Press Release

PacWest Bancorp Announces Results for the Fourth Quarter and Full Year 2019

Company Release - 1/21/2020 7:00 AM ET

Fourth Quarter 2019 Highlights

  • Net Earnings of $117.9 Million, or $0.98 Per Diluted Share
  • Loan and Lease Production of $1.0 Billion; $111 Million of Net Loan Growth
  • Core Deposits Represents 84% of Total Deposits
  • Cost of Average Total Deposits Decreased 12 Basis Points from Q3 to 71 Basis Points
  • Net Charge-offs to Average Loans of Two Basis Points

Full Year 2019 Highlights

  • Net Earnings of $468.6 Million, or $3.90 Per Diluted Share
  • Loan and Lease Production of $4.9 Billion; $889 Million of Net Loan Growth or 5%
  • Net Charge-offs to Average Loans of Nine Basis Points; 62% Lower for 2019 Compared to 2018

LOS ANGELES, Jan. 21, 2020 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq: PACW) today announced net earnings for the fourth quarter of 2019 of $117.9 million, or $0.98 per diluted share, compared to net earnings for the third quarter of 2019 of $110.0 million, or $0.92 per diluted share.  The increase in net earnings in the fourth quarter was primarily due to lower income tax expense, of which $9.1 million related to benefits from changes in state apportionment. Net earnings for the full year 2019 were $468.6 million, or $3.90 per diluted share, compared to net earnings for the full year 2018 of $465.3 million, or $3.72 per diluted share.

Matt Wagner, President and CEO, commented, “We finished the year with strong earnings and continued improvement in our credit quality metrics and credit costs reflected by our fourth quarter net charge-offs ratio of two basis points. Our fourth quarter results produced a return on assets of 1.77% and a return on tangible equity of 19.98%.”

Mr. Wagner continued, “The strong fourth quarter capped a year of profitable growth and continued our solid operating performance resulting in a 2019 return on assets of 1.80% and return on tangible equity of 20.66%. The de-risking strategy initiated in 2017 has proven to be successful as our net charge-offs ratio decreased from 40 basis points in 2017 to nine basis points in 2019, while the provision for credit losses declined by 63% from $59.0 million for non-PCI loans in 2017 to $22.0 million in 2019. Our strategy and these outstanding operating results allowed us to return $444 million to our stockholders in 2019 through stock repurchases and dividends. Our earnings per share for the full year 2019 increased by 5% over the prior year to $3.90.”  

Mr. Wagner added, “In 2019, we successfully completed the rebranding of all of our operating groups under one brand as Pacific Western Bank. As we head into 2020, we will continue to focus on profitable growth and increasing the value of our franchise for our stockholders.”   

FINANCIAL HIGHLIGHTS

 At or For the    At or For the   
 Three Months Ended   Year Ended  
 December 31, September 30, Increase December 31, Increase
Financial Highlights  2019   2019  (Decrease)  2019   2018  (Decrease)
  
 (Dollars in thousands, except per share data)
Net earnings$117,881  $110,026  $7,855  $468,636  $465,339  $3,297 
Diluted earnings per share$0.98  $0.92  $0.06  $3.90  $3.72  $0.18 
Return on average assets 1.77%  1.65%  0.12   1.80%  1.91%  (0.11)
Return on average           
tangible equity (1) 19.98%  19.01%  0.97   20.66%  21.22%  (0.56)
            
Net interest margin ("NIM")          
(tax equivalent) 4.33%  4.46%  (0.13)  4.54%  5.05%  (0.51)
Yield on average loans and           
leases (tax equivalent) 5.67%  5.91%  (0.24)  6.00%  6.22%  (0.22)
Cost of average total           
deposits 0.71%  0.83%  (0.12)  0.77%  0.44%  0.33 
Efficiency ratio 44.8%  42.3%  2.5   42.7%  41.0%  1.7 
            
Total assets$26,770,806  $26,724,627  $46,179  $26,770,806  $25,731,354  $1,039,452 
Loans and leases held           
for investment,           
net of deferred fees$18,846,872  $18,735,543  $111,329  $18,846,872  $17,957,713  $889,159 
Noninterest-bearing           
demand deposits$7,243,298  $7,441,185  $(197,887) $7,243,298  $7,888,915  $(645,617)
Core deposits$16,187,287  $16,471,264  $(283,977) $16,187,287  $16,346,671  $(159,384)
Total deposits$19,233,036  $19,733,203  $(500,167) $19,233,036  $18,870,501  $362,535 
            
As percentage of total           
deposits:           
Noninterest-bearing           
demand deposits 38%  38%  -   38%  42%  (4)
Core deposits 84%  84%  -   84%  87%  (3)
            
Equity to assets ratio 18.51%  18.41%  0.10   18.51%  18.75%  (0.24)
Tangible common equity           
ratio (1) 9.79%  9.65%  0.14   9.79%  9.60%  0.19 
Book value per share$41.36  $41.06  $0.30  $41.36  $39.17  $2.19 
Tangible book value per           
share (1)$19.77  $19.43  $0.34  $19.77  $18.02  $1.75 
            
(1) Non-GAAP measure.           

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased by $5.6 million to $246.6 million for the fourth quarter of 2019 compared to $252.2 million for the third quarter of 2019 due mainly to a lower yield on average loans and leases and a lower balance of average loans and leases. The tax equivalent yield on average loans and leases was 5.67% for the fourth quarter of 2019 compared to 5.91% for the third quarter of 2019. The decrease in the yield on average loans and leases was due principally to the repricing of variable-rate loans causing lower coupon interest in addition to lower loan fee income in the fourth quarter compared to the third quarter, offset partially by higher loan prepayment fees. The prepayment fees added seven basis points to the fourth quarter yield on average loans and leases and five basis points to the third quarter yield on average loans and leases.

The tax equivalent NIM was 4.33% for the fourth quarter of 2019 compared to 4.46% for the third quarter of 2019. The decrease in the NIM was due mainly to the repricing of variable-rate loans causing lower coupon interest and lower loan fee income, offset partially by the lower cost of interest-bearing liabilities.            

The cost of average total deposits decreased to 0.71% for the fourth quarter of 2019 from 0.83% for the third quarter of 2019 due mainly to a lower cost of average interest-bearing deposits, offset partially by a lower average balance of noninterest-bearing deposits. Our cost of average total deposits has declined from a 2019 peak of 86 basis points in the month of July to a 2019 low of 66 basis points in the month of December. The lower cost of average interest-bearing deposits reflected actions taken to reduce deposit rates in light of the fed funds target rate cuts during the second half of 2019.

Provision for Credit Losses

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

 Three Months Ended  
 December 31, September 30, Increase
Provision for Credit Losses 2019   2019  (Decrease)
          
  
 (In thousands)
Addition to allowance for loan and lease losses$1,000  $8,000  $(7,000)
Addition (reduction) to reserve for unfunded     
loan commitments 2,000   (1,000)  3,000 
Total provision for credit losses$3,000  $7,000  $(4,000)

The increase in the provision for unfunded commitments was the result of significant growth in unfunded construction loan commitments in the fourth quarter of 2019.

Noninterest Income

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

 Three Months Ended  
 December 31, September 30, Increase
Noninterest Income 2019   2019  (Decrease)
  
 (In thousands)
Service charges on deposit accounts$3,611  $3,525  $86 
Other commissions and fees 10,170   10,855   (685)
Leased equipment income 10,648   9,615   1,033 
Gain on sale of loans and leases 23   765   (742)
Gain on sale of securities 184   908   (724)
Other income:     
Dividends and (losses) gains on equity investments (794)  14   (808)
Warrant income 1,240   3,936   (2,696)
Other 2,094   3,811   (1,717)
Total noninterest income$27,176  $33,429  $(6,253)

Noninterest income decreased by $6.3 million to $27.2 million for the fourth quarter of 2019 compared to $33.4 million for the third quarter of 2019 due primarily to a $2.7 million decrease in warrant income, a $1.7 million decrease in other income, a $0.8 million decrease in dividends and gains on equity investments, a $0.7 million decrease in gain on sale of loans and leases, and a $0.7 million decrease in gain on sale of securities, offset partially by a $1.0 million increase in leased equipment income.  The decrease in warrant income was due to lower gains resulting from exercised warrants. The decrease in other income was due mainly to lower gains from lease terminations. The decreases in gain on sale of loans and leases and gain on sale of securities were attributable to a lower level of sales activity in the fourth quarter of 2019 as compared to the third quarter of 2019. The increase in leased equipment income was due primarily to a higher average balance of leased equipment in the fourth quarter compared to the third quarter.

Noninterest Expense

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

 Three Months Ended  
 December 31, September 30, Increase
Noninterest Expense 2019   2019  (Decrease)
  
 (In thousands)
Compensation$74,637  $71,424  $3,213 
Occupancy 14,541   14,089   452 
Data processing 6,770   7,044   (274)
Other professional services 4,261   4,400   (139)
Insurance and assessments 4,168   4,100   68 
Intangible asset amortization 4,153   4,833   (680)
Leased equipment depreciation 6,856   5,951   905 
Foreclosed assets (income) expense, net (3,446)  8   (3,454)
Acquisition, integration and reorganization costs (269)  -   (269)
Customer related expense 3,952   3,539   413 
Loan expense 2,967   3,628   (661)
Other 5,138   7,793   (2,655)
Total noninterest expense$123,728  $126,809  $(3,081)
      

Noninterest expense decreased by $3.1 million to $123.7 million for the fourth quarter of 2019 compared to $126.8 million for the third quarter of 2019 attributable primarily to a $3.5 million increase in foreclosed assets income and a $2.7 million decrease in other expense, offset partially by a $3.2 million increase in compensation expense. Foreclosed assets income increased due to a $3.3 million gain on the sale of a repossessed asset. Other expense decreased due primarily to a $1.7 million reversal of previously accrued merger costs and a $1.1 million credit adjustment to franchise tax expense for refunds related to state apportionment changes. Compensation expense increased due mainly to higher bonus expense of $2.9 million.  

Income Taxes

The overall effective income tax rate was 19.8% for the fourth quarter of 2019 and 27.5% for the third quarter of 2019. The fourth quarter 2019 effective tax rate was lower due primarily to $9.1 million of benefits related to changes in state apportionment net of the federal tax effect. The effective tax rate for the year ended December 31, 2019 was 26.0% and for the full year 2020 is currently estimated to be in the range of 26-28%.   

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 Year Ended
Roll Forward of Loans and Leases HeldDecember 31,  September 30,  December 31,
for Investment, Net of Deferred Fees (1) 2019   2019   2019 
  
 (Dollars in thousands)
Balance, beginning of period$18,735,543  $18,472,852  $17,957,713 
Additions:     
Production 1,021,334   1,230,817   4,863,288 
Disbursements 1,317,389   1,288,111   5,092,219 
Total production and disbursements 2,338,723   2,518,928   9,955,507 
Reductions:     
Payoffs (816,134)  (1,390,883)  (4,669,530)
Paydowns (1,406,475)  (837,551)  (4,262,977)
Total payoffs and paydowns (2,222,609)  (2,228,434)  (8,932,507)
Sales (43)  (21,302)  (76,335)
Transfers to foreclosed assets (83)  -   (120)
Charge-offs (4,659)  (6,501)  (32,262)
Transfers to loans held for sale -   -   (25,124)
Total reductions (2,227,394)  (2,256,237)  (9,066,348)
Net increase 111,329   262,691   889,159 
Balance, end of period$18,846,872  $18,735,543  $18,846,872 
      
Weighted average rate on production (2) 4.73%  5.28%  5.06%
      
(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 22 basis points to loan  
yields in 2019.     

Loans and leases held for investment, net of deferred fees, increased by $111.3 million, or 2.4% annualized, in the fourth quarter of 2019 to $18.8 billion at December 31, 2019.  The net loan growth in the fourth quarter was primarily from the income producing and other residential real estate mortgage loan portfolio class and the residential real estate construction loan portfolio class. For the year ended December 31, 2019, loans and leases held for investment, net of deferred fees, increased by $889.2 million or 5.0%.

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

            
 December 31, 2019 September 30, 2019 December 31, 2018
  % of   % of   % of
Loan and Lease Portfolio AmountTotal AmountTotal AmountTotal
  
 (In thousands)
Real estate mortgage:           
Commercial$4,202,68722% $4,300,56623% $4,824,29827%
Income producing and other           
residential3,770,06020% 3,596,35819% 3,093,84317%
Total real estate mortgage7,972,74742% 7,896,92442% 7,918,14144%
Real estate construction and land:           
Commercial1,082,3686% 1,009,3626% 912,5835<