PacWest Bancorp Announces Results for the Second Quarter 2023


SECOND QUARTER 2023 HIGHLIGHTS

  • Net loss available to common stockholders of $207.4 million, or a loss of $1.75 per diluted share as the quarter was impacted by items related to loan sales and restructuring of our Civic subsidiary
  • Adjusted earnings of $36.0 million and adjusted diluted earnings per common share of $0.22, which exclude the effect of loan sales, lower of cost or market held for sale (“LOCOM HFS”) adjustments, and reorganization costs as detailed below
  • Executed on strategic plan to divest non-core loan portfolios including selling
    • National Construction portfolio, including $2.6 billion of loans and $2.3 billion of unfunded commitments
    • Lender Finance portfolio, including $2.1 billion of loans and $0.2 billion of unfunded commitments
    • A portion of the Civic portfolio, including $521 million of loans and $24 million of unfunded commitments
  • Second quarter results were marked by enhanced liquidity and capital
    • Immediately-available liquidity (on-balance sheet liquidity and unused borrowing capacity) of $17.9 billion, which exceeded uninsured deposits of $5.3 billion, with a coverage ratio of 335% at June 30, 2023
    • Total insured deposits represented approximately 81% of total deposits as of June 30, 2023, up from 48% at December 31, 2022
  • All risk-based capital ratios increased from March 31, 2023, with CET1 increasing from 9.21% to 11.16%
  • Loans to deposits ratio decreased to 81.5% at June 30, 2023 from 101.0% at March 31, 2023
  • Operational efficiency initiative is ongoing with continued optimization of resources, contracts, facilities, and processes

ADJUSTED EARNINGS AND RELATED METRICS

         
 Three Months Ended
 June 30, March 31, June 30,
 2023 2023 2022
 (Dollars in thousands, except per share amounts)
Earnings Summary:        
Net (loss) earnings$(197,414) $(1,195,424) $122,360
Diluted earnings per common share$(1.75) $(10.22) $1.02
Return on average assets (1.84)%  (11.34)%  1.23%
Return on average tangible common equity (1) (37.62)%  14.45%  24.24%
Efficiency ratio 527.0%  58.2%  49.5%
         
Adjusted Earnings Summary (1):        
Adjusted earnings$35,957 $89,436 $122,360
Adjusted diluted earnings per common share 0.22 $0.66 $1.02
Adjusted return on average assets 0.34%  0.85%  1.23%
Adjusted return on average tangible common        
equity 5.08%  15.62%  24.24%
Adjusted efficiency ratio 86.9%  58.2%  49.5%
         
(1) Non-GAAP measure.        

LOS ANGELES, July 25, 2023 (GLOBE NEWSWIRE) -- Financial results for the second quarter of 2023 were impacted by $277.7 million of losses on the sale of loans and unfunded commitments and LOCOM HFS adjustments, Civic loan sale charge-offs of $22.4 million, and $12.4 million of reorganization costs. Financial results for the first quarter of 2023 were impacted by a goodwill impairment of $1.38 billion and reorganization costs of $8.5 million. Excluding these amounts, adjusted earnings were $36.0 million, or $0.22 per diluted share, for the second quarter of 2023 and $89.4 million, or $0.66 per diluted share, for the first quarter of 2023. A reconciliation of adjusted earnings to net (loss) earnings according to generally accepted accounting principles in the United States (“GAAP”) is provided in the financial tables at the end of this press release.

CEO COMMENTARY

Paul Taylor, President and CEO, commented, “At the end of the first quarter, we communicated our strategic plan to exit non-core products and services and strengthen our community banking business which would improve our capital ratios, liquidity, and operational efficiency. We expected to execute this plan over several quarters, however, given that market conditions changed, we pivoted to shrink the balance sheet through the sale of three significant non-core loan portfolios. These loan sales accelerated our balance sheet restructuring, reducing risk in our loan portfolio, and improving our capital ratios and liquidity. The significant reduction in risk-weighted assets resulted in much improved capital ratios, and our CET1 capital ratio improved from 9.21% at March 31, 2023 to 11.16% at June 30, 2023.”

Mr. Taylor continued, “We are continuing the work we started last year to improve the overall efficiency of the Bank, which resulted in severance, asset write-off, and contract termination expense of $12.4 million in the second quarter of 2023. Since the beginning of the year, we have reduced our employee count by 560 employees, primarily at our Civic subsidiary. We have identified many other areas to improve efficiency across the Bank and will be executing on these measures in the coming months.”

Mr. Taylor concluded, “Due to the competitive marketplace for deposits, we are introducing new products and technology solutions to successfully grow customer deposits. At the end of the second quarter, we introduced a digital account opening tool to efficiently gather new deposits. In the third quarter, we expect to implement a new on-line channel for gathering deposits directly from consumers.”

FINANCIAL HIGHLIGHTS

            
 At or For the    At or For the   
 Three Months Ended   Six Months Ended  
 June 30, March 31, Increase June 30, Increase
Financial Highlights  2023   2023  (Decrease)  2023   2022  (Decrease)
 (Dollars in thousands, except per share amounts)
Net (loss) earnings available          
to common stockholders$(207,361) $(1,205,371) $998,010  $(1,412,732) $242,488  $(1,655,220)
Diluted (loss) earnings per           
common share$(1.75) $(10.22) $8.47  $(11.96) $2.03  $(13.99)
Pre-provision, pre-goodwill           
impairment, pre-tax net           
revenue ("PPNR") (1)$(262,443) $119,396  $(381,839) $(143,047) $336,735  $(479,782)
Return on average assets (1.84)%  (11.34)%  9.50   (6.55)%  1.22%  (7.77)
PPNR return on average           
assets (1) (2.45)%  1.13%  (3.58)  (0.67)%  1.70%  (2.37)
Return on average           
tangible common equity (1) (37.62)%  14.45%  (52.07)  (11.00)%  22.40%  (33.40)
            
Yield on average loans and           
leases (tax equivalent) 6.08%  6.14%  (0.06)  6.11%  4.66%  1.45 
Cost of average total           
deposits 2.62%  1.98%  0.64   2.27%  0.13%  2.14 
Net interest margin ("NIM")           
(tax equivalent) 1.82%  2.89%  (1.07)  2.34%  3.50%  (1.16)
Efficiency ratio 527.0%  58.2%  468.8   130.5%  49.8%  80.7 
            
Total assets$38,337,250  $44,302,981  $(5,965,731) $38,337,250  $40,950,723  $(2,613,473)
Loans and leases held           
for investment,           
net of deferred fees$22,258,210  $25,672,381  $(3,414,171) $22,258,210  $26,501,137  $(4,242,927)
Noninterest-bearing           
demand deposits$6,055,358  $7,030,759  $(975,401) $6,055,358  $13,338,029  $(7,282,671)
Interest-bearing deposits$21,841,725  $21,156,802  $684,923  $21,841,725  $20,630,123  $1,211,602 
Total deposits$27,897,083  $28,187,561  $(290,478) $27,897,083  $33,968,152  $(6,071,069)
            
As percentage of total           
deposits:           
Noninterest-bearing           
demand deposits 22%  25%  (3)  22%  39%  (17)
Interest-bearing deposits 78%  75%  3   78%  61%  17 
            
Equity to assets ratio 6.61%  6.26%  0.35   6.61%  9.72%  (3.11)
Common equity tier 1           
capital ratio 11.16%  9.21%  1.95   11.16%  8.24%  2.92 
Tier 1 capital ratio 13.70%  11.15%  2.55   13.70%  10.15%  3.55 
Total capital ratio 17.61%  14.21%  3.40   17.61%  13.12%  4.49 
Tangible common equity           
ratio (1) 5.24%  5.07%  0.17   5.24%  5.15%  0.09 
Tangible book value per           
common share (1)$16.71  $18.66  $(1.95) $16.71  $16.93  $(0.22)
            
(1) Non-GAAP measure.           

INCOME STATEMENT HIGHLIGHTS

NET INTEREST INCOME

Net interest income decreased by $93.2 million to $186.1 million for the second quarter of 2023 compared to $279.3 million for the first quarter of 2023 due mainly to higher interest expense on deposits and borrowings and lower interest income on loans and leases, offset partially by higher interest income on deposits in financial institutions. Interest income on deposits in financial institutions increased by $43.9 million in the second quarter of 2023 due mainly to a $3.2 billion increase in the average balance of deposits in financial institutions and a 37 basis points increase in the yield. Interest income on loans and leases decreased by $21.7 million in the second quarter of 2023 due to a $1.6 billion decrease in the average balance of loans and leases and a six basis points decrease in the tax equivalent yield on loans and leases compared to the first quarter of 2023. The tax equivalent yield on loans and leases was 6.08% in the second quarter of 2023 compared to 6.14% in the first quarter of 2023. The decrease in the tax equivalent yield on loans and leases was due primarily to lower levels of higher-yielding Civic and construction loans and a smaller tax equivalent adjustment in the second quarter. Interest expense on deposits increased by $22.9 million in the second quarter of 2023 due mainly to increased market rates and an increased use of brokered deposits that contributed to a 44 basis points increase in the cost of total deposits. Interest expense on borrowings increased by $91.8 million due to a $6.2 billion increase in the average balance and a 34 basis points increase in the cost of borrowings attributable mainly to the result of the borrowings under the Bank Term Funding Program and repurchase agreement being in effect for a full quarter, as these borrowings were entered into in March 2023.

The tax equivalent NIM was 1.82% for the second quarter of 2023 compared to 2.89% for the first quarter of 2023. The decrease in the NIM was due mainly to a shift in our funding mix during the second quarter of 2023. Average borrowings as a percentage of average interest-bearing liabilities was 34% for the second quarter of 2023 compared to 19% for the first quarter of 2023. The tax-equivalent NIM was further impacted by a higher cost of total deposits and borrowings and a lower yield on loans and leases, offset partially by a higher yield on deposits in financial institutions.

The cost of total deposits was 2.62% for the second quarter of 2023 compared to 1.98% for the first quarter of 2023 due mainly to higher market interest rates and a higher average balance of brokered deposits.

PROVISION FOR CREDIT LOSSES

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

      
 Three Months Ended  
 June 30, March 31, Increase
Provision for Credit Losses 2023   2023  (Decrease)
 (In thousands)
Addition to allowance for     
loan and lease losses$40,000  $18,500  $21,500 
Reduction in reserve for     
unfunded loan commitments (38,000)  (15,500)  (22,500)
Total loan-related provision 2,000   3,000   (1,000)
Total provision for credit losses$2,000  $3,000  $(1,000)

The provision for credit losses was $2.0 million for the second quarter of 2023 compared to $3.0 million for the first quarter of 2023. The provision for the second quarter of 2023 reflected the impact of an updated forecast, higher net charge-offs and higher reserves for downgraded loans largely offset by lower reserves needed for lower loan and unfunded commitment balances. During the first quarter of 2023, while loans and leases held for investment and unfunded loan commitments declined, a $3.0 million provision was recognized due to an increase in qualitative reserves for loans secured by commercial real estate and higher net charge-offs.

NONINTEREST INCOME

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

      
 Three Months Ended  
 June 30, March 31, Increase
Noninterest Income2023
 2023
 (Decrease)
 (In thousands)
Service charges on deposit accounts$4,315  $3,573  $742 
Other commissions and fees 11,241   10,344   897 
Leased equipment income 22,387   13,857   8,530 
(Loss) gain on sale of loans and leases (158,881)  2,962   (161,843)
Gain (loss) on sale of securities -   -   - 
Dividends and gains on equity investments 2,658   1,098   1,560 
Warrant loss (124)  (333)  209 
LOCOM HFS adjustment (11,943)  -   (11,943)
Other income 2,265   4,890   (2,625)
Total noninterest (loss) income$(128,082) $36,391  $(164,473)

Noninterest income decreased by $164.5 million to a loss of $128.1 million for the second quarter of 2023 compared to income of $36.4 million for the first quarter of 2023 due primarily to a decrease of $161.8 million in gain on sale of loans and leases and a $11.9 million LOCOM HFS loss adjustment, offset partially by an increase of $8.5 million in leased equipment income. The second quarter loss on sale of loans and leases resulted from the sale of $5.2 billion of loans for a net loss of $158.9 million in the second quarter of 2023 compared to the sale of $287.3 million of loans for a net gain of $3.0 million in the first quarter of 2023. The $11.9 million LOCOM HFS loss adjustment was related to the lower of cost or market adjustment that we made to our $478.1 million loans held for sale at June 30, 2023. The increase in leased equipment income was due mainly to $8.8 million of early lease termination gains recognized in the second quarter of 2023 compared to the linked quarter.

NONINTEREST EXPENSE

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

      
 Three Months Ended  
 June 30, March 31, Increase
Noninterest Expense 2023  2023  (Decrease)
 (In thousands)
Compensation$82,881 $88,476  $(5,595)
Occupancy 15,383  15,067   316 
Data processing 10,963  10,938   25 
Other professional services 9,973  6,073   3,900 
Insurance and assessments 25,635  11,717   13,918 
Intangible asset amortization 2,389  2,411   (22)
Leased equipment depreciation 9,088  9,375   (287)
Foreclosed assets expense, net 2  363   (361)
Customer related expense 27,302  24,005   3,297 
Loan expense 5245  6524   (1,279)
Other 119,182  12,804   106378 
Total operating expense 308,043  187,753   120,290 
Acquisition, integration and reorganization costs 12,394  8,514   3,880 
Goodwill impairment -  1,376,736   (1,376,736)
Total noninterest expense$320,437 $1,573,003  $(1,252,566)

Noninterest expense decreased by $1.25 billion to $320.4 million in the second quarter of 2023 compared to $1.57 billion for the first quarter of 2023 due primarily to the $1.38 billion goodwill impairment charge recorded in the first quarter of 2023. Excluding the goodwill impairment and acquisition, integration and reorganization costs, operating expense increased by $120.3 million to $308.0 million. The $120.3 million increase was due mainly to an increase of $106.4 million in other expense and an increase of $13.9 million in insurance and assessments expense. The increase in other expense was due mainly to $106.8 million of unfunded commitments fair value loss adjustments in the second quarter of 2023. The increase in insurance and assessments was due mainly to higher FDIC assessment expense attributable to an increased assessment rate due to lower core earnings, lower core deposits, and a higher level of criticized loans and leases.

INCOME TAXES

The effective income tax rate was 25.3% for the second quarter of 2023 compared to 5.2% for the first quarter of 2023. Excluding goodwill impairment, the effective income tax rate for the first quarter of 2023 was 28.4%. The decrease from the first quarter of 2023 adjusted rate was due primarily to higher disallowed interest expense, higher disallowed FDIC assessment expense, and higher shortfalls from restricted stock vesting in the second quarter of 2023. Excluding goodwill impairment, the effective tax rate for the full year 2023 is currently estimated to be in the range of 22% to 24%.

BALANCE SHEET HIGHLIGHTS

DEPOSITS AND CLIENT INVESTMENT FUNDS

The following tables present the composition of our deposit portfolio as of the dates indicated:

 June 30, 2023 March 31, 2023 June 30, 2022
  % of   % of   % of 
Deposits By Account TypeBalanceTotal BalanceTotal BalanceTotal
 (Dollars in thousands)
Noninterest-bearing  $     6,055,35822%  $     7,030,75925%  $   13,338,02939%
Interest-bearing:        
Transaction (NOW)        7,112,80726%         5,360,62219%         6,372,46019%
Money market         5,678,32320%         8,195,67029%       11,039,45532%
Savings            897,2773%            671,9182%            653,9502%
Time deposits (1)        8,153,31829%         6,928,59225%         2,564,2588%
Total interest-bearing      21,841,72578%       21,156,80275%       20,630,12361%
Total deposits $   27,897,083100%  $   28,187,561100%  $   33,968,152100%
         
(1) Includes time deposits over $250,000 of $853.4 million, $1.1 billion, and $665.9 million at June 30, 2023, March 31, 2023, 
 and June 30, 2022, respectively.        


  June 30, 2023   March 31, 2023  June 30, 2022
  % of   % of   % of 
Deposits By Customer TypeBalanceTotal BalanceTotal BalanceTotal
 (Dollars in thousands)
Noninterest-bearing  $     6,055,35822%  $     7,030,75925%  $   13,338,02939%
Interest-bearing:        
Consumer and commercial:        
Reciprocal        7,935,47929%         6,744,44724%         3,447,38210%
Non-reciprocal        6,257,97122%         7,958,00128%       13,787,43241%
Brokered        7,648,27527%         6,454,35423%         3,395,30910%
Total interest-bearing      21,841,72578%       21,156,80275%       20,630,12361%
Total deposits $   27,897,083100%  $   28,187,561100%  $   33,968,152100%


Total deposits decreased by $290.5 million or 1.0% in the second quarter of 2023 due to a $975.4 million decrease in noninterest-bearing deposits, offset partially by a $684.9 million increase in interest-bearing deposits. At June 30, 2023, noninterest-bearing deposits totaled $6.1 billion or 22% of total deposits and interest-bearing deposits totaled $21.8 billion or 78% of total deposits.

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

 June 30, 2023 March 31, 2023  
  % of  % of Increase
Deposits By DivisionBalanceTotal BalanceTotal (Decrease)
 (Dollars in thousands)
Community Banking$14,353,851 51% $14,917,027 53% $(563,176)
Venture Banking 5,764,220 21%  6,584,554 23%  (820,334)
Wholesale Deposits 7,779,012 28%  6,685,980 24%  1,093,032 
Total deposits$27,897,083 100%  28,187,561 100%  (290,478)

As of June 30, 2023, FDIC-insured deposits represented approximately 81% of total deposits and FDIC-insured venture-specific deposits accounted for approximately 83% of total venture-specific deposits. The Bank’s spot deposit rates increased from 2.32% at March 31, 2023 to 2.71% at June 30, 2023. Since May 10, 2023 (the date of our last deposit disclosure in our March 31, 2023 Form 10-Q filing) through July 21, 2023, our total non-brokered deposits were up approximately $1.0 billion.

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 decreased from $1.2 billion as of March 31, 2023 to $0.8 billion at June 30, 2023, of which $0.4 billion was managed by PWAM.

BORROWINGS

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

        
 June 30, 2023 March 31, 2023  
  Weighted  Weighted  
  Average   Average  Increase
Borrowing TypeBalanceRate BalanceRate (Decrease)
 (Dollars in thousands)
FHLB secured advances$-- $5,450,0005.07%
 $(5,450,000)
Bank Term Funding Program 4,910,0004.38%
  4,910,0004.38%
  - 
Repurchase agreement (1) 1,324,2738.50%
  1,393,3378.50%
  (69,064)
Credit-linked notes 123,06515.77%
  128,37515.24%
  (5,310)
Total borrowings$6,357,3385.46%
 $11,881,7125.30%
 $(5,524,374)
        
(1) Balance is net of unamortized issuance costs of $14.3 million and $2.7 million of accrued exit fees.  
Rate calculation does not include the effects of issuance costs and exit fees.   

The $5.5 billion decrease in borrowings in the second quarter of 2023 was due mainly to the payoff of FHLB secured advances with the proceeds of the loan sales. Available borrowing capacity was approximately $11.4 billion at June 30, 2023.

LOANS AND LEASES

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

    
 Three Months Ended Six Months Ended
Roll Forward of Loans and Leases HeldJune 30, March 31, June 30,
for Investment, Net of Deferred Fees  2023   2023   2023 
 (Dollars in thousands)
Balance, beginning of period$25,672,381  $28,609,129  $28,609,129 
Additions:     
Production 189,201   468,671   657,872 
Disbursements 1,143,347   1,622,898   2,766,245 
Total production and disbursements 1,332,548   2,091,569   3,424,117 
Reductions:     
Payoffs (942,962)  (1,021,652)  (1,964,614)
Paydowns (817,033)  (965,537)  (1,782,570)
Total payoffs and paydowns (1,759,995)  (1,987,189)  (3,747,184)
Sales (3,038,672)  (231,798)  (3,270,470)
Transfers to foreclosed assets (6,657)  (2,568)  (9,225)
Charge-offs (31,708)  (10,397)  (42,105)
Transfers to loans held for sale (280,062)  (2,796,365)  (3,076,427)
Total reductions (5,117,094)  (5,028,317)  (10,145,411)
Transfers from loans held for sale 370,375   -   370,375 
Net (decrease) increase (3,414,171)  (2,936,748)  (6,350,919)
Balance, end of period$22,258,210  $25,672,381  $21,887,835 
      
Weighted average rate on production (1) 7.64%  8.44%  8.21%
      
(1) The weighted average rate on production presents contractual rates on a tax equivalent basis  
and excludes amortized fees. Amortized fees added approximately 17 basis points to loan  
yields in 2023.     

Loans and leases held for investment, net of deferred fees, decreased by $3.4 billion, or 13.3% in the second quarter of 2023 to $22.3 billion at June 30, 2023. The overall decrease in the loans and leases balance for the second quarter of 2023 was due primarily to the sale of the $2.6 billion National Construction portfolio and $521 million of the Civic portfolio in the second quarter.

The weighted average rate on the $189.2 million of production for the second quarter of 2023 decreased to 7.64% from 8.44% for the first quarter of 2023 due primarily to the loan mix (lower percentage of Civic production).

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:

         
 June 30, 2023 March 31, 2023 June 30, 2022
  % of  % of  % of
Loan and Lease PortfolioBalanceTotal BalanceTotal BalanceTotal
 (Dollars in thousands)
Real estate mortgage:        
Commercial$3,610,32016% $3,808,75115% $3,670,51514%
Multi-family 5,304,54424%  5,523,32021%  5,062,42219%
Other residential 5,373,17824%  6,075,54024%  5,321,14820%
Total real estate mortgage 14,288,04264%  15,407,61160%  14,054,08553%
Real estate construction and land:        
Commercial 415,9972%  910,3274%  837,4233%
Residential 2,049,5269%  3,698,11314%  2,649,17710
%
Total real estate construction        
and land 2,465,52311%  4,608,44018%  3,486,60013%
Total real estate 16,753,56575%  20,016,05178%  17,540,68566%
Commercial:        
Asset-based 2,357,09811%  2,068,3278%  5,068,11219%
Venture capital 1,723,4768%  2,058,2378%  2,179,1908%
Other commercial 1,014,2124%  1,102,5434%  1,229,5045%
Total commercial 5,094,78623%  5,229,10720%  8,476,80632%
Consumer 409,8592%  427,2232%  483,6462%
Total loans and leases held for        
investment, net of deferred fees 22258210100%  25672381100% $26,501,137100%
         
Total unfunded loan commitments$5,845,375  $9,776,789  $11,866,437 

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LEASES

The following tables present roll forwards of the allowance for credit losses on loans and leases for the periods indicated:

      
 Three Months Ended June 30, 2023
Allowance for Credit Allowance for Reserve for  Total
Losses on Loans and Loan and  Unfunded Loan Allowance for
Leases RollforwardLease Losses Commitments Credit Losses
 (In thousands)
Beginning balance$210,055  $75,571  $285,626 
Civic loan sale charge-offs (22,446)  -   (22,446)
Other charge-offs (9,262)  -   (9,262)
Total charge-offs (31,708)  -   (31,708)
Recoveries 887   -   887 
Net charge-offs (30,821)  -   (30,821)
Provision 40,000   (38,000)  2,000 
Ending balance$219,234  $37,571  $256,805 


      
 Three Months Ended June 30, 2023
Allowance for Credit Allowance for Reserve for  Total
Losses on Loans and Loan and  Unfunded Loan Allowance for
Leases RollforwardLease Losses Commitments Credit Losses
 (In thousands)
Beginning balance$200,732  $91,071
  $291,803
 
Charge-offs (10,397
)  -   (10,397)
Recoveries
 1,220
   -   1,220
 
Net charge-offs (9,177)  -   (9,117)
Provision 18,500
   (15,500
 )  3,000
 
Ending balance210,055
  75,571
  285,626
 

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

      
Allowance for Credit LossesJune 30, March 31, Increase
on Loans and Leases2023 2023 (Decrease)
 (Dollars in thousands)
Allowance for loan and lease losses$219,234  $210,055  $9,179 
Reserve for unfunded loan commitments 37,571   75,571   (38,000)
Allowance for credit losses$256,805  $285,626  $(28,821)
      
Provision for credit losses (for the quarter)$2,000  $3,000  $(1,000)
Net charge-offs (for the quarter)$30,821  $9,177  $21,644 
Net charge-offs to average loans     
and leases (for the quarter) 0.46%  0.13%  
Allowance for loan and lease losses to loans     
and leases held for investment 0.98%  0.82%  
Allowance for credit losses to loans and leases     
held for investment 1.15%  1.11%  

The allowance for credit losses decreased by $28.8 million in the second quarter of 2023 to $256.8 million at June 30, 2023. This decrease was attributable mainly to lower reserves needed due to the decrease in loans and leases held for investment and unfunded loan commitments and $22.4 million of charge-offs related to Civic loan sales, offset partially by the impact of an updated forecast and higher reserves needed for downgraded loans.

Net charge-offs over the trailing twelve months were $45.0 million, which resulted in net charge-offs to average loans and leases over the trailing twelve months of 0.17%.

CREDIT QUALITY

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

      
 June 30, March 31, Increase
Credit Quality Metrics2023
 2023
 (Decrease)
 (Dollars in thousands)
Nonperforming Assets:     
Nonaccrual loans and leases held for investment (1)$104,886  $87,124  $17,762 
Accruing loans contractually past due 90 days or more -   -   - 
Foreclosed assets, net 8,426   2,135   6,291 
Total nonperforming assets ("NPAs")$113,312  $89,259  $24,053 
      
Nonaccrual loans and leases held for investment     
to loans and leases held for investment 0.47%  0.34%  
Nonperforming assets to loans and leases     
held for investment and foreclosed assets 0.51%  0.35%  
Allowance for credit losses to nonaccrual loans     
and leases held for investment 244.8%  327.8%  
      
Loan and Lease Credit Risk Ratings:     
Pass$21,679,908  $24,959,805  $(3,279,897)
Special mention 366,368   580,153   (213,785)
Classified 211,934   132,423   79,511 
Total loans and leases held for investment,     
net of deferred fees$22,258,210  $25,672,381  $(3,414,171)
      
Special mention loans and leases held for investment     
to loans and leases held for investment 1.65%  2.26%  
Classified loans and leases held for investment     
to loans and leases held for investment 0.95%  0.52%  
      
(1) Nonaccrual loans include SBA guaranteed amounts of $14.8 million at June 30, 2023 and $11.8 million
at March 31, 2023.     

Nonaccrual loans and leases increased by $17.8 million to $104.9 million in the second quarter of 2023 due primarily to an increase in nonaccrual Civic loans and nonaccrual SBA guarantied real estate loans. The increase in classified loans (and subsequent decrease in special mention) was driven by downgrades in Multifamily loans as the result of rising interest rates and the related stress on debt service.  All of the Multifamily loans downgraded remain well collateralized and current at quarter-end.

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:

            
 June 30, 2023 March 31, 2023 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
 (In thousands)
Real estate mortgage:           
Commercial$37,191 $-  $32,996 $1,650  $4,195  $(1,650)
Multi-family -  -   -  -   -   - 
Other residential 63,626  45,805   50,060  125,458   13,566   (79,653)
Total real estate mortgage 100,817  45,805   83,056  127,108   17,761   (81,303)
Real estate construction and land:           
Commercial -  -   -  -   -   - 
Residential -  -   -  -   -   - 
Total real estate           
construction and land -  -   -  -   -   - 
Commercial:           
Asset-based 385  -   420  -   (35)  - 
Venture capital -  1,845   -  -   -   1,845 
Other commercial 3,479  147   3,123  618   356   (471)
Total commercial 3,864  1,992   3,543  618   321   1,374 
Consumer 205  2,024   525  1,593   (320)  431 
Total held for investment$104,886 $49,821  $87,124 $129,319  $17,762  $(79,498)
            

Loans and leases accruing and 30-89 days past due generally fluctuate from period to period. The $79.5 million decrease to $49.8 million in the second quarter of 2023 was due mainly to a decrease in Civic delinquent loans which included $46.5 million being transferred to held for sale in the second quarter.

CAPITAL

The following table presents capital ratios as of the dates indicated:

      
      
 June 30, March 31, June 30,
  2023   2023   2022 
PacWest Bancorp Consolidated:     
Common equity tier 1 capital ratio (1) 11.16%  9.21%  8.24%
Tier 1 capital ratio (1) 13.70%  11.15%  10.15%
Total capital ratio (1) 17.61%  14.21%  13.12%
Tier 1 leverage capital ratio (1) 7.76%  8.33%  8.52%
Risk-weighted assets (1) (in thousands)$24,768,687  $32,507,454  $33,009,455 
Tangible common equity ratio (2) 5.24%  5.07%  5.15%
Tangible common equity ratio excluding     
the impact of AOCI for securities (2) 7.26%  6.73%  6.79%
      
(1) Capital information for June 30, 2023 is preliminary.    
(2) Non-GAAP measure.     

CHANGE IN CONFERENCE CALL

As a result of today’s merger announcement, the previously announced PacWest Bancorp conference call scheduled for 8:00 AM PT/ 11:00 AM ET on Wednesday, July 26, 2023, to discuss the Company’s performance for the second quarter of 2023 has been cancelled. PacWest Bancorp and Banc of California, Inc. will conduct a live conference call and webcast to discuss the transaction later today at 2:30 PM PT/ 5:30 PM ET. To listen to the live call, please dial 888-317-6003 and enter 2706567 for the conference ID. The webcast, along with the related slides, will be available on both the PacWest website (www.pacwestbancorp.com) and the Banc of California, Inc. website (www.bancofcal.com). A replay of the conference call will also be available via these websites.

PACWEST BANCORP

PacWest is a bank holding company headquartered in Los Angeles, California, with an executive office in Denver, Colorado, with one wholly-owned banking subsidiary, Pacific Western Bank (the “Bank”). Pacific Western Bank is a relationship-based community bank focused on providing business banking and treasury management services to small, middle-market, and venture-backed businesses. The Bank offers a broad range of loan and lease and deposit products and services through full-service branches throughout California and in Durham, North Carolina and Denver, Colorado, and loan production offices around the country. 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 often use words such as “anticipates,” “targets,” “expects,” “estimates,” “intends,” “plans,” “believes,” “continue” and other similar expressions or future or conditional verbs such as “will,” “may,” “might,” “should,” “would” and “could.” Such statements are based on information available at the time of the communication and are based on current beliefs and expectations of PacWest’s management and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from those expressed in them. Continued deterioration in general business, economic, and political conditions, geopolitical tensions, uncertainty in U.S. fiscal monetary policy, including the interest rate policies of the Federal Reserve Board, and volatility and disruptions in credit and capital markets could lead to a tightening of credit and an increase in credit losses, adversely affect PacWest’s revenues and the values of our assets and liabilities, increase stock price volatility, and adversely impact our ability to raise capital. In addition, PacWest and its results could be adversely affected by changes in interest rates, continued high inflation, and unemployment rates, our ability to attract and retain deposits and other sources of funding and liquidity particularly in a rising or high interest rate environment, the impact of bank failures or other adverse developments at other banks on general investor sentiment regarding the stability and liquidity of banks, the safety of deposits, and depositor behavior, the quality and composition of our deposits, deterioration in the credit quality of our loan portfolio or in the value of the collateral securing those loans, especially the risks associated with concentrations in real estate related loans, deterioration in the value of our investment securities as a result of rising interest rates or otherwise, our ability to successfully execute on our strategic plan and digital and innovation initiatives, the effectiveness of our risk management framework and quantitative models, 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.

All forward-looking statements in this communication are based on information available at the time the statement is made. 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     
      
 June 30, March 31, June 30,
  2023   2023   2022 
 (Dollars in thousands, except per share amounts)
ASSETS:     
Cash and due from banks$208,300  $218,830  $197,027 
Interest-earning deposits in financial institutions 6,489,847   6,461,306   2,192,877 
Total cash and cash equivalents  6,698,147   6,680,136   2,389,904 
      
Securities available-for-sale, at estimated fair value 4,708,519   4,848,607   6,780,648 
Securities held-to-maturity, at amortized cost,     
net of allowance for credit losses 2,278,202   2,273,650   2,260,367 
Federal Home Loan Bank stock, at cost 17,250   147,150   33,210 
Total investment securities 7,003,971   7,269,407   9,074,225 
      
Loans held for sale 478,146   2,796,208   - 
      
Gross loans and leases held for investment 22,311,292   25,770,912   26,608,541 
Deferred fees, net (53,082)  (98,531)  (107,404)
Total loans and leases held for investment,     
net of deferred fees 22,258,210   25,672,381   26,501,137 
Allowance for loan and lease losses (219,234)  (210,055)  (188,705)
Total loans and leases held for investment, net 22,038,976   25,462,326   26,312,432 
      
Equipment leased to others under operating leases 380,022   399,972   324,233 
Premises and equipment, net 57,078   60,358   51,083 
Foreclosed assets, net 8,426   2,135   - 
Goodwill -   -   1,405,736 
Core deposit and customer relationship intangibles, net 26,581   28,970   37,659 
Deferred tax asset, net 426,304   342,557   254,090 
Other assets 1,219,599   1,260,912   1,101,361 
Total assets$38,337,250  $44,302,981  $40,95,0723 
      
LIABILITIES:     
Noninterest-bearing deposits$6,055,358  $7,030,759  $13,338,029 
Interest-bearing deposits 21,841,725   21,156,802   20,630,123 
Total deposits 27,897,083   28,187,561   33,968,152 
Borrowings 6,357,338   11,881,712   1,592,000 
Subordinated debt 870,378   868,815   863,756 
Accrued interest payable and other liabilities 679,256   593,416   548,412 
Total liabilities 35,804,055   41,531,504   36,972,320 
STOCKHOLDERS' EQUITY (1) 2,533,195   2,771,477   3,978,403 
Total liabilities and stockholders’ equity$38,337,250  $44,302,981  $40,950,723 
      
Book value per common share$16.93  $18.90  $28.93 
Tangible book value per common share (2)$16.71  $18.66  $16.93 
Common shares outstanding 120,169,012   120,244,214   120,288,024 
      
(1) Includes net unrealized loss on:     
Securities available-for-sale, net$(583,684) $(537,307) $(428,242)
Securities held to maturity$(193,058) $(198,753) $(216,508)
(2) Non-GAAP measure.     


PACWEST BANCORP AND SUBSIDIARIES         
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS)      
          
 Three Months Ended Six Months Ended
 June 30, March 31, June 30, June 30,
 2023 2023 2022 2023 2022
 (In thousands, except per share amounts)
Interest income:         
Loans and leases$408,972  $430,685  $293,286  $839,657  $561,045 
Investment securities 44,153   44,237   52,902   88,390   106,324 
Deposits in financial institutions 86,763   42,866   4,330   129,629   6,053 
Total interest income 539,888   517,788   350,518   1,057,676   673,422 
          
Interest expense:         
Deposits 178,789   155,892   15,362   334,681   21,570 
Borrowings 160,914   69,122   2,441   230,036   2,602 
Subordinated debt 14,109   13,502   8,790   27,611   16,608 
Total interest expense 353,812   238,516   26,593   592,328   40,780 
          
Net interest income 186,076   279,272   323,925   465,348   632,642 
Provision for credit losses 2,000   3,000   11,500   5,000   11,500 
Net interest income after provision         
for credit losses 184,076   276,272   312,425   460,348   621,142 
          
Noninterest income:         
Service charges on deposit accounts 4,315   3,573   3,634   7,888   7,205 
Other commissions and fees 11,241   10,344   10,813   21,585   22,393 
Leased equipment income 22,387   13,857   12,335   36,244   25,429 
(Loss) gain on sale of loans and leases (158,881)  2,962   12   (155,919)  72 
Loss on sale of securities -   -   (1,209)  -   (1,105)
Dividends and gains (losses) on equity investments 2,658   1,098   4,097   3,756   (7,278)
Warrant (loss) income (124)  (333)  1,615   (457)  2,244 
LOCOM HFS adjustment (11,943)  -   -   (11,943)  - 
Other income 2,265   4,890   3,049   7,155   6,204 
Total noninterest (loss) income (128,082)  36,391   34,346   (91,691)  55,164 
          
Noninterest expense:         
Compensation 82,881   88,476   102,542   171,357   194,782 
Occupancy 15,383   15,067   15,268   30,450   30,468 
Data processing 10,963   10,938   9,258   21,901   18,887 
Other professional services 9,973   6,073   6,726   16,046   12,680 
Insurance and assessments 25,635   11,717   5,632   37,352   11,122 
Intangible asset amortization 2,389   2,411   3,649   4,800   7,298 
Leased equipment depreciation 9,088   9,375   8,934   18,463   18,123 
Foreclosed assets expense (income), net 2   363   (28)  365   (3,381)
Acquisition, integration and reorganization costs 12,394   8,514   -   20,908   - 
Customer related expense 27,302   24,005   11,748   51,307   24,403 
Loan expense 5,245   6,524   7,037   11,769   12,194 
Goodwill impairment -   1,376,736   -   1,376,736   - 
Other expense 119,182   12,804   12,879   131,986   24,495 
Total noninterest expense 320,437   1,573,003   183,645   1,893,440   351,071 
          
(Loss) earnings before income taxes (264,443)  (1,260,340)  163,126   (1,524,783)  325,235 
Income tax (benefit) expense (67,029)  (64,916)  40,766   (131,945)  82,747 
Net (loss) earnings (197,414)  (1,195,424)  122,360   (1,392,838)  242,488 
Preferred stock dividends 9,947   9,947   -   19,894   - 
Net (loss) earnings available to         
common stockholders$(207,361) $(1,205,371) $122,360  $(1,412,732) $242,488 
          
Basic and diluted (loss) earnings per         
common share$(1.75)  -10.22   1.02  $(11.96) $2.03 
Dividends declared and paid per common share$0.01  $0.25  $0.25  $0.26  $0.50 

 

PACWEST BANCORP AND SUBSIDIARIES         
AVERAGE BALANCE SHEET AND YIELD ANALYSIS        
            
 Three Months Ended
 June 30, 2023 March 31, 2023 June 30, 2022
  InterestAverage InterestAverage InterestAverage
 Average Income/Yield/ Average Income/Yield/ Average Income/Yield/
 BalanceExpenseCost BalanceExpenseCost BalanceExpenseCost
 (Dollars in thousands)
Assets:           
Loans and           
leases (1)(2)(3)$26,992,283 $408,972 6.08% $28,583,265 $433,029 6.14% $25,449,773 $295,154 4.65%
Investment securities (3) 7,183,986  44,153 2.47%  7,191,362  44,237 2.49%  9,488,653  54,910 2.32%
Deposits in financial           
institutions 6,835,075  86,763 5.09%  3,682,228  42,866 4.72%  1,984,751  4,330 0.88%
Total interest-earning           
assets (1) 41,011,344  539,888 5.28%  39,456,855  520,132 5.35%  36,923,177  354,394 3.85%
Other assets 2,028,985     3,311,859     3,108,714   
Total assets$43,040,329    $42,768,714    $40,031,891   
            
Liabilities and            
Stockholders' Equity:          
Interest checking$6,601,034  46,798 2.84% $7,089,102  55,957 3.20% $6,517,381  3,816 0.23%
Money market 6,590,615  47,008 2.86%  8,932,059  56,224 2.55%  10,553,942  8,448 0.32%
Savings 733,818  3,678 2.01%  597,287  599 0.41%  650,479  41 0.03%
Time 7,492,094  81,305 4.35%  5,123,955  43,112 3.41%  1,939,816  3,057 0.63%
Total interest-bearing           
deposits 21,417,561  178,789 3.35%  21,742,403  155,892 2.91%  19,661,618  15,362 0.31%
Borrowings 11,439,742  160,914 5.64%  5,289,429  69,122 5.30%  1,356,616  2,441 0.72%
Subordinated debt 869,419  14,109 6.51%  867,637  13,502 6.31%  863,653  8,790 4.08%
Total interest-bearing           
liabilities 33,726,722  353,812 4.21%  27,899,469  238,516 3.47%  21,881,887  26,593 0.49%
Noninterest-bearing           
demand deposits 5,968,625     10,233,434     13,987,398   
Other liabilities 625,610     637,124     510,238   
Total liabilities 40,320,957     38,770,027     36,379,523   
Stockholders' equity 2,719,372     3,998,687     3,652,368   
Total liabilities and           
stockholders' equity$43,040,329    $42,768,714    $40,031,891   
Net interest income (1) $186,076    $281,616    $327,801  
Net interest spread (1)  1.07%   1.88%   3.36%
Net interest margin (1)  1.82%   2.89%   3.56%
            
Total deposits (4)$27,386,186 $178,789 2.62% $31,975,837 $155,892 1.98% $33,649,016 $15,362 0.18%
            
(1) Tax equivalent.           
(2) Includes net loan premium amortization of $1.6 million, $2.8 million, and $5.8 million for the three months ended June 30, 2023,
March 31, 2023, and June 30, 2022, respectively.        
(3) Includes tax-equivalent adjustments of $0.0 million, $2.3 million, and $1.9 million for the three months ended June 30, 2023,
March 31, 2023, and June 30, 2022 related to tax-exempt income on loans.     
Includes tax-equivalent adjustments of $0.0 million, $0.0 million, and $2.0 million for the three months ended June 30, 2023,
March 31, 2023, and June 30, 2022 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         
          
 June 30, March 31, December 31, September 30, June 30,
  2023   2023   2022   2022   2022 
 (Dollars in thousands, except per share amounts)
ASSETS:         
Cash and due from banks$208,300  $218,830  $212,273  $216,436  $197,027 
Interest-earning deposits in financial         
institutions 6,489,847   6,461,306   2,027,949   2,244,272   2,192,877 
Total cash and cash equivalents  6,698,147   6,680,136   2,240,222   2,460,708   2,389,904 
          
Securities available-for-sale 4,708,519   4,848,607   4,843,487   5,891,328   6,780,648 
Securities held-to-maturity 2,278,202   2,273,650   2,269,135   2,264,601   2,260,367 
Federal Home Loan Bank stock 17,250   147,150   34,290   36,990   33,210 
   Total investment securities 7,003,971   7,269,407   7,146,912   8,192,919   9,074,225 
          
Loans held for sale 478,146   2,796,208   65,076   15,534   - 
          
Gross loans and leases held for investment 22,311,292   25,770,912   28,726,016   27,775,962   26,608,541 
Deferred fees, net (53,082)  (98,531)  (116,887)  (115,921)  (107,404)
Total loans and leases held for         
investment, net of deferred fees 22,258,210   25,672,381   28,609,129   27,660,041   26,501,137 
Allowance for loan and lease losses (219,234)  (210,055)  (200,732)  (189,327)  (188,705)
Total loans and leases held for         
investment, net 22,038,976   25,462,326   28,408,397   27,470,714   26,312,432 
          
Equipment leased to others under         
operating leases 380,022   399,972   404,245   338,691 - 324,233 
Premises and equipment, net 57,078   60,358   54,315   50,781   51,083 
Foreclosed assets, net 8,426   2,135   5,022   2,967   - 
Goodwill -   -   1,376,736   1,405,736   1,405,736 
Core deposit and customer relationship         
intangibles, net 26,581   28,970   31,381   34,010   37,659 
Deferred tax asset, net 426,304   342,557   281,848   321,650   254,090 
Other assets 1,219,599   1,260,912   1,214,782   1,110,882   1,101,361 
Total assets38,337,250  44,302,981  41,228,936   $41,4045,92  40,950,723 
          
LIABILITIES:         
Noninterest-bearing deposits$6,055,358  $7,030,759  $11,212,357  $12,775,756  $13,338,029 
Interest-bearing deposits 21,841,725   21,156,802   22,723,977   21,420,116   20,630,123 
Total deposits 27,897,083   28,187,561   33,936,334   34,195,872   33,968,152 
Borrowings 6,357,338   11,881,712   1,764,030   1,864,815   1,592,000 
Subordinated debt 870,378   868,815   867,087   863,379   863,756 
Accrued interest payable and other         
liabilities 679,256   593,416   710,954   604,581   548,412 
Total liabilities 35,804,055   41,531,504   37,278,405   37,528,647   36,972,320 
STOCKHOLDERS' EQUITY (1) 2,533,195   2,771,477   3,950,531   3,875,945   3,978,403 
Total liabilities and stockholders’          
equity38,337,250   $44,302,981  41,228,936  41,404,592  40,950,723 
          
Book value per common share$16.93  $18.90  $28.71  $28.07  $28.93 
Tangible book value per common share (2)$16.71  $18.66  $17.00  $16.11  $16.93 
Common shares outstanding 120,169,012   120,244,214   120,222,057   120,314,023   120,288,024 
          
(1) Includes net unrealized loss on:         
Securities available-for-sale, net$(583,684) $(537,307) $(586,450) $(637,346) $(428,242)
Securities held to maturity$(193,058) $(198,753) $(204,453) $(210,868) $(216,508)
(2) Non-GAAP measure.         

 

PACWEST BANCORP AND SUBSIDIARIES         
FIVE QUARTER STATEMENT OF EARNINGS (LOSS)        
          
 Three Months Ended
 June 30, March 31, December 31, September 30, June 30,
 2023 2023 2022 2022 2022
 (In thousands, except per share amounts)
Interest income:         
Loans and leases$408,972  $430,685  $404,985  $346,550  $293,286 
Investment securities 44,153   44,237   50,292   53,135   52,902 
Deposits in financial institutions 86,763   42,866   17,746   10,359   4,330 
Total interest income 539,888   517,788   473,023   410,044   350,518 
          
Interest expense:         
Deposits 178,789   155,892   117,591   61,288   15,362 
Borrowings 160,914   69,122   19,962   3,081   2,441 
Subordinated debt 14,109   13,502   12,531   10,494   8,790 
Total interest expense 353,812   238,516   150,084   74,863   26,593 
          
Net interest income 186,076   279,272   322,939   335,181   323,925 
Provision for credit losses 2,000   3,000   10,000   3,000   11,500 
Net interest income after provision         
for credit losses 184,076   276,272   312,939   332,181   312,425 
          
Noninterest income:         
Service charges on deposit accounts 4,315   3,573   3,178   3,608   3,634 
Other commissions and fees 11,241   10,344   11,208   10,034   10,813 
Leased equipment income 22,387   13,857   12,322   12,835   12,335 
(Loss) gain on sale of loans and leases (158,881)  2,962   388   58   12 
(Loss) gain on sale of securities -   -   (49,302)  86   (1,209)
Dividends and gains on equity investments 2,658   1,098   661   3,228   4,097 
Warrant (loss) income (124)  (333)  (46)  292   1,615 
LOCOM HFS adjustment (11,943)  -   -   -   - 
Other income 2,265   4,890   2,635   8,478   3,049 
Total noninterest (loss) income (128,082)  36,391   (18,956)  38,619   34,346 
          
Noninterest expense:         
Compensation 82,881   88,476   106,124   105,933   102,542 
Occupancy 15,383   15,067   14,922   15,574   15,268 
Data processing 10,963   10,938   9,722   9,568   9,258 
Other professional services 9,973   6,073   6,924   10,674   6,726 
Insurance and assessments 25,635   11,717   7,205   7,159   5,632 
Intangible asset amortization 2,389   2,411   2,629   3,649   3,649 
Leased equipment depreciation 9,088   9,375   8,627   8,908   8,934 
Foreclosed assets expense (income), net 2   363   (108)  (248)  (28)
Acquisition, integration and reorganization costs 12,394   8,514   5,703   -   - 
Customer related expense 27,302   24,005   18,197   12,673   11,748 
Loan expense 5,245   6,524   6,150   6,228   7,037 
Goodwill impairment -   1,376,736   29,000   -   - 
Other expense 119,182   12,804   11,737   15,500   12,879 
Total noninterest expense 320,437   1,573,003   226,832   195,618   183,645 
          
(Loss) earnings before income taxes (264,443)  (1,260,340)  67,151   175,182   163,126 
Income tax (benefit) expense (67,029)  (64,916)  17,642   43,566   40,766 
Net (loss) earnings (197,414)  (1,195,424)  49,509   131,616   122,360 
Preferred stock dividends 9,947   9,947   9,947   9,392   - 
Net (loss) earnings available to         
common stockholders$(207,361) $(1,205,371) $39,562  $122,224  $122,360 
          
Basic and diluted (loss) earnings per         
common share$(1.75) $(10.22) $0.33  $1.02  $1.02 
Dividends declared and paid per common share$0.01  $0.25  $0.25  $0.25  $0.25 
          

 

PACWEST BANCORP AND SUBSIDIARIES        
FIVE QUARTER SELECTED FINANCIAL DATA        
          
 At or For the Three Months Ended
 June 30, March 31, December 31, September 30, June 30,
  2023   2023   2022   2022   2022 
 (Dollars in thousands)
Performance Ratios:         
Return on average assets (1) (1.84)%  (11.34)%  0.48%  1.28%  1.23%
Pre-provision, pre-goodwill impairment,         
pre-tax net revenue ("PPNR") return         
on average assets (1)(2) (2.45)%  1.13%  1.02%  1.73%  1.75%
Return on average equity (1) (29.12)%  (121.24)%  5.04%  13.02%  13.44%
Return on average tangible common         
equity (1)(2) (37.62)%  14.45%  12.71%  23.93%  24.24%
Efficiency ratio 527.0%  58.2%  53.3%  51.0%  49.5%
Noninterest expense as a percentage         
of average assets (1) 2.99%  14.92%  2.19%  1.90%  1.84%
          
Average Yields/Costs (1):         
Yield on:         
Average loans and leases (3) 6.08%  6.14%  5.73%  5.12%  4.65%
Average investment securities (3) 2.47%  2.49%  2.57%  2.45%  2.32%
Average interest-earning assets (3) 5.28%  5.35%  4.98%  4.36%  3.85%
Cost of:         
Average interest-bearing deposits 3.35%  2.91%  2.14%  1.15%  0.31%
Average total deposits 2.62%  1.98%  1.37%  0.70%  0.18%
Average interest-bearing liabilities 4.21%  3.47%  2.45%  1.32%  0.49%
Net interest spread (3) 1.07%  1.88%  2.53%  3.04%  3.36%
Net interest margin (3) 1.82%  2.89%  3.41%  3.57%  3.56%
          
Average Balances:         
Assets:         
Loans and leases, net of deferred fees$26,992,283  $28,583,265  $28,192,953  $27,038,873  $25,449,773 
Investment securities 7,183,986   7,191,362   7,824,915   8,803,349   9,488,653 
Deposits in financial institutions 6,835,075   3,682,228   1,881,950   1,809,809   1,984,751 
Interest-earning assets 41,011,344   39,456,855   37,899,818   37,652,031   36,923,177 
Total assets 43,040,329   42,768,714   41,151,963   40,841,272   40,031,891 
Liabilities:         
Noninterest-bearing deposits 5,968,625   10,233,434   12,325,902   13,653,177   13,987,398 
Interest-bearing deposits 21,417,561   21,742,403   21,760,402   21,214,265   19,661,618 
Total deposits 27,386,186   31,975,837   34,086,304   34,867,442   33,649,016 
Borrowings 11,439,742   5,289,429   1,675,738   505,482   1,356,616 
Subordinated debt 869,419   867,637   864,581   863,719   863,653 
Interest-bearing liabilities 33,726,722   27,899,469   24,300,721   22,583,466   21,881,887 
Stockholders' equity 2,719,372   3,998,687   3,898,800   4,011,179   3,652,368 
          
(1) Annualized.         
(2) Non-GAAP measure.         
(3) Tax equivalent.         

 

PACWEST BANCORP AND SUBSIDIARIES        
FIVE QUARTER SELECTED FINANCIAL DATA        
          
 At or For the Three Months Ended
 June 30, March 31, December 31, September 30, June 30,
  2023   2023   2022   2022   2022 
 (Dollars in thousands, except per share amounts)
Credit Quality Metrics for Loans          
and Leases Held for Investment:         
Nonaccrual loans and leases$104,886  $87,124  $103,778  $89,742  $78,527 
Nonperforming assets 113,312   89,259   108,800   92,709   78,527 
Special mention loans and leases 366,368   580,153   566,259   463,994   480,261 
Classified loans and leases 211,934   132,423   118,271   96,685   104,264 
Allowance for loan and lease losses 219,234   210,055   200,732   189,327   188,705 
Allowance for credit losses 256,805   285,626   291,803   284,398   283,776 
For the quarter:         
Provision for credit losses 2,000   3,000   10,000   3,000   10,000 
Net charge-offs (recoveries) 30,821   9,177   2,595   2,378   (1,307)
          
Nonaccrual loans and leases to loans         
and leases 0.47%  0.34%  0.36%  0.32%  0.30%
Nonperforming assets to loans and         
leases and foreclosed assets 0.51%  0.35%  0.38%  0.34%  0.30%
Special mention loans and leases to         
loans and leases 1.65%  2.26%  1.98%  1.68%  1.81%
Classified loans and leases to loans         
and leases 0.95%  0.52%  0.41%  0.35%  0.39%
Allowance for loan and lease losses         
to loans and leases 0.98%  0.82%  0.70%  0.68%  0.71%
Allowance for credit losses to loans         
and leases 1.15%  1.11%  1.02%  1.03%  1.07%
Allowance for credit losses to         
nonaccrual loans and leases 244.84%  327.84%  281.18%  316.91%  361.37%
Net charge-offs (recoveries)         
to average loans and leases 0.46%  0.13%  0.04%  0.03%  (0.02)%
Trailing 12 months net charge-offs         
(recoveries) to average loans and         
leases 0.17%  0.05%  0.02%  0.01%  0.00%
          
PacWest Bancorp Consolidated:         
Common equity tier 1 capital ratio (1) 11.16%  9.21%  8.70%  8.56%  8.24%
Tier 1 capital ratio (1) 13.70%  11.15%  10.61%  10.46%  10.15%
Total capital ratio (1) 17.61%  14.21%  13.61%  13.43%  13.12%
Tier 1 leverage capital ratio (1) 7.76%  8.33%  8.61%  8.63%  8.52%
Risk-weighted assets (1)$24,768,687  $32,507,454  $33,030,960  $33,042,173  $33,009,455 
          
Equity to assets ratio 6.61%  6.26%  9.58%  9.36%  9.72%
Tangible common equity ratio (2) 5.24%  5.07%  5.13%  4.85%  5.15%
Book value per common share$16.93  $18.90  $28.71  $28.07  $28.93 
Tangible book value per common share (2)$16.71  $18.66  $17.00  $16.11  $16.93 
          
Pacific Western Bank:         
Common equity tier 1 capital ratio (1) 13.48%  10.89%  10.32%  10.17%  9.78%
Tier 1 capital ratio (1) 13.48%  10.89%  10.32%  10.17%  9.78%
Total capital ratio (1) 16.07%  12.94%  12.34%  12.16%  11.77%
Tier 1 leverage capital ratio (1) 7.62%  8.14%  8.39%  8.39%  8.21%
          
(1) Capital information for June 30, 2023 is preliminary.        
(2) Non-GAAP measure.         

GAAP TO NON-GAAP RECONCILIATIONS

This press release contains certain non-GAAP financial disclosures for: (1) Pre-provision, pre-goodwill impairment, pre-tax net revenue (“PPNR”), (2) PPNR return on average assets (3) return on average tangible common equity, (4) tangible common equity ratio, and (5) tangible book value per common share. The Company uses these non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. In particular, the use of PPNR, return on average tangible common equity, tangible common equity ratio, and tangible book value per common share is prevalent among banking regulators, investors, and analysts. Accordingly, we disclose the non-GAAP measures in addition to the related GAAP measures (or those calculated from GAAP measures) of: (1) net earnings, (2) return on average assets, (3) return on average equity, (4) equity to assets ratio, (5) book value per common share, and (6) efficiency ratio.

The Company recorded significant non-operating charges in the three months ended June 30, 2023 and March 31, 2023 and six months ended June 30, 2023. Thus, to supplement information regarding the Company’s operational performance and to enhance investors’ overall understanding of such performance, this press release includes non-GAAP financial measures for (1) adjusted return on average tangible common equity, (2) adjusted earnings, (3) adjusted earnings per share, (4) adjusted return on average assets, and (5) adjusted efficiency ratio. These measures help the reader to compare the recent periods with the historical periods more readily. These non-GAAP financial measures should not be considered a substitute for financial measures presented in accordance with GAAP and may be different from the non-GAAP financial measures used by other companies.

The tables below present the reconciliations of these GAAP financial measures to the related non-GAAP financial measures:

          
          
 Three Months Ended Six Months Ended
PPNR and PPNR ReturnJune 30, March 31, June 30, June 30,
on Average Assets2023 2023 2022 2023 2022
 (Dollars in thousands)
Net (loss) earnings$(197,414) $(1,195,424) $122,360  $(1,392,838) $242,488 
          
Net interest income$186,076  $279,272  $323,925  $465,348  $632,642 
Add: Noninterest (loss) income (128,082)  36,391   34,346   (91,691)  55,164 
Less: Noninterest expense (320,437)  (1,573,003)  (183,645)  (1,893,440)  (351,071)
Add: Goodwill impairment -   1,376,736   -   1,376,736   - 
Pre-provision, pre-goodwill impairment,         
pre-tax net revenue ("PPNR")$(262,443) $119,396  $174,626  $(143,047) $336,735 
          
Average assets$43,040,329  $42,768,714  $40,031,891  $42,905,272  $39,958,008 
          
Return on average assets (1) (1.84)%  (11.34)%  1.23%  (6.55)%  1.22%
PPNR return on average assets (2) (2.45)%  1.13%  1.75%  (0.67)%  1.70%
          
(1) Annualized net earnings divided by average assets.        
(2) Annualized PPNR divided by average assets.        


          
          
 Three Months Ended Six Months Ended
Return on Average June 30, March 31, June 30, June 30,
Tangible Common Equity 2023   2023   2022   2023   2022 
 (Dollars in thousands)
Net (loss) earnings(197,414 ) (1,195,424 ) 122,360  (1,392,838 )  $242,488 
          
(Loss) earnings before income taxes$(264,443) $(1,260,340) $163,126  $(1,524,783) $325,235 
Add: Goodwill impairment -   1,376,736   -   1,376,736   - 
Add: Intangible asset amortization 2,389   2,411   3,649   4,800   7,298 
Adjusted earnings before income taxes (262,054)  118,807   166,775   (143,247)  332,533 
Adjusted income tax expense (1) -66300   33741   41694   -45839   84463 
Adjusted net earnings (195,754)  85,066   125,081   (97,408)  248,070 
Less: Preferred stock dividends 9,947   9,947   -   19,894   - 
Adjusted net earnings available to         
common stockholders -205701   75119   125081   -117302   248070 
          
Average stockholders' equity$2,719,372  $3,998,687  $3,652,368  $3,355,495  $3,749,386 
Less: Average intangible assets 27,824   1,391,857   1,445,333   706,072   1,447,184 
Less: Average preferred stock 498,516   498,516   137,100   498,516   68,929 
Average tangible common equity$2,193,032  $2,108,314  $2,069,935  $2,150,907  $2,233,273 
          
Return on average equity (2) (29.12)%  (121.24)%  13.44%  (83.71)%  13.04%
Return on average tangible         
common equity (3) (37.62)%  14.45%  24.24%  (11.00)%  22.40%
          
(1) Effective tax rates of 25.3% and 25.0% used for three months ended June 30, 2023 and June 30, 2022; adjusted effective    
tax rate of 28.4% used to normalize the effect of goodwill impairment for three months ended March 31, 2023.     
Adjusted effective tax rate of 32.0% used to normalize the effect of goodwill impairment for six months ended June 30, 2023;    
effective tax rate of 25.4% used for six months ended June 30, 2022.      
(2) Annualized net (loss) earnings divided by average stockholders' equity.      
(3) Annualized adjusted net earnings available to common stockholders divided by average     
tangible common equity.         


          
          
 Three Months Ended Six Months Ended
Adjusted Return on Average June 30, March 31, June 30, June 30,
Tangible Common Equity 2023   2023   2022   2023   2022 
 (Dollars in thousands)
(Loss) earnings before income taxes$(264,443) $(1,260,340) $163,126  $(1,524,783) $325,235 
Add: Goodwill impairment -   1,376,736   -   1,376,736   - 
Add: Intangible asset amortization 2,389   2,411   3,649   4,800   7,298 
Add: Acquisition, integration, and         
reorganization costs 12,394   8,514   -   20,908   - 
Add: Loan fair value loss adjustments 170,971   -   -   170,971   - 
Add: Unfunded commitments fair value         
loss adjustments 106,767   -   -   106,767   - 
Add: Civic loan sale charge-offs 22,446   -   -   22,446   - 
Adjusted earnings before income taxes 50,524   127,321   166,775   177,845   332,533 
Adjusted income tax expense (1) 12783   36159   41694   56910   84463 
Adjusted net earnings 37,741   91,162   125,081   120,935   248,070 
Less: Preferred stock dividends 9,947   9,947   -   19,894   - 
Adjusted net earnings available to         
common stockholders$27,794  $81,215  $125,081  $101,041  $248,070 
          
Average stockholders' equity$2,719,372  $3,998,687  $3,652,368  $3,355,495  $3,749,386 
Less: Average intangible assets 27,824   1,391,857   1,445,333   706,072   1,447,184 
Less: Average preferred stock 498,516   498,516   137,100   498,516   68,929 
Average tangible common equity$2,193,032  $2,108,314  $2,069,935  $2,150,907  $2,233,273 
          
Adjusted return on average tangible         
common equity (2) 5.08%  15.62%  24.24%  9.47%  22.40%
          
(1) Effective tax rates of 25.3% and 25.0% used for three months ended June 30, 2023 and June 30, 2022; adjusted effective    
tax rate of 28.4% used to normalize the effect of goodwill impairment for three months ended March 31, 2023.     
Adjusted effective tax rate of 32.0% used to normalize the effect of goodwill impairment for six months ended June 30, 2023;    
effective tax rate of 25.4% used for six months ended June 30, 2022.      
(2) Annualized adjusted net earnings available to common stockholders divided by average     
tangible common equity.         

 

          
Tangible Common Equity Ratio/         
Tangible Book Value Per June 30, March 31, December 31, September 30, June 30,
Common Share 2023   2023   2022   2022   2022 
 (Dollars in thousands, except per share amounts)
Stockholders' equity$2,533,195  $2,771,477  $3,950,531  $3,875,945  $3,978,403 
Less: Preferred stock 498,516   498,516   498,516   498,516   498,516 
Total common equity 2,034,679   2,272,961   3,452,015   3,377,429   3,479,887 
Less: Intangible assets 26,581   28,970   1,408,117   1,439,746   1,443,395 
Tangible common equity 2,008,098   2,243,991   2,043,898   1,937,683   2,036,492 
Add: Accumulated other comprehensive         
loss 773,803   736,060   790,903   848,214   644,750 
Adjusted tangible common equity$2,781,901  $2,980,051  $2,834,801  $2,785,897  $2,681,242 
          
Total assets$38,337,250  $44,302,981  $41,228,936  $41,404,592  $40,950,723 
Less: Intangible assets 26,581   28,970   1,408,117   1,439,746   1,443,395 
Tangible assets$38,310,669  $44,274,011  $39,820,819  $39,964,846  $39,507,328 
          
Equity to assets ratio 6.61%  6.26%  9.58%  9.36%  9.72%
Tangible common equity ratio (1) 5.24%  5.07%  5.13%  4.85%  5.15%
Tangible common equity ratio,         
excluding AOCI (2) 7.26%  6.73%  7.12%  6.97%  6.79%
Book value per common share (3)$16.93  $18.90  $28.71  $28.07  $28.93 
Tangible book value per common share (4)$16.71  $18.66  $17.00  $16.11  $16.93 
Tangible book value per common share,