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Section 1: 8-K (8-K)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest
event reported) April 16, 2019

 

PacWest Bancorp

(Exact name of registrant as specified in its charter)

 

Delaware

 

001-36408

 

33-0885320

(State of

 

(Commission File Number)

 

(IRS Employer

Incorporation)

 

 

 

Identification No.)

 

 

9701 Wilshire Blvd., Suite 700, Beverly Hills, California 90212

(Address of principal executive offices and zip code)

 

(310) 887-8500

(Registrant’s telephone number, including area code)

 

N/A

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230-425)

 

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company   o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   o

 

 

 


 

Item 2.02 Results of Operations and Financial Condition.*

 

On April 16, 2019, PacWest Bancorp announced its results of operations and financial condition for the three months ended March 31, 2019.  The press release announcing the financial results for the three months ended March 31, 2019 is furnished as Exhibit 99.1 and incorporated herein by reference. A presentation regarding the Company’s financial results for the three months ended March 31, 2019 is furnished as Exhibit 99.2 and incorporated herein by reference.

 

Item 9.01 Financial Statements and Exhibits.*

 

(d) Exhibits.

 

Exhibit

Number

 

Description

 

 

 

99.1

 

Press release dated April 16, 2019 announcing PacWest’s results of operations and financial condition for the three months ended March 31, 2019.

99.2

 

Earnings Release Presentation

 


*The information furnished under Item 2.02 and Item 9.01 of this Current Report on Form 8-K, including the exhibit, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, nor shall it be deemed incorporated by reference in any registration statement or other filings of PacWest Bancorp under the Securities Act of 1933, as amended, except as shall be set forth by specific reference in such filing.

 

2


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

PacWest Bancorp

 

 

 

By:

/s/ Bart R. Olson

 

Name:

Bart R. Olson

 

Title:

Executive Vice President

 

 

Chief Accounting Officer

 

 

Date:  April 16, 2019

 

3


(Back To Top)

Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

 

PRESS RELEASE

 

PacWest Bancorp

(Nasdaq: PACW)

 

Contact:

Matthew P. Wagner

Patrick J. Rusnak

 

President and CEO

Executive Vice President and CFO

Phone:

310-887-8520

714-989-4705

 

FOR IMMEDIATE RELEASE

April 16, 2019

 

PACWEST BANCORP ANNOUNCES RESULTS

FOR THE FIRST QUARTER 2019

 

Highlights

 

·                  Net Earnings of $112.6 Million, or $0.92 Per Diluted Share

·                  Tax Equivalent Net Interest Margin of 4.69%

·                  Loan and Lease Production of $1.2 Billion; $350 Million of Net Loan Growth

·                  Net Charge-offs Less Than $200 Thousand

·                  Provision for Credit Losses Decreases 67% to $4.0 Million

·                  Core Deposits Represent 84% of Total Deposits

 

Los Angeles, California . . . PacWest Bancorp (Nasdaq: PACW) today announced net earnings for the first quarter of 2019 of $112.6 million, or $0.92 per diluted share, compared to net earnings for the fourth quarter of 2018 of $115.0 million, or $0.93 per diluted share.

 

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

 

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

 

1


 

FINANCIAL HIGHLIGHTS

 

 

 

At or For the

 

 

 

At or For the

 

 

 

 

 

Three Months Ended

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

December 31,

 

Increase

 

March 31,

 

Increase

 

Financial Highlights

 

2019

 

2018

 

(Decrease)

 

2019

 

2018

 

(Decrease)

 

 

 

(Dollars in thousands, except per share data)

 

Net earnings

 

$

112,604

 

$

115,041

 

$

(2,437

)

$

112,604

 

$

118,276

 

$

(5,672

)

Diluted earnings per share

 

$

0.92

 

$

0.93

 

$

(0.01

)

$

0.92

 

$

0.93

 

$

(0.01

)

Return on average assets

 

1.77

%

1.84

%

(0.07

)

1.77

%

1.99

%

(0.22

)

Return on average tangible equity (1) 

 

20.64

%

21.23

%

(0.59

)

20.64

%

21.08

%

(0.44

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest margin (“NIM”) (tax equivalent)

 

4.69

%

4.91

%

(0.22

)

4.69

%

5.11

%

(0.42

)

Yield on average loans and leases (tax equivalent)

 

6.16

%

6.27

%

(0.11

)

6.16

%

6.11

%

0.05

 

Cost of average total deposits

 

0.73

%

0.62

%

0.11

 

0.73

%

0.31

%

0.42

 

Efficiency ratio

 

42.4

%

41.7

%

0.7

 

42.4

%

41.7

%

0.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

26,324,138

 

$

25,731,354

 

$

592,784

 

$

26,324,138

 

$

24,149,330

 

$

2,174,808

 

Loans and leases held for investment, net of deferred fees

 

$

18,307,697

 

$

17,957,713

 

$

349,984

 

$

18,307,697

 

$

16,455,285

 

$

1,852,412

 

Noninterest-bearing demand deposits

 

$

7,712,409

 

$

7,888,915

 

$

(176,506

)

$

7,712,409

 

$

8,232,140

 

$

(519,731

)

Core deposits

 

$

16,127,638

 

$

16,346,671

 

$

(219,033

)

$

16,127,638

 

$

15,661,529

 

$

466,109

 

Total deposits

 

$

19,285,927

 

$

18,870,501

 

$

415,426

 

$

19,285,927

 

$

18,078,788

 

$

1,207,139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As percentage of total deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

40

%

42

%

(2

)

40

%

46

%

(6

)

Core deposits

 

84

%

87

%

(3

)

84

%

87

%

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity to assets ratio

 

18.20

%

18.75

%

(0.55

)

18.20

%

20.16

%

(1.96

)

Tangible common equity ratio (1)

 

9.23

%

9.60

%

(0.37

)

9.23

%

10.43

%

(1.20

)

Book value per share

 

$

39.86

 

$

39.17

 

$

0.69

 

$

39.86

 

$

38.47

 

$

1.39

 

Tangible book value per share (1)

 

$

18.22

 

$

18.02

 

$

0.20

 

$

18.22

 

$

17.75

 

$

0.47

 

 


(1) Non-GAAP measure.

 

2


 

INCOME STATEMENT HIGHLIGHTS

 

Net Interest Income

 

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

 

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

 

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

 

Provision for Credit Losses

 

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

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

December 31,

 

Increase

 

Provision for Credit Losses

 

2019

 

2018

 

(Decrease)

 

 

 

(In thousands)

 

Addition to allowance for loan and lease losses

 

$

4,000

 

$

10,500

 

$

(6,500

)

Addition to reserve for unfunded loan commitments

 

 

1,500

 

(1,500

)

Total provision for credit losses

 

$

4,000

 

$

12,000

 

$

(8,000

)

 

Noninterest Income

 

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

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

December 31,

 

Increase

 

Noninterest Income

 

2019

 

2018

 

(Decrease)

 

 

 

(In thousands)

 

Service charges on deposit accounts

 

$

3,730

 

$

4,091

 

$

(361

)

Other commissions and fees

 

11,008

 

11,114

 

(106

)

Leased equipment income

 

9,282

 

9,384

 

(102

)

Gain on sale of securities

 

2,161

 

786

 

1,375

 

Other income:

 

 

 

 

 

 

 

Dividends and gains (losses) on equity investments

 

296

 

(1,331

)

1,627

 

Warrant income

 

2,279

 

2,187

 

92

 

Other

 

2,308

 

7,295

 

(4,987

)

Total noninterest income

 

$

31,064

 

$

33,526

 

$

(2,462

)

 

3


 

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

 

Noninterest Expense

 

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

 

 

 

Three Months Ended

 

 

 

 

 

March 31,

 

December 31,

 

Increase

 

Noninterest Expense

 

2019

 

2018

 

(Decrease)

 

 

 

(In thousands)

 

Compensation

 

$

70,845

 

$

69,299

 

$

1,546

 

Occupancy

 

14,320

 

13,356

 

964

 

Data processing

 

6,925

 

6,930

 

(5

)

Other professional services

 

4,513

 

6,198

 

(1,685

)

Insurance and assessments

 

4,038

 

4,202

 

(164

)

Intangible asset amortization

 

4,870

 

4,986

 

(116

)

Leased equipment depreciation

 

5,651

 

5,758

 

(107

)

Foreclosed assets expense (income), net

 

29

 

(311

)

340

 

Acquisition, integration and reorganization costs

 

618

 

970

 

(352

)

Loan expense

 

2,885

 

2,991

 

(106

)

Other

 

11,593

 

14,856

 

(3,263

)

Total noninterest expense

 

$

126,287

 

$

129,235

 

$

(2,948

)

 

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

 

Income Taxes

 

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

 

4


 

BALANCE SHEET HIGHLIGHTS

 

Loans and Leases

 

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

 

 

 

Three Months Ended

 

Roll Forward of Loans and Leases Held

 

March 31,

 

December 31,

 

for Investment, Net of Deferred Fees (1)

 

2019

 

2018

 

 

 

(Dollars in thousands)

 

Balance, beginning of period

 

$

17,957,713

 

$

17,230,146

 

Additions:

 

 

 

 

 

Production

 

1,174,838

 

1,571,565

 

Disbursements

 

1,192,972

 

1,186,351

 

Total production and disbursements

 

2,367,810

 

2,757,916

 

Reductions:

 

 

 

 

 

Payoffs

 

(933,300

)

(1,070,691

)

Paydowns

 

(1,038,964

)

(920,633

)

Total payoffs and paydowns

 

(1,972,264

)

(1,991,324

)

Sales

 

(16,936

)

 

Transfers to foreclosed assets

 

(37

)

(13,679

)

Charge-offs

 

(3,465

)

(25,346

)

Transfers to loans held for sale

 

(25,124

)

 

Total reductions

 

(2,017,826

)

(2,030,349

)

Balance, end of period

 

$

18,307,697

 

$

17,957,713

 

 

 

 

 

 

 

Weighted average rate on production (2)

 

5.11

%

5.38

%

 


(1) Includes direct financing leases but excludes equipment leased to others under operating leases.

(2) The weighted average rate on production presents contractual rates on a tax equivalent basis and excludes amortized fees.  Amortized fees added approximately 24 basis points to loan yields in 2019 and 31 basis points to loan yields in 2018.

 

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

 

5


 

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

 

 

 

March 31, 2019

 

December 31, 2018

 

March 31, 2018

 

 

 

 

 

% of 

 

 

 

% of 

 

 

 

% of

 

Loan and Lease Portfolio (1)

 

Amount

 

Total

 

Amount

 

Total

 

Amount

 

Total

 

 

 

(In thousands)

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

4,640,510

 

25

%

$

4,824,298

 

27

%

$

5,033,006

 

31

%

Income producing and other residential

 

3,518,948

 

19

%

3,093,843

 

17

%

2,521,237

 

15

%

Total real estate mortgage

 

8,159,458

 

44

%

7,918,141

 

44

%

7,554,243

 

46

%

Real estate construction and land:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

943,596

 

5

%

912,583

 

5

%

789,892

 

5

%

Residential

 

1,408,128

 

8

%

1,321,073

 

8

%

887,110

 

5

%

Total real estate construction and land

 

2,351,724

 

13

%

2,233,656

 

13

%

1,677,002

 

10

%

Total real estate

 

10,511,182

 

57

%

10,151,797

 

57

%

9,231,245

 

56

%

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based

 

3,422,202

 

19

%

3,305,421

 

18

%

2,957,890

 

18

%

Venture capital

 

2,027,450

 

11

%

2,038,748

 

11

%

1,920,643

 

12

%

Other commercial

 

1,974,702

 

11

%

2,060,426

 

12

%

1,947,590

 

12

%

Total commercial

 

7,424,354

 

41

%

7,404,595

 

41

%

6,826,123

 

42

%

Consumer

 

372,161

 

2

%

401,321

 

2

%

397,917

 

2

%

Total loans and leases held for investment, net of deferred fees

 

$

18,307,697

 

100

%

$

17,957,713

 

100

%

$

16,455,285

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total unfunded loan commitments

 

$

7,465,392

 

 

 

$

7,528,248

 

 

 

$

6,352,803

 

 

 

 


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

 

Allowance for Credit Losses

 

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

 

 

 

Three Months Ended March 31, 2019

 

 

 

Allowance for

 

Reserve for

 

Total

 

Allowance for Credit

 

Loan and

 

Unfunded Loan

 

Allowance for

 

Losses Rollforward

 

Lease Losses

 

Commitments

 

Credit Losses

 

 

 

(In thousands)

 

Beginning balance

 

$

132,472

 

$

36,861

 

$

169,333

 

Charge-offs

 

(3,465

)

 

(3,465

)

Recoveries

 

3,274

 

 

3,274

 

Net charge-offs

 

(191

)

 

(191

)

Provision

 

4,000

 

 

4,000

 

Ending balance

 

$

136,281

 

$

36,861

 

$

173,142

 

 

6


 

 

 

Three Months Ended December 31, 2018

 

 

 

Allowance for

 

Reserve for

 

Total

 

Allowance for Credit

 

Loan and

 

Unfunded Loan

 

Allowance for

 

Losses Rollforward

 

Lease Losses

 

Commitments

 

Credit Losses

 

 

 

(In thousands)

 

Beginning balance

 

$

141,920

 

$

35,361

 

$

177,281

 

Charge-offs

 

(25,346

)

 

(25,346

)

Recoveries

 

5,398

 

 

5,398

 

Net charge-offs

 

(19,948

)

 

(19,948

)

Provision

 

10,500

 

1,500

 

12,000

 

Ending balance

 

$

132,472

 

$

36,861

 

$

169,333

 

 

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

 

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

 

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

 

Deposits and Client Investment Funds

 

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

 

 

 

March 31, 2019

 

December 31, 2018

 

March 31, 2018

 

 

 

 

 

% of

 

 

 

% of

 

 

 

% of

 

Deposit Composition

 

Amount

 

Total

 

Amount

 

Total

 

Amount

 

Total

 

 

 

(Dollars in thousands)

 

Noninterest-bearing demand

 

$

7,712,409

 

40

%

$

7,888,915

 

42

%

$

8,232,140

 

46

%

Interest checking

 

3,163,228

 

16

%

2,842,463

 

15

%

2,076,152

 

11

%

Money market

 

4,714,078

 

25

%

5,043,871

 

27

%

4,676,734

 

26

%

Savings

 

537,923

 

3

%

571,422

 

3

%

676,503

 

4

%

Total core deposits

 

16,127,638

 

84

%

16,346,671

 

87

%

15,661,529

 

87

%

Non-core non-maturity deposits

 

454,277

 

2

%

518,192

 

3

%

585,399

 

3

%

Total non-maturity deposits

 

16,581,915

 

86

%

16,864,863

 

90

%

16,246,928

 

90

%

Time deposits $250,000 and under

 

2,258,989

 

12

%

1,593,453

 

8

%

1,482,118

 

8

%

Time deposits over $250,000

 

445,023

 

2

%

412,185

 

2

%

349,742

 

2

%

Total time deposits

 

2,704,012

 

14

%

2,005,638

 

10

%

1,831,860

 

10

%

Total deposits

 

$

19,285,927

 

100

%

$

18,870,501

 

100

%

$

18,078,788

 

100

%

 

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

 

7


 

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

 

CREDIT QUALITY

 

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

 

 

 

March 31,

 

December 31,

 

Increase

 

Credit Quality Metrics

 

2019

 

2018

 

(Decrease)

 

 

 

(Dollars in thousands)

 

NPAs and Performing TDRs:

 

 

 

 

 

 

 

Nonaccrual loans and leases held for investment (1)(2)

 

$

88,527

 

$

79,333

 

$

9,194

 

Accruing loans contractually past due 90 days or more

 

 

 

 

Foreclosed assets, net

 

3,291

 

5,299

 

(2,008

)

Total nonperforming assets (“NPAs”)

 

$

91,818

 

$

84,632

 

$

7,186

 

 

 

 

 

 

 

 

 

Nonaccrual loans and leases held for investment to loans and leases held for investment

 

0.48

%

0.44

%

 

 

Nonperforming assets to loans and leases held for investment and foreclosed assets

 

0.50

%

0.47

%

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans and leases held for investment (1)(2)

 

$

88,527

 

$

79,333

 

$

9,194

 

Performing TDRs held for investment

 

17,027

 

17,701

 

(674

)

Total impaired loans and leases

 

$

105,554

 

$

97,034

 

$

8,520

 

 

 

 

 

 

 

 

 

Loan and Lease Credit Risk Ratings:

 

 

 

 

 

 

 

Pass

 

$

17,824,612

 

$

17,459,205

 

$

365,407

 

Special mention

 

292,780

 

261,398

 

31,382

 

Classified (1)

 

190,305

 

237,110

 

(46,805

)

Total loans and leases held for investment, net of deferred fees

 

$

18,307,697

 

$

17,957,713

 

$

349,984

 

 

 

 

 

 

 

 

 

Classified loans and leases held for investment to loans and leases held for investment

 

1.04

%

1.32

%

 

 

 

 

 

 

 

 

 

 

Allowance for Credit Losses:

 

 

 

 

 

 

 

Allowance for credit losses

 

$

173,142

 

$

169,333

 

$

3,809

 

Provision for credit losses (for the quarter)

 

$

4,000

 

$

12,000

 

$

(8,000

)

Net charge-offs (for the quarter)

 

$

191

 

$

19,948

 

$

(19,757

)

Net charge-offs to average loans and leases (for the quarter)

 

0.00

%

0.46

%

 

 

Allowance for credit losses to loans and leases held for investment

 

0.95

%

0.94

%

 

 

Allowance for credit losses to nonaccrual loans and leases held for investment

 

195.6

%

213.5

%

 

 

 


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

(2) Nonaccrual loans include guaranteed amounts of $10.2 million at March 31, 2019 and $11.2 million at December 31, 2018.

 

8


 

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

 

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

 

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

 

 

 

Nonaccrual Loans and Leases (1)

 

Accruing and

 

 

 

March 31, 2019

 

December 31, 2018

 

30-89 Days Past Due

 

 

 

 

 

% of

 

 

 

% of

 

March 31,

 

December 31,

 

 

 

 

 

Loan

 

 

 

Loan

 

2019

 

2018

 

 

 

Amount

 

Category

 

Amount

 

Category

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

12,750

 

0.3

%

$

15,321

 

0.3

%

$

6,863

 

$

3,276

 

Income producing and other residential

 

2,444

 

0.1

%

2,524

 

0.1

%

1,853

 

1,557

 

Total real estate mortgage

 

15,194

 

0.2

%

17,845

 

0.2

%

8,716

 

4,833

 

Real estate construction and land:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

430

 

0.0

%

442

 

0.0

%

 

 

Residential

 

 

0.0

%

 

0.0

%

8,949

 

1,527

 

Total real estate construction and land

 

430

 

0.0

%

442

 

0.0

%

8,949

 

1,527

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based

 

43,406

 

1.3

%

32,324

 

1.0

%

3,750

 

47

 

Venture capital

 

20,437

 

1.0

%

20,299

 

1.0

%

4,500

 

1,028

 

Other commercial

 

8,633

 

0.4

%

7,380

 

0.4

%

1,694

 

2,467

 

Total commercial

 

72,476

 

1.0

%

60,003

 

0.8

%

9,944

 

3,542

 

Consumer

 

427

 

0.1

%

1,043

 

0.3

%

614

 

581

 

Total held for investment

 

$

88,527

 

0.5

%

$

79,333

 

0.4

%

$

28,223

 

$

10,483

 

 


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

 

9


 

STOCK REPURCHASE PROGRAM

 

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

 

ABOUT PACWEST BANCORP

 

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

 

FORWARD LOOKING STATEMENTS

 

This communication contains certain forward-looking information about PacWest that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on information available at the time of this communication and are based on current beliefs and expectations of the Company’s management and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those set forth in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by the Company with the Securities and Exchange Commission.

 

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

 

10


 

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

March 31,

 

December 31,

 

 

 

2019

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

ASSETS:

 

 

 

 

 

Cash and due from banks

 

$

224,758

 

$

175,830

 

Interest-earning deposits in financial institutions

 

332,124

 

209,937

 

Total cash and cash equivalents

 

556,882

 

385,767

 

 

 

 

 

 

 

Securities available-for-sale, at estimated fair value

 

3,994,708

 

4,009,431

 

Federal Home Loan Bank stock, at cost

 

29,430

 

32,103

 

Total investment securities

 

4,024,138

 

4,041,534

 

 

 

 

 

 

 

Loans held for sale

 

25,124

 

 

 

 

 

 

 

 

Gross loans and leases held for investment

 

18,371,295

 

18,026,365

 

Deferred fees, net

 

(63,598

)

(68,652

)

Total loans and leases held for investment, net of deferred fees

 

18,307,697

 

17,957,713

 

Allowance for loan and lease losses

 

(136,281

)

(132,472

)

Total loans and leases held for investment, net

 

18,171,416

 

17,825,241

 

 

 

 

 

 

 

Equipment leased to others under operating leases

 

293,853

 

292,677

 

Premises and equipment, net

 

37,783

 

34,661

 

Foreclosed assets, net

 

3,291

 

5,299

 

Deferred tax asset, net

 

 

17,489

 

Goodwill

 

2,548,670

 

2,548,670

 

Core deposit and customer relationship intangibles, net

 

52,250

 

57,120

 

Other assets

 

610,731

 

522,896

 

Total assets

 

$

26,324,138

 

$

25,731,354

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Noninterest-bearing deposits

 

$

7,712,409

 

$

7,888,915

 

Interest-bearing deposits

 

11,573,518

 

10,981,586

 

Total deposits

 

19,285,927

 

18,870,501

 

Borrowings

 

1,481,087

 

1,371,114

 

Subordinated debentures

 

454,458

 

453,846

 

Accrued interest payable and other liabilities

 

311,684

 

210,305

 

Total liabilities

 

21,533,156

 

20,905,766

 

STOCKHOLDERS’ EQUITY (1)

 

4,790,982

 

4,825,588

 

Total liabilities and stockholders’ equity

 

$

26,324,138

 

$

25,731,354

 

 

 

 

 

 

 

Book value per share

 

$

39.86

 

$

39.17

 

Tangible book value per share (2)

 

$

18.22

 

$

18.02

 

Shares outstanding

 

120,201,149

 

123,189,833

 

 


(1) Includes net unrealized gain (loss) on securities available-for-sale, net

 

$

37,258

 

$

(6,075

)

(2) Non-GAAP measure.

 

 

 

 

 

 

11


 

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

 

 

 

Three Months Ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2019

 

2018

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

Interest income:

 

 

 

 

 

 

 

Loans and leases

 

$

274,229

 

$

272,522

 

$

251,085

 

Investment securities

 

29,680

 

29,690

 

26,138

 

Deposits in financial institutions

 

650

 

527

 

552

 

Total interest income

 

304,559

 

302,739

 

277,775

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

Deposits

 

34,235

 

28,834

 

13,818

 

Borrowings

 

7,710

 

4,602

 

920

 

Subordinated debentures

 

7,738

 

7,538

 

6,537

 

Total interest expense

 

49,683

 

40,974

 

21,275

 

 

 

 

 

 

 

 

 

Net interest income

 

254,876

 

261,765

 

256,500

 

Provision for credit losses

 

4,000

 

12,000

 

4,000

 

Net interest income after provision for credit losses

 

250,876

 

249,765

 

252,500

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

Service charges on deposit accounts

 

3,730

 

4,091

 

4,174

 

Other commissions and fees

 

11,008

 

11,114

 

10,265

 

Leased equipment income

 

9,282

 

9,384

 

9,587

 

Gain on sale of loans and leases

 

 

 

4,569

 

Gain on sale of securities

 

2,161

 

786

 

6,311

 

Other income

 

4,883

 

8,151

 

3,653

 

Total noninterest income

 

31,064

 

33,526

 

38,559

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

Compensation

 

70,845

 

69,299

 

71,023

 

Occupancy

 

14,320

 

13,356

 

13,223

 

Data processing

 

6,925

 

6,930

 

6,659

 

Other professional services

 

4,513

 

6,198

 

4,439

 

Insurance and assessments

 

4,038

 

4,202

 

5,727

 

Intangible asset amortization

 

4,870

 

4,986

 

6,346

 

Leased equipment depreciation

 

5,651

 

5,758

 

5,375

 

Foreclosed assets expense (income), net

 

29

 

(311

)

(122

)

Acquisition, integration and reorganization costs

 

618

 

970

 

 

Loan expense

 

2,885

 

2,991

 

2,271

 

Other expense

 

11,593

 

14,856

 

12,454

 

Total noninterest expense

 

126,287

 

129,235

 

127,395

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

155,653

 

154,056

 

163,664

 

Income tax expense

 

43,049

 

39,015

 

45,388

 

Net earnings

 

$

112,604

 

$

115,041

 

$

118,276

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share

 

$

0.92

 

$

0.93

 

$

0.93

 

Dividends declared and paid per share

 

$

0.60

 

$

0.60

 

$

0.50

 

 

12


 

PACWEST BANCORP AND SUBSIDIARIES

NET EARNINGS PER SHARE CALCULATIONS

 

 

 

Three Months Ended

 

 

 

March 31,

 

December 31,

 

March 31,

 

 

 

2019

 

2018

 

2018

 

 

 

(In thousands, except per share data)

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

Net earnings

 

$

112,604

 

$

115,041

 

$

118,276

 

Less: earnings allocated to unvested restricted stock (1)

 

(1,163

)

(1,219

)

(1,115

)

Net earnings allocated to common shares

 

$

111,441

 

$

113,822

 

$

117,161

 

 

 

 

 

 

 

 

 

Weighted-average basic shares and unvested restricted stock outstanding

 

122,227

 

123,238

 

127,487

 

Less: weighted-average unvested restricted stock outstanding

 

(1,352

)

(1,426

)

(1,413

)

Weighted-average basic shares outstanding

 

120,875

 

121,812

 

126,074

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.92

 

$

0.93

 

$

0.93

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

Net earnings allocated to common shares

 

$

111,441

 

$

113,822

 

$

117,161

 

 

 

 

 

 

 

 

 

Weighted-average basic shares outstanding

 

120,875

 

121,812

 

126,074

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.92

 

$

0.93

 

$

0.93

 

 


(1)    Represents cash dividends paid to holders of unvested stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.

 

13


 

PACWEST BANCORP AND SUBSIDIARIES

AVERAGE BALANCE SHEET AND YIELD ANALYSIS

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

December 31, 2018

 

March 31, 2018

 

 

 

 

 

Interest

 

Average

 

 

 

Interest

 

Average

 

 

 

Interest

 

Average

 

 

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

 

 

 

Balance

 

Expense

 

Cost

 

Balance

 

Expense

 

Cost

 

Balance

 

Expense

 

Cost

 

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases (1)(2)

 

$

18,064,230

 

$

274,513

 

6.16

%

$

17,275,343

 

$

272,824

 

6.27

%

$

16,682,124

 

$

251,260

 

6.11

%

Investment securities (3)

 

3,968,531

 

30,572

 

3.12

%

3,899,520

 

30,992

 

3.15

%

3,682,138

 

27,935

 

3.08

%

Deposits in financial institutions

 

111,950

 

650

 

2.35

%

94,500

 

527

 

2.21

%

150,674

 

552

 

1.49

%

Total interest-earning assets (1)

 

22,144,711

 

305,735

 

5.60

%

21,269,363

 

304,343

 

5.68

%

20,514,936

 

279,747

 

5.53

%

Other assets

 

3,631,238

 

 

 

 

 

3,515,099

 

 

 

 

 

3,556,212

 

 

 

 

 

Total assets

 

$

25,775,949

 

 

 

 

 

$

24,784,462

 

 

 

 

 

$

24,071,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking

 

$

3,041,822

 

9,321

 

1.24

%

$

2,785,702

 

7,932

 

1.13

%

$

2,311,988

 

3,050

 

0.54

%

Money market

 

5,274,987

 

14,908

 

1.15

%

5,107,468

 

13,621

 

1.06

%

5,038,119

 

6,812

 

0.55

%

Savings

 

553,032

 

242

 

0.18

%

597,259

 

273

 

0.18

%

685,173

 

258

 

0.15

%

Time

 

2,286,932

 

9,764

 

1.73

%

1,932,332

 

7,008

 

1.44

%

1,923,963

 

3,698

 

0.78

%

Total interest-bearing deposits

 

11,156,773

 

34,235

 

1.24

%

10,422,761

 

28,834

 

1.10

%

9,959,243

 

13,818

 

0.56

%

Borrowings

 

1,218,319

 

7,710

 

2.57

%

764,039

 

4,602

 

2.39

%

239,293

 

920

 

1.56

%

Subordinated debentures

 

454,203

 

7,738

 

6.91

%

452,998

 

7,538

 

6.60

%

461,648

 

6,537

 

5.74

%

Total interest-bearing liabilities

 

12,829,295

 

49,683

 

1.57

%

11,639,798

 

40,974

 

1.40

%

10,660,184

 

21,275

 

0.81

%

Noninterest-bearing demand deposits

 

7,783,652

 

 

 

 

 

8,163,699

 

 

 

 

 

8,311,104

 

 

 

 

 

Other liabilities

 

347,037

 

 

 

 

 

222,564

 

 

 

 

 

198,653

 

 

 

 

 

Total liabilities

 

20,959,984

 

 

 

 

 

20,026,061

 

 

 

 

 

19,169,941

 

 

 

 

 

Stockholders’ equity

 

4,815,965

 

 

 

 

 

4,758,401

 

 

 

 

 

4,901,207

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

25,775,949

 

 

 

 

 

$

24,784,462

 

 

 

 

 

$

24,071,148

 

 

 

 

 

Net interest income (1)

 

 

 

$

256,052

 

 

 

 

 

$

263,369

 

 

 

 

 

$

258,472

 

 

 

Net interest spread (1)

 

 

 

 

 

4.03

%

 

 

 

 

4.28

%

 

 

 

 

4.72

%

Net interest margin (1)

 

 

 

 

 

4.69

%

 

 

 

 

4.91

%

 

 

 

 

5.11

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deposits (4)

 

$

18,940,425

 

$

34,235

 

0.73

%

$

18,586,460

 

$

28,834

 

0.62

%

$

18,270,347

 

$

13,818

 

0.31

%

 


(1) Tax equivalent.

(2) Includes discount accretion on acquired loans of $3.0 million, $6.9 million, and $7.6 million for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018, respectively.

(3) Includes tax-equivalent adjustments of $0.9 million, $1.3 million, and $1.8 million for the three months ended March 31, 2019, December 31, 2018, and March 31, 2018 related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21%.

(4) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits.  The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.

 

14


 

PACWEST BANCORP AND SUBSIDIARIES

FIVE QUARTER BALANCE SHEET

 

 

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

March 31,

 

 

 

2019

 

2018

 

2018

 

2018

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

224,758

 

$

175,830

 

$

196,502

 

$

245,998

 

$

235,061

 

Interest-earning deposits in financial institutions

 

332,124

 

209,937

 

185,284

 

205,567

 

312,735

 

Total cash and cash equivalents

 

556,882

 

385,767

 

381,786

 

451,565

 

547,796

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available-for-sale

 

3,994,708

 

4,009,431

 

3,820,333

 

3,857,788

 

3,801,986

 

Federal Home Loan Bank stock

 

29,430

 

32,103

 

31,077

 

26,271

 

17,250

 

Total investment securities

 

4,024,138

 

4,041,534

 

3,851,410

 

3,884,059

 

3,819,236