84% of total deposits, including $7.7 billion of noninterest-bearing demand deposits, or 40% of total deposits.    

In addition to deposit products, we also offer alternative non-depository cash investment options for select clients; these alternatives include investments managed by Square 1 Asset Management, Inc. ("S1AM"), our registered investment advisor subsidiary, and third-party sweep products.  Total off-balance sheet client investment funds at March 31, 2019 were $2.2 billion, of which $1.6 billion was managed by S1AM.

CREDIT QUALITY  

The following table presents loan and lease credit quality metrics as of the dates indicated:

  March 31,   December 31,   Increase
Credit Quality Metrics 2019   2018   (Decrease)
  (Dollars in thousands)
NPAs and Performing TDRs:          
Nonaccrual loans and leases held for investment (1)(2) $   88,527     $   79,333     $   9,194  
Accruing loans contractually past due 90 days or more     -         -         -  
Foreclosed assets, net     3,291         5,299         (2,008 )
Total nonperforming assets ("NPAs") $   91,818     $   84,632     $   7,186  
           
Nonaccrual loans and leases held for investment to loans and leases held for investment   0.48 %     0.44 %    
Nonperforming assets to loans and leases held for investment and foreclosed assets   0.50 %     0.47 %    
           
Nonaccrual loans and leases held for investment (1)(2) $   88,527     $   79,333     $   9,194  
Performing TDRs held for investment     17,027         17,701         (674 )
Total impaired loans and leases $   105,554     $   97,034     $   8,520  
           
Loan and Lease Credit Risk Ratings:          
Pass $   17,824,612     $   17,459,205     $   365,407  
Special mention     292,780         261,398         31,382  
Classified (1)     190,305         237,110         (46,805 )
Total loans and leases held for investment, net of deferred fees $   18,307,697     $   17,957,713     $   349,984  
           
Classified loans and leases held for investment to loans and leases held for investment   1.04 %     1.32 %    
           
Allowance for Credit Losses:          
Allowance for credit losses $   173,142     $   169,333     $   3,809  
Provision for credit losses (for the quarter) $   4,000     $   12,000     $   (8,000 )
Net charge-offs (for the quarter) $   191     $   19,948     $   (19,757 )
Net charge-offs to average loans and leases (for the quarter)   0.00 %     0.46 %    
Allowance for credit losses to loans and leases held for investment   0.95 %     0.94 %    
Allowance for credit losses to nonaccrual loans and leases held for investment   195.6 %     213.5 %    
                   
(1) Excludes loans held for sale carried at lower of cost or fair value at March 31, 2019.
(2) Nonaccrual loans include guaranteed amounts of $10.2 million at March 31, 2019 and $11.2 million at December 31, 2018.
                   

Nonaccrual, classified, and special mention loans and leases fluctuate from period to period as a result of loan repayments and our ongoing active portfolio monitoring.

During the first quarter of 2019, nonaccrual loans and leases increased $9.2 million from what was a five-year low as of December 31, 2018, while classified loans and leases decreased by $46.8 million driven primarily by the payoff of a $30 million commercial real estate mortgage loan.  

The following table presents nonaccrual loans and leases and accruing loans and leases past due between 30 and 89 days by portfolio segment and class as of the dates indicated:

  Nonaccrual Loans and Leases (1)   Accruing and
  March 31, 2019   December 31, 2018   30-89 Days Past Due
    % of     % of   March 31,   December 31,
    Loan     Loan   2019   2018
  Amount Category   Amount Category   Amount   Amount
  (Dollars in thousands)
Real estate mortgage:                  
Commercial $ 12,750 0.3 %   $ 15,321 0.3 %   $ 6,863   $ 3,276
Income producing and other residential   2,444 0.1 %     2,524 0.1 %     1,853     1,557
Total real estate mortgage   15,194 0.2 %     17,845 0.2 %     8,716     4,833
Real estate construction and land:                  
Commercial   430 0.0 %     442 0.0 %     -     -
Residential   - 0.0 %     - 0.0 %     8,949     1,527
Total real estate construction and land   430 0.0 %     442 0.0 %     8,949     1,527
Commercial:                  
Asset-based   43,406 1.3 %     32,324 1.0 %     3,750     47
Venture capital   20,437 1.0 %     20,299 1.0 %     4,500     1,028
Other commercial   8,633 0.4 %     7,380 0.4 %     1,694     2,467
Total commercial   72,476 1.0 %     60,003 0.8 %     9,944     3,542
Consumer   427 0.1 %     1,043 0.3 %     614     581
Total held for investment $ 88,527 0.5 %   $ 79,333 0.4 %   $ 28,223   $ 10,483
                               

____________________
(1) Excludes loans held for sale carried at lower of cost or fair value at March 31, 2019.

STOCK REPURCHASE PROGRAM

In February 2019, the Company announced a new stock repurchase program with an authorized repurchase amount not to exceed $225 million and with a program maturity of February 29, 2020.  During the first quarter of 2019, we repurchased 3,070,676 shares at an average price of $38.94 and a total cost of $119.6 million, of which $65.4 million was under the new plan, leaving $159.6 million remaining under the plan as of March 31, 2019.

ABOUT PACWEST BANCORP

PacWest Bancorp ("PacWest") is a bank holding company with over $26 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank (the "Bank"). The Bank has 74 full-service branches located throughout the state of California and one branch in Durham, North Carolina. Our Community Banking group provides lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices. We offer additional products and services through our National Lending and Venture Banking groups. National Lending provides asset-based, equipment, real estate and security cash flow loans and treasury management services to established middle-market businesses on a national basis. Venture Banking offers a comprehensive suite of financial services focused on entrepreneurial businesses and their venture capital and private equity investors, with offices located in key innovative hubs across the United States.  For more information about PacWest Bancorp, visit www.pacwestbancorp.com, or to learn more about Pacific Western Bank, visit www.pacificwesternbank.com.

FORWARD LOOKING STATEMENTS

This communication 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. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on information available at the time of this communication and are based on current beliefs and expectations of the Company's management and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those set forth in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by the Company with the Securities and Exchange Commission.

We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PACWEST BANCORP AND SUBSIDIARIES      
CONDENSED CONSOLIDATED BALANCE SHEET      
       
  March 31,   December 31,
  2019   2018
  (Dollars in thousands, except per share data)
ASSETS:      
Cash and due from banks $   224,758     $   175,830  
Interest-earning deposits in financial institutions     332,124         209,937  
Total cash and cash equivalents      556,882         385,767  
       
Securities available-for-sale, at estimated fair value     3,994,708         4,009,431  
Federal Home Loan Bank stock, at cost     29,430         32,103  
Total investment securities     4,024,138         4,041,534  
       
Loans held for sale     25,124         -  
       
Gross loans and leases held for investment     18,371,295         18,026,365  
Deferred fees, net     (63,598 )       (68,652 )
Total loans and leases held for investment, net of deferred fees     18,307,697         17,957,713  
Allowance for loan and lease losses      (136,281 )       (132,472 )
Total loans and leases held for investment, net     18,171,416         17,825,241  
       
Equipment leased to others under operating leases     293,853         292,677  
Premises and equipment, net     37,783         34,661  
Foreclosed assets, net     3,291         5,299  
Deferred tax asset, net     -         17,489  
Goodwill     2,548,670         2,548,670  
Core deposit and customer relationship intangibles, net     52,250         57,120  
Other assets     610,731         522,896  
Total assets $   26,324,138     $   25,731,354  
       
LIABILITIES:      
Noninterest-bearing deposits $   7,712,409     $   7,888,915  
Interest-bearing deposits     11,573,518         10,981,586  
Total deposits      19,285,927         18,870,501  
Borrowings     1,481,087         1,371,114  
Subordinated debentures     454,458         453,846  
Accrued interest payable and other liabilities     311,684         210,305  
Total liabilities     21,533,156         20,905,766  
STOCKHOLDERS' EQUITY (1)     4,790,982         4,825,588  
Total liabilities and stockholders' equity $   26,324,138     $    25,731,354  
       
Book value per share $   39.86     $   39.17  
Tangible book value per share (2) $   18.22     $   18.02  
Shares outstanding     120,201,149         123,189,833  
       
(1) Includes net unrealized gain (loss) on securities available-for-sale, net $   37,258     $   (6,075 )
(2) Non-GAAP measure.      
       


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
           
  Three Months Ended
  March 31,   December 31,   March 31,
  2019   2018   2018
  (Dollars in thousands, except per share data)
Interest income:          
Loans and leases $   274,229   $   272,522     $   251,085  
Investment securities     29,680       29,690         26,138  
Deposits in financial institutions     650       527         552  
Total interest income     304,559       302,739          277,775  
           
Interest expense:          
Deposits     34,235       28,834         13,818  
Borrowings     7,710       4,602         920  
Subordinated debentures     7,738        7,538         6,537  
Total interest expense     49,683       40,974         21,275  
           
Net interest income     254,876       261,765         256,500  
Provision for credit losses      4,000       12,000         4,000  
Net interest income after provision for credit losses     250,876       249,765         252,500  
           
Noninterest income:          
Service charges on deposit accounts      3,730       4,091         4,174  
Other commissions and fees     11,008       11,114         10,265  
Leased equipment income     9,282       9,384         9,587  
Gain on sale of loans and leases     -       -         4,569  
Gain on sale of securities     2,161       786         6,311  
Other income     4,883       8,151         3,653  
Total noninterest income     31,064       33,526         38,559  
           
Noninterest expense:          
Compensation     70,845       69,299         71,023  
Occupancy     14,320       13,356         13,223  
Data processing     6,925       6,930         6,659  
Other professional services     4,513       6,198         4,439  
Insurance and assessments     4,038       4,202         5,727  
Intangible asset amortization     4,870       4,986         6,346  
Leased equipment depreciation     5,651       5,758          5,375  
Foreclosed assets expense (income), net     29       (311 )       (122 )
Acquisition, integration and reorganization costs     618       970         -  
Loan expense     2,885       2,991         2,271  
Other expense     11,593       14,856         12,454  
Total noninterest expense     126,287       129,235         127,395  
           
Earnings before income taxes     155,653       154,056         163,664  
Income tax expense     43,049       39,015         45,388  
Net earnings $   112,604   $   115,041     $   118,276  
           
Basic and diluted earnings per share $   0.92   $   0.93     $   0.93  
Dividends declared and paid per share $   0.60   $   0.60     $   0.50  
                     


PACWEST BANCORP AND SUBSIDIARIES 
NET EARNINGS PER SHARE CALCULATIONS
           
  Three Months Ended
  March 31,   December 31,   March 31,
  2019   2018   2018
  (In thousands, except per share data)
Basic Earnings Per Share:          
Net earnings $   112,604     $   115,041     $   118,276  
Less: earnings allocated to unvested restricted stock (1)     (1,163 )       (1,219 )       (1,115 )
Net earnings allocated to common shares $   111,441     $    113,822     $   117,161  
           
Weighted-average basic shares and unvested restricted stock outstanding     122,227         123,238         127,487  
Less: weighted-average unvested restricted stock outstanding     (1,352 )       (1,426 )       (1,413 )
Weighted-average basic shares outstanding     120,875         121,812         126,074  
           
Basic earnings per share $    0.92     $   0.93     $   0.93  
           
Diluted Earnings Per Share:          
Net earnings allocated to common shares $   111,441     $   113,822     $   117,161  
           
Weighted-average basic shares outstanding     120,875         121,812         126,074  
           
Diluted earnings per share $   0.92     $   0.93     $   0.93  
           
(1) Represents cash dividends paid to holders of unvested stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
 


PACWEST BANCORP AND SUBSIDIARIES                  
AVERAGE BALANCE SHEET AND YIELD ANALYSIS                
                       
  Three Months Ended
  March 31, 2019   December 31, 2018   March 31, 2018
    Interest Average     Interest Average     Interest Average
  Average Income/ Yield/   Average Income/ Yield/   Average Income/ Yield/
  Balance Expense Cost   Balance Expense Cost   Balance Expense Cost
  (Dollars in thousands)
Assets:                      
Loans and leases (1)(2) $   18,064,230 $  274,513 6.16 %   $   17,275,343 $  272,824 6.27 %   $   16,682,124 $  251,260 6.11 %
Investment securities (3)     3,968,531     30,572 3.12 %        3,899,520     30,992 3.15 %       3,682,138     27,935 3.08 %
Deposits in financial institutions     111,950     650 2.35 %       94,500     527 2.21 %       150,674     552 1.49 %
Total interest-earning assets (1)     22,144,711     305,735 5.60 %       21,269,363     304,343 5.68 %       20,514,936     279,747 5.53 %
Other assets     3,631,238           3,515,099           3,556,212    
Total assets $   25,775,949       $   24,784,462       $   24,071,148    
                       
Liabilities and Stockholders' Equity:                      
Interest checking $   3,041,822     9,321 1.24 %   $   2,785,702     7,932 1.13 %   $   2,311,988     3,050 0.54 %
Money market     5,274,987      14,908 1.15 %       5,107,468     13,621 1.06 %       5,038,119     6,812 0.55 %
Savings     553,032     242 0.18 %       597,259     273 0.18 %       685,173     258 0.15 %
Time     2,286,932     9,764 1.73 %       1,932,332     7,008 1.44 %       1,923,963     3,698 0.78 %
Total interest-bearing deposits     11,156,773     34,235 1.24 %       10,422,761     28,834 1.10 %       9,959,243     13,818 0.56 %
Borrowings     1,218,319     7,710 2.57 %       764,039     4,602 2.39 %       239,293     920 1.56 %
Subordinated debentures     454,203     7,738 6.91 %       452,998     7,538 6.60 %       461,648     6,537 5.74 %
Total interest-bearing liabilities     12,829,295     49,683 1.57 %       11,639,798     40,974 1.40 %       10,660,184     21,275 0.81 %
Noninterest-bearing demand deposits     7,783,652           8,163,699           8,311,104    
Other liabilities     347,037           222,564           198,653    
Total liabilities     20,959,984           20,026,061           19,169,941    
Stockholders' equity     4,815,965           4,758,401           4,901,207    
Total liabilities and stockholders' equity $   25,775,949       $   24,784,462       $   24,071,148    
Net interest income (1)   $  256,052       $  263,369       $  258,472  
Net interest spread (1)     4.03 %       4.28 %       4.72 %
Net interest margin (1)     4.69 %       4.91 %       5.11 %
                       
Total deposits (4) $   18,940,425 $   34,235 0.73 %   $   18,586,460 $   28,834 0.62 %   $   18,270,347 $   13,818 0.31 %
     
(1) Tax equivalent.
(2) Includes discount accretion on acquired loans of $3.0 million, $6.9 million, and $7.6 million for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, respectively.
(3) Includes tax-equivalent adjustments of $0.9 million, $1.3 million, and $1.8 million for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018 related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.
(4) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits.  The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.
   
     


PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER BALANCE SHEET
                   
  March 31,   December 31,   September 30,   June 30,   March 31,
  2019   2018   2018   2018   2018
  (Dollars in thousands, except per share data)
ASSETS:                  
Cash and due from banks $   224,758     $   175,830     $   196,502     $   245,998     $   235,061  
Interest-earning deposits in financial institutions     332,124         209,937          185,284         205,567         312,735  
Total cash and cash equivalents     556,882         385,767         381,786         451,565         547,796  
                   
Securities available-for-sale     3,994,708          4,009,431         3,820,333         3,857,788         3,801,986  
Federal Home Loan Bank stock     29,430         32,103         31,077         26,271         17,250  
Total investment securities     4,024,138         4,041,534         3,851,410         3,884,059         3,819,236  
                   
Loans held for sale     25,124         -         -         -         -  
                   
Gross loans and leases held for investment     18,371,295         18,026,365         17,295,589         16,947,502         16,516,627  
Deferred fees, net     (63,598 )       (68,652 )       (65,443 )       (62,310 )        (61,342 )
Total loans and leases held for investment, net of deferred fees     18,307,697         17,957,713         17,230,146         16,885,192         16,455,285  
Allowance for loan and lease losses     (136,281 )       (132,472 )       (141,920 )       (132,139 )       (134,275 )
Total loans and leases held for investment, net     18,171,416         17,825,241         17,088,226         16,753,053         16,321,010  
                   
Equipment leased to others under operating leases     293,853         292,677         275,707         266,576         280,648  
Premises and equipment, net     37,783         34,661         34,012         34,513         33,686  
Foreclosed assets, net     3,291         5,299         4,407         2,231         1,236  
Deferred tax asset, net     -         17,489         41,280         25,551         12,584  
Goodwill     2,548,670         2,548,670         2,548,670         2,548,670         2,548,670  
Core deposit and customer relationship intangibles, net     52,250          57,120         62,106         67,693         73,280  
Other assets     610,731         522,896         494,522         495,646         511,184  
Total assets $   26,324,138     $   25,731,354     $   24,782,126     $   24,529,557     $   24,149,330  
                   
LIABILITIES:                  
Noninterest-bearing deposits $   7,712,409     $   7,888,915     $   7,834,480     $   8,126,153     $   8,232,140  
Interest-bearing deposits     11,573,518         10,981,586         10,045,063         9,803,039         9,846,648  
Total deposits     19,285,927         18,870,501         17,879,543         17,929,192         18,078,788  
Borrowings     1,481,087         1,371,114         1,513,166          1,187,226         575,284  
Subordinated debentures     454,458         453,846         452,944         451,878         452,223  
Accrued interest payable and other liabilities     311,684         210,305         194,788         183,302         175,545  
Total liabilities     21,533,156         20,905,766         20,040,441         19,751,598         19,281,840  
STOCKHOLDERS' EQUITY (1)     4,790,982         4,825,588         4,741,685         4,777,959         4,867,490  
Total liabilities and stockholders' equity $   26,324,138     $   25,731,354     $   24,782,126     $   24,529,557     $   24,149,330  
                   
Book value per share $   39.86     $    39.17     $   38.46     $   38.36     $   38.47  
Tangible book value per share (2) $   18.22     $   18.02     $   17.28     $   17.35     $   17.75  
Shares outstanding     120,201,149         123,189,833         123,283,450         124,567,950         126,537,871  
                   
(1) Includes net unrealized gain (loss) on securities available-for-sale, net $   37,258     $   (6,075 )   $   (43,854 )   $   (22,340 )   $   (11,936 )
(2) Non-GAAP measure.                  
                   


PACWEST BANCORP AND SUBSIDIARIES                
FIVE QUARTER STATEMENT OF EARNINGS                
                   
  Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
  2019   2018   2018   2018   2018
  (Dollars in thousands, except per share data)
Interest income:                  
Loans and leases $   274,229   $   272,522     $   264,062     $   260,300     $   251,085  
Investment securities     29,680       29,690         28,061          27,730         26,138  
Deposits in financial institutions     650       527         519         484         552  
Total interest income     304,559       302,739         292,642         288,514         277,775  
                   
Interest expense:                  
Deposits     34,235       28,834         21,121         16,367         13,818  
Borrowings     7,710       4,602         3,814         2,649         920  
Subordinated debentures     7,738       7,538         7,390         7,166         6,537  
Total interest expense     49,683       40,974         32,325         26,182         21,275  
                   
Net interest income     254,876       261,765         260,317         262,332         256,500  
Provision for credit losses     4,000       12,000         11,500         17,500         4,000  
Net interest income after provision for credit losses     250,876       249,765         248,817         244,832         252,500  
                   
Noninterest income:                  
Service charges on deposit accounts     3,730       4,091         3,979         4,265         4,174  
Other commissions and fees     11,008       11,114         12,397         11,767         10,265  
Leased equipment income     9,282       9,384         9,120         9,790         9,587  
Gain on sale of loans and leases     -       -         -         106         4,569  
Gain on sale of securities     2,161       786         826         253         6,311  
Other income     4,883       8,151         10,590         13,457         3,653  
Total noninterest income     31,064       33,526          36,912         39,638         38,559  
                   
Noninterest expense:                  
Compensation     70,845       69,299         72,333         69,913         71,023  
Occupancy     14,320        13,356         13,069         13,575         13,223  
Data processing     6,925       6,930         6,740         6,896         6,659  
Other professional services      4,513       6,198         6,058         5,257         4,439  
Insurance and assessments     4,038       4,202         5,446         5,330         5,727  
Intangible asset amortization     4,870       4,986         5,587         5,587         6,346  
Leased equipment depreciation     5,651       5,758         5,001         5,237         5,375  
Foreclosed assets expense (income), net     29       (311 )       (257 )       (61 )       (122 )
Acquisition, integration and reorganization costs      618       970         800         -         -  
Loan expense     2,885       2,991         2,249         3,058         2,271  
Other expense     11,593       14,856         11,127         11,657         12,454  
Total noninterest expense     126,287       129,235         128,153         126,449         127,395  
                   
Earnings before income taxes     155,653       154,056         157,576         158,021         163,664  
Income tax expense     43,049       39,015         41,289         42,286         45,388  
Net earnings $   112,604   $   115,041     $   116,287     $   115,735     $   118,276  
                   
Basic and diluted earnings per share $   0.92   $   0.93     $   0.94     $   0.92     $   0.93  
Dividends declared and paid per share $   0.60   $   0.60     $   0.60     $   0.60     $   0.50  
                                     


PACWEST BANCORP AND SUBSIDIARIES                
FIVE QUARTER SELECTED FINANCIAL DATA                
                   
  At or For the Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
  2019   2018   2018   2018   2018
  (Dollars in thousands)    
Performance Ratios:                  
Return on average assets (1)   1.77 %     1.84 %     1.89 %     1.93 %     1.99 %
Return on average equity (1)   9.48 %     9.59 %     9.72 %     9.61 %     9.79 %
Return on average tangible equity (1)(2)   20.64 %     21.23 %     21.61 %     20.98 %     21.08 %
                   
Yield on average loans and leases (1)(3)   6.16 %     6.27 %     6.20 %     6.30 %     6.11 %
Yield on average interest-earning assets (1)(3)   5.60 %     5.68 %     5.60 %     5.70 %     5.53 %
Cost of average interest-bearing deposits (1)   1.24 %     1.10 %     0.83 %     0.68 %     0.56 %
Cost of average total deposits (1)   0.73 %     0.62 %     0.46 %     0.37 %     0.31 %
Cost of average interest-bearing liabilities (1)   1.57 %     1.40 %     1.14 %     0.98 %     0.81 %
Net interest spread (1)(3)   4.03 %     4.28 %     4.46 %     4.72 %     4.72 %
Net interest margin (1)(3)   4.69 %     4.91 %     4.99 %     5.18 %     5.11 %
                   
Efficiency ratio   42.4 %     41.7 %     40.9 %     39.8 %     41.7 %
Noninterest expense as a percentage of average assets (1)   1.99 %     2.07 %     2.09 %     2.11 %     2.15 %
                   
Average Balances:                  
Loans and leases, net of deferred fees $   18,064,230     $   17,275,343     $   16,913,792     $   16,576,361     $   16,682,124  
Interest-earning assets     22,144,711         21,269,363         20,866,478         20,492,121         20,514,936  
Total assets     25,775,949         24,784,462         24,357,771         23,999,637         24,071,148  
Noninterest-bearing deposits     7,783,652         8,163,699         8,120,306         8,253,413         8,311,104  
Interest-bearing deposits     11,156,773         10,422,761         10,111,927         9,703,611         9,959,243  
Total deposits     18,940,425         18,586,460         18,232,233         17,957,024         18,270,347  
Borrowings     1,218,319         764,039         720,449         549,665         239,293  
Subordinated debentures     454,203         452,998         452,312         451,973         461,648  
Interest-bearing liabilities     12,829,295         11,639,798         11,284,688         10,705,249         10,660,184  
Stockholders' equity     4,815,965         4,758,401         4,748,819         4,832,480         4,901,207  
                   
(1) Annualized.                  
(2) Non-GAAP measure.                  
(3) Tax equivalent.                  
                   



PACWEST BANCORP AND SUBSIDIARIES                
FIVE QUARTER SELECTED FINANCIAL DATA                
                   
  At or For the Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
  2019   2018   2018   2018   2018
  (Dollars in thousands)    
Credit Quality Ratios:                  
Nonaccrual loans and leases held for investment to loans and leases held for investment   0.48 %     0.44 %     0.66 %     0.67 %     0.63 %
Nonperforming assets to loans and leases held for investment and foreclosed assets   0.50 %     0.47 %     0.68 %     0.69 %     0.64 %
Classified loans and leases held for investment to loans and leases held for investment   1.04 %     1.32 %     1.51 %     1.40 %     1.26 %
Trailing 12 months net charge-offs to average loans and leases held for investment   0.22 %     0.26 %     0.28 %     0.28 %     0.31 %
Allowance for credit losses to loans and leases held for investment   0.95 %     0.94 %     1.03 %     0.99 %     1.02 %
Allowance for credit losses to nonaccrual loans and leases held  for investment   195.6 %     213.5 %     156.9 %     147.3 %     161.1 %
                   
PacWest Bancorp Consolidated Capital:                  
Tier 1 leverage ratio (1)   9.38 %     10.13 %     10.10 %     10.33 %     10.66 %
Common equity tier 1 capital ratio (1)   9.48 %     10.01 %     10.18 %     10.59 %     11.16 %
Tier 1 capital ratio (1)   9.48 %     10.01 %     10.18 %     10.59 %     11.16 %
Total capital ratio (1)   12.15 %     12.72 %     13.03 %     13.48 %     14.11 %
Risk-weighted assets (1) $   22,939,074     $   22,525,096     $   21,650,542     $   20,929,325     $   20,523,487  
                   
Equity to assets ratio   18.20 %     18.75 %     19.13 %     19.48 %     20.16 %
Tangible common equity ratio (2)   9.23 %     9.60 %     9.61 %     9.86 %     10.43 %
Book value per share $   39.86     $   39.17     $   38.46     $   38.36     $   38.47  
Tangible book value per share (2) $   18.22     $   18.02     $   17.28     $   17.35     $   17.75  
                   
Pacific Western Bank Capital:                  
Tier 1 leverage ratio (1)   10.57 %     10.80 %     10.78 %     11.11 %     11.33 %
Common equity tier 1 capital ratio (1)   10.69 %     10.68 %     10.87 %     11.40 %     11.86 %
Tier 1 capital ratio (1)   10.69 %     10.68 %     10.87 %     11.40 %     11.86 %
Total capital ratio (1)   11.45 %     11.44 %     11.69 %     12.21 %     12.67 %
                   
(1) Capital information for March 31, 2019 is preliminary.                
(2) Non-GAAP measure.                  
                   

GAAP TO NON-GAAP RECONCILIATIONS

This press release contains certain non-GAAP financial disclosures for: (1) return on average tangible equity, (2) tangible common equity ratio, and (3) tangible book value per share. The Company uses these 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.  In particular, the use of return on average tangible equity, tangible common equity ratio, and tangible book value per share is prevalent among banking regulators, investors and analysts.  Accordingly, we disclose the non-GAAP measures in addition to the related GAAP measures of: (1) return on average equity, (2) equity to assets ratio, and (3) book value per share.   

The tables below present the reconciliations of these GAAP financial measures to the related non-GAAP financial measures:

  Three Months Ended
  March 31,   December 31,   March 31,
Return on Average Tangible Equity 2019   2018   2018
  (Dollars in thousands)
Net earnings $   112,604     $   115,041     $   118,276  
           
Average stockholders' equity $   4,815,965     $   4,758,401     $   4,901,207  
Less: Average intangible assets     2,603,842         2,608,497         2,625,593  
Average tangible common equity $   2,212,123     $   2,149,904     $   2,275,614  
           
Return on average equity (1)   9.48 %     9.59 %     9.79 %
Return on average tangible equity (2)   20.64 %     21.23 %     21.08 %
           
(1) Annualized net earnings divided by average stockholders' equity.    
(2) Annualized net earnings divided by average tangible common equity.    
     


Tangible Common Equity Ratio/ March 31,   December 31,   September 30,   June 30,   March 31,
Tangible Book Value Per Share 2019   2018   2018   2018   2018
  (Dollars in thousands, except per share data)    
Stockholders' equity $   4,790,982     $   4,825,588     $   4,741,685     $   4,777,959     $   4,867,490  
Less: Intangible assets     2,600,920         2,605,790         2,610,776         2,616,363         2,621,950  
Tangible common equity $   2,190,062     $   2,219,798     $   2,130,909     $   2,161,596     $   2,245,540  
                   
Total assets $   26,324,138     $   25,731,354     $   24,782,126     $   24,529,557     $   24,149,330  
Less: Intangible assets     2,600,920         2,605,790         2,610,776         2,616,363         2,621,950  
Tangible assets $   23,723,218     $   23,125,564     $   22,171,350     $   21,913,194     $   21,527,380  
                   
Equity to assets ratio   18.20 %     18.75 %     19.13 %     19.48 %     20.16 %
Tangible common equity ratio (1)   9.23 %     9.60 %     9.61 %     9.86 %     10.43 %
                   
Book value per share $   39.86     $   39.17     $   38.46     $   38.36     $   38.47  
Tangible book value per share (2) $   18.22     $   18.02     $   17.28     $   17.35     $   17.75  
Shares outstanding     120,201,149         123,189,833         123,283,450         124,567,950         126,537,871  
                   
(1) Tangible common equity divided by tangible assets.                
(2) Tangible common equity divided by shares outstanding.                
                 


Contact:   Matthew P. Wagner
President and CEO
                Patrick J. Rusnak
Executive Vice President and CFO
Phone:   310-887-8520   714-989-4705
         

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