Market Overview

PacWest Bancorp Announces Results for the Second Quarter 2019

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Highlights

  • Net Earnings of $128.1 Million, or $1.07 Per Diluted Share; Up 16% from Prior Quarter
  • Tax Equivalent Net Interest Margin of 4.72%; Up 3 Basis Points from Prior Quarter
  • Loan and Lease Production of $1.4 Billion; $165 Million of Net Loan Growth
  • Core Deposits Represent 83% of Total Deposits

LOS ANGELES, July 16, 2019 (GLOBE NEWSWIRE) -- PacWest Bancorp (NASDAQ:PACW) today announced net earnings for the second quarter of 2019 of $128.1 million, or $1.07 per diluted share, compared to net earnings for the first quarter of 2019 of $112.6 million, or $0.92 per diluted share. The increase in net earnings in the second quarter included a $22.2 million pre-tax gain on the sale of securities which contributed $0.13 per diluted share.

Matt Wagner, President and CEO, commented, "We continue to see favorable results from our credit de-risking strategy with sustained improvement in our credit quality metrics. Year-to-date net charge-offs are 48% lower than the same period in 2018 and year-to-date credit loss provisions are 44% lower than the same period in 2018. Our second quarter of 2019 results produced a return on assets of 1.99% and a return on tangible equity of 23.15%."

Mr. Wagner continued, "We experienced solid loan production in the second quarter bringing our net loan growth to $515 million for the first half of 2019. However, competition for core deposits and customers desiring higher yields on their funds resulted in total deposits being flat in the first half of 2019. Core deposit generation remains a priority in order to help fund loan growth and maintain our net interest margin."

FINANCIAL HIGHLIGHTS

  At or For the        At or For the     
  Three Months Ended       Six Months Ended    
  June 30,   March 31,   Increase   June 30,   Increase
Financial Highlights   2019       2019     (Decrease)     2019       2018     (Decrease)
   
  (Dollars in thousands, except per share data)
Net earnings $ 128,125     $ 112,604     $ 15,521     $ 240,729     $ 234,011     $ 6,718  
Diluted earnings per share $ 1.07     $ 0.92     $ 0.15     $ 1.99     $ 1.85     $ 0.14  
Return on average assets   1.99 %     1.77 %     0.22       1.88 %     1.96 %     (0.08 )
Return on average                      
tangible equity (1)   23.15 %     20.64 %     2.51       21.91 %     21.03 %     0.88  
                       
Net interest margin ("NIM")                      
(tax equivalent)   4.72 %     4.69 %     0.03       4.70 %     5.15 %     (0.45 )
Yield on average loans and                      
leases (tax equivalent)   6.26 %     6.16 %     0.10       6.21 %     6.21 %     -  
Cost of average total                      
deposits   0.81 %     0.73 %     0.08       0.77 %     0.34 %     0.43  
Efficiency ratio   41.6 %     42.4 %     (0.8 )     42.0 %     40.7 %     1.3  
                       
Total assets $ 26,344,414     $ 26,324,138     $ 20,276     $ 26,344,414     $ 24,529,557     $ 1,814,857  
Loans and leases held                      
for investment,                      
net of deferred fees $ 18,472,852     $ 18,307,697     $ 165,155     $ 18,472,852     $ 16,885,192     $ 1,587,660  
Noninterest-bearing                      
demand deposits $ 7,299,213     $ 7,712,409     $ (413,196 )   $ 7,299,213     $ 8,126,153     $ (826,940 )
Core deposits $ 15,617,488     $ 16,127,638     $ (510,150 )   $ 15,617,488     $ 15,586,238     $ 31,250  
Total deposits $ 18,805,756     $ 19,285,927     $ (480,171 )   $ 18,805,756     $ 17,929,192     $ 876,564  
                       
As percentage of total                      
deposits:                      
Noninterest-bearing                      
demand deposits   39 %     40 %     (1 )     39 %     45 %     (6 )
Core deposits   83 %     84 %     (1 )     83 %     87 %     (4 )
                       
Equity to assets ratio   18.42 %     18.20 %     0.22       18.42 %     19.48 %     (1.06 )
Tangible common equity                      
ratio (1)   9.50 %     9.23 %     0.27       9.50 %     9.86 %     (0.36 )
Book value per share $ 40.49     $ 39.86     $ 0.63     $ 40.49     $ 38.36     $ 2.13  
Tangible book value per                      
share (1) $ 18.83     $ 18.22     $ 0.61     $ 18.83     $ 17.35     $ 1.48  
                       
(1) Non-GAAP measure.                      


INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased by $6.0 million to $260.9 million for the second quarter of 2019 compared to $254.9 million for the first quarter of 2019 due to a higher yield on average loans and leases, a higher balance of average loans and leases, and one more day in the second quarter of 2019, offset partially by higher deposit costs. The tax equivalent yield on average loans and leases was 6.26% for the second quarter of 2019 compared to 6.16% for the first quarter of 2019. The increase in the yield on average loans and leases was due principally to loan prepayment fees being $6.3 million higher in the second quarter compared to the first quarter. The prepayment fees added 11 basis points to the second quarter loan yield and were primarily from two loans.

The tax equivalent NIM was 4.72% for the second quarter of 2019 compared to 4.69% for the first quarter of 2019. The increase in the NIM was due mainly to higher loan prepayment fees, partially offset by higher deposit costs.

The cost of average total deposits increased to 0.81% for the second quarter of 2019 from 0.73% for the first quarter of 2019 due to a lower average balance of noninterest-bearing deposits and higher rates paid on deposits.

Provision for Credit Losses

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

  Three Months Ended    
  June 30,   March 31,   Increase
Provision for Credit Losses   2019       2019
    (Decrease)
   
  (In thousands)
Addition to allowance for loan and lease losses $ 10,000     $ 4,000   $ 6,000  
Reduction to reserve for unfunded loan commitments   (2,000 )     -     (2,000 )
Total provision for credit losses $ 8,000     $ 4,000   $ 4,000  

Noninterest Income

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

  Three Months Ended    
  June 30,   March 31,   Increase
Noninterest Income   2019       2019     (Decrease)
   
  (In thousands)
Service charges on deposit accounts $ 3,771     $ 3,730     $ 41  
Other commissions and fees   11,590       11,008       582  
Leased equipment income   9,182       9,282       (100 )
Gain on sale of loans and leases   326       -       326  
Gain on sale of securities   22,192       2,161       20,031  
Other income:          
Dividends and (losses) gains on equity investments   (83 )     296       (379 )
Warrant income   1,214       2,279       (1,065 )
Other   2,701       2,308       393  
Total noninterest income $ 50,893     $ 31,064     $ 19,829  

Noninterest income increased by $19.8 million to $50.9 million for the second quarter of 2019 compared to $31.1 million for the first quarter of 2019 due mainly to a $20.0 million increase in the gain on sale of securities attributable to a $22.2 million net gain on sales of $980.4 million in the second quarter of 2019 compared to a net gain of $2.2 million on sales of $405.8 million in the first quarter of 2019. We re-positioned a portion of our securities portfolio in the second quarter to shorten the duration of the portfolio and to enhance liquidity.

Noninterest Expense

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

  Three Months Ended    
  June 30,   March 31,   Increase
Noninterest Expense   2019       2019     (Decrease)
   
  (In thousands)
Compensation $ 68,956     $ 70,845     $ (1,889 )
Occupancy   14,457       14,320       137  
Data processing   6,817       6,925       (108 )
Other professional services   4,629       4,513       116  
Insurance and assessments   4,098       4,038       60  
Intangible asset amortization   4,870       4,870       -  
Leased equipment depreciation   5,558       5,651       (93 )
Foreclosed assets (income) expense, net   (146 )     29       (175 )
Acquisition, integration and reorganization costs   -       618       (618 )
Loan expense   3,451       2,885       566  
Other   12,737       11,593       1,144  
Total noninterest expense $ 125,427     $ 126,287     $ (860 )

Noninterest expense decreased by $0.9 million to $125.4 million for the second quarter of 2019 compared to $126.3 million for the first quarter of 2019 attributable primarily to a $1.9 million decrease in compensation expense, offset partially by a $1.1 million increase in other expense. Compensation expense decreased due mainly to lower payroll taxes and bonus expense. Other expense increased primarily due to a loss on the early termination of a lease.

Income Taxes

The overall effective income tax rate was 28.2% for the second quarter of 2019 and 27.7% for the first quarter of 2019. 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   Six Months Ended
Roll Forward of Loans and Leases Held June 30,    March 31,    June 30, 
for Investment, Net of Deferred Fees (1)   2019       2019       2019  
   
  (Dollars in thousands)
Balance, beginning of period $ 18,307,697     $ 17,957,713     $ 17,957,713  
Additions:          
Production   1,436,299       1,174,838       2,611,137  
Disbursements   1,293,747       1,192,972       2,486,719  
Total production and disbursements   2,730,046       2,367,810       5,097,856  
Reductions:          
Payoffs   (1,529,213 )     (933,300 )     (2,462,513 )
Paydowns   (979,987 )     (1,038,964 )     (2,018,951 )
Total payoffs and paydowns   (2,509,200 )     (1,972,264 )     (4,481,464 )
Sales   (38,054 )     (16,936 )     (54,990 )
Transfers to foreclosed assets   -       (37 )     (37 )
Charge-offs   (17,637 )     (3,465 )     (21,102 )
Transfers to loans held for sale   -       (25,124 )     (25,124 )
Total reductions   (2,564,891 )     (2,017,826 )     (4,582,717 )
Balance, end of period $ 18,472,852     $ 18,307,697     $ 18,472,852  
           
Weighted average rate on production (2)   5.15 %     5.11 %     5.13 %
           
(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 32 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 $165.2 million, or 4% annualized, in the second quarter of 2019 to $18.5 billion at June 30, 2019.  The net loan growth in the second quarter was primarily from the income producing and other residential loan class, which included $177 million of multi-family loan pool purchases, and the asset-based loan class.

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

  June 30, 2019   March 31, 2019   June 30, 2018
    % of      % of      % of 
Loan and Lease Portfolio (1) Amount Total   Amount Total   Amount Total
   
  (In thousands)
Real estate mortgage:                
Commercial $ 4,435,274 24%   $ 4,640,510 25%   $ 5,010,680 30%
Income producing and other                
residential   3,640,752 20%     3,518,948 19%     2,555,695 15%
Total real estate mortgage   8,076,026 44%     8,159,458 44%     7,566,375 45%
Real estate construction and land:                
Commercial   972,891 5%     943,596 5%     831,462 5%
Residential   1,403,239 8%     1,408,128 8%     1,042,564 6%
Total real estate construction                
and land   2,376,130 13%     2,351,724 13%     1,874,026 11%
Total real estate   10,452,156 57%     10,511,182 57%     9,440,401 56%
Commercial:                
Asset-based   3,606,007 19%     3,422,202 19%     3,184,300 19%
Venture capital   2,194,743 12%     2,027,450 11%     2,008,205 12%
Other commercial   1,773,564 10%     1,974,702 11%     1,873,607 11%
Total commercial   7,574,314 41%     7,424,354 41%     7,066,112 42%
Consumer   446,382 2%     372,161 2%     378,679 2%
Total loans and leases held for                
investment, net of deferred fees $ 18,472,852 100%   $ 18,307,697 100%   $ 16,885,192 100%
                 
Total unfunded loan commitments $ 7,610,899     $ 7,465,392     $ 6,429,587  
                 
       
(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 June 30, 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 $ 136,281     $ 36,861     $ 173,142  
Charge-offs   (17,637 )     -       (17,637 )
Recoveries   6,393       -       6,393  
Net charge-offs   (11,244 )     -       (11,244 )
Provision   10,000       (2,000 )     8,000  
Ending balance $ 135,037     $ 34,861     $ 169,898  
           
   
  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  

The allowance for credit losses as a percentage of loans and leases held for investment decreased to 0.92% at June 30, 2019 from 0.95% at March 31, 2019.

Gross charge-offs for the second quarter of 2019 were $17.6 million and included $11.8 million for a single asset-based loan, $3.7 million for other commercial loans, and $1.5 million for venture capital loans compared to gross charge-offs for the first quarter of 2019 of $3.5 million which were primarily for other commercial loans.  Recoveries for the second quarter of 2019 were $6.4 million and included $4.8 million for venture capital loans and $1.0 million for other commercial loans compared to recoveries for the first quarter of 2019 of $3.3 million which included $2.3 million for venture capital loans and $0.8 million for other commercial loans.

For the second quarter of 2019 and first quarter of 2019, annualized net charge-offs to average loans and leases were 0.25% and 0.00%.

Deposits and Client Investment Funds

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

  June 30, 2019   March 31, 2019   June 30, 2018
    % of      % of      % of 
Deposit Composition Amount Total   Amount Total   Amount Total
   
  (Dollars in thousands)
Noninterest-bearing demand $ 7,299,213   39%   $ 7,712,409   40%   $ 8,126,153   45%
Interest checking   3,220,353   17%     3,163,228   16%     2,184,785   12%
Money market   4,578,083   24%     4,714,078   25%     4,631,658   26%
Savings   519,839   3%     537,923   3%     643,642   4%
Total core deposits   15,617,488   83%     16,127,638   84%     15,586,238   87%
Non-core non-maturity deposits   436,833   2%     454,277   2%     607,388   3%
Total non-maturity deposits   16,054,321   85%     16,581,915   86%     16,193,626   90%
Time deposits $250,000 and under   2,284,023   12%     2,258,989   12%     1,394,117   8%
Time deposits over $250,000   467,412   3%     445,023   2%     341,449   2%
Total time deposits   2,751,435   15%     2,704,012   14%     1,735,566   10%
Total deposits $ 18,805,756   100%   $ 19,285,927   100%   $ 17,929,192   100%

At June 30, 2019, core deposits totaled $15.6 billion, or 83% of total deposits, including $7.3 billion of noninterest-bearing demand deposits, or 39% of total deposits. The decrease in core deposits is primarily due to decreases in noninterest-bearing demand deposits across each of our business groups as customers seek out interest-earning accounts in the competitive market environment.

In addition to deposit products, we also offer alternative non-depository cash investment options for select clients; these alternatives include investments managed by Pacific Western Asset Management Inc. ("PWAM"), our registered investment advisor subsidiary, and third-party sweep products.  Total off-balance sheet client investment funds at June 30, 2019 were $2.0 billion, of which $1.6 billion was managed by PWAM.

CREDIT QUALITY

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

  June 30,   March 31,   Increase
Credit Quality Metrics   2019       2019     (Decrease)
   
  (Dollars in thousands)
NPAs and Performing TDRs:          
Nonaccrual loans and leases held for investment (1)(2) $ 81,265     $ 88,527     $ (7,262 )
Accruing loans contractually past due 90 days or more   -       -       -  
Foreclosed assets, net   1,472       3,291       (1,819 )
Total nonperforming assets ("NPAs") $ 82,737     $ 91,818     $ (9,081 )
           
Nonaccrual loans and leases held for investment          
to loans and leases held for investment   0.44 %     0.48 %    
Nonperforming assets to loans and leases          
held for investment and foreclosed assets   0.45 %     0.50 %    
           
Nonaccrual loans and leases held for investment (1)(2) $ 81,265     $ 88,527     $ (7,262 )
Performing TDRs held for investment   16,464       17,027       (563 )
Total impaired loans and leases $ 97,729     $ 105,554     $ (7,825 )
           
Loan and Lease Credit Risk Ratings:          
Pass $ 18,042,569     $ 17,824,612     $ 217,957  
Special mention   239,304       292,780       (53,476 )
Classified (1)   190,979       190,305       674  
Total loans and leases held for investment,          
net of deferred fees $ 18,472,852     $ 18,307,697     $ 165,155  
           
Classified loans and leases held for investment          
to loans and leases held for investment   1.03 %     1.04 %    
           
Allowance for Credit Losses:          
Allowance for credit losses $ 169,898     $ 173,142     $ (3,244 )
Provision for credit losses (for the quarter) $ 8,000     $ 4,000     $ 4,000  
Net charge-offs (for the quarter) $ 11,244     $ 191     $ 11,053  
Net charge-offs to average loans and leases          
(for the quarter)   0.25 %     0.00 %    
Allowance for credit losses to loans and leases          
held for investment   0.92 %     0.95 %    
Allowance for credit losses to nonaccrual loans          
and leases held for investment   209.1 %     195.6 %    
           
(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 $13.0 million at June 30, 2019 and $10.2 million
at March 31, 2019.          

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 second quarter of 2019, nonaccrual loans and leases decreased $7.3 million, while classified loans and leases increased by $0.7 million and special mention loans and leases decreased by $53.5 million.

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  
  June 30, 2019   March 31, 2019   30-89 Days Past Due   
    % of      % of    June 30,   March 31,  
    Loan      Loan    2019   2019  
  Amount Category   Amount Category   Amount   Amount  
     
  (Dollars in thousands)  
Real estate mortgage:                    
Commercial $ 17,012 0.4%   $ 12,750 0.3%   $ 3,948   $ 6,863  
Income producing and other                    
residential   2,883 0.1%     2,444 0.1%     3,262     1,853  
Total real estate mortgage   19,895 0.2%     15,194 0.2%     7,210     8,716  
Real estate construction and land:                    
Commercial   390 0.0%     430 0.0%     -     -  
Residential   - 0.0%     - 0.0%     4,672     8,949  
Total real estate                    
construction and land   390 0.0%     430 0.0%     4,672     8,949  
Commercial:                    
Asset-based   32,236 0.9%     43,406 1.3%     12,382     3,750  
Venture capital   22,501 1.0%     20,437 1.0%     -     4,500  
Other commercial   5,799 0.3%     8,633 0.4%     439     1,694  
Total commercial   60,536 0.8%     72,476 1.0%     12,821     9,944  
Consumer   444 0.1%     427 0.1%     964     614  
Total held for investment $ 81,265 0.4%   $ 88,527 0.5%   $ 25,667   $ 28,223  
                     
           
(1) Excludes loans held for sale carried at lower of cost or fair value at March 31, 2019.          

STOCK REPURCHASE PROGRAM

During the second quarter of 2019, we repurchased 917,269 shares at an average price of $38.08 and a total cost of $34.9 million. At June 30, 2019, the remaining amount that could be used to repurchase shares under the $225 million Stock Repurchase Program was $124.7 million.

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          
           
  June 30,   March 31,   December 31,
    2019       2019       2018  
   
  (Dollars in thousands, except per share data)
ASSETS:          
Cash and due from banks $ 185,075     $ 224,758     $ 175,830  
Interest-earning deposits in financial institutions   422,663       332,124       209,937  
Total cash and cash equivalents    607,738       556,882       385,767  
           
Securities available-for-sale, at estimated fair value   3,807,244       3,994,708       4,009,431  
Federal Home Loan Bank stock, at cost   43,146       29,430       32,103  
Total investment securities   3,850,390       4,024,138       4,041,534  
           
Loans held for sale   -       25,124       -  
           
Gross loans and leases held for investment   18,532,740       18,371,295       18,026,365  
Deferred fees, net   (59,888 )     (63,598 )     (68,652 )
Total loans and leases held for investment,          
net of deferred fees   18,472,852       18,307,697       17,957,713  
Allowance for loan and lease losses   (135,037 )     (136,281 )     (132,472 )
Total loans and leases held for investment, net   18,337,815       18,171,416       17,825,241  
           
Equipment leased to others under operating leases   300,668       293,853       292,677  
Premises and equipment, net   38,162       37,783       34,661  
Foreclosed assets, net   1,472       3,291       5,299  
Deferred tax asset, net   -       -       17,489  
Goodwill   2,548,670       2,548,670       2,548,670  
Core deposit and customer relationship intangibles, net   47,380       52,250       57,120  
Other assets   612,119       610,731       522,896  
Total assets $ 26,344,414     $ 26,324,138     $ 25,731,354  
           
LIABILITIES:          
Noninterest-bearing deposits $ 7,299,213     $ 7,712,409     $ 7,888,915  
Interest-bearing deposits   11,506,543       11,573,518       10,981,586  
Total deposits   18,805,756       19,285,927       18,870,501  
Borrowings   1,913,059       1,481,087       1,371,114  
Subordinated debentures   456,112       454,458       453,846  
Accrued interest payable and other liabilities   317,477       311,684       210,305  
Total liabilities   21,492,404       21,533,156       20,905,766  
STOCKHOLDERS' EQUITY (1)   4,852,010       4,790,982       4,825,588  
Total liabilities and stockholders' equity $ 26,344,414     $ 26,324,138     $ 25,731,354  
           
Book value per share $ 40.49     $ 39.86     $ 39.17  
Tangible book value per share (2) $ 18.83     $ 18.22     $ 18.02  
Shares outstanding   119,829,104       120,201,149       123,189,833  
           
(1) Includes net unrealized gain (loss) on securities          
available-for-sale, net $ 73,066     $ 37,258     $ (6,075 )
(2) Non-GAAP measure.          


PACWEST BANCORP AND SUBSIDIARIES                
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS            
                   
  Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
    2019       2019       2018       2019       2018  
   
  (Dollars in thousands, except per share data)
Interest income:                  
Loans and leases $ 284,236     $ 274,229     $ 260,300     $ 558,465     $ 511,385  
Investment securities   28,948       29,680       27,730       58,628       53,868  
Deposits in financial institutions   1,349       650       484       1,999       1,036  
Total interest income   314,533       304,559       288,514       619,092       566,289  
                   
Interest expense:                  
Deposits   38,720       34,235       16,367       72,955       30,185  
Borrowings   7,210       7,710       2,649       14,920       3,569  
Subordinated debentures   7,705       7,738       7,166       15,443       13,703  
Total interest expense   53,635       49,683       26,182       103,318       47,457  
                   
Net interest income   260,898       254,876       262,332       515,774       518,832  
Provision for credit losses   8,000       4,000       17,500       12,000       21,500  
Net interest income after                  
provision for credit losses   252,898       250,876       244,832       503,774       497,332  
                   
Noninterest income:                  
Service charges on deposit accounts   3,771       3,730       4,265       7,501       8,439  
Other commissions and fees   11,590       11,008       11,767       22,598       22,032  
Leased equipment income   9,182       9,282       9,790       18,464       19,377  
Gain on sale of loans and leases   326       -       106       326       4,675  
Gain on sale of securities   22,192       2,161       253       24,353       6,564  
Other income   3,832       4,883       13,457       8,715       17,110  
Total noninterest income   50,893       31,064       39,638       81,957       78,197  
                   
Noninterest expense:                  
Compensation   68,956       70,845       69,913       139,801       140,936  
Occupancy   14,457       14,320       13,575       28,777       26,798  
Data processing   6,817       6,925       6,896       13,742       13,555  
Other professional services   4,629       4,513       5,257       9,142       9,696  
Insurance and assessments   4,098       4,038       5,330       8,136       11,057  
Intangible asset amortization   4,870       4,870       5,587       9,740       11,933  
Leased equipment depreciation   5,558       5,651       5,237       11,209       10,612  
Foreclosed assets (income) expense, net   (146 )     29       (61 )     (117 )     (183 )
Acquisition, integration and                  
reorganization costs   -       618       -       618       -  
Loan expense   3,451       2,885       3,058       6,336       5,329  
Other expense   12,737       11,593       11,657       24,330       24,111  
Total noninterest expense   125,427       126,287       126,449       251,714       253,844  
                   
Earnings before income taxes   178,364       155,653       158,021       334,017       321,685  
Income tax expense   50,239       43,049       42,286       93,288       87,674  
Net earnings  $ 128,125     $ 112,604     $ 115,735     $ 240,729     $ 234,011  
                   
Basic and diluted earnings per share $ 1.07     $ 0.92     $ 0.92     $ 1.99     $ 1.85  
Dividends declared and paid per share $ 0.60     $ 0.60     $ 0.60     $ 1.20     $ 1.10  


PACWEST BANCORP AND SUBSIDIARIES                
NET EARNINGS PER SHARE CALCULATIONS                
                   
  Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
    2019       2019       2018       2019       2018  
   
  (In thousands, except per share data)
Basic Earnings Per Share:                  
Net earnings $ 128,125     $ 112,604     $ 115,735     $ 240,729     $ 234,011  
Less: earnings allocated to unvested                  
restricted stock (1)   (1,190 )     (1,163 )     (1,348 )     (2,343 )     (2,469 )
Net earnings allocated to common                  
shares $ 126,935     $ 111,441     $ 114,387     $ 238,386     $ 231,542  
                   
Weighted-average basic shares and                  
unvested restricted stock outstanding   120,042       122,227       126,082       121,128       126,780  
Less: weighted-average unvested                  
restricted stock outstanding   (1,462 )     (1,352 )     (1,466 )     (1,407 )     (1,439 )
Weighted-average basic shares                  
outstanding   118,580       120,875       124,616       119,721       125,341  
                   
Basic earnings per share $ 1.07     $ 0.92     $ 0.92     $ 1.99     $ 1.85  
                   
Diluted Earnings Per Share:                  
Net earnings allocated to common                  
shares $ 126,935     $ 111,441     $ 114,387     $ 238,386     $ 231,542  
                   
Weighted-average basic shares                  
outstanding   118,580       120,875       124,616       119,721       125,341  
                   
Diluted earnings per share $ 1.07     $ 0.92     $ 0.92     $ 1.99     $ 1.85  
                   
(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
  June 30, 2019   March 31, 2019   June 30, 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) $ 18,239,690   $ 284,513   6.26%   $ 18,064,230   $ 274,513 6.16%   $ 16,576,361   $ 260,529   6.30%
Investment securities (3)   3,790,436     29,462   3.12%     3,968,531     30,572 3.12%     3,803,590     29,967   3.16%
Deposits in financial                      
institutions   228,702     1,349   2.37%     111,950     650 2.35%     112,170     484   1.73%
Total interest-earning                      
assets (1)   22,258,828     315,324   5.68%     22,144,711     305,735 5.60%     20,492,121     290,980   5.70%
Other assets   3,590,361           3,631,238           3,507,516      
Total assets $ 25,849,189         $ 25,775,949         $ 23,999,637      
                       
Liabilities and                      
Stockholders' Equity:                    
Interest checking $ 3,242,960     10,644   1.32%   $ 3,041,822     9,321 1.24%   $ 2,243,767     3,932   0.70%
Money market   5,046,021     14,604   1.16%     5,274,987     14,908 1.15%     5,013,119     8,072   0.65%
Savings   525,648     227   0.17%     553,032     242 0.18%     656,310     245   0.15%
Time   2,731,156     13,245   1.95%     2,286,932     9,764 1.73%     1,790,415     4,118   0.92%
Total interest-bearing                      
deposits   11,545,785     38,720   1.35%     11,156,773     34,235 1.24%     9,703,611     16,367   0.68%
Borrowings   1,142,223     7,210   2.53%     1,218,319     7,710 2.57%     549,665     2,649   1.93%
Subordinated debentures   454,901     7,705   6.79%     454,203     7,738 6.91%     451,973     7,166   6.36%
Total interest-bearing                      
liabilities   13,142,909     53,635   1.64%     12,829,295     49,683 1.57%     10,705,249     26,182   0.98%
Noninterest-bearing                      
demand deposits   7,544,027           7,783,652           8,253,413      
Other liabilities   343,364           347,037           208,495      
Total liabilities   21,030,300           20,959,984           19,167,157      
Stockholders' equity   4,818,889           4,815,965           4,832,480      
Total liabilities and                      
stockholders' equity $ 25,849,189         $ 25,775,949         $ 23,999,637      
Net interest income (1)   $ 261,689         $ 256,052       $ 264,798    
Net interest spread (1)     4.04%       4.03%       4.72%
Net interest margin (1)     4.72%       4.69%       5.18%
                       
Total deposits (4) $ 19,089,812   $ 38,720   0.81%   $ 18,940,425   $ 34,235 0.73%   $ 17,957,024   $ 16,367   0.37%
                       
(1) Tax equivalent.                      
(2) Includes discount accretion on acquired loans of $3.1 million, $3.0 million, and $8.7 million for the three months ended June 30, 2019,
March 31, 2019, and June 30, 2018, respectively.                  
(3) Includes tax-equivalent adjustments of $0.5 million, $0.9 million, and $2.2 million for the three months ended June 30, 2019,  
March 31, 2019, and June 30, 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                  
                   
  June 30,   March 31,   December 31,   September 30,   June 30,
    2019       2019       2018       2018       2018  
   
  (Dollars in thousands, except per share data)
ASSETS:                  
Cash and due from banks $ 185,075     $ 224,758     $ 175,830     $ 196,502     $ 245,998  
Interest-earning deposits in financial                  
institutions   422,663       332,124       209,937       185,284       205,567  
Total cash and cash equivalents    607,738       556,882       385,767       381,786       451,565  
                   
Securities available-for-sale   3,807,244       3,994,708       4,009,431       3,820,333       3,857,788  
Federal Home Loan Bank stock   43,146       29,430       32,103       31,077       26,271  
Total investment securities   3,850,390       4,024,138       4,041,534       3,851,410       3,884,059  
                   
Loans held for sale   -       25,124       -       -       -  
                   
Gross loans and leases held for investment   18,532,740       18,371,295       18,026,365       17,295,589       16,947,502  
Deferred fees, net   (59,888 )     (63,598 )     (68,652 )     (65,443 )     (62,310 )
Total loans and leases held for                  
investment, net of deferred fees   18,472,852       18,307,697       17,957,713       17,230,146       16,885,192  
Allowance for loan and lease losses   (135,037 )     (136,281 )     (132,472 )     (141,920 )     (132,139 )
Total loans and leases held for                  
investment, net   18,337,815       18,171,416       17,825,241       17,088,226       16,753,053  
                   
Equipment leased to others under                  
operating leases   300,668       293,853       292,677       275,707       266,576  
Premises and equipment, net   38,162       37,783       34,661       34,012       34,513  
Foreclosed assets, net   1,472       3,291       5,299       4,407       2,231  
Deferred tax asset, net   -       -       17,489       41,280       25,551  
Goodwill   2,548,670       2,548,670       2,548,670       2,548,670       2,548,670  
Core deposit and customer relationship                  
intangibles, net   47,380       52,250       57,120       62,106       67,693  
Other assets   612,119       610,731       522,896       494,522       495,646  
Total assets $ 26,344,414     $ 26,324,138     $ 25,731,354     $ 24,782,126     $ 24,529,557  
                   
LIABILITIES:                  
Noninterest-bearing deposits $ 7,299,213     $ 7,712,409     $ 7,888,915     $ 7,834,480     $ 8,126,153  
Interest-bearing deposits   11,506,543       11,573,518       10,981,586       10,045,063       9,803,039  
Total deposits   18,805,756       19,285,927       18,870,501       17,879,543       17,929,192  
Borrowings   1,913,059       1,481,087       1,371,114       1,513,166       1,187,226  
Subordinated debentures   456,112       454,458       453,846       452,944       451,878  
Accrued interest payable and other                  
liabilities   317,477       311,684       210,305       194,788       183,302  
Total liabilities   21,492,404       21,533,156       20,905,766       20,040,441       19,751,598  
STOCKHOLDERS' EQUITY (1)   4,852,010       4,790,982       4,825,588       4,741,685       4,777,959  
Total liabilities and stockholders'                   
equity $ 26,344,414     $ 26,324,138     $ 25,731,354     $ 24,782,126     $ 24,529,557  
                   
Book value per share $ 40.49     $ 39.86     $ 39.17     $ 38.46     $ 38.36  
Tangible book value per share (2) $ 18.83     $ 18.22     $ 18.02     $ 17.28     $ 17.35  
Shares outstanding   119,829,104       120,201,149       123,189,833       123,283,450       124,567,950  
                   
(1) Includes net unrealized gain (loss) on                  
securities available-for-sale, net $ 73,066     $ 37,258     $ (6,075 )   $ (43,854 )   $ (22,340 )
(2) Non-GAAP measure.                  


PACWEST BANCORP AND SUBSIDIARIES                
FIVE QUARTER STATEMENT OF EARNINGS                
                   
  Three Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,
    2019       2019       2018       2018       2018  
   
  (Dollars in thousands, except per share data)
Interest income:                  
Loans and leases $ 284,236     $ 274,229     $ 272,522     $ 264,062     $ 260,300  
Investment securities   28,948       29,680       29,690       28,061       27,730  
Deposits in financial institutions   1,349       650       527       519       484  
Total interest income   314,533       304,559       302,739       292,642       288,514  
                   
Interest expense:                  
Deposits   38,720       34,235       28,834       21,121       16,367  
Borrowings   7,210       7,710       4,602       3,814       2,649  
Subordinated debentures   7,705       7,738       7,538       7,390       7,166  
Total interest expense   53,635       49,683       40,974       32,325       26,182  
                   
Net interest income   260,898       254,876       261,765       260,317       262,332  
Provision for credit losses   8,000       4,000       12,000       11,500       17,500  
Net interest income after                  
provision for credit losses   252,898       250,876       249,765       248,817       244,832  
                   
Noninterest income:                  
Service charges on deposit accounts   3,771       3,730       4,091       3,979       4,265  
Other commissions and fees   11,590       11,008       11,114       12,397       11,767  
Leased equipment income   9,182       9,282       9,384       9,120       9,790  
Gain on sale of loans and leases   326       -       -       -       106  
Gain on sale of securities   22,192       2,161       786       826       253  
Other income   3,832       4,883       8,151       10,590       13,457  
Total noninterest income   50,893       31,064       33,526       36,912       39,638  
                   
Noninterest expense:                  
Compensation   68,956       70,845       69,299       72,333       69,913  
Occupancy   14,457       14,320       13,356       13,069       13,575  
Data processing   6,817       6,925       6,930       6,740       6,896  
Other professional services   4,629       4,513       6,198       6,058       5,257  
Insurance and assessments   4,098       4,038       4,202       5,446       5,330  
Intangible asset amortization   4,870       4,870       4,986       5,587       5,587  
Leased equipment depreciation   5,558       5,651       5,758       5,001       5,237  
Foreclosed assets (income) expense, net   (146 )     29       (311 )     (257 )     (61 )
Acquisition, integration and                  
reorganization costs   -       618       970       800       -  
Loan expense   3,451       2,885       2,991       2,249       3,058  
Other expense   12,737       11,593       14,856       11,127       11,657  
Total noninterest expense   125,427       126,287       129,235       128,153       126,449  
                   
Earnings before income taxes   178,364       155,653       154,056       157,576       158,021  
Income tax expense   50,239       43,049       39,015       41,289       42,286  
Net earnings $ 128,125     $ 112,604     $ 115,041     $ 116,287     $ 115,735  
                   
Basic and diluted earnings per share $ 1.07     $ 0.92     $ 0.93     $ 0.94     $ 0.92  
Dividends declared and paid per share $ 0.60     $ 0.60     $ 0.60     $ 0.60     $ 0.60  


PACWEST BANCORP AND SUBSIDIARIES                
FIVE QUARTER SELECTED FINANCIAL DATA                
                   
  At or For the Three Months Ended
  June 30,   March 31,   December 31,   September 30,   June 30,
    2019       2019       2018       2018       2018  
   
  (Dollars in thousands)
Performance Ratios:                  
Return on average assets (1)   1.99 %     1.77 %     1.84 %     1.89 %     1.93 %
Return on average equity (1)   10.66 %     9.48 %     9.59 %     9.72 %     9.61 %
Return on average tangible equity (1)(2)   23.15 %     20.64 %     21.23 %     21.61 %     20.98 %
Efficiency ratio   41.6 %     42.4 %     41.7 %     40.9 %     39.8 %
Noninterest expense as a percentage                  
of average assets (1)   1.95 %     1.99 %     2.07 %     2.09 %     2.11 %
                   
Average Yields/Costs (1):                  
Yield on:                  
Average loans and leases (3)   6.26 %     6.16 %     6.27 %     6.20 %     6.30 %
Average interest-earning assets (3)   5.68 %     5.60 %     5.68 %     5.60 %     5.70 %
Cost of:                  
Average interest-bearing deposits   1.35 %     1.24 %     1.10 %     0.83 %     0.68 %
Average total deposits   0.81 %     0.73 %     0.62 %     0.46 %     0.37 %
Average interest-bearing liabilities   1.64 %     1.57 %     1.40 %     1.14 %     0.98 %
Net interest spread (3)   4.04 %     4.03 %     4.28 %     4.46 %     4.72 %
Net interest margin (3)   4.72 %     4.69 %     4.91 %     4.99 %     5.18 %
                   
Average Balances:                  
Assets:                  
Loans and leases, net of deferred fees $ 18,239,690     $ 18,064,230     $ 17,275,343     $ 16,913,792     $ 16,576,361  
Interest-earning assets   22,258,828       22,144,711       21,269,363       20,866,478       20,492,121  
Total assets   25,849,189       25,775,949       24,784,462       24,357,771       23,999,637  
Liabilities:                  
Noninterest-bearing deposits   7,544,027       7,783,652       8,163,699       8,120,306       8,253,413  
Interest-bearing deposits   11,545,785       11,156,773       10,422,761       10,111,927       9,703,611  
Total deposits   19,089,812       18,940,425       18,586,460       18,232,233       17,957,024  
Borrowings   1,142,223       1,218,319       764,039       720,449       549,665  
Subordinated debentures   454,901       454,203       452,998       452,312       451,973  
Interest-bearing liabilities   13,142,909       12,829,295       11,639,798       11,284,688       10,705,249  
Stockholders' equity   4,818,889       4,815,965       4,758,401       4,748,819       4,832,480  
                   
(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
  June 30,   March 31,   December 31,   September 30,   June 30,
    2019       2019       2018       2018       2018  
   
  (Dollars in thousands)
Credit Quality Ratios:                  
Nonaccrual loans and leases held for                  
investment to loans and leases held                  
for investment   0.44 %     0.48 %     0.44 %     0.66 %     0.67 %
Nonperforming assets to loans and                  
leases held for investment and                  
foreclosed assets   0.45 %     0.50 %     0.47 %     0.68 %     0.69 %
Classified loans and leases held for                  
investment to loans and leases held                  
for investment   1.03 %     1.04 %     1.32 %     1.51 %     1.40 %
Trailing 12 months net charge-offs                  
to average loans and leases                  
held for investment   0.18 %     0.22 %     0.26 %     0.28 %     0.28 %
Allowance for credit losses to loans                  
and leases held for investment   0.92 %     0.95 %     0.94 %     1.03 %     0.99 %
Allowance for credit losses to                  
nonaccrual loans and leases held                  
for investment   209.1 %     195.6 %     213.5 %     156.9 %     147.3 %
                   
PacWest Bancorp Consolidated                   
Capital:                  
Tier 1 leverage ratio (1)   9.49 %     9.38 %     10.13 %     10.10 %     10.33 %
Common equity tier 1 capital ratio (1)   9.53 %     9.48 %     10.01 %     10.18 %     10.59 %
Tier 1 capital ratio (1)   9.53 %     9.48 %     10.01 %     10.18 %     10.59 %
Total capital ratio (1)   12.18 %     12.15 %     12.72 %     13.03 %     13.48 %
Risk-weighted assets (1) $ 23,117,367     $ 22,939,074     $ 22,525,096     $ 21,650,542     $ 20,929,325  
                   
Equity to assets ratio   18.42 %     18.20 %     18.75 %     19.13 %     19.48 %
Tangible common equity ratio (2)   9.50 %     9.23 %     9.60 %     9.61 %     9.86 %
Book value per share $ 40.49     $ 39.86     $ 39.17     $ 38.46     $ 38.36  
Tangible book value per share (2) $ 18.83     $ 18.22     $ 18.02     $ 17.28     $ 17.35  
                   
Pacific Western Bank Capital:                  
Tier 1 leverage ratio (1)   10.76 %     10.57 %     10.80 %     10.78 %     11.11 %
Common equity tier 1 capital ratio (1)   10.80 %     10.69 %     10.68 %     10.87 %     11.40 %
Tier 1 capital ratio (1)   10.80 %     10.69 %     10.68 %     10.87 %     11.40 %
Total capital ratio (1)   11.53 %     11.45 %     11.44 %     11.69 %     12.21 %
                   
(1) Capital information for June 30, 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   Six Months Ended
  June 30,   March 31,   June 30,   June 30,
Return on Average Tangible Equity   2019       2019       2018       2019       2018  
   
  (Dollars in thousands)
Net earnings $ 128,125     $ 112,604     $ 115,735     $ 240,729     $ 234,011  
                   
Average stockholders' equity $ 4,818,889     $ 4,815,965     $ 4,832,480     $ 4,817,435     $ 4,866,654  
Less: Average intangible assets   2,598,762       2,603,842       2,619,351       2,601,288       2,622,455  
Average tangible common equity $ 2,220,127     $ 2,212,123     $ 2,213,129     $ 2,216,147     $ 2,244,199  
                   
Return on average equity (1)   10.66 %     9.48 %     9.61 %     10.08 %     9.70 %
Return on average tangible equity (2)   23.15 %     20.64 %     20.98 %     21.91 %     21.03 %
                   
(1) Annualized net earnings divided by average stockholders' equity.            
(2) Annualized net earnings divided by average tangible common equity.            


Tangible Common Equity Ratio/ June 30,   March 31,   December 31,   September 30,   June 30,
Tangible Book Value Per Share   2019       2019       2018       2018       2018  
   
  (Dollars in thousands, except per share data)
Stockholders' equity $ 4,852,010     $ 4,790,982     $ 4,825,588     $ 4,741,685     $ 4,777,959  
Less: Intangible assets   2,596,050       2,600,920       2,605,790       2,610,776       2,616,363  
Tangible common equity $ 2,255,960     $ 2,190,062     $ 2,219,798     $ 2,130,909     $ 2,161,596  
                   
Total assets $ 26,344,414     $ 26,324,138     $ 25,731,354     $ 24,782,126     $ 24,529,557  
Less: Intangible assets   2,596,050       2,600,920       2,605,790       2,610,776       2,616,363  
Tangible assets $ 23,748,364     $ 23,723,218     $ 23,125,564     $ 22,171,350     $ 21,913,194  
                   
Equity to assets ratio   18.42 %     18.20 %     18.75 %     19.13 %     19.48 %
Tangible common equity ratio (1)   9.50 %     9.23 %     9.60 %     9.61 %     9.86 %
                   
Book value per share $ 40.49     $ 39.86     $ 39.17     $ 38.46     $ 38.36  
Tangible book value per share (2) $ 18.83     $ 18.22     $ 18.02     $ 17.28     $ 17.35  
Shares outstanding   119,829,104       120,201,149       123,189,833       123,283,450       124,567,950  
                   
(1) Tangible common equity divided by tangible assets.                
(2) Tangible common equity divided by shares outstanding.                


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

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