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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) July 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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, par value
$0.01 per share

 

PACW

 

The Nasdaq Stock
Market, LLC

(Title of Each Class)

 

(Trading Symbol)

 

(Name of Exchange on Which
Registered)

 

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 July 16, 2019, PacWest Bancorp announced its results of operations and financial condition for the three and six months ended June 30, 2019.  The press release announcing the financial results for the three and six months ended June 30, 2019 is furnished as Exhibit 99.1 and incorporated herein by reference. A presentation regarding the Company’s financial results for the three and six months ended June 30, 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 July 16, 2019 announcing PacWest’s results of operations and financial condition for the three and six months ended June 30, 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:  July 16, 2019

 

3


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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

 

July 16, 2019

 

PACWEST BANCORP ANNOUNCES RESULTS

FOR THE SECOND QUARTER 2019

 

Highlights

 

·                  Net Earnings of $128.1 Million, or $1.07 Per Diluted Share; Up 16% from Prior Quarter

 

·                  Tax Equivalent Net Interest Margin of 4.72%; Up 3 Basis Points from Prior Quarter

 

·                  Loan and Lease Production of $1.4 Billion; $165 Million of Net Loan Growth

 

·                  Core Deposits Represent 83% of Total Deposits

 

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

 

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

 

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

 

1


 

FINANCIAL HIGHLIGHTS

 

 

 

At or For the

 

 

 

At or For the

 

 

 

 

 

Three Months Ended

 

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Increase

 

June 30,

 

Increase

 

Financial Highlights

 

2019

 

2019

 

(Decrease)

 

2019

 

2018

 

(Decrease)

 

 

 

(Dollars in thousands, except per share data)

 

Net earnings

 

$

128,125

 

$

112,604

 

$

15,521

 

$

240,729

 

$

234,011

 

$

6,718

 

Diluted earnings per share

 

$

1.07

 

$

0.92

 

$

0.15

 

$

1.99

 

$

1.85

 

$

0.14

 

Return on average assets

 

1.99

%

1.77

%

0.22

 

1.88

%

1.96

%

(0.08

)

Return on average tangible equity (1) 

 

23.15

%

20.64

%

2.51

 

21.91

%

21.03

%

0.88

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

4.72

%

4.69

%

0.03

 

4.70

%

5.15

%

(0.45

)

Yield on average loans and leases (tax equivalent)

 

6.26

%

6.16

%

0.10

 

6.21

%

6.21

%

 

Cost of average total deposits

 

0.81

%

0.73

%

0.08

 

0.77

%

0.34

%

0.43

 

Efficiency ratio

 

41.6

%

42.4

%

(0.8

)

42.0

%

40.7

%

1.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

26,344,414

 

$

26,324,138

 

$

20,276

 

$

26,344,414

 

$

24,529,557

 

$

1,814,857

 

Loans and leases held for investment, net of deferred fees

 

$

18,472,852

 

$

18,307,697

 

$

165,155

 

$

18,472,852

 

$

16,885,192

 

$

1,587,660

 

Noninterest-bearing demand deposits

 

$

7,299,213

 

$

7,712,409

 

$

(413,196

)

$

7,299,213

 

$

8,126,153

 

$

(826,940

)

Core deposits

 

$

15,617,488

 

$

16,127,638

 

$

(510,150

)

$

15,617,488

 

$

15,586,238

 

$

31,250

 

Total deposits

 

$

18,805,756

 

$

19,285,927

 

$

(480,171

)

$

18,805,756

 

$

17,929,192

 

$

876,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As percentage of total deposits:

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest-bearing demand deposits

 

39

%

40

%

(1

)

39

%

45

%

(6

)

Core deposits

 

83

%

84

%

(1

)

83

%

87

%

(4

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity to assets ratio

 

18.42

%

18.20

%

0.22

 

18.42

%

19.48

%

(1.06

)

Tangible common equity ratio (1)

 

9.50

%

9.23

%

0.27

 

9.50

%

9.86

%

(0.36

)

Book value per share

 

$

40.49

 

$

39.86

 

$

0.63

 

$

40.49

 

$

38.36

 

$

2.13

 

Tangible book value per share (1)

 

$

18.83

 

$

18.22

 

$

0.61

 

$

18.83

 

$

17.35

 

$

1.48

 

 


(1) Non-GAAP measure.

 

2


 

INCOME STATEMENT HIGHLIGHTS

 

Net Interest Income

 

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

 

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

 

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

 

Provision for Credit Losses

 

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

 

 

 

Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Increase

 

Provision for Credit Losses

 

2019

 

2019

 

(Decrease)

 

 

 

(In thousands)

 

Addition to allowance for loan and lease losses

 

$

10,000

 

$

4,000

 

$

6,000

 

Reduction to reserve for unfunded loan commitments

 

(2,000

)

 

(2,000

)

Total provision for credit losses

 

$

8,000

 

$

4,000

 

$

4,000

 

 

Noninterest Income

 

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

 

 

 

Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Increase

 

Noninterest Income

 

2019

 

2019

 

(Decrease)

 

 

 

(In thousands)

 

Service charges on deposit accounts

 

$

3,771

 

$

3,730

 

$

41

 

Other commissions and fees

 

11,590

 

11,008

 

582

 

Leased equipment income

 

9,182

 

9,282

 

(100

)

Gain on sale of loans and leases

 

326

 

 

326

 

Gain on sale of securities

 

22,192

 

2,161

 

20,031

 

Other income:

 

 

 

 

 

 

 

Dividends and (losses) gains on equity investments

 

(83

)

296

 

(379

)

Warrant income

 

1,214

 

2,279

 

(1,065

)

Other

 

2,701

 

2,308

 

393

 

Total noninterest income

 

$

50,893

 

$

31,064

 

$

19,829

 

 

3


 

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

 

Noninterest Expense

 

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

 

 

 

Three Months Ended

 

 

 

 

 

June 30,

 

March 31,

 

Increase

 

Noninterest Expense

 

2019

 

2019

 

(Decrease)

 

 

 

(In thousands)

 

Compensation

 

$

68,956

 

$

70,845

 

$

(1,889

)

Occupancy

 

14,457

 

14,320

 

137

 

Data processing

 

6,817

 

6,925

 

(108

)

Other professional services

 

4,629

 

4,513

 

116

 

Insurance and assessments

 

4,098

 

4,038

 

60

 

Intangible asset amortization

 

4,870

 

4,870

 

 

Leased equipment depreciation

 

5,558

 

5,651

 

(93

)

Foreclosed assets (income) expense, net

 

(146

)

29

 

(175

)

Acquisition, integration and reorganization costs

 

 

618

 

(618

)

Loan expense

 

3,451

 

2,885

 

566

 

Other

 

12,737

 

11,593

 

1,144

 

Total noninterest expense

 

$

125,427

 

$

126,287

 

$

(860

)

 

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

 

Income Taxes

 

The overall effective income tax rate was 28.2% for the second quarter of 2019 and 27.7% for the first quarter of 2019. The effective tax rate for the full year 2019 is estimated to be in the range of 27-28%.

 

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

 

Six Months Ended

 

Roll Forward of Loans and Leases Held

 

June 30,

 

March 31,

 

June 30,

 

for Investment, Net of Deferred Fees (1)

 

2019

 

2019

 

2019

 

 

 

(Dollars in thousands)

 

Balance, beginning of period

 

$

18,307,697

 

$

17,957,713

 

$

17,957,713

 

Additions:

 

 

 

 

 

 

 

Production

 

1,436,299

 

1,174,838

 

2,611,137

 

Disbursements

 

1,293,747

 

1,192,972

 

2,486,719

 

Total production and disbursements

 

2,730,046

 

2,367,810

 

5,097,856

 

Reductions:

 

 

 

 

 

 

 

Payoffs

 

(1,529,213

)

(933,300

)

(2,462,513

)

Paydowns

 

(979,987

)

(1,038,964

)

(2,018,951

)

Total payoffs and paydowns

 

(2,509,200

)

(1,972,264

)

(4,481,464

)

Sales

 

(38,054

)

(16,936

)

(54,990

)

Transfers to foreclosed assets

 

 

(37

)

(37

)

Charge-offs

 

(17,637

)

(3,465

)

(21,102

)

Transfers to loans held for sale

 

 

(25,124

)

(25,124

)

Total reductions

 

(2,564,891

)

(2,017,826

)

(4,582,717

)

Balance, end of period

 

$

18,472,852

 

$

18,307,697

 

$

18,472,852

 

 

 

 

 

 

 

 

 

Weighted average rate on production (2)

 

5.15

%

5.11

%

5.13

%

 


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

(2)    The weighted average rate on production presents contractual rates on a tax equivalent basis and excludes amortized fees.  Amortized fees added approximately 32 basis points to loan yields in 2019 and 31 basis points to loan yields in 2018.

 

Loans and leases held for investment, net of deferred fees, increased by $165.2 million, or 4% annualized, in the second quarter of 2019 to $18.5 billion at June 30, 2019.  The net loan growth in the second quarter was primarily from the income producing and other residential loan class, which included $177 million of multi-family loan pool purchases, and the asset-based loan class.

 

5


 

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

 

 

 

June 30, 2019

 

March 31, 2019

 

June 30, 2018

 

 

 

 

 

% of

 

 

 

% of

 

 

 

% of

 

Loan and Lease Portfolio (1)

 

Amount

 

Total

 

Amount

 

Total

 

Amount

 

Total

 

 

 

(In thousands)

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

4,435,274

 

24

%

$

4,640,510

 

25

%

$

5,010,680

 

30

%

Income producing and other residential

 

3,640,752

 

20

%

3,518,948

 

19

%

2,555,695

 

15

%

Total real estate mortgage

 

8,076,026

 

44

%

8,159,458

 

44

%

7,566,375

 

45

%

Real estate construction and land:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

972,891

 

5

%

943,596

 

5

%

831,462

 

5

%

Residential

 

1,403,239

 

8

%

1,408,128

 

8

%

1,042,564

 

6

%

Total real estate construction and land

 

2,376,130

 

13

%

2,351,724

 

13

%

1,874,026

 

11

%

Total real estate

 

10,452,156

 

57

%

10,511,182

 

57

%

9,440,401

 

56

%

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based

 

3,606,007

 

19

%

3,422,202

 

19

%

3,184,300

 

19

%

Venture capital

 

2,194,743

 

12

%

2,027,450

 

11

%

2,008,205

 

12

%

Other commercial

 

1,773,564

 

10

%

1,974,702

 

11

%

1,873,607

 

11

%

Total commercial

 

7,574,314

 

41

%

7,424,354

 

41

%

7,066,112

 

42

%

Consumer

 

446,382

 

2

%

372,161

 

2

%

378,679

 

2

%

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

 

$

18,472,852

 

100

%

$

18,307,697

 

100

%

$

16,885,192

 

100

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total unfunded loan commitments

 

$

7,610,899

 

 

 

$

7,465,392

 

 

 

$

6,429,587

 

 

 

 


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

 

Allowance for Credit Losses

 

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

 

 

 

Three Months Ended June 30, 2019

 

 

 

Allowance for

 

Reserve for

 

Total

 

Allowance for Credit

 

Loan and

 

Unfunded Loan

 

Allowance for

 

Losses Rollforward

 

Lease Losses

 

Commitments

 

Credit Losses

 

 

 

(In thousands)

 

Beginning balance

 

$

136,281

 

$

36,861

 

$

173,142

 

Charge-offs

 

(17,637

)

 

(17,637

)

Recoveries

 

6,393

 

 

6,393

 

Net charge-offs

 

(11,244

)

 

(11,244

)

Provision

 

10,000

 

(2,000

)

8,000

 

Ending balance

 

$

135,037

 

$

34,861

 

$

169,898

 

 

6


 

 

 

Three Months Ended March 31, 2019

 

 

 

Allowance for

 

Reserve for

 

Total

 

Allowance for Credit

 

Loan and

 

Unfunded Loan

 

Allowance for

 

Losses Rollforward

 

Lease Losses

 

Commitments

 

Credit Losses

 

 

 

(In thousands)

 

Beginning balance

 

$

132,472

 

$

36,861

 

$

169,333

 

Charge-offs

 

(3,465

)

 

(3,465

)

Recoveries

 

3,274

 

 

3,274

 

Net charge-offs

 

(191

)

 

(191

)

Provision

 

4,000

 

 

4,000

 

Ending balance

 

$

136,281

 

$

36,861

 

$

173,142

 

 

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

 

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

 

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

 

Deposits and Client Investment Funds

 

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

 

 

 

June 30, 2019

 

March 31, 2019

 

June 30, 2018

 

 

 

 

 

% of

 

 

 

% of

 

 

 

% of

 

Deposit Composition

 

Amount

 

Total

 

Amount

 

Total

 

Amount

 

Total

 

 

 

(Dollars in thousands)

 

Noninterest-bearing demand

 

$

7,299,213

 

39

%

$

7,712,409

 

40

%

$

8,126,153

 

45

%

Interest checking

 

3,220,353

 

17

%

3,163,228

 

16

%

2,184,785

 

12

%

Money market

 

4,578,083

 

24

%

4,714,078

 

25

%

4,631,658

 

26

%

Savings

 

519,839

 

3

%

537,923

 

3

%

643,642

 

4

%

Total core deposits

 

15,617,488

 

83

%

16,127,638

 

84

%

15,586,238

 

87

%

Non-core non-maturity deposits

 

436,833

 

2

%

454,277

 

2

%

607,388

 

3

%

Total non-maturity deposits

 

16,054,321

 

85

%

16,581,915

 

86

%

16,193,626

 

90

%

Time deposits $250,000 and under

 

2,284,023

 

12

%

2,258,989

 

12

%

1,394,117

 

8

%

Time deposits over $250,000

 

467,412

 

3

%

445,023

 

2

%

341,449

 

2

%

Total time deposits

 

2,751,435

 

15

%

2,704,012

 

14

%

1,735,566

 

10

%

Total deposits

 

$

18,805,756

 

100

%

$

19,285,927

 

100

%

$

17,929,192

 

100

%

 

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

 

7


 

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

 

CREDIT QUALITY

 

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

 

 

 

June 30,

 

March 31,

 

Increase

 

Credit Quality Metrics

 

2019

 

2019

 

(Decrease)

 

 

 

(Dollars in thousands)

 

NPAs and Performing TDRs:

 

 

 

 

 

 

 

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

 

$

81,265

 

$

88,527

 

$

(7,262

)

Accruing loans contractually past due 90 days or more

 

 

 

 

Foreclosed assets, net

 

1,472

 

3,291

 

(1,819

)

Total nonperforming assets (“NPAs”)

 

$

82,737

 

$

91,818

 

$

(9,081

)

 

 

 

 

 

 

 

 

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

 

0.44

%

0.48

%

 

 

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

 

0.45

%

0.50

%

 

 

 

 

 

 

 

 

 

 

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

 

$

81,265

 

$

88,527

 

$

(7,262

)

Performing TDRs held for investment

 

16,464

 

17,027

 

(563

)

Total impaired loans and leases

 

$

97,729

 

$

105,554

 

$

(7,825

)

 

 

 

 

 

 

 

 

Loan and Lease Credit Risk Ratings:

 

 

 

 

 

 

 

Pass

 

$

18,042,569

 

$

17,824,612

 

$

217,957

 

Special mention

 

239,304

 

292,780

 

(53,476

)

Classified (1)

 

190,979

 

190,305

 

674

 

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

 

$

18,472,852

 

$

18,307,697

 

$

165,155

 

 

 

 

 

 

 

 

 

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

 

1.03

%

1.04

%

 

 

 

 

 

 

 

 

 

 

Allowance for Credit Losses:

 

 

 

 

 

 

 

Allowance for credit losses

 

$

169,898

 

$

173,142

 

$

(3,244

)

Provision for credit losses (for the quarter)

 

$

8,000

 

$

4,000

 

$

4,000

 

Net charge-offs (for the quarter)

 

$

11,244

 

$

191

 

$

11,053

 

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

 

0.25

%

0.00

%

 

 

Allowance for credit losses to loans and leases held for investment

 

0.92

%

0.95

%

 

 

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

 

209.1

%

195.6

%

 

 

 


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

(2) Nonaccrual loans include guaranteed amounts of $13.0 million at June 30, 2019 and $10.2 million at March 31, 2019.

 

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

 

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

 

 

 

Nonaccrual Loans and Leases (1)

 

Accruing and

 

 

 

June 30, 2019

 

March 31, 2019

 

30-89 Days Past Due

 

 

 

 

 

% of

 

 

 

% of

 

June 30,

 

March 31,

 

 

 

 

 

Loan

 

 

 

Loan

 

2019

 

2019

 

 

 

Amount

 

Category

 

Amount

 

Category

 

Amount

 

Amount

 

 

 

(Dollars in thousands)

 

Real estate mortgage:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

17,012

 

0.4

%

$

12,750

 

0.3

%

$

3,948

 

$

6,863

 

Income producing and other residential

 

2,883

 

0.1

%

2,444

 

0.1

%

3,262

 

1,853

 

Total real estate mortgage

 

19,895

 

0.2

%

15,194

 

0.2

%

7,210

 

8,716

 

Real estate construction and land:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

390

 

0.0

%

430

 

0.0

%

 

 

Residential

 

 

0.0

%

 

0.0

%

4,672

 

8,949

 

Total real estate construction and land

 

390

 

0.0

%

430

 

0.0

%

4,672

 

8,949

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset-based

 

32,236

 

0.9

%

43,406

 

1.3

%

12,382

 

3,750

 

Venture capital

 

22,501

 

1.0

%

20,437

 

1.0

%

 

4,500

 

Other commercial

 

5,799

 

0.3

%

8,633

 

0.4

%

439

 

1,694

 

Total commercial

 

60,536

 

0.8

%

72,476

 

1.0

%

12,821

 

9,944

 

Consumer

 

444

 

0.1

%

427

 

0.1

%

964

 

614

 

Total held for investment

 

$

81,265

 

0.4

%

$

88,527

 

0.5

%

$

25,667

 

$

28,223

 

 


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

 

9


 

STOCK REPURCHASE PROGRAM

 

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

 

ABOUT PACWEST BANCORP

 

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

 

FORWARD LOOKING STATEMENTS

 

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

 

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

 

10


 

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET

 

 

 

June 30,

 

March 31,

 

December 31,

 

 

 

2019

 

2019

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

ASSETS:

 

 

 

 

 

 

 

Cash and due from banks

 

$

185,075

 

$

224,758

 

$

175,830

 

Interest-earning deposits in financial institutions

 

422,663

 

332,124

 

209,937

 

Total cash and cash equivalents

 

607,738

 

556,882

 

385,767

 

 

 

 

 

 

 

 

 

Securities available-for-sale, at estimated fair value

 

3,807,244

 

3,994,708

 

4,009,431

 

Federal Home Loan Bank stock, at cost

 

43,146

 

29,430

 

32,103

 

Total investment securities

 

3,850,390

 

4,024,138

 

4,041,534

 

 

 

 

 

 

 

 

 

Loans held for sale

 

 

25,124

 

 

 

 

 

 

 

 

 

 

Gross loans and leases held for investment

 

18,532,740

 

18,371,295

 

18,026,365

 

Deferred fees, net

 

(59,888

)

(63,598

)

(68,652

)

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

 

18,472,852

 

18,307,697

 

17,957,713

 

Allowance for loan and lease losses

 

(135,037

)

(136,281

)

(132,472

)

Total loans and leases held for investment, net

 

18,337,815

 

18,171,416

 

17,825,241

 

 

 

 

 

 

 

 

 

Equipment leased to others under operating leases

 

300,668

 

293,853

 

292,677

 

Premises and equipment, net

 

38,162

 

37,783

 

34,661

 

Foreclosed assets, net

 

1,472

 

3,291

 

5,299

 

Deferred tax asset, net

 

 

 

17,489

 

Goodwill

 

2,548,670

 

2,548,670

 

2,548,670

 

Core deposit and customer relationship intangibles, net

 

47,380

 

52,250

 

57,120

 

Other assets

 

612,119

 

610,731

 

522,896

 

Total assets

 

$

26,344,414

 

$

26,324,138

 

$

25,731,354

 

 

 

 

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

 

 

Noninterest-bearing deposits

 

$

7,299,213

 

$

7,712,409

 

$

7,888,915

 

Interest-bearing deposits

 

11,506,543

 

11,573,518

 

10,981,586

 

Total deposits

 

18,805,756

 

19,285,927

 

18,870,501

 

Borrowings

 

1,913,059

 

1,481,087

 

1,371,114

 

Subordinated debentures

 

456,112

 

454,458

 

453,846

 

Accrued interest payable and other liabilities

 

317,477

 

311,684

 

210,305

 

Total liabilities

 

21,492,404

 

21,533,156

 

20,905,766

 

STOCKHOLDERS’ EQUITY (1)

 

4,852,010

 

4,790,982

 

4,825,588

 

Total liabilities and stockholders’ equity

 

$

26,344,414

 

$

26,324,138

 

$

25,731,354

 

 

 

 

 

 

 

 

 

Book value per share

 

$

40.49

 

$

39.86

 

$

39.17

 

Tangible book value per share (2)

 

$

18.83

 

$

18.22

 

$

18.02

 

Shares outstanding

 

119,829,104

 

120,201,149

 

123,189,833

 

 

 

 

 

 

 

 

 


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

 

$

73,066

 

$

37,258

 

$

(6,075

)

(2)         Non-GAAP measure.

 

 

 

 

 

 

 

 

11


 

PACWEST BANCORP AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

 

 

2019

 

2019

 

2018

 

2019

 

2018

 

 

 

(Dollars in thousands, except per share data)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

Loans and leases

 

$

284,236

 

$

274,229

 

$

260,300

 

$

558,465

 

$

511,385

 

Investment securities

 

28,948

 

29,680

 

27,730

 

58,628

 

53,868

 

Deposits in financial institutions

 

1,349

 

650

 

484

 

1,999

 

1,036

 

Total interest income

 

314,533

 

304,559

 

288,514

 

619,092

 

566,289

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

38,720

 

34,235

 

16,367

 

72,955

 

30,185

 

Borrowings

 

7,210

 

7,710

 

2,649

 

14,920

 

3,569

 

Subordinated debentures

 

7,705

 

7,738

 

7,166

 

15,443

 

13,703

 

Total interest expense

 

53,635

 

49,683

 

26,182

 

103,318

 

47,457

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

260,898

 

254,876

 

262,332

 

515,774

 

518,832

 

Provision for credit losses

 

8,000

 

4,000

 

17,500

 

12,000

 

21,500

 

Net interest income after provision for credit losses

 

252,898

 

250,876

 

244,832

 

503,774

 

497,332

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

Service charges on deposit accounts

 

3,771

 

3,730

 

4,265

 

7,501

 

8,439

 

Other commissions and fees

 

11,590

 

11,008

 

11,767

 

22,598

 

22,032

 

Leased equipment income

 

9,182

 

9,282

 

9,790

 

18,464

 

19,377

 

Gain on sale of loans and leases

 

326

 

 

106

 

326

 

4,675

 

Gain on sale of securities

 

22,192

 

2,161

 

253

 

24,353

 

6,564

 

Other income

 

3,832

 

4,883

 

13,457

 

8,715

 

17,110

 

Total noninterest income

 

50,893

 

31,064

 

39,638

 

81,957

 

78,197

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

Compensation

 

68,956

 

70,845

 

69,913

 

139,801

 

140,936

 

Occupancy

 

14,457

 

14,320

 

13,575

 

28,777

 

26,798

 

Data processing

 

6,817

 

6,925

 

6,896

 

13,742

 

13,555

 

Other professional services

 

4,629

 

4,513

 

5,257

 

9,142

 

9,696

 

Insurance and assessments

 

4,098

 

4,038

 

5,330

 

8,136

 

11,057

 

Intangible asset amortization

 

4,870

 

4,870

 

5,587

 

9,740

 

11,933

 

Leased equipment depreciation

 

5,558

 

5,651

 

5,237

 

11,209

 

10,612

 

Foreclosed assets (income) expense, net

 

(146

)

29

 

(61

)

(117

)

(183

)

Acquisition, integration and reorganization costs

 

 

618

 

 

618

 

 

Loan expense

 

3,451

 

2,885

 

3,058

 

6,336

 

5,329

 

Other expense

 

12,737

 

11,593

 

11,657

 

24,330

 

24,111

 

Total noninterest expense

 

125,427

 

126,287

 

126,449

 

251,714

 

253,844

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings before income taxes

 

178,364

 

155,653

 

158,021

 

334,017

 

321,685

 

Income tax expense

 

50,239

 

43,049

 

42,286

 

93,288

 

87,674

 

Net earnings

 

$

128,125

 

$

112,604

 

$

115,735

 

$

240,729

 

$

234,011

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share

 

$

1.07

 

$

0.92

 

$

0.92

 

$

1.99

 

$

1.85

 

Dividends declared and paid per share

 

$

0.60

 

$

0.60

 

$

0.60

 

$

1.20

 

$

1.10

 

 

12


 

PACWEST BANCORP AND SUBSIDIARIES

NET EARNINGS PER SHARE CALCULATIONS

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

March 31,

 

June 30,

 

June 30,

 

 

 

2019

 

2019

 

2018

 

2019

 

2018

 

 

 

(In thousands, except per share data)

 

Basic Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

128,125

 

$

112,604

 

$

115,735

 

$

240,729

 

$

234,011

 

Less: earnings allocated to unvested restricted stock (1)

 

(1,190

)

(1,163

)

(1,348

)

(2,343

)

(2,469

)

Net earnings allocated to common shares

 

$

126,935

 

$

111,441

 

$

114,387

 

$

238,386

 

$

231,542

 

Weighted-average basic shares and unvested restricted stock outstanding

 

120,042

 

122,227

 

126,082

 

121,128

 

126,780

 

Less: weighted-average unvested restricted stock outstanding

 

(1,462

)

(1,352

)

(1,466

)

(1,407

)

(1,439

)

Weighted-average basic shares outstanding

 

118,580

 

120,875

 

124,616

 

119,721

 

125,341

 

Basic earnings per share

 

$

1.07

 

$

0.92

 

$

0.92

 

$

1.99

 

$

1.85

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Share:

 

 

 

 

 

 

 

 

 

 

 

Net earnings allocated to common shares

 

$

126,935

 

$

111,441

 

$

114,387

 

$

238,386

 

$

231,542

 

Weighted-average basic shares outstanding

 

118,580

 

120,875

 

124,616

 

119,721

 

125,341

 

Diluted earnings per share

 

$

1.07

 

$

0.92

 

$

0.92

 

$

1.99

 

$

1.85

 

 


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

 

13


 

PACWEST BANCORP AND SUBSIDIARIES

AVERAGE BALANCE SHEET AND YIELD ANALYSIS

 

<

 

 

Three Months Ended

 

 

 

June 30, 2019

 

March 31, 2019

 

June 30, 2018

 

 

 

 

 

Interest

 

Average

 

 

 

Interest

 

Average

 

 

 

Interest

 

Average

 

 

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

 

Average

 

Income/

 

Yield/

 

 

 

Balance

 

Expense

 

Cost

 

Balance

 

Expense

 

Cost

 

Balance

 

Expense

 

Cost

 

 

 

(Dollars in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and leases (1)(2)

 

$

18,239,690

 

$

284,513

 

6.26

%

$

18,064,230

 

$

274,513

 

6.16

%

$

16,576,361

 

$

260,529

 

6.30

%

Investment securities (3)

 

3,790,436

 

29,462

 

3.12

%

3,968,531

 

30,572

 

3.12

%

3,803,590

 

29,967

 

3.16

%

Deposits in financial institutions

 

228,702

 

1,349

 

2.37

%

111,950

 

650

 

2.35

%

112,170

 

484

 

1.73

%

Total interest-earning assets (1)

 

22,258,828

 

315,324

 

5.68

%

22,144,711

 

305,735

 

5.60

%

20,492,121

 

290,980

 

5.70

%

Other assets

 

3,590,361

 

 

 

 

 

3,631,238

 

 

 

 

 

3,507,516

 

 

 

 

 

Total assets

 

$

25,849,189

 

 

 

 

 

$

25,775,949

 

 

 

 

 

$

23,999,637

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest checking

 

$

3,242,960

 

10,644

 

1.32

%

$

3,041,822

 

9,321

 

1.24

%

$

2,243,767

 

3,932

 

0.70

%

Money market

 

5,046,021

 

14,604

 

1.16

%

5,274,987

 

14,908

 

1.15

%

5,013,119

 

8,072

 

0.65

%

Savings

 

525,648

 

227

 

0.17

%

553,032

 

242

 

0.18

%

656,310

 

245

 

0.15

%

Time

 

2,731,156

 

13,245

 

1.95

%

2,286,932

 

9,764

 

1.73

%

1,790,415

 

4,118

 

0.92

%

Total interest-bearing deposits

 

11,545,785

 

38,720

 

1.35

%

11,156,773

 

34,235

 

1.24

%

9,703,611

 

16,367

 

0.68

%

Borrowings

 

1,142,223

 

7,210

 

2.53

%

1,218,319

 

7,710

 

2.57

%

549,665

 

2,649

 

1.93

%

Subordinated debentures

 

454,901

 

7,705

 

6.79

%

454,203

 

7,738

 

6.91

%

451,973

 

7,166

 

6.36

%

Total interest-bearing liabilities

 

13,142,909

 

53,635

 

1.64

%

12,829,295

 

49,683

 

1.57

%

10,705,249

 

26,182

 

0.98

%

Noninterest-bearing demand deposits

 

7,544,027

 

 

 

 

 

7,783,652

 

 

 

 

 

8,253,413

 

 

 

 

 

Other liabilities

 

343,364

 

 

 

 

 

347,037

 

 

 

 

 

208,495

 

 

 

 

 

Total liabilities

 

21,030,300

 

 

 

 

 

20,959,984

 

 

 

 

 

19,167,157

 

 

 

 

 

Stockholders’ equity

 

4,818,889

 

 

 

 

 

4,815,965

 

 

 

 

 

4,832,480

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

25,849,189

 

 

 

 

 

$

25,775,949

 

 

 

 

 

$

23,999,637

 

 

 

 

 

Net interest income (1)

 

 

 

$

261,689

 

 

 

 

 

$

256,052

 

 

 

 

 

$

264,798

 

 

 

Net interest spread (1)

 

 

 

 

 

4.04

%

 

 

 

 

4.03

%

 

 

 

 

4.72

%

Net interest margin (1)

 

 

 

 

 

4.72

%

 

 

 

 

4.69

%

 

 

 

 

5.18

%