PacWest Bancorp Announces Results for the First Quarter 2023


LOS ANGELES, April 25, 2023 (GLOBE NEWSWIRE) --

FIRST QUARTER 2023 HIGHLIGHTS 

  • Net loss available to common stockholders of $1.21 billion, or a loss of $10.22 per diluted share
  • Adjusted earnings of $89.4 million, or $0.66 per diluted share, which excludes non-cash goodwill impairment, and severance and contract termination expense (non-GAAP measure)
    • Goodwill impairment of $1.38 billion recorded due to decline in our stock price as a result of recent market volatility. Goodwill impairment is a non-cash charge and has no impact on our regulatory capital ratios, cash flows, or liquidity position
    • Severance and contract termination expense of $8.5 million accrued related to our efficiency initiative
  • First quarter results were marked by enhanced liquidity following market volatility
    • Total deposits increased $1.1 billion to $28.2 billion at March 31, 2023 compared to Company’s most recent update of $27.1 billion as of March 20, 2023. Deposit balances further increased approximately $700 million as of April 24, 2023
    • Total insured deposits, including accounts eligible for pass-through insurance, represented approximately 73% of total deposits as of April 24, 2023 up from 48% at December 31, 2022
    • Immediately-available liquidity (on-balance sheet liquidity and unused borrowing capacity) of $12.4 billion, which exceeded uninsured deposits of $8.1 billion, with a coverage ratio of 153% at March 31, 2023
  • All risk-based capital ratios increased from December 31, 2022, with CET1 increasing from 8.70% to 9.22%
  • Credit metrics remain steady with nonperforming assets ratio declining 3 basis points to 35 basis points
  • Unrealized losses on the Company’s investment portfolio improved, declining from $791 million at December 31, 2022 to $736 million at March 31, 2023

ADJUSTED EARNINGS

Financial results for the first quarter of 2023 were impacted by goodwill impairment of $1.38 billion and reorganization costs of $8.5 million. Excluding these amounts, adjusted earnings were $89.4 million, or $0.66 per diluted share, for the first quarter of 2023. A reconciliation of adjusted earnings to net (loss) earnings according to accounting principles generally accepted in the United States (“GAAP”) is provided in the financial tables at the end of this press release.

  Three Months Ended
  March 31, December 31, March 31,
  2023 2022 2022
  (Dollars in thousands, except per share amounts)
Earnings Summary:            
Net (loss) earnings $(1,195,424) $49,509  $120,128 
Diluted earnings per common share $(10.22) $0.33  $1.01 
Return on average assets  (11.34)%  0.48%  1.22%
Return on average tangible common equity (1)  14.45%  12.71%  20.77%
             
Adjusted Earnings Summary (1):            
Adjusted earnings $89,436  $75,066  $120,128 
Adjusted diluted earnings per common share $0.66  $0.54  $1.01 
Adjusted return on average assets  0.85%  0.72%  1.22%
Adjusted return on average tangible common            
equity  15.62%  13.56%  20.77%
             
(1) Non-GAAP measure.            
             

CEO COMMENTARY

Paul Taylor, President and CEO, commented, “Our strong banking franchise and our loyal, diversified customer base have driven us through one of the most challenging recent periods in the banking industry. Our deposits have stabilized with total insured deposits increasing from 48% of total deposits at year-end to 71% of total deposits at March 31, 2023. Importantly, deposits stabilized in the latter part of March and rebounded nicely in April, increasing approximately $700 million subsequent to quarter-end. Moreover, in light of the recent events, management took immediate steps to maximize liquidity, including the exploration of strategic asset sales, which has led to the transfer of our $2.7 billion Lender Finance loan portfolio to held for sale.”

Mr. Taylor continued, “The industry dynamics in the quarter caused a significant decline in regional bank stocks, including ours. As a result, we recorded a goodwill impairment charge. It is important to note that goodwill impairment is a non-cash charge and has no impact on our regulatory capital ratios, cash flows, or liquidity position. We also are continuing the work we started last year to improve the overall efficiency of the Bank, which resulted in severance and contract termination expense of $8.5 million and the consolidation of two branches into nearby branches in the first quarter of 2023. I am proud to say that in the face of this crisis, our business of serving our customers and communities was unrelenting, allowing us to post $89.4 million in adjusted earnings for the quarter. In addition, credit quality remains strong as evidenced by nonperforming assets of 35 basis points and net charge-offs of 13 basis points for the quarter and 5 basis points for the trailing twelve months.”

Mr. Taylor concluded, “As we look forward, we continue to execute on our overall strategy, which includes managing the balance sheet around a stable and diversified funding mix, emphasizing our core business, preserving profitability with a strong asset base and reduced costs, and maintaining our capital and liquidity positions while prudently managing risks. We expect that our total assets will be closer to $35 billion within the next few months, after we complete certain asset sales and bring down liquidity to more normal levels. These actions will improve our liquidity position and are expected to increase our CET1 capital ratio to above 10%. We are also expediting our operational efficiency strategy to reduce facilities and vendors, optimize business processes, and execute on other cost savings across the business to improve our profitability. We will continue to prioritize our customer relationships, which have been the bedrock of our success for more than twenty years.”

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 2023 2022 (Decrease) 2023 2022 (Decrease)
  (Dollars in thousands, except per share amounts)
Net (loss) earnings available                        
to common stockholders $(1,205,371) $39,562  $(1,244,933) $(1,205,371) $120,128  $(1,325,499)
Diluted (loss) earnings per                        
common share $(10.22) $0.33  $(10.55) $(10.22) $1.01  $(11.23)
Pre-provision, pre-goodwill                        
impairment, pre-tax net                        
revenue ("PPNR") (1) $119,396  $106,151  $13,245  $119,396  $162,109  $(42,713)
Return on average assets  (11.34)%  0.48%  (11.82)  (11.34)%  1.22%  (12.56)
PPNR return on average                        
assets (1)  1.13%  1.02%  0.11   1.13%  1.65%  (0.52)
Return on average                        
tangible common equity (1)  14.45%  12.71%  1.74   14.45%  20.77%  (6.32)
                         
Yield on average loans and                        
leases (tax equivalent)  6.14%  5.73%  0.41   6.14%  4.66%  1.48 
Cost of average total                        
deposits  1.98%  1.37%  0.61   1.98%  0.07%  1.91 
Net interest margin ("NIM")                        
(tax equivalent)  2.89%  3.41%  (0.52)  2.89%  3.43%  (0.54)
Efficiency ratio  58.2%  53.3%  4.9   58.2%  50.1%  8.1 
                         
Total assets $44,302,981  $41,228,936  $3,074,045  $44,302,981  $39,249,639  $5,053,342 
Loans and leases held                        
for investment,                        
net of deferred fees $25,672,381  $28,609,129  $(2,936,748) $25,672,381  $24,352,072  $1,320,309 
Noninterest-bearing                        
demand deposits $7,030,759  $11,212,357  $(4,181,598) $7,030,759  $14,057,051  $(7,026,292)
Retail non-maturity deposits $19,230,293  $26,561,129  $(7,330,836) $19,230,293  $31,676,404  $(12,446,111)
Total deposits $28,187,561  $33,936,334  $(5,748,773) $28,187,561  $33,224,895  $(5,037,334)
                         
As percentage of total                        
deposits:                        
Noninterest-bearing                        
demand deposits  25%  33%  (8)  25%  42%  (17)
Retail non-maturity                        
deposits  68%  78%  (10)  68%  95%  (27)
                         
Equity to assets ratio  6.26%  9.58%  (3.32)  6.26%  9.30%  (3.04)
Common equity tier 1                        
capital ratio  9.22%  8.70%  0.52   9.22%  8.64%  0.58 
Tier 1 capital ratio  11.16%  10.61%  0.55   11.16%  9.07%  2.09 
Total capital ratio  14.22%  13.61%  0.61   14.22%  12.27%  1.95 
Tangible common equity                        
ratio (1)  5.07%  5.13%  (0.06)  5.07%  5.83%  (0.76)
Tangible book value per                        
common share (1) $18.66  $17.00  $1.66  $18.66  $18.42  $0.24 
                         
(1) Non-GAAP measure.                        
                         

INCOME STATEMENT HIGHLIGHTS

NET INTEREST INCOME

Net interest income decreased by $43.7 million to $279.3 million for the first quarter of 2023 compared to $322.9 million for the fourth quarter of 2022 due mainly to higher interest expense on deposits and borrowings, offset partially by higher interest income on loans and leases and deposits in financial institutions. Interest income on loans and leases increased by $25.7 million in the first quarter of 2023 due to a 41 basis points increase in the tax equivalent yield on loans and leases and a $390.3 million increase in the average balance of loans and leases compared to the fourth quarter of 2022. Interest income on deposits in financial institutions increased by $25.1 million in the first quarter of 2023 due mainly to a $1.8 billion increase in the average balance of deposits in financial institutions and a 98 basis points increase in the yield on deposits in financial institutions. The tax equivalent yield on loans and leases was 6.14% in the first quarter of 2023 compared to 5.73% for the fourth quarter of 2022. The increase in the tax equivalent yield on loans and leases was due primarily to higher coupon interest attributable to increased rates on production and on existing variable rate loans. Interest expense on deposits increased by $38.3 million in the first quarter of 2023 due mainly to increased market rates and an increased use of brokered deposits that contributed to a 61 basis points increase in the cost of total deposits, offset partially by the decrease in the average balance of deposits. Interest expense on borrowings increased by $49.2 million due to a $3.6 billion increase in the average balance and a 57 basis points increase in the cost of borrowings attributable mainly to the impact of increased market rates on our variable rate borrowings and higher market rates on new borrowings.

The tax equivalent NIM was 2.89% for the first quarter of 2023 compared to 3.41% for the fourth quarter of 2022. The decrease in the NIM was due mainly to a shift in our funding mix in the second half of March 2023 as we responded to the banking crisis to enhance liquidity and protect franchise value. Average borrowings as a percentage of average interest-bearing liabilities was 19% for the first quarter of 2023 compared to 7% for the fourth quarter of 2022. The additional borrowings are largely short term in nature, which will allow us to normalize our funding mix over time as economic conditions stabilize. The tax-equivalent NIM was further impacted by a higher cost of total deposits and borrowings, offset partially by higher yields on loans and leases and deposits in financial institutions.

The cost of total deposits was 1.98% for the first quarter of 2023 compared to 1.37% for the fourth quarter of 2022 due mainly to higher market interest rates and a change in the mix of average deposits, resulting from a decrease in lower cost retail non-maturity deposits and an increase in higher cost retail and brokered time deposits.

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 2023 2022 (Decrease)
  (In thousands)    
Addition to allowance for            
loan and lease losses $18,500  $14,000  $4,500 
Reduction in reserve for            
unfunded loan commitments  (15,500)  (4,000)  (11,500)
Total loan-related provision  3,000   10,000   (7,000)
Addition to allowance for            
held-to-maturity securities  -   -     -   
Total provision for credit losses $3,000  $10,000  $(7,000)

The provision for credit losses was $3.0 million for the first quarter of 2023 compared to $10.0 million for the fourth quarter of 2022. The provision for the fourth quarter of 2022 reflected the impact of net loan growth. During the first quarter of 2023, while loans and leases held for investment and unfunded loan commitments declined, a $3 million provision was recognized due to an increase in qualitative reserves for loans secured by commercial real estate and higher net charge-offs.

NONINTEREST INCOME

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

  Three Months Ended  
  March 31, December 31, Increase
Noninterest Income 2023 2022 (Decrease)
  (In thousands)    
Service charges on deposit accounts $3,573  $3,178  $395 
Other commissions and fees  10,344   11,208   (864)
Leased equipment income  13,857   12,322   1,535 
Gain on sale of loans and leases  2,962   388   2,574 
Gain (loss) on sale of securities  -   (49,302)  49,302 
Dividends and gains on equity investments  1,098   661   437 
Warrant loss  (333)  (46)  (287)
Other income  4,890   2,635   2,255 
Total noninterest income (loss) $36,391  $(18,956) $55,347 

Noninterest income increased by $55.3 million to income of $36.4 million for the first quarter of 2023 compared to a loss of $19.0 million for the fourth quarter of 2022 due primarily to a decrease of $49.3 million in loss on sale of securities, and increases of $2.6 million in gain on sale of loans and leases, $2.3 million in other income, and $1.5 million in leased equipment income. The decrease in loss on sale of securities resulted from the sales of $1.0 billion of securities for a net loss of $49.3 million in the fourth quarter of 2022 compared to no sales in the first quarter of 2023. The increase in gain on sale of loans and leases resulted from the sale of $287.3 million of loans for a net gain of $3.0 million in the first quarter of 2023 compared to the sale of $11.0 million of loans for a net gain of $0.4 million in the fourth quarter of 2022. The increase in other income was due primarily to a $2.0 million gain from the change in fair value of the credit-linked notes in the first quarter of 2023. The increase in leased equipment income was due mainly to higher rental income compared to the linked quarter.

NONINTEREST EXPENSE

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

  Three Months Ended  
  March 31, December 31, Increase
Noninterest Expense 2023 2022 (Decrease)
  (In thousands)
Compensation $88,476  $106,124  $(17,648)
Occupancy  15,067   14,922   145 
Data processing  10,938   9,722   1,216 
Other professional services  6,073   6,924   (851)
Insurance and assessments  11,717   7,205   4,512 
Intangible asset amortization  2,411   2,629   (218)
Leased equipment depreciation  9,375   8,627   748 
Foreclosed assets expense (income), net  363   (108)  471 
Customer related expense  24,005   18,197   5,808 
Loan expense  6,524   6,150   374 
Other  12,804   11,737   1,067 
Total operating expense  187,753   192,129   (4,376)
Acquisition, integration and reorganization costs  8,514   5,703   2,811 
Goodwill impairment  1,376,736   29,000   1,347,736 
Total noninterest expense $1,573,003  $226,832  $1,346,171 

The Company recorded a goodwill impairment charge of $1.38 billion in the first quarter of 2023. It is a standard accounting requirement for companies to periodically assess and determine the carrying value of goodwill as an asset. The severe effects of recent industry events on the market valuation of the Company warranted goodwill impairment testing and, following a comprehensive analysis, it was determined that the total amount of goodwill was impaired. The goodwill impairment charge does not have an impact on the Company’s regulatory capital ratios, cash flows, or liquidity position.

Noninterest expense increased by $1.35 billion to $1.57 billion for the first quarter of 2023 compared to $226.8 million for the fourth quarter 2022 due primarily to the $1.38 billion goodwill impairment charge. Excluding the goodwill impairment and acquisition, integration and reorganization costs, operating expense decreased by $4.4 million to $187.8 million. The $4.4 million decrease was due mainly to a decrease of $17.6 million in compensation expense, offset partially by increases of $5.8 million in customer related expense and $4.5 million in insurance and assessments expense. The decrease in compensation expense was due primarily to lower bonus expense and lower stock-based compensation expense. The increase in customer related expense was due mostly to higher third-party payments for deposit customers on account analysis. The increase in insurance and assessments was due mainly to higher FDIC assessment expense attributable to the 2 basis point assessment rate increase effective January 1, 2023, and a higher assessment base as a result of the $1.6 billion increase in average assets in the first quarter of 2023.

INCOME TAXES

The effective income tax rate was 5.2% for the first quarter of 2023 compared to 26.3% for the fourth quarter of 2022. Excluding goodwill impairment, the effective income tax rate for the first quarter of 2023 was 28.4%. The increase from the fourth quarter of 2022 was due primarily to higher disallowed interest expense in the first quarter of 2023. Excluding goodwill impairment, the effective tax rate for the full year 2023 is currently estimated to be in the range of 28% to 30%.

BALANCE SHEET HIGHLIGHTS

DEPOSITS AND CLIENT INVESTMENT FUNDS

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

 March 31, 2023 December 31, 2022 March 31, 2022
  % of   % of   % of 
Deposit CompositionBalanceTotal BalanceTotal BalanceTotal
 (Dollars in thousands)
Noninterest-bearing demand$      7,030,75925% $    11,212,35733% $    14,057,05142%
Interest checking          5,307,41319%          6,990,37720%          6,673,69620%
Money market          6,220,20322%          7,780,75823%        10,301,99631%
Savings             671,9182%             577,6372%             643,6612%
Total retail non-maturity deposits       19,230,29368%        26,561,12978%        31,676,40495%
Wholesale non-maturity deposits         2,028,6767%          2,637,3628%             322,7321%
Total non-maturity deposits       21,258,96975%        29,198,49186%        31,999,13696%
Retail time deposits         2,502,9149%          2,434,4147%          1,030,1243%
Brokered time deposits         4,425,67816%          2,303,4297%             195,6351%
Total time deposits (1)         6,928,59225%          4,737,84314%          1,225,7594%
Total deposits$    28,187,561100% $    33,936,334100% $    33,224,895100%
         
(1) Includes time deposits over $250,000 of $1.1 billion, $1.5 billion, and $347.4 million at March 31, 2023, December 31, 2022,  and March 31, 2022, respectively.

Total deposits decreased by $5.7 billion or 16.9% in the first quarter of 2023 due primarily to a $7.3 billion or 27.6% decrease in retail non-maturity deposits and a $608.7 million decrease in wholesale non-maturity deposits, offset partially by a $2.2 billion increase in time deposits. At March 31, 2023, retail non-maturity deposits totaled $19.2 billion or 68% of total deposits, including $7.0 billion of noninterest-bearing demand deposits or 25% of total deposits.

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

 March 31, 2023 December 31, 2022  
  % of   % of  Increase
 BalanceTotal BalanceTotal (Decrease)
 (Dollars in thousands)
Community Banking $       14,917,02753% $       17,466,72652% $       (2,549,699)
Venture Banking             6,584,55423%           11,296,57433%           (4,712,020)
Wholesale Deposits            6,685,98024%             5,173,03415%             1,512,946 
Total deposits$       28,187,561100% $       33,936,334100% $       (5,748,773)

As of March 31, 2023, FDIC-insured deposits represented approximately 71% of total deposits, including accounts eligible for pass-through insurance, and FDIC-insured venture-specific deposits accounted for approximately 83% of total venture-specific deposits, including accounts eligible for pass-through insurance. The Bank’s spot deposit rates increased from 1.71% at December 31, 2022 to 2.32% at March 31, 2023.

In addition to deposit products, we also offer alternative, non-depository cash investment options for select clients. These alternative options 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 decreased from $1.4 billion as of December 31, 2022 to $1.2 billion as of March 31, 2023, of which $0.8 billion was managed by PWAM.

BORROWINGS

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

  March 31, 2023 December 31, 2022  
    Weighted   Weighted  
    Avarage   Avarage Increase
Borrowing Type Balance Rate Balance Rate (Decrease)
  (Dollars in thousands)
FHLB secured advances $5,450,000   5.07% $1,270,000   4.62% $4,180,000 
Bank Term Funding Program  4,910,000   4.38%  -   -   4,910,000 
Repurchase agreement (1)  1,393,337   8.50%  -   -   1,393,337 
Credit-linked notes  128,375   15.24%  132,030   14.56%  (3,655)
AFX borrowings  -   -   250,000   4.68%  (250,000)
FHLB unsecured overnight advance  -   -   112,000   4.37%  (112,000)
Total borrowings $11,881,712   5.30% $1,764,030   5.36% $10,117,682 
                     
(1) Balance is net of unamortized issuance costs of $17.9 million and $0.4 million of accrued exit fees. 
Rate calculation does not include the effects of issuance costs and exit fees. 

The $10.1 billion increase in borrowings in the first quarter of 2023 is the result of the Company’s proactive effort to bolster its on-balance sheet liquidity in response to the elevated net deposit outflows caused by the banking crisis. The increase is comprised of borrowings under the new Bank Term Funding Program of $4.9 billion, an increase in FHLB secured advances of $4.2 billion, and borrowing under a new repurchase agreement facility of $1.4 billion. Available borrowing capacity was approximately $5.8 billion at March 31, 2023.

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 2023 2022
  (Dollars in thousands)
Balance, beginning of period $28,609,129  $27,660,041 
Additions:        
Production  468,671   1,287,248 
Disbursements  1,622,898   1,919,979 
Total production and disbursements  2,091,569   3,207,227 
Reductions:        
Payoffs  (1,021,652)  (1,136,016)
Paydowns  (965,537)  (1,050,727)
Total payoffs and paydowns  (1,987,189)  (2,186,743)
Sales  (231,798)  (2,611)
Transfers to foreclosed assets  (2,568)  (4,714)
Charge-offs  (10,397)  (3,352)
Transfers to loans held for sale  (2,796,365)  (60,719)
Total reductions  (5,028,317)  (2,258,139)
Net (decrease) increase  (2,936,748)  949,088 
Balance, end of period $25,672,381  $28,609,129 
         
Weighted average rate on production (1)  8.44%  7.55%
         
(1) The weighted average rate on production presents contractual rates on a tax equivalent basis and excludes amortized fees.  
 Amortized fees added approximately 17 basis points to loan yields in 2023.        

Loans and leases held for investment, net of deferred fees, decreased by $2.9 billion, or 10.3% in the first quarter of 2023 to $25.7 billion at March 31, 2023. The overall decrease in the loans and leases balance for the first quarter of 2023 was due primarily to a $2.7 billion transfer to loans held for sale of Lender Finance loans included in the asset-based commercial loan portfolio.

The weighted average rate on the $469 million of production for the first quarter of 2023 increased to 8.44% from 7.55% for the fourth quarter of 2022 due primarily to the loan mix (lower percentage of multi-family production and a higher percentage of Civic production) and the increase in market interest rates. 

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, 2023 December 31, 2022 March 31, 2022
  % of   % of   % of 
Loan and Lease PortfolioBalanceTotal BalanceTotal BalanceTotal
 (Dollars in thousands)
Real estate mortgage:        
Commercial$      3,808,75115% $      3,846,83113% $      3,669,74115%
Multi-family         5,523,32021%          5,607,86520%          4,080,25717%
Other residential         6,075,54024%          6,275,62822%          4,759,06620%
Total real estate mortgage       15,407,61160%        15,730,32455%        12,509,06452%
Real estate construction and land:        
Commercial            910,3274%             898,5923%             802,0223%
Residential         3,698,11314%          3,253,58011%          2,421,69410%
Total real estate construction         
and land         4,608,44018%          4,152,17214%          3,223,71613%
Total real estate        20,016,05178%        19,882,49669%        15,732,78065%
Commercial:        
Asset-based         2,068,3278%          5,140,20918%          4,739,22019%
Venture capital         2,058,2378%          2,033,3027%          2,077,3399%
Other commercial         1,102,5434%          1,108,4514%          1,298,1365%
Total commercial         5,229,10720%          8,281,96229%          8,114,69533%
Consumer            427,2232%             444,6712%             504,5972%
Total loans and leases held for         
investment, net of deferred fees$    25,672,381100% $    28,609,129100% $    24,352,072100%
               
Total unfunded loan commitments$9,776,789   $11,110,264   $9,899,345  
               

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES

The following tables present roll forwards of the allowance for credit losses on loans and leases for the periods indicated:

 Three Months Ended March 31, 2023
Allowance for Credit Allowance for Reserve for  Total
Losses on Loans and Loan and  Unfunded Loan Allowance for
Leases RollforwardLease Losses Commitments Credit Losses
 (In thousands)
Beginning balance$              200,732  $                91,071  $              291,803 
Charge-offs                 (10,397)                             -                   (10,397)
Recoveries                     1,220                              -                       1,220 
Net charge-offs                   (9,177)                             -                     (9,177)
Provision                    18,500                   (15,500)                      3,000 
Ending balance$              210,055  $                75,571  $              285,626 


 Three Months Ended December 31, 2022
Allowance for Credit Allowance for Reserve for  Total
Losses on Loans and Loan and  Unfunded Loan Allowance for
Leases RollforwardLease Losses Commitments Credit Losses
 (In thousands)
Beginning balance$              189,327  $                95,071  $              284,398 
Charge-offs                   (3,352)                             -                     (3,352)
Recoveries                        757                              -                          757 
Net charge-offs                   (2,595)                             -                     (2,595)
Provision                    14,000                     (4,000)                    10,000 
Ending balance$              200,732  $                91,071  $              291,803 
            

The following table presents allowance for credit losses information on loans and leases as of and for the dates and periods indicated:

Allowance for Credit LossesMarch 31, December 31, Increase
on Loans and Leases 2023   2022  (Decrease)
 (Dollars in thousands)
Allowance for loan and lease losses$              210,055  $              200,732  $                  9,323 
Reserve for unfunded loan commitments                   75,571                     91,071                   (15,500)
Allowance for credit losses$              285,626  $              291,803  $                (6,177)
      
Provision for credit losses (for the quarter)$                  3,000  $                10,000  $                (7,000)
Net charge-offs (for the quarter)$                  9,177  $                  2,595  $                  6,582 
Net charge-offs to average loans      
and leases (for the quarter) 0.13%  0.04%  
Allowance for loan and lease losses to loans      
and leases held for investment 0.82%  0.70%  
Allowance for credit losses to loans and leases     
held for investment 1.11%  1.02%  

The allowance for credit losses decreased by $6.2 million in the first quarter of 2023 to $285.6 million at March 31, 2023. This decrease was attributable mainly to the decrease in loans and leases held for investment and unfunded loan commitments and $9.2 million in net charge-offs, offset partially by an increase in qualitative reserves for loans secured by commercial real estate.

Net charge-offs over the trailing twelve months were $12.8 million, which resulted in net charge-offs to average loans and leases over the trailing twelve months of 0.5%.

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 2023 2022 (Decrease)
  (Dollars in thousands)
Nonperforming Assets:            
Nonaccrual loans and leases held for investment (1) $87,124  $103,778  $(16,654)
Accruing loans contractually past due 90 days or more  -   -   - 
Foreclosed assets, net  2,135   5,022   (2,887)
Total nonperforming assets ("NPAs") $89,259  $108,800  $(19,541)
             
Nonaccrual loans and leases held for investment            
to loans and leases held for investment  0.34%  0.36%    
Nonperforming assets to loans and leases            
held for investment and foreclosed assets  0.35%  0.38%    
Allowance for credit losses to nonaccrual loans            
and leases held for investment  327.8%  281.2%    
             
Loan and Lease Credit Risk Ratings:            
Pass $24,959,805  $27,924,599  $(2,964,794)
Special mention  580,153   566,259   13,894 
Classified  132,423   118,271   14,152 
Total loans and leases held for investment,            
net of deferred fees $25,672,381  $28,609,129  $(2,936,748)
             
Special mention loans and leases held for investment            
to loans and leases held for investment  2.26%  1.98%    
Classified loans and leases held for investment            
to loans and leases held for investment  0.52%  0.41%    
             
(1) Nonaccrual loans include SBA guaranteed amounts of $11.8 million at March 31, 2023 and $14.3 million at December 31, 2022.            

Nonaccrual loans and leases decreased by $16.7 million to $87.1 million in the first quarter of 2023 due primarily to a decrease in nonaccrual commercial real estate loans and, to a lesser extent, Civic 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:

  March 31, 2023 December 31, 2022 Increase (Decrease)
    Accruing   Accruing   Accruing
    and 30-89   and 30-89   and 30-89
    Days Past   Days Past   Days Past
  Nonaccrual Due Nonaccrual Due Nonaccrual Due
  (In thousands)
Real estate mortgage:                        
Commercial $32,996  $1,650  $42,509  $1,047  $(9,513) $603 
Multi-family  -   -   -   -   -   - 
Other residential  50,060   125,458   55,893   95,654   (5,833)  29,804 
Total real estate mortgage  83,056   127,108   98,402   96,701   (15,346)  30,407 
Real estate construction and land:                        
Commercial  -   -   -   -   -   - 
Residential  -   -   -   -   -   - 
Total real estate                        
construction and land  -   -   -   -   -   - 
Commercial:                        
Asset-based  420   -   865   -   (445)  - 
Venture capital  -   -   -   -   -   - 
Other commercial  3,123   618   4,345   385   (1,222)  233 
Total commercial  3,543   618   5,210   385   (1,667)  233 
Consumer  525   1,593   166   1,935   359   (342)
Total held for investment $87,124  $129,319  $103,778  $99,021  $(16,654) $30,298 

Loans and leases accruing and 30-89 days past due generally fluctuate from period to period. The $30.3 million increase to $129.3 million in the first quarter of 2023 was due mainly to an increase in Civic delinquent loans of $22.7 million.

CAPITAL

The following table presents capital ratios as of the dates indicated:

 March 31, December 31, March 31,
  2023   2022   2022 
PacWest Bancorp Consolidated:     
Common equity tier 1 capital ratio (1) 9.22%  8.70%  8.64%
Tier 1 capital ratio (1) 11.16%  10.61%  9.07%
Total capital ratio (1) 14.22%  13.61%  12.27%
Tier 1 leverage capital ratio (1) 8.33%  8.61%  7.11%
Risk-weighted assets (1) (in thousands)$      32,488,956  $      33,030,960  $       30,297,312 
Tangible common equity ratio (2) 5.07%  5.13%  5.83%
Tangible common equity ratio excluding      
the impact of AOCI for securities (2) 6.73%  7.12%  6.82%
      
(1) Capital information for March 31, 2023 is preliminary.
(2) Non-GAAP measure. 
 

CONFERENCE CALL

PacWest Bancorp (“PacWest”) will host a conference call at 8:00 AM PT/ 11:00 AM ET on Wednesday, April 26, 2023, to discuss the Company’s performance for the first quarter of 2023.

Participants may access the conference call/webcast at:
Participant Dial-in: (888) 256-1007
Participant Webcast Link: https://event.webcasts.com/starthere.jsp?ei=1606712&tp_key=2960dca832 
Confirmation Code: 9773012

The call will be recorded and made available for replay on April 26, 2023, after 12:00 PM PT. The recording may be accessed through the link above or at https://www.pacwestbancorp.com/news-market-data/presentations/default.aspx.

ABOUT PACWEST BANCORP

PacWest is a bank holding company headquartered in Los Angeles, California, with an executive office in Denver, Colorado, with one wholly-owned banking subsidiary, Pacific Western Bank (the “Bank”). Pacific Western Bank is a relationship-based community bank focused on providing business banking and treasury management services to small, middle-market, and venture-backed businesses. The Bank offers a broad range of loan and lease and deposit products and services through full-service branches throughout California and in Durham, North Carolina and Denver, Colorado, and loan production offices around the country. 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 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 often use words such as “anticipates,” “targets,” “expects,” “estimates,” “intends,” “plans,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Such statements are based on information available at the time of the communication and are based on current beliefs and expectations of PacWest’s management and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those expressed in them. Continued deterioration in general business, economic, and political conditions, geopolitical tensions, uncertainty in U.S. fiscal monetary policy, including the interest rate policies of the Federal Reserve Board, and volatility and disruptions in credit and capital markets could lead to a tightening of credit and an increase of credit losses, adversely affect PacWest’s revenues and the values of our assets and liabilities, increase stock price volatility, and adversely impact our ability to raise capital. In addition, PacWest and its results could be adversely affected by changes in interest rates, continued high inflation, and unemployment rates, our ability to attract and retain deposits and other sources of funding and liquidity particularly in a rising or high interest rate environment, the impact of bank failures or other adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks, the safety of deposits, and depositor behavior, the quality and composition of our deposits, deterioration in the credit quality of our loan portfolio or in the value of the collateral securing those loans, especially the risks associated with concentrations in real estate related loans, deterioration in the value of our investment securities as a result of rising interest rates or otherwise, our ability to successfully execute on our planned asset sales, strategic plan, and digital and innovation initiatives, the effectiveness of our risk management framework and quantitative models, and legal and regulatory developments. 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 PacWest with the U.S. Securities and Exchange Commission.

All forward-looking statements in this communication are based on information available at the time the statement is made. 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,
  2023 2022 2022
  (Dollars in thousands, except per share amounts)
ASSETS:      
Cash and due from banks $218,830  $212,273  $205,446 
Interest-earning deposits in financial institutions  6,461,306   2,027,949   1,865,235 
Total cash and cash equivalents  6,680,136   2,240,222   2,070,681 
             
Securities available-for-sale, at estimated fair value  4,848,607   4,843,487   9,975,109 
Securities held-to-maturity, at amortized cost,            
net of allowance for credit losses  2,273,650   2,269,135   - 
Federal Home Loan Bank stock, at cost  147,150   34,290   17,250 
Total investment securities  7,269,407   7,146,912   9,992,359 
             
Loans held for sale  2,796,208   65,076   - 
             
Gross loans and leases held for investment  25,770,912   28,726,016   24,439,749 
Deferred fees, net  (98,531)  (116,887)  (87,677)
Total loans and leases held for investment,            
net of deferred fees  25,672,381   28,609,129   24,352,072 
Allowance for loan and lease losses  (210,055)  (200,732)  (197,398)
Total loans and leases held for investment, net  25,462,326   28,408,397   24,154,674 
             
Equipment leased to others under operating leases  399,972   404,245   325,305 
Premises and equipment, net  60,358   54,315   51,011 
Foreclosed assets, net  2,135   5,022   304 
Goodwill  -   1,376,736   1,405,736 
Core deposit and customer relationship intangibles, net  28,970   31,381   41,308 
Other assets  1,603,469   1,496,630   1,208,261 
Total assets $44,302,981  $41,228,936  $39,249,639 
             
LIABILITIES:            
Noninterest-bearing deposits $7,030,759  $11,212,357  $14,057,051 
Interest-bearing deposits  21,156,802   22,723,977   19,167,844 
Total deposits  28,187,561   33,936,334   33,224,895 
Borrowings  11,881,712   1,764,030   991,000 
Subordinated debt  868,815   867,087   863,880 
Accrued interest payable and other liabilities  593,416   710,954   519,269 
Total liabilities  41,531,504   37,278,405   35,599,044 
STOCKHOLDERS' EQUITY (1)  2,771,477   3,950,531   3,650,595 
Total liabilities and stockholders’ equity $44,302,981  $41,228,936  $39,249,639 
             
Book value per common share $18.90  $28.71  $30.52 
Tangible book value per common share (2) $18.66  $17.00  $18.42 
Common shares outstanding  120,244,214   120,222,057   119,601,766 
             
(1) Includes net unrealized loss on:            
Securities available-for-sale, net $(537,307) $(586,450) $(376,475)
Securities held to maturity  (198,753)  (204,453)  - 
Total $(736,060) $(790,903) $(376,475)
(2) Non-GAAP measure.            


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS)
      
 Three Months Ended
 March 31, December 31, March 31,
  2023   2022   2022 
 (In thousands, except per share amounts)
Interest income:     
Loans and leases$         430,685  $         404,985  $         267,759 
Investment securities              44,237                50,292                53,422 
Deposits in financial institutions              42,866                17,746                  1,723 
Total interest income            517,788              473,023              322,904 
      
Interest expense:     
Deposits            155,892              117,591                  6,208 
Borrowings              69,122                19,962                     161 
Subordinated debt              13,502                12,531                  7,818 
Total interest expense            238,516              150,084                14,187 
      
Net interest income            279,272              322,939              308,717 
Provision for credit losses                3,000                10,000                          - 
Net interest income after provision      
for credit losses            276,272              312,939              308,717 
      
Noninterest income:     
Service charges on deposit accounts                3,573                  3,178                  3,571 
Other commissions and fees              10,344                11,208                11,580 
Leased equipment income              13,857                12,322                13,094 
Gain on sale of loans and leases                2,962                     388                       60 
Gain (loss) on sale of securities                        -              (49,302)                    104 
Dividends and gains (losses) on equity investments                1,098                     661              (11,375)
Warrant (loss) income                 (333)                    (46)                    629 
Other income                4,890                  2,635                  3,155 
Total noninterest income (loss)              36,391              (18,956)               20,818 
      
Noninterest expense:     
Compensation               88,476              106,124                92,240 
Occupancy              15,067                14,922                15,200 
Data processing              10,938                  9,722                  9,629 
Other professional services                6,073                  6,924                  5,954 
Insurance and assessments              11,717                  7,205                  5,490 
Intangible asset amortization                2,411                  2,629                  3,649 
Leased equipment depreciation                9,375                  8,627                  9,189 
Foreclosed assets expense (income), net                   363                   (108)               (3,353)
Acquisition, integration and reorganization costs                8,514                  5,703                          - 
Customer related expense              24,005                18,197                12,655 
Loan expense                6,524                  6,150                  5,157 
Goodwill impairment         1,376,736                29,000                          - 
Other expense              12,804                11,737                11,616 
Total noninterest expense         1,573,003              226,832              167,426 
      
(Loss) earnings before income taxes       (1,260,340)               67,151              162,109 
Income tax (benefit) expense             (64,916)               17,642                41,981 
Net (loss) earnings        (1,195,424)               49,509              120,128 
Preferred stock dividends                9,947                  9,947                          - 
Net (loss) earnings available to      
common stockholders$    (1,205,371) $           39,562  $         120,128 
      
Basic and diluted (loss) earnings per      
common share$           (10.22) $               0.33  $               1.01 
Dividends declared and paid per common share$               0.25  $               0.25  $               0.25 


PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
            
 Three Months Ended
 March 31, 2023 December 31, 2022 March 31, 2022
  InterestAverage  InterestAverage  InterestAverage
 Average Income/Yield/ Average Income/Yield/ Average Income/Yield/
 BalanceExpenseCost BalanceExpenseCost BalanceExpenseCost
 (Dollars in thousands)
Assets:           
Loans and            
leases (1)(2)(3)$  28,583,265$  433,0296.14% $  28,192,953$  407,1355.73% $  23,433,019$  269,5214.66%
Investment securities (3)       7,191,362       44,2462.50%        7,824,915       50,6972.57%      10,397,709       55,5942.17%
Deposits in financial            
institutions       3,682,228       42,8664.72%        1,881,950       17,7463.74%        3,083,159         1,7230.23%
Total interest-earning            
assets (1)     39,456,855     520,1415.35%      37,899,818     475,5784.98%      36,913,887     326,8383.59%
Other assets       3,311,859          3,252,145          2,969,417  
Total assets$  42,768,714   $  41,151,963   $  39,883,304  
            
Liabilities and            
Stockholders' Equity:          
Interest checking$    7,089,102       55,9573.20% $    7,146,333       41,4272.30% $    7,094,623         1,7760.10%
Money market       8,932,059       56,2242.55%      10,088,641       51,6872.03%      10,852,454         3,4610.13%
Savings          597,287            5990.41%           616,298              660.04%           642,709              390.02%
Time       5,123,955       43,1123.41%        3,909,130       24,4112.48%        1,278,609            9320.30%
Total interest-bearing            
deposits     21,742,403     155,8922.91%      21,760,402     117,5912.14%      19,868,395         6,2080.13%
Borrowings       5,289,429       69,1225.30%        1,675,738       19,9624.73%           298,444            1610.22%
Subordinated debt          867,637       13,5026.31%           864,581       12,5315.75%           863,572         7,8183.67%
Total interest-bearing            
liabilities     27,899,469     238,5163.47%      24,300,721     150,0842.45%      21,030,411       14,1870.27%
Noninterest-bearing            
demand deposits     10,233,434        12,325,902        14,463,667  
Other liabilities          637,124             626,540             541,745  
Total liabilities     38,770,027        37,253,163        36,035,823  
Stockholders' equity       3,998,687          3,898,800          3,847,481  
Total liabilities and            
stockholders' equity$  42,768,714   $  41,151,963   $  39,883,304  
Net interest income (1) $  281,625   $  325,494   $  312,651 
Net interest spread (1)  1.88%   2.53%   3.32%
Net interest margin (1)  2.89%   3.41%   3.43%
            
Total deposits (4)$  31,975,837$  155,8921.98% $  34,086,304$  117,5911.37% $  34,332,062$      6,2080.07%
            
(1) Tax equivalent.           
(2) Includes net loan premium amortization of $2.8 million, $2.5 million, and $5.7 million for the three months ended March 31, 2023,
      December 31, 2022, and March 31, 2022, respectively.
(3) Includes tax-equivalent adjustments of $2.3 million, $2.2 million, and $1.8 million for the three months ended March 31, 2023,
      December 31, 2022, and March 31, 2022 related to tax-exempt income on loans.
Includes tax-equivalent adjustments of $9,000, $0.4 million, and $2.2 million for the three months ended March 31, 2023,
December 31, 2022, and March 31, 2022 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,
  2023   2022   2022   2022   2022 
 (Dollars in thousands, except per share amounts)
ASSETS:         
Cash and due from banks$         218,830  $         212,273  $         216,436  $         197,027  $         205,446 
Interest-earning deposits in financial          
institutions         6,461,306           2,027,949           2,244,272           2,192,877           1,865,235 
Total cash and cash equivalents          6,680,136           2,240,222           2,460,708           2,389,904           2,070,681 
          
Securities available-for-sale         4,848,607           4,843,487           5,891,328           6,780,648           9,975,109 
Securities held-to-maturity         2,273,650           2,269,135           2,264,601           2,260,367                          - 
Federal Home Loan Bank stock            147,150                34,290                36,990                33,210                17,250 
Total investment securities         7,269,407           7,146,912           8,192,919           9,074,225           9,992,359 
          
Loans held for sale         2,796,208                65,076                15,534                          -                          - 
          
Gross loans and leases held for investment       25,770,912         28,726,016         27,775,962         26,608,541         24,439,749 
Deferred fees, net            (98,531)           (116,887)           (115,921)           (107,404)             (87,677)
Total loans and leases held for         
investment, net of deferred fees       25,672,381         28,609,129         27,660,041         26,501,137         24,352,072 
Allowance for loan and lease losses          (210,055)           (200,732)           (189,327)           (188,705)           (197,398)
Total loans and leases held for         
investment, net       25,462,326         28,408,397         27,470,714         26,312,432         24,154,674 
          
Equipment leased to others under          
operating leases            399,972              404,245              338,691              324,233              325,305 
Premises and equipment, net              60,358                54,315                50,781                51,083                51,011 
Foreclosed assets, net                2,135                  5,022                  2,967                          -                     304 
Goodwill                        -           1,376,736           1,405,736           1,405,736           1,405,736 
Core deposit and customer relationship         
intangibles, net              28,970                31,381                34,010                37,659                41,308 
Other assets         1,603,469           1,496,630           1,432,532           1,355,451           1,208,261 
Total assets$    44,302,981  $    41,228,936  $    41,404,592  $    40,950,723  $    39,249,639 
          
LIABILITIES:         
Noninterest-bearing deposits$      7,030,759  $    11,212,357  $    12,775,756  $    13,338,029  $    14,057,051 
Interest-bearing deposits       21,156,802         22,723,977         21,420,116         20,630,123         19,167,844 
Total deposits       28,187,561         33,936,334         34,195,872         33,968,152         33,224,895 
Borrowings       11,881,712           1,764,030           1,864,815           1,592,000              991,000 
Subordinated debt            868,815              867,087              863,379              863,756              863,880 
Accrued interest payable and other         
liabilities            593,416              710,954              604,581              548,412              519,269 
Total liabilities       41,531,504         37,278,405         37,528,647         36,972,320         35,599,044 
STOCKHOLDERS' EQUITY (1)         2,771,477           3,950,531           3,875,945           3,978,403           3,650,595 
Total liabilities and stockholders’          
equity$    44,302,981  $    41,228,936  $    41,404,592  $    40,950,723  $    39,249,639 
          
Book value per common share$             18.90  $             28.71  $             28.07  $             28.93  $             30.52 
Tangible book value per common share (2)$             18.66  $             17.00  $             16.11  $             16.93  $             18.42 
Common shares outstanding     120,244,214       120,222,057       120,314,023       120,288,024       119,601,766 
          
(1) Includes net unrealized loss on:          
Securities available-for-sale, net$       (537,307) $       (586,450) $       (637,346) $       (428,242) $       (376,475)
Securities held to maturity          (198,753)           (204,453)           (210,868)           (216,508)                         - 
Total $       (736,060) $       (790,903) $       (848,214) $       (644,750) $       (376,475)
(2) Non-GAAP measure.         


PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS (LOSS)
          
 Three Months Ended
 March 31, December 31, September 30, June 30, March 31,
  2023   2022   2022   2022   2022 
 (In thousands, except per share amounts)
Interest income:         
Loans and leases$         430,685  $         404,985  $         346,550  $         293,286  $         267,759 
Investment securities              44,237                50,292                53,135                52,902                53,422 
Deposits in financial institutions              42,866                17,746                10,359                  4,330                  1,723 
Total interest income            517,788              473,023              410,044              350,518              322,904 
          
Interest expense:         
Deposits            155,892              117,591                61,288                15,362                  6,208 
Borrowings              69,122                19,962                  3,081                  2,441                     161 
Subordinated debt              13,502                12,531                10,494                  8,790                  7,818 
Total interest expense            238,516              150,084                74,863                26,593                14,187 
          
Net interest income            279,272              322,939              335,181              323,925              308,717 
Provision for credit losses                3,000                10,000                  3,000                11,500                          - 
Net interest income after provision         
for credit losses            276,272              312,939              332,181              312,425              308,717 
          
Noninterest income:         
Service charges on deposit accounts                3,573                  3,178                  3,608                  3,634                  3,571 
Other commissions and fees              10,344                11,208                10,034                10,813                11,580 
Leased equipment income              13,857                12,322                12,835                12,335                13,094 
Gain on sale of loans and leases                2,962                     388                       58                       12                       60 
Gain (loss) on sale of securities                        -              (49,302)                      86                (1,209)                    104 
Dividends and gains (losses) on equity investments                1,098                     661                  3,228                  4,097              (11,375)
Warrant (loss) income                 (333)                    (46)                    292                  1,615                     629 
Other income                4,890                  2,635                  8,478                  3,049                  3,155 
Total noninterest income (loss)               36,391              (18,956)               38,619                34,346                20,818 
          
Noninterest expense:         
Compensation               88,476              106,124              105,933              102,542                92,240 
Occupancy              15,067                14,922                15,574                15,268                15,200 
Data processing              10,938                  9,722                  9,568                  9,258                  9,629 
Other professional services                6,073                  6,924                10,674                  6,726                  5,954 
Insurance and assessments              11,717                  7,205                  7,159                  5,632                  5,490 
Intangible asset amortization                2,411                  2,629                  3,649                  3,649                  3,649 
Leased equipment depreciation                9,375                  8,627                  8,908                  8,934                  9,189 
Foreclosed assets expense (income), net                   363                   (108)                  (248)                    (28)               (3,353)
Acquisition, integration and reorganization costs                8,514                  5,703                          -                          -                          - 
Customer related expense              24,005                18,197                12,673                11,748                12,655 
Loan expense                6,524                  6,150                  6,228                  7,037                  5,157 
Goodwill impairment         1,376,736                29,000                          -                          -                          - 
Other expense              12,804                11,737                15,500                12,879                11,616 
Total noninterest expense         1,573,003              226,832              195,618              183,645              167,426 
          
(Loss) earnings before income taxes       (1,260,340)               67,151              175,182              163,126              162,109 
Income tax (benefit) expense             (64,916)               17,642                43,566                40,766                41,981 
Net (loss) earnings        (1,195,424)               49,509              131,616              122,360              120,128 
Preferred stock dividends                9,947                  9,947                  9,392                          -                          - 
Net (loss) earnings available to          
common stockholders$    (1,205,371) $           39,562  $         122,224  $         122,360  $         120,128 
          
Basic and diluted (loss) earnings per          
common share$           (10.22) $               0.33  $               1.02  $               1.02  $               1.01 
Dividends declared and paid per common share$               0.25  $               0.25  $               0.25  $               0.25  $               0.25 


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,
  2023   2022   2022   2022   2022 
 (Dollars in thousands)
Performance Ratios:         
Return on average assets (1) (11.34)%  0.48%  1.28%  1.23%  1.22%
Pre-provision, pre-goodwill impairment,          
pre-tax net revenue ("PPNR") return          
on average assets (1)(2) 1.13%  1.02%  1.73%  1.75%  1.65%
Return on average equity (1) (121.24)%  5.04%  13.02%  13.44%  12.66%
Return on average tangible common          
equity (1)(2) 14.45%  12.71%  23.93%  24.24%  20.77%
Efficiency ratio 58.2%  53.3%  51.0%  49.5%  50.1%
Noninterest expense as a percentage         
of average assets (1) 14.92%  2.19%  1.90%  1.84%  1.70%
          
Average Yields/Costs (1):         
Yield on:         
Average loans and leases (3) 6.14%  5.73%  5.12%  4.65%  4.66%
Average investment securities (3) 2.50%  2.57%  2.45%  2.32%  2.17%
Average interest-earning assets (3) 5.35%  4.98%  4.36%  3.85%  3.59%
Cost of:         
Average interest-bearing deposits  2.91%  2.14%  1.15%  0.31%  0.13%
Average total deposits  1.98%  1.37%  0.70%  0.18%  0.07%
Average interest-bearing liabilities  3.47%  2.45%  1.32%  0.49%  0.27%
Net interest spread (3) 1.88%  2.53%  3.04%  3.36%  3.32%
Net interest margin (3) 2.89%  3.41%  3.57%  3.56%  3.43%
          
Average Balances:         
Assets:         
Loans and leases, net of deferred fees$    28,583,265  $    28,192,953  $    27,038,873  $    25,499,773  $    23,433,019 
Investment securities         7,191,362           7,824,915           8,803,349           9,488,653         10,397,709 
Deposits in financial institutions         3,682,228           1,881,950           1,809,809           1,984,751           3,083,159 
Interest-earning assets       39,456,855         37,899,818         37,652,031         36,973,177         36,913,887 
Total assets       42,768,714         41,151,963         40,841,272         40,031,891         39,883,304 
Liabilities:         
Noninterest-bearing deposits       10,233,434         12,325,902         13,653,177         13,987,398         14,463,667 
Interest-bearing deposits       21,742,403         21,760,402         21,214,265         19,661,618         19,868,395 
Total deposits       31,975,837         34,086,304         34,867,442         33,649,016         34,332,062 
Borrowings          5,289,429           1,675,738              505,482           1,356,616              298,444 
Subordinated debt            867,637              864,581              863,719              863,653              863,572 
Interest-bearing liabilities       27,899,469         24,300,721         22,583,466         21,881,887         21,030,411 
Stockholders' equity         3,998,687           3,898,800           4,011,179           3,652,368           3,847,481 
          
(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,
  2023 2022 2022 2022 2022
  (Dollars in thousands, except per share amounts)
Credit Quality Metrics for Loans                    
and Leases Held for Investment:                    
Nonaccrual loans and leases $87,124  $103,778  $89,742  $78,527  $66,538 
Nonperforming assets  89,259   108,800   92,709   78,527   66,842 
Special mention loans and leases  580,153   566,259   463,994   480,261   377,315 
Classified loans and leases  132,423   118,271   96,685   104,264   82,068 
Allowance for loan and lease losses  210,055   200,732   189,327   188,705   197,398 
Allowance for credit losses  285,626   291,803   284,398   283,776   272,469 
For the quarter:                    
Provision for credit losses  3,000   10,000   3,000   10,000   - 
Net charge-offs (recoveries)  9,177   2,595   2,378   (1,307)  1,166 
                     
Nonaccrual loans and leases to loans                    
and leases  0.34%  0.36%  0.32%  0.30%  0.27%
Nonperforming assets to loans and                    
leases and foreclosed assets  0.35%  0.38%  0.34%  0.30%  0.27%
Special mention loans and leases to                    
loans and leases  2.26%  1.98%  1.68%  1.81%  1.55%
Classified loans and leases to loans                    
and leases  0.52%  0.41%  0.35%  0.39%  0.34%
Allowance for loan and lease losses                    
to loans and leases  0.82%  0.70%  0.68%  0.71%  0.81%
Allowance for credit losses to loans                    
and leases  1.11%  1.02%  1.03%  1.07%  1.12%
Allowance for credit losses to                    
nonaccrual loans and leases  327.84%  281.18%  316.91%  361.37%  409.49%
Net charge-offs (recoveries)                    
to average loans and leases  0.13%  0.04%  0.03%  (0.02)%  0.02%
Trailing 12 months net charge-offs                    
(recoveries) to average loans and                    
leases  0.05%  0.02%  0.01%  0.00%  (0.02)%
                     
PacWest Bancorp Consolidated:                    
Common equity tier 1 capital ratio (1)  9.22%  8.70%  8.56%  8.24%  8.64%
Tier 1 capital ratio (1)  11.16%  10.61%  10.46%  10.15%  9.07%
Total capital ratio (1)  14.22%  13.61%  13.43%  13.12%  12.27%
Tier 1 leverage capital ratio (1)  8.33%  8.61%  8.63%  8.52%  7.11%
Risk-weighted assets (1) $32,488,956  $33,030,960  $33,042,173  $33,009,455  $30,297,312 
                     
Equity to assets ratio  6.26%  9.58%  9.36%  9.72%  9.30%
Tangible common equity ratio (2)  5.07%  5.13%  4.85%  5.15%  5.83%
Book value per common share $18.90  $28.71  $28.07  $28.93  $30.52 
Tangible book value per common share (2) $18.66  $17.00  $16.11  $16.93  $18.42 
                     
Pacific Western Bank:                    
Common equity tier 1 capital ratio (1)  10.89%  10.32%  10.17%  9.78%  9.32%
Tier 1 capital ratio (1)  10.89%  10.32%  10.17%  9.78%  9.32%
Total capital ratio (1)  12.94%  12.34%  12.16%  11.77%  11.45%
Tier 1 leverage capital ratio (1)  8.14%  8.39%  8.39%  8.21%  7.31%
                     
(1) Capital information for March 31, 2023 is preliminary.
(2) Non-GAAP measure.
 

GAAP TO NON-GAAP RECONCILIATIONS

This press release contains certain non-GAAP financial disclosures for: (1) Pre-provision, pre-goodwill impairment, pre-tax net revenue (“PPNR”), (2) PPNR return on average assets (3) return on average tangible common equity, (4) tangible common equity ratio, and (5) tangible book value per common 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 PPNR, return on average tangible common equity, tangible common equity ratio, and tangible book value per common 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) net earnings, (2) return on average assets, (3) return on average equity, (4) equity to assets ratio, and (5) book value per common share.

The Company recorded significant non-operating charges in the three months ended March 31, 2023 and December 31, 2022. Thus, to supplement information regarding the Company’s operational performance and to enhance investors’ overall understanding of such performance, this press release includes non-GAAP financial measures for (1) adjusted return on average tangible common equity, (2) adjusted earnings, (3) adjusted earnings per share, and (4) adjusted return on average assets. These measures help the reader to compare the recent periods with the historical periods more readily. These non-GAAP financial measures should not be considered a substitute for financial measures presented in accordance with GAAP and may be different from the non-GAAP financial measures used by other companies.

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

 Three Months Ended
PPNR and PPNR Return March 31, December 31, March 31,
on Average Assets 2023   2022   2022 
 (Dollars in thousands)
Net (loss) earnings $    (1,195,424) $           49,509  $         120,128 
      
Net interest income$         279,272  $         322,939  $         308,717 
Add: Noninterest income (loss)              36,391              (18,956)               20,818 
Less: Noninterest expense       (1,573,003)           (226,832)           (167,426)
Add: Goodwill impairment         1,376,736                29,000                          - 
Pre-provision, pre-goodwill impairment,      
pre-tax net revenue ("PPNR")$         119,396  $         106,151  $         162,109 
      
Average assets$    42,768,714  $    41,151,963  $    39,883,304 
      
Return on average assets (1) (11.34)%  0.48%  1.22%
PPNR return on average assets (2) 1.13%  1.02%  1.65%
        
(1) Annualized net earnings divided by average assets.
(2) Annualized PPNR divided by average assets.


 Three Months Ended
Return on AverageMarch 31, December 31, March 31,
Tangible Common Equity 2023   2022   2022 
 (Dollars in thousands)
Net (loss) earnings$(1,195,424) $49,509  $120,128 
      
(Loss) earnings before income taxes$(1,260,340) $67,151  $162,109 
Add: Goodwill impairment 1,376,736   29,000   - 
Add: Intangible asset amortization 2,411   2,629   3,649 
Adjusted earnings before income taxes 118,807   98,780   165,758 
Adjusted income tax expense (1) 33,741   25,979   42,931 
Adjusted net earnings 85,066   72,801   122,827 
Less: Preferred stock dividends 9,947   9,947   - 
Adjusted net earnings available to     
common stockholders$75,119  $62,854  $122,827 
      
Average stockholders' equity$3,998,687  $3,898,800  $3,847,481 
Less: Average intangible assets 1,391,857   1,438,173   1,449,056 
Less: Average preferred stock 498,516   498,516   - 
Average tangible common equity$2,108,314  $1,962,111  $2,398,425 
      
Return on average equity (2) (121.24)%  5.04%  12.66%
Return on average tangible     
common equity (3) 14.45%  12.71%  20.77%
      
(1) Adjusted effective tax rate of 28.4% used for three months ended March 31, 2023; 
effective tax rates of 26.3% and 25.9% used for three months ended December 31, 2022 and March 31, 2022.
(2) Annualized net (loss) earnings divided by average stockholders' equity.  
(3) Annualized adjusted net earnings available to common stockholders divided by average tangible common equity. 


 Three Months Ended
Adjusted Return on Average March 31, December 31, March 31,
Tangible Common Equity 2023   2022   2022 
 (Dollars in thousands)
(Loss) earnings before income taxes$    (1,260,340) $           67,151  $         162,109 
Add: Goodwill impairment         1,376,736                29,000                          - 
Add: Intangible asset amortization                2,411                  2,629                  3,649 
Add: Acquisition, integration, and      
reorganization costs                8,514                  5,703                          - 
Adjusted earnings before income taxes            127,321              104,483              165,758 
Adjusted income tax expense (1)              36,159                27,479                42,931 
Adjusted net earnings              91,162                77,004              122,827 
Less: Preferred stock dividends                9,947                  9,947                          - 
Adjusted net earnings available to      
common stockholders$           81,215  $           67,057  $         122,827 
      
Average stockholders' equity$      3,998,687  $      3,898,800  $      3,847,481 
Less: Average intangible assets         1,391,857           1,438,173           1,449,056 
Less: Average preferred stock            498,516              498,516                        -    
Average tangible common equity$      2,108,314  $      1,962,111  $      2,398,425 
      
Adjusted return on average tangible      
common equity (2) 15.62%  13.56%  20.77%
      
(1) Adjusted effective tax rate of 28.4% used for three months ended March 31, 2023;  
effective tax rates of 26.3% and 25.9% used for three months ended December 31, 2022 and March 31, 2022.
(2) Annualized adjusted net earnings available to common stockholders divided by average tangible common equity. 


Tangible Common Equity Ratio/
Tangible Book Value Per March 31, December 31, September 30, June 30, March 31,
Common Share 2023   2022   2022   2022   2022 
 (Dollars in thousands, except per share amounts)
Stockholders' equity$      2,771,477  $      3,950,531  $      3,875,945  $      3,978,403  $      3,650,595 
Less: Preferred stock            498,516              498,516              498,516              498,516                          - 
Total common equity          2,272,961           3,452,015           3,377,429           3,479,887           3,650,595 
Less: Intangible assets              28,970           1,408,117           1,439,746           1,443,395           1,447,044 
Tangible common equity         2,243,991           2,043,898           1,937,683           2,036,492           2,203,551 
Add: Accumulated other comprehensive