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PacWest Bancorp Announces Results For The Third Quarter 2017

Highlights

  • Net Earnings of $101.5 Million, or $0.84 Per Diluted Share
  • New Loan and Lease Production of $1.0 Billion
  • Core Deposits Increase of $314 Million and Represent 81% of Total Deposits
  • Tax Equivalent Net Interest Margin of 5.08%
  • All Approvals Received for CUB Acquisition; Expected to Close October 20

LOS ANGELES, Oct. 17, 2017 (GLOBE NEWSWIRE) -- PacWest Bancorp (Nasdaq:PACW) today announced net earnings for the third quarter of 2017 of $101.5 million, or $0.84 per diluted share, compared to net earnings for the second quarter of 2017 of $93.6 million, or $0.77 per diluted share. The increase in net earnings from the prior quarter was primarily due to lower income tax expense partially offset by lower noninterest income and a higher provision for credit losses. Income tax expense for the third quarter was lower due to a $13.6 million reversal of a valuation allowance related to tax credits which, based on our latest analysis, are more likely than not to be utilized before they expire.

Matt Wagner, President and CEO, commented, “We delivered solid performance in the third quarter and continue to demonstrate our earning power. Our strong third quarter results produced a return on assets of 1.82% and a return on tangible equity of 16.85%.”

Mr. Wagner continued, “All required approvals have been received and we look forward to closing the CU Bancorp acquisition this week. We are excited about the exceptional core deposit franchise and opportunities for increased operating efficiencies provided by this transaction.”

FINANCIAL HIGHLIGHTS

At or For the Three Months Ended At or For the Nine Months Ended
September 30, June 30, September 30,
Financial Highlights 2017 2017 Change 2017 2016 Change
(Dollars in thousands, except per share data)
Net earnings$101,466 $93,647 $7,819 $273,781 $266,519 $7,262
Diluted earnings per share$0.84 $0.77 $0.07 $2.26 $2.19 $0.07
Return on average assets 1.82% 1.71% 0.11 1.67% 1.69% (0.02)
Return on average
tangible equity (1) 16.85% 16.06% 0.79 15.63% 15.74% (0.11)
Net interest margin
(tax equivalent) 5.08% 5.21% (0.13) 5.15% 5.37% (0.22)
Efficiency ratio 40.4% 40.3% 0.1 40.7% 39.7% 1.0
Total assets$22,242,932 $22,246,877 $(3,945) $22,242,932 $21,315,291 $927,641
Loans and leases held
for investment, net of
deferred fees$15,690,517 $15,543,457 $147,060 $15,690,517 $14,742,846 $947,671
Noninterest-bearing
deposits$6,911,874 $6,701,039 $210,835 $6,911,874 $6,521,946 $389,928
Core deposits$13,531,300 $13,217,574 $313,726 $13,531,300 $12,010,639 $1,520,661
Total deposits$16,773,245 $16,874,977 $(101,732) $16,773,245 $15,645,668 $1,127,577
Noninterest-bearing
deposits as percentage
of total deposits 41% 40% 1 41% 42% (1)
Core deposits as
percentage of total
deposits 81% 78% 3 81% 77% 4
Equity to assets ratio 20.73% 20.50% 0.23 20.73% 21.31% (0.58)
Tangible common equity
ratio (1) 12.02% 11.75% 0.27 12.02% 12.19% (0.17)
Book value per share$37.96 $37.55 $0.41 $37.96 $37.29 $0.67
Tangible book value per
share (1)$19.84 $19.40 $0.44 $19.84 $19.12 $0.72
(1) Non-GAAP measure.

INCOME STATEMENT HIGHLIGHTS

Net Interest Income

Net interest income decreased by $0.8 million to $241.7 million for the third quarter of 2017 compared to $242.5 million for the second quarter of 2017 due mainly to interest expense growth exceeding interest income growth for the quarter. The loan and lease yield was 6.01% for the third quarter of 2017 compared to 6.07% for the second quarter of 2017. The decrease in the loan and lease yield was principally due to the decrease in discount accretion on acquired loans and lower loan fee income. Total discount accretion on acquired loans was $5.5 million in the third quarter of 2017 compared to $7.5 million in the second quarter of 2017.

The tax equivalent NIM was 5.08% for the third quarter of 2017 compared to 5.21% for the second quarter of 2017. The decrease in the NIM was mostly due to the decrease in discount accretion on acquired loans and loan fee income and a higher cost of average interest-bearing liabilities. Total discount accretion on acquired loans contributed 11 basis points to the NIM for the third quarter of 2017 and 16 basis points for the second quarter of 2017.

The cost of average total deposits increased to 0.31% for the third quarter of 2017 from 0.25% for the second quarter of 2017 due to higher rates paid for non-core deposits and select large-balance deposit customers.

Noninterest Income

Noninterest income decreased by $3.9 million to $31.4 million for the third quarter of 2017 compared to $35.3 million for the second quarter of 2017 due mainly to a $3.3 million decrease in leased equipment income due to lower gains on early lease terminations and a $1.9 million decrease in other income as the second quarter included a BOLI death benefit and higher recoveries from third parties, offset by an increase in gain on sale of loans and leases of $2.2 million.

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

Three Months Ended
September 30, June 30, Increase
Noninterest Income2017 2017 (Decrease)
(In thousands)
Service charges on deposit accounts$3,465 $3,510 $(45)
Other commissions and fees 9,944 10,583 (639)
Leased equipment income 8,332 11,635 (3,303)
Gain on sale of loans and leases 2,848 649 2,199
Gain on sale of securities 1,236 1,651 (415)
Other income:
Dividends and realized gains on equity investments 1,845 1,587 258
Warrant income 731 815 (84)
Other 2,981 4,852 (1,871)
Total noninterest income$31,382 $35,282 $(3,900)

Noninterest Expense

Noninterest expense increased by $0.8 million to $118.5 million for the third quarter of 2017 compared to $117.7 million for the second quarter of 2017 due mostly to a $2.3 million increase in foreclosed assets expense offset by decreases in several expense categories. The increase in foreclosed assets expense was due to a write-down of $2.1 million on foreclosed property.

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

Three Months Ended
September 30, June 30, Increase
Noninterest Expense2017 2017 (Decrease)
(In thousands)
Compensation$64,413 $65,288 $(875)
Occupancy 12,729 11,811 918
Data processing 6,459 6,337 122
Other professional services 4,213 3,976 237
Insurance and assessments 4,702 4,856 (154)
Intangible asset amortization 3,049 3,065 (16)
Leased equipment depreciation 4,862 5,232 (370)
Foreclosed assets expense (income), net 2,191 (157) 2,348
Acquisition, integration and reorganization costs 1,450 1,700 (250)
Loan expense 3,421 3,884 (463)
Other 11,053 11,715 (662)
Total noninterest expense$118,542 $117,707 $835

Income Taxes

The overall effective income tax rate was 27.2% for the third quarter of 2017 and 37.0% for the second quarter of 2017. The effective rate for the third quarter was lower due to the $13.6 million reversal of a valuation allowance related to tax credits which, based on our latest analysis, are more likely than not to be utilized before they expire. The estimated effective tax rate for the full year 2017 is approximately 35%.

BALANCE SHEET HIGHLIGHTS

Loans and Leases

Total loans and leases held for investment, net of deferred fees, increased by $147.1 million in the third quarter to $15.7 billion at September 30, 2017. The net increase was driven mainly by third quarter new production of $1.0 billion and disbursements of $722.8 million, offset partially by payoffs of $903.4 million and paydowns of $637.7 million.
The following table presents a roll forward of loans and leases held for investment, net of deferred fees, for the periods indicated:

Three Months Ended
Loans and Leases September 30, June 30,
Held for Investment Roll Forward (1) 2017 2017
(Dollars in thousands)
Balance, beginning of period$15,543,457 $15,556,689
New production 1,002,887 1,077,929
Existing loans and leases:
Payoffs (903,395) (956,322)
Paydowns (637,674) (587,000)
Disbursements 722,777 700,207
Sales (2) (31,528) (45,976)
Transfers to foreclosed assets - (502)
Charge-offs (6,007) (26,410)
Transfers to loans held for sale - (175,158)
Balance, end of period$15,690,517 $15,543,457
Weighted average rate on new production 5.04% 4.93%
(1) Includes direct financing leases but excludes equipment leased to others under operating leases.
(2) Sales for the three months ended September 30, 2017 exclude sales of loans that were classified
as loans held for sale at June 30, 2017.

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

September 30, June 30, March 31, September 30,
Loan and Lease Portfolio 2017 2017 2017 2016
(In thousands)
Real estate mortgage:
Commercial$4,338,933 $4,418,463 $4,420,923 $4,327,565
Residential 1,850,324 1,719,269 1,554,946 1,242,254
Total real estate mortgage 6,189,257 6,137,732 5,975,869 5,569,819
Real estate construction and land:
Commercial 680,950 691,828 668,510 510,831
Residential 568,273 473,282 442,051 323,104
Total real estate construction and land 1,249,223 1,165,110 1,110,561 833,935
Total real estate 7,438,480 7,302,842 7,086,430 6,403,754
Commercial:
Cash flow 2,734,454 2,834,966 3,138,196 3,071,606
Asset-based 2,577,470 2,392,203 2,391,161 2,573,437
Venture capital 1,959,489 2,001,427 1,934,949 1,766,509
Equipment finance 594,473 613,550 623,237 670,783
Total commercial 7,865,886 7,842,146 8,087,543 8,082,335
Consumer 386,151 398,469 382,716 256,757
Total loans and leases held for
investment, net of deferred fees (1)$15,690,517 $15,543,457 $15,556,689 $14,742,846
Total unfunded loan commitments$5,037,084 $4,926,743 $4,497,373 $4,156,147
(1) Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.

Deposits and Client Investment Funds

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

September 30, June 30, March 31, September 30,
Deposit Category 2017 2017 2017 2016
(Dollars in thousands)
Noninterest-bearing demand deposits$6,911,874 $6,701,039 $6,789,808 $6,521,946
Interest checking deposits 1,957,485 1,762,016 1,509,902 1,184,350
Money market deposits 3,967,224 4,033,471 3,758,962 3,532,050
Savings deposits 694,717 721,048 710,401 772,293
Total core deposits 13,531,300 13,217,574 12,769,073 12,010,639
Non-core non-maturity deposits 1,118,694 1,329,324 1,154,070 1,082,114
Total non-maturity deposits 14,649,994 14,546,898 13,923,143 13,092,753
Time deposits $250,000 and under 1,770,439 1,940,872 1,998,597 2,091,747
Time deposits over $250,000 352,812 387,207 409,268 461,168
Total time deposits 2,123,251 2,328,079 2,407,865 2,552,915
Total deposits$16,773,245 $16,874,977 $16,331,008 $15,645,668
Noninterest-bearing demand deposits
as percentage of total deposits 41% 40% 42% 42%
Core deposits as percentage of total deposits 81% 78% 78% 77%

At September 30, 2017, core deposits totaled $13.5 billion, or 81% of total deposits, including $6.9 billion of noninterest-bearing demand deposits, or 41% of total deposits.

In addition to deposit products, we also offer alternative non-depository cash investment options for select clients; these alternatives include investments managed by Square 1 Asset Management, Inc. (“S1AM”), our registered investment advisor subsidiary, and third-party sweep products. Total off-balance sheet client investment funds at September 30, 2017 were $1.9 billion, of which $1.6 billion was managed by S1AM.

PROVISION AND ALLOWANCE FOR CREDIT LOSSES

A provision for credit losses of $15.1 million was recorded in the third quarter of 2017 compared to $11.5 million in the second quarter of 2017. The third quarter provision consisted of $15.5 million for non-purchased credit impaired (“Non-PCI”) loans and leases and a $0.4 million negative provision for PCI loans; this compares to a provision of $12.5 million and a negative provision of $1.0 million, respectively, for the second quarter of 2017. The higher provision for the third quarter of 2017 was due mainly to loan risk rating downgrades combined with net portfolio growth. The allowance for Non-PCI credit losses to Non-PCI loans and leases held for investment coverage ratio was 1.11% and 1.02% at September 30, 2017 and June 30, 2017.

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

Three Months Ended September 30, 2017
Non-PCI
Allowance for Credit Loans and Unfunded Total PCI
Losses RollforwardLeases Commitments Non-PCI Loans Total
(In thousands)
Beginning balance$138,879 $20,263 $159,142 $7,079 $166,221
Charge-offs (5,928) - (5,928) (79) (6,007)
Recoveries 4,865 - 4,865 217 5,082
Net charge-offs (1,063) - (1,063) 138 (925)
Provision 14,954 546 15,500 (381) 15,119
Ending balance$152,770 $20,809 $173,579 $6,836 $180,415
Three Months Ended June 30, 2017
Non-PCI
Allowance for Credit Loans and Unfunded Total PCI
Losses RollforwardLeases Commitments Non-PCI Loans Total
(In thousands)
Beginning balance$149,826 $17,763 $167,589 $11,481 $179,070
Charge-offs (22,951) - (22,951) (3,459) (26,410)
Recoveries 2,004 - 2,004 58 2,062
Net charge-offs (20,947) - (20,947) (3,401) (24,348)
Provision 10,000 2,500 12,500 (1,001) 11,499
Ending balance$138,879 $20,263 $159,142 $7,079 $166,221

The gross charge-offs for the third quarter of 2017 included $3.4 million for venture capital loans. Recoveries for the quarter included $2.6 million related to venture capital loans previously charged off in 2017. The annualized ratio of total net charge-offs to total average loans was 0.02% for the quarter ended September 30, 2017 and 0.40% for the nine months ended September 30, 2017.

CREDIT QUALITY

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

September 30, June 30, Increase
Non-PCI Credit Quality Metrics 2017 2017 (Decrease)
(Dollars in thousands)
Nonaccrual loans and leases held for investment (1)$157,697 $172,576 $(14,879)
Classified loans and leases held for investment (1) 344,777 339,977 4,800
Performing troubled debt restructured loans
held for investment 56,552 55,910 642
Allowance for credit losses 173,579 159,142 14,437
Net charge-offs (for the quarter) 1,063 20,947 (19,884)
Provision for credit losses (for the quarter) 15,500 12,500 3,000
Allowance for credit losses to loans and leases
held for investment 1.11% 1.02%
Allowance for credit losses to nonaccrual loans
and leases held for investment 110.1% 92.2%
Nonaccrual loans and leases held for investment
to loans and leases held for investment 1.00% 1.11%
Nonperforming assets to loans and leases
held for investment and foreclosed assets 1.08% 1.20%
Classified loans and leases held for investment
to loans and leases held for investment 2.20% 2.19%
(1) Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.

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

Non-PCI Nonaccrual Loans and Leases Non-PCI Accruing and
September 30, 2017 June 30, 2017 30-89 Days Past Due
% of % of September 30, June 30,
Loan Loan 2017 2017
AmountCategory AmountCategory Amount Amount
(Dollars in thousands)
Real estate mortgage:
Commercial$63,0961.5% $65,5991.5% $1,446 $3,734
Residential 3,1860.2% 5,2290.3% 282 46
Total real estate mortgage 66,2821.1% 70,8281.2% 1,728 3,780
Real estate construction and land:
Commercial -0.0% -0.0% - -
Residential -0.0% -0.0% - -
Total real estate
construction and land -0.0% -0.0% - -
Commercial:
Cash flow 33,5141.2% 43,1691.5% 72 201
Asset-based 3,9770.2% 1,7180.1% - -
Venture capital 22,6861.2% 25,2781.3% 2,720 23,171
Equipment finance 30,9425.2% 31,1115.1% - -
Total commercial 91,1191.2% 101,2761.3% 2,792 23,372
Consumer 2960.1% 4720.1% 286 -
Total held for investment (1)$157,6971.0% $172,5761.1% $4,806 $27,152
(1) Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.

The following table presents nonperforming assets as of the dates indicated:

September 30, June 30, Increase
Nonperforming Assets 2017 2017 (Decrease)
(Dollars in thousands)
Nonaccrual Non-PCI loans and leases
held for investment (1)$157,697 $172,576 $(14,879)
Nonaccrual PCI loans held for investment 1,761 1,980 (219)
Total nonaccrual loans and leases 159,458 174,556 (15,098)
Foreclosed assets, net 11,630 13,278 (1,648)
Total nonperforming assets$171,088 $187,834 $(16,746)
Nonaccrual loans and leases held for investment
to loans and leases held for investment 1.01% 1.12%
Nonperforming assets to loans and leases
held for investment and foreclosed assets 1.09% 1.20%
(1) Excludes loans held for sale carried at lower of cost or fair value at June 30, 2017.

CU BANCORP MERGER ANNOUNCEMENT

On April 6, 2017, PacWest announced the signing of a definitive agreement and plan of merger (the “Agreement”) whereby PacWest will acquire CU Bancorp (“CUB”) in a transaction valued at approximately $705 million as of the announcement date.

CUB, headquartered in Los Angeles, California, is the parent of California United Bank (“CU Bank”), a California state-chartered non-member bank, with approximately $3.0 billion in assets and nine branches located in Los Angeles, Orange, Ventura, and San Bernardino counties at June 30, 2017. In connection with the acquisition, CU Bank will be merged into Pacific Western Bank, the principal operating subsidiary of PacWest.

The acquisition, which has been approved by the PacWest and CUB boards of directors and bank regulatory authorities, is expected to close on October 20, 2017.

ABOUT PACWEST BANCORP

PacWest Bancorp (“PacWest”) is a bank holding company with over $22 billion in assets with one wholly-owned banking subsidiary, Pacific Western Bank (the “Bank”). The Bank has 74 full-service branches located throughout the state of California and one branch in Durham, North Carolina. We provide commercial banking services, including real estate, construction, and commercial loans, and comprehensive deposit and treasury management services to small and medium-sized businesses. We offer additional products and services through our CapitalSource and Square 1 Bank divisions. Our CapitalSource Division provides cash flow, asset-based, equipment and real estate loans and treasury management services to established middle market businesses on a national basis. Our Square 1 Bank Division offers a comprehensive suite of financial services focused on entrepreneurial businesses and their venture capital and private equity investors, with offices located in key innovation hubs across the United States. For more information about PacWest Bancorp, visit www.pacwestbancorp.com, or to learn more about Pacific Western Bank, visit www.pacificwesternbank.com.

FORWARD LOOKING STATEMENTS

This release contains certain “forward-looking statements” about the Company and its subsidiaries within the meaning of the Private Securities Litigation Reform Act of 1995, including forward-looking statements relating to the Company’s current business plans and expectations regarding future operating results and metrics and including statements about our expectations regarding our pending merger between the Company and CUB. All statements contained in this release that are not clearly historical in nature are forward-looking, and the words “anticipate,” “assume,” “intend,” “believe,” “forecast,” “expect,” “estimate,” “plan,” “continue,” “will,” “should,” “look forward” and similar expressions are generally intended to identify forward-looking statements. All forward-looking statements (including statements regarding future financial and operating results and future transactions and their results) involve risks, uncertainties and contingencies, many of which are beyond our control, which may cause actual results, performance, or achievements to differ materially from anticipated results, performance or achievements. These risks and uncertainties include, but are not limited to, our ability to compete effectively against other financial institutions in our banking markets; the impact of changes in interest rates or levels of market activity, especially on our loan and investment portfolios; deterioration, weaker than expected improvement, or other changes in the state of the economy or the markets in which we conduct business (including the levels of IPOs and M&A activities); changes in credit quality and the effect of credit quality on our provision for loan and lease losses and allowance for loan and leases losses; our ability to attract deposits and other sources of funding or liquidity; our capital requirements and our ability to generate capital internally or raise capital on favorable terms; the costs and effects of legal, compliance and regulatory actions, changes and developments, including the impact of adverse judgments or settlements in litigation, the initiation and resolution of regulatory or other governmental inquiries or investigations, and/or the results of regulatory examinations or reviews; the Company’s ability to complete the pending CUB acquisition, or any future acquisition, successfully integrate such acquired entities, or achieve expected beneficial synergies and/or operating efficiencies, in each case within expected timeframes or at all; and our success at managing the risks involved in the foregoing items and all other factors set forth in the Company’s public reports, including the Annual Report on Form 10-K for the year ended December 31, 2016, and particularly the discussion of risk factors within that document.

All forward-looking statements included in this release are based on information available at the time of the release. We are under no obligation to (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, December 31,
2017 2017 2016
(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks$147,579 $180,330 $337,965
Interest-earning deposits in financial institutions 122,439 107,150 81,705
Total cash and cash equivalents 270,018 287,480 419,670
Securities available-for-sale, at estimated fair value 3,532,230 3,474,560 3,223,830
Federal Home Loan Bank stock, at cost 17,250 22,059 21,870
Total investment securities 3,549,480 3,496,619 3,245,700
Loans held for sale - 175,158 -
Non-PCI loans and leases 15,693,776 15,536,735 15,412,092
PCI loans 62,509 72,445 108,445
Total gross loans and leases held for investment 15,756,285 15,609,180 15,520,537
Deferred fees, net (65,768) (65,723) (64,583)
Total loans and leases held for investment,
net of deferred fees 15,690,517 15,543,457 15,455,954
Allowance for loan and lease losses (159,606) (145,958) (157,238)
Total loans and leases held for investment, net 15,530,911 15,397,499 15,298,716
Equipment leased to others under operating leases 233,866 203,212 229,905
Premises and equipment, net 28,910 29,108 38,594
Foreclosed assets, net 11,630 13,278 12,976
Deferred tax asset, net 65,321 70,354 94,112
Goodwill 2,173,949 2,173,949 2,173,949
Core deposit and customer
relationship intangibles, net 27,188 30,237 36,366
Other assets 351,659 369,983 319,779
Total assets$22,242,932 $22,246,877 $21,869,767
LIABILITIES:
Noninterest-bearing deposits$6,911,874 $6,701,039 $6,659,016
Interest-bearing deposits 9,861,371 10,173,938 9,211,595
Total deposits 16,773,245 16,874,977 15,870,611
Borrowings 250,399 217,454 905,812
Subordinated debentures 448,126 445,743 440,744
Accrued interest payable and other liabilities 160,494 148,798 173,545
Total liabilities 17,632,264 17,686,972 17,390,712
STOCKHOLDERS' EQUITY (1) 4,610,668 4,559,905 4,479,055
Total liabilities and stockholders’ equity$22,242,932 $22,246,877 $21,869,767
Book value per share$37.96 $37.55 $36.93
Tangible book value per share (2)$19.84 $19.40 $18.71
Shares outstanding 121,449,794 121,448,321 121,283,669
(1) Includes net unrealized gain on securities
available-for-sale, net$33,613 $29,729 $5,982
(2) Non-GAAP measure.


PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
2017 2017 2016 2017 2016
(Dollars in thousands, except per share data)
Interest income:
Loans and leases$235,666 $234,618 $225,370 $694,462 $686,071
Investment securities 24,762 24,689 22,187 72,490 67,154
Deposits in financial institutions 538 237 298 967 914
Total interest income 260,966 259,544 247,855 767,919 754,139
Interest expense:
Deposits 13,071 10,205 7,247 31,653 24,143
Borrowings 188 1,066 695 2,272 1,628
Subordinated debentures 6,017 5,800 5,278 17,379 15,382
Total interest expense 19,276 17,071 13,220 51,304 41,153
Net interest income 241,690 242,473 234,635 716,615 712,986
Provision for credit losses 15,119 11,499 8,471 51,346 42,514
Net interest income after provision
for credit losses 226,571 230,974 226,164 665,269 670,472
Noninterest income:
Service charges on deposit accounts 3,465 3,510 3,488 10,733 10,977
Other commissions and fees 9,944 10,583 12,528 30,917 35,090
Leased equipment income 8,332 11,635 8,538 29,442 25,305
Gain on sale of loans and leases 2,848 649 157 4,209 790
Gain on sale of securities 1,236 1,651 382 2,788 8,970
FDIC loss sharing expense, net - - - - (8,917)
Other income 5,557 7,254 1,827 23,689 11,365
Total noninterest income 31,382 35,282 26,920 101,778 83,580
Noninterest expense:
Compensation 64,413 65,288 62,661 194,581 185,900
Occupancy 12,729 11,811 12,010 36,148 36,835
Data processing 6,459 6,337 6,234 19,811 17,782
Other professional services 4,213 3,976 4,625 11,567 11,598
Insurance and assessments 4,702 4,856 4,324 14,349 14,240
Intangible asset amortization 3,049 3,065 4,224 9,178 13,341
Leased equipment depreciation 4,862 5,232 5,298 15,719 15,608
Foreclosed assets expense (income), net 2,191 (157) (248) 2,177 (812)
Acquisition, integration and
reorganization costs 1,450 1,700 - 3,650 200
Loan expense 3,421 3,884 1,931 10,692 6,231
Other expense 11,053 11,715 9,651 34,921 30,556
Total noninterest expense 118,542 117,707 110,710 352,793 331,479
Earnings before income taxes 139,411 148,549 142,374 414,254 422,573
Income tax expense (37,945) (54,902) (48,479) (140,473) (156,054)
Net earnings $101,466 $93,647 $93,895 $273,781 $266,519
Basic and diluted earnings per share$0.84 $0.77 $0.77 $2.26 $2.19


PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
Three Months Ended
Nine Months Ended
September 30, June 30, September 30, September 30,
2017 2017 2016 2017 2016
(In thousands, except per share data)
Basic Earnings Per Share:
Net earnings$101,466 $93,647 $93,895 $273,781 $266,519
Less: earnings allocated to unvested
restricted stock (1) (1,149) (1,080) (1,048) (3,239) (2,983)
Net earnings allocated to common
shares$100,317 $92,567 $92,847 $270,542 $263,536
Weighted-average basic shares and
unvested restricted stock outstanding 121,447 121,422 121,818 121,405 121,739
Less: weighted-average unvested
restricted stock outstanding (1,394) (1,455) (1,401) (1,450) (1,425)
Weighted-average basic shares
outstanding 120,053 119,967 120,417 119,955 120,314
Basic earnings per share$0.84 $0.77 $0.77 $2.26 $2.19
Diluted Earnings Per Share:
Net earnings allocated to common
shares$100,317 $92,567 $92,847 $270,542 $263,536
Weighted-average basic shares
outstanding 120,053 119,967 120,417 119,955 120,314
Diluted earnings per share$0.84 $0.77 $0.77 $2.26 $2.19
(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, 2017 June 30, 2017 September 30, 2016
InterestAverage InterestAverage InterestAverage
Average Income/Yield/ Average Income/Yield/ Average Income/Yield/
BalanceExpenseCost BalanceExpenseCost BalanceExpenseCost
(Dollars in thousands)
Assets:
PCI loans$60,126$3,30821.83% $68,759$4,64327.08% $117,781$5,86819.82%
Non-PCI loans and leases 15,514,904 232,5105.95% 15,429,162 229,9755.98% 14,417,170 219,5026.06%
Total loans and leases (1) 15,575,030 235,8186.01% 15,497,921 234,6186.07% 14,534,951 225,3706.17%
Investment securities (2) 3,510,956 29,4953.33% 3,436,785 29,5383.45% 3,338,209 27,0253.22%
Deposits in financial
institutions 171,455 5381.24% 96,087 2370.99% 238,425 2980.50%
Total interest-earning
assets 19,257,441 265,8515.48% 19,030,793 264,3935.57% 18,111,585 252,6935.55%
Other assets 2,880,433 2,905,809 2,960,468
Total assets$22,137,874 $21,936,602 $21,072,053
Liabilities and
Stockholders' Equity:
Interest checking$2,146,125 2,9600.55% $1,709,699 1,6970.40% $1,161,931 6040.21%
Money market 4,914,803 6,3070.51% 4,907,865 4,9930.41% 4,514,525 3,3030.29%
Savings 707,367 2890.16% 708,389 2960.17% 764,415 3410.18%
Time 2,256,259 3,5150.62% 2,366,399 3,2190.55% 2,666,434 2,9990.45%
Total interest-bearing
deposits 10,024,554 13,0710.52% 9,692,352 10,2050.42% 9,107,305 7,2470.32%
Borrowings 61,071 1881.22% 457,774 1,0660.93% 583,982 6950.47%
Subordinated debentures 447,012 6,0175.34% 443,756 5,8005.24% 439,970 5,2784.77%
Total interest-bearing
liabilities 10,532,637 19,2760.73% 10,593,882 17,0710.65% 10,131,257 13,2200.52%
Noninterest-bearing
demand deposits 6,858,816 6,646,349 6,274,294
Other liabilities 153,932 151,095 135,801
Total liabilities 17,545,385 17,391,326 16,541,352
Stockholders' equity 4,592,489 4,545,276 4,530,701
Total liabilities and
stockholders' equity$22,137,874 $21,936,602 $21,072,053
Net interest income (3) $246,575 $247,322 $239,473
Net interest spread (3) 4.75% 4.92% 5.03%
Net interest margin (3) 5.08% 5.21% 5.26%
Total deposits (4)$16,883,370$13,0710.31% $16,338,701$10,2050.25% $15,381,599$7,2470.19%
Funding sources (5)$17,391,453$19,2760.44% $17,240,231$17,0710.40% $16,405,551$13,2200.32%
(1) Starting with the third quarter of 2017, includes tax-equivalent adjustments related to tax-exempt interest on loans.
(2) Includes tax-equivalent adjustments of $4.7 million, $4.8 million, and $4.8 million for the three months ended September 30, 2017, June 30, 2017,
and September 30, 2016 related to tax-exempt income on municipal securities. The federal statutory tax rate utilized was 35% for the periods.
(3) Tax equivalent.
(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 deposits divided by average total deposits.
(5) Funding sources is the sum of total interest-bearing liabilities and noninterest-bearing demand deposits. The cost of funding sources is calculated
as annualized total interest expense divided by average funding sources.


PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER BALANCE SHEET
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
(Dollars in thousands, except per share data)
ASSETS:
Cash and due from banks$147,579 $180,330 $184,608 $337,965 $286,371
Interest-earning deposits in financial
institutions 122,439 107,150 111,892 81,705 253,994
Total cash and cash equivalents 270,018 287,480 296,500 419,670 540,365
Securities available-for-sale 3,532,230 3,474,560 3,336,992 3,223,830 3,341,335
Federal Home Loan Bank stock 17,250 22,059 17,901 21,870 19,386
Total investment securities 3,549,480 3,496,619 3,354,893 3,245,700 3,360,721
Loans held for sale - 175,158 - - -
Non-PCI loans and leases 15,693,776 15,536,735 15,526,518 15,412,092 14,686,206
PCI loans 62,509 72,445 96,353 108,445 120,221
Total gross loans and leases
held for investment 15,756,285 15,609,180 15,622,871 15,520,537 14,806,427
Deferred fees, net (65,768) (65,723) (66,182) (64,583) (63,581)
Total loans and leases held for
investment, net of deferred fees 15,690,517 15,543,457 15,556,689 15,455,954 14,742,846
Allowance for loan and lease losses (159,606) (145,958) (161,307) (157,238) (147,976)
Total loans and leases held for
investment, net 15,530,911 15,397,499 15,395,382 15,298,716 14,594,870
Equipment leased to others under
operating leases 233,866 203,212 224,580 229,905 198,931
Premises and equipment, net 28,910 29,108 28,908 38,594 38,977
Foreclosed assets, net 11,630 13,278 12,842 12,976 15,113
Deferred tax asset, net 65,321 70,354 88,765 94,112 27,073
Goodwill 2,173,949 2,173,949 2,173,949 2,173,949 2,173,949
Core deposit and customer
relationship intangibles, net 27,188 30,237 33,302 36,366 39,542
Other assets 351,659 369,983 318,133 319,779 325,750
Total assets$22,242,932 $22,246,877 $21,927,254 $21,869,767 $21,315,291
LIABILITIES:
Noninterest-bearing deposits$6,911,874 $6,701,039 $6,789,808 $6,659,016 $6,521,946
Interest-bearing deposits 9,861,371 10,173,938 9,541,200 9,211,595 9,123,722
Total deposits 16,773,245 16,874,977 16,331,008 15,870,611 15,645,668
Borrowings 250,399 217,454 460,609 905,812 541,011
Subordinated debentures 448,126 445,743 442,516 440,744 441,112
Accrued interest payable and other
liabilities 160,494 148,798 185,015 173,545 144,905
Total liabilities 17,632,264 17,686,972 17,419,148 17,390,712 16,772,696
STOCKHOLDERS' EQUITY (1) 4,610,668 4,559,905 4,508,106 4,479,055 4,542,595
Total liabilities and stockholders’
equity$22,242,932 $22,246,877 $21,927,254 $21,869,767 $21,315,291
Book value per share$37.96 $37.55 $37.13 $36.93 $37.29
Tangible book value per share (2)$19.84 $19.40 $18.95 $18.71 $19.12
Shares outstanding 121,449,794 121,448,321 121,408,133 121,283,669 121,817,524
(1) Includes net unrealized gain on
securities available-for-sale, net$33,613 $29,729 $12,718 $5,982 $72,073
(2) Non-GAAP measure.


PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
Three Months Ended
September 30, June 30, March 31, December 31, September 30,
2017 2017 2017 2016 2016
(Dollars in thousands, except per share data)
Interest income:
Loans and leases$235,666 $234,618 $224,178 $238,223 $225,370
Investment securities 24,762 24,689 23,039 23,403 22,187
Deposits in financial institutions 538 237 192 147 298
Total interest income 260,966 259,544 247,409 261,773 247,855
Interest expense:
Deposits 13,071 10,205 8,377 7,369 7,247
Borrowings 188 1,066 1,018 631 695
Subordinated debentures 6,017 5,800 5,562 5,468 5,278
Total interest expense 19,276 17,071 14,957 13,468 13,220
Net interest income 241,690 242,473 232,452 248,305 234,635
Provision for credit losses 15,119 11,499 24,728 23,215 8,471
Net interest income after provision
for credit losses 226,571 230,974 207,724 225,090 226,164
Noninterest income:
Service charges on deposit accounts 3,465 3,510 3,758 3,557 3,488
Other commissions and fees 9,944 10,583 10,390 12,036 12,528
Leased equipment income 8,332 11,635 9,475 8,614 8,538
Gain on sale of loans and leases 2,848 649 712 119 157
Gain (loss) on sale of securities 1,236 1,651 (99) 515 382
FDIC loss sharing expense, net - - - - -
Other income 5,557 7,254 10,878 4,054 1,827
Total noninterest income 31,382 35,282 35,114 28,895 26,920
Noninterest expense:
Compensation 64,413 65,288 64,880 66,013 62,661
Occupancy 12,729 11,811 11,608 12,076 12,010
Data processing 6,459 6,337 7,015 6,574 6,234
Other professional services 4,213 3,976 3,378 4,880 4,625
Insurance and assessments 4,702 4,856 4,791 4,124 4,324
Intangible asset amortization 3,049 3,065 3,064 3,176 4,224
Leased equipment depreciation 4,862 5,232 5,625 5,291 5,298
Foreclosed assets expense (income), net 2,191 (157) 143 2,693 (248)
Acquisition, integration and
reorganization costs 1,450 1,700 500 - -
Loan expense 3,421 3,884 3,387 3,140 1,931
Other expense 11,053 11,715 12,153 10,655 9,651
Total noninterest expense 118,542 117,707 116,544 118,622 110,710
Earnings before income taxes 139,411 148,549 126,294 135,363 142,374
Income tax expense (37,945) (54,902) (47,626) (49,716) (48,479)
Net earnings $101,466 $93,647 $78,668 $85,647 $93,895
Basic and diluted earnings per share$0.84 $0.77 $0.65 $0.71 $0.77


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,
2017 2017 2017 2016 2016
(Dollars in thousands)
Performance Ratios:
Return on average assets (1) 1.82% 1.71% 1.47% 1.59% 1.77%
Return on average equity (1) 8.77% 8.26% 7.08% 7.57% 8.24%
Return on average tangible equity (1)(2) 16.85% 16.06% 13.90% 14.88% 16.15%
Yield on average loans and leases (1) 6.01% 6.07% 5.94% 6.31% 6.17%
Yield on average interest-earning
assets (1)(3) 5.48% 5.57% 5.48% 5.76% 5.55%
Cost of average total deposits (1) 0.31% 0.25% 0.21% 0.19% 0.19%
Cost of average time deposits (1) 0.62% 0.55% 0.45% 0.40% 0.45%
Cost of average interest-bearing
liabilities (1) 0.73% 0.65% 0.59% 0.52% 0.52%
Cost of average funding sources (1) 0.44% 0.40% 0.36% 0.32% 0.32%
Net interest spread (1)(3) 4.75% 4.92% 4.89% 5.24% 5.03%
Net interest margin (1)(3) 5.08% 5.21% 5.16% 5.47% 5.26%
Efficiency ratio 40.4% 40.3% 41.4% 40.1% 40.1%
Noninterest expense as a percentage
of average assets (1) 2.15% 2.15% 2.18% 2.20% 2.09%
Average Balances:
Loans and leases, net of deferred fees$15,575,030 $15,497,921 $15,297,044 $15,008,268 $14,534,951
Interest-earning assets 19,257,441 19,030,793 18,655,243 18,413,189 18,111,585
Total assets 22,137,874 21,936,602 21,645,534 21,427,950 21,072,053
Noninterest-bearing deposits 6,858,816 6,646,349 6,595,346 6,496,221 6,274,294
Interest-bearing deposits 10,024,554 9,692,352 9,330,235 9,327,080 9,107,305
Total deposits 16,883,370 16,338,701 15,925,581 15,823,301 15,381,599
Borrowings and subordinated
debentures 508,083 901,530 1,038,424 946,474 1,023,952
Interest-bearing liabilities 10,532,637 10,593,882 10,368,659 10,273,554 10,131,257
Funding sources 17,391,453 17,240,231 16,964,005 16,769,775 16,405,551
Stockholders' equity 4,592,489 4,545,276 4,503,675 4,501,948 4,530,701
(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,
2017 2017 2017 2016 2016
(Dollars in thousands)
Non-PCI Credit Quality:
Allowance for credit losses to loans
and leases held for investment 1.11% 1.02% 1.08% 1.05% 1.05%
Allowance for credit losses to
nonaccrual loans and leases held
for investment 110.1% 92.2% 96.9% 94.5% 90.1%
Nonaccrual loans and leases held for
investment to loans and leases held
for investment 1.00% 1.11% 1.11% 1.11% 1.16%
Nonperforming assets to loans and
leases held for investment and
foreclosed assets 1.08% 1.20% 1.20% 1.19% 1.27%
Nonperforming assets to total assets 0.76% 0.84% 0.85% 0.84% 0.87%
Trailing twelve month net charge-offs
to average loans and leases
held for investment 0.35% 0.37% 0.24% 0.15% 0.04%
PacWest Bancorp Consolidated
Capital:
Tier 1 leverage ratio (1) 12.02% 11.90% 11.87% 11.91% 12.13%
Common equity tier 1 capital ratio (1) 12.52% 12.28% 12.31% 12.31% 12.83%
Tier 1 capital ratio (1) 12.52% 12.28% 12.31% 12.31% 12.83%
Total capital ratio (1) 15.74% 15.42% 15.56% 15.56% 16.18%
Risk-weighted assets (1)$19,086,798 $19,084,823 $18,732,723 $18,568,622 $17,713,506
Equity to assets ratio 20.73% 20.50% 20.56% 20.48% 21.31%
Tangible common equity ratio (2) 12.02% 11.75% 11.67% 11.54% 12.19%
Book value per share$37.96 $37.55 $37.13 $36.93 $37.29
Tangible book value per share (2)$19.84 $19.40 $18.95 $18.71 $19.12
Pacific Western Bank Capital:
Tier 1 leverage ratio (1) 11.46% 11.41% 11.36% 11.40% 11.54%
Common equity tier 1 capital ratio (1) 11.95% 11.79% 11.79% 11.78% 12.21%
Tier 1 capital ratio (1) 11.95% 11.79% 11.79% 11.78% 12.21%
Total capital ratio (1) 12.89% 12.66% 12.74% 12.72% 13.15%
Equity to assets ratio 20.22% 20.07% 20.11% 20.02% 20.77%
Tangible common equity ratio (2) 11.45% 11.27% 11.16% 11.02% 11.56%
(1) Capital information for September 30, 2017 is preliminary.
(2) Non-GAAP measure.

GAAP TO NON-GAAP RECONCILIATION

This press release contains certain non-GAAP financial disclosures for: (1) return on average tangible equity, (2) tangible common equity ratio, and (3) 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, and tangible book value per 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) return on average equity, (2) equity to assets ratio, and (3) book value per share.

The reconciliations for the following GAAP financial measures to the non-GAAP financial measures are presented below: (1) return on average equity to return on average tangible equity, (2) equity to assets ratio to tangible common equity ratio, and (3) book value per share to tangible book value per share.

PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
Three Months Ended Nine Months Ended
September 30, June 30, September 30, September 30,
Return on Average Tangible Equity 2017 2017 2016 2017 2016
(Dollars in thousands)
Net earnings$101,466 $93,647 $93,895 $273,781 $266,519
Average stockholders' equity$4,592,489 $4,545,276 $4,530,701 $4,547,472 $4,484,468
Less:Average intangible assets 2,202,922 2,205,814 2,217,564 2,205,927 2,222,346
Average tangible common equity$2,389,567 $2,339,462 $2,313,137 $2,341,545 $2,262,122
Return on average equity (1) 8.77% 8.26% 8.24% 8.05% 7.94%
Return on average tangible equity (2) 16.85% 16.06% 16.15% 15.63% 15.74%
(1) Annualized net earnings divided by average stockholders' equity.
(2) Annualized net earnings divided by average tangible common equity.


PACWEST BANCORP AND SUBSIDIARIES
GAAP TO NON-GAAP RECONCILIATION
Tangible Common Equity Ratio/September 30, June 30, March 31, December 31, September 30,
Tangible Book Value Per Share 2017 2017 2017 2016 2016
(Dollars in thousands, except per share data)
PacWest Bancorp Consolidated:
Stockholders' equity$4,610,668 $4,559,905 $4,508,106 $4,479,055 $4,542,595
Less: Intangible assets 2,201,137 2,204,186 2,207,251 2,210,315 2,213,491
Tangible common equity$2,409,531 $2,355,719 $2,300,855 $2,268,740 $2,329,104
Total assets$22,242,932 $22,246,877 $21,927,254 $21,869,767 $21,315,291
Less: Intangible assets 2,201,137 2,204,186 2,207,251 2,210,315 2,213,491
Tangible assets$20,041,795 $20,042,691 $19,720,003 $19,659,452 $19,101,800
Equity to assets ratio 20.73% 20.50% 20.56% 20.48% 21.31%
Tangible common equity ratio (1) 12.02% 11.75% 11.67% 11.54% 12.19%
Book value per share$37.96 $37.55 $37.13 $36.93 $37.29
Tangible book value per share (2)$19.84 $19.40 $18.95 $18.71 $19.12
Shares outstanding 121,449,794 121,448,321 121,408,133 121,283,669 121,817,524
Pacific Western Bank:
Stockholder's equity$4,494,876 $4,460,911 $4,405,770 $4,374,478 $4,416,623
Less: Intangible assets 2,201,137 2,204,186 2,207,251 2,210,315 2,213,491
Tangible common equity$2,293,739 $2,256,725 $2,198,519 $2,164,163 $2,203,132
Total assets$22,225,420 $22,223,320 $21,910,720 $21,848,644 $21,266,705
Less: Intangible assets 2,201,137 2,204,186 2,207,251 2,210,315 2,213,491
Tangible assets$20,024,283 $20,019,134 $19,703,469 $19,638,329 $19,053,214
Equity to assets ratio 20.22% 20.07% 20.11% 20.02% 20.77%
Tangible common equity ratio (1) 11.45% 11.27% 11.16% 11.02% 11.56%
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by shares outstanding.


Contact: Donald D. Destino Executive Vice President Corporate Development and Investor Relations Phone: 310-887-8521

Source:PacWest Bancorp