Exhibit 99.1
| Filed by PacWest Bancorp pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 under the Securities Act of 1934
Subject Company: El Dorado Savings Bank, F.S.B.
Commission File No.: 001-36408 |
PRESS RELEASE
PacWest Bancorp
(Nasdaq: PACW)
Contact: | Matthew P. Wagner | Patrick J. Rusnak |
| President and CEO | Executive Vice President and CFO |
Phone: | 310-887-8520 | 714-989-4705 |
| | |
Contact: | Donald D. Destino | |
| Executive Vice President | |
| Corporate Development and Investor Relations | |
Phone: | 310-887-8521 | |
FOR IMMEDIATE RELEASE | | October 16, 2018 |
PACWEST BANCORP ANNOUNCES RESULTS
FOR THE THIRD QUARTER 2018
Highlights
· Net Earnings of $116.3 Million, or $0.94 Per Diluted Share
· Tax Equivalent Net Interest Margin of 4.99% for Q3 and 5.09% YTD 2018
· New Loan and Lease Production of $1.3 Billion; $345 Million of Net Loan Growth
· Net Charge-offs 48% Lower for YTD 2018 Compared to Same Period in 2017
· Core Deposits Steady at 87% of Total Deposits
· Announced Agreement to Acquire El Dorado Savings Bank, F.S.B.
Los Angeles, California . . . PacWest Bancorp (Nasdaq: PACW) today announced net earnings for the third quarter of 2018 of $116.3 million, or $0.94 per diluted share, compared to net earnings for the second quarter of 2018 of $115.7 million, or $0.92 per diluted share. The increase in net earnings from the prior quarter was due primarily to a lower provision for credit losses, offset partially by lower net interest income and lower noninterest income.
The provision for credit losses decreased by $6.0 million in the third quarter of 2018 compared to the second quarter of 2018 due mainly to a lower level of loans rated special mention. Net interest income decreased by $2.0 million in the third quarter of 2018 due mostly to higher deposit costs and a lower yield on average loans and leases, offset partially by a higher balance of average loans and leases. Noninterest income decreased by $2.7 million in the third quarter of 2018 due primarily to a $6.4 million decrease in other income, offset partially by a $2.6 million increase in warrant income and a $0.9 million increase in dividends and gains on equity investments.
Matt Wagner, President and CEO, commented, “We achieved strong net loan growth across all our business lines along with solid earnings and operating metrics. Our third quarter results produced a return on assets of 1.89% and a return on tangible equity of 21.61%.”
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Mr. Wagner continued, “Our third quarter tax equivalent NIM decreased by 19 basis points to 4.99% due to higher rates on deposits from competitive pressures and lower loan yields resulting from lower discount accretion.”
Mr. Wagner continued, “We recently announced our pending acquisition of El Dorado Savings Bank which will expand our Community Banking franchise into Northern California and Northern Nevada and enhance our core funding with approximately $2.0 billion of stable low cost deposits.”
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 | | 2018 | | 2018 | | (Decrease) | | 2018 | | 2017 | | (Decrease) | |
| | (Dollars in thousands, except per share data) | |
Net earnings | | $ | 116,287 | | $ | 115,735 | | $ | 552 | | $ | 350,298 | | $ | 273,781 | | $ | 76,517 | |
Diluted earnings per share | | $ | 0.94 | | $ | 0.92 | | $ | 0.02 | | $ | 2.79 | | $ | 2.26 | | $ | 0.53 | |
Return on average assets | | 1.89 | % | 1.93 | % | (0.04 | ) | 1.94 | % | 1.67 | % | 0.27 | |
Return on average tangible equity (1) | | 21.61 | % | 20.98 | % | 0.63 | | 21.22 | % | 15.63 | % | 5.59 | |
| | | | | | | | | | | | | |
Net interest margin (“NIM”) (tax equivalent) | | 4.99 | % | 5.18 | % | (0.19 | ) | 5.09 | % | 5.15 | % | (0.06 | ) |
Yield on average loans and leases (tax equivalent) | | 6.20 | % | 6.30 | % | (0.10 | ) | 6.20 | % | 6.01 | % | 0.19 | |
Cost of average total deposits | | 0.46 | % | 0.37 | % | 0.09 | | 0.38 | % | 0.26 | % | 0.12 | |
Efficiency ratio | | 40.9 | % | 39.8 | % | 1.1 | | 40.8 | % | 40.7 | % | 0.1 | |
| | | | | | | | | | | | | |
Total assets | | $ | 24,782,126 | | $ | 24,529,557 | | $ | 252,569 | | $ | 24,782,126 | | $ | 22,242,932 | | $ | 2,539,194 | |
Loans and leases held for investment, net of deferred fees | | $ | 17,230,146 | | $ | 16,885,192 | | $ | 344,954 | | $ | 17,230,146 | | $ | 15,690,517 | | $ | 1,539,629 | |
Noninterest-bearing deposits | | $ | 7,834,480 | | $ | 8,126,153 | | $ | (291,673 | ) | $ | 7,834,480 | | $ | 6,911,874 | | $ | 922,606 | |
Core deposits | | $ | 15,512,742 | | $ | 15,586,238 | | $ | (73,496 | ) | $ | 15,512,742 | | $ | 13,531,300 | | $ | 1,981,442 | |
Total deposits | | $ | 17,879,543 | | $ | 17,929,192 | | $ | (49,649 | ) | $ | 17,879,543 | | $ | 16,773,245 | | $ | 1,106,298 | |
| | | | | | | | | | | | | |
Noninterest-bearing deposits as percentage of total deposits | | 44 | % | 45 | % | (1 | ) | 44 | % | 41 | % | 3 | |
Core deposits as percentage of total deposits | | 87 | % | 87 | % | — | | 87 | % | 81 | % | 6 | |
| | | | | | | | | | | | | |
Equity to assets ratio | | 19.13 | % | 19.48 | % | (0.35 | ) | 19.13 | % | 20.73 | % | (1.60 | ) |
Tangible common equity ratio (1) | | 9.61 | % | 9.86 | % | (0.25 | ) | 9.61 | % | 12.02 | % | (2.41 | ) |
Book value per share | | $ | 38.46 | | $ | 38.36 | | $ | 0.10 | | $ | 38.46 | | $ | 37.96 | | $ | 0.50 | |
Tangible book value per share (1) | | $ | 17.28 | | $ | 17.35 | | $ | (0.07 | ) | $ | 17.28 | | $ | 19.84 | | $ | (2.56 | ) |
(1) Non-GAAP measure.
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INCOME STATEMENT HIGHLIGHTS
Net Interest Income
Net interest income decreased by $2.0 million to $260.3 million for the third quarter of 2018 compared to $262.3 million for the second quarter of 2018 due to interest expense growth exceeding interest income growth. Interest expense increased due to higher deposit costs and one additional day in the third quarter. Interest income increased due primarily to a higher balance of average loans and leases and one additional day in the third quarter, offset partially by a lower yield on average loans and leases. The tax equivalent yield on average loans and leases was 6.20% for the third quarter of 2018 compared to 6.30% for the second quarter of 2018. The decrease in the yield on average loans and leases was due principally to lower discount accretion on acquired loans (14 basis points in the third quarter versus 21 basis points in the second quarter).
The tax equivalent NIM was 4.99% for the third quarter of 2018 compared to 5.18% for the second quarter of 2018. The decrease in the NIM was due mainly to higher deposit costs and a lower yield on average loans and leases resulting from lower discount accretion on acquired loans.
The cost of average total deposits increased to 0.46% for the third quarter of 2018 from 0.37% for the second quarter of 2018 due to higher rates paid on deposits in conjunction with increased market interest rates.
Provision for Credit Losses
A provision for credit losses of $11.5 million was recorded in the third quarter of 2018 compared to $17.5 million in the second quarter of 2018. The lower provision for the third quarter of 2018 was due to a lower level of loans graded special mention at September 30, 2018 compared to June 30, 2018. Loans graded special mention have a higher general reserve amount than loans graded pass.
The following table presents details of the provision for credit losses for the periods indicated:
| | Three Months Ended | | | | Nine Months Ended | |
| | September 30, | | June 30, | | Increase | | September 30, | |
Provision for Credit Losses | | 2018 | | 2018 | | (Decrease) | | 2018 | |
| | (In thousands) | |
Addition to allowance for loan and lease losses | | $ | 11,500 | | $ | 15,000 | | $ | (3,500 | ) | $ | 26,274 | |
Addition to reserve for unfunded loan commitments | | — | | 2,500 | | (2,500 | ) | 6,726 | |
Total provision for credit losses | | $ | 11,500 | | $ | 17,500 | | $ | (6,000 | ) | $ | 33,000 | |
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Noninterest Income
Noninterest income decreased by $2.7 million to $36.9 million for the third quarter of 2018 compared to $39.6 million for the second quarter of 2018 due mainly to decreases in other income and leased equipment income, partially offset by increases in warrant income, dividends and gains on equity investments, and other commissions and fees. Other income and leased equipment income decreased in the third quarter due to lower gains on early lease terminations. Warrant income increased due to higher realized gains on exercised warrants primarily from a $3.1 million gain on a warrant in a company that completed an IPO. Dividends and gains on equity investments increased due to higher realized gains on investments sold. The increase in other commissions and fees was attributable to higher loan-related fees.
The following table presents details of noninterest income for the periods indicated:
| | Three Months Ended | | | |
| | September 30, | | June 30, | | Increase | |
Noninterest Income | | 2018 | | 2018 | | (Decrease) | |
| | (In thousands) | |
Service charges on deposit accounts | | $ | 3,979 | | $ | 4,265 | | $ | (286 | ) |
Other commissions and fees | | 12,397 | | 11,767 | | 630 | |
Leased equipment income | | 9,120 | | 9,790 | | (670 | ) |
Gain on sale of loans and leases | | — | | 106 | | (106 | ) |
Gain on sale of securities | | 826 | | 253 | | 573 | |
Other income: | | | | | | | |
Dividends and gains on equity investments | | 2,895 | | 1,992 | | 903 | |
Warrant income | | 3,818 | | 1,225 | | 2,593 | |
Other | | 3,877 | | 10,240 | | (6,363 | ) |
Total noninterest income | | $ | 36,912 | | $ | 39,638 | | $ | (2,726 | ) |
Noninterest Expense
Noninterest expense increased by $1.7 million to $128.1 million for the third quarter of 2018 compared to $126.4 million for the second quarter of 2018 attributable primarily to a $2.4 million increase in compensation expense, a $0.8 million increase in other professional expense, and a $0.8 million increase in acquisition costs, partially offset by decreases in most other expense categories. Compensation expense increased due to higher stock compensation expense for our performance-based restricted stock units as we now expect to achieve a higher level of certain performance metrics, and higher commissions expense related to the increased warrant income. Other professional services increased due to higher legal and consulting expense. The increase in acquisition costs relates to the recently announced pending acquisition of El Dorado Savings Bank.
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The following table presents details of noninterest expense for the periods indicated:
| | Three Months Ended | | | |
| | September 30, | | June 30, | | Increase | |
Noninterest Expense | | 2018 | | 2018 | | (Decrease) | |
| | (In thousands) | |
Compensation | | $ | 72,333 | | $ | 69,913 | | $ | 2,420 | |
Occupancy | | 13,069 | | 13,575 | | (506 | ) |
Data processing | | 6,740 | | 6,896 | | (156 | ) |
Other professional services | | 6,058 | | 5,257 | | 801 | |
Insurance and assessments | | 5,446 | | 5,330 | | 116 | |
Intangible asset amortization | | 5,587 | | 5,587 | | — | |
Leased equipment depreciation | | 5,001 | | 5,237 | | (236 | ) |
Foreclosed assets income, net | | (257 | ) | (61 | ) | (196 | ) |
Acquisition, integration and reorganization costs | | 800 | | — | | 800 | |
Loan expense | | 2,249 | | 3,058 | | (809 | ) |
Other | | 11,127 | | 11,657 | | (530 | ) |
Total noninterest expense | | $ | 128,153 | | $ | 126,449 | | $ | 1,704 | |
Income Taxes
The overall effective income tax rate was 26.2% for the third quarter of 2018 and 26.8% for the second quarter of 2018. The effective tax rate for the nine months ended September 30, 2018 was 26.9% while the full year 2018 is estimated to be approximately 28%.
BALANCE SHEET HIGHLIGHTS
Loans and Leases
Loans and leases held for investment, net of deferred fees, increased by $345.0 million in the third quarter of 2018 to $17.2 billion at September 30, 2018. The net increase was driven mainly by production of $1.3 billion and disbursements of $966.7 million, offset partially by payoffs of $1.1 billion and paydowns of $795.2 million.
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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 | | Nine Months Ended | |
Loans and Leases | | September 30, | | June 30, | | September 30, | |
Held for Investment Roll Forward (1) | | 2018 | | 2018 | | 2018 | |
| | (Dollars in thousands) | |
Balance, beginning of period | | $ | 16,885,192 | | $ | 16,455,285 | | $ | 16,972,743 | |
Additions: | | | | | | | |
Production | | 1,315,572 | | 1,256,559 | | 3,317,049 | |
Disbursements | | 966,668 | | 1,203,940 | | 2,917,984 | |
Total production and disbursements | | 2,282,240 | | 2,460,499 | | 6,235,033 | |
Reductions: | | | | | | | |
Payoffs | | (1,133,233 | ) | (1,154,400 | ) | (3,218,606 | ) |
Paydowns | | (795,243 | ) | (829,119 | ) | (2,560,364 | ) |
Total payoffs and paydowns | | (1,928,476 | ) | (1,983,519 | ) | (5,778,970 | ) |
Sales | | (3,326 | ) | (27,779 | ) | (161,729 | ) |
Transfers to foreclosed assets | | (2,176 | ) | (1,059 | ) | (3,235 | ) |
Charge-offs | | (3,308 | ) | (18,235 | ) | (33,696 | ) |
Total reductions | | (1,937,286 | ) | (2,030,592 | ) | (5,977,630 | ) |
Balance, end of period | | $ | 17,230,146 | | $ | 16,885,192 | | $ | 17,230,146 | |
| | | | | | | |
Weighted average rate on production (2) | | 5.17 | % | 5.04 | % | 5.16 | % |
(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 31 basis points to loan yields in 2018.
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 | | 2018 | | 2018 | | 2018 | | 2017 | |
| | (In thousands) | |
Real estate mortgage: | | | | | | | | | |
Commercial | | $ | 4,932,823 | | $ | 5,010,680 | | $ | 5,033,006 | | $ | 4,338,933 | |
Residential | | 2,745,837 | | 2,555,695 | | 2,521,237 | | 1,850,324 | |
Total real estate mortgage | | 7,678,660 | | 7,566,375 | | 7,554,243 | | 6,189,257 | |
Real estate construction and land: | | | | | | | | | |
Commercial | | 854,346 | | 831,462 | | 789,892 | | 680,950 | |
Residential | | 1,146,611 | | 1,042,564 | | 887,110 | | 568,273 | |
Total real estate construction and land | | 2,000,957 | | 1,874,026 | | 1,677,002 | | 1,249,223 | |
Total real estate | | 9,679,617 | | 9,440,401 | | 9,231,245 | | 7,438,480 | |
Commercial: | | | | | | | | | |
Asset-based | | 3,222,311 | | 3,184,300 | | 2,957,890 | | 2,792,823 | |
Venture capital | | 2,031,895 | | 2,008,205 | | 1,920,643 | | 1,959,489 | |
Other commercial | | 1,897,852 | | 1,873,607 | | 1,947,590 | | 3,113,574 | |
Total commercial | | 7,152,058 | | 7,066,112 | | 6,826,123 | | 7,865,886 | |
Consumer | | 398,471 | | 378,679 | | 397,917 | | 386,151 | |
Total loans and leases held for investment, net of deferred fees | | $ | 17,230,146 | | $ | 16,885,192 | | $ | 16,455,285 | | $ | 15,690,517 | |
| | | | | | | | | |
Total unfunded loan commitments | | $ | 7,055,833 | | $ | 6,429,587 | | $ | 6,352,803 | | $ | 5,037,084 | |
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Allowance for Credit Losses
The following tables show roll forwards of the allowance for credit losses for the periods indicated:
| | Three Months Ended September 30, 2018 | |
| | 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 | | $ | 132,139 | | $ | 35,361 | | $ | 167,500 | |
Charge-offs | | (3,308 | ) | — | | (3,308 | ) |
Recoveries | | 1,589 | | — | | 1,589 | |
Net charge-offs | | (1,719 | ) | — | | (1,719 | ) |
Provision | | 11,500 | | — | | 11,500 | |
Ending balance | | $ | 141,920 | | $ | 35,361 | | $ | 177,281 | |
| | Three Months Ended June 30, 2018 | |
| | 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 | | $ | 134,275 | | $ | 32,861 | | $ | 167,136 | |
Charge-offs | | (18,235 | ) | — | | (18,235 | ) |
Recoveries | | 1,099 | | — | | 1,099 | |
Net charge-offs | | (17,136 | ) | — | | (17,136 | ) |
Provision | | 15,000 | | 2,500 | | 17,500 | |
Ending balance | | $ | 132,139 | | $ | 35,361 | | $ | 167,500 | |
The allowance for credit losses as a percentage of loans and leases held for investment increased to 1.03% at September 30, 2018 from 0.99% at June 30, 2018 due primarily to an increase in the level of specific reserves on impaired loans.
Gross charge-offs for the third quarter of 2018 were $3.3 million and included $1.1 million for venture capital loans, $0.7 million for real estate mortgage loans, and $0.7 million for asset-based loans. Gross charge-offs for the second quarter of 2018 were $18.2 million and included $6.1 million for venture capital loans, $4.7 million for real estate mortgage loans, $4.4 million for other commercial loans, and $2.9 million for asset-based loans. Recoveries for the third quarter of 2018 were $1.6 million and included $1.0 million for venture capital loans. Recoveries in the second quarter of 2018 were $1.1 million and included $0.8 million for other commercial loans.
The annualized ratio of net charge-offs to average loans was 0.04% for the third quarter of 2018 compared to 0.41% for the second quarter of 2018. The annualized ratio of net charge-offs to average loans was 0.19% for the nine months ended September 30, 2018 compared to 0.35% for the same period in 2017.
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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 | | 2018 | | 2018 | | 2018 | | 2017 | |
| | (Dollars in thousands) | |
Noninterest-bearing demand deposits | | $ | 7,834,480 | | $ | 8,126,153 | | $ | 8,232,140 | | $ | 6,911,874 | |
Interest checking deposits | | 2,277,537 | | 2,184,785 | | 2,076,152 | | 1,957,485 | |
Money market deposits | | 4,782,724 | | 4,631,658 | | 4,676,734 | | 3,967,224 | |
Savings deposits | | 618,001 | | 643,642 | | 676,503 | | 694,717 | |
Total core deposits | | 15,512,742 | | 15,586,238 | | 15,661,529 | | 13,531,300 | |
Non-core non-maturity deposits | | 483,528 | | 607,388 | | 585,399 | | 1,118,694 | |
Total non-maturity deposits | | 15,996,270 | | 16,193,626 | | 16,246,928 | | 14,649,994 | |
Time deposits $250,000 and under | | 1,509,214 | | 1,394,117 | | 1,482,118 | | 1,770,439 | |
Time deposits over $250,000 | | 374,059 | | 341,449 | | 349,742 | | 352,812 | |
Total time deposits | | 1,883,273 | | 1,735,566 | | 1,831,860 | | 2,123,251 | |
Total deposits | | $ | 17,879,543 | | $ | 17,929,192 | | $ | 18,078,788 | | $ | 16,773,245 | |
| | | | | | | | | |
Noninterest-bearing demand deposits as percentage of total deposits | | 44 | % | 45 | % | 46 | % | 41 | % |
Core deposits as percentage of total deposits | | 87 | % | 87 | % | 87 | % | 81 | % |
At September 30, 2018, core deposits totaled $15.5 billion, or 87% of total deposits, including $7.8 billion of noninterest-bearing demand deposits, or 44% 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, 2018 were $2.0 billion, of which $1.5 billion was managed by S1AM.
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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 | | 2018 | | 2018 | | (Decrease) | |
| | (Dollars in thousands) | |
Nonaccrual loans and leases held for investment (1) | | $ | 112,972 | | $ | 113,745 | | $ | (773 | ) |
Accruing loans contractually past due 90 days or more | | — | | — | | — | |
Foreclosed assets, net | | 4,407 | | 2,231 | | 2,176 | |
Total nonperforming assets | | $ | 117,379 | | $ | 115,976 | | $ | 1,403 | |
| | | | | | | |
Nonaccrual loans and leases held for investment (1) | | $ | 112,972 | | $ | 113,745 | | $ | (773 | ) |
Performing troubled debt restructured loans held for investment | | 22,106 | | 58,148 | | (36,042 | ) |
Total impaired loans and leases | | $ | 135,078 | | $ | 171,893 | | $ | (36,815 | ) |
| | | | | | | |
Nonaccrual loans and leases held for investment to loans and leases held for investment | | 0.66 | % | 0.67 | % | | |
Nonperforming assets to loans and leases held for investment and foreclosed assets | | 0.68 | % | 0.69 | % | | |
| | | | | | | |
Pass | | $ | 16,609,629 | | $ | 16,142,052 | | $ | 467,577 | |
Special mention | | 360,058 | | 506,848 | | (146,790 | ) |
Classified | | 260,459 | | 236,292 | | 24,167 | |
Total loans and leases held for investment, net of deferred fees | | $ | 17,230,146 | | $ | 16,885,192 | | $ | 344,954 | |
| | | | | | | |
Classified loans and leases held for investment to loans and leases held for investment | | 1.51 | % | 1.40 | % | | |
| | | | | | | |
Allowance for credit losses | | $ | 177,281 | | $ | 167,500 | | $ | 9,781 | |
Provision for credit losses (for the quarter) | | $ | 11,500 | | $ | 17,500 | | $ | (6,000 | ) |
Net charge-offs (for the quarter) | | $ | 1,719 | | $ | 17,136 | | $ | (15,417 | ) |
Net charge-offs to average loans and leases (for the quarter) | | 0.04 | % | 0.41 | % | | |
Allowance for credit losses to loans and leases held for investment | | 1.03 | % | 0.99 | % | | |
Allowance for credit losses to nonaccrual loans and leases held for investment | | 156.9 | % | 147.3 | % | | |
(1) Nonaccrual loans include guaranteed amounts of $13.5 million at September 30, 2018 and $13.5 million at June 30, 2018.
Nonaccrual loans and leases decreased by $0.8 million in the third quarter due to net changes in the population of nonaccrual loans which included collections applied to loans and leases, the full repayment of a $10.5 million nonaccrual residential real estate construction loan, and an $11.9 million venture capital loan that was placed on nonaccrual status during the quarter. The decrease in nonaccrual loans and leases by loan category was attributable primarily to a $10.5 million decrease in nonaccrual residential real estate construction and land loans and a $3.4 million decrease in nonaccrual commercial real estate mortgage loans, offset partially by a $7.6 million increase in nonaccrual venture capital loans and a $4.9 million increase in nonaccrual asset-based loans.
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Special mention loans and leases decreased by $146.8 million in the third quarter due to net changes in the population of these loans which included a $47.8 million special mention commercial real estate loan being upgraded to pass status and the full repayment of a $33.4 million special mention healthcare real estate loan.
Classified loans and leases increased by $24.2 million in the third quarter due to net changes in the population of these loans which included a $34.4 million security cash flow loan being downgraded to classified status, offset partially by the full repayment of a $10.5 million classified nonaccrual residential real estate construction loan.
The following table presents 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:
| | Nonaccrual Loans and Leases | | Accruing and | |
| | September 30, 2018 | | June 30, 2018 | | 30-89 Days Past Due | |
| | | | % of | | | | % of | | September 30, | | June 30, | |
| | | | Loan | | | | Loan | | 2018 | | 2018 | |
| | Amount | | Category | | Amount | | Category | | Amount | | Amount | |
| | (Dollars in thousands) | |
Real estate mortgage: | | | | | | | | | | | | | |
Commercial | | $ | 29,723 | | 0.6 | % | $ | 33,105 | | 0.7 | % | $ | 824 | | $ | 2,620 | |
Residential | | 3,259 | | 0.1 | % | 3,527 | | 0.1 | % | 5,436 | | 2,983 | |
Total real estate mortgage | | 32,982 | | 0.4 | % | 36,632 | | 0.5 | % | 6,260 | | 5,603 | |
Real estate construction and land: | | | | | | | | | | | | | |
Commercial | | — | | 0.0 | % | — | | 0.0 | % | — | | — | |
Residential | | — | | 0.0 | % | 10,450 | | 1.0 | % | 8,498 | | 5,969 | |
Total real estate construction and land | | — | | 0.0 | % | 10,450 | | 0.6 | % | 8,498 | | 5,969 | |
Commercial: | | | | | | | | | | | | | |
Asset-based | | 34,619 | | 1.1 | % | 29,677 | | 0.9 | % | — | | — | |
Venture capital | | 35,520 | | 1.7 | % | 27,940 | | 1.4 | % | 1,028 | | — | |
Other commercial | | 9,579 | | 0.5 | % | 8,782 | | 0.5 | % | 222 | | 230 | |
Total commercial | | 79,718 | | 1.1 | % | 66,399 | | 0.9 | % | 1,250 | | 230 | |
Consumer | | 272 | | 0.1 | % | 264 | | 0.1 | % | 605 | | 75 | |
Total held for investment | | $ | 112,972 | | 0.7 | % | $ | 113,745 | | 0.7 | % | $ | 16,613 | | $ | 11,877 | |
10
EL DORADO SAVINGS BANK MERGER ANNOUNCEMENT
On September 12, 2018, PacWest announced the signing of a definitive agreement and plan of merger (the “Agreement”) whereby PacWest will acquire El Dorado Savings Bank, F.S.B. (“El Dorado”) in a transaction valued at approximately $466.7 million.
El Dorado, headquartered in Placerville, California, is a federally chartered savings bank founded in 1958, with approximately $2.2 billion in assets and 35 branches located primarily in eight Northern California counties and two Northern Nevada counties. In connection with the transaction, El Dorado will be merged into Pacific Western Bank, the principal operating subsidiary of PacWest Bancorp.
The transaction, which was approved by the PacWest and El Dorado boards of directors, is expected to close in the first quarter of 2019 and is subject to customary closing conditions, including obtaining approval by bank regulatory authorities and El Dorado’s stockholders.
As of June 30, 2018, on a pro forma consolidated basis, the combined company would have approximately $26.7 billion in assets and 110 branches. No El Dorado branches are expected to be consolidated as a result of the Agreement.
Under terms of the Agreement, El Dorado stockholders will receive 58.2209 shares of PacWest common stock and $427.92 in cash for each share of El Dorado, subject to adjustment in certain circumstances as set forth in the Agreement. Based on PacWest’s September 11, 2018 closing price of $50.04, the total value of the merger consideration is $3,341.29 per El Dorado share. The consideration mix would result in a total of approximately $59.8 million in cash and $406.9 million in PacWest shares.
STOCK REPURCHASE PROGRAM
During the third quarter of 2018, we repurchased 1,276,498 shares at an average price of $50.59 and a total cost of $64.6 million. At September 30, 2018, the remaining amount that could be used to repurchase shares under the $350 million Stock Repurchase Program was $110.1 million.
11
ABOUT PACWEST BANCORP
PacWest Bancorp (“PacWest”) is a bank holding company with over $24 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. Our Community Banking group provides lending and comprehensive deposit and treasury management services to small and medium-sized businesses conducted primarily through our California-based branch offices. We offer additional products and services through our National Lending and Venture Banking business groups. National Lending provides asset-based, equipment, real estate and security cash flow loans and treasury management services to established middle-market businesses on a national basis. Venture Banking offers a comprehensive suite of financial services focused on entrepreneurial businesses and their venture capital and private equity investors, with offices located in key innovative hubs across the United States. For more information about PacWest Bancorp, visit www.pacwestbancorp.com, or to learn more about Pacific Western Bank, visit www.pacificwesternbank.com.
FORWARD LOOKING STATEMENTS
This communication contains certain forward-looking information about PacWest, El Dorado, and the combined company after the close of the transaction that is intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts such as our future effective tax rate; the ability to complete the proposed El Dorado transaction, including obtaining required regulatory approvals and approval by the stockholders of El Dorado, or any future transaction, successfully integrate such acquired entities, or achieve expected beneficial synergies and/or operating efficiencies, in each case within expected time-frames or at all; and the possibility that personnel changes/retention will not proceed as planned. Such statements are based on information available at the time of this 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. Actual results may differ materially from those set forth in the forward-looking statements due to a variety of factors, including the risk factors described in documents filed by the Company with the 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.
12
ADDITIONAL INFORMATION ABOUT THE PROPOSED TRANSACTION AND WHERE TO FIND IT
Stockholders of El Dorado are urged to carefully review and consider each of PacWest’s public filings with the SEC, including but not limited to its Annual Reports on Form 10-K, its proxy statements, its Current Reports on Form 8-K and its Quarterly Reports on Form 10-Q. The documents filed by PacWest with the SEC may be obtained free of charge at PacWest’s website at www.pacwestbancorp.com or at the SEC’s website at www.sec.gov. These documents may also be obtained free of charge from PacWest by requesting them in writing to PacWest Bancorp, 9701 Wilshire Boulevard, Suite 700, Beverly Hills, CA 90212; Attention: Investor Relations, by submitting an email request to investor-relations@pacwestbancorp.com or by telephone at (310) 887-8521.
PacWest intends to file a registration statement with the SEC which will include a proxy statement of El Dorado and a prospectus of PacWest, and will file other documents regarding the proposed transaction with the SEC. Before making any voting or investment decision, stockholders of El Dorado are urged to carefully read the entire registration statement and proxy statement/prospectus, when they become available, as well as any amendments or supplements to these documents, because they will contain important information about the proposed transaction. A definitive proxy statement/prospectus will be sent to the stockholders of El Dorado seeking any required stockholder approvals. Stockholders of El Dorado will be able to obtain the registration statement and the proxy statement/prospectus free of charge from the SEC’s website or from PacWest by writing to the address provided in the paragraph above.
13
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
| | September 30, | | June 30, | | December 31, | |
| | 2018 | | 2018 | | 2017 | |
| | (Dollars in thousands, except per share data) | |
ASSETS: | | | | | | | |
Cash and due from banks | | $ | 196,502 | | $ | 245,998 | | $ | 233,215 | |
Interest-earning deposits in financial institutions | | 185,284 | | 205,567 | | 165,222 | |
Total cash and cash equivalents | | 381,786 | | 451,565 | | 398,437 | |
| | | | | | | |
Securities available-for-sale, at estimated fair value | | 3,820,333 | | 3,857,788 | | 3,774,431 | |
Federal Home Loan Bank stock, at cost | | 31,077 | | 26,271 | | 20,790 | |
Total investment securities | | 3,851,410 | | 3,884,059 | | 3,795,221 | |
| | | | | | | |
Loans held for sale | | — | | — | | 481,100 | |
| | | | | | | |
Gross loans and leases held for investment | | 17,295,589 | | 16,947,502 | | 17,032,221 | |
Deferred fees, net | | (65,443 | ) | (62,310 | ) | (59,478 | ) |
Total loans and leases held for investment, net of deferred fees | | 17,230,146 | | 16,885,192 | | 16,972,743 | |
Allowance for loan and lease losses | | (141,920 | ) | (132,139 | ) | (139,456 | ) |
Total loans and leases held for investment, net | | 17,088,226 | | 16,753,053 | | 16,833,287 | |
| | | | | | | |
Equipment leased to others under operating leases | | 275,707 | | 266,576 | | 284,631 | |
Premises and equipment, net | | 34,012 | | 34,513 | | 31,852 | |
Foreclosed assets, net | | 4,407 | | 2,231 | | 1,329 | |
Deferred tax asset, net | | 41,280 | | 25,551 | | — | |
Goodwill | | 2,548,670 | | 2,548,670 | | 2,548,670 | |
Core deposit and customer relationship intangibles, net | | 62,106 | | 67,693 | | 79,626 | |
Other assets | | 494,522 | | 495,646 | | 540,723 | |
Total assets | | $ | 24,782,126 | | $ | 24,529,557 | | $ | 24,994,876 | |
| | | | | | | |
LIABILITIES: | | | | | | | |
Noninterest-bearing deposits | | $ | 7,834,480 | | $ | 8,126,153 | | $ | 8,508,044 | |
Interest-bearing deposits | | 10,045,063 | | 9,803,039 | | 10,357,492 | |
Total deposits | | 17,879,543 | | 17,929,192 | | 18,865,536 | |
Borrowings | | 1,513,166 | | 1,187,226 | | 467,342 | |
Subordinated debentures | | 452,944 | | 451,878 | | 462,437 | |
Accrued interest payable and other liabilities | | 194,788 | | 183,302 | | 221,963 | |
Total liabilities | | 20,040,441 | | 19,751,598 | | 20,017,278 | |
STOCKHOLDERS’ EQUITY (1) | | 4,741,685 | | 4,777,959 | | 4,977,598 | |
Total liabilities and stockholders’ equity | | $ | 24,782,126 | | $ | 24,529,557 | | $ | 24,994,876 | |
| | | | | | | |
Book value per share | | $ | 38.46 | | $ | 38.36 | | $ | 38.65 | |
Tangible book value per share (2) | | $ | 17.28 | | $ | 17.35 | | $ | 18.24 | |
Shares outstanding | | 123,283,450 | | 124,567,950 | | 128,782,878 | |
(1) Includes net unrealized (loss) gain on securities available-for-sale, net | | $ | (43,854 | ) | $ | (22,340 | ) | $ | 31,171 | |
(2) Non-GAAP measure. | | | | | | | |
14
PACWEST BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | June 30, | | September 30, | | September 30, | |
| | 2018 | | 2018 | | 2017 | | 2018 | | 2017 | |
| | (Dollars in thousands, except per share data) | | | | | |
Interest income: | | | | | | | | | | | |
Loans and leases | | $ | 264,062 | | $ | 260,300 | | $ | 235,666 | | $ | 775,447 | | $ | 694,462 | |
Investment securities | | 28,061 | | 27,730 | | 24,762 | | 81,929 | | 72,490 | |
Deposits in financial institutions | | 519 | | 484 | | 538 | | 1,555 | | 967 | |
Total interest income | | 292,642 | | 288,514 | | 260,966 | | 858,931 | | 767,919 | |
| | | | | | | | | | | |
Interest expense: | | | | | | | | | | | |
Deposits | | 21,121 | | 16,367 | | 13,071 | | 51,306 | | 31,653 | |
Borrowings | | 3,814 | | 2,649 | | 188 | | 7,383 | | 2,272 | |
Subordinated debentures | | 7,390 | | 7,166 | | 6,017 | | 21,093 | | 17,379 | |
Total interest expense | | 32,325 | | 26,182 | | 19,276 | | 79,782 | | 51,304 | |
| | | | | | | | | | | |
Net interest income | | 260,317 | | 262,332 | | 241,690 | | 779,149 | | 716,615 | |
Provision for credit losses | | 11,500 | | 17,500 | | 15,119 | | 33,000 | | 51,346 | |
Net interest income after provision for credit losses | | 248,817 | | 244,832 | | 226,571 | | 746,149 | | 665,269 | |
| | | | | | | | | | | |
Noninterest income: | | | | | | | | | | | |
Service charges on deposit accounts | | 3,979 | | 4,265 | | 3,465 | | 12,418 | | 10,733 | |
Other commissions and fees | | 12,397 | | 11,767 | | 9,944 | | 34,429 | | 30,917 | |
Leased equipment income | | 9,120 | | 9,790 | | 8,332 | | 28,497 | | 29,442 | |
Gain on sale of loans and leases | | — | | 106 | | 2,848 | | 4,675 | | 4,209 | |
Gain on sale of securities | | 826 | | 253 | | 1,236 | | 7,390 | | 2,788 | |
Other income | | 10,590 | | 13,457 | | 5,557 | | 27,700 | | 23,689 | |
Total noninterest income | | 36,912 | | 39,638 | | 36,939 | | 115,109 | | 101,778 | |
| | | | | | | | | | | |
Noninterest expense: | | | | | | | | | | | |
Compensation | | 72,333 | | 69,913 | | 64,413 | | 213,269 | | 194,581 | |
Occupancy | | 13,069 | | 13,575 | | 12,729 | | 39,867 | | 36,148 | |
Data processing | | 6,740 | | 6,896 | | 6,459 | | 20,295 | | 19,811 | |
Other professional services | | 6,058 | | 5,257 | | 4,213 | | 15,754 | | 11,567 | |
Insurance and assessments | | 5,446 | | 5,330 | | 4,702 | | 16,503 | | 14,349 | |
Intangible asset amortization | | 5,587 | | 5,587 | | 3,049 | | 17,520 | | 9,178 | |
Leased equipment depreciation | | 5,001 | | 5,237 | | 4,862 | | 15,613 | | 15,719 | |
Foreclosed assets (income) expense, net | | (257 | ) | (61 | ) | 2,191 | | (440 | ) | 2,177 | |
Acquisition, integration and reorganization costs | | 800 | | — | | 1,450 | | 800 | | 3,650 | |
Loan expense | | 2,249 | | 3,058 | | 3,421 | | 7,578 | | 10,692 | |
Other expense | | 11,127 | | 11,657 | | 11,053 | | 35,238 | | 34,921 | |
Total noninterest expense | | 128,153 | | 126,449 | | 118,542 | | 381,997 | | 352,793 | |
| | | | | | | | | | | |
Earnings before income taxes | | 157,576 | | 158,021 | | 144,968 | | 479,261 | | 414,254 | |
Income tax expense | | (41,289 | ) | (42,286 | ) | (37,945 | ) | (128,963 | ) | (140,473 | ) |
Net earnings | | $ | 116,287 | | $ | 115,735 | | $ | 107,023 | | $ | 350,298 | | $ | 273,781 | |
| | | | | | | | | | | |
Basic and diluted earnings per share | | $ | 0.94 | | $ | 0.92 | | $ | 0.84 | | $ | 2.79 | | $ | 2.26 | |
15
PACWEST BANCORP AND SUBSIDIARIES
NET EARNINGS PER SHARE CALCULATIONS
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | June 30, | | September 30, | | September 30, | |
| | 2018 | | 2018 | | 2017 | | 2018 | | 2017 | |
| | (In thousands, except per share data) | |
Basic Earnings Per Share: | | | | | | | | | | | |
Net earnings | | $ | 116,287 | | $ | 115,735 | | $ | 101,466 | | $ | 350,298 | | $ | 273,781 | |
Less: earnings allocated to unvested restricted stock (1) | | (1,428 | ) | (1,348 | ) | (1,149 | ) | (3,899 | ) | (3,239 | ) |
Net earnings allocated to common shares | | $ | 114,859 | | $ | 114,387 | | $ | 100,317 | | $ | 346,399 | | $ | 270,542 | |
| | | | | | | | | | | |
Weighted-average basic shares and unvested restricted stock outstanding | | 123,657 | | 126,082 | | 121,447 | | 125,728 | | 121,405 | |
Less: weighted-average unvested restricted stock outstanding | | (1,537 | ) | (1,466 | ) | (1,394 | ) | (1,473 | ) | (1,450 | ) |
Weighted-average basic shares outstanding | | 122,120 | | 124,616 | | 120,053 | | 124,255 | | 119,955 | |
| | | | | | | | | | | |
Basic earnings per share | | $ | 0.94 | | $ | 0.92 | | $ | 0.84 | | $ | 2.79 | | $ | 2.26 | |
| | | | | | | | | | | |
Diluted Earnings Per Share: | | | | | | | | | | | |
Net earnings allocated to common shares | | $ | 114,859 | | $ | 114,387 | | $ | 100,317 | | $ | 346,399 | | $ | 270,542 | |
| | | | | | | | | | | |
Weighted-average basic shares outstanding | | 122,120 | | 124,616 | | 120,053 | | 124,255 | | 119,955 | |
| | | | | | | | | | | |
Diluted earnings per share | | $ | 0.94 | | $ | 0.92 | | $ | 0.84 | | $ | 2.79 | | $ | 2.26 | |
(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.
16
PACWEST BANCORP AND SUBSIDIARIES
AVERAGE BALANCE SHEET AND YIELD ANALYSIS
| | Three Months Ended | |
| | September 30, 2018 | | June 30, 2018 | | September 30, 2017 | |
| | | | 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) | | $ | 16,913,792 | | $ | 264,371 | | 6.20 | % | $ | 16,576,361 | | $ | 260,529 | | 6.30 | % | $ | 15,575,030 | | $ | 235,818 | | 6.01 | % |
Investment securities (3) | | 3,844,201 | | 29,711 | | 3.07 | % | 3,803,590 | | 29,967 | | 3.16 | % | 3,510,956 | | 29,495 | | 3.33 | % |
Deposits in financial institutions | | 108,485 | | 519 | | 1.90 | % | 112,170 | | 484 | | 1.73 | % | 171,455 | | 538 | | 1.24 | % |
Total interest-earning assets (4) | | 20,866,478 | | 294,601 | | 5.60 | % | 20,492,121 | | 290,980 | | 5.70 | % | 19,257,441 | | 265,851 | | 5.48 | % |
Other assets | | 3,491,293 | | | | | | 3,507,516 | | | | | | 2,880,433 | | | | | |
Total assets | | $ | 24,357,771 | | | | | | $ | 23,999,637 | | | | | | $ | 22,137,874 | | | | | |
| | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders’ Equity: | | | | | | | | | | | | | | | | | | | |
Interest checking | | $ | 2,433,837 | | 5,135 | | 0.84 | % | $ | 2,243,767 | | 3,932 | | 0.70 | % | $ | 2,146,125 | | 2,960 | | 0.55 | % |
Money market | | 5,270,297 | | 10,689 | | 0.80 | % | 5,013,119 | | 8,072 | | 0.65 | % | 4,914,803 | | 6,307 | | 0.51 | % |
Savings | | 629,241 | | 233 | | 0.15 | % | 656,310 | | 245 | | 0.15 | % | 707,367 | | 289 | | 0.16 | % |
Time | | 1,778,552 | | 5,064 | | 1.13 | % | 1,790,415 | | 4,118 | | 0.92 | % | 2,256,259 | | 3,515 | | 0.62 | % |
Total interest-bearing deposits | | 10,111,927 | | 21,121 | | 0.83 | % | 9,703,611 | | 16,367 | | 0.68 | % | 10,024,554 | | 13,071 | | 0.52 | % |
Borrowings | | 720,449 | | 3,814 | | 2.10 | % | 549,665 | | 2,649 | | 1.93 | % | 61,071 | | 188 | | 1.22 | % |
Subordinated debentures | | 452,312 | | 7,390 | | 6.48 | % | 451,973 | | 7,166 | | 6.36 | % | 447,012 | | 6,017 | | 5.34 | % |
Total interest-bearing liabilities | | 11,284,688 | | 32,325 | | 1.14 | % | 10,705,249 | | 26,182 | | 0.98 | % | 10,532,637 | | 19,276 | | 0.73 | % |
Noninterest-bearing demand deposits | | 8,120,306 | | | | | | 8,253,413 | | | | | | 6,858,816 | | | | | |
Other liabilities | | 203,958 | | | | | | 208,495 | | | | | | 153,932 | | | | | |
Total liabilities | | 19,608,952 | | | | | | 19,167,157 | | | | | | 17,545,385 | | | | | |
Stockholders’ equity | | 4,748,819 | | | | | | 4,832,480 | | | | | | 4,592,489 | | | | | |
Total liabilities and stockholders’ equity | | $ | 24,357,771 | | | | | | $ | 23,999,637 | | | | | | $ | 22,137,874 | | | | | |
Net interest income (4) | | | | $ | 262,276 | | | | | | $ | 264,798 | | | | | | $ | 246,575 | | | |
Net interest spread (4) | | | | | | 4.46 | % | | | | | 4.72 | % | | | | | 4.75 | % |
Net interest margin (4) | | | | | | 4.99 | % | | | | | 5.18 | % | | | | | 5.08 | % |
| | | | | | | | | | | | | | | | | | | |
Total deposits (5) | | $ | 18,232,233 | | $ | 21,121 | | 0.46 | % | $ | 17,957,024 | | $ | 16,367 | | 0.37 | % | $ | 16,883,370 | | $ | 13,071 | | 0.31 | % |
Funding sources (6) | | $ | 19,404,994 | | $ | 32,325 | | 0.66 | % | $ | 18,958,662 | | $ | 26,182 | | 0.55 | % | $ | 17,391,453 | | $ | 19,276 | | 0.44 | % |
(1) Starting with the third quarter of 2017, includes tax-equivalent adjustments related to tax-exempt interest on loans.
(2) Includes discount accretion on acquired loans of $6.1 million, $8.7 million, and $5.5 million for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017, respectively.
(3) Includes tax-equivalent adjustments of $1.5 million, $2.1 million, and $4.7 million for the three months ended September 30, 2018, June 30, 2018, and September 30, 2017 related to tax-exempt income on municipal securities. The federal statutory tax-rate utilized was 21% for the 2018 periods and 35% for the 2017 period.
(4) Tax equivalent.
(5) 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.
(6) 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.
17
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER BALANCE SHEET
| | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | |
| | 2018 | | 2018 | | 2018 | | 2017 | | 2017 | |
| | (Dollars in thousands, except per share data) | |
ASSETS: | | | | | | | | | | | |
Cash and due from banks | | $ | 196,502 | | $ | 245,998 | | $ | 235,061 | | $ | 233,215 | | $ | 147,579 | |
Interest-earning deposits in financial institutions | | 185,284 | | 205,567 | | 312,735 | | 165,222 | | 122,439 | |
Total cash and cash equivalents | | 381,786 | | 451,565 | | 547,796 | | 398,437 | | 270,018 | |
| | | | | | | | | | | |
Securities available-for-sale | | 3,820,333 | | 3,857,788 | | 3,801,986 | | 3,774,431 | | 3,532,230 | |
Federal Home Loan Bank stock | | 31,077 | | 26,271 | | 17,250 | | 20,790 | | 17,250 | |
Total investment securities | | 3,851,410 | | 3,884,059 | | 3,819,236 | | 3,795,221 | | 3,549,480 | |
| | | | | | | | | | | |
Loans held for sale | | — | | — | | — | | 481,100 | | — | |
| | | | | | | | | | | |
Gross loans and leases held for investment | | 17,295,589 | | 16,947,502 | | 16,516,627 | | 17,032,221 | | 15,756,285 | |
Deferred fees, net | | (65,443 | ) | (62,310 | ) | (61,342 | ) | (59,478 | ) | (65,768 | ) |
Total loans and leases held for investment, net of deferred fees | | 17,230,146 | | 16,885,192 | | 16,455,285 | | 16,972,743 | | 15,690,517 | |
Allowance for loan and lease losses | | (141,920 | ) | (132,139 | ) | (134,275 | ) | (139,456 | ) | (159,606 | ) |
Total loans and leases held for investment, net | | 17,088,226 | | 16,753,053 | | 16,321,010 | | 16,833,287 | | 15,530,911 | |
| | | | | | | | | | | |
Equipment leased to others under operating leases | | 275,707 | | 266,576 | | 280,648 | | 284,631 | | 233,866 | |
Premises and equipment, net | | 34,012 | | 34,513 | | 33,686 | | 31,852 | | 28,910 | |
Foreclosed assets, net | | 4,407 | | 2,231 | | 1,236 | | 1,329 | | 11,630 | |
Deferred tax asset, net | | 41,280 | | 25,551 | | 12,584 | | — | | 65,321 | |
Goodwill | | 2,548,670 | | 2,548,670 | | 2,548,670 | | 2,548,670 | | 2,173,949 | |
Core deposit and customer relationship intangibles, net | | 62,106 | | 67,693 | | 73,280 | | 79,626 | | 27,188 | |
Other assets | | 494,522 | | 495,646 | | 511,184 | | 540,723 | | 351,659 | |
Total assets | | $ | 24,782,126 | | $ | 24,529,557 | | $ | 24,149,330 | | $ | 24,994,876 | | $ | 22,242,932 | |
| | | | | | | | | | | |
LIABILITIES: | | | | | | | | | | | |
Noninterest-bearing deposits | | $ | 7,834,480 | | $ | 8,126,153 | | $ | 8,232,140 | | $ | 8,508,044 | | $ | 6,911,874 | |
Interest-bearing deposits | | 10,045,063 | | 9,803,039 | | 9,846,648 | | 10,357,492 | | 9,861,371 | |
Total deposits | | 17,879,543 | | 17,929,192 | | 18,078,788 | | 18,865,536 | | 16,773,245 | |
Borrowings | | 1,513,166 | | 1,187,226 | | 575,284 | | 467,342 | | 250,399 | |
Subordinated debentures | | 452,944 | | 451,878 | | 452,223 | | 462,437 | | 448,126 | |
Accrued interest payable and other liabilities | | 194,788 | | 183,302 | | 175,545 | | 221,963 | | 160,494 | |
Total liabilities | | 20,040,441 | | 19,751,598 | | 19,281,840 | | 20,017,278 | | 17,632,264 | |
STOCKHOLDERS’ EQUITY (1) | | 4,741,685 | | 4,777,959 | | 4,867,490 | | 4,977,598 | | 4,610,668 | |
Total liabilities and stockholders’ equity | | $ | 24,782,126 | | $ | 24,529,557 | | $ | 24,149,330 | | $ | 24,994,876 | | $ | 22,242,932 | |
| | | | | | | | | | | |
Book value per share | | $ | 38.46 | | $ | 38.36 | | $ | 38.47 | | $ | 38.65 | | $ | 37.96 | |
Tangible book value per share (2) | | $ | 17.28 | | $ | 17.35 | | $ | 17.75 | | $ | 18.24 | | $ | 19.84 | |
Shares outstanding | | 123,283,450 | | 124,567,950 | | 126,537,871 | | 128,782,878 | | 121,449,794 | |
(1) Includes net unrealized (loss) gain on securities available-for-sale, net | | $ | (43,854 | ) | $ | (22,340 | ) | $ | (11,936 | ) | $ | 31,171 | | $ | 33,613 | |
(2) Non-GAAP measure. | | | | | | | | | | | |
18
PACWEST BANCORP AND SUBSIDIARIES
FIVE QUARTER STATEMENT OF EARNINGS
| | Three Months Ended | |
| | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | |
| | 2018 | | 2018 | | 2018 | | 2017 | | 2017 | |
| | (Dollars in thousands, except per share data) | |
Interest income: | | | | | | | | | | | |
Loans and leases | | $ | 264,062 | | $ | 260,300 | | $ | 251,085 | | $ | 258,309 | | $ | 235,666 | |
Investment securities | | 28,061 | | 27,730 | | 26,138 | | 25,712 | | 24,762 | |
Deposits in financial institutions | | 519 | | 484 | | 552 | | 576 | | 538 | |
Total interest income | | 292,642 | | 288,514 | | 277,775 | | 284,597 | | 260,966 | |
| | | | | | | | | | | |
Interest expense: | | | | | | | | | | | |
Deposits | | 21,121 | | 16,367 | | 13,818 | | 14,041 | | 13,071 | |
Borrowings | | 3,814 | | 2,649 | | 920 | | 1,366 | | 188 | |
Subordinated debentures | | 7,390 | | 7,166 | | 6,537 | | 6,234 | | 6,017 | |
Total interest expense | | 32,325 | | 26,182 | | 21,275 | | 21,641 | | 19,276 | |
| | | | | | | | | | | |
Net interest income | | 260,317 | | 262,332 | | 256,500 | | 262,956 | | 241,690 | |
Provision for credit losses | | 11,500 | | 17,500 | | 4,000 | | 6,406 | | 15,119 | |
Net interest income after provision for credit losses | | 248,817 | | 244,832 | | 252,500 | | 256,550 | | 226,571 | |
| | | | | | | | | | | |
Noninterest income: | | | | | | | | | | | |
Service charges on deposit accounts | | 3,979 | | 4,265 | | 4,174 | | 4,574 | | 3,465 | |
Other commissions and fees | | 12,397 | | 11,767 | | 10,265 | | 10,505 | | 9,944 | |
Leased equipment income | | 9,120 | | 9,790 | | 9,587 | | 8,258 | | 8,332 | |
Gain on sale of loans and leases | | — | | 106 | | 4,569 | | 1,988 | | 2,848 | |
Gain (loss) on sale of securities | | 826 | | 253 | | 6,311 | | (3,329 | ) | 1,236 | |
Other income | | 10,590 | | 13,457 | | 3,653 | | 4,799 | | 5,557 | |
Total noninterest income | | 36,912 | | 39,638 | | 38,559 | | 26,795 | | 31,382 | |
| | | | | | | | | | | |
Noninterest expense: | | | | | | | | | | | |
Compensation | | 72,333 | | 69,913 | | 71,023 | | 71,986 | | 64,413 | |
Occupancy | | 13,069 | | 13,575 | | 13,223 | | 12,715 | | 12,729 | |
Data processing | | 6,740 | | 6,896 | | 6,659 | | 6,764 | | 6,459 | |
Other professional services | | 6,058 | | 5,257 | | 4,439 | | 5,786 | | 4,213 | |
Insurance and assessments | | 5,446 | | 5,330 | | 5,727 | | 5,384 | | 4,702 | |
Intangible asset amortization | | 5,587 | | 5,587 | | 6,346 | | 5,062 | | 3,049 | |
Leased equipment depreciation | | 5,001 | | 5,237 | | 5,375 | | 5,048 | | 4,862 | |
Foreclosed assets (income) expense, net | | (257 | ) | (61 | ) | (122 | ) | (475 | ) | 2,191 | |
Acquisition, integration and reorganization costs | | 800 | | — | | — | | 16,085 | | 1,450 | |
Loan expense | | 2,249 | | 3,058 | | 2,271 | | 3,140 | | 3,421 | |
Other expense | | 11,127 | | 11,657 | | 12,454 | | 11,373 | | 11,053 | |
Total noninterest expense | | 128,153 | | 126,449 | | 127,395 | | 142,868 | | 118,542 | |
| | | | | | | | | | | |
Earnings before income taxes | | 157,576 | | 158,021 | | 163,664 | | 140,477 | | 139,411 | |
Income tax expense | | (41,289 | ) | (42,286 | ) | (45,388 | ) | (56,440 | ) | (37,945 | ) |
Net earnings | | $ | 116,287 | | $ | 115,735 | | $ | 118,276 | | $ | 84,037 | | $ | 101,466 | |
| | | | | | | | | | | |
Basic and diluted earnings per share | | $ | 0.94 | | $ | 0.92 | | $ | 0.93 | | $ | 0.66 | | $ | 0.84 | |
19
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, | |
| | 2018 | | 2018 | | 2018 | | 2017 | | 2017 | |
| | (Dollars in thousands) | |
Performance Ratios: | | | | | | | | | | | |
Return on average assets (1) | | 1.89 | % | 1.93 | % | 1.99 | % | 1.34 | % | 1.82 | % |
Return on average equity (1) | | 9.72 | % | 9.61 | % | 9.79 | % | 6.78 | % | 8.77 | % |
Return on average tangible equity (1)(2) | | 21.61 | % | 20.98 | % | 21.08 | % | 13.75 | % | 16.85 | % |
| | | | | | | | | | | |
Yield on average loans and leases (1)(3) | | 6.20 | % | 6.30 | % | 6.11 | % | 5.89 | % | 6.01 | % |
Yield on average interest-earning assets (1)(4) | | 5.60 | % | 5.70 | % | 5.53 | % | 5.37 | % | 5.48 | % |
Cost of average total deposits (1) | | 0.46 | % | 0.37 | % | 0.31 | % | 0.30 | % | 0.31 | % |
Cost of average time deposits (1) | | 1.13 | % | 0.92 | % | 0.78 | % | 0.68 | % | 0.62 | % |
Cost of average interest-bearing liabilities (1) | | 1.14 | % | 0.98 | % | 0.81 | % | 0.75 | % | 0.73 | % |
Cost of average funding sources (1) | | 0.66 | % | 0.55 | % | 0.45 | % | 0.44 | % | 0.44 | % |
Net interest spread (1)(4) | | 4.46 | % | 4.72 | % | 4.72 | % | 4.62 | % | 4.75 | % |
Net interest margin (1)(4) | | 4.99 | % | 5.18 | % | 5.11 | % | 4.97 | % | 5.08 | % |
| | | | | | | | | | | |
Efficiency ratio | | 40.9 | % | 39.8 | % | 41.7 | % | 41.0 | % | 39.6 | % |
Noninterest expense as a percentage of average assets (1) | | 2.09 | % | 2.11 | % | 2.15 | % | 2.29 | % | 2.12 | % |
| | | | | | | | | | | |
Average Balances: | | | | | | | | | | | |
Loans and leases, net of deferred fees | | $ | 16,913,792 | | $ | 16,576,361 | | $ | 16,682,124 | | $ | 17,426,873 | | $ | 15,575,030 | |
Interest-earning assets | | 20,866,478 | | 20,492,121 | | 20,514,936 | | 21,414,180 | | 19,257,441 | |
Total assets | | 24,357,771 | | 23,999,637 | | 24,071,148 | | 24,789,836 | | 22,137,874 | |
Noninterest-bearing deposits | | 8,120,306 | | 8,253,413 | | 8,311,104 | | 8,190,134 | | 6,858,816 | |
Interest-bearing deposits | | 10,111,927 | | 9,703,611 | | 9,959,243 | | 10,578,568 | | 10,024,554 | |
Total deposits | | 18,232,233 | | 17,957,024 | | 18,270,347 | | 18,768,702 | | 16,883,370 | |
Borrowings and subordinated debentures | | 1,172,761 | | 1,001,638 | | 700,941 | | 903,375 | | 508,083 | |
Interest-bearing liabilities | | 11,284,688 | | 10,705,249 | | 10,660,184 | | 11,481,943 | | 10,532,637 | |
Funding sources | | 19,404,994 | | 18,958,662 | | 18,971,288 | | 19,672,077 | | 17,391,453 | |
Stockholders’ equity | | 4,748,819 | | 4,832,480 | | 4,901,207 | | 4,920,498 | | 4,592,489 | |
| | | | | | | | | | | | | | | | |
(1) Annualized.
(2) Non-GAAP measure.
(3) Tax equivalent starting with the third quarter of 2017.
(4) Tax equivalent.
20
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, | |
| | 2018 | | 2018 | | 2018 | | 2017 | | 2017 | |
| | (Dollars in thousands) | |
Credit Quality Ratios (1): | | | | | | | | | | | |
Nonaccrual loans and leases held for investment to loans and leases held for investment | | 0.66 | % | 0.67 | % | 0.63 | % | 0.92 | % | 1.01 | % |
Nonperforming assets to loans and leases held for investment and foreclosed assets | | 0.68 | % | 0.69 | % | 0.64 | % | 0.93 | % | 1.08 | % |
Classified loans and leases held for investment to loans and leases held for investment | | 1.51 | % | 1.40 | % | 1.26 | % | 1.65 | % | 2.21 | % |
Trailing 12 months net charge-offs to average loans and leases held for investment | | 0.28 | % | 0.28 | % | 0.31 | % | 0.40 | % | 0.35 | % |
Allowance for credit losses to loans and leases held for investment | | 1.03 | % | 0.99 | % | 1.02 | % | 0.96 | % | 1.11 | % |
Allowance for credit losses to nonaccrual loans and leases held for investment | | 156.9 | % | 147.3 | % | 161.1 | % | 103.8 | % | 110.1 | % |
| | | | | | | | | | | |
PacWest Bancorp Consolidated Capital: | | | | | | | | | | | |
Tier 1 leverage ratio (2) | | 10.10 | % | 10.33 | % | 10.66 | % | 10.66 | % | 12.02 | % |
Common equity tier 1 capital ratio (2) | | 10.17 | % | 10.59 | % | 11.16 | % | 10.91 | % | 12.52 | % |
Tier 1 capital ratio (2) | | 10.17 | % | 10.59 | % | 11.16 | % | 10.91 | % | 12.52 | % |
Total capital ratio (2) | | 13.02 | % | 13.48 | % | 14.11 | % | 13.75 | % | 15.74 | % |
Risk-weighted assets (2) | | $ | 21,669,323 | | $ | 20,929,325 | | $ | 20,523,487 | | $ | 21,657,591 | | $ | 19,086,798 | |
| | | | | | | | | | | |
Equity to assets ratio | | 19.13 | % | 19.48 | % | 20.16 | % | 19.91 | % | 20.73 | % |
Tangible common equity ratio (3) | | 9.61 | % | 9.86 | % | 10.43 | % | 10.50 | % | 12.02 | % |
Book value per share | | $ | 38.46 | | $ | 38.36 | | $ | 38.47 | | $ | 38.65 | | $ | 37.96 | |
Tangible book value per share (3) | | $ | 17.28 | | $ | 17.35 | | $ | 17.75 | | $ | 18.24 | | $ | 19.84 | |
| | | | | | | | | | | |
Pacific Western Bank Capital: | | | | | | | | | | | |
Tier 1 leverage ratio (2) | | 10.78 | % | 11.11 | % | 11.33 | % | 11.75 | % | 11.46 | % |
Common equity tier 1 capital ratio (2) | | 10.86 | % | 11.40 | % | 11.86 | % | 11.91 | % | 11.95 | % |
Tier 1 capital ratio (2) | | 10.86 | % | 11.40 | % | 11.86 | % | 11.91 | % | 11.95 | % |
Total capital ratio (2) | | 11.68 | % | 12.21 | % | 12.67 | % | 12.69 | % | 12.89 | % |
(1) Ratios related to 2018 periods are for total loans and leases. Ratios related to 2017 periods are for Non-PCI loans and leases.
(2) Capital information for September 30, 2018 is preliminary.
(3) Non-GAAP measure.
21
GAAP TO NON-GAAP RECONCILIATIONS
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 tables below present the reconciliations of these GAAP financial measures to the related non-GAAP financial measures:
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | June 30, | | September 30, | | September 30, | |
Return on Average Tangible Equity | | 2018 | | 2018 | | 2017 | | 2018 | | 2017 | |
| | (Dollars in thousands) | |
Net earnings | | $ | 116,287 | | $ | 115,735 | | $ | 101,466 | | $ | 350,298 | | $ | 273,781 | |
| | | | | | | | | | | |
Average stockholders’ equity | | $ | 4,748,819 | | $ | 4,832,480 | | $ | 4,592,489 | | $ | 4,826,944 | | $ | 4,547,472 | |
Less: Average intangible assets | | 2,614,055 | | 2,619,351 | | 2,202,922 | | 2,619,624 | | 2,205,927 | |
Average tangible common equity | | $ | 2,134,764 | | $ | 2,213,129 | | $ | 2,389,567 | | $ | 2,207,320 | | $ | 2,341,545 | |
| | | | | | | | | | | |
Return on average equity (1) | | 9.72 | % | 9.61 | % | 8.77 | % | 9.70 | % | 8.05 | % |
Return on average tangible equity (2) | | 21.61 | % | 20.98 | % | 16.85 | % | 21.22 | % | 15.63 | % |
(1) Annualized net earnings divided by average stockholders’ equity.
(2) Annualized net earnings divided by average tangible common equity.
Tangible Common Equity Ratio/ | | September 30, | | June 30, | | March 31, | | December 31, | | September 30, | |
Tangible Book Value Per Share | | 2018 | | 2018 | | 2018 | | 2017 | | 2017 | |
| | (Dollars in thousands, except per share data) | |
Stockholders’ equity | | $ | 4,741,685 | | $ | 4,777,959 | | $ | 4,867,490 | | $ | 4,977,598 | | $ | 4,610,668 | |
Less: Intangible assets | | 2,610,776 | | 2,616,363 | | 2,621,950 | | 2,628,296 | | 2,201,137 | |
Tangible common equity | | $ | 2,130,909 | | $ | 2,161,596 | | $ | 2,245,540 | | $ | 2,349,302 | | $ | 2,409,531 | |
| | | | | | | | | | | |
Total assets | | $ | 24,782,126 | | $ | 24,529,557 | | $ | 24,149,330 | | $ | 24,994,876 | | $ | 22,242,932 | |
Less: Intangible assets | | 2,610,776 | | 2,616,363 | | 2,621,950 | | 2,628,296 | | 2,201,137 | |
Tangible assets | | $ | 22,171,350 | | $ | 21,913,194 | | $ | 21,527,380 | | $ | 22,366,580 | | $ | 20,041,795 | |
| | | | | | | | | | | |
Equity to assets ratio | | 19.13 | % | 19.48 | % | 20.16 | % | 19.91 | % | 20.73 | % |
Tangible common equity ratio (1) | | 9.61 | % | 9.86 | % | 10.43 | % | 10.50 | % | 12.02 | % |
| | | | | | | | | | | |
Book value per share | | $ | 38.46 | | $ | 38.36 | | $ | 38.47 | | $ | 38.65 | | $ | 37.96 | |
Tangible book value per share (2) | | $ | 17.28 | | $ | 17.35 | | $ | 17.75 | | $ | 18.24 | | $ | 19.84 | |
Shares outstanding | | 123,283,450 | | 124,567,950 | | 126,537,871 | | 128,782,878 | | 121,449,794 | |
(1) Tangible common equity divided by tangible assets.
(2) Tangible common equity divided by shares outstanding.
22
