Press Release

PacWest Bancorp Announces Results for the Third Quarter 2016 and $400 Million Stock Repurchase Authorization

Company Release - 10/18/2016 7:00 AM ET

Highlights

  • Net Earnings of $93.9 Million, or $0.77 Per Diluted Share
  • New Loan and Lease Production of $1.1 Billion for the Quarter; $101 Million of Net Loan Growth
  • Core Deposit Increase of $599 Million during the Quarter Representing 77% of Total Deposits
  • Tax Equivalent Net Interest Margin of 5.26%; Core Tax Equivalent Net Interest Margin of 5.08%

LOS ANGELES, Oct. 18, 2016 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the third quarter of 2016 of $93.9 million, or $0.77 per diluted share, compared to net earnings for the second quarter of 2016 of $82.2 million, or $0.68 per diluted share.  The increase in net earnings was due to the elimination of FDIC loss sharing expense, a lower provision for credit losses and a lower effective tax rate as compared to the second quarter of 2016. 

Matt Wagner, President and CEO, commented, “We are very pleased with our strong third quarter results which produced a return on assets of 1.77% and a return on tangible equity of 16.15%. While the current quarter benefited from lower credit costs and a lower effective tax rate, we continue to demonstrate our sustained earning power.”

Patrick Rusnak, Executive Vice President and CFO stated, “Our third quarter core tax equivalent NIM, which excludes accelerated accretion, decreased three basis points to 5.08% and our NIM excluding all purchase accounting items decreased two basis points to 4.98%. We are pleased with how our NIM has held up during this sustained period of low interest rates.”

Mr. Rusnak continued, “Third quarter loan growth fell below expectations due largely to dramatically higher prepayments in our healthcare real estate portfolio, which totaled approximately $200 million for the quarter, resulting from both refinancings and property sales. The solid originations from other lending groups, in particular Venture Banking and Construction, give us confidence that future-period loan growth will return to more normalized levels. Although nonaccrual loans increased due to the migration of a single, classified loan to nonaccrual status, total classified loans and leases decreased on a linked quarter basis as several previously classified loans paid off in full.”

Mr. Wagner continued, “Over the past few years we have significantly strengthened our company through execution on a strategy focused on profitable growth and prudent risk management. This performance, our initial DFAST stress test submission and robust capital levels have allowed the Board to authorize a stock repurchase program which provides another tool to actively manage capital levels and facilitate improved shareholder returns.”

FINANCIAL HIGHLIGHTS

  At or For the Three Months Ended At or For the Nine Months Ended
  September 30, June 30,   September 30,  
  2016
 2016
 Change 2016
 2015
 Change
                         
  (Dollars in thousands, except per share data)
Financial Highlights            
Net Earnings $93,895  $82,168  $11,727  $266,519  $227,778  $38,741 
Diluted Earnings Per Share $0.77  $0.68  $0.09  $2.19  $2.21  $(0.02)
Return on Average Assets  1.77%  1.57%  0.20   1.69%  1.85%  (0.16)
Return on Average            
Tangible Equity (1)  16.15%  14.61%  1.54   15.74%  16.82%  (1.08)
             
Net Interest Margin            
(tax equivalent)  5.26%  5.33%  (0.07)  5.37%  5.76%  (0.39)
Core Net Interest Margin            
(tax equivalent) (1)  5.08%  5.11%  (0.03)  5.09%  5.31%  (0.22)
Efficiency Ratio  40.1%  40.6%  (0.5)  39.7%  38.1%  1.6 
             
Total Assets $21,315,291  $21,147,139  $168,152  $21,315,291  $16,814,105  $4,501,186 
Loans and Leases, Net            
of Deferred Fees $14,742,846  $14,641,460  $101,386  $14,742,846  $12,452,205  $2,290,641 
Noninterest-Bearing            
Deposits $6,521,946  $6,222,696  $299,250  $6,521,946  $3,508,682  $3,013,264 
Core Deposits $12,010,639  $11,411,992  $598,647  $12,010,639  $6,815,252  $5,195,387 
Total Deposits $15,645,668  $15,148,009  $497,659  $15,645,668  $12,115,763  $3,529,905 
             
Noninterest-Bearing            
Deposits as Percentage            
of Total Deposits  42%  41%  1   42%  29%  13 
Core Deposits as            
Percentage of Total            
Deposits  77%  75%  2   77%  56%  21 
Tangible Common Equity            
Ratio (1)  12.19%  12.12%  0.07   12.19%  12.21%  (0.02)
Tangible Book Value Per            
Share (1) $19.12  $18.83  $0.29  $19.12  $17.86  $1.26 
             
(1) Non-GAAP measure.            
             

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income increased by $0.9 million to $234.6 million in the third quarter of 2016 compared to $233.8 million in the second quarter of 2016 due to the combination of higher average loan and lease balances, higher nonaccrual interest recoveries and one additional day in the period offset by lower discount accretion on acquired loans and a lower loan and lease yield.  Total accretion on acquired loans was $14.2 million in the third quarter of 2016 (39 basis points on the loan and lease yield) compared to $16.2 million in the second quarter of 2016 (45 basis points on the loan and lease yield).  The loan and lease yield for the third quarter of 2016 was 6.17% compared to 6.24% for the second quarter of 2016.  The decrease in the loan and lease yield was due to the lower accretion on acquired loans and a lower yield on new production relative to the current portfolio yield. Excluding accelerated accretion, the core loan and lease yield was 5.94% in the third quarter compared to 5.97% in the second quarter.   

The tax equivalent NIM for the third quarter of 2016 was 5.26% compared to 5.33% for the second quarter of 2016.  The decrease in the NIM was mostly due to lower accretion on acquired loans. Such accretion contributed 31 basis points to the NIM in the third quarter of 2016 and 36 basis points to the NIM in the second quarter of 2016.  Excluding accelerated accretion, the core tax equivalent NIM was 5.08% for the third quarter compared to 5.11% for the second quarter.

Included in net interest income for the third quarter of 2016 was $3.0 million of interest resulting from the payoff in full of a nonperforming loan. This recovery contributed seven basis points to the third quarter 2016 NIM and eight basis points of loan and lease yield for the third quarter of 2016.      

The cost of total deposits decreased to 0.19% in the third quarter from 0.20% in the second quarter due to a lower average cost and balance of time deposits.

The tax equivalent NIM and loan and lease yield are impacted by volatility in accelerated accretion of acquisition discounts due to the prepayment of acquired loans and leases. The effects of this item are shown in the following table for the periods indicated:

       
  Three Months Ended Three Months Ended
  September 30, 2016 June 30, 2016
   Loan and   Loan and 
  NIMLease Yield NIMLease Yield
Reported 5.26% 6.17%  5.33% 6.24%
Less:Accelerated accretion of acquisition     
 discounts from early payoffs of     
 acquired loans (0.18)% (0.23)%  (0.22)% (0.27)%
Core  5.08% 5.94%  5.11% 5.97%
       

The impact on the tax equivalent net interest income and NIM from all purchase accounting items is set forth in the table below for the periods indicated:

  Three Months Ended Three Months Ended
  September 30, 2016 June 30, 2016
   Impact on  Impact on
  AmountNIM AmountNIM
               
  (Dollars in thousands)
       
Net interest income/NIM$239,473  5.26% $238,667  5.33%
Less:Accelerated accretion of acquisition     
 discounts from early payoffs of     
 acquired loans (8,226) (0.18)%  (9,780) (0.22)%
 Remaining accretion of Non-PCI loan     
 acquisition discounts (5,997) (0.13)%  (6,407) (0.14)%
 Total accretion of loan acquisition     
 discounts (14,223) (0.31)%  (16,187) (0.36)%
 Amortization of TruPS discount 1,391  0.03%  1,393  0.03%
 Accretion of time deposits premium (121) 0.00%  (172) 0.00%
   (12,953) (0.28)%  (14,966) (0.33)%
Net interest income/NIM - excluding purchase     
accounting$226,520  4.98% $223,701  5.00%
              

Noninterest Income

Noninterest income increased by $4.8 million to $26.9 million for the third quarter of 2016 compared to $22.1 million for the second quarter of 2016 due mostly to a $6.5 million decrease in FDIC loss sharing expense and a $1.5 million increase in other commissions and fees offset by decreases in dividends and gains on equity investments and foreign currency translation net gains. The lower FDIC loss sharing expense was due to the early termination of all FDIC loss share agreements for which a $6.0 million pre-tax charge was recognized in the second quarter.  Other commissions and fees increased due to higher prepayment and other loan-related fees. These items were offset by lower dividends and gains on equity investments of $1.8 million and lower foreign currency translation net gains of $0.5 million.

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

 Three Months Ended
 September 30, June 30, Increase
Noninterest Income 2016   2016  (Decrease)
            
 (In thousands) 
      
Service charges on deposit accounts$3,488  $3,633  $(145)
Other commissions and fees 12,528   11,073   1,455 
Leased equipment income 8,538   8,523   15 
Gain on sale of loans and leases 157   388   (231)
Gain on securities 382   478   (96)
FDIC loss sharing expense, net -   (6,502)  6,502 
Other income:     
Dividends and realized gains on equity investments 377   2,185   (1,808)
Foreign currency translation net (losses) gains (224)  324   (548)
Other 1,674   2,019   (345)
Total noninterest income$26,920  $22,121  $4,799 
      

Noninterest Expense

Noninterest expense increased by $0.6 million to $110.7 million for the third quarter of 2016 compared to $110.1 million for the second quarter of 2016.  The expense category with the highest increase was other professional services, which increased $1.2 million primarily due to higher legal expense. 

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

 Three Months Ended
 September 30, June 30, Increase
Noninterest Expense 2016   2016  (Decrease)
      
 (In thousands)
      
Compensation$62,661  $62,174  $487 
Occupancy 12,010   12,193   (183)
Data processing 6,234   5,644   590 
Other professional services 4,625   3,401   1,224 
Insurance and assessments 4,324   4,951   (627)
Intangible asset amortization 4,224   4,371   (147)
Leased equipment depreciation 5,298   5,286   12 
Foreclosed assets income, net (248)  (3)  (245)
Other expense:     
Loan expense 1,931   2,145   (214)
Other 9,651   9,919   (268)
Total noninterest expense$110,710  $110,081  $629 
      

Income Taxes

The overall effective income tax rate was 34.1% in the third quarter of 2016 and 37.7% in the second quarter of 2016. The effective rate for the third quarter was lower due to certain discrete items associated with completion of the 2015 tax returns. The expected effective tax rate for the full year 2016 is approximately 37.5%.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases increased by $101.4 million in the third quarter to $14.7 billion at September 30, 2016.  The net increase was driven by third quarter originations and purchases of $1.1 billion, offset partially by principal repayments of $932.9 million.     

The following table presents a roll forward of the loan and lease portfolio for the periods indicated:

 Three Months Ended
 September 30, June 30,
Loan and Lease Roll Forward (1) 2016   2016 
        
 (Dollars in thousands)
    
Beginning balance$14,641,460  $14,483,517 
New production 1,071,943   931,423 
Existing loans and leases:   
Principal repayments, net (2) (932,863)  (720,003)
Loan and lease sales (27,239)  (51,597)
Charge-offs (10,455)  (1,880)
Ending balance$14,742,846  $14,641,460 
    
Weighted average rate on new production 5.11%  4.82%
    
    
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) Includes principal repayments on existing loans, changes in revolving lines of credit
(repayments and draws), loan participation sales and other changes within the loan portfolio.
 

The following table presents the composition of our loan and lease portfolio as of the dates indicated:

 September 30, June 30, March 31, September 30,
Loan and Lease Portfolio2016
 2016
 2016
 2015
                
 (In thousands)
Real estate mortgage:       
Commercial$4,327,565  $4,519,209  $4,640,419  $4,512,489 
Residential 1,242,253   1,164,784   1,149,998   1,177,302 
Total real estate mortgage 5,569,818   5,683,993   5,790,417   5,689,791 
Real estate construction and land:       
Commercial 510,831   417,144   308,192   229,904 
Residential 323,104   281,788   269,965   145,262 
Total real estate construction and land 833,935   698,932   578,157   375,166 
Total real estate loans 6,403,753   6,382,925   6,368,574   6,064,957 
Commercial:       
Cash flow 3,071,606   3,048,439   3,173,424   2,980,650 
Asset-based 2,573,437   2,683,913   2,589,598   2,381,706 
Venture capital 1,766,510   1,666,352   1,507,788   - 
Equipment finance 670,783   646,940   733,228   894,777 
Total commercial 8,082,336   8,045,644   8,004,038   6,257,133 
Consumer 256,757   212,891   110,905   130,115 
Total loans and leases, net of       
deferred fees$14,742,846  $14,641,460  $14,483,517  $12,452,205 
        
Total unfunded loan commitments$4,156,147  $3,888,686  $3,812,554  $2,022,046 
        

Loan growth in the third quarter came primarily from the construction, venture capital and consumer portfolios. These same portfolios also accounted for most of the growth in our unfunded commitments during the quarter.

Deposits and Client Investment Funds

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

 September 30, June 30, March 31, September 30,
Deposit Category 2016   2016   2016   2015 
                
 (Dollars in thousands)
        
Noninterest-bearing demand deposits$6,521,946  $6,222,696  $6,139,963  $3,508,682 
Interest checking deposits 1,184,350   1,035,395   921,189   693,632 
Money market deposits 3,532,050   3,392,811   3,144,843   1,860,983 
Savings deposits 772,293   761,090   764,323   751,955 
Total core deposits 12,010,639   11,411,992   10,970,318   6,815,252 
Brokered non-maturity deposits 1,082,114   972,820   985,784   713,215 
Total non-maturity deposits 13,092,753   12,384,812   11,956,102   7,528,467 
Time deposits under $100,000 1,180,428   1,114,074   1,357,598   1,951,938 
Time deposits of $100,000 and over 1,372,487   1,649,123   2,127,675   2,635,358 
Total time deposits 2,552,915   2,763,197   3,485,273   4,587,296 
Total deposits$15,645,668  $15,148,009  $15,441,375  $12,115,763 
        
Noninterest-bearing demand deposits       
as percentage of total deposits 42%  41%  40%  29%
Core deposits as percentage of total deposits 77%  75%  71%  56%
        

At September 30, 2016, core deposits totaled $12.0 billion, or 77% of total deposits, including $6.5 billion of noninterest-bearing demand deposits, or 42% of total deposits. 

In addition to deposit products, we also offer alternative non-depository cash investment options for select clients; these alternatives include investments managed by Square 1 Asset Management, Inc. (“S1AM”), our registered investment advisor subsidiary, and third-party sweep products.  Total client investment funds at September 30, 2016 were $1.4 billion, of which $1.1 billion was managed by S1AM.

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

A provision for credit losses of $8.5 million was recorded in the third quarter of 2016 compared to $13.9 million in the second quarter of 2016.  The third quarter provision consisted of $8.0 million for non-purchased credit impaired (“Non-PCI”) loans and leases and $0.5 million for PCI loans. The allowance for Non-PCI credit losses to Non-PCI loans and leases coverage ratio increased to 1.05% at September 30, 2016 from 1.03% at June 30, 2016. 

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

 Three Months Ended September 30, 2016
 Non-PCI         
Allowance for Credit Loans and  Unfunded  Total  PCI  
Losses RollforwardLeases Commitments Non-PCI Loans Total
                    
 (In thousands)
          
Beginning balance$132,000  $17,944  $149,944  $11,289  $161,233 
Charge-offs (9,924)  -   (9,924)  (531)  (10,455)
Recoveries 6,050   -   6,050   -   6,050 
Net charge-offs (3,874)  -   (3,874)  (531)  (4,405)
Provision 8,621   (621)  8,000   471   8,471 
Ending balance$136,747  $17,323  $154,070  $11,229  $165,299 
          
          
 Three Months Ended June 30, 2016
 Non-PCI         
Allowance for Credit Loans and  Unfunded  Total  PCI  
Losses RollforwardLeases Commitments Non-PCI Loans Total
                    
 (In thousands)
          
Beginning balance$120,807  $17,569  $138,376  $9,554  $147,930 
Charge-offs (1,712)  -   (1,712)  (168)  (1,880)
Recoveries 1,280   -   1,280   -   1,280 
Net charge-offs (432)  -   (432)  (168)  (600)
Provision 11,625   375   12,000   1,903   13,903 
Ending balance$132,000  $17,944  $149,944  $11,289  $161,233 
          

The lower third quarter 2016 provision was due in part to a $4.8 million increase in recoveries of previously charged off loans.  The third quarter 2016 Non-PCI charge-offs included $9.7 million of loans and leases that had specific reserves in the allowance for credit losses at June 30, 2016.

All acquired loans are recorded initially at their estimated fair value including an estimate of credit losses. The table below presents two alternative views of credit risk coverage ratios for Non-PCI loans reflecting adjustments for acquired loans and leases and associated purchase accounting discounts:

 September 30, 2016 June 30, 2016
Non-PCI Adjusted Non-PCI   Non-PCI  
Allowance for Credit LossesLoans andAllowance/Coverage Loans andAllowance/Coverage
to Loans and LeasesLeasesDiscountRatio LeasesDiscountRatio
                      
 (Dollars in thousands)
Adjustment for -        
Acquired loans and leases        
and related allowance:       
Ending balance$14,686,206 $154,070   1.05% $14,566,425 $149,944   1.03%
Acquired loans and allowance (4,612,787) (46,039) (1)     (5,131,674) (37,440) (1)   
Adjusted balance$10,073,419 $108,031   1.07% $9,434,751 $112,504   1.19%
                
Adjustment for -        
Unamortized net discount on        
acquired loans and leases:       
Ending balance$14,686,206 $154,070   1.05% $14,566,425 $149,944   1.03%
Unamortized net discount 53,041  53,041  (2)     65,391  65,391  (2)   
Adjusted balance$14,739,247 $207,111   1.41% $14,631,816 $215,335   1.47%
                    
                          
(1) Allowance attributed to $4.6 billion and $5.1 billion of acquired Non-PCI loans at September 30, 2016 and June 30, 2016,
based on the allowance calculation that includes an amount for credit deterioration on acquired loans and leases since their
acquisition dates.       
(2) Unamortized net discount relates to $4.6 billion and $5.1 billion of acquired Non-PCI loans at September 30, 2016 and
June 30, 2016, and is assigned specifically to those loans only.  Such discount represents the acquisition date fair value
adjustment based on market, liquidity, interest rate risk and credit risk and is being accreted to interest income 
over the remaining life of the respective loans using the interest method.  Use of the interest method results in steadily
declining amounts being taken into income in each reporting period.  The remaining discount of $53.0 million at 
September 30, 2016, is expected to be substantially accreted to income by the end of 2018.  
   

Non-PCI loans and leases at September 30, 2016 included $10.1 billion of originated loans and leases that were not obtained through acquisitions. The related allowance for loan and lease losses totaled $93.2 million, or 0.93% of the outstanding balance.

CREDIT QUALITY

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

 September 30, June 30,
Non-PCI Credit Quality Metrics 2016   2016 
        
 (Dollars in thousands)
    
Nonaccrual loans and leases $  171,085  $  127,655 
Classified loans and leases    417,541     441,035 
Performing restructured loans   70,348     71,709 
Allowance for credit losses   154,070     149,944 
Net charge-offs (for the quarter)   3,874     432 
Provision for credit losses (for the quarter)   8,000     12,000 
Allowance for credit losses to loans and leases 1.05%  1.03%
Allowance for credit losses to nonaccrual loans    
and leases  90.1%  117.5%
Nonaccrual loans and leases to loans and leases  1.16%  0.88%
Nonperforming assets to loans and leases and    
foreclosed assets 1.27%  0.99%
Classified loans and leases to loans and leases 2.84%  3.03%
    

The increase in nonaccrual loans and leases during the third quarter of 2016 was largely the result of a classified $50 million healthcare real estate loan secured by a continuing care retirement facility which migrated to nonaccrual status due to continued weak operating performance and cash flow difficulties. This loan is current with respect to principal and interest payments as of the date of this release and the borrower is actively pursuing viable options for additional liquidity. Total classified loans and leases decreased by $23.5 million in the third quarter as resolutions, including repayment in full of four loans totaling $49.9 million, exceeded new downgrades.

Credit Exposure Affected by Low Oil Prices

At September 30, 2016, we had 14 outstanding loan and lease relationships totaling $101.7 million to borrowers involved in the oil and gas services industry, down from $116.9 million at June 30, 2016.  The collateral for this credit exposure includes primarily equipment, such as drilling equipment and transportation vehicles.  The reserves related to this credit exposure total approximately 14% of the related balance.  At September 30, 2016, two relationships totaling $40.3 million were on nonaccrual status and were classified, down from five relationships totaling $48.5 million at June 30, 2016.   The largest of these relationships had an aggregate outstanding balance of $39.9 million at September 30, 2016.  Of the $8.2 million decrease in nonaccrual classified oil and gas loans in the third quarter, $6.7 million was charged off (all were fully reserved at June 30, 2016) and $1.5 million was collected.   

The following table presents Non-PCI 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:

 Non-PCI Nonaccrual Loans and Leases Non-PCI Accruing and
 September 30, 2016 June 30, 2016 30-89 Days Past Due
  % of   % of  September 30, June 30,
  Loan   Loan   2016   2016 
 AmountCategory AmountCategory Amount Amount
                      
 (Dollars in thousands)
Real estate mortgage:         
Commercial$74,606  1.7% $29,183  0.7% $2,146  $2,126 
Residential 5,089  0.4%  4,238  0.4%  -   171 
Total real estate mortgage 79,695  1.5%  33,421  0.6%  2,146   2,297 
Real estate construction and land:         
Commercial 1,245  0.2%  -  0.0%  -   - 
Residential 366  0.1%  368  0.1%  -   - 
Total real estate         
construction and land 1,611  0.2%  368  0.1%  -   - 
Commercial:         
Cash flow 27,831  0.9%  38,146  1.3%  21   389 
Asset-based 4,044  0.2%  1,986  0.1%  6,644   - 
Venture capital 10,782  0.6%  1,088  0.1%  -   3,548 
Equipment finance (1) 46,916  7.0%  52,432  8.1%  -   - 
Total commercial 89,573  1.1%  93,652  1.2%  6,665   3,937 
Consumer 206  0.1%  214  0.1%  -   - 
Total Non-PCI loans and         
leases$171,085  1.2% $127,655  0.9% $8,811  $6,234 
          
          
(1) Includes nonaccrual leases and loans to companies involved in the oil and gas industries of $40.3 million and $48.5 million at
September 30, 2016 and June 30, 2016, respectively.
          

The following table presents nonperforming assets as of the dates indicated:

 September 30, June 30,
Nonperforming Assets 2016   2016 
        
 (Dollars in thousands)
    
Nonaccrual Non-PCI loans and leases$171,085  $127,655 
Nonaccrual PCI loans 3,478   2,025 
Total nonaccrual loans and leases 174,563   129,680 
Foreclosed assets, net 15,113   16,181 
Total nonperforming assets$189,676  $145,861 
    
Nonaccrual loans and leases to loans and leases 1.18%  0.88%
Nonperforming assets to loans and leases   
and foreclosed assets 1.28%  0.99%
    

SALE OF BRANCHES

On October 3, 2016, the Company announced that Pacific Western Bank had entered into a definitive agreement to sell two branches to First Foundation Bank (the “Transaction”).  The branches are located in Laguna Hills and Seal Beach, California (the “Branches”).  As of September 30, 2016, the deposits of the Branches totaled approximately $200 million, principally comprised of time deposits.  No loans are being sold in connection with the Transaction.  The Transaction is expected to be completed during the fourth quarter of 2016 subject to regulatory approval and customary closing conditions.

STOCK REPURCHASE PROGRAM

On October 17, 2016, PacWest’s Board of Directors authorized a stock repurchase program (the “Stock Repurchase Program”), pursuant to which the Company may, from time to time, purchase shares of its common stock for an aggregate purchase price not to exceed $400 million. The common stock repurchases may be effected through open market purchases or in privately negotiated transactions, and may utilize any derivative or similar instrument to effect share repurchase transactions (including without limitation, accelerated share repurchase contracts, equity forward transactions, equity option transactions, equity swap transactions, cap transactions, collar transactions, floor transactions or other similar transactions or any combination of the foregoing transactions).

The Stock Repurchase Program expires on December 31, 2017. The amount and exact timing of any repurchases will depend upon market conditions and other factors. There are no assurances the Company will repurchase any shares during the period and the Stock Repurchase Program may be suspended or discontinued at any time.

ABOUT PACWEST BANCORP

PacWest Bancorp (“PacWest”) is a bank holding company with over $21 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank (“Pacific Western”). The Bank has 79 full-service branches located throughout the state of California and one branch in Durham, North Carolina. Pacific Western provides commercial banking services, including real estate, construction, and commercial loans, and comprehensive deposit and treasury management services to small and medium-sized businesses.  Pacific Western offers additional products and services under the brands of its business groups, CapitalSource and Square 1 Bank. CapitalSource provides cash flow, asset-based, equipment and real estate loans and treasury management services to established middle market businesses on a national basis.  Square 1 Bank offers a comprehensive suite of financial services focused on entrepreneurial businesses and their venture capital and private equity investors, with offices located in key innovation 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 release contains certain “forward-looking statements” about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including certain plans, strategies, goals, and projections and including statements about our expectations regarding our profitability, loan and lease portfolio growth, capital management, including reducing excess capital, effective tax rates, and branch sale. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. Actual results could differ materially from those contained or implied by such forward-looking statements for a variety of factors, including without limitation:

  • changes in economic or competitive market conditions could negatively impact investment or lending opportunities or product pricing and services;
  • loan repayments higher than expected;
  • higher than anticipated delinquencies, charge-offs, and loan and lease losses;
  • compression of spreads on newly originated loans and leases;
  • the impact of asset/liability repricing risk and liquidity risk on net interest margin and the value of investments;
  • higher than anticipated increases in operating expenses;
  • increased costs to manage and sell foreclosed assets;
  • reduced demand for our services due to strategic or regulatory reasons;
  • our inability to grow deposits or access wholesale funding sources;
  • legislative or regulatory requirements or changes could negatively impact our business including an increase to capital requirements;
  • the need to retain capital for strategic or regulatory reasons;
  • the financial performance of the Company;
  • stock price fluctuations;
  • credit quality deterioration or pronounced and sustained reduction in market values or other economic factors which adversely affect our borrowers’ ability to repay loans and leases and/or require an increased provision for loan and lease losses;
  • changes in tax laws or regulations affecting our business;
  • tax planning or disallowance of tax benefits by tax authorities;
  • changes in tax filing jurisdictions or entity classifications;
  • our ability to obtain regulatory approvals and meet other closing conditions to the branch sale on the expected terms and schedule; and
  • other risk factors described in documents filed by PacWest with the U.S. Securities and Exchange Commission (“SEC”).

All forward-looking statements included in this release are based on information available at the time of the release. We are under no obligation to (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     
      
 September 30, June 30, December 31,
  2016   2016   2015 
            
 (Dollars in thousands, except per share data)
ASSETS:     
Cash and due from banks$286,371  $226,471  $161,020 
Interest-earning deposits in financial institutions 253,994   218,882   235,466 
  Total cash and cash equivalents  540,365   445,353   396,486 
      
Securities available-for-sale, at estimated fair value 3,341,335   3,347,546   3,559,437 
Federal Home Loan Bank stock, at cost 19,386   24,214   19,710 
Total investment securities 3,360,721   3,371,760   3,579,147 
      
Non-PCI loans and leases 14,686,206   14,566,425   14,339,070 
PCI loans 120,221   136,901   189,095 
Total gross loans and leases 14,806,427   14,703,326   14,528,165 
Deferred fees, net (63,581)  (61,866)  (49,911)
Total loans and leases, net of deferred fees 14,742,846   14,641,460   14,478,254 
Allowance for loan and lease losses (147,976)  (143,289)  (115,111)
  Total loans and leases, net 14,594,870   14,498,171   14,363,143 
      
Equipment leased to others under operating leases 198,931   204,062   197,452 
Premises and equipment, net 38,977   38,718   39,197 
Foreclosed assets, net 15,113   16,181   22,120 
Deferred tax asset, net 27,073   24,413   126,389 
Goodwill 2,173,949   2,175,791   2,176,291 
Core deposit and customer     
relationship intangibles, net 39,542   43,766   53,220 
Other assets 325,750   328,924   335,045 
Total assets$21,315,291  $21,147,139  $21,288,490 
      
LIABILITIES:     
Noninterest-bearing deposits$6,521,946  $6,222,696  $6,171,455 
Interest-bearing deposits 9,123,722   8,925,313   9,494,727 
Total deposits 15,645,668   15,148,009   15,666,182 
Borrowings 541,011   918,208   621,914 
Subordinated debentures 441,112   439,322   436,000 
Accrued interest payable and other liabilities 144,905   128,296   166,703 
  Total liabilities 16,772,696   16,633,835   16,890,799 
STOCKHOLDERS' EQUITY (1) 4,542,595   4,513,304   4,397,691 
  Total liabilities and stockholders’ equity$21,315,291  $21,147,139  $21,288,490 
      
Book value per share$37.29  $37.05  $36.22 
Tangible book value per share (2)$19.12  $18.83  $17.86 
Shares outstanding 121,817,524   121,819,849   121,413,727 
      
(1) Includes net unrealized gain on securities     
available-for-sale, net$72,073  $81,744  $27,828 
(2) Non-GAAP measure.     
      


PACWEST BANCORP AND SUBSIDIARIES                 
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS             
                    
 Three Months Ended  Nine Months Ended
 September 30, June 30, September 30,  September 30,
 2016  2016 2015 2016  2015
                    
 (Dollars in thousands, except per share data)
Interest income:                   
Loans and leases$  225,370  $  224,326  $193,539  $ 686,071  $ 599,417 
Investment securities 22,187   22,420   13,955   67,154   40,720 
Deposits in financial institutions 298   308   178   914   304 
Total interest income 247,855   247,054   207,672   754,139   640,441 
                    
Interest expense:                   
Deposits 7,247   7,823   10,400   24,143   32,112 
Borrowings 695   352   72   1,628   395 
Subordinated debentures 5,278   5,122   4,680   15,382   13,787 
Total interest expense 13,220   13,297   15,152   41,153   46,294 
                    
Net interest income 234,635   233,757   192,520   712,986   594,147 
Provision for credit losses 8,471   13,903   8,746   42,514   31,709 
Net interest income after provision                   
for credit losses 226,164   219,854   183,774   670,472   562,438 
                    
Noninterest income:                   
Service charges on deposit accounts 3,488   3,633   2,601   10,977   7,787 
Other commissions and fees 12,528   11,073   6,376   35,090   18,895 
Leased equipment income 8,538   8,523   5,475   25,305   16,232 
Gain on sale of loans and leases 157   388   27   790   190 
Gain on securities 382   478   655   8,970   3,744 
FDIC loss sharing expense, net -   (6,502)  (4,449)  (8,917)  (13,955)
Other income 1,827   4,528   5,073   11,365   23,359 
Total noninterest income 26,920   22,121   15,758   83,580   56,252 
                    
Noninterest expense:                   
Compensation 62,661   62,174   48,152   185,900   144,922 
Occupancy 12,010   12,193   10,762   36,835   31,950 
Data processing 6,234   5,644   4,322   17,782   13,032 
Other professional services 4,625   3,401   3,396   11,598   9,949 
Insurance and assessments 4,324   4,951   3,805   14,240   11,546 
Intangible asset amortization 4,224   4,371   1,497   13,341   4,500 
Leased equipment depreciation 5,298   5,286   3,162   15,608   9,368 
Foreclosed assets (income) expense, net (248)  (3)  4,521   (812)  2,517 
Acquisition, integration and                   
reorganization costs -   -   747   200   3,647 
Other expense 11,582   12,064   9,775   36,787   28,344 
Total noninterest expense 110,710   110,081   90,139   331,479   259,775 
                    
Earnings before income taxes 142,374   131,894   109,393   422,573   358,915 
Income tax expense (48,479)  (49,726)  (39,777)  (156,054)  (131,137)
Net earnings$93,895   $  82,168   $  69,616   $  266,519   $  227,778 
                    
Basic and diluted earnings per share$0.77   $  0.68   $  0.68   $  2.19   $  2.21 
                    


PACWEST BANCORP AND SUBSIDIARIES        
NET EARNINGS PER SHARE CALCULATIONS        
           
 Three Months Ended Nine Months Ended
  September 30, June 30, September 30, September 30,
  2016
 2016
 2015
 2016
 2015
                     
  (Dollars in thousands, except per share data)
Basic Earnings Per Share:          
Net earnings $93,895  $82,168  $69,616  $266,519  $227,778 
Less: earnings allocated to unvested          
restricted stock (1)  (1,048)  (863)  (649)  (2,983)  (2,213)
Net earnings allocated to common          
shares $92,847  $81,305  $68,967  $263,536  $225,565 
           
Weighted-average basic shares and          
unvested restricted stock outstanding  121,818   121,799   103,048   121,739   103,038 
Less: weighted-average unvested          
restricted stock outstanding  (1,401)  (1,481)  (985)  (1,425)  (1,055)
Weighted-average basic shares          
outstanding  120,417   120,318   102,063   120,314   101,983 
           
Basic earnings per share $0.77  $0.68  $0.68  $2.19  $2.21 
           
Diluted Earnings Per Share:          
Net earnings allocated to common          
shares $92,847  $81,305  $68,967  $263,536  $225,565 
           
Weighted-average basic shares          
outstanding  120,417   120,318   102,063   120,314   101,983 
           
Diluted earnings per share $0.77  $0.68  $0.68  $2.19  $2.21 
           
           
(1) Represents cash dividends paid to holders of unvested stock, net of estimated forfeitures, plus 
undistributed earnings amounts available to holders of unvested restricted stock, if any. 
           


PACWEST BANCORP AND SUBSIDIARIES          
AVERAGE BALANCE SHEET AND YIELD ANALYSIS         
            
 Three Months Ended
 September 30, 2016 June 30, 2016 September 30, 2015
  InterestAverage  InterestAverage  InterestAverage
 Average Income/Yield/ Average Income/Yield/ Average Income/Yield/
 BalanceExpenseCost BalanceExpenseCost BalanceExpenseCost
                              
 (Dollars in thousands)
Assets:           
PCI loans$  117,781 $  5,868  19.82% $  147,270 $  8,484  23.17% $  193,094 $  7,505  15.42%
Non-PCI loans and leases   14,417,170    219,502  6.06%    14,321,320    215,842  6.06%    11,919,787    186,034  6.19%
Total loans and leases   14,534,951    225,370  6.17%    14,468,590    224,326  6.24%    12,112,881    193,539  6.34%
Investment securities (1)   3,338,209    27,025  3.22%    3,288,819    27,330  3.34%    1,806,628    16,709  3.67%
Deposits in financial            
institutions   238,425    298  0.50%    245,666    308  0.50%    278,973    178  0.25%
Total interest-earning            
assets   18,111,585    252,693  5.55%    18,003,075    251,964  5.63%    14,198,482    210,426  5.88%
Other assets   2,960,468       2,996,867       2,491,695   
Total assets$  21,072,053    $  20,999,942    $  16,690,177   
            
Liabilities and            
Stockholders' Equity:           
Interest checking$  1,161,931    604  0.21% $  1,024,763    501  0.20% $  787,271    300  0.15%
Money market   4,514,525    3,303  0.29%    4,321,533    2,886  0.27%    2,417,280    1,218  0.20%
Savings   764,415    341  0.18%    766,309    412  0.22%    746,362    449  0.24%
Time   2,666,434    2,999  0.45%    3,086,492    4,024  0.52%    5,042,768    8,433  0.66%
Total interest-bearing            
deposits   9,107,305    7,247  0.32%    9,199,097    7,823  0.34%    8,993,681    10,400  0.46%
Borrowings   583,982    695  0.47%    300,428    352  0.47%    70,171    72  0.41%
Subordinated debentures   439,970    5,278  4.77%    439,081    5,122  4.69%    434,420    4,680  4.27%
Total interest-bearing            
liabilities   10,131,257    13,220  0.52%    9,938,606    13,297  0.54%    9,498,272    15,152  0.63%
Noninterest-bearing            
demand deposits   6,274,294       6,437,720       3,486,780   
Other liabilities   135,801       140,023       132,360   
Total liabilities   16,541,352       16,516,349       13,117,412   
Stockholders' equity   4,530,701       4,483,593       3,572,765   
Total liabilities and            
stockholders' equity$  21,072,053    $  20,999,942    $  16,690,177   
Net interest income (2) $  239,473    $  238,667    $  195,274  
Net interest spread (2)   5.03%    5.09%    5.25%
Net interest margin (2)   5.26%    5.33%    5.46%
            
Total deposits (3)$  15,381,599 $  7,247  0.19% $  15,636,817 $  7,823  0.20% $  12,480,461 $  10,400  0.33%
Funding sources (4)$  16,405,551 $  13,220  0.32% $  16,376,326 $  13,297  0.33% $  12,985,052 $  15,152  0.46%
            
                            
(1) Includes tax equivalent adjustments of $4.8 million, $4.9 million, and $2.8 million for the three months ended September 30, 2016, June 30, 2016,  
and September 30, 2015 related to tax exempt income on municipal securities.  The federal statutory tax rate utilized was 35% for the periods. 
(2) Tax equivalent.           
(3) 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 deposits divided by average total deposits.      
(4) Funding sources is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated as  
annualized total interest expense divided by average funding sources.        
         


PACWEST BANCORP AND SUBSIDIARIES        
FIVE QUARTER BALANCE SHEET         
          
 September 30, June 30, March 31, December 31, September 30,
  2016   2016   2016   2015   2015 
                    
 (Dollars in thousands, except per share data)
ASSETS:         
Cash and due from banks$286,371  $226,471  $161,977  $161,020  $154,652 
Interest-earning deposits in financial         
institutions 253,994   218,882   357,541   235,466   81,642 
Total cash and cash equivalents  540,365   445,353   519,518   396,486   236,294 
          
Securities available-for-sale 3,341,335   3,347,546   3,240,586   3,559,437   1,809,364 
Federal Home Loan Bank stock 19,386   24,214   17,250   19,710   17,250 
Total investment securities 3,360,721   3,371,760   3,257,836   3,579,147   1,826,614 
          
Non-PCI loans and leases 14,686,206   14,566,425   14,365,915   14,339,070   12,300,057 
PCI loans 120,221   136,901   176,607   189,095   193,340 
Total gross loans and leases 14,806,427   14,703,326   14,542,522   14,528,165   12,493,397 
Deferred fees, net (63,581)  (61,866)  (59,005)  (49,911)  (41,192)
Total loans and leases, net of         
deferred fees 14,742,846   14,641,460   14,483,517   14,478,254   12,452,205 
Allowance for loan and lease losses (147,976)  (143,289)  (130,361)  (115,111)  (103,271)
Total loans and leases, net 14,594,870   14,498,171   14,353,156   14,363,143   12,348,934 
          
Equipment leased to others under         
operating leases 198,931   204,062   205,163   197,452   161,508 
Premises and equipment, net 38,977   38,718   39,713   39,197   36,475 
Foreclosed assets, net 15,113   16,181   18,310   22,120   33,216 
Deferred tax asset, net 27,073   24,413   91,126   126,389   169,760 
Goodwill 2,173,949   2,175,791   2,175,791   2,176,291   1,728,380 
Core deposit and customer         
relationship intangibles, net 39,542   43,766   48,137   53,220   12,704 
Other assets 325,750   328,924   322,259   335,045   260,220 
Total assets$21,315,291  $21,147,139  $21,031,009  $21,288,490  $16,814,105 
          
LIABILITIES:         
Noninterest-bearing deposits$6,521,946  $6,222,696  $6,139,963  $6,171,455  $3,508,682 
Interest-bearing deposits 9,123,722   8,925,313   9,301,412   9,494,727   8,607,081 
Total deposits 15,645,668   15,148,009   15,441,375   15,666,182   12,115,763 
Borrowings 541,011   918,208   551,401   621,914   552,497 
Subordinated debentures 441,112   439,322   438,723   436,000   435,417 
Accrued interest payable and other         
liabilities 144,905   128,296   142,918   166,703   128,724 
Total liabilities 16,772,696   16,633,835   16,574,417   16,890,799   13,232,401 
STOCKHOLDERS' EQUITY (1) 4,542,595   4,513,304   4,456,592   4,397,691   3,581,704 
Total liabilities and stockholders’          
equity$21,315,291  $21,147,139  $21,031,009  $21,288,490  $16,814,105 
          
Book value per share$37.29  $37.05  $36.60  $36.22  $34.76 
Tangible book value per share (2)$19.12  $18.83  $18.33  $17.86  $17.86 
Shares outstanding 121,817,524   121,819,849   121,771,252   121,413,727   103,053,694 
          
(1) Includes net unrealized gain on         
securities available-for-sale, net$72,073  $81,744  $48,479  $27,828  $24,459 
(2) Non-GAAP measure.         
          


PACWEST BANCORP AND SUBSIDIARIES        
FIVE QUARTER STATEMENT OF EARNINGS        
          
 Three Months Ended
 September 30, June 30, March 31, December 31, September 30,
  2016   2016   2016   2015   2015 
                    
 (Dollars in thousands, except per share data)
Interest income:         
Loans and leases$225,370  $224,326  $236,375  $219,677  $193,539 
Investment securities 22,187   22,420   22,547   23,648   13,955 
Deposits in financial institutions 298   308   308   172   178 
Total interest income 247,855   247,054   259,230   243,497   207,672 
          
Interest expense:         
Deposits 7,247   7,823   9,073   9,391   10,400 
Borrowings 695   352   581   159   72 
Subordinated debentures 5,278   5,122   4,982   4,748   4,680 
Total interest expense 13,220   13,297   14,636   14,298   15,152 
          
Net interest income 234,635   233,757   244,594   229,199   192,520 
Provision for credit losses 8,471   13,903   20,140   13,772   8,746 
Net interest income after provision          
for credit losses 226,164   219,854   224,454   215,427   183,774 
          
Noninterest income:         
Service charges on deposit accounts 3,488   3,633   3,856   3,901   2,601 
Other commissions and fees 12,528   11,073   11,489   12,691   6,376 
Leased equipment income 8,538   8,523   8,244   7,791   5,475 
Gain on sale of loans and leases 157   388   245   183   27 
Gain on securities 382   478   8,110   -   655 
FDIC loss sharing expense, net -   (6,502)  (2,415)  (4,291)  (4,449)
Other income 1,827   4,528   5,010   7,783   5,073 
Total noninterest income 26,920   22,121   34,539   28,058   15,758 
          
Noninterest expense:         
Compensation 62,661   62,174   61,065   58,992   48,152 
Occupancy 12,010   12,193   12,632   12,194   10,762 
Data processing 6,234   5,644   5,904   5,585   4,322 
Other professional services 4,625   3,401   3,572   3,811   3,396 
Insurance and assessments 4,324   4,951   4,965   5,450   3,805 
Intangible asset amortization 4,224   4,371   4,746   4,910   1,497 
Leased equipment depreciation 5,298   5,286   5,024   4,235   3,162 
Foreclosed assets (income) expense, net (248)  (3)  (561)  (3,185)  4,521 
Acquisition, integration and         
reorganization costs -   -   200   17,600   747 
Other expense 11,582   12,064   13,141   12,672   9,775 
Total noninterest expense 110,710   110,081   110,688   122,264   90,139 
          
Earnings before income taxes 142,374   131,894   148,305   121,221   109,393 
Income tax expense (48,479)  (49,726)  (57,849)  (49,380)  (39,777)
Net earnings $93,895  $82,168  $90,456  $71,841  $69,616 
          
Basic and diluted earnings per share$0.77  $0.68  $0.74  $0.60  $0.68 
          


PACWEST BANCORP AND SUBSIDIARIES        
FIVE QUARTER SELECTED FINANCIAL DATA        
          
 At or For the Three Months Ended
 September 30, June 30, March 31, December 31, September 30,
  2016   2016   2016   2015   2015 
            
 (Dollars in thousands)
Performance Ratios:         
Return on average assets (1) 1.77%  1.57%  1.72%  1.37%  1.65%
Return on average equity (1) 8.24%  7.37%  8.20%  6.56%  7.73%
Return on average tangible equity (1)(2) 16.15%  14.61%  16.45%  13.14%  15.09%
          
Yield on average loans and leases (1) 6.17%  6.24%  6.57%  6.21%  6.34%
Yield on average interest-earning          
assets (1)(3) 5.55%  5.63%  5.85%  5.54%  5.88%
Cost of average total deposits (1) 0.19%  0.20%  0.23%  0.24%  0.33%
Cost of average time deposits (1) 0.45%  0.52%  0.61%  0.63%  0.66%
Cost of average interest-bearing          
liabilities (1) 0.52%  0.54%  0.57%  0.55%  0.63%
Cost of average funding sources (1) 0.32%  0.33%  0.35%  0.35%  0.46%
Net interest rate spread (1)(3) 5.03%  5.09%  5.28%  4.99%  5.25%
Net interest margin (1)(3) 5.26%  5.33%  5.53%  5.22%  5.46%
Core net interest margin (1)(2)(3) 5.08%  5.11%  5.10%  5.10%  5.19%
          
Efficiency ratio 40.1%  40.6%  38.5%  39.3%  39.6%
Noninterest expense as a percentage         
of average assets (1) 2.09%  2.11%  2.10%  2.33%  2.14%
          
Average Balances:         
Loans and leases$  14,534,951  $  14,468,590  $  14,471,165  $  14,031,102  $  12,112,881 
Interest-earning assets   18,111,585     18,003,075     18,161,751     17,777,534     14,198,482 
Total assets   21,072,053     20,999,942     21,198,594     20,825,248     16,690,177 
Noninterest-bearing deposits   6,274,294