Significant Items
- Net Loss of $1.43 Billion, or a Loss of $12.23 Per Diluted Share
- Recorded Goodwill Impairment of $1.47 Billion
- Excluding Goodwill Impairment, Net Earnings of $36.9 Million; $0.31 Per Diluted Share
- Provision for Credit Losses of $112.0 Million
- Loan and Lease Production of $790 Million; $898 Million of Net Loan Growth
- Core Deposits Represents 82% of Total Deposits
- Tax Equivalent Net Interest Margin of 4.31% Compared to 4.33% in Q4
- Cost of Average Total Deposits Decreased 12 Basis Points from Q4 to 59 Basis Points
LOS ANGELES, April 21, 2020 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq: PACW) today announced a net loss for the first quarter of 2020 of $1.43 billion, or $12.23 per diluted share, compared to net earnings for the fourth quarter of 2019 of $117.9 million, or $0.98 per diluted share. The decrease in net earnings in the first quarter was primarily due to a $1.47 billion goodwill impairment charge and a higher provision for credit losses attributable primarily to the significant deterioration in the economic forecast used to estimate the allowance for credit losses.
Matt Wagner, President and CEO, commented, “The COVID-19 pandemic has significantly impacted the entire economy resulting in non-essential businesses temporarily closing, record increases in unemployment, and severe declines in business activity in certain industries such as travel and restaurants among others. Our first priority is the health and safety of our employees and customers and we have implemented social distancing actions including the temporary closure of 27 bank lobbies where drive-up tellers are available, the temporary closure of 19 branches where branches are in close proximity to each other, reducing branch hours, and enabling virtually all of our non-branch employees to work remotely. We are also committed to providing essential services to existing and new customers to help them with their financial needs during this crisis. We are waiving fees and modifying loans through payment deferrals and term extensions to help small and middle-market businesses weather this downturn. All our actions are focused on doing the right thing for our employees, customers, and the communities we serve.”
Mr. Wagner continued, “The unprecedented decline in economic conditions triggered by the COVID-19 pandemic, caused a significant decline in stock market valuations in March, including our stock price. As a result, we recorded a goodwill impairment charge as our estimated fair value was less than our book value. This is a non-cash charge and has no impact on our regulatory capital ratios, cash flows or liquidity position. Our operations remain strong as evidenced by the increase in net interest income and the significant loan growth in the first quarter including $167.1 million in our Denver market.”
Mr. Wagner added, “We also took a significant provision for credit losses during the quarter driven by the bleak economic forecasts and impact from loan downgrades as we performed an extensive review of our loan portfolio with a special focus on the segments most impacted by COVID-19, including hotels, aviation, restaurants, and retail.”
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 | 2020 | 2019 | (Decrease) | 2020 | 2019 | (Decrease) | |||||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||||||
| Net (loss) earnings | $ | (1,433,111 | ) | $ | 117,881 | $ | (1,550,992 | ) | $ | (1,433,111 | ) | $ | 112,604 | $ | (1,545,715 | ) | |||||||
| Diluted (loss) earnings | |||||||||||||||||||||||
| per share | $ | (12.23 | ) | $ | 0.98 | $ | (13.21 | ) | $ | (12.23 | ) | $ | 0.92 | $ | (13.15 | ) | |||||||
| Return on average assets | (21.27 | )% | 1.77 | % | (23.04 | ) | (21.27 | )% | 1.77 | % | (23.04 | ) | |||||||||||
| Return on average | |||||||||||||||||||||||
| tangible equity (1) | 6.88 | % | 19.98 | % | (13.10 | ) | 6.88 | % | 20.64 | % | (13.76 | ) | |||||||||||
| Net interest margin ("NIM") | |||||||||||||||||||||||
| (tax equivalent) | 4.31 | % | 4.33 | % | (0.02 | ) | 4.31 | % | 4.69 | % | (0.38 | ) | |||||||||||
| Yield on average loans and | |||||||||||||||||||||||
| leases (tax equivalent) | 5.54 | % | 5.67 | % | (0.13 | ) | 5.54 | % | 6.16 | % | (0.62 | ) | |||||||||||
| Cost of average total | |||||||||||||||||||||||
| deposits | 0.59 | % | 0.71 | % | (0.12 | ) | 0.59 | % | 0.73 | % | (0.14 | ) | |||||||||||
| Efficiency ratio | 40.6 | % | 44.8 | % | (4.2 | ) | 40.6 | % | 42.4 | % | (1.8 | ) | |||||||||||
| Total assets | $ | 26,143,267 | $ | 26,770,806 | $ | (627,539 | ) | $ | 26,143,267 | $ | 26,324,138 | $ | (180,871 | ) | |||||||||
| Loans and leases held | |||||||||||||||||||||||
| for investment, | |||||||||||||||||||||||
| net of deferred fees | $ | 19,745,305 | $ | 18,846,872 | $ | 898,433 | $ | 19,745,305 | $ | 18,307,697 | $ | 1,437,608 | |||||||||||
| Noninterest-bearing | |||||||||||||||||||||||
| demand deposits | $ | 7,510,218 | $ | 7,243,298 | $ | 266,920 | $ | 7,510,218 | $ | 7,712,409 | $ | (202,191 | ) | ||||||||||
| Core deposits | $ | 16,050,522 | $ | 16,187,287 | $ | (136,765 | ) | $ | 16,050,522 | $ | 16,127,638 | $ | (77,116 | ) | |||||||||
| Total deposits | $ | 19,575,837 | $ | 19,233,036 | $ | 342,801 | $ | 19,575,837 | $ | 19,285,927 | $ | 289,910 | |||||||||||
| As percentage of total | |||||||||||||||||||||||
| deposits: | |||||||||||||||||||||||
| Noninterest-bearing | |||||||||||||||||||||||
| demand deposits | 38 | % | 38 | % | - | 38 | % | 40 | % | (2 | ) | ||||||||||||
| Core deposits | 82 | % | 84 | % | (2 | ) | 82 | % | 84 | % | (2 | ) | |||||||||||
| Equity to assets ratio | 12.97 | % | 18.51 | % | (5.54 | ) | 12.97 | % | 18.20 | % | (5.23 | ) | |||||||||||
| Tangible common equity | |||||||||||||||||||||||
| ratio (1) | 9.10 | % | 9.79 | % | (0.69 | ) | 9.10 | % | 9.23 | % | (0.13 | ) | |||||||||||
| Book value per share | $ | 28.75 | $ | 41.36 | $ | (12.61 | ) | $ | 28.75 | $ | 39.86 | $ | (11.11 | ) | |||||||||
| Tangible book value per | |||||||||||||||||||||||
| share (1) | $ | 19.31 | $ | 19.77 | $ | (0.46 | ) | $ | 19.31 | $ | 18.22 | $ | 1.09 | ||||||||||
| (1) Non-GAAP measure. | |||||||||||||||||||||||
INCOME STATEMENT HIGHLIGHTS
Net Interest Income
Net interest income increased by $3.1 million to $249.7 million for the first quarter of 2020 compared to $246.6 million for the fourth quarter of 2019 due mainly to a lower cost of average interest-bearing liabilities and a higher balance of average loans and leases, partially offset by a lower loan and lease yield and one less day in the first quarter. The tax equivalent yield on average loans and leases was 5.54% for the first quarter of 2020 compared to 5.67% for the fourth quarter of 2019. The decrease in the yield on average loans and leases was due principally to the repricing of variable-rate loans causing lower coupon interest.
The tax equivalent NIM was 4.31% for the first quarter of 2020 compared to 4.33% for the fourth quarter of 2019. The decrease in the NIM was due mainly to the repricing of variable-rate loans causing lower coupon interest, offset partially by the lower cost of average interest-bearing liabilities.
The cost of average total deposits decreased to 0.59% for the first quarter of 2020 from 0.71% for the fourth quarter of 2019. The lower cost of average interest-bearing deposits reflected actions taken to reduce deposit rates in light of the two emergency interest rate cuts by the Federal Reserve in March of 2020. We expect these rate reductions to be more fully realized in the second quarter as evidenced by our cost of deposits at March 31, 2020 of 0.33%.
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 | 2020 | 2019 | (Decrease) | ||||||||
| (In thousands) | |||||||||||
| Addition to allowance for loan and lease losses | $ | 98,000 | $ | 1,000 | $ | 97,000 | |||||
| Addition to reserve for unfunded | |||||||||||
| loan commitments | 14,000 | 2,000 | 12,000 | ||||||||
| Total provision for credit losses | $ | 112,000 | $ | 3,000 | $ | 109,000 | |||||
The increase in the provision for credit losses in the first quarter of 2020 was the result of the impact of the current economic forecast which reflected a significant deterioration in key macro-economic forecast variables such as unemployment and GDP, significant loan downgrades into special mention, and higher provisions on individually evaluated loans.
Noninterest Income
The following table presents details of noninterest income for the periods indicated:
| Three Months Ended | |||||||||||
| March 31, | December 31, | Increase | |||||||||
| Noninterest Income | 2020 | 2019 | (Decrease) | ||||||||
| (In thousands) | |||||||||||
| Service charges on deposit accounts | $ | 2,658 | $ | 3,611 | $ | (953 | ) | ||||
| Other commissions and fees | 9,721 | 10,170 | (449 | ) | |||||||
| Leased equipment income | 12,251 | 10,648 | 1,603 | ||||||||
| Gain on sale of loans and leases | 87 | 23 | 64 | ||||||||
| Gain on sale of securities | 182 | 184 | (2 | ) | |||||||
| Other income: | |||||||||||
| Dividends and gains (losses) on equity investments | 28 | (794 | ) | 822 | |||||||
| Warrant income | 837 | 1,240 | (403 | ) | |||||||
| Other | 3,336 | 2,094 | 1,242 | ||||||||
| Total noninterest income | $ | 29,100 | $ | 27,176 | $ | 1,924 | |||||
Noninterest income increased by $1.9 million to $29.1 million for the first quarter of 2020 compared to $27.2 million for the fourth quarter of 2019 due primarily to a $1.6 million increase in leased equipment income and a $1.2 million increase in other income, offset partially by a $1.0 million decrease in deposit service charges. The increase in leased equipment income was due to early lease terminations, which resulted in higher termination gains and accretion of deferred fees. The increase in other income was due mainly to $1.1 million of bankruptcy proceeds received related to a former credit. The decrease in deposit service charges was due mainly to waivers of various fees (service charges, wire fees, overdraft fees, NSF fees) to offer assistance to our customers during the COVID-19 crisis.
Noninterest Expense
The following table presents details of noninterest expense for the periods indicated:
| Three Months Ended | |||||||||||
| March 31, | December 31, | Increase | |||||||||
| Noninterest Expense | 2020 | 2019 | (Decrease) | ||||||||
| (In thousands) | |||||||||||
| Compensation | $ | 61,282 | $ | 74,637 | $ | (13,355 | ) | ||||
| Occupancy | 14,207 | 14,541 | (334 | ) | |||||||
| Data processing | 6,454 | 6,770 | (316 | ) | |||||||
| Other professional services | 4,258 | 4,261 | (3 | ) | |||||||
| Insurance and assessments | 4,249 | 4,168 | 81 | ||||||||
| Intangible asset amortization | 3,948 | 4,153 | (205 | ) | |||||||
| Leased equipment depreciation | 7,205 | 6,856 | 349 | ||||||||
| Foreclosed assets expense (income), net | 66 | (3,446 | ) | 3,512 | |||||||
| Acquisition, integration and reorganization costs | - | (269 | ) | 269 | |||||||
| Customer related expense | 3,932 | 3,952 | (20 | ) | |||||||
| Loan expense | 2,650 | 2,967 | (317 | ) | |||||||
| Other | 9,719 | 5,138 | 4,581 | ||||||||
| Total operating expense | 117,970 | 123,728 | (5,758 | ) | |||||||
| Goodwill impairment | 1,470,000 | - | 1,470,000 | ||||||||
| Total noninterest expense | $ | 1,587,970 | $ | 123,728 | $ | 1,464,242 | |||||
Noninterest expense increased by $1.5 billion to $1.59 billion for the first quarter of 2020 compared to $123.7 million for the fourth quarter of 2019 attributable primarily to a $1.47 billion goodwill impairment charge. Excluding the goodwill impairment charge, noninterest expense decreased to $118.0 million or a decrease of $5.8 million. This $5.8 million decrease was mainly due to a $13.4 million decrease in compensation expense, partially offset by a $4.6 million increase in other expense and a $3.5 million increase in foreclosed assets expense. Compensation expense decreased mainly due to lower bonus accruals, partially offset by higher payroll tax expense. Other expense increased due primarily to the prior quarter including $2.8 million of credits related to the reversal of accrued merger costs and franchise tax refunds, while the first quarter includes a $1.5 million accrual for operational loss contingencies related to a system outage at a service provider. Foreclosed assets expense increased as the prior quarter included a $3.3 million gain on the sale of a repossessed asset.
Income Taxes
The effective income tax rate was (0.8)% in the first quarter of 2020 compared to 19.8% for the fourth quarter of 2019. Excluding non-deductible goodwill impairment, the effective income tax rate was 24.5%. The fourth quarter 2019 effective tax rate was lower due primarily to $9.1 million of benefits related to changes in state apportionment net of the federal tax effect. Excluding the non-deductible goodwill impairment, the effective tax rate for the full year 2020 is currently estimated to be in the range of 26-28%.
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) | 2020 | 2019 | |||||
| (Dollars in thousands) | |||||||
| Balance, beginning of period | $ | 18,846,872 | $ | 18,735,543 | |||
| Additions: | |||||||
| Production | 789,746 | 1,021,334 | |||||
| Disbursements | 1,997,080 | 1,317,389 | |||||
| Total production and disbursements | 2,786,826 | 2,338,723 | |||||
| Reductions: | |||||||
| Payoffs | (812,707 | ) | (816,134 | ) | |||
| Paydowns | (1,053,705 | ) | (1,406,475 | ) | |||
| Total payoffs and paydowns | (1,866,412 | ) | (2,222,609 | ) | |||
| Sales | - | (43 | ) | ||||
| Transfers to foreclosed assets | (1,776 | ) | (83 | ) | |||
| Charge-offs | (20,205 | ) | (4,659 | ) | |||
| Total reductions | (1,888,393 | ) | (2,227,394 | ) | |||
| Net increase | 898,433 | 111,329 | |||||
| Balance, end of period | $ | 19,745,305 | $ | 18,846,872 | |||
| Weighted average rate on production (2) | 4.31 | % | 4.73 | % | |||
| (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 20 basis points to loan | |||||||
| yields in 2020. | |||||||
Loans and leases held for investment, net of deferred fees, increased by $898.4 million, or 19.2% annualized, in the first quarter of 2020, to $19.7 billion at March 31, 2020. The net loan growth in the first quarter was primarily from the venture capital and asset-based loan portfolio classes, along with ongoing fundings in the residential real estate construction loan class. The growth in venture capital, primarily from drawdown activity, included $241 million in expansion stage, $203 million in equity funds and $63 million in late stage loans.
The following table presents the composition of loans and leases held for investment by loan portfolio segment and class, net of deferred fees, as of the dates indicated:
| March 31, 2020 | December 31, 2019 | March 31, 2019 | ||||||||||||
| % of | % of | % of | ||||||||||||
| Loan and Lease Portfolio | Balance | Total | Balance | Total | Balance | Total | ||||||||
| (In thousands) | ||||||||||||||
| Real estate mortgage: | ||||||||||||||
| Commercial | $ | 4,220,649 | 21 | % | $ | 4,202,687 | 22 | % | $ | 4,640,510 | 25 | % | ||
| Income producing and other | ||||||||||||||
| residential | 3,788,295 | 19 | % | 3,770,060 | 20 | % | 3,518,948 | 19 | % | |||||
| Total real estate mortgage | 8,008,944 | 40 | % | 7,972,747 | 42 | % | 8,159,458 | 44 | % | |||||
| Real estate construction and land: | ||||||||||||||
| Commercial | 1,087,505 | 6 | % | 1,082,368 | 6 | % | 943,596 | 5 | % | |||||
| Residential | 1,792,748 | 9 | % | 1,655,434 | 9 | % | 1,408,128 | 8 | % | |||||
| Total real estate construction | ||||||||||||||
| and land | 2,880,253 | 15 | % | 2,737,802 | 15 | % | 2,351,724 | 13 | % | |||||
| Total real estate | 10,889,197 | 55 | % | 10,710,549 | 57 | % | 10,511,182 | 57 | % | |||||
| Commercial: | ||||||||||||||
| Asset-based | 3,938,402 | 20 | % | 3,748,407 | 20 | % | 3,422,202 | 19 | % | |||||
| Venture capital | 2,715,837 | 14 | % | 2,179,422 | 12 | % | 2,027,450 | 11 | % | |||||
| Other commercial | 1,771,985 | 9 | % | 1,767,667 | 9 | % | 1,974,702 | 11 | % | |||||
| Total commercial | 8,426,224 | 43 | % | 7,695,496 | 41 | % | 7,424,354 | 41 | % | |||||
| Consumer | 429,884 | 2 | % | 440,827 | 2 | % | 372,161 | 2 | % | |||||
| Total loans and leases held for | ||||||||||||||
| investment, net of deferred fees | $ | 19,745,305 | 100 | % | $ | 18,846,872 | 100 | % | $ | 18,307,697 | 100 | % | ||
| Total unfunded loan commitments | $ | 7,697,724 | $ | 8,183,158 | $ | 7,465,392 | ||||||||
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, 2020 | |||||||||||
| 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 | $ | 138,785 | $ | 35,861 | $ | 174,646 | |||||
| Charge-offs | (20,205 | ) | - | (20,205 | ) | ||||||
| Recoveries | 1,095 | - | 1,095 | ||||||||
| Net charge-offs | (19,110 | ) | - | (19,110 | ) | ||||||
| Provision | 98,000 | 14,000 | 112,000 | ||||||||
| Cumulative effect of change in | |||||||||||
| accounting principle - CECL | 3,617 | 3,710 | 7,327 | ||||||||
| Ending balance | $ | 221,292 | $ | 53,571 | $ | 274,863 | |||||
| Three Months Ended December 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 | $ | 138,552 | $ | 33,861 | $ | 172,413 | |||||
| Charge-offs | (4,659 | ) | - | (4,659 | ) | ||||||
| Recoveries | 3,892 | - | 3,892 | ||||||||
| Net charge-offs | (767 | ) | - | (767 | ) | ||||||
| Provision | 1,000 | 2,000 | 3,000 | ||||||||
| Ending balance | $ | 138,785 | $ | 35,861 | $ | 174,646 | |||||
We adopted CECL on January 1, 2020, which resulted in an increase in the allowance for credit losses of $7.3 million on the adoption date. The significant ACL increase during the first quarter was primarily attributable to the dramatic decline in the economic forecast, the significant increase in special mention loans caused by loan downgrades in the loan portfolios most impacted by the sudden decline in the economy, the loan growth during the quarter, and increased provisions for individually evaluated loans.
The allowance for credit losses as a percentage of loans and leases held for investment was 1.39% at March 31, 2020 under CECL and 0.93% at December 31, 2019 under the incurred loss model.
Gross charge-offs for the first quarter of 2020 were $20.2 million and included $11.5 million for an asset-based oil industry loan and $7.3 million for other commercial loans compared to gross charge-offs for the fourth quarter of 2019 of $4.7 million that included $3.2 million for venture capital loans and $1.0 million for other commercial loans.
Recoveries for the first quarter of 2020 were $1.1 million and included $0.4 million for other commercial loans and $0.4 million for asset-based loans compared to recoveries for the fourth quarter of 2019 of $3.9 million that included $1.8 million for other commercial loans, $0.9 million for asset-based loans, and $0.6 million for venture capital loans.
For the first quarter of 2020 and fourth quarter of 2019, annualized net charge-offs to average loans and leases were 0.40% and 0.02%.
Deposits and Client Investment Funds
The following table presents the composition of our deposit portfolio as of the dates indicated:
| March 31, 2020 | December 31, 2019 | March 31, 2019 | ||||||||||||
| % of | % of | % of | ||||||||||||
| Deposit Composition | Balance | Total | Balance | Total | Balance | Total | ||||||||
| (Dollars in thousands) | ||||||||||||||
| Noninterest-bearing demand | $ | 7,510,218 | 38 | % | $ | 7,243,298 | 38 | % | $ | 7,712,409 | 40 | % | ||
| Interest checking | 3,333,147 | 17 | % | 3,753,978 | 19 | % | 3,163,228 | 16 | % | |||||
| Money market | 4,712,118 | 24 | % | 4,690,420 | 24 | % | 4,714,078 | 25 | % | |||||
| Savings | 495,039 | 3 | % | 499,591 | 3 | % | 537,923 | 3 | % | |||||
| Total core deposits | 16,050,522 | 82 | % | 16,187,287 | 84 | % | 16,127,638 | 84 | % | |||||
| Non-core non-maturity deposits | 836,157 | 4 | % | 496,407 | 3 | % | 454,277 | 2 | % | |||||
| Total non-maturity deposits | 16,886,679 | 86 | % | 16,683,694 | 87 | % | 16,581,915 | 86 | % | |||||
| Time deposits $250,000 and under | 2,086,188 | 11 | % | 2,065,733 | 11 | % | 2,258,989 | 12 | % | |||||
| Time deposits over $250,000 | 602,970 | 3 | % | 483,609 | 2 | % | 445,023 | 2 | % | |||||
| Total time deposits | 2,689,158 | 14 | % | 2,549,342 | 13 | % | 2,704,012 | 14 | % | |||||
| Total deposits | $ | 19,575,837 | 100 | % | $ | 19,233,036 | 100 | % | $ | 19,285,927 | 100 | % | ||
At March 31, 2020, core deposits totaled $16.1 billion, or 82% of total deposits, including $7.5 billion of noninterest-bearing demand deposits, or 38% 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 Pacific Western Asset Management Inc. (“PWAM”), our registered investment advisor subsidiary, and third-party sweep products. Total off-balance sheet client investment funds at March 31, 2020 were $1.4 billion, of which $1.1 billion was managed by PWAM.
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 | 2020 | 2019 | (Decrease) | ||||||||
| (Dollars in thousands) | |||||||||||
| NPAs and Performing TDRs: | |||||||||||
| Nonaccrual loans and leases held for investment (1) | $ | 95,602 | $ | 92,353 | $ | 3,249 | |||||
| Accruing loans contractually past due 90 days or more | - | - | - | ||||||||
| Foreclosed assets, net | 1,701 | 440 | 1,261 | ||||||||
| Total nonperforming assets ("NPAs") | $ | 97,303 | $ | 92,793 | $ | 4,510 | |||||
| Performing TDRs held for investment | $ | 8,978 | $ | 12,257 | $ | (3,279 | ) | ||||
| Nonaccrual loans and leases held for investment | |||||||||||
| to loans and leases held for investment | 0.48 | % | 0.49 | % | |||||||
| Nonperforming assets to loans and leases | |||||||||||
| held for investment and foreclosed assets | 0.49 | % | 0.49 | % | |||||||
| Loan and Lease Credit Risk Ratings: | |||||||||||
| Pass | $ | 18,698,942 | $ | 18,348,004 | $ | 350,938 | |||||
| Special mention | 898,658 | 322,956 | 575,702 | ||||||||
| Classified | 147,705 | 175,912 | (28,207 | ) | |||||||
| Total loans and leases held for investment, | |||||||||||
| net of deferred fees | $ | 19,745,305 | $ | 18,846,872 | $ | 898,433 | |||||
| Classified loans and leases held for investment | |||||||||||
| to loans and leases held for investment | 0.75 | % | 0.93 | % | |||||||
| Allowance for Credit Losses: | |||||||||||
| Allowance for credit losses | $ | 274,863 | $ | 174,646 | $ | 100,217 | |||||
| Provision for credit losses (for the quarter) | $ | 112,000 | $ | 3,000 | $ | 109,000 | |||||
| Net charge-offs (for the quarter) | $ | 19,110 | $ | 767 | $ | 18,343 | |||||
| Net charge-offs to average loans and leases | |||||||||||
| (for the quarter) | 0.40 | % | 0.02 | % | |||||||
| Allowance for credit losses to loans and leases | |||||||||||
| held for investment | 1.39 | % | 0.93 | % | |||||||
| Allowance for credit losses to nonaccrual loans | |||||||||||
| and leases held for investment | 287.5 | % | 189.1 | % | |||||||
| (1) Nonaccrual loans include guaranteed amounts of $16.0 million at March 31, 2020 and $17.5 million | |||||||||||
| at December 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, including loan downgrades, which were higher than usual triggered by the economic impact from the COVID-19 pandemic.
During the first quarter of 2020, nonaccrual loans and leases increased by $3.2 million, while classified loans and leases decreased by $28.2 million and special mention loans and leases increased by $575.7 million. The decrease in the classified loans and leases category was primarily due to charge-offs totaling approximately $18.0 million, which included an $11.5 million charge-off on a previously classified asset-based oil industry loan and charge-offs totaling $6.1 million on two security monitoring loans. The increase in special mention loans and leases in the first quarter was attributable to loan downgrades primarily in the categories most acutely impacted by COVID-19 including hotels, aviation, restaurants, retail, and small business loans.
The following table presents nonaccrual loans and leases and accruing loans and leases past due between 30 and 89 days by loan portfolio segment and class as of the dates indicated:
| Nonaccrual Loans and Leases | Accruing and | ||||||||||||||||
| March 31, 2020 | December 31, 2019 | 30-89 Days Past Due | |||||||||||||||
| % of | % of | March 31, | December 31, | ||||||||||||||
| Loan | Loan | 2020 | 2019 | ||||||||||||||
| Balance | Category | Balance | Category | Balance | Balance | ||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Real estate mortgage: | |||||||||||||||||
| Commercial | $ | 19,088 | 0.5 | % | $ | 18,346 | 0.4 | % | $ | 1,807 | $ | 1,735 | |||||
| Income producing and other | |||||||||||||||||
| residential | 2,308 | 0.1 | % | 2,478 | 0.1 | % | 1,064 | 2,094 | |||||||||
| Total real estate mortgage | 21,396 | 0.3 | % | 20,824 | 0.3 | % | 2,871 | 3,829 | |||||||||
| Real estate construction and land: | |||||||||||||||||
| Commercial | 351 | 0.0 | % | 364 | 0.0 | % | - | - | |||||||||
| Residential | - | 0.0 | % | - | 0.0 | % | 241 | 1,429 | |||||||||
| Total real estate | |||||||||||||||||
| construction and land | 351 | 0.0 | % | 364 | 0.0 | % | 241 | 1,429 | |||||||||
| Commercial: | |||||||||||||||||
| Asset-based | 17,104 | 0.4 | % | 30,162 | 0.8 | % | - | 19 | |||||||||
| Venture capital | 18,612 | 0.7 | % | 12,916 | 0.6 | % | 183 | - | |||||||||
| Other commercial | 37,726 | 2.1 | % | 27,594 | 1.6 | % | 4,393 | 2,258 | |||||||||
| Total commercial | 73,442 | 0.9 | % | 70,672 | 0.9 | % | 4,576 | 2,277 | |||||||||
| Consumer | 413 | 0.1 | % | 493 | 0.1 | % | 518 | 1,006 | |||||||||
| Total held for investment | $ | 95,602 | 0.5 | % | $ | 92,353 | 0.5 | % | $ | 8,206 | $ | 8,541 | |||||
CAPITAL
Effective March 31, 2020, we elected the 5-year phase-in as allowed under the recently issued interim regulatory capital rule (IFR) revising the transition for CECL. The IFR allows the addback of 100% of the capital effect of the day one CECL transition adjustment and 25% of subsequent increases in the allowance for credit losses to regulatory capital through December 31, 2021. This cumulative amount will then be reduced from capital over a three year phase-in period. This election increased our regulatory capital ratios by approximately 12 basis points at March 31, 2020. The capital ratios are presented on page 21.
STOCK REPURCHASE PROGRAM
During February 2020, we repurchased 1,953,711 shares at an average price of $35.83 and a total cost of $70.0 million under the previous share repurchase program which expired on February 29, 2020. At March 31, 2020, the remaining amount that could be used to repurchase shares under the $200 million Stock Repurchase Program approved on February 12, 2020 was $200.0 million. The previously announced suspension of share repurchases through June 30, 2020 has been extended indefinitely in light of recent COVID-19 related developments.
ABOUT PACWEST BANCORP
PacWest Bancorp (“PacWest”) is a bank holding company with over $26 billion in assets headquartered in Los Angeles, California, with executive offices in Denver, Colorado, with one wholly-owned banking subsidiary, Pacific Western Bank (the “Bank”). The Bank has 74 full-service branches located in California, one branch located in Durham, North Carolina, and one branch located in Denver, Colorado. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed 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 or Pacific Western Bank, visit www.pacwest.com.
FORWARD LOOKING STATEMENTS
This communication contains certain forward-looking information about PacWest Bancorp that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about future financial and operational results, expectations, or intentions are forward-looking statements. Such statements are based on information available at the time of the 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. The COVID-19 pandemic is adversely affecting PacWest Bancorp, its employees, customers and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity and prospects is uncertain. Continued deterioration in general business and economic conditions could adversely affect PacWest Bancorp’s revenues and the values of its assets and liabilities, lead to a tightening of credit and increase stock price volatility. In addition, PacWest Bancorp’s results could be adversely affected by changes in interest rates, further increases in unemployment rates, deterioration in the credit quality of its loan portfolio or in the value of the collateral securing those loans, deterioration in the value of its investment securities, legal and regulatory developments, the price of crude oil and the adoption of the CECL accounting standard. Actual results may differ materially from those set forth or implied in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by the Company with the U.S. 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, | March 31, | |||||||||
| 2020 | 2019 | 2019 | |||||||||
| (Dollars in thousands, except per share data) | |||||||||||
| ASSETS: | |||||||||||
| Cash and due from banks | $ | 172,570 | $ | 172,585 | $ | 224,758 | |||||
| Interest-earning deposits in financial institutions | 439,690 | 465,039 | 332,124 | ||||||||
| Total cash and cash equivalents | 612,260 | 637,624 | 556,882 | ||||||||
| Securities available-for-sale, at estimated fair value | 3,757,663 | 3,797,187 | 3,994,708 | ||||||||
| Federal Home Loan Bank stock, at cost | 54,244 | 40,924 | 29,430 | ||||||||
| Total investment securities | 3,811,907 | 3,838,111 | 4,024,138 | ||||||||
| Loans held for sale | - | - | 25,124 | ||||||||
| Gross loans and leases held for investment | 19,806,394 | 18,910,740 | 18,371,295 | ||||||||
| Deferred fees, net | (61,089 | ) | (63,868 | ) | (63,598 | ) | |||||
| Total loans and leases held for investment, | |||||||||||
| net of deferred fees | 19,745,305 | 18,846,872 | 18,307,697 | ||||||||
| Allowance for loan and lease losses | (221,292 | ) | (138,785 | ) | (136,281 | ) | |||||
| Total loans and leases held for investment, net | 19,524,013 | 18,708,087 | 18,171,416 | ||||||||
| Equipment leased to others under operating leases | 306,530 | 324,084 | 293,853 | ||||||||
| Premises and equipment, net | 39,799 | 38,585 | 37,783 | ||||||||
| Foreclosed assets, net | 1,701 | 440 | 3,291 | ||||||||
| Goodwill | 1,078,670 | 2,548,670 | 2,548,670 | ||||||||
| Core deposit and customer relationship intangibles, net | 34,446 | 38,394 | 52,250 | ||||||||
| Other assets | 733,941 | 636,811 | 610,731 | ||||||||
| Total assets | $ | 26,143,267 | $ | 26,770,806 | $ | 26,324,138 | |||||
| LIABILITIES: | |||||||||||
| Noninterest-bearing deposits | $ | 7,510,218 | $ | 7,243,298 | $ | 7,712,409 | |||||
| Interest-bearing deposits | 12,065,619 | 11,989,738 | 11,573,518 | ||||||||
| Total deposits | 19,575,837 | 19,233,036 | 19,285,927 | ||||||||
| Borrowings | 2,295,000 | 1,759,008 | 1,481,087 | ||||||||
| Subordinated debentures | 458,994 | 458,209 | 454,458 | ||||||||
| Accrued interest payable and other liabilities | 423,047 | 365,856 | 311,684 | ||||||||
| Total liabilities | 22,752,878 | 21,816,109 | 21,533,156 | ||||||||
| STOCKHOLDERS' EQUITY (1) | 3,390,389 | 4,954,697 | 4,790,982 | ||||||||
| Total liabilities and stockholders’ equity | $ | 26,143,267 | $ | 26,770,806 | $ | 26,324,138 | |||||
| Book value per share | $ | 28.75 | $ | 41.36 | $ | 39.86 | |||||
| Tangible book value per share (2) | $ | 19.31 | $ | 19.77 | $ | 18.22 | |||||
| Shares outstanding | 117,916,789 | 119,781,605 | 120,201,149 | ||||||||
| (1) Includes net unrealized gain on securities | |||||||||||
| available-for-sale, net | $ | 90,916 | $ | 78,658 | $ | 37,258 | |||||
| (2) Non-GAAP measure. | |||||||||||
| PACWEST BANCORP AND SUBSIDIARIES | |||||||||||
| CONDENSED CONSOLIDATED STATEMENT OF EARNINGS | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | December 31, | March 31, | |||||||||
| 2020 | 2019 | 2019 | |||||||||
| (Dollars in thousands, except per share data) | |||||||||||
| Interest income: | |||||||||||
| Loans and leases | $ | 262,278 | $ | 263,402 | $ | 274,229 | |||||
| Investment securities | 27,446 | 28,135 | 29,680 | ||||||||
| Deposits in financial institutions | 1,608 | 2,056 | 650 | ||||||||
| Total interest income | 291,332 | 293,593 | 304,559 | ||||||||
| Interest expense: | |||||||||||
| Deposits | 28,247 | 34,802 | 34,235 | ||||||||
| Borrowings | 6,778 | 5,189 | 7,710 | ||||||||
| Subordinated debentures | 6,560 | 6,983 | 7,738 | ||||||||
| Total interest expense | 41,585 | 46,974 | 49,683 | ||||||||
| Net interest income | 249,747 | 246,619 | 254,876 | ||||||||
| Provision for credit losses | 112,000 | 3,000 | 4,000 | ||||||||
| Net interest income after | |||||||||||
| provision for credit losses | 137,747 | 243,619 | 250,876 | ||||||||
| Noninterest income: | |||||||||||
| Service charges on deposit accounts | 2,658 | 3,611 | 3,730 | ||||||||
| Other commissions and fees | 9,721 | 10,170 | 11,008 | ||||||||
| Leased equipment income | 12,251 | 10,648 | 9,282 | ||||||||
| Gain on sale of loans and leases | 87 | 23 | - | ||||||||
| Gain on sale of securities | 182 | 184 | 2,161 | ||||||||
| Other income | 4,201 | 2,540 | 4,883 | ||||||||
| Total noninterest income | 29,100 | 27,176 | 31,064 | ||||||||
| Noninterest expense: | |||||||||||
| Compensation | 61,282 | 74,637 | 70,845 | ||||||||
| Occupancy | 14,207 | 14,541 | 14,320 | ||||||||
| Data processing | 6,454 | 6,770 | 6,925 | ||||||||
| Other professional services | 4,258 | 4,261 | 4,513 | ||||||||
| Insurance and assessments | 4,249 | 4,168 | 4,038 | ||||||||
| Intangible asset amortization | 3,948 | 4,153 | 4,870 | ||||||||
| Leased equipment depreciation | 7,205 | 6,856 | 5,651 | ||||||||
| Foreclosed assets expense (income), net | 66 | (3,446 | ) | 29 | |||||||
| Acquisition, integration and | |||||||||||
| reorganization costs | - | (269 | ) | 618 | |||||||
| Customer related expense | 3,932 | 3,952 | 2,943 | ||||||||
| Loan expense | 2,650 | 2,967 | 2,885 | ||||||||
| Goodwill impairment | 1,470,000 | - | - | ||||||||
| Other expense | 9,719 | 5,138 | 8,650 | ||||||||
| Total noninterest expense | 1,587,970 | 123,728 | 126,287 | ||||||||
| (Loss) earnings before income taxes | (1,421,123 | ) | 147,067 | 155,653 | |||||||
| Income tax expense | 11,988 | 29,186 | 43,049 | ||||||||
| Net (loss) earnings | $ | (1,433,111 | ) | $ | 117,881 | $ | 112,604 | ||||
| Basic and diluted (loss) earnings per share | $ | (12.23 | ) | $ | 0.98 | $ | 0.92 | ||||
| Dividends declared and paid per share | $ | 0.60 | $ | 0.60 | $ | 0.60 | |||||
| PACWEST BANCORP AND SUBSIDIARIES | |||||||||||
| NET EARNINGS PER SHARE CALCULATIONS | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | December 31, | March 31, | |||||||||
| 2020 | 2019 | 2019 | |||||||||
| (In thousands, except per share data) | |||||||||||
| Basic Earnings Per Share: | |||||||||||
| Net (loss) earnings | $ | (1,433,111 | ) | $ | 117,881 | $ | 112,604 | ||||
| Less: earnings allocated to unvested | |||||||||||
| restricted stock (1) | (939 | ) | (1,458 | ) | (1,163 | ) | |||||
| Net (loss) earnings allocated to | |||||||||||
| common shares | $ | (1,434,050 | ) | $ | 116,423 | $ | 111,441 | ||||
| Weighted-average basic shares and | |||||||||||
| unvested restricted stock outstanding | 118,775 | 119,804 | 122,227 | ||||||||
| Less: weighted-average unvested | |||||||||||
| restricted stock outstanding | (1,495 | ) | (1,566 | ) | (1,352 | ) | |||||
| Weighted-average basic shares | |||||||||||
| outstanding | 117,280 | 118,238 | 120,875 | ||||||||
| Basic (loss) earnings per share | $ | (12.23 | ) | $ | 0.98 | $ | 0.92 | ||||
| Diluted Earnings Per Share: | |||||||||||
| Net (loss) earnings allocated to | |||||||||||
| common shares | $ | (1,434,050 | ) | $ | 116,423 | $ | 111,441 | ||||
| Weighted-average diluted shares | |||||||||||
| outstanding | 117,280 | 118,238 | 120,875 | ||||||||
| Diluted (loss) earnings per share | $ | (12.23 | ) | $ | 0.98 | $ | 0.92 | ||||
| (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, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||||||
| 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) | $ | 19,065,035 | $ | 262,764 | 5.54 | % | $ | 18,470,583 | $ | 263,783 | 5.67 | % | $ | 18,064,230 | $ | 274,513 | 6.16 | % | |||
| Investment securities (3) | 3,853,217 | 28,641 | 2.99 | % | 3,811,216 | 29,509 | 3.07 | % | 3,968,531 | 30,572 | 3.12 | % | |||||||||
| Deposits in financial | |||||||||||||||||||||
| institutions | 537,384 | 1,608 | 1.20 | % | 498,068 | 2,056 | 1.64 | % | 111,950 | 650 | 2.35 | % | |||||||||
| Total interest-earning | |||||||||||||||||||||
| assets (1) | 23,455,636 | 293,013 | 5.02 | % | 22,779,867 | 295,348 | 5.14 | % | 22,144,711 | 305,735 | 5.60 | % | |||||||||
| Other assets | 3,643,404 | 3,600,872 | 3,631,238 | ||||||||||||||||||
| Total assets | $ | 27,099,040 | $ | 26,380,739 | $ | 25,775,949 | |||||||||||||||
| Liabilities and | |||||||||||||||||||||
| Stockholders' Equity: | |||||||||||||||||||||
| Interest checking | $ | 3,466,812 | 7,135 | 0.83 | % | $ | 3,731,696 | 10,031 | 1.07 | % | $ | 3,041,822 | 9,321 | 1.24 | % | ||||||
| Money market | 5,247,866 | 10,016 | 0.77 | % | 5,117,553 | 12,063 | 0.94 | % | 5,274,987 | 14,908 | 1.15 | % | |||||||||
| Savings | 497,959 | 160 | 0.13 | % | 509,497 | 204 | 0.16 | % | 553,032 | 242 | 0.18 | % | |||||||||
| Time | 2,684,143 | 10,936 | 1.64 | % | 2,744,156 | 12,504 | 1.81 | % | 2,286,932 | 9,764 | 1.73 | % | |||||||||
| Total interest-bearing | |||||||||||||||||||||
| deposits | 11,896,780 | 28,247 | 0.95 | % | 12,102,902 | 34,802 | 1.14 | % | 11,156,773 | 34,235 | 1.24 | % | |||||||||
| Borrowings | 2,026,749 | 6,778 | 1.35 | % | 1,179,220 | 5,189 | 1.75 | % | 1,218,319 | 7,710 | 2.57 | % | |||||||||
| Subordinated debentures | 458,399 | 6,560 | 5.76 | % | 456,997 | 6,983 | 6.06 | % | 454,203 | 7,738 | 6.91 | % | |||||||||
| Total interest-bearing | |||||||||||||||||||||
| liabilities | 14,381,928 | 41,585 | 1.16 | % | 13,739,119 | 46,974 | 1.36 | % | 12,829,295 | 49,683 | 1.57 | % | |||||||||
| Noninterest-bearing | |||||||||||||||||||||
| demand deposits | 7,357,717 | 7,338,888 | 7,783,652 | ||||||||||||||||||
| Other liabilities | 402,617 | 372,550 | 347,037 | ||||||||||||||||||
| Total liabilities | 22,142,262 | 21,450,557 | 20,959,984 | ||||||||||||||||||
| Stockholders' equity | 4,956,778 | 4,930,182 | 4,815,965 | ||||||||||||||||||
| Total liabilities and | |||||||||||||||||||||
| stockholders' equity | $ | 27,099,040 | $ | 26,380,739 | $ | 25,775,949 | |||||||||||||||
| Net interest income (1) | $ | 251,428 | $ | 248,374 | $ | 256,052 | |||||||||||||||
| Net interest spread (1) | 3.86 | % | 3.78 | % | 4.03 | % | |||||||||||||||
| Net interest margin (1) | 4.31 | % | 4.33 | % | 4.69 | % | |||||||||||||||
| Total deposits (4) | $ | 19,254,497 | $ | 28,247 | 0.59 | % | $ | 19,441,790 | $ | 34,802 | 0.71 | % | $ | 18,940,425 | $ | 34,235 | 0.73 | % | |||
| (1) Tax equivalent. | |||||||||||||||||||||
| (2) Includes discount accretion on acquired loans of $4.8 million, $3.0 million, and $3.0 million for the three months ended March 31, 2020, | |||||||||||||||||||||
| December 31, 2019, and March 31, 2019, respectively. | |||||||||||||||||||||
| (3) Includes tax-equivalent adjustments of $1.2 million, $1.4 million, and $0.9 million for the three months ended March 31, 2020, | |||||||||||||||||||||
| December 31, 2019, and March 31, 2019 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, | |||||||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||
| ASSETS: | |||||||||||||||||||
| Cash and due from banks | $ | 172,570 | $ | 172,585 | $ | 252,596 | $ | 185,075 | $ | 224,758 | |||||||||
| Interest-earning deposits in financial | |||||||||||||||||||
| institutions | 439,690 | 465,039 | 483,405 | 422,663 | 332,124 | ||||||||||||||
| Total cash and cash equivalents | 612,260 | 637,624 | 736,001 | 607,738 | 556,882 | ||||||||||||||
| Securities available-for-sale | 3,757,663 | 3,797,187 | 3,817,348 | 3,807,244 | 3,994,708 | ||||||||||||||
| Federal Home Loan Bank stock | 54,244 | 40,924 | 26,865 | 43,146 | 29,430 | ||||||||||||||
| Total investment securities | 3,811,907 | 3,838,111 | 3,844,213 | 3,850,390 | 4,024,138 | ||||||||||||||
| Loans held for sale | - | - | - | - | 25,124 | ||||||||||||||
| Gross loans and leases held for investment | 19,806,394 | 18,910,740 | 18,796,011 | 18,532,740 | 18,371,295 | ||||||||||||||
| Deferred fees, net | (61,089 | ) | (63,868 | ) | (60,468 | ) | (59,888 | ) | (63,598 | ) | |||||||||
| Total loans and leases held for | |||||||||||||||||||
| investment, net of deferred fees | 19,745,305 | 18,846,872 | 18,735,543 | 18,472,852 | 18,307,697 | ||||||||||||||
| Allowance for loan and lease losses | (221,292 | ) | (138,785 | ) | (138,552 | ) | (135,037 | ) | (136,281 | ) | |||||||||
| Total loans and leases held for | |||||||||||||||||||
| investment, net | 19,524,013 | 18,708,087 | 18,596,991 | 18,337,815 | 18,171,416 | ||||||||||||||
| Equipment leased to others under | |||||||||||||||||||
| operating leases | 306,530 | 324,084 | 295,854 | 300,668 | 293,853 | ||||||||||||||
| Premises and equipment, net | 39,799 | 38,585 | 37,926 | 38,162 | 37,783 | ||||||||||||||
| Foreclosed assets, net | 1,701 | 440 | 1,366 | 1,472 | 3,291 | ||||||||||||||
| Goodwill | 1,078,670 | 2,548,670 | 2,548,670 | 2,548,670 | 2,548,670 | ||||||||||||||
| Core deposit and customer relationship | |||||||||||||||||||
| intangibles, net | 34,446 | 38,394 | 42,547 | 47,380 | 52,250 | ||||||||||||||
| Other assets | 733,941 | 636,811 | 621,059 | 612,119 | 610,731 | ||||||||||||||
| Total assets | $ | 26,143,267 | $ | 26,770,806 | $ | 26,724,627 | $ | 26,344,414 | $ | 26,324,138 | |||||||||
| LIABILITIES: | |||||||||||||||||||
| Noninterest-bearing deposits | $ | 7,510,218 | $ | 7,243,298 | $ | 7,441,185 | $ | 7,299,213 | $ | 7,712,409 | |||||||||
| Interest-bearing deposits | 12,065,619 | 11,989,738 | 12,292,018 | 11,506,543 | 11,573,518 | ||||||||||||||
| Total deposits | 19,575,837 | 19,233,036 | 19,733,203 | 18,805,756 | 19,285,927 | ||||||||||||||
| Borrowings | 2,295,000 | 1,759,008 | 1,253,031 | 1,913,059 | 1,481,087 | ||||||||||||||
| Subordinated debentures | 458,994 | 458,209 | 456,145 | 456,112 | 454,458 | ||||||||||||||
| Accrued interest payable and other | |||||||||||||||||||
| liabilities | 423,047 | 365,856 | 362,140 | 317,477 | 311,684 | ||||||||||||||
| Total liabilities | 22,752,878 | 21,816,109 | 21,804,519 | 21,492,404 | 21,533,156 | ||||||||||||||
| STOCKHOLDERS' EQUITY (1) | 3,390,389 | 4,954,697 | 4,920,108 | 4,852,010 | 4,790,982 | ||||||||||||||
| Total liabilities and stockholders’ | |||||||||||||||||||
| equity | $ | 26,143,267 | $ | 26,770,806 | $ | 26,724,627 | $ | 26,344,414 | $ | 26,324,138 | |||||||||
| Book value per share | $ | 28.75 | $ | 41.36 | $ | 41.06 | $ | 40.49 | $ | 39.86 | |||||||||
| Tangible book value per share (2) | $ | 19.31 | $ | 19.77 | $ | 19.43 | $ | 18.83 | $ | 18.22 | |||||||||
| Shares outstanding | 117,916,789 | 119,781,605 | 119,831,192 | 119,829,104 | 120,201,149 | ||||||||||||||
| (1) Includes net unrealized gain on | |||||||||||||||||||
| securities available-for-sale, net | $ | 90,916 | $ | 78,658 | $ | 95,887 | $ | 73,066 | $ | 37,258 | |||||||||
| (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, | |||||||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||
| Interest income: | |||||||||||||||||||
| Loans and leases | $ | 262,278 | $ | 263,402 | $ | 275,978 | $ | 284,236 | $ | 274,229 | |||||||||
| Investment securities | 27,446 | 28,135 | 28,806 | 28,948 | 29,680 | ||||||||||||||
| Deposits in financial institutions | 1,608 | 2,056 | 2,424 | 1,349 | 650 | ||||||||||||||
| Total interest income | 291,332 | 293,593 | 307,208 | 314,533 | 304,559 | ||||||||||||||
| Interest expense: | |||||||||||||||||||
| Deposits | 28,247 | 34,802 | 40,703 | 38,720 | 34,235 | ||||||||||||||
| Borrowings | 6,778 | 5,189 | 6,852 | 7,210 | 7,710 | ||||||||||||||
| Subordinated debentures | 6,560 | 6,983 | 7,417 | 7,705 | 7,738 | ||||||||||||||
| Total interest expense | 41,585 | 46,974 | 54,972 | 53,635 | 49,683 | ||||||||||||||
| Net interest income | 249,747 | 246,619 | 252,236 | 260,898 | 254,876 | ||||||||||||||
| Provision for credit losses | 112,000 | 3,000 | 7,000 | 8,000 | 4,000 | ||||||||||||||
| Net interest income after | |||||||||||||||||||
| provision for credit losses | 137,747 | 243,619 | 245,236 | 252,898 | 250,876 | ||||||||||||||
| Noninterest income: | |||||||||||||||||||
| Service charges on deposit accounts | 2,658 | 3,611 | 3,525 | 3,771 | 3,730 | ||||||||||||||
| Other commissions and fees | 9,721 | 10,170 | 10,855 | 11,590 | 11,008 | ||||||||||||||
| Leased equipment income | 12,251 | 10,648 | 9,615 | 9,182 | 9,282 | ||||||||||||||
| Gain on sale of loans and leases | 87 | 23 | 765 | 326 | - | ||||||||||||||
| Gain on sale of securities | 182 | 184 | 908 | 22,192 | 2,161 | ||||||||||||||
| Other income | 4,201 | 2,540 | 7,761 | 3,832 | 4,883 | ||||||||||||||
| Total noninterest income | 29,100 | 27,176 | 33,429 | 50,893 | 31,064 | ||||||||||||||
| Noninterest expense: | |||||||||||||||||||
| Compensation | 61,282 | 74,637 | 71,424 | 68,956 | 70,845 | ||||||||||||||
| Occupancy | 14,207 | 14,541 | 14,089 | 14,457 | 14,320 | ||||||||||||||
| Data processing | 6,454 | 6,770 | 7,044 | 6,817 | 6,925 | ||||||||||||||
| Other professional services | 4,258 | 4,261 | 4,400 | 4,629 | 4,513 | ||||||||||||||
| Insurance and assessments | 4,249 | 4,168 | 4,100 | 4,098 | 4,038 | ||||||||||||||
| Intangible asset amortization | 3,948 | 4,153 | 4,833 | 4,870 | 4,870 | ||||||||||||||
| Leased equipment depreciation | 7,205 | 6,856 | 5,951 | 5,558 | 5,651 | ||||||||||||||
| Foreclosed assets expense (income), net | 66 | (3,446 | ) | 8 | (146 | ) | 29 | ||||||||||||
| Acquisition, integration and | |||||||||||||||||||
| reorganization costs | - | (269 | ) | - | - | 618 | |||||||||||||
| Customer related expense | 3,932 | 3,952 | 3,539 | 3,405 | 2,943 | ||||||||||||||
| Loan expense | 2,650 | 2,967 | 3,628 | 3,451 | 2,885 | ||||||||||||||
| Goodwill impairment | 1,470,000 | - | - | - | - | ||||||||||||||
| Other expense | 9,719 | 5,138 | 7,793 | 9,332 | 8,650 | ||||||||||||||
| Total noninterest expense | 1,587,970 | 123,728 | 126,809 | 125,427 | 126,287 | ||||||||||||||
| (Loss) earnings before income taxes | (1,421,123 | ) | 147,067 | 151,856 | 178,364 | 155,653 | |||||||||||||
| Income tax expense | 11,988 | 29,186 | 41,830 | 50,239 | 43,049 | ||||||||||||||
| Net (loss) earnings | $ | (1,433,111 | ) | $ | 117,881 | $ | 110,026 | $ | 128,125 | $ | 112,604 | ||||||||
| Basic and diluted (loss) earnings per share | $ | (12.23 | ) | $ | 0.98 | $ | 0.92 | $ | 1.07 | $ | 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 | |||||||||||||||||||
| March 31, | December 31, | September 30, | June 30, | March 31, | |||||||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Performance Ratios: | |||||||||||||||||||
| Return on average assets (1) | (21.27 | )% | 1.77 | % | 1.65 | % | 1.99 | % | 1.77 | % | |||||||||
| Return on average equity (1) | (116.28 | )% | 9.49 | % | 8.93 | % | 10.66 | % | 9.48 | % | |||||||||
| Return on average tangible equity (1)(2) | 6.88 | % | 19.98 | % | 19.01 | % | 23.15 | % | 20.64 | % | |||||||||
| Efficiency ratio | 40.6 | % | 44.8 | % | 42.3 | % | 41.6 | % | 42.4 | % | |||||||||
| Noninterest expense as a percentage | |||||||||||||||||||
| of average assets (1) | 23.57 | % | 1.86 | % | 1.91 | % | 1.95 | % | 1.99 | % | |||||||||
| Average Yields/Costs (1): | |||||||||||||||||||
| Yield on: | |||||||||||||||||||
| Average loans and leases (3) | 5.54 | % | 5.67 | % | 5.91 | % | 6.26 | % | 6.16 | % | |||||||||
| Average interest-earning assets (3) | 5.02 | % | 5.14 | % | 5.41 | % | 5.68 | % | 5.60 | % | |||||||||
| Cost of: | |||||||||||||||||||
| Average interest-bearing deposits | 0.95 | % | 1.14 | % | 1.34 | % | 1.35 | % | 1.24 | % | |||||||||
| Average total deposits | 0.59 | % | 0.71 | % | 0.83 | % | 0.81 | % | 0.73 | % | |||||||||
| Average interest-bearing liabilities | 1.16 | % | 1.36 | % | 1.60 | % | 1.64 | % | 1.57 | % | |||||||||
| Net interest spread (3) | 3.86 | % | 3.78 | % | 3.81 | % | 4.04 | % | 4.03 | % | |||||||||
| Net interest margin (3) | 4.31 | % | 4.33 | % | 4.46 | % | 4.72 | % | 4.69 | % | |||||||||
| Average Balances: | |||||||||||||||||||
| Assets: | |||||||||||||||||||
| Loans and leases, net of deferred fees | $ | 19,065,035 | $ | 18,470,583 | $ | 18,539,281 | $ | 18,239,690 | $ | 18,064,230 | |||||||||
| Interest-earning assets | 23,455,636 | 22,779,867 | 22,793,676 | 22,258,828 | 22,144,711 | ||||||||||||||
| Total assets | 27,099,040 | 26,380,739 | 26,406,603 | 25,849,189 | 25,775,949 | ||||||||||||||
| Liabilities: | |||||||||||||||||||
| Noninterest-bearing deposits | 7,357,717 | 7,338,888 | 7,487,555 | 7,544,027 | 7,783,652 | ||||||||||||||
| Interest-bearing deposits | 11,896,780 | 12,102,902 | 12,031,776 | 11,545,785 | 11,156,773 | ||||||||||||||
| Total deposits | 19,254,497 | 19,441,790 | 19,519,331 | 19,089,812 | 18,940,425 | ||||||||||||||
| Borrowings | 2,026,749 | 1,179,220 | 1,181,313 | 1,142,223 | 1,218,319 | ||||||||||||||
| Subordinated debentures | 458,399 | 456,997 | 456,011 | 454,901 | 454,203 | ||||||||||||||
| Interest-bearing liabilities | 14,381,928 | 13,739,119 | 13,669,100 | 13,142,909 | 12,829,295 | ||||||||||||||
| Stockholders' equity | 4,956,778 | 4,930,182 | 4,890,746 | 4,818,889 | 4,815,965 | ||||||||||||||
| (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, | |||||||||||||||
| 2020 | 2019 | 2019 | 2019 | 2019 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||
| Credit Quality Ratios: | |||||||||||||||||||
| Nonaccrual loans and leases held for | |||||||||||||||||||
| investment to loans and leases | |||||||||||||||||||
| held for investment | 0.48 | % | 0.49 | % | 0.53 | % | 0.44 | % | 0.48 | % | |||||||||
| Nonperforming assets to loans and | |||||||||||||||||||
| leases held for investment and | |||||||||||||||||||
| foreclosed assets | 0.49 | % | 0.49 | % | 0.54 | % | 0.45 | % | 0.50 | % | |||||||||
| Classified loans and leases held for | |||||||||||||||||||
| investment to loans and leases | |||||||||||||||||||
| held for investment | 0.75 | % | 0.93 | % | 1.01 | % | 1.03 | % | 1.04 | % | |||||||||
| Provision for credit losses (for the | |||||||||||||||||||
| quarter) to average loans and leases | |||||||||||||||||||
| held for investment (annualized) | 2.36 | % | 0.06 | % | 0.15 | % | 0.18 | % | 0.09 | % | |||||||||
| Net charge-offs (for the quarter) to | |||||||||||||||||||
| average loans and leases held | |||||||||||||||||||
| for investment (annualized) | 0.40 | % | 0.02 | % | 0.10 | % | 0.25 | % | 0.00 | % | |||||||||
| Trailing 12 months net charge-offs | |||||||||||||||||||
| to average loans and leases | |||||||||||||||||||
| held for investment | 0.19 | % | 0.09 | % | 0.20 | % | 0.18 | % | 0.22 | % | |||||||||
| Allowance for credit losses to loans | |||||||||||||||||||
| and leases held for investment | 1.39 | % | 0.93 | % | 0.92 | % | 0.92 | % | 0.95 | % | |||||||||
| Allowance for credit losses to | |||||||||||||||||||
| nonaccrual loans and leases | |||||||||||||||||||
| held for investment | 287.5 | % | 189.1 | % | 174.0 | % | 209.1 | % | 195.6 | % | |||||||||
| PacWest Bancorp Consolidated | |||||||||||||||||||
| Capital: | |||||||||||||||||||
| Tier 1 leverage ratio (1) | 8.64 | % | 9.74 | % | 9.50 | % | 9.49 | % | 9.38 | % | |||||||||
| Common equity tier 1 capital ratio (1) | 9.23 | % | 9.78 | % | 9.55 | % | 9.53 | % | 9.48 | % | |||||||||
| Tier 1 capital ratio (1) | 9.23 | % | 9.78 | % | 9.55 | % | 9.53 | % | 9.48 | % | |||||||||
| Total capital ratio (1) | 12.21 | % | 12.41 | % | 12.16 | % | 12.18 | % | 12.15 | % | |||||||||
| Risk-weighted assets (1) | $ | 24,178,995 | $ | 23,582,495 | $ | 23,579,614 | $ | 23,117,199 | $ | 22,939,074 | |||||||||
| Equity to assets ratio | 12.97 | % | 18.51 | % | 18.41 | % | 18.42 | % | 18.20 | % | |||||||||
| Tangible common equity ratio (2) | 9.10 | % | 9.79 | % | 9.65 | % | 9.50 | % | 9.23 | % | |||||||||
| Book value per share | $ | 28.75 | $ | 41.36 | $ | 41.06 | $ | 40.49 | $ | 39.86 | |||||||||
| Tangible book value per share (2) | $ | 19.31 | $ | 19.77 | $ | 19.43 | $ | 18.83 | $ | 18.22 | |||||||||
| Pacific Western Bank Capital: | |||||||||||||||||||
| Tier 1 leverage ratio (1) | 9.72 | % | 10.95 | % | 10.72 | % | 10.76 | % | 10.57 | % | |||||||||
| Common equity tier 1 capital ratio (1) | 10.39 | % | 11.00 | % | 10.79 | % | 10.80 | % | 10.69 | % | |||||||||
| Tier 1 capital ratio (1) | 10.39 | % | 11.00 | % | 10.79 | % | 10.80 | % | 10.69 | % | |||||||||
| Total capital ratio (1) | 11.53 | % | 11.74 | % | 11.52 | % | 11.53 | % | 11.45 | % | |||||||||
| (1) Capital information for March 31, 2020 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 | 2020 | 2019 | 2019 | ||||||||
| (Dollars in thousands) | |||||||||||
| Net (loss) earnings | $ | (1,433,111 | ) | $ | 117,881 | $ | 112,604 | ||||
| Add: Intangible asset amortization | 3,948 | - | - | ||||||||
| Add: Goodwill amortization | 1,470,000 | - | - | ||||||||
| Adjusted net earnings | $ | 40,837 | $ | 117,881 | $ | 112,604 | |||||
| Average stockholders' equity | $ | 4,956,778 | $ | 4,930,182 | $ | 4,815,965 | |||||
| Less: Average intangible assets | 2,569,189 | 2,589,217 | 2,603,842 | ||||||||
| Average tangible common equity | $ | 2,387,589 | $ | 2,340,965 | $ | 2,212,123 | |||||
| Return on average equity (1) | (116.28 | )% | 9.49 | % | 9.48 | % | |||||
| Return on average tangible equity (2) | 6.88 | % | 19.98 | % | 20.64 | % | |||||
| (1) Annualized net earnings divided by average stockholders' equity. | |||||||||||
| (2) Annualized adjusted 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 | 2020 | 2019 | 2019 | 2019 | 2019 | ||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||
| Stockholders' equity | $ | 3,390,389 | $ | 4,954,697 | $ | 4,920,108 | $ | 4,852,010 | $ | 4,790,982 | |||||||||
| Less: Intangible assets | 1,113,116 | 2,587,064 | 2,591,217 | 2,596,050 | 2,600,920 | ||||||||||||||
| Tangible common equity | $ | 2,277,273 | $ | 2,367,633 | $ | 2,328,891 | $ | 2,255,960 | $ | 2,190,062 | |||||||||
| Total assets | $ | 26,143,267 | $ | 26,770,806 | $ | 26,724,627 | $ | 26,344,414 | $ | 26,324,138 | |||||||||
| Less: Intangible assets | 1,113,116 | 2,587,064 | 2,591,217 | 2,596,050 | 2,600,920 | ||||||||||||||
| Tangible assets | $ | 25,030,151 | $ | 24,183,742 | $ | 24,133,410 | $ | 23,748,364 | $ | 23,723,218 | |||||||||
| Equity to assets ratio | 12.97 | % | 18.51 | % | 18.41 | % | 18.42 | % | 18.20 | % | |||||||||
| Tangible common equity ratio (1) | 9.10 | % | 9.79 | % | 9.65 | % | 9.50 | % | 9.23 | % | |||||||||
| Book value per share | $ | 28.75 | $ | 41.36 | $ | 41.06 | $ | 40.49 | $ | 39.86 | |||||||||
| Tangible book value per share (2) | $ | 19.31 | $ | 19.77 | $ | 19.43 | $ | 18.83 | $ | 18.22 | |||||||||
| Shares outstanding | 117,916,789 | 119,781,605 | 119,831,192 | 119,829,104 | 120,201,149 | ||||||||||||||
| (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 |