PacWest Bancorp Announces Results for the Third Quarter Of 2021
10/18/2021 - 04:30 PM
LOS ANGELES, Oct. 18, 2021 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq: PACW) -
THIRD QUARTER 2021 RESULTS
$140.0M $ 1.17 $167.8M 21.03 % Net Earnings Diluted Earnings per Share PPNR ROATE
THIRD QUARTER 2021 HIGHLIGHTS
Net Earnings of $140.0 Million or $1.17 Per Diluted Share Core Deposits Up $1.1 Billion or 4.1% in 3Q21; Represents 92% of Total Deposits Loan Growth of $1.0 Billion or 5.2% ; Excluding PPP Loan Activity, Loan Growth of $1.3 Billion or 7.1% Civic Loan Production of $481 Million in 3Q21, Compared to $423 Million in 2Q21 PPNR of $167.8 Million , Up 8.3% Compared to 2Q21 Provision for Credit Losses Benefit of $20.0 Million in 3Q21 Compared to Benefit of $88.0 Million in 2Q21 Net Interest Income (TE) of $279.8 Million in 3Q21, Compared to $270.1 Million in 2Q21 Noninterest Income of $51.3 Million in 3Q21, Compared to $40.4 Million in 2Q21, With Continued Strength in Warrant Income Noninterest Expense of $159.4 Million in 3Q21, Up 5% From 2Q21, Driven Mainly By Higher Compensation Expense Classified and Special Mention Loans Fell $5.7 Million and $39.7 Million , Respectively, From 2Q21 ACL Ratio of 1.36% and ALLL Ratio of 0.99% ; Excluding PPP Loans, ACL Ratio of 1.38% and ALLL Ratio of 1.01% Net Charge-offs of $0.4 Million (1 bp of Average Loans and Leases) Cost of Deposits Decreased 2 bps to 8 bps Loan and Lease Production of $2.4 Billion , Up From $1.7 Billion in 2Q21; WAC of 4.24% vs. 4.55% in 2Q21 Strong Capital Position – CET1 Ratio of 10.15% and Total Capital Ratio of 14.36% at 3Q21 Tangible Book Value Per Share Increased From $21.95 at 2Q21 to $22.57 at 3Q21 CEO COMMENTARY
Matt Wagner, President and CEO, commented, “For the second consecutive quarter, we experienced significant loan growth as loans grew $1.0 billion to an all-time high of $20.5 billion . Deploying approximately $3 billion of excess liquidity into higher-yielding securities and loans during the third quarter resulted in a $9.5 million increase in net interest income and helped drive a $12.8 million increase in our pre-tax pre-provision net revenue compared to the second quarter.”
“We continued to experience strong deposit growth as core deposits grew by $1.1 billion during the third quarter while our cost of average total deposits moved into the single digits at 8 basis points.”
“Credit quality continues to improve with net recoveries year-to-date and continued decreases in special mention and classified loans and leases, along with improved economic conditions related to the CECL forecast which resulted in a provision benefit for the third consecutive quarter.”
“We are excited about the acquisition of the Homeowners Association Services Division of MUFG Union Bank, N.A. which closed on October 8th . The approximately $4.1 billion of stable, low-cost deposits enhances our franchise value, further diversifies our deposit portfolio, and will become more valuable in a rising rate environment.”
A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/60516d02-d69d-4910-aaa9-0d9ace006bd6
FINANCIAL HIGHLIGHTS
` At or For the At or For the Three Months Ended Nine Months Ended September 30, June 30, Increase September 30, Increase Financial Highlights (1) 2021 2021 (Decrease) 2021 2020 (Decrease) (Dollars in thousands, except per share data) Net earnings (loss) $ 139,996 $ 180,512 $ (40,516) $ 470,914 $ (1,354,404) $ 1,825,318 Diluted earnings (loss) per share $ 1.17 $ 1.52 $ (0.35) $ 3.96 $ (11.60) $ 15.56 Pre-provision, pre-goodwill impairment, pre-tax net revenue ("PPNR") (2) $ 167,766 $ 154,929 $ 12,837 $ 478,657 $ 483,223 $ (4,566) Return on average assets 1.55% 2.11% (0.56) 1.86% (6.65)% 8.51 PPNR return on average assets (2) 1.86% 1.81% 0.05 1.89% 2.37% (0.48) Return on average tangible equity (2) 21.03% 29.25% (8.22) 25.20% 7.16% 18.04 Yield on average loans and leases (tax equivalent) 5.01% 5.18% (0.17) 5.13% 5.18% (0.05) Cost of average total deposits 0.08% 0.10% (0.02) 0.10% 0.32% (0.22) Net interest margin ("NIM") (tax equivalent) 3.33% 3.40% (0.07) 3.46% 4.13% (0.67) Efficiency ratio 47.2% 47.9% (0.7) 47.2% 42.9% 4.3 Total assets $ 35,885,676 $ 34,867,987 $ 1,017,689 $ 35,885,676 $ 28,426,716 $ 7,458,960 Loans and leases held for investment, net of deferred fees $ 20,511,020 $ 19,506,257 $ 1,004,763 $ 20,511,020 $ 19,026,200 $ 1,484,820 Noninterest-bearing demand deposits $ 12,881,806 $ 11,252,286 $ 1,629,520 $ 12,881,806 $ 9,346,744 $ 3,535,062 Core deposits $ 28,140,708 $ 27,038,161 $ 1,102,547 $ 28,140,708 $ 21,117,629 $ 7,023,079 Total deposits $ 30,559,745 $ 29,647,034 $ 912,711 $ 30,559,745 $ 23,965,695 $ 6,594,050 As percentage of total deposits: Noninterest-bearing demand deposits 42% 38% 4 42% 39% 3 Core deposits 92% 91% 1 92% 88% 4 Equity to assets ratio 10.92% 11.03% (0.11) 10.92% 12.26% (1.34) Common equity tier 1 capital ratio 10.15% 10.41% (0.26) 10.15% 10.45% (0.30) Total capital ratio 14.36% 14.99% (0.63) 14.36% 13.74% 0.62 Tangible common equity ratio (2) 7.79% 7.80% (0.01) 7.79% 8.71% (0.92) Book value per share $ 32.77 $ 32.17 $ 0.60 $ 32.77 $ 29.42 $ 3.35 Tangible book value per share (2) $ 22.57 $ 21.95 $ 0.62 $ 22.57 $ 20.09 $ 2.48 (1) The operations of Civic are included from its February 1, 2021 acquisition date. (2) Non-GAAP measure.
INCOME STATEMENT HIGHLIGHTS
NET INTEREST INCOME
Net interest income increased by $9.5 million to $275.8 million for the third quarter of 2021 compared to $266.3 million for the second quarter of 2021 due mainly to higher income on investment securities and loans and leases primarily resulting from higher average balances as we deploy our excess liquidity. Income on investment securities increased by $6.8 million in the third quarter of 2021 due to a $1.6 billion increase in the average balance of investment securities, partially offset by an 11 basis point decrease in the yield on average investment securities. Income on loans and leases increased $2.2 million in the third quarter of 2021 due to a $613.3 million increase in the average balance of loans and leases, partially offset by a 17 basis point decrease in the yield on average loans and leases. The tax equivalent yield on average loans and leases was 5.01% for the third quarter of 2021 compared to 5.18% for the second quarter of 2021. The decrease in the tax equivalent yield on average loans and leases was due primarily to lower nonaccrual interest recapture of $2.6 million , lower loan prepayment fees of $1.7 million , and higher loan premium amortization of $0.8 million .
The tax equivalent NIM was 3.33% for the third quarter of 2021 compared to 3.40% for the second quarter of 2021. The decrease in the NIM was due primarily to the change in the earning assets mix driven by the increase in the investment portfolio as a percentage of earning assets. The average balance of investment securities increased by $1.6 billion to $8.0 billion , the average balance of deposits in financial institutions decreased by $690.0 million to $5.7 billion , and the average balance of loans and leases increased by $613.3 million in the third quarter of 2021. The increase in average balances of investment securities and loans and leases was the result of prudently deploying some of our excess liquidity ahead of the closing of the acquisition of the HOA Services Division of MUFG Union Bank that added approximately $4.1 billion of deposits on October 8th . Excess liquidity continues to negatively impact the tax equivalent NIM, however, we saw the impact decrease from approximately 73 basis points in the second quarter of 2021 to approximately 57 basis points in the third quarter of 2021.
The cost of average total deposits decreased to 0.08% in the third quarter of 2021 from 0.10% in the second quarter of 2021. The lower cost of average total deposits was due primarily to the $894 million increase in the average balance of noninterest-bearing deposits.
PROVISION FOR CREDIT LOSSES
The following table presents details of the provision for credit losses for the periods indicated:
Three Months Ended September 30, June 30, Increase Provision for Credit Losses 2021 2021 (Decrease) (In thousands) (Reduction in) addition to allowance for loan and lease losses $ (21,500) $ (72,000) $ 50,500 Addition to (reduction in) reserve for unfunded loan commitments 1,500 (16,000) 17,500 Total provision for credit losses $ (20,000) $ (88,000) $ 68,000
The provision for credit losses benefit was $20.0 million for the third quarter of 2021 compared to a benefit of $88.0 million for the second quarter of 2021. The third quarter benefit reflected improvement in both macro-economic forecast variables and loan portfolio credit quality metrics, partially offset by increased provisions for unfunded commitments and loan growth.
Noninterest Income
The following table presents details of noninterest income for the periods indicated:
Three Months Ended September 30, June 30, Increase Noninterest Income 2021 2021 (Decrease) (In thousands) Service charges on deposit accounts $ 3,407 $ 3,452 $ (45) Other commissions and fees 11,792 10,704 1,088 Leased equipment income 10,943 10,847 96 Gain on sale of loans and leases - 1,422 (1,422) Gain on sale of securities 515 - 515 Other income: Dividends and gains on equity investments 8,387 5,394 2,993 Warrant income 13,578 5,650 7,928 Other 2,723 2,902 (179) Total noninterest income $ 51,345 $ 40,371 $ 10,974
Noninterest income increased by $11.0 million to $51.3 million for the third quarter of 2021 compared to $40.4 million for the second quarter of 2021 due primarily to increases of $7.9 million in warrant income and $3.0 million in dividends and gains on equity investments. Warrant income increased due to a higher number of and dollar amount of gains on warrant exercises given the active capital markets. Dividends and gains on equity investments increased due primarily to higher gains on sales of equity investments and higher income distributions on SBIC investments, offset partially by lower net fair value gains on equity investments still held.
Noninterest Expense
The following table presents details of noninterest expense for the periods indicated:
Three Months Ended September 30, June 30, Increase Noninterest Expense 2021 2021 (Decrease) (In thousands) Compensation $ 98,061 $ 90,807 $ 7,254 Occupancy 14,928 14,784 144 Data processing 7,391 7,758 (367) Other professional services 5,164 5,256 (92) Insurance and assessments 3,685 3,745 (60) Intangible asset amortization 2,890 2,889 1 Leased equipment depreciation 8,603 8,614 (11) Foreclosed assets expense (income), net 165 (119) 284 Acquisition, integration and reorganization costs 200 200 - Customer related expense 4,538 4,973 (435) Loan expense 4,180 4,031 149 Other 9,616 8,812 804 Total noninterest expense $ 159,421 $ 151,750 $ 7,671
Noninterest expense increased by $7.7 million to $159.4 million for the third quarter of 2021 compared to $151.8 million for the second quarter of 2021 due primarily to an increase of $7.3 million in compensation expense attributable mainly to higher bonus and incentives expense related to increased warrant income, the growth in loans and deposits in the third quarter of 2021, and overall year-to-date performance.
Income Taxes
The effective income tax rate was 25.4% in the third quarter of 2021 compared to 25.7% in the second quarter of 2021. The effective income tax rate for the full year 2021 is estimated to be in the range of 25% to 27% .
BALANCE SHEET HIGHLIGHTS
Deposits and Client Investment Funds
The following table presents the composition of our deposit portfolio as of the dates indicated:
September 30, 2021 June 30, 2021 September 30, 2020 % of % of % of Deposit Composition Balance Total Balance Total Balance Total (Dollars in thousands) Noninterest-bearing demand $ 12,881,806 42% $ 11,252,286 38% $ 9,346,744 39% Interest checking 7,168,472 24% 7,394,472 25% 4,657,511 20% Money market 7,463,261 24% 7,777,199 26% 6,539,313 27% Savings 627,169 2% 614,204 2% 574,061 2% Total core deposits 28,140,708 92% 27,038,161 91% 21,117,629 88% Non-core non-maturity deposits 960,438 3% 1,122,971 4% 1,123,909 5% Total non-maturity deposits 29,101,146 95% 28,161,132 95% 22,241,538 93% Time deposits $250,000 and under 882,551 3% 913,371 3% 1,047,621 4% Time deposits over $250,000 576,048 2% 572,531 2% 676,536 3% Total time deposits 1,458,599 5% 1,485,902 5% 1,724,157 7% Total deposits $ 30,559,745 100% $ 29,647,034 100% $ 23,965,695 100%
At September 30, 2021, core deposits totaled $28.1 billion or 92% of total deposits, including $12.9 billion of noninterest-bearing demand deposits or 42% of total deposits. Core deposits increased by $1.1 billion or 4.1% in the third quarter of 2021 driven by continued strong deposit growth from our venture banking and community banking clients.
In addition to deposit products, we also offer alternative, non-depository cash investment options for select clients. These alternative options include investments managed by Pacific Western Asset Management Inc. (“PWAM”), our registered investment advisor subsidiary, and third-party sweep products. Total off-balance sheet client investment funds at September 30, 2021 were $1.4 billion , of which $1.0 billion was managed by PWAM.
Loans and Leases
The following table presents roll forwards of loans and leases held for investment, net of deferred fees, for the periods indicated:
Three Months Ended Nine Months Ended Roll Forward of Loans and Leases Held September 30, June 30, September 30, for Investment, Net of Deferred Fees (1) 2021 2021 2021 (Dollars in thousands) Balance, beginning of period $ 19,506,257 $ 18,979,228 $ 19,083,377 Additions: Production 2,406,024 1,663,151 5,681,952 Disbursements 1,349,333 1,662,644 4,034,963 Total production and disbursements 3,755,357 3,325,795 9,716,915 Reductions: Payoffs (1,732,621) (1,969,118) (5,337,003) Paydowns (1,013,867) (802,222) (2,883,507) Total payoffs and paydowns (2,746,488) (2,771,340) (8,220,510) Sales (2,175) (26,610) (101,426) Transfers to foreclosed assets (415) - (1,062) Charge-offs (1,516) (816) (6,320) Transfers to loans held for sale - - (25,554) Total reductions (2,750,594) (2,798,766) (8,354,872) Loans acquired through Civic acquisition - - 65,600 Net increase (decrease) 1,004,763 527,029 1,427,643 Balance, end of period $ 20,511,020 $ 19,506,257 $ 20,511,020 Weighted average rate on production (2) 4.24% 4.55% 4.37% (1) Includes direct financing leases but excludes equipment leased to others under operating leases. (2) The weighted average rate on production presents contractual rates on a tax equivalent basis and excludes amortized fees. Amortized fees added approximately 40 basis points to loan yields in 2021.
Loans and leases held for investment, net of deferred fees, increased by $1.0 billion or 5.2% in the third quarter of 2021 to $20.5 billion at September 30, 2021. Excluding PPP loan activity, loans grew by $1.3 billion or 7.1% . The overall increase in the loans and leases balance for the third quarter of 2021 was primarily due to increases in the income producing and other residential, real estate construction and land and asset-based portfolios partially offset by a reduction in the venture capital portfolio and other commercial portfolio due to PPP loan forgiveness. The PPP forgiveness in the third quarter of 2021 was $338 million , down from $506 million in the second quarter of 2021. Net fees for PPP loans were $7.9 million in the third quarter of 2021 down slightly from the $8.8 million in the second quarter of 2021. Remaining PPP loans totaled $272 million as of September 30, 2021 with $7.7 million of net fees to amortize over the remaining life of the loans. The weighted average rate on the $2.4 billion of new production for the third quarter of 2021 decreased to 4.24% from 4.55% in the second quarter of 2021 due to the loan mix.
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:
September 30, 2021 June 30, 2021 September 30, 2020 % of % of % of Loan and Lease Portfolio Balance Total Balance Total Balance Total (In thousands) Real estate mortgage: Commercial $ 3,694,597 18% $ 3,792,198 19% $ 4,192,466 22% Income producing and other residential 5,886,360 29% 4,620,822 24% 3,684,579 19% Total real estate mortgage 9,580,957 47% 8,413,020 43% 7,877,045 41% Real estate construction and land: Commercial 992,003 5% 930,785 5% 1,241,647 7% Residential 2,659,870 13% 2,574,799 13% 2,182,100 11% Total real estate construction and land 3,651,873 18% 3,505,584 18% 3,423,747 18% Total real estate 13,232,830 65% 11,918,604 61% 11,300,792 59% Commercial: Asset-based 3,661,769 18% 3,550,903 18% 3,153,048 17% Venture capital 1,632,861 8% 1,749,432 9% 1,637,132 9% Other commercial 1,577,592 7% 1,921,909 10% 2,572,994 13% Total commercial 6,872,222 33% 7,222,244 37% 7,363,174 39% Consumer 405,968 2% 365,409 2% 362,234 2% Total loans and leases held for investment, net of deferred fees $ 20,511,020 100% $ 19,506,257 100% $ 19,026,200 100% Total unfunded loan commitments $ 8,480,599 $ 7,891,875 $ 7,178,506
Allowance for Credit Losses
The following tables present roll forwards of the allowance for credit losses for the periods indicated:
Three Months Ended September 30, 2021 Allowance for Reserve for Total Allowance for Credit Loan and Unfunded Loan Allowance for Losses Rollforward Lease Losses Commitments Credit Losses (In thousands) Beginning balance $ 225,600 $ 74,571 $ 300,171 Charge-offs (1,516) - (1,516) Recoveries 1,149 - 1,149 Net charge-offs (367) - (367) Provision (21,500) 1,500 (20,000) Ending balance $ 203,733 $ 76,071 $ 279,804 Net recoveries Three Months Ended June 30, 2021 Allowance for Reserve for Total Allowance for Credit Loan and Unfunded Loan Allowance for Losses Rollforward Lease Losses Commitments Credit Losses (In thousands) Beginning balance $ 292,445 $ 90,571 $ 383,016 Charge-offs (816) - (816) Recoveries 5,971 - 5,971 Net recoveries 5,155 - 5,155 Provision (72,000) (16,000) (88,000) Ending balance $ 225,600 $ 74,571 $ 300,171
The following table presents allowance for credit losses information as of and for the dates and periods indicated:
September 30, June 30, Increase Allowance for Credit Losses 2021 2021 (Decrease) (Dollars in thousands) Allowance for loan and lease losses $ 203,733 $ 225,600 $ (21,867) Reserve for unfunded loan commitments 76,071 74,571 1,500 Allowance for credit losses $ 279,804 $ 300,171 $ (20,367) Provision for credit losses (for the quarter) $ (20,000) $ (88,000) $ 68,000 Net charge-offs (recoveries) (for the quarter) $ 367 $ (5,155) $ 5,522 Net charge-offs (recoveries) to average loans and leases (for the quarter) 0.01% (0.11)% Allowance for loan and lease losses to loans and leases held for investment 0.99% 1.16% Allowance for loan and lease losses to loans and leases held for investment, excluding PPP loans 1.01% 1.19% Allowance for credit losses to loans and leases held for investment 1.36% 1.54% Allowance for credit losses to loans and leases held for investment, excluding PPP loans 1.38% 1.59%
The allowance for credit losses decreased by $20.4 million in the third quarter of 2021 to $279.8 million at September 30, 2021. The decrease in the allowance for credit losses during the third quarter of 2021 was attributable to a provision for credit losses benefit of $20.0 million and $0.4 million in net charge-offs. The allowance for credit losses ratio, excluding PPP loans, of 1.38% remains robust and significantly higher than the pre-pandemic level of 0.97% as of the January 1, 2020 CECL adoption date.
Net charge-offs were $0.4 million for the third quarter of 2021. Gross charge-offs of $1.5 million were reduced by recoveries of $1.1 million .
Net recoveries were $5.2 million for the second quarter of 2021. Gross charge-offs of $0.8 million were reduced by recoveries of $6.0 million .
On a year-to-date basis for the nine months ended September 30, 2021, net recoveries were $2.1 million . Gross charge-offs of $6.3 million were reduced by recoveries of $8.4 million .
CREDIT QUALITY
The following table presents loan and lease credit quality metrics as of the dates indicated:
September 30, June 30, Increase Credit Quality Metrics 2021 2021 (Decrease) (Dollars in thousands) NPAs and Performing TDRs: Nonaccrual loans and leases held for investment (1) $ 64,507 $ 56,803 $ 7,704 Accruing loans contractually past due 90 days or more - - - Foreclosed assets, net 13,364 13,227 137 Total nonperforming assets ("NPAs") $ 77,871 $ 70,030 $ 7,841 Performing TDRs held for investment $ 36,750 $ 40,129 $ (3,379) Nonaccrual loans and leases held for investment to loans and leases held for investment 0.31% 0.29% Nonperforming assets to loans and leases held for investment and foreclosed assets 0.38% 0.36% Allowance for credit losses to nonaccrual loans and leases held for investment 433.8% 528.4% Loan and Lease Credit Risk Ratings: Pass $ 19,873,050 $ 18,822,938 $ 1,050,112 Special mention 496,366 536,052 (39,686) Classified 141,604 147,267 (5,663) Total loans and leases held for investment, net of deferred fees $ 20,511,020 $ 19,506,257 $ 1,004,763 Classified loans and leases held for investment to loans and leases held for investment 0.69% 0.75% (1) Nonaccrual loans include SBA guaranteed amounts of $20.1 million at September 30, 2021 and $24.2 million at June 30, 2021.
Since pro-actively downgrading certain loans at the onset of the pandemic in the first quarter of 2020, special mention loans and leases have decreased by $402.3 million from their peak in the first quarter of 2020, while classified loans and leases have decreased by $151.6 million from their peak in the second quarter of 2020, and each have continued a steady decline in the third quarter of 2021. Nonaccrual loans and leases increased by $7.7 million to $64.5 million in the third quarter of 2021 due primarily to an increase in nonaccrual short-term, single-family residential renovation loans, however $7.5 million of such nonaccrual loans paid off in the first week of October.
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:
September 30, 2021 June 30, 2021 Increase (Decrease) Accruing Accruing Accruing and 30-89 and 30-89 and 30-89 Days Past Days Past Days Past Nonaccrual Due Nonaccrual Due Nonaccrual Due (Dollars in thousands) Real estate mortgage: Commercial $ 25,615 $ 676 $ 32,065 $ - $ (6,450) $ 676 Income producing and other residential 7,547 3,760 6,133 2,179 1,414 1,581 Total real estate mortgage 33,162 4,436 38,198 2,179 (5,036) 2,257 Real estate construction and land: Commercial - - 284 - (284) - Residential 19,918 12,809 1,934 22,714 17,984 (9,905) Total real estate construction and land 19,918 12,809 2,218 22,714 17,700 (9,905) Commercial: Asset-based 1,605 - 1,973 - (368) - Venture capital 2,348 1,670 2,717 - (369) 1,670 Other commercial 6,979 340 11,337 270 (4,358) 70 Total commercial 10,932 2,010 16,027 270 (5,095) 1,740 Consumer 495 1,042 360 1,454 135 (412) Total held for investment $ 64,507 $ 20,297 $ 56,803 $ 26,617 $ 7,704 $ (6,320)
CAPITAL
The following table presents certain actual capital ratios and ratios excluding PPP loans:
September 30, 2021 Excluding June 30, PPP 2021 Actual (1) Loans (1) Actual PacWest Bancorp Consolidated: Tier 1 leverage capital ratio 8.05% (3) 8.15% (4) 7.67% Common equity tier 1 capital ratio 10.15% 10.15% 10.41% Tier 1 capital ratio 10.65% (3) 10.65% 10.41% Total capital ratio 14.36% 14.36% 14.99% Tangible common equity ratio (2) 7.79% 7.85% (4) 7.80% (1) Capital information for September 30, 2021 is preliminary. (2) Non-GAAP measure. (3) The increase in our consolidated Tier 1 capital ratio during the third quarter of 2021 was due in part to a reassessment of a Basel III implementation rule that permitted the grandfathering of certain trust preferred securities as Tier 1 capital. As a result, $131 million of trust preferred securities were reclassified from Tier 2 capital to Tier 1 capital during the third quarter of 2021. This change increased the Tier 1 leverage capital ratio by approximately 38 basis points and increased the Tier 1 capital ratio by approximately 50 basis points. (4) PPP loans have been excluded from total assets in the denominator as they are zero risk-weighted.
ABOUT PACWEST BANCORP
PacWest Bancorp (“PacWest”) is a bank holding company with over $35 billion in assets headquartered in Los Angeles, California, with an executive office in Denver, Colorado, with one wholly-owned banking subsidiary, Pacific Western Bank (the “Bank”). The Bank has 69 full-service branches located in California, one branch located in Durham, North Carolina, and one branch located in Denver, Colorado. The Bank provides community banking products including lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices and Denver, Colorado branch office. The Bank offers national lending products including asset-based, equipment, and real estate loans and treasury management services to established middle-market businesses on a national basis. The Bank provides venture banking products including a comprehensive suite of financial services focused on entrepreneurial and venture-backed businesses and their venture capital and private equity investors, with offices located in key innovative hubs across the United States. The Bank also offers financing of non-owner-occupied investor properties through Civic Financial Services a wholly-owned subsidiary. The Bank also offers a specialized suite of services for the HOA industry. For more information about PacWest Bancorp or Pacific Western Bank, visit www.pacwest.com.
FORWARD LOOKING STATEMENTS
This communication contains certain forward-looking information about PacWest that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Statements that are not historical or current facts, including statements about future financial and operational results, expectations, or intentions are forward-looking statements. Such statements are based on information available at the time of the communication and are based on current beliefs and expectations of the Company’s management and are subject to significant risks, uncertainties and contingencies, many of which are beyond our control. The ongoing COVID-19 pandemic has adversely affected PacWest, its employees, customers and third-party service providers, and the ultimate extent of the impacts on its business, financial position, results of operations, liquidity and prospects is uncertain. The risks from the COVID-19 pandemic have decreased as the pandemic subsides, however, new variants may continue to impact key macro-economic indicators such as unemployment and GDP and may have a material impact on our allowance for credit losses and related provision for credit losses. Continued deterioration in general business and economic conditions could adversely affect PacWest’s revenues and the values of its assets, including goodwill, and liabilities, lead to a tightening of credit, and increase stock price volatility. In addition, PacWest’s results could be adversely affected by changes in interest rates, sustained high unemployment rates, deterioration in the credit quality of its loan portfolio or in the value of the collateral securing those loans, deterioration in the value of its investment securities, the magnitude of individual loan losses on security monitoring loans, and legal and regulatory developments. Actual results may differ materially from those set forth or implied in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by PacWest with the U.S. Securities and Exchange Commission.
We are under no obligation (and expressly disclaim any such obligation) to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
PACWEST BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET September 30, June 30, September 30, 2021 2021 2020 (Dollars in thousands, except per share data) ASSETS: Cash and due from banks $ 174,585 $ 179,505 $ 187,176 Interest-earning deposits in financial institutions 3,524,613 5,678,587 2,766,020 Total cash and cash equivalents 3,699,198 5,858,092 2,953,196 Securities available-for-sale, at estimated fair value 9,276,926 7,198,608 4,532,614 Federal Home Loan Bank stock, at cost 17,250 17,250 17,250 Total investment securities 9,294,176 7,215,858 4,549,864 Loans held for sale - - - Gross loans and leases held for investment 20,588,255 19,580,731 19,101,680 Deferred fees, net (77,235) (74,474) (75,480) Total loans and leases held for investment, net of deferred fees 20,511,020 19,506,257 19,026,200 Allowance for loan and lease losses (203,733) (225,600) (345,966) Total loans and leases held for investment, net 20,307,287 19,280,657 18,680,234 Equipment leased to others under operating leases 334,275 313,574 286,425 Premises and equipment, net 47,246 39,541 40,544 Foreclosed assets, net 13,364 13,227 13,747 Goodwill 1,204,118 1,204,118 1,078,670 Core deposit and customer relationship intangibles, net 15,533 18,423 26,813 Other assets 970,479 924,497 797,223 Total assets $ 35,885,676 $ 34,867,987 $ 28,426,716 LIABILITIES: Noninterest-bearing deposits $ 12,881,806 $ 11,252,286 $ 9,346,744 Interest-bearing deposits 17,677,939 18,394,748 14,618,951 Total deposits 30,559,745 29,647,034 23,965,695 Borrowings - 6,625 60,000 Subordinated debt 862,447 861,788 463,282 Accrued interest payable and other liabilities 545,050 505,859 451,508 Total liabilities 31,967,242 31,021,306 24,940,485 STOCKHOLDERS' EQUITY (1) 3,918,434 3,846,681 3,486,231 Total liabilities and stockholders’ equity $ 35,885,676 $ 34,867,987 $ 28,426,716 Book value per share $ 32.77 $ 32.17 $ 29.42 Tangible book value per share (2) $ 22.57 $ 21.95 $ 20.09 Shares outstanding 119,579,566 119,555,102 118,489,927 (1) Includes net unrealized gain on securities available-for-sale, net $ 98,859 $ 145,516 $ 155,474 (2) Non-GAAP measure.
PACWEST BANCORP AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (LOSS) Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, 2021 2021 2020 2021 2020 (Dollars in thousands, except per share data) Interest income: Loans and leases $ 246,722 $ 244,529 $ 240,811 $ 732,795 $ 750,940 Investment securities 40,780 33,954 24,443 104,999 77,927 Deposits in financial institutions 2,580 2,022 654 6,130 2,448 Total interest income 290,082 280,505 265,908 843,924 831,315 Interest expense: Deposits 6,417 7,269 9,887 21,186 51,209 Borrowings 101 265 27 559 8,124 Subordinated debt 7,722 6,663 4,670 18,760 16,632 Total interest expense 14,240 14,197 14,584 40,505 75,965 Net interest income 275,842 266,308 251,324 803,419 755,350 Provision for credit losses (20,000) (88,000) 97,000 (156,000) 329,000 Net interest income after provision for credit losses 295,842 354,308 154,324 959,419 426,350 Noninterest income: Service charges on deposit accounts 3,407 3,452 2,570 9,793 7,232 Other commissions and fees 11,792 10,704 10,541 31,654 30,373 Leased equipment income 10,943 10,847 9,900 33,144 34,188 Gain on sale of loans and leases - 1,422 35 1,561 468 Gain on sale of securities 515 - 5,270 616 13,167 Other income 24,688 13,946 9,936 59,777 20,782 Total noninterest income 51,345 40,371 38,252 136,545 106,210 Noninterest expense: Compensation 98,061 90,807 75,131 268,750 198,323 Occupancy 14,928 14,784 14,771 43,766 43,472 Data processing 7,391 7,758 6,505 22,106 20,061 Other professional services 5,164 5,256 4,713 15,546 13,117 Insurance and assessments 3,685 3,745 3,939 12,333 17,561 Intangible asset amortization 2,890 2,889 3,751 8,858 11,581 Leased equipment depreciation 8,603 8,614 7,057 26,186 21,364 Foreclosed assets expense (income), net 165 (119) 335 47 255 Acquisition, integration and reorganization costs 200 200 - 3,825 - Customer related expense 4,538 4,973 4,762 14,329 13,102 Loan expense 4,180 4,031 3,499 11,404 9,528 Goodwill impairment - - - - 1,470,000 Other expense 9,616 8,812 8,939 34,157 29,973 Total noninterest expense 159,421 151,750 133,402 461,307 1,848,337 Earnings (loss) before income taxes 187,766 242,929 59,174 634,657 (1,315,777) Income tax expense 47,770 62,417 13,671 163,743 38,627 Net earnings (loss) $ 139,996 $ 180,512 $ 45,503 $ 470,914 $ (1,354,404) Basic and diluted earnings (loss) per share $ 1.17 $ 1.52 $ 0.38 $ 3.96 $ (11.60) Dividends declared and paid per share $ 0.25 $ 0.25 $ 0.25 $ 0.75 $ 1.10
Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, 2021 2021 2020 2021 2020 (In thousands, except per share data) Basic Earnings (Loss) Per Share: Net earnings (loss) $ 139,996 $ 180,512 $ 45,503 $ 470,914 $ (1,354,404) Less: earnings allocated to unvested restricted stock (1) (2,417) (3,172) (578) (7,930) (1,603) Net earnings (loss) allocated to common shares $ 137,579 $ 177,340 $ 44,925 $ 462,984 $ (1,356,007) Weighted average basic shares and unvested restricted stock outstanding 119,569 119,386 118,438 119,272 118,469 Less: weighted average unvested restricted stock outstanding (2,340) (2,356) (1,684) (2,235) (1,596) Weighted average basic shares outstanding 117,229 117,030 116,754 117,037 116,873 Basic earnings (loss) per share $ 1.17 $ 1.52 $ 0.38 $ 3.96 $ (11.60) Diluted Earnings (Loss) Per Share: Net earnings (loss) allocated to common shares $ 137,579 $ 177,340 $ 44,925 $ 462,984 $ (1,356,007) Weighted average diluted shares outstanding 117,229 117,030 116,754 117,037 116,873 Diluted earnings (loss) per share $ 1.17 $ 1.52 $ 0.38 $ 3.96 $ (11.60) (1) Represents cash dividends paid to holders of unvested stock, net of forfeitures, plus undistributed earnings amounts available to holders of unvested restricted stock, if any.
PACWEST BANCORP AND SUBSIDIARIES AVERAGE BALANCE SHEET AND YIELD ANALYSIS Three Months Ended September 30, 2021 June 30, 2021 September 30, 2020 Interest Average Interest Average Interest Average Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Cost Balance Expense Cost Balance Expense Cost (Dollars in thousands) Assets: Loans and leases (1)(2) $ 19,670,671 $ 248,485 5.01% $ 19,057,420 $ 246,147 5.18% $ 19,195,737 $ 241,547 5.01% Investment securities (3) 8,047,098 42,952 2.12% 6,492,721 36,111 2.23% 4,107,915 26,015 2.52% Deposits in financial institutions 5,657,768 2,580 0.18% 6,347,764 2,022 0.13% 2,554,349 654 0.10% Total interest-earning assets (1) 33,375,537 294,017 3.50% 31,897,905 284,280 3.57% 25,858,001 268,216 4.13% Other assets 2,496,127 2,428,207 2,077,192 Total assets $ 35,871,664 $ 34,326,112 $ 27,935,193 Liabilities and Stockholders' Equity: Interest checking $ 7,372,859 2,042 0.11% $ 7,235,726 2,394 0.13% $ 4,904,614 2,019 0.16% Money market 8,662,449 2,997 0.14% 8,484,933 3,318 0.16% 7,170,842 3,081 0.17% Savings 620,079 38 0.02% 598,225 36 0.02% 565,395 35 0.02% Time 1,475,307 1,340 0.36% 1,498,169 1,521 0.41% 1,876,072 4,752 1.01% Total interest-bearing deposits 18,130,694 6,417 0.14% 17,817,053 7,269 0.16% 14,516,923 9,887 0.27% Borrowings 238,335 101 0.17% 225,446 265 0.47% 181,315 27 0.06% Subordinated debt 862,272 7,722 3.55% 735,725 6,663 3.63% 462,375 4,670 4.02% Total interest-bearing liabilities 19,231,301 14,240 0.29% 18,778,224 14,197 0.30% 15,160,613 14,584 0.38% Noninterest-bearing demand deposits 12,198,313 11,304,757 8,812,391 Other liabilities 525,429 504,089 464,320 Total liabilities 31,955,043 30,587,070 24,437,324 Stockholders' equity 3,916,621 3,739,042 3,497,869 Total liabilities and stockholders' equity $ 35,871,664 $ 34,326,112 $ 27,935,193 Net interest income (1) $ 279,777 $ 270,083 $ 253,632 Net interest spread (1) 3.21% 3.27% 3.75% Net interest margin (1) 3.33% 3.40% 3.90% Total deposits (4) $ 30,329,007 $ 6,417 0.08% $ 29,121,810 $ 7,269 0.10% $ 23,329,314 $ 9,887 0.17% (1) Tax equivalent. (2) Includes net loan premium amortization of $2.4 million and $1.5 million and net loan discount accretion of $35,000 for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020, respectively. (3) Includes tax-equivalent adjustments of $2.2 million , $2.2 million , and $1.6 million for the three months ended September 30, 2021, June 30, 2021, and September 30, 2020 related to tax-exempt income on investment securities. The federal statutory tax rate utilized was 21% . (4) Total deposits is the sum of total interest-bearing deposits and noninterest-bearing demand deposits. The cost of total deposits is calculated as annualized interest expense on total deposits divided by average total deposits.
PACWEST BANCORP AND SUBSIDIARIES FIVE QUARTER BALANCE SHEET September 30, June 30, March 31, December 31, September 30, 2021 2021 2021 2020 2020 (Dollars in thousands, except per share data) ASSETS: Cash and due from banks $ 174,585 $ 179,505 $ 177,199 $ 150,464 $ 187,176 Interest-earning deposits in financial institutions 3,524,613 5,678,587 5,517,667 3,010,197 2,766,020 Total cash and cash equivalents 3,699,198 5,858,092 5,694,866 3,160,661 2,953,196 Securities available-for-sale 9,276,926 7,198,608 5,941,690 5,235,591 4,532,614 Federal Home Loan Bank stock 17,250 17,250 17,250 17,250 17,250 Total investment securities 9,294,176 7,215,858 5,958,940 5,252,841 4,549,864 Loans held for sale - - 25,554 - - Gross loans and leases held for investment 20,588,255 19,580,731 19,055,165 19,153,357 19,101,680 Deferred fees, net (77,235) (74,474) (75,937) (69,980) (75,480) Total loans and leases held for investment, net of deferred fees 20,511,020 19,506,257 18,979,228 19,083,377 19,026,200 Allowance for loan and lease losses (203,733) (225,600) (292,445) (348,181) (345,966) Total loans and leases held for investment, net 20,307,287 19,280,657 18,686,783 18,735,196 18,680,234 Equipment leased to others under operating leases 334,275 313,574 327,413 333,846 286,425 Premises and equipment, net 47,246 39,541 39,622 39,234 40,544 Foreclosed assets, net 13,364 13,227 14,298 14,027 13,747 Goodwill 1,204,118 1,204,118 1,204,092 1,078,670 1,078,670 Core deposit and customer relationship intangibles, net 15,533 18,423 21,312 23,641 26,813 Other assets 970,479 924,497 883,653 860,326 797,223 Total assets $ 35,885,676 $ 34,867,987 $ 32,856,533 $ 29,498,442 $ 28,426,716 LIABILITIES: Noninterest-bearing deposits $ 12,881,806 $ 11,252,286 $ 11,017,462 $ 9,193,827 $ 9,346,744 Interest-bearing deposits 17,677,939 18,394,748 17,205,829 15,746,890 14,618,951 Total deposits 30,559,745 29,647,034 28,223,291 24,940,717 23,965,695 Borrowings - 6,625 19,750 5,000 60,000 Subordinated debt 862,447 861,788 465,814 465,812 463,282 Accrued interest payable and other liabilities 545,050 505,859 493,541 491,962 451,508 Total liabilities 31,967,242 31,021,306 29,202,396 25,903,491 24,940,485 STOCKHOLDERS' EQUITY (1) 3,918,434 3,846,681 3,654,137 3,594,951 3,486,231 Total liabilities and stockholders’ equity $ 35,885,676 $ 34,867,987 $ 32,856,533 $ 29,498,442 $ 28,426,716 Book value per share $ 32.77 $ 32.17 $ 30.68 $ 30.36 $ 29.42 Tangible book value per share (2) $ 22.57 $ 21.95 $ 20.39 $ 21.05 $ 20.09 Shares outstanding 119,579,566 119,555,102 119,105,642 118,414,853 118,489,927 (1) Includes net unrealized gain on securities available-for-sale, net $ 98,859 $ 145,516 $ 106,381 $ 172,523 $ 155,474 (2) Non-GAAP measure.
Three Months Ended September 30, June 30, March 31, December 31, September 30, 2021 2021 2021 2020 2020 (Dollars in thousands, except per share data) Interest income: Loans and leases $ 246,722 $ 244,529 $ 241,544 $ 242,198 $ 240,811 Investment securities 40,780 33,954 30,265 28,843 24,443 Deposits in financial institutions 2,580 2,022 1,528 1,135 654 Total interest income 290,082 280,505 273,337 272,176 265,908 Interest expense: Deposits 6,417 7,269 7,500 8,454 9,887 Borrowings 101 265 193 37 27 Subordinated debt 7,722 6,663 4,375 4,477 4,670 Total interest expense 14,240 14,197 12,068 12,968 14,584 Net interest income 275,842 266,308 261,269 259,208 251,324 Provision for credit losses (20,000) (88,000) (48,000) 10,000 97,000 Net interest income after provision for credit losses 295,842 354,308 309,269 249,208 154,324 Noninterest income: Service charges on deposit accounts 3,407 3,452 2,934 3,119 2,570 Other commissions and fees 11,792 10,704 9,158 9,974 10,541 Leased equipment income 10,943 10,847 11,354 9,440 9,900 Gain on sale of loans and leases - 1,422 139 1,671 35 Gain on sale of securities 515 - 101 4 5,270 Other income 24,688 13,946 21,143 15,642 9,936 Total noninterest income 51,345 40,371 44,829 39,850 38,252 Noninterest expense: Compensation 98,061 90,807 79,882 73,171 75,131 Occupancy 14,928 14,784 14,054 14,083 14,771 Data processing 7,391 7,758 6,957 6,718 6,505 Other professional services 5,164 5,256 5,126 6,800 4,713 Insurance and assessments 3,685 3,745 4,903 5,064 3,939 Intangible asset amortization 2,890 2,889 3,079 3,172 3,751 Leased equipment depreciation 8,603 8,614 8,969 7,501 7,057 Foreclosed assets expense (income), net 165 (119) 1 (272) 335 Acquisition, integration and reorganization costs 200 200 3,425 1,060 - Customer related expense 4,538 4,973 4,818 4,430 4,762 Loan expense 4,180 4,031 3,193 3,926 3,499 Other expense 9,616 8,812 15,729 10,029 8,939 Total noninterest expense 159,421 151,750 150,136 135,682 133,402 Earnings before income taxes 187,766 242,929 203,962 153,376 59,174 Income tax expense 47,770 62,417 53,556 36,546 13,671 Net earnings $ 139,996 $ 180,512 $ 150,406 $ 116,830 $ 45,503 Basic and diluted earnings per share $ 1.17 $ 1.52 $ 1.27 $ 0.99 $ 0.38 Dividends declared and paid per 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 September 30, June 30, March 31, December 31, September 30, 2021 2021 2021 2020 2020 (Dollars in thousands) Performance Ratios: Return on average assets (1) 1.55% 2.11% 1.94% 1.58% 0.65% Pre-provision, pre-goodwill impairment, pre-tax net revenue ("PPNR") return on average assets (1)(2) 1.86% 1.81% 2.01% 2.22% 2.22% Return on average equity (1) 14.18% 19.36% 16.86% 13.14% 5.18% Return on average tangible equity (1)(2) 21.03% 29.25% 25.67% 19.63% 8.20% Efficiency ratio 47.2% 47.9% 46.4% 43.6% 45.1% Noninterest expense as a percentage of average assets (1) 1.76% 1.77% 1.94% 1.84% 1.90% Average Yields/Costs (1): Yield on: Average loans and leases (3) 5.01% 5.18% 5.20% 5.15% 5.01% Average investment securities (3) 2.12% 2.23% 2.44% 2.50% 2.52% Average interest-earning assets (3) 3.50% 3.57% 3.86% 4.02% 4.13% Cost of: Average interest-bearing deposits 0.14% 0.16% 0.18% 0.22% 0.27% Average total deposits 0.08% 0.10% 0.11% 0.14% 0.17% Average interest-bearing liabilities 0.29% 0.30% 0.29% 0.33% 0.38% Net interest spread (3) 3.21% 3.27% 3.57% 3.69% 3.75% Net interest margin (3) 3.33% 3.40% 3.69% 3.83% 3.90% Average Balances: Assets: Loans and leases, net of deferred fees $ 19,670,671 $ 19,057,420 $ 18,927,314 $ 18,769,214 $ 19,195,737 Investment securities 8,047,098 6,492,721 5,383,140 4,888,993 4,107,915 Deposits in financial institutions 5,657,768 6,347,764 4,790,231 3,576,335 2,554,349 Interest-earning assets 33,375,537 31,897,905 29,100,685 27,234,542 25,858,001 Total assets 35,871,664 34,326,112 31,415,882 29,334,789 27,935,193 Liabilities: Noninterest-bearing deposits 12,198,313 11,304,757 10,173,459 9,589,789 8,812,391 Interest-bearing deposits 18,130,694 17,817,053 16,044,091 15,045,451 14,516,923 Total deposits 30,329,007 29,121,810 26,217,550 24,635,240 23,329,314 Borrowings 238,335 225,446 226,053 237,098 181,315 Subordinated debt 862,272 735,725 466,101 463,951 462,375 Interest-bearing liabilities 19,231,301 18,778,224 17,136,245 15,746,500 15,160,613 Stockholders' equity 3,916,621 3,739,042 3,617,248 3,536,425 3,497,869 (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 September 30, June 30, March 31, December 31, September 30, 2021 2021 2021 2020 2020 (Dollars in thousands) Credit Quality Ratios: Nonaccrual loans and leases held for investment to loans and leases held for investment 0.31% 0.29% 0.36% 0.48% 0.45% Nonperforming assets to loans and leases held for investment and foreclosed assets 0.38% 0.36% 0.43% 0.55% 0.52% Classified loans and leases held for investment to loans and leases held for investment 0.69% 0.75% 0.86% 1.39% 1.44% Provision for credit losses (for the quarter) to average loans and leases held for investment (annualized) (0.40)% (1.85)% (1.03)% 0.21% 2.01% Net charge-offs (for the quarter) to average loans and leases held for investment (annualized) 0.01% (0.11)% 0.06% 0.40% 0.75% Trailing 12 months net charge-offs to average loans and leases held for investment 0.09% 0.27% 0.37% 0.45% 0.36% Allowance for loan and lease losses to loans and leases held for investment 0.99% 1.16% 1.54% 1.82% 1.82% Allowance for credit losses to loans and leases held for investment 1.36% 1.54% 2.02% 2.27% 2.33% Allowance for credit losses to nonaccrual loans and leases held for investment 433.8% 528.4% 566.2% 475.8% 516.9% PacWest Bancorp Consolidated: Tier 1 leverage capital ratio (1) 8.05% 7.67% 7.95% 8.55% 8.66% Common equity tier 1 capital ratio (1) 10.15% 10.41% 10.39% 10.53% 10.45% Tier 1 capital ratio (1) 10.65% 10.41% 10.39% 10.53% 10.45% Total capital ratio (1) 14.36% 14.99% 13.60% 13.76% 13.74% Risk-weighted assets (1) $ 26,057,583 $ 24,274,256 $ 23,012,350 $ 22,837,693 $ 22,114,040 Equity to assets ratio 10.92% 11.03% 11.12% 12.19% 12.26% Tangible common equity ratio (2) 7.79% 7.80% 7.68% 8.78% 8.71% Book value per share $ 32.77 $ 32.17 $ 30.68 $ 30.36 $ 29.42 Tangible book value per share (2) $ 22.57 $ 21.95 $ 20.39 $ 21.05 $ 20.09 Pacific Western Bank: Tier 1 leverage capital ratio (1) 8.40% 8.47% 8.83% 9.53% 9.70% Common equity tier 1 capital ratio (1) 11.12% 11.51% 11.54% 11.73% 11.70% Tier 1 capital ratio (1) 11.12% 11.51% 11.54% 11.73% 11.70% Total capital ratio (1) 13.59% 14.22% 12.80% 12.99% 12.95% (1) Capital information for September 30, 2021 is preliminary. (2) Non-GAAP measure.
GAAP TO NON-GAAP RECONCILIATION S
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 equity, (4) tangible common equity ratio, and (5) tangible book value per 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 return on average tangible equity, tangible common equity ratio, tangible book value per share, and PPNR 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 share.
The tables below present the reconciliations of these GAAP financial measures to the related non-GAAP financial measures:
Three Months Ended Nine Months Ended PPNR and PPNR Return September 30, June 30, September 30, September 30, on Average Assets 2021 2021 2020 2021 2020 (Dollars in thousands) Net earnings (loss) $ 139,996 $ 180,512 $ 45,503 $ 470,914 $ (1,354,404) Add: Provision for credit losses (20,000) (88,000) 97,000 (156,000) 329,000 Add: Goodwill impairment - - - - 1,470,000 Add: Income tax expense 47,770 62,417 13,671 163,743 38,627 Pre-provision, pre-goodwill impairment, pre-tax net revenue ("PPNR") $ 167,766 $ 154,929 $ 156,174 $ 478,657 $ 483,223 Average assets $ 35,871,664 $ 34,326,112 $ 27,935,193 $ 33,887,541 $ 27,221,102 Return on average assets (1) 1.55% 2.11% 0.65% 1.86% (6.65)% PPNR return on average assets (2) 1.86% 1.81% 2.22% 1.89% 2.37% (1) Annualized net earnings (loss) divided by average assets. (2) Annualized PPNR divided by average assets.
Three Months Ended Nine Months Ended September 30, June 30, September 30, September 30, Return on Average Tangible Equity 2021 2021 2020 2021 2020 (Dollars in thousands) Net earnings (loss) $ 139,996 $ 180,512 $ 45,503 $ 470,914 $ (1,354,404) Add: Intangible asset amortization 2,890 2,889 3,751 8,858 11,581 Add: Goodwill impairment - - - - 1,470,000 Adjusted net earnings $ 142,886 $ 183,401 $ 49,254 $ 479,772 $ 127,177 Average stockholders' equity $ 3,916,621 $ 3,739,042 $ 3,497,869 $ 3,758,733 $ 3,965,453 Less: Average intangible assets 1,221,253 1,224,208 1,107,548 1,212,851 1,594,231 Average tangible common equity $ 2,695,368 $ 2,514,834 $ 2,390,321 $ 2,545,882 $ 2,371,222 Return on average equity (1) 14.18% 19.36% 5.18% 16.75% (45.62)% Return on average tangible equity (2) 21.03% 29.25% 8.20% 25.20% 7.16% (1) Annualized net earnings divided by average stockholders' equity. (2) Annualized adjusted net earnings divided by average tangible common equity.
CONTACTS
Matthew P. Wagner President and CEO 303.802.8900Bart R. Olson EVP and CFO 714.989.4149William J. Black EVP Strategy and Corporate Development 919.597.7466