Press Release

PacWest Bancorp Announces Results For The Third Quarter 2017

Company Release - 10/17/2017 7:00 AM ET

Highlights

  • Net Earnings of $101.5 Million, or $0.84 Per Diluted Share
  • New Loan and Lease Production of $1.0 Billion
  • Core Deposits Increase of $314 Million and Represent 81% of Total Deposits
  • Tax Equivalent Net Interest Margin of 5.08%
  • All Approvals Received for CUB Acquisition; Expected to Close October 20

LOS ANGELES, Oct. 17, 2017 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the third quarter of 2017 of $101.5 million, or $0.84 per diluted share, compared to net earnings for the second quarter of 2017 of $93.6 million, or $0.77 per diluted share. The increase in net earnings from the prior quarter was primarily due to lower income tax expense partially offset by lower noninterest income and a higher provision for credit losses. Income tax expense for the third quarter was lower due to a $13.6 million reversal of a valuation allowance related to tax credits which, based on our latest analysis, are more likely than not to be utilized before they expire.  

Matt Wagner, President and CEO, commented, “We delivered solid performance in the third quarter and continue to demonstrate our earning power. Our strong third quarter results produced a return on assets of 1.82% and a return on tangible equity of 16.85%.”

Mr. Wagner continued, “All required approvals have been received and we look forward to closing the CU Bancorp acquisition this week. We are excited about the exceptional core deposit franchise and opportunities for increased operating efficiencies provided by this transaction.”

FINANCIAL HIGHLIGHTS

            
 At or For the Three Months Ended At or For the Nine Months Ended
 September 30, June 30,   September 30,  
Financial Highlights 2017   2017  Change  2017   2016  Change
                        
 (Dollars in thousands, except per share data)
Net earnings$101,466  $93,647  $7,819  $273,781  $266,519  $7,262 
Diluted earnings per share$0.84  $0.77  $0.07  $2.26  $2.19  $0.07 
Return on average assets 1.82%  1.71%  0.11   1.67%  1.69%  (0.02)
Return on average           
tangible equity (1) 16.85%  16.06%  0.79   15.63%  15.74%  (0.11)
            
Net interest margin           
(tax equivalent) 5.08%  5.21%  (0.13)  5.15%  5.37%  (0.22)
Efficiency ratio 40.4%  40.3%  0.1   40.7%  39.7%  1.0 
            
Total assets$22,242,932  $22,246,877  $(3,945) $22,242,932  $21,315,291  $927,641 
Loans and leases held           
for investment, net of           
deferred fees$15,690,517  $15,543,457  $147,060  $15,690,517  $14,742,846  $947,671 
Noninterest-bearing           
deposits$6,911,874  $6,701,039  $210,835  $6,911,874  $6,521,946  $389,928 
Core deposits$13,531,300  $13,217,574  $313,726  $13,531,300  $12,010,639  $1,520,661 
Total deposits$16,773,245  $16,874,977  $(101,732) $16,773,245  $15,645,668  $1,127,577 
            
Noninterest-bearing           
deposits as percentage           
of total deposits 41%  40%  1   41%  42%  (1)
Core deposits as           
percentage of total           
deposits 81%  78%  3   81%  77%  4 
            
Equity to assets ratio 20.73%  20.50%  0.23   20.73%  21.31%  (0.58)
Tangible common equity           
ratio (1) 12.02%  11.75%  0.27   12.02%  12.19%  (0.17)
Book value per share$37.96  $37.55  $0.41  $37.96  $37.29  $0.67 
Tangible book value per           
share (1)$19.84  $19.40  $0.44  $19.84  $19.12  $0.72 
            
(1) Non-GAAP measure.           

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased by $0.8 million to $241.7 million for the third quarter of 2017 compared to $242.5 million for the second quarter of 2017 due mainly to interest expense growth exceeding interest income growth for the quarter. The loan and lease yield was 6.01% for the third quarter of 2017 compared to 6.07% for the second quarter of 2017.  The decrease in the loan and lease yield was principally due to the decrease in discount accretion on acquired loans and lower loan fee income.  Total discount accretion on acquired loans was $5.5 million in the third quarter of 2017 compared to $7.5 million in the second quarter of 2017.

The tax equivalent NIM was 5.08% for the third quarter of 2017 compared to 5.21% for the second quarter of 2017.  The decrease in the NIM was mostly due to the decrease in discount accretion on acquired loans and loan fee income and a higher cost of average interest-bearing liabilities. Total discount accretion on acquired loans contributed 11 basis points to the NIM for the third quarter of 2017 and 16 basis points for the second quarter of 2017.

The cost of average total deposits increased to 0.31% for the third quarter of 2017 from 0.25% for the second quarter of 2017 due to higher rates paid for non-core deposits and select large-balance deposit customers.

Noninterest Income

Noninterest income decreased by $3.9 million to $31.4 million for the third quarter of 2017 compared to $35.3 million for the second quarter of 2017 due mainly to a $3.3 million decrease in leased equipment income due to lower gains on early lease terminations and a $1.9 million decrease in other income as the second quarter included a BOLI death benefit and higher recoveries from third parties, offset by an increase in gain on sale of loans and leases of $2.2 million.   

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

 Three Months Ended
 September 30, June 30, Increase
Noninterest Income2017  2017 (Decrease)
      
 (In thousands)
Service charges on deposit accounts$3,465 $3,510 $(45)
Other commissions and fees 9,944  10,583  (639)
Leased equipment income 8,332  11,635  (3,303)
Gain on sale of loans and leases 2,848  649  2,199 
Gain on sale of securities 1,236  1,651  (415)
Other income:     
Dividends and realized gains on equity investments 1,845  1,587  258 
Warrant income 731  815  (84)
Other 2,981  4,852  (1,871)
Total noninterest income$31,382 $35,282 $(3,900)
      

Noninterest Expense

Noninterest expense increased by $0.8 million to $118.5 million for the third quarter of 2017 compared to $117.7 million for the second quarter of 2017 due mostly to a $2.3 million increase in foreclosed assets expense offset by decreases in several expense categories. The increase in foreclosed assets expense was due to a write-down of $2.1 million on foreclosed property.   

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

 Three Months Ended
 September 30, June 30, Increase
Noninterest Expense2017  2017  (Decrease)
      
 (In thousands)
Compensation$64,413 $65,288  $(875)
Occupancy 12,729  11,811   918 
Data processing 6,459  6,337   122 
Other professional services 4,213  3,976   237 
Insurance and assessments 4,702  4,856   (154)
Intangible asset amortization 3,049  3,065   (16)
Leased equipment depreciation 4,862  5,232   (370)
Foreclosed assets expense (income), net 2,191  (157)  2,348 
Acquisition, integration and reorganization costs 1,450  1,700   (250)
Loan expense 3,421  3,884   (463)
Other 11,053  11,715   (662)
Total noninterest expense$118,542 $117,707  $835 
      

Income Taxes

The overall effective income tax rate was 27.2% for the third quarter of 2017 and 37.0% for the second quarter of 2017.  The effective rate for the third quarter was lower due to the $13.6 million reversal of a valuation allowance related to tax credits which, based on our latest analysis, are more likely than not to be utilized before they expire. The estimated effective tax rate for the full year 2017 is approximately 35%. 

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases held for investment, net of deferred fees, increased by $147.1 million in the third quarter to $15.7 billion at September 30, 2017.  The net increase was driven mainly by third quarter new production of $1.0 billion and disbursements of $722.8 million, offset partially by payoffs of $903.4 million and paydowns of $637.7 million.    
The following table presents a roll forward of loans and leases held for investment, net of deferred fees, for the periods indicated:

 Three Months Ended
Loans and Leases September 30, June 30,
Held for Investment Roll Forward (1) 2017   2017 
        
 (Dollars in thousands)
Balance, beginning of period$15,543,457  $15,556,689 
New production 1,002,887   1,077,929 
Existing loans and leases:   
Payoffs (903,395)  (956,322)
Paydowns (637,674)  (587,000)
Disbursements 722,777   700,207 
Sales (2) (31,528)  (45,976)
Transfers to foreclosed assets -   (502)
Charge-offs (6,007)  (26,410)
Transfers to loans held for sale -   (175,158)
Balance, end of period$15,690,517  $15,543,457 
    
Weighted average rate on new production 5.04%  4.93%
    
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) Sales for the three months ended September 30, 2017 exclude sales of loans that were classified
as loans held for sale at June 30, 2017.   

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

 September 30, June 30, March 31, September 30,
Loan and Lease Portfolio 2017  2017  2017  2016
            
 (In thousands)
Real estate mortgage:       
Commercial$4,338,933 $4,418,463 $4,420,923 $4,327,565
Residential 1,850,324  1,719,269  1,554,946  1,242,254
Total real estate mortgage 6,189,257  6,137,732  5,975,869  5,569,819
Real estate construction and land:       
Commercial 680,950  691,828  668,510  510,831
Residential 568,273  473,282  442,051  323,104
Total real estate construction and land 1,249,223  1,165,110  1,110,561  833,935
Total real estate 7,438,480  7,302,842  7,086,430  6,403,754
Commercial:       
Cash flow 2,734,454  2,834,966  3,138,196  3,071,606
Asset-based 2,577,470  2,392,203  2,391,161  2,573,437
Venture capital 1,959,489  2,001,427  1,934,949  1,766,509
Equipment finance 594,473  613,550  623,237  670,783
Total commercial 7,865,886  7,842,146  8,087,543  8,082,335
Consumer 386,151  398,469  382,716  256,757
Total loans and leases held for       
investment, net of deferred fees (1)$15,690,517 $15,543,457 $15,556,689 $14,742,846
        
Total unfunded loan commitments$5,037,084 $4,926,743 $4,497,373 $4,156,147
        
(1) Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.

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 2017   2017   2017   2016 
                
 (Dollars in thousands)
Noninterest-bearing demand deposits$6,911,874  $6,701,039  $6,789,808  $6,521,946 
Interest checking deposits 1,957,485   1,762,016   1,509,902   1,184,350 
Money market deposits 3,967,224   4,033,471   3,758,962   3,532,050 
Savings deposits 694,717   721,048   710,401   772,293 
Total core deposits 13,531,300   13,217,574   12,769,073   12,010,639 
Non-core non-maturity deposits 1,118,694   1,329,324   1,154,070   1,082,114 
Total non-maturity deposits 14,649,994   14,546,898   13,923,143   13,092,753 
Time deposits $250,000 and under 1,770,439   1,940,872   1,998,597   2,091,747 
Time deposits over $250,000 352,812   387,207   409,268   461,168 
Total time deposits 2,123,251   2,328,079   2,407,865   2,552,915 
Total deposits$16,773,245  $16,874,977  $