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PacWest Bancorp Announces Results for the First Quarter of 2021

Company Release - 04/20/2021

LOS ANGELES, April 20, 2021 (GLOBE NEWSWIRE) --

FIRST QUARTER 2021 RESULTS

$150.4M $ 1.27 $156.0M 25.67 %
Net Earnings Diluted Earnings
per Share
PPNR ROATE

FIRST QUARTER 2021 HIGHLIGHTS

  • Net Earnings of $150.4 Million or $1.27 Per Diluted Share
  • Core Deposits Up $3.3 Billion or 15% in 1Q21; Represents 91% of Total Deposits
  • Provision for Credit Losses Benefit of $48.0 Million in 1Q21 Compared to Provision of $10.0 Million in 4Q20
  • Net Interest Income (TE) of $264.6 Million, Compared With $262.1 Million in 4Q20
  • Noninterest Income of $44.8 Million, Up 12% From 4Q20, With Continued Strength in Warrant Income As Well As a $10.1 Million Gain on an Equity Investment
  • Noninterest Expense of $150.1 Million, Up 11% From 4Q20, Driven By Two Months of Civic Financial Services (“Civic”) Operations, Higher Acquisition Costs, and a Legal Settlement
  • Classified and Special Mention Loans Fell $102.1 Million and $88.3 Million, Respectively, From 4Q20
  • ACL Ratio of 2.02% and ALLL Ratio of 1.54%; Excluding PPP Loans, ACL Ratio of 2.14% and ALLL Ratio of 1.63%
  • Net Charge-offs to Average Loans/Leases of 6 bps
  • Cost of Deposits Decreased 3 bps to 11 bps
  • Loan and Lease Production of $1.6 Billion Up From $1.1 Billion in 4Q20; WAC of 5.39% (Excluding PPP Loans) vs. 4.41% in 4Q20
  • Net Loans and Leases of $19.0 Billion, Down Slightly From 4Q20 As Production Was Offset With Payoffs and Paydowns As Well As Further Reduction in the Security Monitoring Portfolio
  • Originated $381 Million of PPP Loans in 1Q21
  • Strong Capital Position – CET1 Ratio of 10.41%
  • Civic Acquisition Completed on February 1, 2021
  • On March 31, 2021, Signed Agreement to Purchase the Homeowners Association Business from MUFG Union Bank, N.A. With Approximately $4.0 Billion of Deposits With a Cost of 8 bps; Close Expected in 4Q21

CEO COMMENTARY
Matt Wagner, President and CEO, commented, “Our continued focus on growing net interest income produced strong first quarter earnings boosted by continued deposit driven balance sheet growth and improved credit costs as a result of improved economic conditions. Our first quarter results produced a return on assets of 1.94% and a return on tangible equity of 25.67%.”

“We experienced strong deposit growth again in the first quarter driven by outstanding growth from our venture banking clients as well as our commercial bank. This increasing liquidity has expanded our average balance of deposits at the Fed, which grew to $4.8 billion in the first quarter with a yield of 13 basis points. While our focus is on managing net interest income, this excess liquidity continues to be a drag on our net interest margin, which had a negative impact of 61 basis points in the first quarter.”

“Credit quality continued to improve as we experienced decreases in nonaccrual, special mention, and classified loans and leases in the first quarter, while net charge-offs were $2.7 million.”

“We closed the Civic acquisition on February 1, 2021 and in two months Civic originated $231 million of loans. We expect Civic loan production to remain strong and, as their loan portfolio continues to grow, it will help sustain our loan yields and drive loan growth.” 

A chart accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/03fbe6a3-20e1-45c9-905b-ab7513e2ee6b

FINANCIAL HIGHLIGHTS

  At or For the       At or For the    
  Three Months Ended       Three Months Ended    
  March 31,   December 31,   Increase   March 31,   Increase
Financial Highlights (1)   2021       2020     (Decrease)     2021       2020     (Decrease)
                                               
  (Dollars in thousands, except per share data)
Net earnings (loss) $ 150,406     $ 116,830     $ 33,576     $ 150,406     $ (1,433,111 )   $ 1,583,517  
Diluted earnings (loss)                      
per share $ 1.27     $ 0.99     $ 0.28     $ 1.27     $ (12.23 )   $ 13.50  
Pre-provision, pre-goodwill                      
impairment, pre-tax net                      
revenue ("PPNR") (2) $ 155,962     $ 163,376     $ (7,414 )   $ 155,962     $ 160,877     $ (4,915 )
Return on average assets   1.94 %     1.58 %     0.36       1.94 %     (21.27 )%     23.21  
PPNR return on average                      
assets (2)   2.01 %     2.22 %     (0.21 )     2.01 %     2.39 %     (0.38 )
Return on average                      
tangible equity (2)   25.67 %     19.63 %     6.04       25.67 %     6.88 %     18.79  
                       
Yield on average loans and                      
leases (tax equivalent)   5.20 %     5.15 %     0.05       5.20 %     5.54 %     (0.34 )
Cost of average total                      
deposits   0.11 %     0.14 %     (0.03 )     0.11 %     0.59 %     (0.48 )
Net interest margin ("NIM")                      
(tax equivalent)   3.69 %     3.83 %     (0.14 )     3.69 %     4.31 %     (0.62 )
Efficiency ratio   46.4 %     43.6 %     2.8       46.4 %     40.6 %     5.8  
                       
Total assets $ 32,856,533     $ 29,498,442     $ 3,358,091     $ 32,856,533     $ 26,143,267     $ 6,713,266  
Loans and leases held                      
for investment,                      
net of deferred fees $ 18,979,228     $ 19,083,377     $ (104,149 )   $ 18,979,228     $ 19,745,305     $ (766,077 )
Noninterest-bearing                      
demand deposits $ 11,017,462     $ 9,193,827     $ 1,823,635     $ 11,017,462     $ 7,510,218     $ 3,507,244  
Core deposits $ 25,576,348     $ 22,264,480     $ 3,311,868     $ 25,576,348     $ 16,050,522     $ 9,525,826  
Total deposits $ 28,223,291     $ 24,940,717     $ 3,282,574     $ 28,223,291     $ 19,575,837     $ 8,647,454  
                       
As percentage of total                      
deposits:                      
Noninterest-bearing                      
demand deposits   39 %     37 %     2       39 %     38 %     1  
Core deposits   91 %     89 %     2       91 %     82 %     9  
                       
Equity to assets ratio   11.12 %     12.19 %     (1.07 )     11.12 %     12.97 %     (1.85 )
Common equity tier 1                      
capital ratio   10.41 %     10.53 %     (0.12 )     10.41 %     9.22 %     1.19  
Total capital ratio   13.63 %     13.76 %     (0.13 )     13.63 %     12.07 %     1.56  
Tangible common equity                      
ratio (2)   7.68 %     8.78 %     (1.10 )     7.68 %     9.10 %     (1.42 )
Book value per share $ 30.68     $ 30.36     $ 0.32     $ 30.68     $ 28.75     $ 1.93  
Tangible book value per                      
share (2) $ 20.39     $ 21.05     $ (0.66 )   $ 20.39     $ 19.31     $ 1.08  
                       
(1) The operations of Civic are included from its February 1, 2021 acquisition date.                      
(2) Non-GAAP measure.                      



INCOME STATEMENT HIGHLIGHTS

NET INTEREST INCOME

Net interest income increased by $2.1 million to $261.3 million for the first quarter of 2021 compared to $259.2 million for the fourth quarter of 2020 due mainly to higher income on investment securities and lower interest expense, partially offset by lower income on loans and leases and the negative impact on net interest income due to the change in the earning assets mix. The tax equivalent yield on average loans and leases was 5.20% for the first quarter of 2021 compared to 5.15% for the fourth quarter of 2020. The increase in the tax equivalent yield on average loans and leases was primarily due to higher loan discount accretion of $1.5 million and higher amortized loan fee income of $2.9 million mainly from higher PPP loan forgiveness in the first quarter of 2021 as compared to the fourth quarter of 2020.

The tax equivalent NIM was 3.69% for the first quarter of 2021 compared to 3.83% for the fourth quarter of 2020. The decrease in the NIM was primarily due to the change in the earning assets mix. The average balance of deposits in financial institutions increased by $1.2 billion, the average balance of investment securities increased by $494.1 million, and the average balance of loans and leases increased by $158.1 million in the first quarter of 2021. This excess liquidity had a negative impact on the first quarter tax equivalent NIM of 61 basis points.          

The cost of average total deposits decreased to 0.11% in the first quarter of 2021 from 0.14% for the fourth quarter of 2020. The lower cost of average total deposits was due primarily to the repricing of maturing brokered time deposits and the increased average balance of noninterest-bearing deposits.

PROVISION FOR CREDIT LOSSES

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

  Three Months Ended    
  March 31,   December 31,   Increase
Provision for Credit Losses   2021       2020     (Decrease)
                       
      (In thousands)    
(Reduction in) addition to allowance for loan          
and lease losses $ (53,000 )   $ 21,000     $ (74,000 )
Addition to (reduction in) reserve for          
unfunded loan commitments   5,000       (11,000 )     16,000  
Total provision for credit losses $ (48,000 )   $ 10,000     $ (58,000 )

The provision for credit losses decreased by $58.0 million to a benefit of $48.0 million for the first quarter of 2021 compared to a $10.0 million provision for the fourth quarter of 2020. This reduction reflected improvement in certain key macro-economic forecast variables and decreased provisions for individually evaluated loans and leases, partially offset by a higher provision for unfunded commitments which grew by $526.6 million.

NONINTEREST INCOME

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

  Three Months Ended    
  March 31,   December 31,   Increase
Noninterest Income   2021     2020   (Decrease)
                   
          (In thousands)        
Service charges on deposit accounts $ 2,934   $ 3,119   $ (185 )
Other commissions and fees   9,158     9,974     (816 )
Leased equipment income   11,354     9,440     1,914  
Gain on sale of loans and leases   139     1,671     (1,532 )
Gain on sale of securities   101     4     97  
Other income:          
Dividends and gains on equity investments   10,904     5,064     5,840  
Warrant income   6,123     7,299     (1,176 )
Other   4,116     3,279     837  
Total noninterest income $ 44,829   $ 39,850   $ 4,979  

Noninterest income increased by $5.0 million to $44.8 million for the first quarter of 2021 compared to $39.9 million for the fourth quarter of 2020 due primarily to an increase of $5.8 million in dividends and gains on equity investments and a $1.9 million increase in leased equipment income, offset partially by decreases of $1.5 million in gain on sale of loans and leases and $1.2 million in warrant income. The increase in dividends and gains on equity investments was due primarily to a $10.1 million gain on one equity investment, offset partially by lower net fair value gains on equity investments still held. The increase in leased equipment income was due primarily to a higher average balance of equipment leased to others under operating leases. The decrease in the gain on sale of loans and leases resulted from the sales of $72.6 million of loans for gains of $0.1 million in the first quarter of 2021 compared to sales of $119.9 million for gains of $1.7 million in the fourth quarter of 2020. The decrease in warrant income was primarily attributable to lower gains from exercised warrants after record gains in the fourth quarter of 2020.

NONINTEREST EXPENSE

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

  Three Months Ended    
  March 31,   December 31,   Increase
Noninterest Expense   2021     2020     (Decrease)
                     
          (In thousands)          
Compensation $ 79,882   $ 73,171     $ 6,711  
Occupancy   14,054     14,083       (29 )
Data processing   6,957     6,718       239  
Other professional services   5,126     6,800       (1,674 )
Insurance and assessments   4,903     5,064       (161 )
Intangible asset amortization   3,079     3,172       (93 )
Leased equipment depreciation   8,969     7,501       1,468  
Foreclosed assets (income) expense, net   1     (272 )     273  
Acquisition, integration and reorganization costs   3,425     1,060       2,365  
Customer related expense   4,818     4,430       388  
Loan expense   3,193     3,926       (733 )
Other   15,729     10,029       5,700  
Total operating expense   150,136     135,682       14,454  
Goodwill impairment   -     -       -  
Total noninterest expense $ 150,136   $ 135,682     $ 14,454  

Noninterest expense increased by $14.5 million to $150.1 million for the first quarter of 2021 compared to $135.7 million for the fourth quarter of 2020 due primarily to increases of $6.7 million in compensation expense, $5.7 million in other expense, $2.4 million in acquisition, integration and reorganization costs, and $1.5 million in leased equipment depreciation, offset partially by a decrease of $1.7 million in other professional expense. The increase in compensation expense was mostly due to compensation expense related to the Civic operations, while, in total, Civic’s noninterest expenses added $10.8 million to total noninterest expense. The increase in other expense was largely due to a legal settlement in excess of amounts previously accrued. The increase in acquisition, integration and reorganization costs was due to advisory services and integration expenses related to the closed Civic acquisition and the pending acquisition of MUFG Union Bank’s Homeowners Association Services Division. The increase in leased equipment depreciation was due primarily to an increase in the average balance of equipment leased to others under operating leases. The decrease in other professional expense was due primarily to lower consulting expense.

INCOME TAXES

The effective income tax rate was 26.3% in the first quarter of 2021 compared to 23.8% for the fourth quarter of 2020. The increase was primarily due to higher pre-tax income in relation to discrete items for the quarter. The effective income tax rate for the full year 2021 is currently estimated to be in the range of 25% to 27%.

BALANCE SHEET HIGHLIGHTS

DEPOSITS AND CLIENT INVESTMENT FUNDS

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

  March 31, 2021   December 31, 2020   March 31, 2020
    % of     % of     % of
Deposit Composition Balance Total   Balance Total   Balance Total
                             
              (Dollars in thousands)              
Noninterest-bearing demand $ 11,017,462 39 %   $ 9,193,827 37 %   $ 7,510,218 38 %
Interest checking   6,862,398 25 %     5,974,910 24 %     3,333,147 17 %
Money market   7,112,610 25 %     6,532,917 26 %     4,712,118 24 %
Savings   583,878 2 %     562,826 2 %     495,039 3 %
Total core deposits   25,576,348 91 %     22,264,480 89 %     16,050,522 82 %
Non-core non-maturity deposits   1,162,590 4 %     1,149,467 5 %     836,157 4 %
Total non-maturity deposits   26,738,938 95 %     23,413,947 94 %     16,886,679 86 %
Time deposits $250,000 and under   940,340 3 %     994,197 4 %     2,086,188 11 %
Time deposits over $250,000   544,013 2 %     532,573 2 %     602,970 3 %
Total time deposits   1,484,353 5 %     1,526,770 6 %     2,689,158 14 %
Total deposits $ 28,223,291 100 %   $ 24,940,717 100 %   $ 19,575,837 100 %

At March 31, 2021, core deposits totaled $25.6 billion or 91% of total deposits, including $11.0 billion of noninterest-bearing demand deposits or 39% of total deposits. Core deposits increased by $3.3 billion or 15% in the first quarter of 2021 driven by continued strong deposit growth from our venture banking clients.

In addition to deposit products, we also offer alternative, non-depository cash investment options for select clients. These alternative options 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 March 31, 2021 were $1.4 billion, of which $0.9 billion was managed by PWAM.

LOANS AND LEASES

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

  Three Months Ended
Roll Forward of Loans and Leases Held March 31,   December 31,
for Investment, Net of Deferred Fees (1)   2021       2020  
               
   
    (Dollars in thousands)  
Balance, beginning of period $ 19,083,377     $ 19,026,200  
Additions:      
Production   1,612,777       1,131,165  
Disbursements   1,022,986       1,354,038  
Total production and disbursements   2,635,763       2,485,203  
Reductions:      
Payoffs   (1,635,264 )     (1,330,321 )
Paydowns   (1,067,418 )     (957,075 )
Total payoffs and paydowns   (2,702,682 )     (2,287,396 )
Sales   (72,641 )     (119,931 )
Transfers to foreclosed assets   (647 )     (385 )
Charge-offs   (3,988 )     (20,314 )
Transfers to loans held for sale   (25,554 )     -  
Total reductions   (2,805,512 )     (2,428,026 )
Loans acquired through Civic acquisition   65,600       -  
Net increase (decrease)   (104,149 )     57,177  
Balance, end of period $ 18,979,228     $ 19,083,377  
       
Weighted average rate on production (2)   4.36 %     4.41 %
       
(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 43 basis points to loan yields in 2021.
       

Loans and leases held for investment, net of deferred fees, decreased by $104.1 million in the first quarter of 2021 to $19.0 billion at March 31, 2021. The decrease in the loans and leases balance for the first quarter of 2021 was primarily due to a $123.5 million decrease in the security monitoring portfolio, for which new originations have been discontinued since the fourth quarter of 2019. The weighted average rate on first quarter of 2021 production decreased to 4.36% due to first quarter production including $381 million of PPP loans at a coupon rate of 1%, while the fourth quarter of 2020 included no PPP loan production. Excluding PPP loans, the weighted average rate on new production for the first quarter of 2021 was 5.39%.

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:

  March 31, 2021   December 31, 2020   March 31, 2020
    % of     % of     % of
Loan and Lease Portfolio Balance Total   Balance Total   Balance Total
                             
        (In thousands)      
Real estate mortgage:                
Commercial $ 3,941,610 21 %   $ 4,096,671 21 %   $ 4,220,649 21 %
Income producing and other                
residential   4,045,603 21 %     3,803,265 20 %     3,788,295 19 %
Total real estate mortgage   7,987,213 42 %     7,899,936 41 %     8,008,944 40 %
Real estate construction and land:                
Commercial   990,035 5 %     1,117,121 6 %     1,087,505 6 %
Residential   2,575,788 14 %     2,243,160 12 %     1,792,748 9 %
Total real estate construction                
and land   3,565,823 19 %     3,360,281 18 %     2,880,253 15 %
Total real estate   11,553,036 61 %     11,260,217 59 %     10,889,197 55 %
Commercial:                
Asset-based   3,383,403 18 %     3,429,283 18 %     3,938,402 20 %
Venture capital   1,495,798 8 %     1,698,508 9 %     2,715,837 14 %
Other commercial   2,206,639 11 %     2,375,114 12 %     1,771,985 9 %
Total commercial   7,085,840 37 %     7,502,905 39 %     8,426,224 43 %
Consumer   340,352 2 %     320,255 2 %     429,884 2 %
Total loans and leases held for                
investment, net of deferred fees $ 18,979,228 100 %   $ 19,083,377 100 %   $ 19,745,305 100 %
                 
Total unfunded loan commitments $ 8,127,999     $ 7,601,390     $ 7,697,724  

ALLOWANCE FOR CREDIT LOSSES

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

  Three Months Ended March 31, 2021
  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 $ 348,181     $ 85,571     $ 433,752  
Charge-offs   (3,988 )     -       (3,988 )
Recoveries   1,252       -       1,252  
Net charge-offs   (2,736 )     -       (2,736 )
Provision   (53,000 )     5,000       (48,000 )
Ending balance $ 292,445     $ 90,571     $ 383,016  
           
  Three Months Ended December 31, 2020
  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 $ 345,966     $ 96,571     $ 442,537  
Charge-offs   (20,314 )     -       (20,314 )
Recoveries   1,529       -       1,529  
Net charge-offs   (18,785 )     -       (18,785 )
Provision   21,000       (11,000 )     10,000  
Ending balance $ 348,181     $ 85,571     $ 433,752  


The following table presents allowance for credit losses information as of and for the dates and periods indicated:

  March 31,   December 31,   Increase
Allowance for Credit Losses   2021       2020     (Decrease)
                       
            (Dollars in thousands)          
Allowance for loan and lease losses $ 292,445     $ 348,181     $ (55,736 )
Reserve for unfunded loan commitments   90,571       85,571       5,000  
Allowance for credit losses $ 383,016     $ 433,752     $ (50,736 )
           
Provision for credit losses (for the quarter) $ (48,000 )   $ 10,000     $ (58,000 )
Net charge-offs (for the quarter) $ 2,736     $ 18,785     $ (16,049 )
Net charge-offs to average loans and leases          
(for the quarter)   0.06 %     0.40 %    
Allowance for loan and lease losses to loans          
and leases held for investment   1.54 %     1.82 %    
Allowance for loan and lease losses to loans          
and leases held for investment, excluding PPP loans   1.63 %     1.93 %    
Allowance for credit losses to loans and leases          
held for investment   2.02 %     2.27 %    
Allowance for credit losses to loans and leases          
held for investment, excluding PPP loans   2.14 %     2.41 %    

The allowance for credit losses decreased by $50.7 million in the first quarter of 2021 to $383.0 million at March 31, 2021. The decrease in the allowance for credit losses during the first quarter of 2021 was attributable to a provision for credit losses benefit of $48.0 million and $2.7 million in net charge-offs.  

Net charge-offs were $2.7 million for the first quarter of 2021. Gross charge-offs of $4.0 million were reduced by recoveries of $1.3 million.

Net charge-offs were $18.8 million for the fourth quarter of 2020. Gross charge-offs of $20.3 million were reduced by recoveries of $1.5 million. The most significant charge-off was $15.5 million related to a security monitoring loan.

Security monitoring loans decreased by 38% from $329.3 million as of December 31, 2020 to $205.8 million as of March 31, 2021, as the Company continues to actively reduce the remaining loans. As of March 31, 2021, $172.1 million or 84% of these security monitoring loans are performing and pass-rated, while $33.7 million are classified, of which $6.1 million are on nonaccrual.

CREDIT QUALITY  

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

  March 31,   December 31,   Increase
Credit Quality Metrics   2021       2020     (Decrease)
                       
      (Dollars in thousands)    
NPAs and Performing TDRs:          
Nonaccrual loans and leases held for investment (1) $ 67,652     $ 91,163     $ (23,511 )
Accruing loans contractually past due 90 days or more   -       -       -  
Foreclosed assets, net   14,298       14,027       271  
   Total nonperforming assets ("NPAs") $ 81,950     $ 105,190     $ (23,240 )
           
Performing TDRs held for investment $ 27,999     $ 14,254     $ 13,745  
           
Nonaccrual loans and leases held for investment          
to loans and leases held for investment   0.36 %     0.48 %    
Nonperforming assets to loans and leases          
held for investment and foreclosed assets   0.43 %     0.55 %    
Allowance for credit losses to nonaccrual loans          
and leases held for investment   566.2 %     475.8 %    
           
Loan and Lease Credit Risk Ratings:          
Pass $ 18,183,114     $ 18,096,830     $ 86,284  
Special mention   632,997       721,285       (88,288 )
Classified   163,117       265,262       (102,145 )
Total loans and leases held for investment,          
net of deferred fees $ 18,979,228     $ 19,083,377     $ (104,149 )
           
Classified loans and leases held for investment          
to loans and leases held for investment   0.86 %     1.39 %    
           
           
(1) Nonaccrual loans include guaranteed amounts of $18.4 million at March 31, 2021 and $13.9 million at December 31, 2020.        

Since pro-actively downgrading certain loans at the onset of the pandemic in the first quarter of 2020, special mention loans and leases have decreased $265.7 million from their peak in the first quarter of 2020, while classified loans and leases have decreased $130.1 million from their peak in the second quarter of 2020, and each have continued their decline in the first quarter of 2021.

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

  March 31, 2021   December 31, 2020   Increase (Decrease)
      Accruing       Accruing       Accruing
      and 30-89       and 30-89       and 30-89
      Days Past       Days Past       Days Past
  Nonaccrual   Due   Nonaccrual   Due   Nonaccrual   Due
                                       
      (Dollars in thousands)    
Real estate mortgage:                      
Commercial $ 46,436   $ 5   $ 43,731   $ 3,636   $ 2,705     $ (3,631 )
Income producing and other                      
residential   2,471     6,339     1,826     600     645       5,739  
Total real estate mortgage   48,907     6,344     45,557     4,236     3,350       2,108  
Real estate construction and land:                    
Commercial   302     -     315     -     (13 )     -  
Residential   416     1,241     -     759     416       482  
Total real estate                      
construction and land   718     1,241     315     759     403       482  
Commercial:                      
Asset-based   2,379     -     2,679     -     (300 )     -  
Venture capital   2,432     6,750     1,980     540     452       6,210  
Other commercial   12,660     1,251     40,243     2,078     (27,583 )     (827 )
Total commercial   17,471     8,001     44,902     2,618     (27,431 )     5,383  
Consumer   556     954     389     1,260     167       (306 )
Total held for investment $ 67,652   $ 16,540   $ 91,163   $ 8,873   $ (23,511 )   $ 7,667  

During the first quarter of 2021, nonaccrual loans and leases decreased by $23.5 million due primarily to one security monitoring loan for $25.6 million being moved to held for sale at March 31, 2021. The sale of this loan was completed in early April 2021 and resulted in a gain of $1.4 million.

CAPITAL

The following table presents certain actual capital ratios and ratios excluding PPP loans:

  March 31, 2021    
      Excluding   December 31,
      PPP   2020  
  Actual (1)    Loans (1)   Actual
PacWest Bancorp Consolidated:          
Tier 1 leverage capital ratio 7.95 %   8.25 % (3 ) 8.55 %
Common equity tier 1 capital ratio 10.41 %   10.41 %   10.53 %
Total capital ratio 13.63 %   13.63 %   13.76 %
Tangible common equity ratio (2) 7.68 %   7.95 % (3 ) 8.78 %
           
(1) Capital information for March 31, 2021 is preliminary.          
(2) Non-GAAP measure.          
(3) PPP loans have been excluded from total assets in denominator as they are zero risk-weighted.          

ABOUT PACWEST BANCORP

PacWest Bancorp (“PacWest”) is a bank holding company with over $32 billion in assets headquartered in Los Angeles, California, with an executive office in Denver, Colorado, with one wholly-owned banking subsidiary, Pacific Western Bank (the “Bank”). The Bank has 70 full-service branches located in California, one branch located in Durham, North Carolina, and one branch located in Denver, Colorado. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank also offers venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed 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 or Pacific Western Bank, visit www.pacwest.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. Statements that are not historical or current facts, including statements about future financial and operational results, expectations, or intentions are forward-looking statements. Such statements are based on information available at the time of the 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. The COVID-19 pandemic is adversely affecting PacWest, its employees, customers and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity and prospects is uncertain. The length of the COVID-19 pandemic and the severity of its impact on key macro-economic indicators such as unemployment and GDP may have a material impact on our allowance for credit losses and related provision for credit losses. Continued deterioration in general business and economic conditions could adversely affect PacWest’s revenues and the values of its assets, including goodwill, and liabilities, lead to a tightening of credit, and increase stock price volatility. In addition, PacWest’s results could be adversely affected by changes in interest rates, sustained high unemployment rates, deterioration in the credit quality of its loan portfolio or in the value of the collateral securing those loans, deterioration in the value of its investment securities, the magnitude of individual loan losses on security monitoring loans, and legal and regulatory developments. Actual results may differ materially from those set forth or implied in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by PacWest with the U.S. 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.

           
PACWEST BANCORP AND SUBSIDIARIES          
CONDENSED CONSOLIDATED BALANCE SHEET          
           
  March 31,   December 31,   March 31,
    2021       2020       2020  
                       
  (Dollars in thousands, except per share data)
ASSETS:          
Cash and due from banks $ 177,199     $ 150,464     $ 172,570  
Interest-earning deposits in financial institutions   5,517,667       3,010,197       439,690  
Total cash and cash equivalents   5,694,866       3,160,661       612,260  
           
Securities available-for-sale, at estimated fair value   5,941,690       5,235,591       3,757,663  
Federal Home Loan Bank stock, at cost   17,250       17,250       54,244  
Total investment securities   5,958,940       5,252,841       3,811,907  
           
Loans held for sale   25,554       -       -  
           
Gross loans and leases held for investment   19,055,165       19,153,357       19,806,394  
Deferred fees, net   (75,937 )     (69,980 )     (61,089 )
Total loans and leases held for investment,          
net of deferred fees   18,979,228       19,083,377       19,745,305  
Allowance for loan and lease losses   (292,445 )     (348,181 )     (221,292 )
Total loans and leases held for investment, net   18,686,783       18,735,196       19,524,013  
           
Equipment leased to others under operating leases   327,413       333,846       306,530  
Premises and equipment, net   39,622       39,234       39,799  
Foreclosed assets, net   14,298       14,027       1,701  
Goodwill   1,204,092       1,078,670       1,078,670  
Core deposit and customer relationship intangibles, net   21,312       23,641       34,446  
Other assets   883,653       860,326       733,941  
Total assets $ 32,856,533     $ 29,498,442     $ 26,143,267  
           
LIABILITIES:          
Noninterest-bearing deposits $ 11,017,462     $ 9,193,827     $ 7,510,218  
Interest-bearing deposits   17,205,829       15,746,890       12,065,619  
Total deposits   28,223,291       24,940,717       19,575,837  
Borrowings   19,750       5,000       2,295,000  
Subordinated debentures   465,814       465,812       458,994  
Accrued interest payable and other liabilities   493,541       491,962       423,047  
Total liabilities   29,202,396       25,903,491       22,752,878  
STOCKHOLDERS' EQUITY (1)   3,654,137       3,594,951       3,390,389  
Total liabilities and stockholders’ equity $ 32,856,533     $ 29,498,442     $ 26,143,267  
           
Book value per share $ 30.68     $ 30.36     $ 28.75  
Tangible book value per share (2) $ 20.39     $ 21.05     $ 19.31  
Shares outstanding   119,105,642       118,414,853       117,916,789  
           
(1) Includes net unrealized gain on securities          
available-for-sale, net $ 106,381     $ 172,523     $ 90,916  
(2) Non-GAAP measure.          



           
PACWEST BANCORP AND SUBSIDIARIES          
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS)        
           
  Three Months Ended
  March 31,   December 31,   March 31,
    2021       2020       2020  
                       
  (Dollars in thousands, except per share data)
Interest income:          
Loans and leases $ 241,544     $ 242,198     $ 262,278  
Investment securities   30,265       28,843       27,446  
Deposits in financial institutions   1,528       1,135       1,608  
Total interest income   273,337       272,176       291,332  
           
Interest expense:          
Deposits   7,500       8,454       28,247  
Borrowings   193       37       6,778  
Subordinated debentures   4,375       4,477       6,560  
Total interest expense   12,068       12,968       41,585  
           
Net interest income   261,269       259,208       249,747  
Provision for credit losses   (48,000 )     10,000       112,000  
Net interest income after provision          
for credit losses   309,269       249,208       137,747  
           
Noninterest income:          
Service charges on deposit accounts   2,934       3,119       2,658  
Other commissions and fees   9,158       9,974       9,721  
Leased equipment income   11,354       9,440       12,251  
Gain on sale of loans and leases   139       1,671       87  
Gain on sale of securities   101       4       182  
Other income   21,143       15,642       4,201  
Total noninterest income   44,829       39,850       29,100  
           
Noninterest expense:          
Compensation   79,882       73,171       61,282  
Occupancy   14,054       14,083       14,207  
Data processing   6,957       6,718       6,454  
Other professional services   5,126       6,800       4,258  
Insurance and assessments   4,903       5,064       4,249  
Intangible asset amortization   3,079       3,172       3,948  
Leased equipment depreciation   8,969       7,501       7,205  
Foreclosed assets (income) expense, net   1       (272 )     66  
Acquisition, integration and          
reorganization costs   3,425       1,060       -  
Customer related expense   4,818       4,430       3,932  
Loan expense   3,193       3,926       2,650  
Goodwill impairment   -       -       1,470,000  
Other expense   15,729       10,029       9,719  
Total noninterest expense   150,136       135,682       1,587,970  
           
Earnings (loss) before income taxes   203,962       153,376       (1,421,123 )
Income tax expense   53,556       36,546       11,988  
Net earnings (loss) $ 150,406     $ 116,830     $ (1,433,111 )
           
Basic and diluted earnings (loss) per share $ 1.27     $ 0.99     $ (12.23 )
Dividends declared and paid per share $ 0.25     $ 0.25     $ 0.60  
                       



                   
PACWEST BANCORP AND SUBSIDIARIES                  
NET EARNINGS (LOSS) PER SHARE CALCULATIONS                  
                   
  Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
    2021       2020       2020       2020       2020  
                                       
  (In thousands, except per share data)
Basic Earnings (Loss) Per Share:                  
Net earnings (loss) $ 150,406     $ 116,830     $ 45,503     $ 33,204     $ (1,433,111 )
Less: earnings allocated to                  
unvested restricted stock (1)   (2,355 )     (1,398 )     (578 )     (362 )     (939 )
Net earnings (loss) allocated to                  
common shares $ 148,051     $ 115,432     $ 44,925     $ 32,842     $ (1,434,050 )
                   
Weighted-average basic shares                  
and unvested restricted stock                  
outstanding   118,852       118,446       118,438       118,192       118,775  
Less: weighted-average unvested                  
restricted stock outstanding   (2,003 )     (1,652 )     (1,684 )     (1,606 )     (1,495 )
Weighted-average basic shares                  
outstanding   116,849       116,794       116,754       116,586       117,280  
                   
Basic earnings (loss) per share $ 1.27     $ 0.99     $ 0.38     $ 0.28     $ (12.23 )
                   
Diluted Earnings (Loss) Per Share:                  
Net earnings (loss) allocated to                  
common shares $ 148,051     $ 115,432     $ 44,925     $ 32,842     $ (1,434,050 )
                   
Weighted-average diluted shares                  
outstanding   116,849       116,794       116,754       116,586       117,280  
                   
Diluted earnings (loss) per share $ 1.27     $ 0.99     $ 0.38     $ 0.28     $ (12.23 )
                   
(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.                  

 

PACWEST BANCORP AND SUBSIDIARIES                      
AVERAGE BALANCE SHEET AND YIELD ANALYSIS                      
                       
  Three Months Ended
  March 31, 2021   December 31, 2020   March 31, 2020
    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) $ 18,927,314 $ 242,846 5.20 %   $ 18,769,214 $ 243,188 5.15 %   $ 19,065,035 $ 262,764 5.54 %
Investment securities (3)   5,383,140   32,329 2.44 %     4,888,993   30,757 2.50 %     3,853,217   28,641 2.99 %
Deposits in financial                      
institutions   4,790,231   1,528 0.13 %     3,576,335   1,135 0.13 %     537,384   1,608 1.20 %
Total interest-earning                      
assets (1)   29,100,685   276,703 3.86 %     27,234,542   275,080 4.02 %     23,455,636   293,013 5.02 %
Other assets   2,315,197         2,100,247         3,643,404    
Total assets $ 31,415,882         $ 29,334,789         $ 27,099,040      
                       
Liabilities and                      
Stockholders' Equity:                      
Interest checking $ 6,401,869   2,232 0.14 %   $ 5,191,435   2,064 0.16 %   $ 3,466,812   7,135 0.83 %
Money market   7,975,996   3,278 0.17 %     7,636,220   3,225 0.17 %     5,247,866   10,016 0.77 %
Savings   572,959   35 0.02 %     567,646   35 0.02 %     497,959   160 0.13 %
Time   1,493,267   1,955 0.53 %     1,650,150   3,130 0.75 %     2,684,143   10,936 1.64 %
Total interest-bearing                      
deposits   16,444,091   7,500 0.18 %     15,045,451   8,454 0.22 %     11,896,780   28,247 0.95 %
Borrowings   226,053   193 0.35 %     237,098   37 0.06 %     2,026,749   6,778 1.35 %
Subordinated debentures   466,101   4,375 3.81 %     463,951   4,477 3.84 %     458,399   6,560 5.76 %
Total interest-bearing                      
liabilities   17,136,245   12,068 0.29 %     15,746,500   12,968 0.33 %     14,381,928   41,585 1.16 %
Noninterest-bearing                      
demand deposits   10,173,459         9,589,789         7,357,717    
Discontinued operations   -         -         1,583    
Total other liabilities   488,930         462,075         401,034    
Other liabilities   488,930         462,075         402,617    
Total liabilities   27,798,634         25,798,364         22,142,262    
Stockholders' equity   3,617,248         3,536,425         4,956,778    
Total liabilities and                      
stockholders' equity $ 31,415,882         $ 29,334,789         $ 27,099,040      
Net interest income (1)   $ 264,635       $ 262,112       $ 251,428  
Net interest spread (1)     3.57 %       3.69 %       3.86 %
Net interest margin (1)     3.69 %       3.83 %       4.31 %
                       
Total deposits (4) $ 26,617,550 $ 7,500 0.11 %   $ 24,635,240 $ 8,454 0.14 %   $ 19,254,497 $ 28,247 0.59 %
                       
(1) Tax equivalent.                      
(2) Includes discount accretion on acquired loans of $5.4 million, $3.8 million, and $4.8 million for the three months ended March 31, 2021,                    
December 31, 2020, and March 31, 2020, respectively.                      
(3) Includes tax-equivalent adjustments of $2.1 million, $1.9 million, and $1.2 million for the three months ended March 31, 2021,                      
December 31, 2020, and March 31, 2020 related to tax-exempt income on investment securities.                      
The federal statutory tax rate utilized was 21%.                      
(4) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is                      
calculated as annualized interest expense on total deposits divided by average total deposits.                      



PACWEST BANCORP AND SUBSIDIARIES                
FIVE QUARTER BALANCE SHEET                  
                   
  March 31,   December 31,   September 30,   June 30,   March 31,
    2021       2020       2020       2020       2020  
                                       
  (Dollars in thousands, except per share data)
ASSETS:                  
Cash and due from banks $ 177,199     $ 150,464     $ 187,176     $ 174,059     $ 172,570  
Interest-earning deposits in financial                  
institutions   5,517,667       3,010,197       2,766,020       1,747,077       439,690  
Total cash and cash equivalents   5,694,866       3,160,661       2,953,196       1,921,136       612,260  
                   
Securities available-for-sale   5,941,690       5,235,591       4,532,614       3,851,141       3,757,663  
Federal Home Loan Bank stock   17,250       17,250       17,250       17,250       54,244  
   Total investment securities   5,958,940       5,252,841       4,549,864       3,868,391       3,811,907  
                   
Loans held for sale   25,554       -       -       -       -  
                   
Gross loans and leases held for investment   19,055,165       19,153,357       19,101,680       19,780,476       19,806,394  
Deferred fees, net   (75,937 )     (69,980 )     (75,480 )     (85,845 )     (61,089 )
Total loans and leases held for                  
investment, net of deferred fees   18,979,228       19,083,377       19,026,200       19,694,631       19,745,305  
Allowance for loan and lease losses   (292,445 )     (348,181 )     (345,966 )     (301,050 )     (221,292 )
Total loans and leases held for                  
investment, net   18,686,783       18,735,196       18,680,234       19,393,581       19,524,013  
                   
Equipment leased to others under                  
operating leases   327,413       333,846       286,425       295,191   -   306,530  
Premises and equipment, net   39,622       39,234       40,544       42,299       39,799  
Foreclosed assets, net   14,298       14,027       13,747       1,449       1,701  
Goodwill   1,204,092       1,078,670       1,078,670       1,078,670       1,078,670  
Core deposit and customer relationship                  
intangibles, net   21,312       23,641       26,813       30,564       34,446  
Other assets   883,653       860,326       797,223       734,457       733,941  
Total assets $ 32,856,533     $ 29,498,442     $ 28,426,716     $ 27,365,738     $ 26,143,267  
                   
LIABILITIES:                  
Noninterest-bearing deposits $ 11,017,462     $ 9,193,827     $ 9,346,744     $ 8,629,543     $ 7,510,218  
Interest-bearing deposits   17,205,829       15,746,890       14,618,951       14,299,036       12,065,619  
Total deposits   28,223,291       24,940,717       23,965,695       22,928,579       19,575,837  
Borrowings   19,750       5,000       60,000       60,000       2,295,000  
Subordinated debentures   465,814       465,812       463,282       460,772       458,994  
Accrued interest payable and other                  
liabilities   493,541       491,962       451,508       463,489       423,047  
Total liabilities   29,202,396       25,903,491       24,940,485       23,912,840       22,752,878  
STOCKHOLDERS' EQUITY (1)   3,654,137       3,594,951       3,486,231       3,452,898       3,390,389  
Total liabilities and stockholders’                  
equity $ 32,856,533     $ 29,498,442     $ 28,426,716     $ 27,365,738     $ 26,143,267  
                   
Book value per share $ 30.68     $ 30.36     $ 29.42     $ 29.17     $ 28.75  
Tangible book value per share (2) $ 20.39     $ 21.05     $ 20.09     $ 19.80     $ 19.31  
Shares outstanding   119,105,642       118,414,853       118,489,927       118,374,603       117,916,789  
                   
(1) Includes net unrealized gain on                  
securities available-for-sale, net $ 106,381     $ 172,523     $ 155,474     $ 145,038     $ 90,916  
(2) Non-GAAP measure.                  



PACWEST BANCORP AND SUBSIDIARIES                  
FIVE QUARTER STATEMENT OF EARNINGS (LOSS)                
                   
  Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
    2021       2020       2020     2020       2020  
                                     
  (Dollars in thousands, except per share data)
Interest income:                  
Loans and leases $ 241,544     $ 242,198     $ 240,811   $ 247,851     $ 262,278  
Investment securities   30,265       28,843       24,443     26,038       27,446  
Deposits in financial institutions   1,528       1,135       654     186       1,608  
Total interest income   273,337       272,176       265,908     274,075       291,332  
                   
Interest expense:                  
Deposits   7,500       8,454       9,887     13,075       28,247  
Borrowings   193       37       27     1,319       6,778  
Subordinated debentures   4,375       4,477       4,670     5,402       6,560  
Total interest expense   12,068       12,968       14,584     19,796       41,585  
                   
Net interest income   261,269       259,208       251,324     254,279       249,747  
Provision for credit losses   (48,000 )     10,000       97,000     120,000       112,000  
Net interest income after provision                  
for credit losses   309,269       249,208       154,324     134,279       137,747  
                   
Noninterest income:                  
Service charges on deposit accounts   2,934       3,119       2,570     2,004       2,658  
Other commissions and fees   9,158       9,974       10,541     10,111       9,721  
Leased equipment income   11,354       9,440       9,900     12,037       12,251  
Gain on sale of loans and leases   139       1,671       35     346       87  
Gain on sale of securities   101       4       5,270     7,715       182  
Other income   21,143       15,642       9,936     6,645       4,201  
Total noninterest income   44,829       39,850       38,252     38,858       29,100  
                   
Noninterest expense:                  
Compensation   79,882       73,171       75,131     61,910       61,282  
Occupancy   14,054       14,083       14,771     14,494       14,207  
Data processing   6,957       6,718       6,505     7,102       6,454  
Other professional services   5,126       6,800       4,713     4,146       4,258  
Insurance and assessments   4,903       5,064       3,939     9,373       4,249  
Intangible asset amortization   3,079       3,172       3,751     3,882       3,948  
Leased equipment depreciation   8,969       7,501       7,057     7,102       7,205  
Foreclosed assets (income) expense, net   1       (272 )     335     (146 )     66  
Acquisition, integration and                  
reorganization costs   3,425       1,060       -     -       -  
Customer related expense   4,818       4,430       4,762     4,408       3,932  
Loan expense   3,193       3,926       3,499     3,379       2,650  
Goodwill impairment   -       -       -     -       1,470,000  
Other expense   15,729       10,029       8,939     11,315       9,719  
Total noninterest expense   150,136       135,682       133,402     126,965       1,587,970  
                   
Earnings (loss) before income taxes   203,962       153,376       59,174     46,172       (1,421,123 )
Income tax expense   53,556       36,546       13,671     12,968       11,988  
Net earnings (loss) $ 150,406     $ 116,830     $ 45,503   $ 33,204     $ (1,433,111 )
                   
Basic and diluted earnings (loss) per share $ 1.27     $ 0.99     $ 0.38   $ 0.28     $ (12.23 )
Dividends declared and paid per share $ 0.25     $ 0.25     $ 0.25   $ 0.25     $ 0.60  



PACWEST BANCORP AND SUBSIDIARIES                  
FIVE QUARTER SELECTED FINANCIAL DATA                
                   
  At or For the Three Months Ended
  March 31,   December 31,   September 30,   June 30,   March 31,
    2021       2020       2020       2020       2020  
                                       
          (Dollars in thousands)        
Performance Ratios:                  
Return on average assets (1)   1.94 %     1.58 %     0.65 %     0.50 %     (21.27 )%
Pre-provision, pre-goodwill impairment,                  
pre-tax net revenue ("PPNR")                  
return on average assets (1)(2)   2.01 %     2.22 %     2.22 %     2.51 %     2.39 %
Return on average equity (1)   16.86 %     13.14 %     5.18 %     3.87 %     (116.28 )%
Return on average tangible equity (1)(2)   25.67 %     19.63 %     8.20 %     6.39 %     6.88 %
Efficiency ratio   46.4 %     43.6 %     45.1 %     42.9 %     40.6 %
Noninterest expense as a percentage                  
of average assets (1)   1.94 %     1.84 %     1.90 %     1.92 %     23.57 %
                   
Average Yields/Costs (1):                  
Yield on:                  
Average loans and leases (3)   5.20 %     5.15 %     5.01 %     5.01 %     5.54 %
Average interest-earning assets (3)   3.86 %     4.02 %     4.13 %     4.53 %     5.02 %
Cost of:                  
Average interest-bearing deposits   0.18 %     0.22 %