PacWest Bancorp Announces Results for the First Quarter 2023
04/25/2023 - 04:10 PM
LOS ANGELES, April 25, 2023 (GLOBE NEWSWIRE) --
FIRST QUARTER 2023 HIGHLIGHTS
Net loss available to common stockholders of $1.21 billion , or a loss of $10.22 per diluted share Adjusted earnings of $89.4 million , or $0.66 per diluted share, which excludes non-cash goodwill impairment, and severance and contract termination expense (non-GAAP measure) Goodwill impairment of $1.38 billion recorded due to decline in our stock price as a result of recent market volatility. Goodwill impairment is a non-cash charge and has no impact on our regulatory capital ratios, cash flows, or liquidity position Severance and contract termination expense of $8.5 million accrued related to our efficiency initiative First quarter results were marked by enhanced liquidity following market volatility Total deposits increased $1.1 billion to $28.2 billion at March 31, 2023 compared to Company’s most recent update of $27.1 billion as of March 20, 2023. Deposit balances further increased approximately $700 million as of April 24, 2023 Total insured deposits, including accounts eligible for pass-through insurance, represented approximately 73% of total deposits as of April 24, 2023 up from 48% at December 31, 2022 Immediately-available liquidity (on-balance sheet liquidity and unused borrowing capacity) of $12.4 billion , which exceeded uninsured deposits of $8.1 billion , with a coverage ratio of 153% at March 31, 2023 All risk-based capital ratios increased from December 31, 2022, with CET1 increasing from 8.70% to 9.22% Credit metrics remain steady with nonperforming assets ratio declining 3 basis points to 35 basis points Unrealized losses on the Company’s investment portfolio improved, declining from $791 million at December 31, 2022 to $736 million at March 31, 2023 ADJUSTED EARNINGS
Financial results for the first quarter of 2023 were impacted by goodwill impairment of $1.38 billion and reorganization costs of $8.5 million . Excluding these amounts, adjusted earnings were $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 accounting principles generally accepted in the United States (“GAAP”) is provided in the financial tables at the end of this press release.
Three Months Ended March 31, December 31, March 31, 2023 2022 2022 (Dollars in thousands, except per share amounts) Earnings Summary: Net (loss) earnings $ (1,195,424 ) $ 49,509 $ 120,128 Diluted earnings per common share $ (10.22 ) $ 0.33 $ 1.01 Return on average assets (11.34 )% 0.48 % 1.22 % Return on average tangible common equity (1) 14.45 % 12.71 % 20.77 % Adjusted Earnings Summary (1): Adjusted earnings $ 89,436 $ 75,066 $ 120,128 Adjusted diluted earnings per common share $ 0.66 $ 0.54 $ 1.01 Adjusted return on average assets 0.85 % 0.72 % 1.22 % Adjusted return on average tangible common equity 15.62 % 13.56 % 20.77 % (1) Non-GAAP measure.
CEO COMMENTARY
Paul Taylor, President and CEO, commented, “Our strong banking franchise and our loyal, diversified customer base have driven us through one of the most challenging recent periods in the banking industry. Our deposits have stabilized with total insured deposits increasing from 48% of total deposits at year-end to 71% of total deposits at March 31, 2023. Importantly, deposits stabilized in the latter part of March and rebounded nicely in April, increasing approximately $700 million subsequent to quarter-end. Moreover, in light of the recent events, management took immediate steps to maximize liquidity, including the exploration of strategic asset sales, which has led to the transfer of our $2.7 billion Lender Finance loan portfolio to held for sale.”
Mr. Taylor continued, “The industry dynamics in the quarter caused a significant decline in regional bank stocks, including ours. As a result, we recorded a goodwill impairment charge. It is important to note that goodwill impairment is a non-cash charge and has no impact on our regulatory capital ratios, cash flows, or liquidity position. We also are continuing the work we started last year to improve the overall efficiency of the Bank, which resulted in severance and contract termination expense of $8.5 million and the consolidation of two branches into nearby branches in the first quarter of 2023. I am proud to say that in the face of this crisis, our business of serving our customers and communities was unrelenting, allowing us to post $89.4 million in adjusted earnings for the quarter. In addition, credit quality remains strong as evidenced by nonperforming assets of 35 basis points and net charge-offs of 13 basis points for the quarter and 5 basis points for the trailing twelve months.”
Mr. Taylor concluded, “As we look forward, we continue to execute on our overall strategy, which includes managing the balance sheet around a stable and diversified funding mix, emphasizing our core business, preserving profitability with a strong asset base and reduced costs, and maintaining our capital and liquidity positions while prudently managing risks. We expect that our total assets will be closer to $35 billion within the next few months, after we complete certain asset sales and bring down liquidity to more normal levels. These actions will improve our liquidity position and are expected to increase our CET1 capital ratio to above 10% . We are also expediting our operational efficiency strategy to reduce facilities and vendors, optimize business processes, and execute on other cost savings across the business to improve our profitability. We will continue to prioritize our customer relationships, which have been the bedrock of our success for more than twenty years.”
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 2023 2022 (Decrease) 2023 2022 (Decrease) (Dollars in thousands, except per share amounts) Net (loss) earnings available to common stockholders $ (1,205,371 ) $ 39,562 $ (1,244,933 ) $ (1,205,371 ) $ 120,128 $ (1,325,499 ) Diluted (loss) earnings per common share $ (10.22 ) $ 0.33 $ (10.55 ) $ (10.22 ) $ 1.01 $ (11.23 ) Pre-provision, pre-goodwill impairment, pre-tax net revenue ("PPNR") (1) $ 119,396 $ 106,151 $ 13,245 $ 119,396 $ 162,109 $ (42,713 ) Return on average assets (11.34 )% 0.48 % (11.82 ) (11.34 )% 1.22 % (12.56 ) PPNR return on average assets (1) 1.13 % 1.02 % 0.11 1.13 % 1.65 % (0.52 ) Return on average tangible common equity (1) 14.45 % 12.71 % 1.74 14.45 % 20.77 % (6.32 ) Yield on average loans and leases (tax equivalent) 6.14 % 5.73 % 0.41 6.14 % 4.66 % 1.48 Cost of average total deposits 1.98 % 1.37 % 0.61 1.98 % 0.07 % 1.91 Net interest margin ("NIM") (tax equivalent) 2.89 % 3.41 % (0.52 ) 2.89 % 3.43 % (0.54 ) Efficiency ratio 58.2 % 53.3 % 4.9 58.2 % 50.1 % 8.1 Total assets $ 44,302,981 $ 41,228,936 $ 3,074,045 $ 44,302,981 $ 39,249,639 $ 5,053,342 Loans and leases held for investment, net of deferred fees $ 25,672,381 $ 28,609,129 $ (2,936,748 ) $ 25,672,381 $ 24,352,072 $ 1,320,309 Noninterest-bearing demand deposits $ 7,030,759 $ 11,212,357 $ (4,181,598 ) $ 7,030,759 $ 14,057,051 $ (7,026,292 ) Retail non-maturity deposits $ 19,230,293 $ 26,561,129 $ (7,330,836 ) $ 19,230,293 $ 31,676,404 $ (12,446,111 ) Total deposits $ 28,187,561 $ 33,936,334 $ (5,748,773 ) $ 28,187,561 $ 33,224,895 $ (5,037,334 ) As percentage of total deposits: Noninterest-bearing demand deposits 25 % 33 % (8 ) 25 % 42 % (17 ) Retail non-maturity deposits 68 % 78 % (10 ) 68 % 95 % (27 ) Equity to assets ratio 6.26 % 9.58 % (3.32 ) 6.26 % 9.30 % (3.04 ) Common equity tier 1 capital ratio 9.22 % 8.70 % 0.52 9.22 % 8.64 % 0.58 Tier 1 capital ratio 11.16 % 10.61 % 0.55 11.16 % 9.07 % 2.09 Total capital ratio 14.22 % 13.61 % 0.61 14.22 % 12.27 % 1.95 Tangible common equity ratio (1) 5.07 % 5.13 % (0.06 ) 5.07 % 5.83 % (0.76 ) Tangible book value per common share (1) $ 18.66 $ 17.00 $ 1.66 $ 18.66 $ 18.42 $ 0.24 (1) Non-GAAP measure.
INCOME STATEMENT HIGHLIGHTS
NET INTEREST INCOME
Net interest income decreased by $43.7 million to $279.3 million for the first quarter of 2023 compared to $322.9 million for the fourth quarter of 2022 due mainly to higher interest expense on deposits and borrowings, offset partially by higher interest income on loans and leases and deposits in financial institutions. Interest income on loans and leases increased by $25.7 million in the first quarter of 2023 due to a 41 basis points increase in the tax equivalent yield on loans and leases and a $390.3 million increase in the average balance of loans and leases compared to the fourth quarter of 2022. Interest income on deposits in financial institutions increased by $25.1 million in the first quarter of 2023 due mainly to a $1.8 billion increase in the average balance of deposits in financial institutions and a 98 basis points increase in the yield on deposits in financial institutions. The tax equivalent yield on loans and leases was 6.14% in the first quarter of 2023 compared to 5.73% for the fourth quarter of 2022. The increase in the tax equivalent yield on loans and leases was due primarily to higher coupon interest attributable to increased rates on production and on existing variable rate loans. Interest expense on deposits increased by $38.3 million in the first quarter of 2023 due mainly to increased market rates and an increased use of brokered deposits that contributed to a 61 basis points increase in the cost of total deposits, offset partially by the decrease in the average balance of deposits. Interest expense on borrowings increased by $49.2 million due to a $3.6 billion increase in the average balance and a 57 basis points increase in the cost of borrowings attributable mainly to the impact of increased market rates on our variable rate borrowings and higher market rates on new borrowings.
The tax equivalent NIM was 2.89% for the first quarter of 2023 compared to 3.41% for the fourth quarter of 2022. The decrease in the NIM was due mainly to a shift in our funding mix in the second half of March 2023 as we responded to the banking crisis to enhance liquidity and protect franchise value. Average borrowings as a percentage of average interest-bearing liabilities was 19% for the first quarter of 2023 compared to 7% for the fourth quarter of 2022. The additional borrowings are largely short term in nature, which will allow us to normalize our funding mix over time as economic conditions stabilize. The tax-equivalent NIM was further impacted by a higher cost of total deposits and borrowings, offset partially by higher yields on loans and leases and deposits in financial institutions.
The cost of total deposits was 1.98% for the first quarter of 2023 compared to 1.37% for the fourth quarter of 2022 due mainly to higher market interest rates and a change in the mix of average deposits, resulting from a decrease in lower cost retail non-maturity deposits and an increase in higher cost retail and brokered time 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 2023 2022 (Decrease) (In thousands) Addition to allowance for loan and lease losses $ 18,500 $ 14,000 $ 4,500 Reduction in reserve for unfunded loan commitments (15,500 ) (4,000 ) (11,500 ) Total loan-related provision 3,000 10,000 (7,000 ) Addition to allowance for held-to-maturity securities - - - Total provision for credit losses $ 3,000 $ 10,000 $ (7,000 )
The provision for credit losses was $3.0 million for the first quarter of 2023 compared to $10.0 million for the fourth quarter of 2022. The provision for the fourth quarter of 2022 reflected the impact of net loan growth. During the first quarter of 2023, while loans and leases held for investment and unfunded loan commitments declined, a $3 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 March 31, December 31, Increase Noninterest Income 2023 2022 (Decrease) (In thousands) Service charges on deposit accounts $ 3,573 $ 3,178 $ 395 Other commissions and fees 10,344 11,208 (864 ) Leased equipment income 13,857 12,322 1,535 Gain on sale of loans and leases 2,962 388 2,574 Gain (loss) on sale of securities - (49,302 ) 49,302 Dividends and gains on equity investments 1,098 661 437 Warrant loss (333 ) (46 ) (287 ) Other income 4,890 2,635 2,255 Total noninterest income (loss) $ 36,391 $ (18,956 ) $ 55,347
Noninterest income increased by $55.3 million to income of $36.4 million for the first quarter of 2023 compared to a loss of $19.0 million for the fourth quarter of 2022 due primarily to a decrease of $49.3 million in loss on sale of securities, and increases of $2.6 million in gain on sale of loans and leases, $2.3 million in other income, and $1.5 million in leased equipment income. The decrease in loss on sale of securities resulted from the sales of $1.0 billion of securities for a net loss of $49.3 million in the fourth quarter of 2022 compared to no sales in the first quarter of 2023. The increase in gain on sale of loans and leases resulted from the sale of $287.3 million of loans for a net gain of $3.0 million in the first quarter of 2023 compared to the sale of $11.0 million of loans for a net gain of $0.4 million in the fourth quarter of 2022. The increase in other income was due primarily to a $2.0 million gain from the change in fair value of the credit-linked notes in the first quarter of 2023. The increase in leased equipment income was due mainly to higher rental income compared to the linked quarter.
NONINTEREST EXPENSE
The following table presents details of noninterest expense for the periods indicated:
Three Months Ended March 31, December 31, Increase Noninterest Expense 2023 2022 (Decrease) (In thousands) Compensation $ 88,476 $ 106,124 $ (17,648 ) Occupancy 15,067 14,922 145 Data processing 10,938 9,722 1,216 Other professional services 6,073 6,924 (851 ) Insurance and assessments 11,717 7,205 4,512 Intangible asset amortization 2,411 2,629 (218 ) Leased equipment depreciation 9,375 8,627 748 Foreclosed assets expense (income), net 363 (108 ) 471 Customer related expense 24,005 18,197 5,808 Loan expense 6,524 6,150 374 Other 12,804 11,737 1,067 Total operating expense 187,753 192,129 (4,376 ) Acquisition, integration and reorganization costs 8,514 5,703 2,811 Goodwill impairment 1,376,736 29,000 1,347,736 Total noninterest expense $ 1,573,003 $ 226,832 $ 1,346,171
The Company recorded a goodwill impairment charge of $1.38 billion in the first quarter of 2023. It is a standard accounting requirement for companies to periodically assess and determine the carrying value of goodwill as an asset. The severe effects of recent industry events on the market valuation of the Company warranted goodwill impairment testing and, following a comprehensive analysis, it was determined that the total amount of goodwill was impaired. The goodwill impairment charge does not have an impact on the Company’s regulatory capital ratios, cash flows, or liquidity position.
Noninterest expense increased by $1.35 billion to $1.57 billion for the first quarter of 2023 compared to $226.8 million for the fourth quarter 2022 due primarily to the $1.38 billion goodwill impairment charge. Excluding the goodwill impairment and acquisition, integration and reorganization costs, operating expense decreased by $4.4 million to $187.8 million . The $4.4 million decrease was due mainly to a decrease of $17.6 million in compensation expense, offset partially by increases of $5.8 million in customer related expense and $4.5 million in insurance and assessments expense. The decrease in compensation expense was due primarily to lower bonus expense and lower stock-based compensation expense. The increase in customer related expense was due mostly to higher third-party payments for deposit customers on account analysis. The increase in insurance and assessments was due mainly to higher FDIC assessment expense attributable to the 2 basis point assessment rate increase effective January 1, 2023, and a higher assessment base as a result of the $1.6 billion increase in average assets in the first quarter of 2023.
INCOME TAXES
The effective income tax rate was 5.2% for the first quarter of 2023 compared to 26.3% for the fourth quarter of 2022. Excluding goodwill impairment, the effective income tax rate for the first quarter of 2023 was 28.4% . The increase from the fourth quarter of 2022 was due primarily to higher disallowed interest expense in the first quarter of 2023. Excluding goodwill impairment, the effective tax rate for the full year 2023 is currently estimated to be in the range of 28% to 30% .
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, 2023 December 31, 2022 March 31, 2022 % of % of % of Deposit Composition Balance Total Balance Total Balance Total (Dollars in thousands) Noninterest-bearing demand $ 7,030,759 25 % $ 11,212,357 33 % $ 14,057,051 42 % Interest checking 5,307,413 19 % 6,990,377 20 % 6,673,696 20 % Money market 6,220,203 22 % 7,780,758 23 % 10,301,996 31 % Savings 671,918 2 % 577,637 2 % 643,661 2 % Total retail non-maturity deposits 19,230,293 68 % 26,561,129 78 % 31,676,404 95 % Wholesale non-maturity deposits 2,028,676 7 % 2,637,362 8 % 322,732 1 % Total non-maturity deposits 21,258,969 75 % 29,198,491 86 % 31,999,136 96 % Retail time deposits 2,502,914 9 % 2,434,414 7 % 1,030,124 3 % Brokered time deposits 4,425,678 16 % 2,303,429 7 % 195,635 1 % Total time deposits (1) 6,928,592 25 % 4,737,843 14 % 1,225,759 4 % Total deposits $ 28,187,561 100 % $ 33,936,334 100 % $ 33,224,895 100 % (1) Includes time deposits over $250,000 of $1.1 billion , $1.5 billion , and $347.4 million at March 31, 2023, December 31, 2022, and March 31, 2022, respectively.
Total deposits decreased by $5.7 billion or 16.9% in the first quarter of 2023 due primarily to a $7.3 billion or 27.6% decrease in retail non-maturity deposits and a $608.7 million decrease in wholesale non-maturity deposits, offset partially by a $2.2 billion increase in time deposits. At March 31, 2023, retail non-maturity deposits totaled $19.2 billion or 68% of total deposits, including $7.0 billion of noninterest-bearing demand deposits or 25% of total deposits.
The following table presents the composition of our deposit portfolio by division as of the dates indicated:
March 31, 2023 December 31, 2022 % of % of Increase Balance Total Balance Total (Decrease) (Dollars in thousands) Community Banking $ 14,917,027 53 % $ 17,466,726 52 % $ (2,549,699 ) Venture Banking 6,584,554 23 % 11,296,574 33 % (4,712,020 ) Wholesale Deposits 6,685,980 24 % 5,173,034 15 % 1,512,946 Total deposits $ 28,187,561 100 % $ 33,936,334 100 % $ (5,748,773 )
As of March 31, 2023, FDIC-insured deposits represented approximately 71% of total deposits, including accounts eligible for pass-through insurance, and FDIC-insured venture-specific deposits accounted for approximately 83% of total venture-specific deposits, including accounts eligible for pass-through insurance. The Bank’s spot deposit rates increased from 1.71% at December 31, 2022 to 2.32% at March 31, 2023.
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 $1.4 billion as of December 31, 2022 to $1.2 billion as of March 31, 2023, of which $0.8 billion was managed by PWAM.
BORROWINGS
The following table presents the composition of our borrowings as of the dates indicated:
March 31, 2023 December 31, 2022 Weighted Weighted Avarage Avarage Increase Borrowing Type Balance Rate Balance Rate (Decrease) (Dollars in thousands) FHLB secured advances $ 5,450,000 5.07 % $ 1,270,000 4.62 % $ 4,180,000 Bank Term Funding Program 4,910,000 4.38 % - - 4,910,000 Repurchase agreement (1) 1,393,337 8.50 % - - 1,393,337 Credit-linked notes 128,375 15.24 % 132,030 14.56 % (3,655 ) AFX borrowings - - 250,000 4.68 % (250,000 ) FHLB unsecured overnight advance - - 112,000 4.37 % (112,000 ) Total borrowings $ 11,881,712 5.30 % $ 1,764,030 5.36 % $ 10,117,682 (1) Balance is net of unamortized issuance costs of $17.9 million and $0.4 million of accrued exit fees. Rate calculation does not include the effects of issuance costs and exit fees.
The $10.1 billion increase in borrowings in the first quarter of 2023 is the result of the Company’s proactive effort to bolster its on-balance sheet liquidity in response to the elevated net deposit outflows caused by the banking crisis. The increase is comprised of borrowings under the new Bank Term Funding Program of $4.9 billion , an increase in FHLB secured advances of $4.2 billion , and borrowing under a new repurchase agreement facility of $1.4 billion . Available borrowing capacity was approximately $5.8 billion at March 31, 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 Roll Forward of Loans and Leases Held March 31, December 31, for Investment, Net of Deferred Fees 2023 2022 (Dollars in thousands) Balance, beginning of period $ 28,609,129 $ 27,660,041 Additions: Production 468,671 1,287,248 Disbursements 1,622,898 1,919,979 Total production and disbursements 2,091,569 3,207,227 Reductions: Payoffs (1,021,652 ) (1,136,016 ) Paydowns (965,537 ) (1,050,727 ) Total payoffs and paydowns (1,987,189 ) (2,186,743 ) Sales (231,798 ) (2,611 ) Transfers to foreclosed assets (2,568 ) (4,714 ) Charge-offs (10,397 ) (3,352 ) Transfers to loans held for sale (2,796,365 ) (60,719 ) Total reductions (5,028,317 ) (2,258,139 ) Net (decrease) increase (2,936,748 ) 949,088 Balance, end of period $ 25,672,381 $ 28,609,129 Weighted average rate on production (1) 8.44 % 7.55 % (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 $2.9 billion , or 10.3% in the first quarter of 2023 to $25.7 billion at March 31, 2023. The overall decrease in the loans and leases balance for the first quarter of 2023 was due primarily to a $2.7 billion transfer to loans held for sale of Lender Finance loans included in the asset-based commercial loan portfolio.
The weighted average rate on the $469 million of production for the first quarter of 2023 increased to 8.44% from 7.55% for the fourth quarter of 2022 due primarily to the loan mix (lower percentage of multi-family production and a higher percentage of Civic production) and the increase in market interest rates.
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, 2023 December 31, 2022 March 31, 2022 % of % of % of Loan and Lease Portfolio Balance Total Balance Total Balance Total (Dollars in thousands) Real estate mortgage: Commercial $ 3,808,751 15 % $ 3,846,831 13 % $ 3,669,741 15 % Multi-family 5,523,320 21 % 5,607,865 20 % 4,080,257 17 % Other residential 6,075,540 24 % 6,275,628 22 % 4,759,066 20 % Total real estate mortgage 15,407,611 60 % 15,730,324 55 % 12,509,064 52 % Real estate construction and land: Commercial 910,327 4 % 898,592 3 % 802,022 3 % Residential 3,698,113 14 % 3,253,580 11 % 2,421,694 10 % Total real estate construction and land 4,608,440 18 % 4,152,172 14 % 3,223,716 13 % Total real estate 20,016,051 78 % 19,882,496 69 % 15,732,780 65 % Commercial: Asset-based 2,068,327 8 % 5,140,209 18 % 4,739,220 19 % Venture capital 2,058,237 8 % 2,033,302 7 % 2,077,339 9 % Other commercial 1,102,543 4 % 1,108,451 4 % 1,298,136 5 % Total commercial 5,229,107 20 % 8,281,962 29 % 8,114,695 33 % Consumer 427,223 2 % 444,671 2 % 504,597 2 % Total loans and leases held for investment, net of deferred fees $ 25,672,381 100 % $ 28,609,129 100 % $ 24,352,072 100 % Total unfunded loan commitments $ 9,776,789 $ 11,110,264 $ 9,899,345
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 March 31, 2023 Allowance for Credit Allowance for Reserve for Total Losses on Loans and Loan and Unfunded Loan Allowance for Leases Rollforward Lease 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 ) - (9,177 ) Provision 18,500 (15,500 ) 3,000 Ending balance $ 210,055 $ 75,571 $ 285,626
Three Months Ended December 31, 2022 Allowance for Credit Allowance for Reserve for Total Losses on Loans and Loan and Unfunded Loan Allowance for Leases Rollforward Lease Losses Commitments Credit Losses (In thousands) Beginning balance $ 189,327 $ 95,071 $ 284,398 Charge-offs (3,352 ) - (3,352 ) Recoveries 757 - 757 Net charge-offs (2,595 ) - (2,595 ) Provision 14,000 (4,000 ) 10,000 Ending balance $ 200,732 $ 91,071 $ 291,803
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 Losses March 31, December 31, Increase on Loans and Leases 2023 2022 (Decrease) (Dollars in thousands) Allowance for loan and lease losses $ 210,055 $ 200,732 $ 9,323 Reserve for unfunded loan commitments 75,571 91,071 (15,500 ) Allowance for credit losses $ 285,626 $ 291,803 $ (6,177 ) Provision for credit losses (for the quarter) $ 3,000 $ 10,000 $ (7,000 ) Net charge-offs (for the quarter) $ 9,177 $ 2,595 $ 6,582 Net charge-offs to average loans and leases (for the quarter) 0.13 % 0.04 % Allowance for loan and lease losses to loans and leases held for investment 0.82 % 0.70 % Allowance for credit losses to loans and leases held for investment 1.11 % 1.02 %
The allowance for credit losses decreased by $6.2 million in the first quarter of 2023 to $285.6 million at March 31, 2023. This decrease was attributable mainly to the decrease in loans and leases held for investment and unfunded loan commitments and $9.2 million in net charge-offs, offset partially by an increase in qualitative reserves for loans secured by commercial real estate.
Net charge-offs over the trailing twelve months were $12.8 million , which resulted in net charge-offs to average loans and leases over the trailing twelve months of 0.5% .
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 2023 2022 (Decrease) (Dollars in thousands) Nonperforming Assets: Nonaccrual loans and leases held for investment (1) $ 87,124 $ 103,778 $ (16,654 ) Accruing loans contractually past due 90 days or more - - - Foreclosed assets, net 2,135 5,022 (2,887 ) Total nonperforming assets ("NPAs") $ 89,259 $ 108,800 $ (19,541 ) Nonaccrual loans and leases held for investment to loans and leases held for investment 0.34 % 0.36 % Nonperforming assets to loans and leases held for investment and foreclosed assets 0.35 % 0.38 % Allowance for credit losses to nonaccrual loans and leases held for investment 327.8 % 281.2 % Loan and Lease Credit Risk Ratings: Pass $ 24,959,805 $ 27,924,599 $ (2,964,794 ) Special mention 580,153 566,259 13,894 Classified 132,423 118,271 14,152 Total loans and leases held for investment, net of deferred fees $ 25,672,381 $ 28,609,129 $ (2,936,748 ) Special mention loans and leases held for investment to loans and leases held for investment 2.26 % 1.98 % Classified loans and leases held for investment to loans and leases held for investment 0.52 % 0.41 % (1) Nonaccrual loans include SBA guaranteed amounts of $11.8 million at March 31, 2023 and $14.3 million at December 31, 2022.
Nonaccrual loans and leases decreased by $16.7 million to $87.1 million in the first quarter of 2023 due primarily to a decrease in nonaccrual commercial real estate loans and, to a lesser extent, Civic loans.
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, 2023 December 31, 2022 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 $ 32,996 $ 1,650 $ 42,509 $ 1,047 $ (9,513 ) $ 603 Multi-family - - - - - - Other residential 50,060 125,458 55,893 95,654 (5,833 ) 29,804 Total real estate mortgage 83,056 127,108 98,402 96,701 (15,346 ) 30,407 Real estate construction and land: Commercial - - - - - - Residential - - - - - - Total real estate construction and land - - - - - - Commercial: Asset-based 420 - 865 - (445 ) - Venture capital - - - - - - Other commercial 3,123 618 4,345 385 (1,222 ) 233 Total commercial 3,543 618 5,210 385 (1,667 ) 233 Consumer 525 1,593 166 1,935 359 (342 ) Total held for investment $ 87,124 $ 129,319 $ 103,778 $ 99,021 $ (16,654 ) $ 30,298
Loans and leases accruing and 30-89 days past due generally fluctuate from period to period. The $30.3 million increase to $129.3 million in the first quarter of 2023 was due mainly to an increase in Civic delinquent loans of $22.7 million .
CAPITAL
The following table presents capital ratios as of the dates indicated:
March 31, December 31, March 31, 2023 2022 2022 PacWest Bancorp Consolidated: Common equity tier 1 capital ratio (1) 9.22 % 8.70 % 8.64 % Tier 1 capital ratio (1) 11.16 % 10.61 % 9.07 % Total capital ratio (1) 14.22 % 13.61 % 12.27 % Tier 1 leverage capital ratio (1) 8.33 % 8.61 % 7.11 % Risk-weighted assets (1) (in thousands) $ 32,488,956 $ 33,030,960 $ 30,297,312 Tangible common equity ratio (2) 5.07 % 5.13 % 5.83 % Tangible common equity ratio excluding the impact of AOCI for securities (2) 6.73 % 7.12 % 6.82 % (1) Capital information for March 31, 2023 is preliminary. (2) Non-GAAP measure.
CONFERENCE CALL
PacWest Bancorp (“PacWest”) will host a conference call at 8:00 AM PT/ 11:00 AM ET on Wednesday, April 26, 2023, to discuss the Company’s performance for the first quarter of 2023.
Participants may access the conference call/webcast at:https://event.webcasts.com/starthere.jsp?ei=1606712&tp_key=2960dca832
The call will be recorded and made available for replay on April 26, 2023, after 12:00 PM PT. The recording may be accessed through the link above or at https://www.pacwestbancorp.com/news-market-data/presentations/default.aspx .
ABOUT 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 of 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 planned asset sales, 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 March 31, December 31, March 31, 2023 2022 2022 (Dollars in thousands, except per share amounts) ASSETS: Cash and due from banks $ 218,830 $ 212,273 $ 205,446 Interest-earning deposits in financial institutions 6,461,306 2,027,949 1,865,235 Total cash and cash equivalents 6,680,136 2,240,222 2,070,681 Securities available-for-sale, at estimated fair value 4,848,607 4,843,487 9,975,109 Securities held-to-maturity, at amortized cost, net of allowance for credit losses 2,273,650 2,269,135 - Federal Home Loan Bank stock, at cost 147,150 34,290 17,250 Total investment securities 7,269,407 7,146,912 9,992,359 Loans held for sale 2,796,208 65,076 - Gross loans and leases held for investment 25,770,912 28,726,016 24,439,749 Deferred fees, net (98,531 ) (116,887 ) (87,677 ) Total loans and leases held for investment, net of deferred fees 25,672,381 28,609,129 24,352,072 Allowance for loan and lease losses (210,055 ) (200,732 ) (197,398 ) Total loans and leases held for investment, net 25,462,326 28,408,397 24,154,674 Equipment leased to others under operating leases 399,972 404,245 325,305 Premises and equipment, net 60,358 54,315 51,011 Foreclosed assets, net 2,135 5,022 304 Goodwill - 1,376,736 1,405,736 Core deposit and customer relationship intangibles, net 28,970 31,381 41,308 Other assets 1,603,469 1,496,630 1,208,261 Total assets $ 44,302,981 $ 41,228,936 $ 39,249,639 LIABILITIES: Noninterest-bearing deposits $ 7,030,759 $ 11,212,357 $ 14,057,051 Interest-bearing deposits 21,156,802 22,723,977 19,167,844 Total deposits 28,187,561 33,936,334 33,224,895 Borrowings 11,881,712 1,764,030 991,000 Subordinated debt 868,815 867,087 863,880 Accrued interest payable and other liabilities 593,416 710,954 519,269 Total liabilities 41,531,504 37,278,405 35,599,044 STOCKHOLDERS' EQUITY (1) 2,771,477 3,950,531 3,650,595 Total liabilities and stockholders’ equity $ 44,302,981 $ 41,228,936 $ 39,249,639 Book value per common share $ 18.90 $ 28.71 $ 30.52 Tangible book value per common share (2) $ 18.66 $ 17.00 $ 18.42 Common shares outstanding 120,244,214 120,222,057 119,601,766 (1) Includes net unrealized loss on: Securities available-for-sale, net $ (537,307 ) $ (586,450 ) $ (376,475 ) Securities held to maturity (198,753 ) (204,453 ) - Total $ (736,060 ) $ (790,903 ) $ (376,475 ) (2) Non-GAAP measure.
PACWEST BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS) Three Months Ended March 31, December 31, March 31, 2023 2022 2022 (In thousands, except per share amounts) Interest income: Loans and leases $ 430,685 $ 404,985 $ 267,759 Investment securities 44,237 50,292 53,422 Deposits in financial institutions 42,866 17,746 1,723 Total interest income 517,788 473,023 322,904 Interest expense: Deposits 155,892 117,591 6,208 Borrowings 69,122 19,962 161 Subordinated debt 13,502 12,531 7,818 Total interest expense 238,516 150,084 14,187 Net interest income 279,272 322,939 308,717 Provision for credit losses 3,000 10,000 - Net interest income after provision for credit losses 276,272 312,939 308,717 Noninterest income: Service charges on deposit accounts 3,573 3,178 3,571 Other commissions and fees 10,344 11,208 11,580 Leased equipment income 13,857 12,322 13,094 Gain on sale of loans and leases 2,962 388 60 Gain (loss) on sale of securities - (49,302 ) 104 Dividends and gains (losses) on equity investments 1,098 661 (11,375 ) Warrant (loss) income (333 ) (46 ) 629 Other income 4,890 2,635 3,155 Total noninterest income (loss) 36,391 (18,956 ) 20,818 Noninterest expense: Compensation 88,476 106,124 92,240 Occupancy 15,067 14,922 15,200 Data processing 10,938 9,722 9,629 Other professional services 6,073 6,924 5,954 Insurance and assessments 11,717 7,205 5,490 Intangible asset amortization 2,411 2,629 3,649 Leased equipment depreciation 9,375 8,627 9,189 Foreclosed assets expense (income), net 363 (108 ) (3,353 ) Acquisition, integration and reorganization costs 8,514 5,703 - Customer related expense 24,005 18,197 12,655 Loan expense 6,524 6,150 5,157 Goodwill impairment 1,376,736 29,000 - Other expense 12,804 11,737 11,616 Total noninterest expense 1,573,003 226,832 167,426 (Loss) earnings before income taxes (1,260,340 ) 67,151 162,109 Income tax (benefit) expense (64,916 ) 17,642 41,981 Net (loss) earnings (1,195,424 ) 49,509 120,128 Preferred stock dividends 9,947 9,947 - Net (loss) earnings available to common stockholders $ (1,205,371 ) $ 39,562 $ 120,128 Basic and diluted (loss) earnings per common share $ (10.22 ) $ 0.33 $ 1.01 Dividends declared and paid per common share $ 0.25 $ 0.25 $ 0.25
PACWEST BANCORP AND SUBSIDIARIES AVERAGE BALANCE SHEET AND YIELD ANALYSIS Three Months Ended March 31, 2023 December 31, 2022 March 31, 2022 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)(3) $ 28,583,265 $ 433,029 6.14 % $ 28,192,953 $ 407,135 5.73 % $ 23,433,019 $ 269,521 4.66 % Investment securities (3) 7,191,362 44,246 2.50 % 7,824,915 50,697 2.57 % 10,397,709 55,594 2.17 % Deposits in financial institutions 3,682,228 42,866 4.72 % 1,881,950 17,746 3.74 % 3,083,159 1,723 0.23 % Total interest-earning assets (1) 39,456,855 520,141 5.35 % 37,899,818 475,578 4.98 % 36,913,887 326,838 3.59 % Other assets 3,311,859 3,252,145 2,969,417 Total assets $ 42,768,714 $ 41,151,963 $ 39,883,304 Liabilities and Stockholders' Equity: Interest checking $ 7,089,102 55,957 3.20 % $ 7,146,333 41,427 2.30 % $ 7,094,623 1,776 0.10 % Money market 8,932,059 56,224 2.55 % 10,088,641 51,687 2.03 % 10,852,454 3,461 0.13 % Savings 597,287 599 0.41 % 616,298 66 0.04 % 642,709 39 0.02 % Time 5,123,955 43,112 3.41 % 3,909,130 24,411 2.48 % 1,278,609 932 0.30 % Total interest-bearing deposits 21,742,403 155,892 2.91 % 21,760,402 117,591 2.14 % 19,868,395 6,208 0.13 % Borrowings 5,289,429 69,122 5.30 % 1,675,738 19,962 4.73 % 298,444 161 0.22 % Subordinated debt 867,637 13,502 6.31 % 864,581 12,531 5.75 % 863,572 7,818 3.67 % Total interest-bearing liabilities 27,899,469 238,516 3.47 % 24,300,721 150,084 2.45 % 21,030,411 14,187 0.27 % Noninterest-bearing demand deposits 10,233,434 12,325,902 14,463,667 Other liabilities 637,124 626,540 541,745 Total liabilities 38,770,027 37,253,163 36,035,823 Stockholders' equity 3,998,687 3,898,800 3,847,481 Total liabilities and stockholders' equity $ 42,768,714 $ 41,151,963 $ 39,883,304 Net interest income (1) $ 281,625 $ 325,494 $ 312,651 Net interest spread (1) 1.88 % 2.53 % 3.32 % Net interest margin (1) 2.89 % 3.41 % 3.43 % Total deposits (4) $ 31,975,837 $ 155,892 1.98 % $ 34,086,304 $ 117,591 1.37 % $ 34,332,062 $ 6,208 0.07 % (1) Tax equivalent. (2) Includes net loan premium amortization of $2.8 million , $2.5 million , and $5.7 million for the three months ended March 31, 2023, (3) Includes tax-equivalent adjustments of $2.3 million , $2.2 million , and $1.8 million for the three months ended March 31, 2023, Includes tax-equivalent adjustments of $9,000, $0.4 million , and $2.2 million for the three months ended March 31, 2023, The federal statutory tax rate utilized was 21% . (4) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits.
PACWEST BANCORP AND SUBSIDIARIES FIVE QUARTER BALANCE SHEET March 31, December 31, September 30, June 30, March 31, 2023 2022 2022 2022 2022 (Dollars in thousands, except per share amounts) ASSETS: Cash and due from banks $ 218,830 $ 212,273 $ 216,436 $ 197,027 $ 205,446 Interest-earning deposits in financial institutions 6,461,306 2,027,949 2,244,272 2,192,877 1,865,235 Total cash and cash equivalents 6,680,136 2,240,222 2,460,708 2,389,904 2,070,681 Securities available-for-sale 4,848,607 4,843,487 5,891,328 6,780,648 9,975,109 Securities held-to-maturity 2,273,650 2,269,135 2,264,601 2,260,367 - Federal Home Loan Bank stock 147,150 34,290 36,990 33,210 17,250 Total investment securities 7,269,407 7,146,912 8,192,919 9,074,225 9,992,359 Loans held for sale 2,796,208 65,076 15,534 - - Gross loans and leases held for investment 25,770,912 28,726,016 27,775,962 26,608,541 24,439,749 Deferred fees, net (98,531 ) (116,887 ) (115,921 ) (107,404 ) (87,677 ) Total loans and leases held for investment, net of deferred fees 25,672,381 28,609,129 27,660,041 26,501,137 24,352,072 Allowance for loan and lease losses (210,055 ) (200,732 ) (189,327 ) (188,705 ) (197,398 ) Total loans and leases held for investment, net 25,462,326 28,408,397 27,470,714 26,312,432 24,154,674 Equipment leased to others under operating leases 399,972 404,245 338,691 324,233 325,305 Premises and equipment, net 60,358 54,315 50,781 51,083 51,011 Foreclosed assets, net 2,135 5,022 2,967 - 304 Goodwill - 1,376,736 1,405,736 1,405,736 1,405,736 Core deposit and customer relationship intangibles, net 28,970 31,381 34,010 37,659 41,308 Other assets 1,603,469 1,496,630 1,432,532 1,355,451 1,208,261 Total assets $ 44,302,981 $ 41,228,936 $ 41,404,592 $ 40,950,723 $ 39,249,639 LIABILITIES: Noninterest-bearing deposits $ 7,030,759 $ 11,212,357 $ 12,775,756 $ 13,338,029 $ 14,057,051 Interest-bearing deposits 21,156,802 22,723,977 21,420,116 20,630,123 19,167,844 Total deposits 28,187,561 33,936,334 34,195,872 33,968,152 33,224,895 Borrowings 11,881,712 1,764,030 1,864,815 1,592,000 991,000 Subordinated debt 868,815 867,087 863,379 863,756 863,880 Accrued interest payable and other liabilities 593,416 710,954 604,581 548,412 519,269 Total liabilities 41,531,504 37,278,405 37,528,647 36,972,320 35,599,044 STOCKHOLDERS' EQUITY (1) 2,771,477 3,950,531 3,875,945 3,978,403 3,650,595 Total liabilities and stockholders’ equity $ 44,302,981 $ 41,228,936 $ 41,404,592 $ 40,950,723 $ 39,249,639 Book value per common share $ 18.90 $ 28.71 $ 28.07 $ 28.93 $ 30.52 Tangible book value per common share (2) $ 18.66 $ 17.00 $ 16.11 $ 16.93 $ 18.42 Common shares outstanding 120,244,214 120,222,057 120,314,023 120,288,024 119,601,766 (1) Includes net unrealized loss on: Securities available-for-sale, net $ (537,307 ) $ (586,450 ) $ (637,346 ) $ (428,242 ) $ (376,475 ) Securities held to maturity (198,753 ) (204,453 ) (210,868 ) (216,508 ) - Total $ (736,060 ) $ (790,903 ) $ (848,214 ) $ (644,750 ) $ (376,475 ) (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, 2023 2022 2022 2022 2022 (In thousands, except per share amounts) Interest income: Loans and leases $ 430,685 $ 404,985 $ 346,550 $ 293,286 $ 267,759 Investment securities 44,237 50,292 53,135 52,902 53,422 Deposits in financial institutions 42,866 17,746 10,359 4,330 1,723 Total interest income 517,788 473,023 410,044 350,518 322,904 Interest expense: Deposits 155,892 117,591 61,288 15,362 6,208 Borrowings 69,122 19,962 3,081 2,441 161 Subordinated debt 13,502 12,531 10,494 8,790 7,818 Total interest expense 238,516 150,084 74,863 26,593 14,187 Net interest income 279,272 322,939 335,181 323,925 308,717 Provision for credit losses 3,000 10,000 3,000 11,500 - Net interest income after provision for credit losses 276,272 312,939 332,181 312,425 308,717 Noninterest income: Service charges on deposit accounts 3,573 3,178 3,608 3,634 3,571 Other commissions and fees 10,344 11,208 10,034 10,813 11,580 Leased equipment income 13,857 12,322 12,835 12,335 13,094 Gain on sale of loans and leases 2,962 388 58 12 60 Gain (loss) on sale of securities - (49,302 ) 86 (1,209 ) 104 Dividends and gains (losses) on equity investments 1,098 661 3,228 4,097 (11,375 ) Warrant (loss) income (333 ) (46 ) 292 1,615 629 Other income 4,890 2,635 8,478 3,049 3,155 Total noninterest income (loss) 36,391 (18,956 ) 38,619 34,346 20,818 Noninterest expense: Compensation 88,476 106,124 105,933 102,542 92,240 Occupancy 15,067 14,922 15,574 15,268 15,200 Data processing 10,938 9,722 9,568 9,258 9,629 Other professional services 6,073 6,924 10,674 6,726 5,954 Insurance and assessments 11,717 7,205 7,159 5,632 5,490 Intangible asset amortization 2,411 2,629 3,649 3,649 3,649 Leased equipment depreciation 9,375 8,627 8,908 8,934 9,189 Foreclosed assets expense (income), net 363 (108 ) (248 ) (28 ) (3,353 ) Acquisition, integration and reorganization costs 8,514 5,703 - - - Customer related expense 24,005 18,197 12,673 11,748 12,655 Loan expense 6,524 6,150 6,228 7,037 5,157 Goodwill impairment 1,376,736 29,000 - - - Other expense 12,804 11,737 15,500 12,879 11,616 Total noninterest expense 1,573,003 226,832 195,618 183,645 167,426 (Loss) earnings before income taxes (1,260,340 ) 67,151 175,182 163,126 162,109 Income tax (benefit) expense (64,916 ) 17,642 43,566 40,766 41,981 Net (loss) earnings (1,195,424 ) 49,509 131,616 122,360 120,128 Preferred stock dividends 9,947 9,947 9,392 - - Net (loss) earnings available to common stockholders $ (1,205,371 ) $ 39,562 $ 122,224 $ 122,360 $ 120,128 Basic and diluted (loss) earnings per common share $ (10.22 ) $ 0.33 $ 1.02 $ 1.02 $ 1.01 Dividends declared and paid per common share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 0.25
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, 2023 2022 2022 2022 2022 (Dollars in thousands) Performance Ratios: Return on average assets (1) (11.34 )% 0.48 % 1.28 % 1.23 % 1.22 % Pre-provision, pre-goodwill impairment, pre-tax net revenue ("PPNR") return on average assets (1)(2) 1.13 % 1.02 % 1.73 % 1.75 % 1.65 % Return on average equity (1) (121.24 )% 5.04 % 13.02 % 13.44 % 12.66 % Return on average tangible common equity (1)(2) 14.45 % 12.71 % 23.93 % 24.24 % 20.77 % Efficiency ratio 58.2 % 53.3 % 51.0 % 49.5 % 50.1 % Noninterest expense as a percentage of average assets (1) 14.92 % 2.19 % 1.90 % 1.84 % 1.70 % Average Yields/Costs (1): Yield on: Average loans and leases (3) 6.14 % 5.73 % 5.12 % 4.65 % 4.66 % Average investment securities (3) 2.50 % 2.57 % 2.45 % 2.32 % 2.17 % Average interest-earning assets (3) 5.35 % 4.98 % 4.36 % 3.85 % 3.59 % Cost of: Average interest-bearing deposits 2.91 % 2.14 % 1.15 % 0.31 % 0.13 % Average total deposits 1.98 % 1.37 % 0.70 % 0.18 % 0.07 % Average interest-bearing liabilities 3.47 % 2.45 % 1.32 % 0.49 % 0.27 % Net interest spread (3) 1.88 % 2.53 % 3.04 % 3.36 % 3.32 % Net interest margin (3) 2.89 % 3.41 % 3.57 % 3.56 % 3.43 % Average Balances: Assets: Loans and leases, net of deferred fees $ 28,583,265 $ 28,192,953 $ 27,038,873 $ 25,499,773 $ 23,433,019 Investment securities 7,191,362 7,824,915 8,803,349 9,488,653 10,397,709 Deposits in financial institutions 3,682,228 1,881,950 1,809,809 1,984,751 3,083,159 Interest-earning assets 39,456,855 37,899,818 37,652,031 36,973,177 36,913,887 Total assets 42,768,714 41,151,963 40,841,272 40,031,891 39,883,304 Liabilities: Noninterest-bearing deposits 10,233,434 12,325,902 13,653,177 13,987,398 14,463,667 Interest-bearing deposits 21,742,403 21,760,402 21,214,265 19,661,618 19,868,395 Total deposits 31,975,837 34,086,304 34,867,442 33,649,016 34,332,062 Borrowings 5,289,429 1,675,738 505,482 1,356,616 298,444 Subordinated debt 867,637 864,581 863,719 863,653 863,572 Interest-bearing liabilities 27,899,469 24,300,721 22,583,466 21,881,887 21,030,411 Stockholders' equity 3,998,687 3,898,800 4,011,179 3,652,368 3,847,481 (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 March 31, December 31, September 30, June 30, March 31, 2023 2022 2022 2022 2022 (Dollars in thousands, except per share amounts) Credit Quality Metrics for Loans and Leases Held for Investment: Nonaccrual loans and leases $ 87,124 $ 103,778 $ 89,742 $ 78,527 $ 66,538 Nonperforming assets 89,259 108,800 92,709 78,527 66,842 Special mention loans and leases 580,153 566,259 463,994 480,261 377,315 Classified loans and leases 132,423 118,271 96,685 104,264 82,068 Allowance for loan and lease losses 210,055 200,732 189,327 188,705 197,398 Allowance for credit losses 285,626 291,803 284,398 283,776 272,469 For the quarter: Provision for credit losses 3,000 10,000 3,000 10,000 - Net charge-offs (recoveries) 9,177 2,595 2,378 (1,307 ) 1,166 Nonaccrual loans and leases to loans and leases 0.34 % 0.36 % 0.32 % 0.30 % 0.27 % Nonperforming assets to loans and leases and foreclosed assets 0.35 % 0.38 % 0.34 % 0.30 % 0.27 % Special mention loans and leases to loans and leases 2.26 % 1.98 % 1.68 % 1.81 % 1.55 % Classified loans and leases to loans and leases 0.52 % 0.41 % 0.35 % 0.39 % 0.34 % Allowance for loan and lease losses to loans and leases 0.82 % 0.70 % 0.68 % 0.71 % 0.81 % Allowance for credit losses to loans and leases 1.11 % 1.02 % 1.03 % 1.07 % 1.12 % Allowance for credit losses to nonaccrual loans and leases 327.84 % 281.18 % 316.91 % 361.37 % 409.49 % Net charge-offs (recoveries) to average loans and leases 0.13 % 0.04 % 0.03 % (0.02 )% 0.02 % Trailing 12 months net charge-offs (recoveries) to average loans and leases 0.05 % 0.02 % 0.01 % 0.00 % (0.02 )% PacWest Bancorp Consolidated: Common equity tier 1 capital ratio (1) 9.22 % 8.70 % 8.56 % 8.24 % 8.64 % Tier 1 capital ratio (1) 11.16 % 10.61 % 10.46 % 10.15 % 9.07 % Total capital ratio (1) 14.22 % 13.61 % 13.43 % 13.12 % 12.27 % Tier 1 leverage capital ratio (1) 8.33 % 8.61 % 8.63 % 8.52 % 7.11 % Risk-weighted assets (1) $ 32,488,956 $ 33,030,960 $ 33,042,173 $ 33,009,455 $ 30,297,312 Equity to assets ratio 6.26 % 9.58 % 9.36 % 9.72 % 9.30 % Tangible common equity ratio (2) 5.07 % 5.13 % 4.85 % 5.15 % 5.83 % Book value per common share $ 18.90 $ 28.71 $ 28.07 $ 28.93 $ 30.52 Tangible book value per common share (2) $ 18.66 $ 17.00 $ 16.11 $ 16.93 $ 18.42 Pacific Western Bank: Common equity tier 1 capital ratio (1) 10.89 % 10.32 % 10.17 % 9.78 % 9.32 % Tier 1 capital ratio (1) 10.89 % 10.32 % 10.17 % 9.78 % 9.32 % Total capital ratio (1) 12.94 % 12.34 % 12.16 % 11.77 % 11.45 % Tier 1 leverage capital ratio (1) 8.14 % 8.39 % 8.39 % 8.21 % 7.31 % (1) Capital information for March 31, 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 of: (1) net earnings, (2) return on average assets, (3) return on average equity, (4) equity to assets ratio, and (5) book value per common share.
The Company recorded significant non-operating charges in the three months ended March 31, 2023 and December 31, 2022. 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, and (4) adjusted return on average assets. 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 PPNR and PPNR Return March 31, December 31, March 31, on Average Assets 2023 2022 2022 (Dollars in thousands) Net (loss) earnings $ (1,195,424 ) $ 49,509 $ 120,128 Net interest income $ 279,272 $ 322,939 $ 308,717 Add: Noninterest income (loss) 36,391 (18,956 ) 20,818 Less: Noninterest expense (1,573,003 ) (226,832 ) (167,426 ) Add: Goodwill impairment 1,376,736 29,000 - Pre-provision, pre-goodwill impairment, pre-tax net revenue ("PPNR") $ 119,396 $ 106,151 $ 162,109 Average assets $ 42,768,714 $ 41,151,963 $ 39,883,304 Return on average assets (1) (11.34 )% 0.48 % 1.22 % PPNR return on average assets (2) 1.13 % 1.02 % 1.65 % (1) Annualized net earnings divided by average assets. (2) Annualized PPNR divided by average assets.
Three Months Ended Return on Average March 31, December 31, March 31, Tangible Common Equity 2023 2022 2022 (Dollars in thousands) Net (loss) earnings $ (1,195,424 ) $ 49,509 $ 120,128 (Loss) earnings before income taxes $ (1,260,340 ) $ 67,151 $ 162,109 Add: Goodwill impairment 1,376,736 29,000 - Add: Intangible asset amortization 2,411 2,629 3,649 Adjusted earnings before income taxes 118,807 98,780 165,758 Adjusted income tax expense (1) 33,741 25,979 42,931 Adjusted net earnings 85,066 72,801 122,827 Less: Preferred stock dividends 9,947 9,947 - Adjusted net earnings available to common stockholders $ 75,119 $ 62,854 $ 122,827 Average stockholders' equity $ 3,998,687 $ 3,898,800 $ 3,847,481 Less: Average intangible assets 1,391,857 1,438,173 1,449,056 Less: Average preferred stock 498,516 498,516 - Average tangible common equity $ 2,108,314 $ 1,962,111 $ 2,398,425 Return on average equity (2) (121.24 )% 5.04 % 12.66 % Return on average tangible common equity (3) 14.45 % 12.71 % 20.77 % (1) Adjusted effective tax rate of 28.4% used for three months ended March 31, 2023; effective tax rates of 26.3% and 25.9% used for three months ended December 31, 2022 and March 31, 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 Adjusted Return on Average March 31, December 31, March 31, Tangible Common Equity 2023 2022 2022 (Dollars in thousands) (Loss) earnings before income taxes $ (1,260,340 ) $ 67,151 $ 162,109 Add: Goodwill impairment 1,376,736 29,000 - Add: Intangible asset amortization 2,411 2,629 3,649 Add: Acquisition, integration, and reorganization costs 8,514 5,703 - Adjusted earnings before income taxes 127,321 104,483 165,758 Adjusted income tax expense (1) 36,159 27,479 42,931 Adjusted net earnings 91,162 77,004 122,827 Less: Preferred stock dividends 9,947 9,947 - Adjusted net earnings available to common stockholders $ 81,215 $ 67,057 $ 122,827 Average stockholders' equity $ 3,998,687 $ 3,898,800 $ 3,847,481 Less: Average intangible assets 1,391,857 1,438,173 1,449,056 Less: Average preferred stock 498,516 498,516 - Average tangible common equity $ 2,108,314 $ 1,962,111 $ 2,398,425 Adjusted return on average tangible common equity (2) 15.62 % 13.56 % 20.77 % (1) Adjusted effective tax rate of 28.4% used for three months ended March 31, 2023; effective tax rates of 26.3% and 25.9% used for three months ended December 31, 2022 and March 31, 2022. (2) Annualized adjusted net earnings available to common stockholders divided by average tangible common equity.
Tangible Common Equity Ratio/ Tangible Book Value Per March 31, December 31, September 30, June 30, March 31, Common Share 2023 2022 2022 2022 2022 (Dollars in thousands, except per share amounts) Stockholders' equity $ 2,771,477 $ 3,950,531 $ 3,875,945 $ 3,978,403 $ 3,650,595 Less: Preferred stock 498,516 498,516 498,516 498,516 - Total common equity 2,272,961 3,452,015 3,377,429 3,479,887 3,650,595 Less: Intangible assets 28,970 1,408,117 1,439,746 1,443,395 1,447,044 Tangible common equity 2,243,991 2,043,898 1,937,683 2,036,492 2,203,551 Add: Accumulated other comprehensive loss 736,060 790,903 848,214 644,750 376,475 Adjusted tangible common equity $ 2,980,051 $ 2,834,801 $ 2,785,897 $ 2,681,242 $ 2,580,026 Total assets $ 44,302,981 $ 41,228,936 $ 41,404,592 $ 40,950,723 $ 39,249,639 Less: Intangible assets 28,970 1,408,117 1,439,746 1,443,395 1,447,044 Tangible assets $ 44,274,011 $ 39,820,819 $ 39,964,846 $ 39,507,328 $ 37,802,595 Equity to assets ratio 6.26 % 9.58 % 9.36 % 9.72 % 9.30 % Tangible common equity ratio (1) 5.07 % 5.13 % 4.85 % 5.15 % 5.83 % Tangible common equity ratio, excluding AOCI (2) 6.73 % 7.12 % 6.97 % 6.79 % 6.82 % Book value per common share (3) $ 18.90 $ 28.71 $ 28.07 $ 28.93 $ 30.52 Tangible book value per common share (4) $ 18.66 $ 17.00 $ 16.11 $ 16.93 $ 18.42 Tangible book value per common share, excluding AOCI (5) $ 24.78 $ 23.58 $ 23.16 $ 22.29 $ 21.57 Common shares outstanding 120,244,214 120,222,057 120,314,023 120,288,024 119,601,766 (1) Tangible common equity divided by tangible assets. (2) Adjusted tangible common equity divided by tangible assets. (3) Total common equity divided by common shares outstanding. (4) Tangible common equity divided by common shares outstanding. (5) Adjusted tangible common equity divided by common shares outstanding.
Three Months Ended Adjusted Earnings, Earnings Per March 31, December 31, March 31, Share, and Return on Average Assets 2023 2022 2022 (In thousands, except per share amounts) (Loss) earnings before income taxes $ (1,260,340 ) $ 67,151 $ 162,109 Add: Goodwill impairment 1,376,736 29,000 - Add: Acquisition, integration, and reorganization costs 8,514 5,703 - Adjusted earnings before income taxes 124,910 101,854 162,109 Adjusted income tax expense (1) 35,474 26,788 41,981 Adjusted earnings 89,436 75,066 120,128 Less: Preferred stock dividends (9,947 ) (9,947 ) - Adjusted earnings available to common stockholders 79,489 65,119 120,128 Less: Earnings allocated to unvested restricted stock (1,210 ) (1,183 ) (2,037 ) Adjusted earnings allocated to common shares $ 78,279 $ 63,936 $ 118,091 Weighted average shares outstanding 117,930 117,811 117,349 Adjusted diluted earnings per common share (2) $ 0.66 $ 0.54 $ 1.01 Average assets $ 42,768,714 $ 41,151,963 $ 39,883,304 Adjusted return on average assets (3) 0.85 % 0.72 % 1.22 % (1) Adjusted effective tax rate of 28.4% used for three months ended March 31, 2023; effective tax rates of 26.3% and 25.9% used for three months ended December 31, 2022 and March 31, 2022. (2) Adjusted earnings allocated to common shares divided by weighted average shares outstanding. (3) Annualized adjusted earnings divided by average assets.
CONTACTS Kevin L. Thompson William J. Black
